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Citizens (CFG) Q2 Earnings Beat Estimates on Higher Revenues

Citizens Financial Group CFG has reported second-quarter 2020 earnings per share of 53 cents, which surpassed the Zacks Consensus Estimate of 9 cents. The bottom line, however, compares unfavorably with 96 cents in the year-ago quarter.

Increase in fee income on the back of a solid rise in mortgage banking and capital market fees supported revenue growth. Further, deposit balances showed improvement. Also, capital position remained strong.

However, credit quality deteriorated amid the coronavirus outbreak-led crisis. Also, elevated expenses and contraction of margin were other headwinds.

Following the release, the stock gained nearly 4% 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.

The company reported net income of $253 million compared with $453 million in the prior-year quarter.

Fee Income Growth Aids Revenues, Costs Increase

Total revenues for the second quarter were $1.75 billion, surpassing the consensus estimate of $1.68 billion. Additionally, the top line moved up 7% year over year.

Citizens’ net interest income declined nearly 1% year over year to $1.16 billion. Also, net interest margin contracted 33 basis points (bps) to 2.87%. This was, however, partly mitigated by higher interest-earning asset yields and lower funding costs.

Non-interest income climbed 28% year over year to $590 million. The upside stemmed largely from a rise in mortgage banking and capital market fees.

Non-interest expenses jumped 3% year over year to $979 million. The upswing highlights the rise in almost all categories of expenses. On an adjusted basis, expenses rose 2%.

Efficiency ratio increased to 56% in the first quarter from 58% in the prior-year quarter. Generally, a lower ratio is indicative of the bank’s increased efficiency.

As of Jun 30, 2020, period-end total loan and lease balances declined 1% sequentially to $125.7 billion. However, total deposits increased 8% to $143.6 billion.

Credit Quality Worsens

Provision for credit losses was $464 million compared with $97 million in the year-ago quarter. Also, net charge-offs for the quarter jumped 39% to $147 million.

Non-accrual loans and leases were up 36% to $990 million. As of Jun 30, 2020, allowance for loan and lease losses increased 91% to $2.53 billion.

Capital Position

Citizens remained well-capitalized in the second quarter. As of Jun 30, 2020, common equity tier-1 capital ratio was 9.6% compared with 10.5% at the end of the prior-year quarter. Further, Tier-1 leverage ratio was 9.3%, down 80 bps year over year. Total Capital ratio was 13.1%, down from 13.4%.

Citizens recorded an improvement in book value per share, which increased to $32.13 as of Jun 30, 2020, from $30.88 at the end of the year-earlier quarter.

Capital Deployment Update

The company made no share repurchases during the quarter. Notably, including common stock dividends, it returned $168 million to shareholders.

Our Viewpoint

Citizens’ results highlight a decent quarter despite the impact of the coronavirus outbreak-related crisis and lower interest rates. Pick up in mortgage business supported the company’s fee income growth. We are further optimistic as it 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

Truist Financial’s TFC second-quarter 2020 adjusted earnings of 82 cents per share surpassed the Zacks Consensus Estimate of 64 cents. Results excluded restructuring charges and BB&T-SunTrust Banks merger-related charges, incremental operating expenses related to the merger, securities gains, and losses from the early extinguishment of long-term debt.

U.S. Bancorp’s USB reported second-quarter 2020 earnings per share of 41 cents, which surpassed the Zacks Consensus Estimate of 34 cents. However, the bottom line compared unfavorably with $1.09 reported in the prior-year quarter.

PNC Financial PNC reported second-quarter 2020 loss from continuing operations per share of $1.90 as against earnings of $2.47 reported in the prior-year quarter. The Zacks Consensus Estimate for second-quarter earnings was pegged at 88 cents. Higher provisions due to the coronavirus pandemic’s crippling impact on the economy resulted in this dismal performance.

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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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