Citizen Financial (CFG) Q4 Earnings Beat, Expenses Increase

Riding on higher revenues, Citizens Financial Group CFG 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 higher revenues, was recorded. Higher deposits and lower provisions were the positives. However, increase in expenses was aheadwind.

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

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

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

Citizens Financial’s net interest income increased 8.7% year over year 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% year over year 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 were up 5.7% year over year to $898 million. The 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 balancesremained flat sequentially at $111.3 billionwhile total deposits increased 1.6% from the prior quarter to $115.1 billion.

Credit Quality Improves

As of Dec 31, 2017, allowance for loan and lease losses remained flat at $1.24 billion sequentially. Net charge-offs for the quarter declined25% year over year 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 Sep 30, 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, the company returned $315 million to shareholders. In 2017, the company 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.

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, along with lower taxes.

Citizens Financial Group, Inc. Price and EPS Surprise

Citizens Financial Group, Inc. Price and EPS Surprise | Citizens Financial Group, Inc. Quote

Citizen Financial carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

Amid an expected trading weakness, strong investment banking results and higher rates drove JPMorgan’s JPM fourth-quarter 2017 earnings of $1.76 per share, which handily surpassed the Zacks Consensus Estimate of $1.69. Results exclude one-time tax-related charge of $2.4 billion or 69 cents per share.

Wells Fargo’s WFC fourth-quarter 2017 adjusted earnings of 97 cents per share improved from the prior-year quarter earnings of 96 cents. Results included $3.35 billion after-tax benefit related to the Tax Cuts & Jobs Act, $848 million pre-tax gain from the sale of Wells Fargo Insurance Services and $3.25 billion pre-tax expenses related to litigation accruals.

Though fixed income trading income slumped as expected, Citigroup’s C fourth-quarter 2017 adjusted earnings of $1.28 per share were driven by prudent expense management and strong consumer banking. The figure easily outpaced the Zacks Consensus Estimate of $1.19. Results included non-recurring non-cash charge of $22 billion related to the tax reform.

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