Citizens are optimistic about mortgages despite falling incomes

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Mortgage banking revenues at Citizens Financial Group fell sharply in the second quarter after a spike fueled by low interest rates, high home loan margins and a boom in home purchases.

Fee and commission income on mortgages was $ 85 million in the second quarter, up from $ 276 million in the same quarter last year. The decline was mainly due to lower sales profits as competitors expanded their ability to sell mortgages in the secondary market.

Citizens 2018 acquisition of Franklin American Mortgage in Tennessee allowed the company to benefit from low rates and high demand for homes during the COVID-19 pandemic. Despite the fact that in the second quarter, income from mortgages returned to pre-pandemic levels, the volume of purchases remained high.

Chairman and CEO Bruce Van Saun was optimistic about the mortgage business, while acknowledging that citizens had previously benefited from much higher sales margins following the Franklin American acquisition.

“We also warned that they will return to earth in the first half of the year,” Van Saun said in an interview on Tuesday. “The mixture goes from [refinance] more to buy and we are well positioned to play in the shopping realm, especially with our retail channel. “

Citizens’ net income has more than doubled since the second quarter of 2020 to $ 648 million, mainly driven by negative provision for loan losses. Earnings per share of $ 1.44 was 33 cents above the average estimate of analysts polled by FactSet Research Systems.

Providence’s total income, Rhode Island citizens fell 8% to $ 1.6 billion. Net interest income fell 3% to $ 1.1 billion, and the company’s net interest margin fell 16 basis points to 2.72% on lower rates.

Cumulative non-interest income fell 18% to $ 485 million, mainly due to lower mortgage banking revenues, which were hit by a $ 26 million decline in mortgage entitlement costs and a $ 10 million increase in mortgage agency fees at the end of the quarter …

Growth in other categories of fee and commission income softened the impact. Card fees jumped 33% to $ 64 million as consumer spending returned. Capital Markets fees rose 49% to US $ 91 million, driven by an increase in syndicated loan fees and income from M&A advisory fees.

Citizens, with $ 185 billion in assets, has added three M&A consulting firms to its capital markets business in recent years, and the company has benefited from increased M&A activity among its mid-market clients.

“We see many opportunities to help companies that want to sell themselves or sell a division, or help a private equity sponsor make money work,” said Wang Song.

In some cases, Citizens also managed to get additional money management business from clients who sold a business or part of their business, he added.

While citizens remained typically cool about the prospect of buying banks, the company continues to seek non-bank acquisitions that add to your commission generating businessaccording to Van Saun.

Wealth management firms and specialist M&A advisory centers “in the right industry verticals” continue to top the list, although Wang Son has also expressed interest in adding new lending or payments capabilities.

He added that some potential target firms have shown interest in selling their businesses sooner rather than later, given discussions in Washington, DC about raising taxes on capital gains. It can empower citizens.

“I hope we can do something this year,” said Van Saun.





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