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Citizens Financial Group (CFG) Up 15.9% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Citizens Financial Group (CFG - Free Report) . Shares have added about 15.9% in that time frame, outperforming the S&P 500.

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

Citizens Financial Q1 Earnings Miss on High Costs & Provisions

Citizens Financial has reported first-quarter 2020 adjusted earnings per share of 9 cents, lagging the Zacks Consensus Estimate of 20 cents. Also, the bottom line compares unfavorably with 93 cents in the year-ago quarter.

Results were affected by a substantial rise in provisions, which included a $463-million reserve build related to the adoption of the accounting method of Current Expected Credit Losses and coronavirus-related crisis. Elevated expenses and contraction of margin were other headwinds.

However, an increase in fee income on the back of a solid rise in mortgage banking and trust fees supported revenue growth. Further, loans and deposit balances showed improvement.

After considering notable items, net income was $34 million or 3 cents per share compared with $439 million or 92 cents per share reported in the prior-year quarter.

Revenues Rise on Higher Fee Income, Costs Rise

Total revenues for the first quarter were $1.66 billion which surpassed the consensus estimate of $1.61 billion. Additionally, the top line was up 4% year over year.

Citizens’ net interest income remained stable year over year at $1.16 billion. Net interest margin contracted 14 basis points (bps) to 3.09%. This was, however, mitigated by higher interest-earning asset yields, given continued mix shift toward better-returning assets.

Non-interest income climbed 16% year over year to $497 million. The upside stemmed largely from a substantial rise in mortgage banking fees.

Non-interest expenses jumped 8% year over year to $1.01 billion. The upswing highlights the rise in all categories of expenses. On an adjusted basis, expenses rose 5%.

Efficiency ratio increased to 61% in the first quarter from 59% in the prior-year quarter. Generally, a higher ratio is indicative of the bank’s declined efficiency.

As of Mar 31, 2020, period-end total loan and lease balances climbed 7% sequentially to $127.5 billion. Also, total deposits increased 7% to $133.5 billion.

Credit Quality Deteriorated

Provision for credit losses was $600 million compared with $85 million in the year-ago quarter. Also, net charge-offs for the quarter jumped 54% to $137 million.

Non-accrual loans and leases were up 5% to $780 million. As of Mar 31, 2020, allowance for loan and lease losses increased 66% to $2.21 billion.

Capital Position

Citizens remained well-capitalized in the first quarter. As of Mar 31, 2020, common equity tier-1 capital ratio was 9.4% compared with 10.5% at the end of the prior-year quarter. Further, Tier-1 leverage ratio was 9.6%, down 40 bps year over year. Total Capital ratio was 12.5%, down from 13.4%.

Capital Deployment Update

The company repurchased 7.5 million shares at an average price of $35.77 in the March-end quarter. Notably, including common stock dividends, the company returned $438 million to shareholders.


Second-Quarter 2020 (excluding notable items and including the impacts of acquisitions)

Net interest income is expected to rise in mid-single digits sequentially due to expectations of loan growth, partially offset by a decline in margins. The company expects loans to grow significantly, reflecting commercial loan growth, the impact of government programs and an increased demand in education loans.

Non-interest income is expected to be down in mid-single digits compared with previous quarter, reflecting the impacts of the COVID-19 outbreak on service charges, card and other fees.

Management expects non-interest expenses to rise slightly, given the impacts of the COVID-19 outbreak.

Provision expenses are expected to depend on depth of recession and pace of recovery.

2020 Outlook

Management expects modest growth in NII, with support from the paycheck protection program.

The company expects to see strong loan growth, driven by higher commercial loans demand, the impact of government programs like PPP, and with increased demand in education and merchant financing. Also, it anticipates strong increase in commercial and retail deposits, reflecting heightened liquidity, given the Fed’s actions and the low rate environment.

The non-interest income is now expected to be broadly stable as strength of mortgage is offset by COVID-19-driven weaknesses in other categories. The outlook for fees is dependent upon the pace and magnitude of recovery in the second half of 2020.

Non-interest expenses are expected to be up modestly, given higher compensation tied to stronger mortgage production and impacts of the COVID-19 outbreak, which includes government lending programs and customer relief efforts.

Provision expenses have the greatest potential for variability in 2020 and will depend on the depth of the recession and the pace of recovery.

Regulatory capital ratios are expected to strengthen from current levels, as net income coupled with the suspension of buybacks through year-end more than offset the impacts of higher risk-weighted assets. Even in more severe economic scenarios, the company expects capital ratios to remain strong and above required minimums.

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?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -13.1% due to these changes.

VGM Scores

At this time, Citizens Financial Group has a poor Growth Score of F, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

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


Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Citizens Financial Group has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

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