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Why Is Citizens Financial Group (CFG) Up 5.2% Since Last Earnings Report?
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A month has gone by since the last earnings report for Citizens Financial Group (CFG - Free Report) . Shares have added about 5.2% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Citizens Financial Group due for a pullback? 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, Revenues Rise on NII
Citizens Financial reported second-quarter 2022 underlying earnings per share of $1.14, surpassing the Zacks Consensus Estimate of $1.02. However, the bottom line fell 22% from the year-ago quarter figure.
Results reflect net interest income (NII) growth on the rise in loan balances. Further, strong balance sheet growth, backed by an improving economy, was a tailwind. However, a rise in expenses was a spoilsport.
Net income was $364 million compared with $648 million in the prior-year quarter.
Revenues Rise on NII, Costs Flare Up
Total revenues for the second quarter were $1.99 billion, missing the consensus estimate of $2 billion. Also, the top line was up 24% year over year.
Citizens Financial’s NII rose 34% year over year to $1.50 billion, backed by 19% growth in interest-earning assets and a higher net interest margin. The net interest margin (NIM) increased 32 basis points (bps) to 3.04% as the impact of higher yields on earning assets and cash deployment for loan growth.
The non-interest income increased 2% year over year to $494 million. A rise in all components, except for capital market fees, and mortgage banking fees and lower securities gains, led to the increase.
Non-interest expenses shot up 32% year over year to $1.30 billion. This reflected higher salaries and employee benefits, as well as increased expenses incurred for outside services.
The efficiency ratio of 65% in the second quarter increased from 62% in the year-ago quarter. A higher efficiency ratio indicates lower profitability.
As of Jun 30, 2022, period-end total loan and lease balances rose 19% sequentially to $156.2 billion. Also, total deposits improved 13% to $178.9 billion.
Credit Quality Mixed
Citizens Financial’s provision for credit losses was $216 million against $213 million of provision benefit witnessed in the year-ago quarter. As of Jun 30, 2022, the allowance for credit losses increased 3% to $2.14 billion.
Nonetheless, net charge-offs for the quarter reduced 37% to $49 million. Non-accrual loans and leases were down 8% to $839 million.
Capital Position Deteriorates
As of Jun 30, 2022, the tier-1 leverage ratio was 9.3%, down from 9.7% in the prior-year quarter.
The common equity tier-1 capital ratio was 9.6% compared with 10.3% at the end of the prior-year quarter. Further, the total capital ratio was 12.3%, down from 13.5% in the prior-year quarter.
Capital Deployment Update
Following the clearance of the stress test 2022, the company increased the authorization of common share repurchases to $1 billion from $750 million. This marks an increase of $545 million in addition to the $455 million worth of remaining capacity under the prior $750-million January 2021 authorization.
Outlook
Third Quarter 2022 (Underlying Basis)
All comparisons are made on a sequential basis.
NII is anticipated to be up 5.5-7%, driven by higher interest rates and solid loan growth.
Non-interest income is anticipated to be broadly stable, with potential upside if market volatility reduces.
Underlying non-interest expenses are expected to grow 1%.
The net charge-off ratio is expected to be 20 bps.
The CET1 ratio is anticipated at 9.75%.
Management expects strong sequential positive operating leverage, while ROTCE is anticipated above the medium-term target of 14-16%. The company expects to record notable items of $60 million largely due to integration costs.
The tax rate is expected to be 22%.
2022
Loans are expected to grow 20-22%.
NIM is expected to be 3-3.25% for the fourth quarter.
Operating leverage is expected to be at least 4%, with a fourth-quarter efficiency ratio of 55%.
The net charge-off ratio is expected to decline.
Medium-Term Targets
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
Currently, Citizens Financial Group has a poor Growth Score of F, a grade with the same score on the momentum front. However, 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 F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions indicates a downward shift. 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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Why Is Citizens Financial Group (CFG) Up 5.2% Since Last Earnings Report?
A month has gone by since the last earnings report for Citizens Financial Group (CFG - Free Report) . Shares have added about 5.2% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Citizens Financial Group due for a pullback? 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, Revenues Rise on NII
Citizens Financial reported second-quarter 2022 underlying earnings per share of $1.14, surpassing the Zacks Consensus Estimate of $1.02. However, the bottom line fell 22% from the year-ago quarter figure.
Results reflect net interest income (NII) growth on the rise in loan balances. Further, strong balance sheet growth, backed by an improving economy, was a tailwind. However, a rise in expenses was a spoilsport.
Net income was $364 million compared with $648 million in the prior-year quarter.
Revenues Rise on NII, Costs Flare Up
Total revenues for the second quarter were $1.99 billion, missing the consensus estimate of $2 billion. Also, the top line was up 24% year over year.
Citizens Financial’s NII rose 34% year over year to $1.50 billion, backed by 19% growth in interest-earning assets and a higher net interest margin. The net interest margin (NIM) increased 32 basis points (bps) to 3.04% as the impact of higher yields on earning assets and cash deployment for loan growth.
The non-interest income increased 2% year over year to $494 million. A rise in all components, except for capital market fees, and mortgage banking fees and lower securities gains, led to the increase.
Non-interest expenses shot up 32% year over year to $1.30 billion. This reflected higher salaries and employee benefits, as well as increased expenses incurred for outside services.
The efficiency ratio of 65% in the second quarter increased from 62% in the year-ago quarter. A higher efficiency ratio indicates lower profitability.
As of Jun 30, 2022, period-end total loan and lease balances rose 19% sequentially to $156.2 billion. Also, total deposits improved 13% to $178.9 billion.
Credit Quality Mixed
Citizens Financial’s provision for credit losses was $216 million against $213 million of provision benefit witnessed in the year-ago quarter. As of Jun 30, 2022, the allowance for credit losses increased 3% to $2.14 billion.
Nonetheless, net charge-offs for the quarter reduced 37% to $49 million. Non-accrual loans and leases were down 8% to $839 million.
Capital Position Deteriorates
As of Jun 30, 2022, the tier-1 leverage ratio was 9.3%, down from 9.7% in the prior-year quarter.
The common equity tier-1 capital ratio was 9.6% compared with 10.3% at the end of the prior-year quarter. Further, the total capital ratio was 12.3%, down from 13.5% in the prior-year quarter.
Capital Deployment Update
Following the clearance of the stress test 2022, the company increased the authorization of common share repurchases to $1 billion from $750 million. This marks an increase of $545 million in addition to the $455 million worth of remaining capacity under the prior $750-million January 2021 authorization.
Outlook
Third Quarter 2022 (Underlying Basis)
All comparisons are made on a sequential basis.
NII is anticipated to be up 5.5-7%, driven by higher interest rates and solid loan growth.
Non-interest income is anticipated to be broadly stable, with potential upside if market volatility reduces.
Underlying non-interest expenses are expected to grow 1%.
The net charge-off ratio is expected to be 20 bps.
The CET1 ratio is anticipated at 9.75%.
Management expects strong sequential positive operating leverage, while ROTCE is anticipated above the medium-term target of 14-16%. The company expects to record notable items of $60 million largely due to integration costs.
The tax rate is expected to be 22%.
2022
Loans are expected to grow 20-22%.
NIM is expected to be 3-3.25% for the fourth quarter.
Operating leverage is expected to be at least 4%, with a fourth-quarter efficiency ratio of 55%.
The net charge-off ratio is expected to decline.
Medium-Term Targets
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
Currently, Citizens Financial Group has a poor Growth Score of F, a grade with the same score on the momentum front. However, 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 F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Citizens Financial Group has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.