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Citizen Financial (CFG) Stock Gains on Q2 Earnings Beat
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Higher revenues drove Citizens Financial Group, Inc. (CFG - Free Report) to deliver a positive earnings surprise of nearly 7% in second-quarter 2016. Earnings per share came in at 46 cents, beating the Zacks Consensus Estimate of 43 cents. Also, the reported figure improved 15% 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 higher net interest income. However, we will get a fair idea about the price reaction following the completion of today’s trading session.
Also, the quarter witnessed continued growth in loan as well as deposit balances, while maintaining a strong capital position. On the flip side, the company recorded a fall in non-interest income and a rise in provisions. Expenses on an adjusted basis increased.
Net income available to common shareholders increased 13% year over to $243 million, on an adjusted basis.
Total revenue for the quarter was $1.28 billion, surpassing the Zacks Consensus Estimate of $1.26 billion. Further, revenues improved 7% year over year.
Citizens Financial’s net interest income increased 10% year over year to $923 million. The rise was primarily attributable to average loan growth. Also, net interest margin improved 12 basis points (bps) year over year to 2.84% mainly due to enhanced loan yields, resulting from the company’s initiatives to improve pricing and portfolio mix.
However, non-interest income edged down 1% year over year to $355 million. The decline was mainly due to a revenue fall in several fee categories including card, trust & investment services mortgage banking, and foreign exchange and letter of credit. These decreases were partially offset by higher service charges & fees, and capital markets fees.
Non-interest expense decreased 2% year over year to $827 million. The decline was mainly due to reduced costs tied with outside services, occupancy and equipment, partially offset by higher salaries and employee benefits and amortization of software. Notably, the prior-year quarter included $40 million in restructuring charges and special items.
On an adjusted basis, non-interest expenses increased 3% year over year.
Efficiency ratio declined to 65% in second-quarter 2016 from 67% in the prior-year quarter. Generally, a lower ratio is indicative of the improved efficiency of the bank.
As of Jun 30, 2016, period end total loan and lease balances increased 7% year over year to $104.4 billion, reflecting growth in commercial and retail loan portfolios. Period end total deposits rose 6% from the prior-year quarter to $106.3 billion.
Mixed Credit Quality
As of Jun 30, 2016, allowance for loan and lease losses increased 4% year over year to $1.25 billion. Provision for credit losses increased 17% year over year to $90 million.
However, net charge-offs for the quarter declined 17% year over year to $65 million. Also, total nonperforming loans and leases edged down 1% year over year to $1.04 billion.
Strong Capital Position
Citizens Financial remained well capitalized in the quarter. As of Jun 30, 2016, Common equity Tier 1 capital ratio was 11.5% compared with 11.8% at the end of the prior-year quarter. Further, leverage ratio came in at 10.3% versus 10.4% as of Jun 30, 2015.
Other Developments
Citizens Financial remains on track with its several revenue and efficiency initiatives. Further it announced the launch of TOP III efficiency initiatives which are anticipated to generate pre-tax revenue and expense benefits of $73–$90 million and $10–$15 million of tax benefits in 2017.
The company also completed the sale of consumer real estate-secured loans classified as troubled debt restructurings. The transaction is expected to result in a third-quarter 2016 pre-tax gain of around $70 million on the sale of $310 million of loans held for sale. The company intends to utilize about 30–40% of this gain to fund costs tied with its efficiency and balance sheet optimization initiatives in third-quarter 2016.
Outlook – 3Q16
Compared with the second-quarter 2016, loans are predicted to grow approximately 1.5%, while NIM is expected to decline slightly. The company expects low single-digit growth in non-interest income.
However, expenses and provisions are anticipated to be stable. Loan to deposit ratio at the end of the quarter is estimated at 99%.
Our Viewpoint
Results reflect 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, a continuous decline in mortgage banking revenues, regulatory issues as well as competitive pressure remain matters of concern.
Currently, Citizens Financial carries a Zacks Rank #4 (Sell).
Among major banks, JPMorgan Chase & Co. (JPM - Free Report) kick-started the second-quarter earnings season on a positive note. Driven by improved trading revenues, the company reported earnings of $1.55 per share that handily outpaced the Zacks Consensus Estimate of $1.43. Also, the figure reflects a 1% rise from the year-ago period. Notably, the results included a legal benefit of $430 million.
Citigroup Inc. (C - Free Report) came out with second-quarter 2016 earnings from continuing operations per share of $1.25, handily beating the Zacks Consensus Estimate of $1.09. Results were primarily aided by lower expenses, partially offset by reduced revenues.
Higher provisions and lower revenues led Bank of America Corporation’s (BAC - Free Report) second-quarter 2016 earnings to decline 16% year over year to 36 cents per share. However, earnings surpassed the Zacks Consensus Estimate of 34 cents. Results reflected improved fixed income trading revenues and efficient cost control.
