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Why Is Citizens Financial Group (CFG) Down 2.3% Since Last Earnings Report?

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A month has gone by since the last earnings report for Citizens Financial Group (CFG - Free Report) . Shares have lost about 2.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Citizens Financial Group due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Citizens Financial's Q4 Earnings Beat Estimates, Expenses Rise

Riding on higher mortgage banking fees, Citizens Financial delivered a positive earnings surprise of 3.1% in fourth-quarter 2019. Adjusted earnings per share came in at 99 cents, beating the Zacks Consensus Estimate of 96 cents. Also, the bottom line rose 1% year over year.

Rise in fee income, on the back of solid rise in mortgage banking and card fees, supported revenue growth. Also, its capital position remained strong. Further, loans balances showed improvement. However, elevated expenses and provisions were headwinds. Also, contraction of margin posed a concern.

After considering notable items, net income came in at $450 million or 98 cents per share compared with $465 million or 96 cents reported in the prior-year quarter.

For full-year 2019, the company reported net income of $1.79 billion or $3.81 compared with $1.72 billion or $3.52 in 2018.

Fee Income Growth Drives Revenues, Loans Improve, Costs Rise

Total revenues for the fourth quarter came in at $1.64 billion, surpassing the consensus estimate of $1.63 billion. Additionally, the top line was up 3% year over year.

For 2019, the company reported net revenues of $6.49 billion, which came in line with the Zacks Consensus Estimate. Also, the top line jumped 6% from the prior-year figure.

Citizens Financial’s net interest income declined 2% year over year to $1.14 billion. Also, net interest margin contracted 19 basis points (bps) to 3.06%. This was, however, partly mitigated by higher interest-earning asset yields given continued mix shift toward better-returning assets.

Non-interest income climbed 17% year over year to $494 million. This upside stemmed from strength in almost all components of income, partially offset by reduced service charge and fees.

Non-interest expenses jumped 4% year over year to $986 million. The upswing highlights rise in all categories of expenses, partly muted by lower occupancy expenses. On an adjusted basis, expenses rose 5%.

Efficiency ratio increased to 60.28% in the fourth quarter from 59.69% in the prior-year quarter. Generally, a higher ratio is indicative of the bank’s declined efficiency.

As of Dec 31, 2019, period-end total loan and lease balances climbed 1% sequentially to $119.1 billion. Also, total deposits increased marginally to $125.3 billion.

Credit Quality: A Mixed Bag

Provision for credit losses jumped 29% year over year to $110 million. Also, net charge-offs for the quarter increased 44% to $122 million.

However, total non-performing loans and leases were down 8% to $703 million. Also, nonperforming loans and leases as a percentage of total loans and leases contracted 7 bps to 0.59%. As of Dec 31, 2019, allowance for loan and lease losses decreased 1% to $1.25 billion.

Solid Capital Position

Citizens Financial remained well capitalized in the fourth quarter. As of Dec 31, 2019, Common equity Tier 1 capital ratio was 10% compared with 10.6% at the end of the prior-year quarter. Further, Tier 1 leverage ratio was 10%, flat year over year. Total Capital ratio was 13%, down from 13.3%.

Capital Deployment Update

The company repurchased 10.9 million shares at average price of $36.68 during the December-ended quarter. Notably, including common stock dividends, the company returned $558 million to shareholders.

In 2019, Citizens Financial repurchased 34 million shares at average price of $35.56, and including common dividends, returned $1.84 billion to shareholders.


First-Quarter 2020
(excluding expected notable items and including impact of acquisitions)

Net interest income is expected to be up slightly, sequentially, due to expectations of loan growth and stable/slightly up margins, partially offset by expected day count impact of $10 million.

Non-interest income is expected to be down mid-single digits compared with strong fourth-quarter 2019.

Management expects non-interest expenses to be up low-single digits, given seasonal compensation impacts.

Provision expenses of around $115-$120 million are expected. The effective tax rate is expected to be around 22%.

Further, Basel III common equity tier 1 ratio is estimated to be about 10%.

Full-Year 2020

Average loans and interest-earnings assets are expected to grow in the range of 3-4%.

Management expects NII to grow 1-2%.

Given expectations of the Fed holding interest rates at current level throughout 2020, the company expects NIM to remain stable or rise modestly over the course of the year, as pressure on loan yields is partially offset by improvements in deposit pricing.

Non-interest income is expected to grow 4-5.5%, as the company continues to leverage investments and expand the capabilities.

Expenses are anticipated to increase 1.75-2.75%. Also, the company targets to deliver positive operating leverage.

Efficiency ratio is expected to remain stable.

Provision expenses are expected to be in the range of $475-$575 million, with charge off in the range of $475 million to $525 million.

The tax rate is expected to be 22%.

The company is targeting a dividend payout ratio of nearly 35-40% for 2020.

Year-end Basel III common equity tier 1 ratio is estimated to be between 9.75% and 10%.

Medium-Term Targets

Having achieved the medium-term targets set in 2018, the company raised them to following:

  • Return on common tangible equity of 14-16%
  • Efficiency ratio of 54%
  • Common equity tier 1 ratio of 9.75-10%
  • Dividend payout ratio of 35-40%

Efficiency Initiatives

In late 2014, Citizens Financial had announced its first efficiency program — TOP 1 — which resulted in $200 million costs savings. During the second quarter of 2015, the company announced Top 2 revenue and expense initiatives, which resulted in a pre-tax benefit of roughly $105 million in 2016. Following its success, Citizens Financial launched Top 3 program, which delivered a pre-tax benefit in excess of $115 million. Further, the company launched the Top 4 program, which delivered pre-tax benefit of $115 million by the end of 2018.

Finally, continuing with the trend, Citizens Financial announced TOP 5 program with fresh objectives targeting strong positive operating leverage with goal to self-finance growth initiatives and delivered pre-tax benefit of $125 million in 2019.

Further, it announced TOP 6 Program also, which is expected to deliver $300-$325 million in pre-tax run-rate benefit by 2021. Along with the traditional TOP objectives, the new program will also take into account ways to transform company’s operating manner and customers’ satisfaction in a better way. The cost of Top program implementation is expected to be between $50 million and $75 million in 2020-2021.

TOP 6 Program

The Program will consist of two elements:

  • The transformational program, which is designed to improve how it delivers for customers and how the bank is operated. The company also seeks to redefine cross-organizational operating model to deliver a more customer-centric, efficient and agile environment by modernizing IT practices. Through this, the company targets pre-tax run-rate benefits of $100-$125 million and $200-$225 million by 2020 and 2021, respectively.
  • The traditional program will be similar in nature and scope to TOP 2-5 programs and is anticipated to deliver $75-$100 million and $175-$225 million in benefits by 2020 and the rest in 2021.

The company mulls that the program will help offset interest-rate headwinds, maintain commitment to delivering positive operating leverage, improve efficiency ratio and ROTCE. Also, it plans to fund new strategic revenue initiatives such as significant expansion of digital strategies to increase customer reach and developing new digital offerings for commercial customers.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month.

VGM Scores

Currently, Citizens Financial Group has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.


Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Citizens Financial Group has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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