Citizens Financial Group, Inc. (NYSE:CFG) - A Diversified Regional Bank Delivering Solid Results

Published on September 24, 2024 | Ticker: CFG

Citizens Financial Group, Inc. (NYSE:CFG) is a diversified regional bank that has demonstrated strong financial performance, with annual net income of $1.6 billion, annual revenue of $8.2 billion, annual operating cash flow of $2.9 billion, and annual free cash flow of $2.8 billion. The company's latest quarterly results showcase its ability to navigate the current economic environment effectively.

Recent Developments

In the second quarter of 2024, Citizens Financial Group reported solid financial results. The company generated underlying net income of $408 million, with earnings per share of $0.82 and a return on tangible common equity of 11.1%. These results were driven by strong fee performance, effective deposit cost management, and disciplined expense control.

Financials

The company's net interest income decreased 2% linked quarter, reflecting lower net interest margin and loan balances. The net interest margin declined 4 basis points to 2.87%, primarily due to a 6 basis point increase in swap expense, partially offset by higher asset yields, non-core runoff, and improved deposit cost performance.

Noninterest income, on the other hand, increased 7% linked quarter, driven by strong results in capital markets, record card fees, and record wealth management fees. The capital markets business improved 14% linked quarter, with higher bond underwriting and loan syndication fees. Card fees reached a record level, and the wealth management business delivered record results, driven by increased sales activity and higher asset management fees.

Expenses were well-managed, with underlying expenses declining slightly as the company saw the normal seasonal benefit in compensation and continued to invest in its strategic initiatives. The company's TOP 9 program is progressing well, and it has commenced work on its TOP 10 program, which will push into new areas like AI.

Loan Portfolio and Deposits

The company's loan portfolio decreased 1% linked quarter, primarily driven by the runoff of its Non-Core portfolio, which declined $1.1 billion. Core loans were broadly stable, with a slight reduction in commercial loans offset by an increase in retail loans.

Deposits remained stable linked quarter, as seasonally lower retail deposits were offset by strong growth in the private bank. The company continues to see a slowing rate of migration from demand and lower-cost deposits to higher-cost interest-bearing accounts, and its deposit franchise remains highly diversified across product mix and channels.

Credit Quality and Balance Sheet

Credit quality metrics were largely in line with expectations. Net charge-offs increased to 52 basis points, up 2 basis points linked quarter, reflecting broadly stable charge-offs and lower average loans. The company's allowance for credit losses coverage ratio stood at 1.63%, up 2 basis points from the prior quarter, with the reserve for the $3.3 billion General Office portfolio representing 11.1% coverage.

The company's balance sheet remains robust, with a CET1 ratio of 10.7% and a pro forma LCR of 119%. The company has reduced its FHLB borrowings by $1.5 billion linked quarter to $553 million and has continued to strengthen its funding and liquidity profile.

Outlook

Looking ahead, the company provided guidance for the third quarter, expecting net interest income to be down 1% to 2%, driven by one last step-up in swap costs. Noninterest income is expected to be up slightly, reflecting seasonally lower capital markets, more than offset by a pickup across other categories. Noninterest expense is expected to be stable, and net charge-offs are expected to be down modestly.

For the full year 2024, the company expects net interest income to be at the upper end of the previously guided range of down 6% to 9%, with net interest margin trending modestly better. Fees are expected to come in modestly above the previously guided range of 6% to 9%. The company continues to expect to deliver on its expense guidance and sees net charge-offs trending in line with its January expectations.

Business Overview

Citizens Financial Group's strategy is built on a transformed consumer bank, the best-positioned commercial bank among its regional peers, and its aspiration to build the premier bank-owned private bank and wealth franchise. The company is making significant progress in each of these areas, with the private bank generating $4 billion in deposits and $3.6 billion in assets under management in the second quarter.

The company's geographic diversification is also a strength, with a presence in the New England, Mid-Atlantic, and Midwest regions. This diversification, coupled with the company's focus on high-growth sectors and the private capital ecosystem, positions Citizens Financial Group well to navigate the current economic environment and deliver long-term value for its shareholders.

Conclusion

Overall, Citizens Financial Group's solid financial performance, robust balance sheet, and strategic initiatives make it a compelling investment opportunity in the regional banking space.

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