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Citizens Financial's (CFG) Q4 Earnings Beat, Expenses Rise

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Citizens Financial Group (CFG - Free Report) delivered a positive earnings surprise of 4.3% in fourth-quarter 2018, riding on higher revenues. Adjusted earnings per share of 98 cents topped the Zacks Consensus Estimate of 94 cents. Also, the bottom line improved 38% from the prior-year quarter.

The company experienced continued expansion of margins and loan growth, which aided higher revenues. Also, rise in fee income was another tailwind. However, higher expenses and provisions were the main undermining factors.

After considering non-recurring items, the company reported net income of $465 million or 96 cents per share compared with $666 million or $1.35 in the year-ago quarter.

For full-year 2018, adjusted earnings per share were $3.56, surpassing the Zacks Consensus Estimate of $3.52. Further, the figure increased 38% from the prior year.

Revenues & Loans Increase, Expenses Escalate  

For full-year 2018, the company reported revenues of $6.13 billion, up around 7.4% year over year. Yet, the revenue figure lagged the Zacks Consensus Estimate of $6.14 billion.

Total revenues in the quarter were $1.59 billion, which missed the Zacks Consensus Estimate of $1.60 billion. However, the top line was up 7.3% year over year. On an underlying basis, total revenues increased 9%.

Citizens Financial’s net interest income increased 8% year over year to $1.17 billion. The rise was primarily attributable to average loan growth and improved margin. In addition, net interest margin expanded 14 basis points to 3.22%.

Non-interest income increased 4.2% to $421 million. The rise was due to growth in card fees, letter of credit and loan fees and capital markets fees, partially offset by lower mortgage banking fees and other income. On an underlying basis, non-interest income climbed 2%.

Non-interest expenses were up 6% year over year to $951 million. The increase reflects higher salary and employee benefits tied to higher revenue-based compensation, along with the impact of strategic growth initiatives. Expenses increased 2% on an adjusted basis.

Efficiency ratio declined to 60% in the fourth quarter from 61% in the prior-year quarter. Generally, lower ratio is indicative of the bank’s improved efficiency.

As of Dec 31, 2018, period-end total loan and lease balances increased nearly 4% year over year to $116.7 billion and total deposits grew 3% to $117.1 billion.

Credit Quality: A Mixed Bag

As of Dec 31, 2018, net charge-offs in the quarter increased 32% year over year to $86 million. Allowance for loan and lease losses increased 1% to $1.24 billion. Also, provision for credit losses jumped 8% to $78 million.

However, total non-performing loans and leases were down 11% to $832 million.

Capital Position

Citizens Financial remained well capitalized in the quarter. As of Dec 31, 2018, Common Equity Tier 1 capital ratio was 10.6%, down from 11.2% on an annual basis. Further, Tier 1 leverage ratio came in at 10%, flat year over year. Total Capital ratio was 13.3% compared with 13.9% in the prior-year quarter.

Capital Deployment Update

As part of its 2018 Capital Plan, the company repurchased 8.25 million shares of common stock during the quarter. Notably, including common stock dividends, it returned $427 million to its shareholders.

Our Viewpoint

Citizens Financial’s results highlight a strong quarter. We are further optimistic as the company continues to make investments in technology in order to improve customers’ experience. Further, with a diversified traditional banking platform, Citizens Financial is well poised to benefit from the recovery of economies, wherein it has a strong footprint. Also, its progress in TOP programs and balance sheet optimization initiatives bodes well for long-term growth.

Citizens Financial Group, Inc. Price, Consensus and EPS Surprise

Citizens Financial currently 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

Signature Bank (SBNY - Free Report) reported fourth-quarter 2018 earnings per share of $2.94 which surpassed the Zacks Consensus Estimate of $2.79. Further, the bottom line compares favorably with $2.11 earned in the prior-year quarter.

Reflecting the highest net revenues since 2010, Goldman Sachs’ (GS - Free Report) fourth-quarter 2018 results recorded a positive earnings surprise of 23.8%. The company reported earnings per share of $6.04, comfortably beating the Zacks Consensus Estimate of $4.88. The bottom line also compares favorably with adjusted earnings of $5.68 per share recorded in the year-earlier quarter.

Comerica’s (CMA - Free Report) fourth-quarter 2018 earnings per share of $1.88 surpassed the Zacks Consensus Estimate of $1.86. Also, the results compared favorably with year-ago adjusted figure of $1.24.

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