Citizens Financial (CFG) Q2 Earnings Beat, Revenues Increase

Riding on higher revenues, Citizens Financial Group CFG delivered a positive earnings surprise of 2.3% in second-quarter 2018. Earnings per share of 88 cents topped the Zacks Consensus Estimate of 66 cents.

The reported figure compares favorably with adjusted earnings of 63 cents recorded in prior-year quarter. The adjusted earnings figure excludes a pre-tax $26 million impact related to impairments on aircraft lease assets.

The company experienced continued expansion of margins and loan growth, which aided higher revenues. Also, higher deposits and lower expenses were some other positives. However, increase in provisions was the main undermining factor.

The company reported net income of $425 million, up 34% from $318 million recorded in the year-ago quarter.

Revenues Increase, Expenses Decline

Total revenues for the quarter were $1.51 billion, in line with the Zacks Consensus Estimate. The reported figure was up 8% year over year. On an underlying basis, total revenues increased 7%.

Citizens Financial’s net interest income increased 9% year over year to $1.12 billion. The rise was primarily attributable to average loan growth and improved margin. In addition, net interest margin expanded 21 basis points (bps) year over year to 3.18%. This was mainly due to higher interest-earning asset yields given balance sheet optimization initiatives and improving loan mix, partly mitigated by increase in deposit and funding costs.

Non-interest income increased 5% to $388 million. The rise was due to growth in capital markets fees, foreign exchange and interest rate products, trust and investment services fees and service charges. On an underlying basis, noninterest income climbed 2%.

Non-interest expenses were down 1% year over year to $875 million. The decrease reflects lower salaries and employee benefits along with equipment expenses. On an adjusted basis, expenses increased 3%.

Efficiency ratio declined to 58% in the second quarter from 62% in the prior-year quarter. Generally, lower ratio is indicative of the bank’s improved efficiency.

As of Jun 30, 2018, period end total loan and lease balances increased nearly 2% sequentially to $114.1 billion while total deposits increased 1% from the prior quarter to $117.1 billion.

Credit Quality Improves

As of Jun 30, 2018, net charge-offs for the quarter declined 1% year over year to $76 million. Additionally, total non-performing loans and leases were down 18% to $845 million.

However, allowance for loan and lease losses increased 3% to $1.25 billion on a year-over-year basis. Also, provision for credit losses increased 21% to $85 million.

Capital Position

Citizens Financial remained well capitalized in the quarter. As of Jun 30, 2018, Common Equity Tier 1 capital ratio was 11.2%, flat year over year. Further, Tier 1 leverage ratio came in at 10.2%, up 3 bps from the year-ago quarter. Total Capital ratio was 13.9% compared with 14% in the prior-year quarter.

Capital Deployment Update

As part of its 2017 Capital Plan, the company repurchased 3.6 million shares during the quarter. Notably, including common stock dividends, the company returned $257 million to its shareholders.

Further, the company’s board of directors declared a 23% hike in common stock dividend for third quarter to 27 cents per share. The dividend will be paid on Aug 15 to shareholders of record at the close on Aug 1.

Other Developments

Citizens Financial launched of the next phase of its Tapping Our Potential (TOP) efficiency program that aims at driving continuous improvement in the overall efficiency and effectiveness of the organization while self-funding investments to drive future growth. The new TOP V program is expected to deliver pre-tax expense and revenue enhancements of nearly $90-$100 million by the end of 2019.

Our Viewpoint

Results highlight a strong quarter for Citizens Financial. We are optimistic as the company continues make investments in technology in order to improve its customers’ experience. Further, with a diversified traditional banking platform, Citizens Financial is well poised to benefit from the recovery of economies where it has footprint. Also, its progress in TOP programs and balance sheet optimization initiatives bode well for long term.

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

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

Citizens Financial carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

Fifth Third Bancorp FITB delivered a notable positive earnings surprise of 10.5% in second-quarter 2018. Adjusted earnings per share of 63 cents surpassed the Zacks Consensus Estimate of 57 cents. However, including certain one-time items, the bottom line came in at 80 cents, surging 78% year over year.

BancorpSouth BXS reported second-quarter 2018 operating earnings of 56 cents per share, beating the Zacks Consensus Estimate by a penny. Also, the bottom line compared favorably with the year-ago quarter earnings of 41 cents.

Reflecting top-line strength and lower provisions, U.S. Bancorp’s USB second-quarter 2018 earnings per share of $1.02 outpaced the Zacks Consensus Estimate by a penny. Also, results came ahead of the prior-year quarter earnings of 85 cents.

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