Citizens (CFG) Q3 Earnings Lag Estimates, Provisions Rise

Citizens Financial Group CFG has reported third-quarter 2020 earnings per share of 68 cents, which lagged the Zacks Consensus Estimate of 70 cents. The bottom line, also, compared unfavorably with 97 cents in the year-ago quarter.

Considerable rise in provisions amid the coronavirus outbreak-led crisis hurt the company’s results. Elevated expenses and contraction of margin were other headwinds. However, increase in fee income on the back of a solid rise in mortgage banking and capital market fees supported revenue growth. Also, capital position remained strong.

The company reported net income of $314 million compared with $449 million in the prior-year quarter.

Fee Income Growth Aids Revenues, Costs Increase

Total revenues for the third quarter were $1.79 billion, surpassing the consensus estimate of $1.73 billion. Additionally, the top line moved up 9% year over year.

Citizens’ net interest income declined nearly 1% year over year to $1.14 billion. Also, net interest margin contracted 28 basis points (bps) to 2.82%. This was, however, partly mitigated by higher interest-earning asset yields and lower funding costs.

Non-interest income climbed 33% year over year to $654 million. The upside stemmed largely from a rise in mortgage banking, capital market fees and trust and investment services fees.

Non-interest expenses jumped 2% year over year to $988 million. The upswing highlights higher equipment and software expense given continued investments in technology along with rise in outside services and salaries and employee benefits tied to strong mortgage banking results. On an adjusted basis, expenses rose marginally during the quarter.

Efficiency ratio decreased to 55% in the third quarter from 59% in the prior-year quarter. Generally, a lower ratio is indicative of the bank’s increased efficiency.

As of Sep 30, 2020, period-end total loan and lease balances declined 1% sequentially to $124.1 billion. Also, total deposits decreased marginally to $142.9 billion.

Credit Quality Worsens

Provision for credit losses was $428 million compared with $101 million in the year-ago quarter. Also, net charge-offs jumped 94% to $219 million.

Non-accrual loans and leases were up 73% to $1.28 million. As of Sep 30, 2020, allowance for loan and lease losses increased 109% to $2.74 billion.

Capital Position

Citizens remained well capitalized in the third quarter. As of Sep 30, 2020, common equity tier-1 capital ratio was 9.8% compared with 10.3% at the end of the prior-year quarter. Further, Tier-1 leverage ratio was 9.5%, down 40 bps year over year. Total Capital ratio was 13.3%, up from 13%.

Citizens recorded an improvement in book value per share, which increased to $32.24 as of Sep 30, 2020, from $31.48 at the end of the year-earlier quarter.

Capital Deployment Update

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

Our Viewpoint

Citizens’ results highlight a decent quarter despite the impact of the coronavirus outbreak-related crisis and lower interest rates. A 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 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 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 sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Performance of Other Banks

PNC Financial PNC pulled off third-quarter 2020 positive earnings surprise of 62% on prudent expense management. Earnings per share of $3.39 surpassed the Zacks Consensus Estimate of $2.09. Also, the figure was 15% higher than the prior-year level.

U.S. Bancorp’s USB reported third-quarter 2020 earnings per share of 99 cents, which surpassed the Zacks Consensus Estimate of 93 cents. However, the bottom line compares unfavorably with $1.15 reported in the prior-year quarter.

First Republic Bank FRC delivered a positive earnings surprise of 16.7% in third-quarter 2020 aided by solid top-line strength. Earnings per share of $1.61 surpassed the Zacks Consensus Estimate of $1.38. Additionally, the bottom line climbed 22.9% from the year-ago quarter.

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