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Citizens Financial's (CFG) Q4 Earnings Beat, Expenses Rise

Zacks Equity Research

Riding on higher mortgage banking fees, Citizens Financial Group CFG delivered a positive earnings surprise of 3.1% in fourth-quarter 2019. Adjusted earnings per share came in at 99 cents, beating the Zacks Consensus Estimate of 96 cents. Also, the bottom line rose 1% year over year.

Rise in fee income, on the back of solid rise in mortgage banking and card fees, supported revenue growth. Also, its capital position remained strong. Further, loans balances showed improvement. However, elevated expenses and provisions were headwinds. Also, contraction of margin posed a concern.

After considering notable items, net income came in at $450 million or 98 cents per share compared with $465 million or 96 cents reported in the prior-year quarter.

For full-year 2019, the company reported net income of $1.79 billion or $3.81 compared with $1.72 billion or $3.52 in 2018.

Fee Income Growth Drives Revenues, Loans Improve, Costs Rise

Total revenues for the fourth quarter came in at $1.64 billion, surpassing the consensus estimate of $1.63 billion. Additionally, the top line was up 3% year over year.

For 2019, the company reported net revenues of $6.49 billion, which came in line with the Zacks Consensus Estimate. Also, the top line jumped 6% from the prior-year figure.

Citizens Financial’s net interest income declined 2% year over year to $1.14 billion. Also, net interest margin contracted 19 basis points (bps) to 3.06%. This was, however, partly mitigated by higher interest-earning asset yields given continued mix shift toward better-returning assets.

Non-interest income climbed 17% year over year to $494 million. This upside stemmed from strength in almost all components of income, partially offset by reduced service charge and fees.

Non-interest expenses jumped 4% year over year to $986 million. The upswing highlights rise in all categories of expenses, partly muted by lower occupancy expenses. On an adjusted basis, expenses rose 5%.

Efficiency ratio increased to 60.28% in the fourth quarter from 59.69% in the prior-year quarter. Generally, a higher ratio is indicative of the bank’s declined efficiency.

As of Dec 31, 2019, period-end total loan and lease balances climbed 1% sequentially to $119.1 billion. Also, total deposits increased marginally to $125.3 billion.

Credit Quality: A Mixed Bag

Provision for credit losses jumped 29% year over year to $110 million. Also, net charge-offs for the quarter jumped 44% to $122 million.

However, total non-performing loans and leases were down 8% to $703 million. Also, nonperforming loans and leases as a percentage of total loans and leases contracted 7 bps to 0.59%. As of Dec 31, 2019, allowance for loan and lease losses decreased 1% to $1.25 billion.

Solid Capital Position

Citizens Financial remained well capitalized in the fourth quarter. As of Dec 31, 2019, Common equity Tier 1 capital ratio was 10% compared with 10.6% at the end of the prior-year quarter. Further, Tier 1 leverage ratio was 10%, flat year over year. Total Capital ratio was 13%, down from 13.3%.

Capital Deployment Update

The company repurchased 10.9 million shares at average price of $36.68 during the December-ended quarter. Notably, including common stock dividends, the company returned $558 million to shareholders.

In 2019, Citizens Financial repurchased 34 million shares at average price of $35.56, and including common dividends, returned $1.84 billion to shareholders.

Also, the board approved an 8% increase in its quarterly common stock dividend to 39 cents per share. The new dividend will be paid out on Feb 12 to shareholders on record as of Jan 29.

Our Viewpoint

Citizens Financial’s results highlight a strong quarter. Pick up in mortgage business helped the company to offset pressure on margin. We are further optimistic as the company continues to make investments in technology to improve customers’ experience. These apart, its progress in TOP programs and balance-sheet optimization initiatives bode well for long-term growth.

However, escalating expenses and provisions limit bottom-line expansion to some extent. Also, competitive pressure and a challenging interest rate environment pose 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-eps-surprise-chart | Citizens Financial Group, Inc. Quote

Currently, Citizens Financial carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

Hancock Whitney Corporation’s HWC fourth-quarter 2019 adjusted earnings per share of $1.06 beat the Zacks Consensus Estimate of $1.04. However, the bottom line fell 5.4% from the year-ago quarter’s reported figure.

The Bank of New York Mellon Corporation’s BK fourth-quarter 2019 adjusted earnings per share of $1.01 surpassed the Zacks Consensus Estimate of 99 cents. Moreover, the figure reflects rise of nearly 2% from the prior-year quarter.

Washington Federal’s WAFD first-quarter fiscal 2020 (ended Dec 31) adjusted earnings came in at 58 cents per share, missing the Zacks Consensus Estimate of 60 cents. Results exclude the net positive impact of two significant non-recurring items.

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