Citizens Financial Group ( CFG Quick Quote CFG - Free Report) has reported second-quarter 2021 adjusted earnings per share of $1.46, surpassing the Zacks Consensus Estimate of $1.14. Also, the bottom line compares favorably with the year-ago quarter’s 53 cents.
Significant fall in provisions and marginal rise in loan balance were positives. Further, strong capital and profitability ratios were the driving factors. However, decline in net interest income and lower deposit balance were headwinds.
Following the release, the stock gained nearly 1% during pre-market trading, indicating that investors are optimistic about the company’s ability to bear the impact of the pandemic. Nonetheless, the full session’s price movement is likely to display a better picture.
After considering notable items, net income was $648 million or $1.44 per share compared with the $253 million or 53 cents per share reported in the prior-year quarter.
Revenues Down on Lower Fee Income, Costs Flare Up
Total revenues for the second quarter came in at $1.61 billion, lagging the consensus estimate of $1.63 billion. Additionally, the top line was down 8%, year over year.
Citizens’ net interest income fell 3.1% year on year at $1.1 billion. Also, net interest margin contracted 16 basis points (bps) to 2.72%. This was, however, partly mitigated by improved funding mix and deposit pricing.
Non-interest income fell 17.8% year over year to $485 million. This downside stemmed largely from the $80-million fall in mortgage banking fees and $26 million net decline in servicing results.
Non-interest expenses shot up 1.2%, year over year, to $991 million.
Efficiency ratio at 62% increased 10.7% during the April-June period.
As of Jun 30, 2021, period-end total loan and lease balances slightly rose sequentially to $122.6 billion. However, total deposits decreased marginally to $150.6 billion.
Credit Quality Improves
Reflecting a solid credit performance and improvement in the macroeconomic outlook, provision for credit losses witnessed a reversal of $213 million compared with the $464-million provision expense witnessed in the year-ago quarter. Moreover, net charge-offs for the quarter plunged 47% to $78 million.
Non-accrual loans and leases were down 21.3% to $779 million. As of Jun 30, 2021, allowance for loan and lease losses fell 17.7% to $2.08 billion.
Citizens was well capitalized in the second quarter. As of Jun 30, 2021, common equity tier-1 capital ratio was 10.3% compared with 9.6% at the end of the prior-year quarter. Further, Tier-1 leverage ratio was 9.7%, up 4 bps year over year. Total capital ratio was 13.5%, up from 13.1%, during the same time.
Capital Deployment Update
The company made no share repurchases during the quarter. Notably, including common stock dividends, the company returned $168 million to shareholders.
Citizens’ results highlight a decent quarter despite the lower interest rates. Pick-up in credit quality and sound capital levels helped the company offset the pressure on margin. We are further optimistic as management continues to make investments in technology to enhance customers’ experience. Apart from these, its progress in TOP programs and balance-sheet optimization initiatives bodes well for long-term growth.
However, competitive pressure and a challenging interest-rate environment pose concerns.
Currently, Citizens Financial carries a Zacks Rank #2 (Buy). You can see
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