Citizen Financial (CFG) Q3 Earnings Beat, Expenses Decline

Riding on higher revenues, Citizens Financial Group (NYSE:CFG) delivered a positive earnings surprise of 6.3% in third-quarter 2017. Adjusted earnings per share of 68 cents topped the Zacks Consensus Estimate of 64 cents. The figure excludes the impact of after-tax benefit from the sale of a Troubled Debt Restructuring portfolio. Also, the reported figure improved 12% year over year.

Continued growth in loan balances, which aided higher revenues, was recorded. Eased margin pressure and lower provisions were the positives. Further, lower expenses were anothertailwind.

Net income came in at $348 million, up 17% year over year.

Revenues Increase and Expenses Reduce

Total revenues for the quarter were $1.44 million, surpassing the Zacks Consensus Estimate of $1.43 million. However, revenues were up 5% year over year.

Citizens Financial’s net interest income increased 12% year over year to $1.06 billion. The rise is primarily attributable to average loan growth and improved margin. In addition, net interest margin expanded 21 basis points (bps) year over year to 3.05%, mainly due to enhanced loan yields and higher interest rates, partly mitigated by increase in funding costs.

Also, non-interest income declined12% year over year to $381 million. The fall is reflected by lower mortgage banking fees along with foreign exchange and interest rate products income.

Non-interest expenses were down 1% year over year to $858 million. The decrease reflects fall in outside services and other operating expenses.

Efficiency ratio declined to 59% in the third quarter from 63% in the prior-year quarter. Generally, lower ratio is indicative of the bank’s improved efficiency.

As of Sep 30, 2017, period end total loan and lease balances increased 1% from the prior quarter to $111.4 billion while total deposits remained flat sequentially at $113.2 billion.

Credit Quality Improves

As of Sep 30, 2017, allowance for loan and lease losses decreased 1% year over year to $1.2 billion. Also, net charge-offs for the quarter declined22% year over year to $65 million.

Provision for credit losses fell 16% year over year to $72 million. Additionally, total non-performing loans and leases were down 16% year over year to $932million.

Capital Position Weakens

Citizens Financial remained well capitalized in the quarter. As of Sep 30, 2017, Common equity Tier 1 capital ratio was 11.1% compared with 11.3% at the end of the prior-year quarter. Further, Tier 1 leverage ratio came in at 9.9% compared with 10.1% as of Sep 30, 2016. Total Capital ratio was 13.8% compared with 14.2% in the prior-year quarter.

Capital Deployment Update

As part of its 2017 Capital Plan, the company repurchased 6.5 million shares during the quarter. Notably, including common stock dividends, the company returned $315 million to shareholders as of Sep 30, 2017.

Our Viewpoint

Results highlight a decent quarter for Citizen Financial. We are optimistic as the company remains focused on several initiatives to grow revenues and improve efficiency. With a diversified traditional banking platform, Citizens Financial is well poised to benefit from the recovery of economies where it has footprint.

Citizens Financial Group, Inc. Price and EPS Surprise