Citizen Financial's (CFG) Q1 Earnings Top, Expenses Flare Up

Riding on higher revenues, Citizens Financial Group, Inc. CFG delivered a positive earnings surprise of 4.5% in first-quarter 2019. Adjusted earnings per share came in at 93 cents, beating the Zacks Consensus Estimate of 89 cents. Also, the reported figure improved 19.2% year over year. Results exclude one-time items of $4 million or 1 cent per share.

Including the benefit, net income came in at $439 million, up 13% year over year. Earnings came in at 92 cents per share, up 18% from the prior-year quarter reported tally.

Continued growth in loan and deposit balances aiding higher revenues was recorded. Further, pressure on margins seems to be easing. However, elevated expenses and provisions were headwinds.

NII & Fee Income Drive Revenues, Loans & Deposits Growth Continues

Total revenues for the first quarter came in at $1.59 billion, surpassing the Zacks Consensus Estimate of $1.58 billion. Additionally, revenues were up 9% year over year.

Citizens Financial’s net interest income increased 6% year over year to $1.2 billion. The rise was primarily attributable to loan growth and elevated net interest margin. In addition, net interest margin expanded 4 basis points (bps) year over year to 3.25%, mainly backed by enhanced loan yields and the benefit of higher short-term rates. This was, however, partly mitigated by the impact of lower long-term rates and elevated deposit costs.

Also, non-interest income climbed 15% year over year to $428 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 6% year over year to $932 million. The upswing highlights rise in all categories of expenses, partly muted by lower other operating expenses.

Efficiency ratio declined to 59% in first-quarter 2019 from the prior-year quarter’s 60%. Generally, a lower ratio is indicative of the bank’s improved efficiency.

As of Mar 31, 2019, period-end total loan and lease balances inched up 1% sequentially to $117.6 billion, while total deposits rose 4% from the prior quarter to $123.9 billion.

Credit Quality: A Mixed Bag

As of Mar 31, 2019, allowance for loan and lease losses remained almost stable year over year at $1.2 billion. Provision for credit losses grew 9% year over year to $85 million.

Also, net charge-offs for the quarter jumped 27% year over year to $89 million. Nonetheless, total non-performing loans and leases were down 10% year over year to $780 million.

Solid Capital Position

Citizens Financial remained well capitalized in the Mar-end quarter. As of Mar 31, 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 came in at 10%, in line with the prior-year quarter figure. Total Capital ratio was 13.4% compared with 13.9% in the prior-year quarter.

Capital Deployment Update

The company repurchased 5.8 million shares at average price of $34.34 during the Jan-Mar quarter. Notably, including common stock dividends, the company returned $349 million to shareholders as of Mar 31, 2019.

Outlook 2019

The company’s Tapping Our Potential (“TOP”) initiatives remain on track. In 2019, TOP V is expected to record pre-tax annualized benefit of about $95-$105 million.

Our Viewpoint

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

Currently, Citizen 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

Driven by prudent expense management, Wells Fargo WFC recorded a positive earnings surprise of 11.1% in first-quarter 2019. Earnings of $1.20 per share surpassed the Zacks Consensus Estimate of $1.08. Results also came in above the prior-year quarter adjusted earnings of $1.12. Higher net interest income and fall in expenses aided the company’s performance.

PNC Financial PNC reported positive earnings surprise of 0.8% in first-quarter 2019. Earnings per share of $2.61 surpassed the Zacks Consensus Estimate of $2.59. Further, the bottom line reflected a 7.4% jump from the prior-year quarter. Higher revenues, driven by easing margin pressure and escalating fee income, aided the results. However, rise in costs and provisions were headwinds.

Higher rates and improved investment banking performance drove JPMorgan’s JPM first-quarter 2019 earnings of $2.65 per share, which outpaced the Zacks Consensus Estimate of $2.32. Also, the figure was up 12% from the prior-year quarter. Investment banking fees recorded 9% growth with 12% rise in advisory fees and 21% increase in debt underwriting income, partially offset by 23% decline in equity underwriting fees.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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