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.
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-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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