10-QPeriod: Q1 FY2020

CITIZENS FINANCIAL GROUP INC/RI Quarterly Report for Q1 Ended Mar 31, 2020

Filed May 7, 2020For Securities:CFGCFG-PHCFG-PECFG-PI

Summary

Citizens Financial Group, Inc. (CFG) reported a significant decrease in net income for the first quarter of 2020, primarily due to a substantial increase in the provision for credit losses driven by the adoption of the CECL accounting standard and the economic impact of the COVID-19 pandemic. Despite the challenging environment, total revenue saw a modest increase, supported by strong performance in mortgage banking fees and trust and investment services. However, net interest margin compressed due to lower interest rates. The company also experienced an increase in noninterest expense, partly due to investments in technology and higher salaries. Management highlighted a significant build in the allowance for credit losses, reflecting anticipated economic headwinds. Capital ratios remained strong, exceeding regulatory minimums, although the CET1 ratio saw a slight decrease. The company also announced a suspension of its stock repurchase program through the end of 2020 to preserve capital during the ongoing crisis.

Financial Highlights

39 data points
Beta

Revenue

$1.66B

Net Income

$34.00M

2.1% Net Margin

EPS (Diluted)

$0.03

Total Assets

$176.72B

Cash & Equivalents

$4.06B

Free Cash Flow

-$1.33B

Financial Statements
Beta
Revenue$1.66B
Interest Expense$318.00M
Net Income$34.00M
EPS (Basic)$0.03
EPS (Diluted)$0.03
Shares Outstanding (Basic)427.72M
Shares Outstanding (Diluted)429.39M

Key Highlights

  • 1Net income available to common stockholders decreased by 97% year-over-year to $12 million, or $0.03 per diluted share, largely impacted by a $600 million provision for credit losses.
  • 2Total revenue increased by 4% to $1.7 billion, driven by a 16% increase in noninterest income, primarily from mortgage banking fees.
  • 3Net interest margin (FTE) declined by 15 basis points to 3.10% due to lower interest rates, partially offset by lower funding costs.
  • 4Noninterest expense increased by 8% to $1.0 billion, driven by higher salaries, employee benefits, and technology investments.
  • 5The allowance for credit losses significantly increased to $2.2 billion as of March 31, 2020, up from $1.3 billion at December 31, 2019, primarily due to the adoption of CECL and a $463 million reserve build related to COVID-19.
  • 6Common Equity Tier 1 (CET1) capital ratio stood at 9.4%, a decrease from 10.0% at year-end 2019, but remained well above regulatory requirements.
  • 7The company suspended its stock repurchase program through December 31, 2020, to ensure strong capital to meet further loan demand during the COVID-19 crisis.

Frequently Asked Questions

The primary driver was the substantial increase in the provision for credit losses, which rose to $600 million from $85 million in the prior year. This was largely due to the adoption of the Current Expected Credit Losses (CECL) accounting standard and a significant reserve build of $463 million attributed to the anticipated economic impacts of the COVID-19 pandemic.

While total revenue increased slightly, the pandemic had mixed impacts. Noninterest income saw a strong boost from mortgage banking fees and trust and investment services. However, service charges and fees, card fees, capital markets fees, and foreign exchange and interest rate products revenue were negatively affected by the pandemic's economic impact.

Citizens Financial Group maintained strong capital ratios, with its CET1 capital ratio at 9.4%, remaining well above regulatory minimums. However, this was a decrease from 10.0% at the end of 2019. To preserve capital and support customer lending during the crisis, the company announced a suspension of its stock repurchase program through December 31, 2020.

The company saw an increase in net charge-offs and a rise in nonaccruing loans and leases. The allowance for credit losses was significantly increased to reflect potential future credit deterioration. Additionally, the company has implemented forbearance and modification programs for affected customers under the CARES Act.