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Citizen Financial (CFG) Stock Gains on Q2 Earnings Beat
Higher revenues drove Citizens Financial Group, Inc. (CFG - Free Report) to deliver a positive earnings surprise of nearly 7% in second-quarter 2016. Earnings per share came in at 46 cents, beating the Zacks Consensus Estimate of 43 cents. Also, the reported figure improved 15% 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 higher net interest income. However, we will get a fair idea about the price reaction following the completion of today’s trading session.
Also, the quarter witnessed continued growth in loan as well as deposit balances, while maintaining a strong capital position. On the flip side, the company recorded a fall in non-interest income and a rise in provisions. Expenses on an adjusted basis increased.
Net income available to common shareholders increased 13% year over to $243 million, on an adjusted basis.
Revenues Rise, Loan Growth Continue
Total revenue for the quarter was $1.28 billion, surpassing the Zacks Consensus Estimate of $1.26 billion. Further, revenues improved 7% year over year.
Citizens Financial’s net interest income increased 10% year over year to $923 million. The rise was primarily attributable to average loan growth. Also, net interest margin improved 12 basis points (bps) year over year to 2.84% mainly due to enhanced loan yields, resulting from the company’s initiatives to improve pricing and portfolio mix.
However, non-interest income edged down 1% year over year to $355 million. The decline was mainly due to a revenue fall in several fee categories including card, trust & investment services mortgage banking, and foreign exchange and letter of credit. These decreases were partially offset by higher service charges & fees, and capital markets fees.
Non-interest expense decreased 2% year over year to $827 million. The decline was mainly due to reduced costs tied with outside services, occupancy and equipment, partially offset by higher salaries and employee benefits and amortization of software. Notably, the prior-year quarter included $40 million in restructuring charges and special items.
On an adjusted basis, non-interest expenses increased 3% year over year.
Efficiency ratio declined to 65% in second-quarter 2016 from 67% in the prior-year quarter. Generally, a lower ratio is indicative of the improved efficiency of the bank.
As of Jun 30, 2016, period end total loan and lease balances increased 7% year over year to $104.4 billion, reflecting growth in commercial and retail loan portfolios. Period end total deposits rose 6% from the prior-year quarter to $106.3 billion.
Mixed Credit Quality
As of Jun 30, 2016, allowance for loan and lease losses increased 4% year over year to $1.25 billion. Provision for credit losses increased 17% year over year to $90 million.
However, net charge-offs for the quarter declined 17% year over year to $65 million. Also, total nonperforming loans and leases edged down 1% year over year to $1.04 billion.
Strong Capital Position
Citizens Financial remained well capitalized in the quarter. As of Jun 30, 2016, Common equity Tier 1 capital ratio was 11.5% compared with 11.8% at the end of the prior-year quarter. Further, leverage ratio came in at 10.3% versus 10.4% as of Jun 30, 2015.
Other Developments
Citizens Financial remains on track with its several revenue and efficiency initiatives. Further it announced the launch of TOP III efficiency initiatives which are anticipated to generate pre-tax revenue and expense benefits of $73–$90 million and $10–$15 million of tax benefits in 2017.
The company also completed the sale of consumer real estate-secured loans classified as troubled debt restructurings. The transaction is expected to result in a third-quarter 2016 pre-tax gain of around $70 million on the sale of $310 million of loans held for sale. The company intends to utilize about 30–40% of this gain to fund costs tied with its efficiency and balance sheet optimization initiatives in third-quarter 2016.
Outlook – 3Q16
Compared with the second-quarter 2016, loans are predicted to grow approximately 1.5%, while NIM is expected to decline slightly. The company expects low single-digit growth in non-interest income.
However, expenses and provisions are anticipated to be stable. Loan to deposit ratio at the end of the quarter is estimated at 99%.
Our Viewpoint
Results reflect 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, a continuous decline in mortgage banking revenues, regulatory issues as well as competitive pressure remain matters of concern.
CITIZENS FIN GP Price, Consensus and EPS Surprise
CITIZENS FIN GP Price, Consensus and EPS Surprise | CITIZENS FIN GP Quote
Currently, Citizens Financial carries a Zacks Rank #4 (Sell).
Among major banks, JPMorgan Chase & Co. (JPM - Free Report) kick-started the second-quarter earnings season on a positive note. Driven by improved trading revenues, the company reported earnings of $1.55 per share that handily outpaced the Zacks Consensus Estimate of $1.43. Also, the figure reflects a 1% rise from the year-ago period. Notably, the results included a legal benefit of $430 million.
Citigroup Inc. (C - Free Report) came out with second-quarter 2016 earnings from continuing operations per share of $1.25, handily beating the Zacks Consensus Estimate of $1.09. Results were primarily aided by lower expenses, partially offset by reduced revenues.
Higher provisions and lower revenues led Bank of America Corporation’s (BAC - Free Report) second-quarter 2016 earnings to decline 16% year over year to 36 cents per share. However, earnings surpassed the Zacks Consensus Estimate of 34 cents. Results reflected improved fixed income trading revenues and efficient cost control.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>