10-QPeriod: Q3 FY2022

CITIZENS FINANCIAL GROUP INC/RI Quarterly Report for Q3 Ended Sep 30, 2022

Filed November 4, 2022For Securities:CFGCFG-PHCFG-PECFG-PI

Summary

Citizens Financial Group, Inc. (CFG) reported its third-quarter 2022 results, which were significantly impacted by strategic acquisitions of HSBC's East Coast branches and Investors. Total revenue increased substantially, driven by a strong rise in net interest income, benefiting from higher earning-asset yields in the prevailing interest rate environment and the contributions from the acquired businesses. The company navigated a more challenging macroeconomic landscape, including inflationary pressures and the increased risk of recession, which led to a higher provision for credit losses compared to the prior year. Despite these headwinds, underlying net income and earnings per share showed resilience, particularly when excluding notable integration and restructuring costs. Key financial metrics like ROTCE and efficiency ratio improved on an underlying basis, demonstrating progress in integrating acquisitions and realizing efficiencies. Investors should monitor loan growth, credit quality trends, and the company's ability to manage operating expenses amidst ongoing integration efforts and economic uncertainty.

Financial Highlights

39 data points
Beta

Revenue

$2.18B

Net Income

$636.00M

29.2% Net Margin

EPS (Diluted)

$1.23

Total Assets

$224.68B

Cash & Equivalents

$8.16B

Free Cash Flow

$3.00B

Financial Statements
Beta
Revenue$2.18B
Interest Expense$304.00M
Net Income$636.00M
EPS (Basic)$1.23
EPS (Diluted)$1.23
Shares Outstanding (Basic)495.65M
Shares Outstanding (Diluted)497.48M

Key Highlights

  • 1Total revenue increased by 31% to $2.177 billion for the third quarter of 2022 compared to the prior year, primarily driven by a 45% increase in net interest income, boosted by acquisitions and higher earning-asset yields.
  • 2On an Underlying basis (excluding notable items), net income available to common stockholders increased to $644 million, or $1.30 per diluted share, for the third quarter of 2022, compared to $520 million, or $1.22 per diluted share, in the prior year.
  • 3Net interest margin on a FTE basis improved by 53 basis points to 3.25% for the third quarter of 2022, reflecting higher earning-asset yields partially offset by increased funding costs.
  • 4Noninterest expense increased by 23% to $1.241 billion for the third quarter of 2022, largely due to acquisition and integration-related costs, higher salaries, and other operating expenses.
  • 5The company's CET1 capital, Tier 1 capital, and Total capital ratios were 9.8%, 10.9%, and 12.6%, respectively, at September 30, 2022, all remaining well above regulatory minimums.
  • 6The allowance for credit losses increased to $2.2 billion at September 30, 2022, reflecting a deterioration in the macroeconomic environment and loan growth, with the company forecasting a potential recession in 2023.
  • 7Tangible book value per common share decreased by 23% from December 31, 2021, to $26.62 at September 30, 2022, influenced by goodwill and intangible asset additions from acquisitions.

Frequently Asked Questions

The substantial increase in total revenue was primarily driven by a 45% rise in net interest income. This growth was fueled by the strategic acquisitions of HSBC's East Coast branches and Investors, which expanded the company's asset base, and by higher earning-asset yields resulting from the rising interest rate environment.

The acquisitions of HSBC's East Coast branches and Investors significantly contributed to the increase in total assets and loans. However, these acquisitions also led to higher noninterest expenses due to integration-related costs, including severance, advisory fees, and technology integration. While these notable items impacted reported net income, underlying net income showed improvement.

The company's allowance for credit losses increased to $2.2 billion, reflecting concerns about the macroeconomic environment, including an increased risk of a recession in 2023. While net charge-offs have increased compared to prior periods, particularly in the retail segment, they remain below pre-pandemic levels. Management is closely monitoring credit trends amidst these economic uncertainties.

Citizens Financial Group maintained strong capital adequacy ratios at September 30, 2022, with CET1 capital at 9.8%, Tier 1 capital at 10.9%, and Total capital at 12.6%. These ratios are well above regulatory minimum requirements, demonstrating a solid capital position despite increased risk-weighted assets stemming from the recent acquisitions.