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Citizens Financial (CFG) Q2 Earnings Beat, Revenues Rise on NII

·5 min read

Citizens Financial Group CFG has reported second-quarter 2022 underlying earnings per share of $1.14, surpassing the Zacks Consensus Estimate of $1.02. However, the bottom line fell 22% from the year-ago quarter figure.

Results reflect net interest income (NII) growth on the rise in loan balances. Further, strong balance sheet growth, backed by an improving economy, was a tailwind. The company closed the Investors Bancorp acquisition on Apr 6, 2022. However, a rise in expenses was a spoilsport.

Management noted, “We have navigated well through a period marked by higher than expected inflation, and the Fed’s aggressiveness in raising short-term rates and tightening liquidity. Our capital, liquidity and funding position remains strong - we are funding attractive loan growth and have raised our dividend. Our fee businesses are proving to be diversified and resilient, and our credit metrics all remain very favorable. We look forward to continuing our momentum in the second half.”

Net income was $364 million compared with $648 million in the prior-year quarter.

Revenues Rise on NII, Costs Flare Up

Total revenues for the second quarter were $1.99 billion, missing the consensus estimate of $2 billion. Also, the top line was up 24% year over year.

Citizens Financial’s NII rose 34% year over year to $1.50 billion, backed by 19% growth in interest-earning assets and a higher net interest margin. The net interest margin increased 32 basis points to 3.04% as the impact of higher yields on earning assets and cash deployment for loan growth.

The non-interest income increased 2% year over year to $494 million. A rise in all components, except for capital market fees, and mortgage banking fees and lower securities gains, led to the increase.

Non-interest expenses shot up 32% year over year to $1.30 billion. This reflected higher salaries and employee benefits, as well as increased expenses incurred for outside services.

The efficiency ratio of 65% in the second quarter increased from 62% in the year-ago quarter.A higher efficiency ratio indicates lower profitability.

As of Jun 30, 2022, period-end total loan and lease balances rose 19% sequentially to $156.2 billion. Also, total deposits improved 13% to $178.9 billion.

Credit Quality Mixed

CFG’s provision for credit losses was $216 million against $213 million of provision benefit witnessed in the year-ago quarter. As of Jun 30, 2022, the allowance for credit losses increased 3% to $2.14 billion.

Nonetheless, net charge-offs for the quarter reduced 37% to $49 million. Non-accrual loans and leases were down 8% to $839 million.

Capital Position Deteriorates

As of Jun 30, 2022, the tier-1 leverage ratio was 9.3%, down from 9.7% in the prior-year quarter.

The common equity tier-1 capital ratio was 9.6% compared with 10.3% at the end of the prior-year quarter. Further, the total capital ratio was 12.3%, down from 13.5% in the prior-year quarter.

Capital Deployment Update

On Jul 19, Citizens Financial announced a quarterly cash dividend of 42 cents per share, indicating an 8% sequential increase. The dividend will be paid out on Aug 16 to shareholders of record as of Aug 2, 2022.

Following the clearance of the stress test 2022, the company increased the authorization of common share repurchases to $1 billion from $750 million. This marks an increase of $545 million in addition to the $455 million worth of remaining capacity under the prior $750-million January 2021 authorization.

Our Viewpoint

Citizens Financial’s results highlight a decent quarter supported the rise in interest rates. Going forward, inorganic growth moves should drive its momentum.

In mid-July, the company announced a definitive agreement to acquire select assets and liabilities of Paladin Advisors, an independent, registered investment advisor headquartered in Kensington, NH. The buyout strengthens Citizens Financial’s presence in a key market and enhances investment capabilities of the company’s private wealth management team.

However, escalating expenses and a decline in mortgage banking income are worrisome.

Citizens Financial Group, Inc. Price, Consensus and EPS Surprise


Citizens Financial Group, Inc. Price, Consensus and EPS Surprise
Citizens Financial Group, Inc. Price, Consensus and EPS Surprise

Citizens Financial Group, Inc. price-consensus-eps-surprise-chart | Citizens Financial Group, Inc. Quote

Currently, Citizens Financial carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

Citigroup Inc.’s C second-quarter 2022 income from continuing operations per share of $2.30 have handily outpaced the Zacks Consensus Estimate of $1.67. However, the reported figure declined 19% from the prior-year quarter.

Citigroup witnessed growth in NII and non-interest revenues. However, declines in investment banking revenues, loans and deposits were spoilsports.

Bank of America’s BAC second-quarter 2022 earnings of 73 cents per share have lagged the Zacks Consensus Estimate of 77 cents. The bottom line compared unfavorably with $1.03 per share earned in the prior-year quarter.

As expected, Bank of America’s investment banking (“IB”) business did not perform well. IB fees of $1.1 billion plunged 47% year over year in the quarter, reflecting the weaker industry-wide performance of the underwriting business. Advisory fees declined 3.7% to $392 million.

Higher reserve build and a decline in investment banking fees affected JPMorgan’s JPM second-quarter 2022 earnings of $2.76 per share, which missed the Zacks Consensus Estimate of $2.85. The reported quarter’s results included a net credit reserve build of $428 million.

Higher interest rates and a solid rise in loan balances aided JPM’s net interest income. Operating expenses recorded a year-over-year rise.

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