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Citizens Financial's (CFG) Q2 Earnings Top, Revenues Climb

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Riding on higher revenues, Citizens Financial Group (CFG - Free Report) delivered a positive earnings surprise of 2.1% in second-quarter 2019. Adjusted earnings per share came in at 96 cents, beating the Zacks Consensus Estimate of 94 cents. Also, the bottom line improved 9.1% year over year.

After considering one-time items, net income came in at $453 million, up 7% year over year. Earnings were 95 cents per share, up 8%.

Rise in fee income and interest income supported revenue growth. Also, its capital position remained strong. However, elevated expenses and provisions were headwinds.

NII & Fee Income Drive Revenues, Loans & Deposits Decline

Total revenues for the second quarter came in at $1.63 billion, surpassing the Zacks Consensus Estimate of $1.62 billion. Additionally, the top line was up 8% year over year.

Citizens Financial’s net interest income (NII) increased 4% year over year to $1.17 billion. However, net interest margin contracted 1 basis point (bp) to 3.21% due to increase in funding costs tied to higher rates. This was, however, partly mitigated by higher interest-earning asset yields given higher rates and continued mix shift toward higher-yielding assets.

Also, non-interest income climbed 19% year over year to $462 million. This upside stemmed from strength in almost all components of income, partially offset by reduced service charges and fees.

Non-interest expenses flared up 9% year over year to $951 million. The upswing highlights rise in all categories of expenses, partly muted by lower other operating expenses.

Efficiency ratio increased to 58.41% in the second quarter from 57.95% in the prior-year quarter. Generally, a higher ratio is indicative of the bank’s declined efficiency.

As of Jun 30, 2019, period-end total loan and lease balances declined 1% sequentially to $116.8 billion, while total deposits remained almost stable at $124 billion.

Credit Quality: A Mixed Bag

Provision for credit losses jumped 14% year over year to $97 million. Also, net charge-offs for the quarter jumped 39% to $106 million.

As of Jun 30, 2019, allowance for loan and lease losses declined 2% year over year to $1.23 billion. Also, total non-performing loans and leases were down 9% to $770 million.

Solid Capital Position

Citizens Financial remained well capitalized in the second quarter. As of Jun 30, 2019, Common equity Tier 1 capital ratio was 10.5% compared with 11.2% at the end of the prior-year quarter. Further, Tier 1 leverage ratio was 10.1%, down 1 bp. Total Capital ratio was 13.4% compared with 13.8% in the prior-year quarter.

Capital Deployment Update

The company repurchased 3.5 million shares at average price of $34.64 during the June-ended quarter. Notably, including common stock dividends, the company returned $268 million to shareholders as of Jun 30, 2019.

Our Viewpoint

Citizens Financial’s results highlight a strong quarter. We are further optimistic as the company continues to make investments in technology to improve customers’ experience. Furthermore, with a diversified traditional banking platform, Citizens Financial is well poised to benefit from the recovery of economies where it has a robust footprint.

These apart, its progress in TOP programs and balance-sheet optimization initiatives bode well for long-term growth. However, escalating expenses and competitive pressure remain concerns.

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

Currently, Citizen Financial carries a Zacks Rank #5 (Strong Sell).

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

Performance of Other Banks

SunTrust Banks' (STI - Free Report) second-quarter 2019 adjusted earnings of $1.44 per share reflect a decline of 3.4% from the year-ago quarter’s reported figure. The Zacks Consensus Estimate for earnings for the quarter was pegged at $1.46.

BancorpSouth (BXS - Free Report) reported second-quarter 2019 net operating earnings of 61 cents per share, which came in line with the Zacks Consensus Estimate. Also, the bottom line increased 8.9% from the prior-year quarter.

Driven by top-line strength, U.S. Bancorp’s (USB - Free Report) second-quarter 2019 earnings per share of $1.09 surpassed the Zacks Consensus Estimate of $1.07. Also, the reported figure jumped 6.9% from the prior-year quarter.

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