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Citizens (CFG) Q4 Earnings Beat Estimates on Fee Income Growth

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Aided by higher revenues, Citizens Financial Group (CFG - Free Report) pulled off fourth-quarter 2020 positive earnings surprise of 39.4%. Adjusted earnings per share of $1.04 surpassed the Zacks Consensus Estimate of 91 cents. Also, the bottom line compares favorably with 99 cents in the year-ago quarter.

Increase in fee income on the back of a solid rise in mortgage banking and capital market fees supported revenue growth. Also, the capital position remained strong. However, rise in provisions and elevated expenses hurt the company’s results. Lower loans and contraction of margin were other headwinds.

Results excluded certain non-recurring items. After considering those, the company reported net income of $456 million or 99 cents per share compared with $450 million or 98 cents in the prior-year quarter.

In full-year 2020, net income totaled $1.06 billion or $2.22 per share, down from the prior year’s $1.79 billion or $3.81 per share. Full-year earnings, however, outpaced the Zacks Consensus Estimate of $2.16.

Fee Income Growth Aids Revenues, Costs Increase

In 2020, revenues were $6.91 billion, up 6.4% year over year. Also, the top line beat the Zacks Consensus Estimate of $6.9 billion.

Total revenues in the fourth quarter were $1.71 billion, surpassing the consensus estimate of $1.70 billion. Additionally, the top line moved up 4% year over year.

Citizens’ net interest income declined nearly 1% year over year to $1.13 billion. Also, net interest margin contracted 30 basis points (bps) to 2.75%. This was, however, partly mitigated by higher interest-earning asset yields and lower funding costs.

Non-interest income climbed 17% year over year to $578 million. The upside stemmed largely from a rise in mortgage banking, capital market fees and letter of credit and loan fees.

Non-interest expenses jumped 3% year over year to $1.01 billion. 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 2% during the quarter.

Efficiency ratio decreased to 59% in the fourth quarter from 60% in the prior-year quarter. Generally, a lower ratio is indicative of the bank’s increased efficiency.

As of Dec 31, 2020, period-end total loan and lease balances declined 1% sequentially to $123.1 billion. However, total deposits increased 3% to $147.2 billion.

Credit Quality Worsens

Provision for credit losses was $124 million compared with $110 million in the year-ago quarter. Also, net charge-offs jumped 56% to $190 million.

Non-accrual loans and leases were up 45% to $1.02 million. As of Dec 31, 2020, allowance for loan and lease losses increased 106% to $2.67 billion.

Capital Position

Citizens remained well capitalized in the fourth quarter. As of Dec 31, 2020, common equity tier-1 capital ratio was 10%, stable year over year. Further, Tier-1 leverage ratio was 9.4%, down 60 bps. Total capital ratio was 13.4%, up from 13%.

Citizens recorded an improvement in book value per share, which increased to $32.72 as of Dec 31, 2020, from $32.08 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.

In 2020, the company returned $892 million to common shareholders, including share repurchases and common dividends compared with $1.84 billion last year.

Notably, following the approval from Federal Reserve to buy back shares last month, Citizens’ board approved a share buyback program of up to $750 million of its common stock, beginning first-quarter 2021.

Our Viewpoint

Citizens’ results highlight a decent quarter despite the slowdown due to pandemic 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.

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

Comerica (CMA - Free Report) delivered a fourth-quarter 2020 positive earnings surprise of 23.1%. Earnings per share of $1.49 easily surpassed the Zacks Consensus Estimate of $1.21. However, bottom line came in lower than the prior-year quarter figure of $1.85.

PNC Financial (PNC - Free Report) pulled off fourth-quarter 2020 positive earnings surprise of 23% on prudent expense management. Earnings per share of $3.26 surpassed the Zacks Consensus Estimate of $2.65. Also, the bottom line was 9.8% higher than the prior-year level.

Citigroup (C - Free Report) delivered an earnings surprise of 53.3% in fourth-quarter 2020 on reserve releases. Income from continuing operations per share of $2.07 for the quarter handily outpaced the Zacks Consensus Estimate of $1.35. Results were, however, down 3.7% from the prior-year quarter.

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