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Citizens (CFG) Q1 Earnings Miss on High Costs & Provisions

Citizens Financial Group CFG has reported first-quarter 2020 adjusted earnings per share of 9 cents, lagging the Zacks Consensus Estimate of 20 cents. Also, the bottom line compares unfavorably with 93 cents in the year-ago quarter.

Results were affected by a substantial rise in provisions, which included a $463-million reserve build related to the adoption of the accounting method of Current Expected Credit Losses and coronavirus-related crisis. Elevated expenses and contraction of margin were other headwinds.

However, an increase in fee income on the back of a solid rise in mortgage banking and trust fees supported revenue growth. Further, loans and deposit balances showed improvement.

Following the release, the stock gained nearly 8% in pre-market trading, indicating that investors are optimistic about the company’s ability to face the impacts of the pandemic. Nonetheless, the full session’s price movement is expected to depict a better picture.

After considering notable items, net income was $34 million or 3 cents per share compared with $439 million or 92 cents per share reported in the prior-year quarter.

Revenues Rise on Higher Fee Income, Costs Rise

Total revenues for the first quarter were1.66 billion, surpassing the consensus estimate of $1.61 billion. Additionally, the top line was up 4% year over year.

Citizens’ net interest income remained stable year over year at $1.16 billion. Also, net interest margin contracted 14 basis points (bps) to 3.09%. This was, however, partly mitigated by higher interest-earning asset yields, given continued mix shift toward better-returning assets.

Non-interest income climbed 16% year over year to $497 million. The upside stemmed largely from a substantial rise in mortgage banking fees.

Non-interest expenses jumped 8% year over year to $1.01 billion. The upswing highlights the rise in all categories of expenses. On an adjusted basis, expenses rose 5%.

Efficiency ratio increased to 61% in the first quarter from 59% in the prior-year quarter. Generally, a higher ratio is indicative of the bank’s declined efficiency.

As of Mar 31, 2020, period-end total loan and lease balances climbed 7% sequentially to $127.5 billion. Also, total deposits increased 7% to $133.5 billion.

Credit Quality Deteriorated

Provision for credit losses was $600 million compared with $85 million in the year-ago quarter. Also, net charge-offs for the quarter jumped 54% to $137 million.

Non-accrual loans and leases were up 5% to $780 million. As of Mar 31, 2020, allowance for loan and lease losses increased 66% to $2.21 billion.

Capital Position

Citizens remained well-capitalized in the first quarter. As of Mar 31, 2020, common equity tier-1 capital ratio was 9.4% compared with 10.5% at the end of the prior-year quarter. Further, Tier-1 leverage ratio was 9.6%, down 40 bps year over year. Total Capital ratio was 12.5%, down from 13.4%.

Capital Deployment Update

The company repurchased 7.5 million shares at an average price of $35.77 in the March-end quarter. Notably, including common stock dividends, the company returned $438 million to shareholders.

Our Viewpoint

Citizens’ results highlight a decent quarter despite the impact of the coronavirus-related crisis and lower interest rates. Pick up in mortgage business helped the company to offset the pressure on margin. We are further optimistic as the company continues to make investments in technology to improve customers’ experience. Apart from these, its progress in TOP programs and balance-sheet optimization initiatives bodes 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

KeyCorp’s KEY first-quarter 2020 earnings of 12 cents per share surpassed the Zacks Consensus Estimate of 6 cents. The figure takes into account the Current Expected Credit Losses accounting methodology, the impact of the coronavirus outbreak and market-related valuation adjustments.

The Bank of New York Mellon Corporation’s BK first-quarter 2020 earnings per share of $1.05 surpassed the Zacks Consensus Estimate of 90 cents. Moreover, the figure reflects a rise of 11.7% from the prior-year quarter.

PNC Financial PNC reported first-quarter 2020 earnings per share of $1.95, surpassing the Zacks Consensus Estimate of $1.38 amid coronavirus concerns. The bottom line, however, reflects a 25.3% decline from the prior-year quarter’s reported figure.

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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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