Why Is Citizens Financial (CFG) Down 1.9% Since Its Last Earnings Report?

It has been about a month since the last earnings report for Citizens Financial Group, Inc.CFG . Shares have lost about 1.9% in the past month.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Citizen Financial Q4 Earnings Beat, Expenses Increase

Riding on higher revenues, Citizens Financial delivered a positive earnings surprise of 6% in fourth-quarter 2017. Adjusted earnings per share of 71 cents topped the Zacks Consensus Estimate of 67 cents. The figure excludes the impact of after-tax benefit from the sale of a Troubled Debt Restructuring portfolio and tax reform. Also, the reported figure improved 29% year over year.

Continued expansion of margins, which aided increase in revenues, was recorded. Higher deposits and lower provisions were other positives. However, elevated expenses were a headwind.

After considering the benefits from notable items, Citizens Financial reported net income of $666 million.

For full-year 2017, the company reported net income of $1.64 billion or $3.25 per share compared with $1.03 billion or $1.97 per share in 2016.

Increase in Revenues Partially Offset by Higher Expenses

In 2017, the company reported total revenues of $5.71 billion, which lagged the consensus estimate of $5.98 billion. However, it compares favorably with the year-ago figure of $5.26 billion.

Total revenues for the quarter were $1.48 million that surpassed the Zacks Consensus Estimate of $1.45 million. Also, revenues were up 6.3% year over year.

Citizens Financial's net interest income increased 8.7% from the prior-year quarter to $1.08 billion. The rise was primarily attributable to average loan growth and improved margin. In addition, net interest margin expanded 18 basis points (bps) year over year to 3.08%. This was mainly due to higher interest-earning asset yields given balance sheet optimization initiatives and higher interest rates, partly mitigated by increase in funding costs.

Also, non-interest income climbed 6.7% from the year-ago quarter to $404 million. The rise was driven by trust and investment services, capital markets and card fees, partially offset by lower mortgage banking fees.

Non-interest expenses increased 5.7% year over year to $898 million. This increase reflects rise in almost all components.

Efficiency ratio declined to 61% in the fourth quarter from 62% in the prior-year quarter. Generally, lower ratio is indicative of the bank's improved efficiency.

As of Dec 31, 2017, period end total loan and lease balances remained flat sequentially at $111.3 billion while total deposits increased 1.6% from the prior quarter to $115.1 billion.

Credit Quality Improves

As of Dec 31, 2017, Aallowance for loan and lease losses remained flat year over year at $1.24 billion. Net charge-offs for the quarter declined 25% from the year-ago quarter to $78 million.

Provision for credit losses fell 19% year over year to $83 million. Additionally, total non-performing loans and leases were down 17% year over year to $871 million.

Capital Position Weakens

Citizens Financial remained well capitalized in the quarter. As of Dec 31, 2017, Common Equity Tier 1 capital ratio was 11.1% compared with 11.2% at the end of the prior-year quarter. Further, Tier 1 leverage ratio came in at 9.9%, flat with Dec 31, 2016 level. Total Capital ratio was 13.8% compared with 14% in the prior-year quarter.

Capital Deployment Update

As part of its 2017 Capital Plan, the company repurchased 8.8 million shares during the quarter. Notably, including common stock dividends, it returned $315 million to shareholders. In 2017, it repurchased 22.4 million shares and returned $1.14 billion to common shareholders.

Also, the board of directors announced a 22% hike in its common stock dividend to 22 cents per share. The new dividend is payable on Feb 15 to shareholders on record as of Feb 1.


First-quarter 2018

The company expects 1% sequential loan growth. Also, loan-to-deposit ratio is expected to be about 98%.

NIM is expected to expand by five bps sequentially on the back of rate hike in December 2017. NII is likely to decline by $16 million from prior quarter due to day count impact.

Non-interest income is anticipated to remain stable or rise modestly with the expectation of seasonal impacts to be offset by capital market strength.

Management expects non-interest expenses to rise 3% from the prior-quarter level due to seasonal compensation impacts.

Provision expenses are expected to be in the range of $85-$95 million. The tax rate is expected to be 23%, given the impact of 0.5% historical tax credit program.

Further, at the end of the first quarter, Basel III common equity tier 1 ratio is estimated to be 11.1%.

Full-year 2018

Average loans are expected to grow in the range of 4.5-5.5% while average deposit growth is expected to be between 4.5-6%. Loan-to-deposit ratio is expected to be between 97-98%.

Management expects NII to grow by 7-9%. Also, average earning assets are expected to grow 4-5.5% in 2018. NIM might expand by 9-12 bps on the back of December 2017 rate hike and assumption of further hikes in April and October 2018.

Non-interest income is expected to grow by 4.5-6%.

Expenses are anticipated to increase by 3.25-3.75%. Also, the company targets to deliver positive operating leverage of 3-5%.

Notably, efficiency ratio is expected to improve by 200-250 bps.

Provision expenses are expected to be in the range of $425-$475 million.

Net charge-off is expected to rise modestly with additional reserve build to fund loan growth. The tax rate is expected to be 22.5%.

The company is targeting a dividend payout ratio of nearly 30% for 2018. Year-end Basel III common equity tier 1 ratio is estimated to be between 10.6-10.8%.

Efficiency Initiatives

During the second quarter of 2015, Citizens Financial announced Top II revenue and expense initiatives, which resulted in a pre-tax benefit of roughly $105 million in 2016. Following its success, Citizens Financial launched Top III program. The program is expected to have delivered a pre-tax benefit in excess of $115 million. Further, the company has also launched the Top IV program. This new program is expected to achieve pre-tax benefit of $95-$110 million by the end of 2018.

TOP IV Efficiency Initiatives

Citizens Financial launched TOP IV efficiency initiatives in second-quarter 2017. These efficiency initiatives are anticipated to generate pre-tax revenues and expense benefits of $95-$110 million in 2018.


The company expects a benefit of $50-$65 million by the end of 2018 through efficiency initiatives driven by following factors -

  • The company plans to focus on centralization/centers of excellence and simplification of roles and responsibilities.
  • Also, it targets to achieve end-to-end re-designing of processes and leveraging automation to reduce costs and improve efficiency.
  • Citizen Financial plans to achieve cost efficiencies by streamlining customer journeys.
  • The company seeks to recognize contract efficiencies and demand-management opportunities.
  • On the technological front, the company plans to optimize infrastructure and streamline network support.

Revenue Enhancement

Citizens Financial targets a run-rate benefit of $45 million by the fourth quarter of 2018. It is expected to be driven by the following factors-

  • The company plans to build a digital mortgage platform that reaches out to consumers directly. Also, it seeks to leverage the call center to offer 'service to solutions'.
  • Citizen Financial plans to attract new customers and retaining the existing ones by enhancing customer journeys in targeted areas.
  • It targets to expand corporate partners in installment lending and to expand C&I lending in the Southeast.
  • The company aims to improve fee income through several initiatives.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been three revisions higher for the current quarter compared to one lower.

Citizens Financial Group, Inc. Price and Consensus

Citizens Financial Group, Inc. Price and Consensus | Citizens Financial Group, Inc. Quote

VGM Scores

At this time, CFG has a subpar Growth Score of D, though it is lagging a bit on the momentum front with an F. However, the stock was also allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

The stock is suitable solely for value based on our styles scores.


Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise CFG has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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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.

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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