Citizens Financial's (CFG) Q2 Earnings Top, Revenues Climb

Riding on higher revenues, Citizens Financial Group CFG delivered a positive earnings surprise of 2.1% in second-quarter 2019. Adjusted earnings per share came in at 96 cents, beating the Zacks Consensus Estimate of 94 cents. Also, the bottom line improved 9.1% year over year.

After considering one-time items, net income came in at $453 million, up 7% year over year. Earnings were 95 cents per share, up 8%.

Rise in fee income and interest income supported revenue growth. Also, its capital position remained strong. However, elevated expenses and provisions were headwinds.

NII & Fee Income Drive Revenues, Loans & Deposits Decline

Total revenues for the second quarter came in at $1.63 billion, surpassing the Zacks Consensus Estimate of $1.62 billion. Additionally, the top line was up 8% year over year.

Citizens Financial’s net interest income (NII) increased 4% year over year to $1.17 billion. However, net interest margin contracted 1 basis point (bp) to 3.21% due to increase in funding costs tied to higher rates. This was, however, partly mitigated by higher interest-earning asset yields given higher rates and continued mix shift toward higher-yielding assets.

Also, non-interest income climbed 19% year over year to $462 million. This upside stemmed from strength in almost all components of income, partially offset by reduced service charges and fees.

Non-interest expenses flared up 9% year over year to $951 million. The upswing highlights rise in all categories of expenses, partly muted by lower other operating expenses.

Efficiency ratio increased to 58.41% in the second quarter from 57.95% in the prior-year quarter. Generally, a higher ratio is indicative of the bank’s declined efficiency.

As of Jun 30, 2019, period-end total loan and lease balances declined 1% sequentially to $116.8 billion, while total deposits remained almost stable at $124 billion.

Credit Quality: A Mixed Bag

Provision for credit losses jumped 14% year over year to $97 million. Also, net charge-offs for the quarter jumped 39% to $106 million.

As of Jun 30, 2019, allowance for loan and lease losses declined 2% year over year to $1.23 billion. Also, total non-performing loans and leases were down 9% to $770 million.

Solid Capital Position

Citizens Financial remained well capitalized in the second quarter. As of Jun 30, 2019, Common equity Tier 1 capital ratio was 10.5% compared with 11.2% at the end of the prior-year quarter. Further, Tier 1 leverage ratio was 10.1%, down 1 bp. Total Capital ratio was 13.4% compared with 13.8% in the prior-year quarter.

Capital Deployment Update

The company repurchased 3.5 million shares at average price of $34.64 during the June-ended quarter. Notably, including common stock dividends, the company returned $268 million to shareholders as of Jun 30, 2019.

Our Viewpoint

Citizens Financial’s results highlight a strong quarter. We are further optimistic as the company continues to make investments in technology to improve customers’ experience. Furthermore, with a diversified traditional banking platform, Citizens Financial is well poised to benefit from the recovery of economies where it has a robust footprint.

These apart, its progress in TOP programs and balance-sheet optimization initiatives bode well for long-term growth. However, escalating expenses and competitive pressure remain concerns.

Citizens Financial Group, Inc. Price, Consensus and EPS Surprise

Citizens Financial Group, Inc. Price, Consensus and EPS Surprise
Citizens Financial Group, Inc. Price, Consensus and EPS Surprise

Citizens Financial Group, Inc. price-consensus-eps-surprise-chart | Citizens Financial Group, Inc. Quote

Currently, Citizen Financial carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

SunTrust Banks' STI second-quarter 2019 adjusted earnings of $1.44 per share reflect a decline of 3.4% from the year-ago quarter’s reported figure. The Zacks Consensus Estimate for earnings for the quarter was pegged at $1.46.

BancorpSouth BXS reported second-quarter 2019 net operating earnings of 61 cents per share, which came in line with the Zacks Consensus Estimate. Also, the bottom line increased 8.9% from the prior-year quarter.

Driven by top-line strength, U.S. Bancorp’s USB second-quarter 2019 earnings per share of $1.09 surpassed the Zacks Consensus Estimate of $1.07. Also, the reported figure jumped 6.9% from the prior-year quarter.

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