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Why Is Citizens Financial Group (CFG) Down 14.3% Since Last Earnings Report?

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It has been about a month since the last earnings report for Citizens Financial Group (CFG - Free Report) . Shares have lost about 14.3% 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 its most recent earnings report in order to get a better handle on the important drivers.

Citizens Financial Q1 Earnings Beat, Revenues Fall Y/Y

Citizens Financial 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 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. Decline in mortgage banking fees and service charges and fees offset a rise in all other components.

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

Citizens Financial’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.


Second Quarter 2022

All comparisons are made on a sequential basis, including the impact of the closed acquisitions of HSBC branches and Investors.

Management expects average loans to grow 18-20%. Average interest-earning assets are expected to grow 15-17%.

NII is anticipated to be up 27-29%.

Non-interest income is anticipated to grow 7-9%.

Non-interest expenses are expected to grow 12-13%.

Net charge-offs are expected to remain stable.

CET1 ratio is anticipated at 9.75%.

Management plans the launch of Citizens Paid EarlyTM, allowing customers to receive direct deposits up to two days earlier.


All comparisons are made on a year-on-year basis (assuming six interest rate hikes to increase the Fed Fund target range of 2.25-2.50% by 2022 end) including the impact of the closed acquisitions of HSBC branches and Investors.

Average loan is expected to grow 20-22%. Average earning assets are expected to grow 14-16%

NII is expected to grow 27-30%, driven primarily by the improved rate environment and solid average loan growth.

Management anticipates non-interest income to be up 3-7%.

Non-interest expense is expected to be up 16-18%.

Operating leverage is expected to be over 4%, including acquisition benefits, and over 7% excluding paycheck protection program impact.

Net charge-offs are expected to remain stable or decline slightly.

CET1 ratio is targeted to be 9.75-10%, taking into account an anticipated increase in dividend in the second half of the year. The acquisition of HSBC branches is expected to affect the ratio by 20 basis points.

Tax rate is anticipated to be approximately 22-23%.

Medium-Term Targets

Management has reiterated the following:

ROTCE is expected to be between 14-16%.

CET1 ratio is anticipated to be between 9.5-10%.

Management expects dividend payout ratio to be around the 35-40% range.

Five-Year Target

Management expects deposit and loan to grow at a CAGR of 2-3 times in the existing markets.

Assets under management in its wealth business is anticipated to grow to $40 billion, indicating a CAGR of more than 15%.

Citizens Pay portfolio size is expected to be $5-$6 billion.


How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

VGM Scores

At this time, Citizens Financial Group has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

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


Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Citizens Financial Group has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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