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Citizens Financial's (CFG) Q3 Earnings Beat, Revenues Climb

Zacks Equity Research

Riding on strong growth in mortgage banking fees, Citizens Financial Group CFG delivered a positive earnings surprise of 2.1% in third-quarter 2019. Adjusted earnings per share came in at 98 cents, beating the Zacks Consensus Estimate of 96 cents. Also, the bottom line jumped 5% 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 and deposits 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 $449 million, up 1% year over year. Earnings were 97 cents per share, up 7%.

Fee Income Growth Drives Revenues, Loans & Deposits Rise

Total revenues for the third quarter came in at $1.64 billion, surpassing the consensus estimate of $1.63 billion. Additionally, the top line was up 5% year over year.

Citizens Financial’s net interest income (NII) declined marginally year over year to $1.15 billion. Also, net interest margin contracted 10 basis points (bps) to 3.12%. This was, however, partly mitigated by higher interest-earning asset yields given continued mix shift toward better-returning assets and modestly higher short-term rates.

Non-interest income climbed 19% year over year to $493 million. This upside stemmed from strength in almost all components of income, partially offset by reduced capital markets fees.

Non-interest expenses jumped 7% year over year to $973 million. The upswing highlights rise in all categories of expenses, partly muted by lower other operating expenses. On an adjusted basis, expenses rose 6%.

Efficiency ratio increased to 59% in the third quarter from 58% in the prior-year quarter. Generally, a higher ratio is indicative of the bank’s declined efficiency.

As of Sep 30, 2019, period-end total loan and lease balances climbed 1% sequentially to $117.9 billion. Also, total deposits increased about 1% to $124.7 billion.

Credit Quality: A Mixed Bag

Provision for credit losses jumped 29% year over year to $101 million. Also, net charge-offs for the quarter jumped 31% to $113 million. As of Sep 30, 2019, allowance for loan and lease losses increased 2% to $1.26 billion.

However, total non-performing loans and leases were down 5% to $793 million. Also, nonperforming loans and leases as a percentage of total loans and leases contracted 6 bps to 0.67%.

Solid Capital Position

Citizens Financial remained well capitalized in the third quarter. As of Sep 30, 2019, Common equity Tier 1 capital ratio was 10.3% compared with 10.8% at the end of the prior-year quarter. Further, Tier 1 leverage ratio was 9.9%, flat year over year. Total Capital ratio was 13%, down from 13.4%.

Capital Deployment Update

The company repurchased 14.1 million shares at average price of $35.43 during the September quarter. Notably, including common stock dividends, the company returned $662 million to shareholders.

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

Currently, Citizens Financial carries a Zacks Rank #4 (Sell).

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

Performance of Other Banks

Texas Capital Bancshares Inc. TCBI reported earnings per share of $1.70 in third-quarter 2019, outpacing the Zacks Consensus Estimate of $1.49. Results compare favorably with the prior-year quarter’s $1.65 as well.

M&T Bank Corporation MTB reported a negative earnings surprise of 3.9% in third-quarter 2019, on account of higher expenses and provisions. Net earnings of $3.47 per share lagged the Zacks Consensus Estimate of $3.61. The bottom line also declined 2% year over year

First Horizon National Corporation FHN reported third-quarter 2019 adjusted earnings per share of 43 cents, which surpassed the Zacks Consensus Estimate by a penny. Further, the bottom line was 19% higher than the year-ago figure.

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