Citizen Financial (CFG) Stock Rises On Q3 Earnings Beat

Driven by higher revenues, Citizens Financial Group, Inc. (NYSE:C) delivered a positive earnings surprise of 6% in third-quarter 2016. Adjusted earnings per share came in at 52 cents, beating the Zacks Consensus Estimate of 49 cents. Also, the reported figure improved 30% year over year, on an adjusted basis.

Following the earnings release, Citizens Financial gained over 2% at the beginning of the trading session. This is perhaps due to the earnings beat which came on the back of higher net interest income (NII) as well as fee income. However, we will get a fair idea about the price reaction following the completion of today’s trading session.

The quarter witnessed continued growth in loan as well as deposit balances, while maintaining a strong capital position. On the downside, the company recorded increased expenses and provisions.

Net income available to common shareholders jumped 27% year over year to $271 million, on an adjusted basis.

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

Total revenue for the quarter was $1.38 billion, surpassing the Zacks Consensus Estimate of $1.33 billion. Further, revenues improved 14% year over year.

Citizens Financial’s net interest income increased 10% year over year to $945 million. The rise was primarily attributable to average loan growth. Also, net interest margin expanded 8 basis points (bps) year over year to 2.84% mainly due to enhanced loan yields, primarily resulting from the company’s initiatives to improve pricing and portfolio mix.

Also, non-interest income climbed 23% year over year to $435 million. The quarter recorded a $72 million TDR Transaction gain. The company witnessed solid growth in mortgage banking fees and capital markets fees. On an adjusted basis, non-interest income increased 4% year over year.

Non-interest expenses were up 9% year over year to $867 million. The rise reflects $36 million of significant items, mainly in salaries and employee benefits, outside services and other Expense. On an adjusted basis, non-interest expenses increased 4% year over year.

Efficiency ratio declined to 63% in third-quarter 2016 from 66% in the prior-year quarter. Generally, lower ratio is indicative of the improved efficiency of the bank.

As of Sep 30, 2016, period end total loan and lease balances increased 8% year over year to $105.5 billion, reflecting growth in commercial and retail loan portfolios. Period-end total deposits rose 6% from the prior-year quarter to $108.3 billion.

Deteriorating Credit Quality

As of Sep 30, 2016, allowance for loan and lease losses increased 3% year over year to $1.24 billion. Provision for credit losses increased 13% year over year to $86 million.

Also, net charge-offs for the quarter increased 11% year over year to $83 million. Additionally, total non-performing loans and leases climbed 7% year over year to $1.11 billion.

Strong Capital Position

Citizens Financial remained well capitalized in the quarter. As of Sep 30, 2016, Common equity Tier 1 capital ratio was 11.3% compared with 11.8% at the end of the prior-year quarter. Further, leverage ratio came in at 10.1% versus 10.4% as of Sep 30, 2015.

Share Repurchase

As part of the company’s 2016 Capital Plan, the company repurchased 11.1 million shares at an average price of $22.60 per share, during third-quarter 2016.

Outlook – 4Q16

Compared with the third-quarter 2016 adjusted results, loans are projected to grow in the range of 1.5–2%, while NIM is expected to remain essentially flat. The company expects stable non-interest income.

Expenses are estimated to grow modestly. While broader credit trends are anticipated to remain favorable, provisions may reflect moderate growth.

Loan to deposit ratio at the end of the fourth quarter is estimated at 99%.

Our Viewpoint

Results highlight a decent quarter for Citizen Financial. We remain optimistic as the company remains focused on several of its initiatives to grow revenues and improve efficiency. With a diversified traditional banking platform, Citizens Financial remains well poised to benefit from a recovery in the economy of regions where it has a footprint. However, regulatory issues as well as competitive pressure remain matters of concern.

CITIZENS FIN GP Price, Consensus and EPS Surprise

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 Major Banks

Supported by strong top-line growth, Wells Fargo & Company’s (NYSE:WFC) third-quarter 2016 earnings recorded a positive surprise of about 1%. Earnings of $1.03 per share beat the Zacks Consensus Estimate by a penny. However, it compared unfavorably with the prior-year quarter’s earnings of $1.05 per share.

Driven by decline in operating expenses, Citigroup Inc. (NYSE:C) delivered a positive earnings surprise of nearly 8% in third-quarter 2016. The company’s earnings from continuing operations per share of $1.25 for the quarter outpaced the Zacks Consensus Estimate of $1.16. However, earnings compared unfavorably with the year-ago figure of $1.36 per share.

Driven by solid growth in mortgage banking revenues U.S. Bancorp’s (NYSE:USB) third-quarter 2016 earnings per share of 84 cents increased 3.7% year over year. Also, earnings came in line with the Zacks Consensus Estimate.

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