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Citizens Financial (CFG) Q1 Earnings Beat, Revenues Fall Y/Y

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Citizens Financial Group (CFG - Free Report) has reported first-quarter 2022 underlying earnings per share of $1.07, surpassing the Zacks Consensus Estimate of 94 cents. However, the bottom line fell 24.1% from the year-ago quarter figure.

Results reflect net interest income (NII) growth on the rise in loan balances. Further, strong credit quality, backed by an improving economy, was a tailwind. However, a rise in expenses and declining fee income were spoilsports.

Management noted, “We started off 2022 with solid financial performance, as strong net interest income, good expense discipline and excellent credit helped to offset the macro environment’s impact on Capital Markets and Mortgage revenue.”

Net income was $420 million compared with $611 million reported in the prior-year quarter.

Revenues Dip on Fee Income, Costs Flare Up

Total revenues for the first quarter were $1.65 billion, missing the consensus estimate by 0.31%. Also, the top line was down 1% year over year.

Citizens Financial’s NII rose 3% year over year to $1.14 billion, backed by 3% growth in interest-earning assets and a stable net interest margin. The net interest margin dipped one basis point to 2.75% as the impact of low yields on earning assets was offset by the cash deployment for loan growth.

The non-interest income dipped 8% year over year to $498 million. A rise in all components, except for service charges and fees, and mortgage banking fees, aided the increase.

Non-interest expenses shot up 9% year over year to $1.11 billion. This reflected higher salaries and employee benefits, as well as increased expenses incurred for outside services.

The efficiency ratio of 67 % in the first quarter increased from 61% in the year-ago quarter.A higher efficiency ratio indicates lower profitability.

As of Mar 31, 2022, period-end total loan and lease balances rose 2% sequentially to $131.3 billion. Also, total deposits improved 3% to $158.78 billion.

Credit Quality Improves

CFG’s provision for credit losses was $3 million against $140 million of provision benefit witnessed in the year-ago quarter.

Nonetheless, net charge-offs for the quarter reduced 63% to $59 million. Non-accrual loans and leases were down 31% to $789 million. As of Mar 31, 2022, the allowance for credit losses fell 21% to $1.88 billion.

Capital Position Deteriorates 

 Citizens Financial was well-capitalized in the first quarter. As of Mar 31, 2022, the tier-1 leverage ratio was 9.6%, up from 9.5% in the prior-year quarter.

However, the common equity tier-1 capital ratio was 9.7% compared with 10.1% at the end of the prior-year quarter. Further, the total capital ratio was 12.5%, down from 13.4% in the prior-year quarter.

Capital Deployment Update

The company paid out $165 million in common stock dividends to shareholders.

Our Viewpoint

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 (closed in February) and the Investors Bancorp buyout created a strong franchise in the greater New York City and Philadelphia Metro areas, and New Jersey. It added significant deposits and loans for growth.

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-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

The PNC Financial Services Group, Inc. (PNC - Free Report) pulled off a first-quarter 2022 earnings surprise of 18.4% on substantial recapturing of credit losses. Earnings per share of $3.29, on an as-adjusted basis (excluding pre-tax integration costs related to the BBVA USA acquisition), surpassed the Zacks Consensus Estimate of $2.78. However, the bottom line decreased 20% year over year.

Higher NII, driven by interest-earning assets and loan growth, was a tailwind for PNC Financial. However, higher expenses and a decline in deposits dragged the results.

U.S. Bancorp (USB - Free Report) reported first-quarter 2022 earnings per share of 99 cents, which beat the Zacks Consensus Estimate of 93 cents. However, results do not compare favorably with the prior-year quarter’s figure of $1.45.

U.S. Bancorp’s results were supported by an increase in revenues, loan growth and lower non-performing assets. USB’s capital position was decent in the quarter. However, higher expenses and elevated provision for credit losses were the offsetting factors.

First Republic Bank’s (FRC - Free Report) first-quarter 2022 earnings per share of $2 have surpassed the Zacks Consensus Estimate of $1.90. Additionally, the bottom line improved 11.7% from the year-ago quarter.

FRC’s results were supported by an increase in NII and non-interest income. The company’s capital position was strong in the quarter. Higher expenses and elevated provision for credit losses were the offsetting factors.