Citizens Financial (CFG) Q4 earnings and revenue battered, loans up

Citizens Financial Group CFG reported fourth-quarter 2021 underlying earnings per share of $1.26, beating Zacks’ consensus estimate of $1.16. In addition, the net result increased by 21% compared to the figure for the quarter of the previous year.

Profits from provisions and an increase in loan balances propelled results. In addition, strong credit quality, supported by an improving economy, was a tailwind. However, higher spending and lower net interest income (NII) were spoilsports.

Net profit was $530 million, compared to $456 million in the year-ago quarter.

In 2021, underlying earnings per share were $5.34 compared to the prior year figure of $2.41. The net result exceeded the consensus estimate of $5.23. Net income rose to $2.32 billion from $1.06 billion a year ago.

Revenues rise on fee revenue, costs soar

Total revenue for the fourth quarter was $1.72 billion, beating the consensus estimate of $1.66 billion. Additionally, revenue increased 1% year over year.

In 2021, revenue was $6.65 billion, compared to $6.91 billion in 2020. Nonetheless, revenue topped Zacks’ consensus estimate of $6.59 billion.

Citizens Financial’s NII fell slightly year-over-year to $1.13 billion. Net interest margin (on a fully taxable equivalent basis) contracted 9 basis points (bps) to 2.66%. The decline stemmed from lower asset yields, partly mitigated by an improvement in funding mix, deposit pricing and higher Paycheck Protection Program (PPP) benefits.

Non-interest revenue increased 3% year over year to $594 million. An increase in all components except service fees and commissions and mortgage bank charges contributed to the increase. The $29 million in fees generated by redemptions made in the third and fourth quarters of 2021 were other benefits.

Non-interest expenses jumped 5% year over year to $1.06 billion. This reflects higher salaries and benefits as well as increased expenses incurred for external services related to growth initiatives.

The efficiency ratio of 22.4% in the fourth quarter increased from 20.2% in the prior year quarter.

As of December 31, 2021, total period-end loan and lease balances increased 3.9% sequentially to $128.16 billion. Additionally, total deposits improved by 1.4% to $154.36 billion.

Robust credit quality

Reflecting strong credit performance and an improving macroeconomic outlook, PCL recorded a reversal of $25 million from $124 million in provision charges in the prior year quarter. Net charges for the quarter decreased 76% to $45 million.

In addition, outstanding loans and leases decreased by 31% to $702 million. As of December 31, 2021, the provision for credit losses had fallen 28% to $1.93 billion.

The position of capital is deteriorating

Citizens Financial was well capitalized in the fourth quarter. As of December 31, 2021, the Tier 1 leverage ratio was 9.7%, compared to 9.4% in the prior year quarter.

However, the Common Equity Tier 1 capital ratio was 9.9%, compared to 10% at the end of the prior year quarter. Additionally, the total capital ratio was 12.7%, compared to 13.4% in the prior year quarter.

Capital Deployment Update

The company restarted share buybacks in November, repurchasing $200 million of common stock in the end-December quarter. It also paid $168 million in common stock dividends to shareholders.

Our point of view

Citizens Financial results highlight a decent quarter despite falling interest rates. Improved credit quality helped the company offset some pressure on margins. Going forward, inorganic growth moves should fuel its momentum. The takeover of HSBC East Coast branches and online deposits (expected to close in February) should have an impact of 22 basis points on the common equity Tier-1 ratio.

However, the escalating spending and falling NII are worrying.

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 full list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of other banks

Bank of New York Mellon CorporationBK’s fourth-quarter 2021 adjusted earnings of $1.04 per share beat Zacks’ consensus estimate of $1.02. The net result represents an increase of 8.3% compared to the quarter of the previous year.

For 2021, BK’s earnings per share (on a GAAP basis) of $4.14 increased 8% from 2020. Zacks consensus estimate for earnings was $4.17 per share. Net income attributable to common shareholders was $3.55 billion, up 4% year-on-year.

Bank of the First RepublicFRC’s Q4 2021 earnings per share of $2.02 beat Zacks’ consensus estimate of $1.91. In addition, net income improved by 26.3% compared to the prior year quarter.

FRC’s quarterly results were supported by an increase in net interest income and non-interest income. Additionally, First Republic’s balance sheet position was strong during the quarter. However, higher expenses and high net loan write-offs were the offsetting factors.

Citigroup C posted a surprise 5.04% profit in the fourth quarter of 2021. Income from continuing operations per share of $1.46 was well ahead of Zacks’ consensus estimate of $1.39. However, the reported figure was down 24% from the prior year quarter.

Citigroup’s investment banking revenue surged in the quarter under review, driven by equity underwriting as well as growth in advisory revenue. However, fixed income revenues declined due to lower rates and spread products.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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