It has been about a month since the last earnings report for Citizens Financial Group (CFG Quick QuoteCFG - Free Report) . Shares have lost about 2.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Citizens Financial Group due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Citizens Financial Q2 Earnings Beat Estimates, Revenues Down Y/Y

Citizens Financial has reported second-quarter 2021 earnings per share of $1.46, surpassing the Zacks Consensus Estimate of $1.14. Also, the bottom line increased significantly with the year-ago quarter’s figure.

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 (NII) and lower deposit balance were headwinds.

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 Financial’s NII fell 3.1% year on year at $1.1 billion. Also, NIM 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.

Capital Position

Citizens Financial 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, it returned $168 million to shareholders through common stock dividends.

Outlook

Third-Quarter 2021 Outlook

All comparisons are made on a sequential basis.

The NII is expected to be up 2-3%, with NIM up low to mid-single digits, with outlook based on 10-year treasury rate expectation of 1.35% for the third quarter. Earning assets are anticipated to be broadly stable.

Average loan growth in the third quarter will be up slightly with spot loans up about 2-3%. One-third of the loans is expected to be from retail in this quarter. Also, management anticipates that 3% or better spot growth could also be witnessed if the economic scenario unfolds favorably.

Fee income is expected to be up 2-4%, reflecting improvement in mortgage banking results and other categories as the economic recovery continues, partially offset by seasonal impacts.

Non-interest expenses are expected to be up slightly. The company expects relatively stable net charge offs in the range of 20-25 bps of average loans, with provision less than net charge-offs.

Full-Year 2021

The company expects to drive interest bearing deposit costs down to the low-teens by the end of the year as it makes efforts to manage costs down across all channels, while improving overall funding mix.

Average loan growth is likely to pick up, from the second half of the year, driven primarily by student, point-of-sale and auto, along with anticipated increase in commercial utilization.

Mortgage revenues are expected to rebound modestly, given hedge losses in Q2, and generally strong production or Capital Markets pipelines to be healthy.

Pre-Provision Net Revenues are expected to grow quarterly in the rest of the year, with positive operating leverage each quarter.

A solid operating leverage is anticipated in the second half of the year. Given the strong performance of the loan portfolio and improvement in the macroeconomic forecast, management reduced its full-year charge-off guidance range to 25-35 basis points.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

At this time, Citizens Financial Group has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Citizens Financial Group has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.