10-QPeriod: Q2 FY2021

CITIZENS FINANCIAL GROUP INC/RI Quarterly Report for Q2 Ended Jun 30, 2021

Filed August 3, 2021For Securities:CFGCFG-PHCFG-PECFG-PI

Summary

Citizens Financial Group, Inc. (CFG) reported a significant increase in net income for the second quarter of 2021 compared to the prior year, largely driven by a credit provision benefit resulting from improved credit performance and a more favorable macroeconomic outlook. This contrasts with the prior year's period, which was impacted by the COVID-19 pandemic and required a substantial build-up of the allowance for credit losses. While total revenue saw a slight decrease year-over-year, primarily due to lower mortgage banking fees, key fee income categories like capital markets, card, and trust services showed resilience or growth. The bank is actively pursuing strategic growth initiatives, notably the pending acquisitions of Investors Bancorp and certain branches from HSBC, which are expected to enhance its franchise and expand its geographic reach. These strategic moves, combined with solid capital ratios and a focus on expense management, position CFG for potential future growth, though integration risks and ongoing economic uncertainties remain factors to monitor.

Financial Highlights

38 data points
Beta

Revenue

$1.61B

Net Income

$648.00M

40.3% Net Margin

EPS (Diluted)

$1.44

Total Assets

$185.10B

Cash & Equivalents

$12.64B

Free Cash Flow

$580.00M

Financial Statements
Beta
Revenue$1.61B
Interest Expense$87.00M
Net Income$648.00M
EPS (Basic)$1.45
EPS (Diluted)$1.44
Shares Outstanding (Basic)425.95M
Shares Outstanding (Diluted)427.56M

Key Highlights

  • 1Net income surged by 156% to $648 million in Q2 2021, compared to $253 million in Q2 2020, reflecting a strong recovery and improved credit conditions.
  • 2Return on Tangible Common Equity (ROTCE) improved significantly to 17.5% in Q2 2021 from 6.6% in the prior year period.
  • 3Total revenue decreased by 8% to $1.6 billion in Q2 2021, primarily due to an 18% decline in noninterest income, largely driven by lower mortgage banking fees.
  • 4Net interest income decreased by 3% to $1.1 billion, impacted by a lower net interest margin (2.71% vs. 2.87% in Q2 2020) due to a lower rate environment and elevated cash balances.
  • 5Noninterest expense remained stable year-over-year at $991 million, with underlying noninterest expense increasing slightly by 2% due to investments in technology and growth initiatives.
  • 6The company announced significant strategic acquisitions: Investors Bancorp for approximately $3.5 billion and 80 East Coast branches from HSBC, aimed at expanding its market presence and customer base.
  • 7Provision for credit losses swung to a benefit of $213 million in Q2 2021 from an expense of $464 million in Q2 2020, reflecting a significantly improved economic outlook and loan portfolio performance.

Frequently Asked Questions

The substantial increase in net income was primarily driven by a substantial benefit from the provision for credit losses. This was a direct result of improved credit performance across the retail and commercial loan portfolios and a more optimistic macroeconomic outlook, contrasting with the significant provisions set aside in the prior year due to the COVID-19 pandemic.

The acquisitions are strategic growth initiatives designed to expand CFG's geographic footprint and customer base. The Investors acquisition will add attractive middle market/small business and consumer customers and a significant physical presence in the Northeast. The HSBC branch acquisition provides entry into important metro markets and supports national expansion. These moves are expected to enhance the company's banking franchise and market position.

The net interest margin decreased due to a lower interest rate environment, reduced yields on interest-earning assets, and higher cash balances stemming from strong deposit inflows. Total revenue was impacted by an 18% decline in noninterest income, largely attributed to lower mortgage banking fees, which were affected by reduced gain-on-sale margins and lower mortgage servicing rights hedging results, alongside increased industry capacity and competition.

Citizens Financial Group maintains strong capital ratios, with CET1, Tier 1, and Total capital ratios at 10.3%, 11.6%, and 13.5% respectively as of June 30, 2021. These ratios are well above regulatory minimums plus the stress capital buffer (SCB), indicating a solid capital position. The company also completed a Series G Preferred Stock issuance and is managing its capital through dividends and share repurchases, subject to regulatory considerations and board approval.