10-QPeriod: Q2 FY2022

CITIZENS FINANCIAL GROUP INC/RI Quarterly Report for Q2 Ended Jun 30, 2022

Filed August 3, 2022For Securities:CFGCFG-PHCFG-PECFG-PI

Summary

Citizens Financial Group, Inc. (CFG) reported a decrease in net income for the second quarter of 2022 compared to the prior year, primarily due to significant "notable items" related to integration costs from recent acquisitions. Despite the reported decline, underlying net income and earnings per share showed resilience, with revenue growth driven by increased net interest income. The company successfully integrated the HSBC East Coast branches and completed the acquisition of Investors, which contributed to a substantial increase in total assets and loans. Key financial highlights include a notable increase in interest-earning assets and a slight expansion in net interest margin, benefiting from higher market interest rates. However, the efficiency ratio deteriorated, and return on tangible common equity (ROTCE) decreased, reflecting the impact of integration costs and higher operating expenses. The company's capital ratios remain strong and well above regulatory minimums, even after accounting for the acquisitions. The overall balance sheet reflects significant growth and integration activity, with a focus on managing associated costs and risks.

Financial Highlights

39 data points
Beta

Revenue

$2.00B

Net Income

$364.00M

18.2% Net Margin

EPS (Diluted)

$0.67

Total Assets

$226.71B

Cash & Equivalents

$6.51B

Free Cash Flow

-$1.88B

Financial Statements
Beta
Revenue$2.00B
Interest Expense$121.00M
Net Income$364.00M
EPS (Basic)$0.68
EPS (Diluted)$0.67
Shares Outstanding (Basic)491.50M
Shares Outstanding (Diluted)493.30M

Key Highlights

  • 1Total revenue increased by 18% year-over-year, driven by a 34% increase in net interest income, largely due to the acquisitions of Investors and HSBC branches.
  • 2Net income available to common stockholders decreased to $332 million ($0.67 per diluted share) from $616 million ($1.44 per diluted share) in the prior year's quarter, impacted by $231 million in notable items.
  • 3Underlying net income available to common stockholders was $563 million, down from $624 million in the prior year's quarter, and underlying diluted EPS was $1.14, down from $1.46.
  • 4Total assets grew to $226.7 billion from $188.4 billion at the end of 2021, primarily driven by the Investors and HSBC acquisitions.
  • 5The efficiency ratio increased to 65.3% from 61.6% in the prior year's quarter, while the underlying efficiency ratio improved slightly to 58.2% from 60.9%.
  • 6Return on tangible common equity (ROTCE) decreased to 9.1% from 17.5% year-over-year, with the underlying ROTCE at 15.5% compared to 17.7% in the prior year.
  • 7Common Equity Tier 1 (CET1) capital ratio stood at 9.6%, and total capital ratio was 12.3%, both well above regulatory requirements.

Frequently Asked Questions

The acquisitions of Investors and HSBC branches significantly boosted Citizens Financial Group's balance sheet, leading to substantial growth in total assets and loans. This also drove an increase in net interest income and total revenue. However, integration-related costs associated with these acquisitions were a major factor in the reported decline in net income and the increase in the efficiency ratio for the current quarter compared to the prior year.

"Notable items" are specific expenses or gains that management does not consider indicative of ongoing financial performance. In this quarter, these primarily consisted of integration-related costs and mark-to-market losses on acquired loans. These items negatively impacted reported net income and earnings per share, but the company provides "Underlying" results that exclude these items to offer a clearer view of operational performance.

Citizens Financial Group's capital ratios remain strong and comfortably above regulatory minimums. The Common Equity Tier 1 (CET1) capital ratio was 9.6%, and the total capital ratio was 12.3% as of June 30, 2022. While these ratios slightly decreased compared to the end of 2021, the decline is attributed to the risk-weighted asset growth stemming from the acquisitions and other capital actions, rather than a weakening of the company's capital position.

The company's net interest margin (NIM) saw an increase, benefiting from higher market interest rates, which improved yields on earning assets. Citizens' balance sheet is described as "asset-sensitive," suggesting that rising interest rates are generally favorable for net interest income. However, the company also noted increased funding costs, which partially offset the benefit of higher earning-asset yields.