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Why Is Citizens Financial Group (CFG) Down 1.7% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for Citizens Financial Group (CFG). Shares have lost about 1.7% 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 the most recent earnings report in order to get a better handle on the important drivers.

Citizens Financial Q1 Earnings Top, Expenses Flare Up

Riding on higher revenues, Citizens Financial delivered a positive earnings surprise of 4.5% in first-quarter 2019. Adjusted earnings per share came in at 93 cents, beating the Zacks Consensus Estimate of 89 cents. Also, the reported figure improved 19.2% year over year. Results excluded one-time items of $4 million or 1 cent per share.

Including the benefit, net income came in at $439 million, up 13% year over year. Earnings came in at 92 cents per share, up 18% from the prior-year quarter figure.

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 Revenues, Loans & Deposits Growth Continues

Total revenues for the first quarter came in at $1.59 billion, surpassing the Zacks Consensus Estimate of $1.58 billion. Additionally, revenues were up 9% year over year.

Citizens Financial’s net interest income increased 6% year over year to $1.2 billion. The rise was primarily attributable to loan growth and elevated net interest margin. In addition, net interest margin expanded 4 basis points (bps) year over year to 3.25%, mainly backed by enhanced loan yields and the benefit of higher short-term rates. This was, however, partly mitigated by the impact of lower long-term rates and elevated deposit costs.

Also, non-interest income climbed 15% year over year to $428 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 6% year over year to $932 million. The upswing highlights rise in all categories of expenses, partly muted by lower other operating expenses.

Efficiency ratio declined to 59% in first-quarter 2019 from the prior-year quarter’s 60%. Generally, a lower ratio is indicative of the bank’s improved efficiency.

As of Mar 31, 2019, period-end total loan and lease balances inched up 1% sequentially to $117.6 billion, while total deposits rose 4% from the prior quarter to $123.9 billion.

Credit Quality: A Mixed Bag

As of Mar 31, 2019, allowance for loan and lease losses remained almost stable year over year at $1.2 billion. Provision for credit losses grew 9% to $85 million.

Also, net charge-offs for the quarter jumped 27% year over year to $89 million. Nonetheless, total non-performing loans and leases were down 10% to $780 million.

Solid Capital Position

Citizens Financial remained well capitalized in the March-end quarter. As of Mar 31, 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 came in at 10%, in line with the prior-year quarter figure. Total Capital ratio was 13.4% compared with 13.9% a year ago.

Capital Deployment Update

The company repurchased 5.8 million shares at average price of $34.34 during the January-March quarter. Notably, including common stock dividends, the company returned $349 million to shareholders as of Mar 31, 2019.


Second-Quarter 2019 (excluding expected notable items and including impact of acquisitions)

The company expects 0.5% sequential average loan growth.

NIM is expected to remain stable or decline slightly on a sequential basis due to continued but decelerating deposit repricing. However, in second half of 2019, NIM is expected to rise gradually on account of reduced deposit pressure and the benefit of fixed loan and securities repricing at higher rates, along with further balance sheet optimization impacts.

Non-interest income is expected to rise in mid-single digits, given continuing strength in commercial and seasonality benefiting consumer unit.

Management expects non-interest expenses to remain flat or rise 1% on a sequential basis, as seasonal decreases are offset by higher revenue-related expenses.

Also, the company expects to deliver positive operating leverage and further improve its efficiency ratio.

Provision expenses are expected to increase and be in the range of $95-105 million. The tax rate is projected to be nearly 22.4%.

Further, Basel III common equity tier 1 ratio is estimated to be about 10.5%.

Full-year 2019

Average loans are expected to grow in the range of 3-5%.

Management expects NII to grow 5-6.5%. Also, average earning assets are expected to grow 3-5% in 2019.  NIM might expand by low-to-mid single digits bps, reflecting benefit of balance sheet optimization.

Non-interest income is expected to grow 11-13%, as the company continues to leverage investments and expand the capabilities. Excluding the impact of Franklin American Mortgage acquisition, fee income is likely to grow 4-6%.

Expenses are anticipated to increase 5.5-6.25%. Excluding the impact of Franklin American Mortgage acquisition, costs are likely to grow 3-3.5%. Also, the company targets to deliver positive operating leverage of 3%.

Notably, efficiency ratio is expected to improve 100 bps.

Provision expenses are expected to be in the range of $400-$450 million.

The tax rate is expected to be 22.75%.

The company is targeting a dividend payout ratio of nearly 30-35% for 2019.

Year-end Basel III common equity tier 1 ratio is estimated to be about 10.2%.

Efficiency Initiatives

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

Finally, continuing with the trend, Citizens Financial announced TOP V program with its second-quarter results. These fresh objectives target strong positive operating leverage with goal to self-finance growth initiatives and is expected to achieve pre-tax benefit of $95-$105 million by 2019-end.

TOP V Program

Efficiency initiatives

With help from following factors, the company expects to achieve about 67% of targeted benefits:

  • Branch transformation: Accelerated optimization of its branch footprint
  • Mortgage simplification: Focus on organizational design and improving fulfillment efficiencies
  • Process improvement: Next wave of opportunities to re-design end-to-end processes and leverage automation to reduce costs and improve outcomes
  • Customer journeys: Continue with three current customer journey initiatives to drive simple and excellent customer experiences while delivering cost efficiencies. It also plans to initiate two new journeys
  • Vendor/Indirect spend: Recognize further contract efficiencies and demand-management opportunities

Revenue Initiatives:

  • Next-phase data analytics: Develop real-time analytics to drive enhanced personalization, further expand marketing-driven production
  • Build-out fee income capabilities: Customer journey on commercial payments; and build out of bond-underwriting capabilities
  • Expand into growth areas: Establish offices in new and attractive MSAs, including Dallas and Houston

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, Citizens Financial Group has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

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


Estimates have been broadly trending upward for the stock, and the magnitude of these revisions has been net zero. 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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