Citizens Financial Group ( CFG Quick Quote CFG - Free Report) has reported fourth-quarter 2021 underlying earnings per share of $1.26, surpassing the Zacks Consensus Estimate of $1.16. Also, the bottom line rose 21% from the year-ago quarter figure.
Benefits from provisions and a rise in loan balances propelled the results. Further, strong credit quality, backed by an improving economy, was a tailwind. However, a rise in expenses and declining net interest income (NII) were spoilsports.
Net income was $530 million compared with $456 million reported in the prior-year quarter.
In 2021, underlying earnings per share were $5.34 compared with the prior-year figure of $2.41. The bottom line surpassed the consensus estimate of $5.23. Net income increased to $2.32 billion from the year-ago figure of $1.06 billion.
Revenues Rises on Fee Income, Costs Flare Up
Total revenues for the fourth quarter were $1.72 billion, outpacing the consensus estimate of $1.66 billion. Also, the top line was up 1% year over year.
In 2021, revenues were $6.65 billion, declining from $6.91 billion in 2020. Nonetheless, the top line beat the Zacks Consensus Estimate of $6.59 billion.
Citizens Financial’s NII declined marginally year over year to $1.13 billion. The net interest margin (on a fully-taxable-equivalent basis) contracted 9 basis points (bps) to 2.66%. The downside stemmed from lower asset yields, partly mitigated by an improved funding mix, deposit pricing and higher paycheck protection program (PPP) benefits.
The non-interest income increased 3% year over year to $594 million. A rise in all components, except for service charges and fees, and mortgage banking fees, aided the increase. The $29 million of fees generated from buyouts completed in the third and fourth quarters of 2021 were other upsides.
Non-interest expenses shot up 5% year over year to $1.06 billion. This reflected higher salaries and employee benefits as well as increased expenses incurred for outside services tied to growth initiatives.
The efficiency ratio of 22.4% in the fourth quarter increased from 20.2% in the year-ago quarter.
As of Dec 31, 2021, period-end total loan and lease balances rose 3.9% sequentially to $128.16 billion. Also, total deposits improved 1.4% to $154.36 billion.
Credit Quality Robust
Reflecting a solid credit performance and improvement in the macroeconomic outlook, the provision for credit losses witnessed a reversal of $25 million against $124 million of provision expenses witnessed in the year-ago quarter. Net charge-offs for the quarter reduced 76% to $45 million.
Also, non-accrual loans and leases were down 31% to $702 million. As of Dec 31, 2021, the allowance for credit losses fell 28% to $1.93 billion.
Capital Position Deteriorates
Citizens Financial was well-capitalized in the fourth quarter. As of Dec 31, 2021, the tier-1 leverage ratio was 9.7%, up from 9.4% in the prior-year quarter.
However, the common equity tier-1 capital ratio was 9.9% compared with 10% at the end of the prior-year quarter. Further, the total capital ratio was 12.7%, down from 13.4% in the prior-year quarter.
Capital Deployment Update
The company restarted share repurchases in November, buying back $200 million of common shares in the December-end quarter. It also paid out $168 million in common stock dividends to shareholders.
Citizens Financial’s results highlight a decent quarter despite the lower interest rates. Pick-up in credit quality helped the company offset some margin pressure. Going forward, inorganic growth moves should drive its momentum. The buyout of the HSBC East Coast branches and online deposits (anticipated to close in February) are projected to have a 22 bps impact on the common equity tier-1 ratio.
However, escalating expenses and a decline in NII are worrisome.
Currently, Citizens Financial carries a Zacks Rank #3 (Hold). You can see
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