10-QPeriod: Q3 FY2020

CITIZENS FINANCIAL GROUP INC/RI Quarterly Report for Q3 Ended Sep 30, 2020

Filed November 4, 2020For Securities:CFGCFG-PHCFG-PECFG-PI

Summary

Citizens Financial Group, Inc. (CFG) reported its third quarter 2020 results, showing a decrease in net income compared to the prior year, largely influenced by higher provision for credit losses. While total revenue saw a year-over-year increase driven by strong noninterest income, particularly from mortgage banking and capital markets, net interest income was slightly down due to lower net interest margins. The company maintained solid capital ratios, exceeding regulatory minimums. Deposit growth remained robust, outpacing loan growth, which contributed to a decrease in the reliance on borrowed funds. Management highlighted investments in technology and efficiency initiatives, which are impacting expenses but are expected to yield long-term benefits. The economic outlook remains a key consideration, with the company continuing to monitor credit quality closely, especially within specific commercial sectors affected by the pandemic.

Financial Highlights

38 data points
Beta

Revenue

$1.79B

Net Income

$314.00M

17.5% Net Margin

EPS (Diluted)

$0.68

Total Assets

$179.23B

Cash & Equivalents

$9.22B

Free Cash Flow

$658.00M

Financial Statements
Beta
Revenue$1.79B
Interest Expense$143.00M
Net Income$314.00M
EPS (Basic)$0.68
EPS (Diluted)$0.68
Shares Outstanding (Basic)426.85M
Shares Outstanding (Diluted)427.99M

Key Highlights

  • 1Net income for Q3 2020 was $314 million, down 30% from $449 million in Q3 2019. Diluted EPS decreased to $0.68 from $0.97.
  • 2Total revenue increased by 9% year-over-year to $1.8 billion, driven by a 33% rise in noninterest income, primarily from mortgage banking and capital markets fees.
  • 3Net interest income decreased by 1% to $1.1 billion, with the net interest margin declining by 29 basis points to 2.83% (FTE) due to lower interest rates.
  • 4Provision for credit losses significantly increased to $428 million from $101 million in Q3 2019, primarily due to reserve builds related to commercial loans and the impact of COVID-19.
  • 5Average total deposits increased by 14% year-over-year to $141.4 billion, reflecting strong deposit flows and a shift in customer liquidity.
  • 6Noninterest expense increased by 2% to $988 million, with underlying noninterest expense remaining stable year-over-year.
  • 7The efficiency ratio improved to 55.2% from 59.4% in the prior year, indicating improved operational efficiency.

Frequently Asked Questions

The decrease in net income was primarily driven by a significant increase in the provision for credit losses, which rose to $428 million in Q3 2020 from $101 million in Q3 2019. This reflects management's assessment of current economic conditions and potential future credit losses, particularly related to the impact of the COVID-19 pandemic on various commercial sectors.

Total revenue increased by 9% to $1.8 billion. This growth was primarily fueled by a substantial 33% increase in noninterest income, led by strong performance in mortgage banking fees and capital markets fees. Net interest income experienced a slight decrease of 1% due to a lower net interest margin, despite growth in interest-earning assets.

Citizens Financial Group maintained strong capital ratios. As of September 30, 2020, its CET1 capital ratio was 9.8%, Tier 1 capital ratio was 11.2%, and total capital ratio was 13.3%, all of which were above their respective regulatory minimums plus the capital conservation buffer. The company also highlighted that its capital ratios remained well above U.S. Basel III minimums.

The COVID-19 pandemic and associated economic impacts have led to a significant increase in the provision for credit losses and a build-up of reserves. Nonaccrual loans and leases increased by 82% compared to year-end 2019, with notable increases in commercial and commercial real estate segments. Net charge-offs also increased, particularly in commercial loans, reflecting deterioration in certain industry sectors like retail real estate and casual dining.