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Citizen Financial (CFG) Q1 Earnings Beat, Expenses Rise

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Riding on higher revenues, Citizens Financial Group, Inc. (CFG - Free Report) delivered a positive earnings surprise of 19.6% in first-quarter 2017. Earnings per share came in at 61 cents, beating the Zacks Consensus Estimate of 51 cents. Also, the reported figure improved 49% year over year. Results include the benefit of the state tax settlement of $23 million or 4 cents per share.

Excluding the benefit, net income came in at $297 million, up 33% year over year. Adjusted earnings came in at 57 cents per share, up 39% from the prior-year quarter.

Continued growth in loan and deposit balances aiding higher revenues was recorded. Further, pressure on margins seems to be easing. However, elevated expenses and provisions were headwinds.

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

Total revenue for the quarter was $1.38 billion, surpassing the Zacks Consensus Estimate of $1.34 billion. Additionally, revenues were up 12% year over year.

Citizens Financial’s net interest income increased 11% year over year to $1.0 billion. The rise is primarily attributable to average loan growth. In addition, net interest margin expanded 10 basis points (bps) year over year to 2.96%, mainly due to enhanced loan yields, partly mitigated by securities portfolio growth, and elevated deposit and funding costs.

Also, non-interest income climbed 15% year over year to $379 million. The rise was stemmed by strength in almost all components of income, partially offset by reduced net securities gains and service charges and fees.

Non-interest expenses were up 5% year over year to $854 million. The increase highlights rise in all categories of expenses.

Efficiency ratio declined to 62% in first-quarter 2017 from 66% in the prior-year quarter. Generally, lower ratio is indicative of the bank’s improved efficiency.

As of Mar 31, 2017, period end total loan and lease balances increased 7% year over year to $108.8 billion, while total deposits rose 9% from the year-ago quarter to $112.1 billion.

Credit Quality: A Mixed Bag

As of Mar 31, 2017, allowance for loan and lease losses remained stable year over year at $1.2 billion. Provision for credit losses grew 5% year over year to $96 million.

Also, net charge-offs for the quarter jumped 5% year over year to $87 million. Additionally, total non-performing loans and leases were down 3% year over year to $1.05 billion.

Solid Capital Position

Citizens Financial remained well capitalized in the quarter. As of Mar 31, 2017, Common equity Tier 1 capital ratio was 11.2% compared with 11.6% at the end of the prior-year quarter. Further, Tier 1 leverage ratio came in at 9.9% as against 10.4% as of Mar 31, 2016. Total Capital ratio was 14.0% compared with 15.1% in the prior-year quarter.

Capital Deployment Update

As part of the company’s 2016 Capital Plan, the company repurchased 3.4 million shares during first-quarter 2017. Notably, including common stock dividends, the company returned $202 million to shareholders as of Mar 31, 2017.

Outlook 2017

The company’s Tapping Our Potential (“TOP”) initiatives remain on track. In 2016, TOP II recorded about $105 million of annual pre-tax benefits. Further, TOP III is expected to result in pre-tax revenue and expense run-rate benefits of $100 million to $115 million, including $20 million of tax benefits in 2017. Notably, Citizens Financial is working on TOP IV.

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 and competitive pressure remain matters of concern.

Currently, Citizen 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 Banks

Citigroup Inc. (C - Free Report) delivered a positive earnings surprise of 8.9% in first-quarter 2017, riding on higher revenues. The company’s earnings per share of $1.35 for the quarter outpaced the Zacks Consensus Estimate of $1.24. Also, earnings compared favorably with the year-ago figure of $1.10 per share. Notably, results reflect one-time adjustments of 1 cent.

Driven by net interest income, Wells Fargo & Company’s (WFC - Free Report) first-quarter 2017 earnings recorded a positive surprise of about 3.1%. Earnings of $1.00 per share outpaced the Zacks Consensus Estimate by 3 cents. Moreover, the figure compared favorably with the prior-year quarter’s earnings of 99 cents per share.

M&T Bank Corporation (MTB - Free Report) recorded a positive earnings surprise of 10.8% in first-quarter 2017. The company reported net operating earnings of $2.15 per share which surpassed the Zacks Consensus Estimate of $1.94. Also, the bottom line improved 15% year over year.

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