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Citizens Financial Group (CFG) Up 10.6% 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 10.6% 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 its most recent earnings report in order to get a better handle on the important drivers.

Citizens Financial Q3 Earnings Match Estimates, Revenues Fall Y/Y

Citizens Financial has reported a third-quarter 2024 adjusted earnings per share (EPS) of 79 cents, which matched the Zacks Consensus Estimate. The bottom line declined from 85 cents reported in the year-ago quarter.

Capital market fees of $94 million surged 40.3% year over year, driven by growth in bond underwriting and merger and acquisition advisory fees, partially offset by lower loan syndication fees. 

Results benefited from a rise in non-interest income, along with reduced expenses.  Additionally, a strong capital position was a positive factor. However, lower net interest income (NII) and declining loan and deposit balances were major headwinds. 

Net income (GAAP basis) was $382 million, down 11.2% from the prior-year quarter.

CFG’s Revenues and Expenses Fall

Total revenues in the second quarter were $1.9 billion, which missed the Zacks Consensus Estimate of $1.94 billion. Also, the top line declined 5.6% year over year.

Citizens Financial’s NII decreased 10.1% year over year to $1.37 billion due to a lower net interest margin and a decline in average interest-earning assets.

The net interest margin (NIM) shrunk 27 basis points to 2.76% on the back of increased funding and swap costs and the impact of building liquidity, partially offset by higher yields on interest-earning assets and the benefit of non-core runoff.

The non-interest income increased 8.1% to $532 million. The improvement resulted from increased service charges and fees, capital market fees, card fees and wealth fees, securities gain and other income.

Non-interest expenses decreased 2.6% to $1.26 billion. The decline was due to a fall in salaries and employee benefits costs, outside services costs and lower other operating expenses.

The efficiency ratio of 66.2% in the third quarter increased from 64.2% in the year-ago quarter. A rise in the efficiency ratio reflects lower profitability.

CFG’s Loan & Deposit Balances Decline

As of Sept. 30, 2024, period-end total loans and leases were $141.6 billion, down marginally from the prior-year quarter. Total deposits decreased marginally to $175.2 billion. Our estimates for total loans and deposits were $150.8 billion and $184.6 billion, respectively.

CFG’s Credit Quality Deteriorates

As of Sept. 30, 2024, CFG’s provision for credit losses was $172 million, which remained stable from the year-ago quarter.

Further, net charge-offs jumped 25.5% to $192 million.

Non-accrual loans and leases were up 28.2% to $1.69 billion.

CFG’s Capital Position Improves

As of Sept.30, 2024, the tier 1 leverage ratio was 9.4%, which remained unchanged from the prior-year quarter.

The common equity tier 1 capital ratio was 10.6% compared with 10.4% at the end of the prior-year quarter. Further, the total capital ratio was 13.9%, up from 13.4% reported in the prior-year quarter.

CFG’s Share Repurchase Update

In the third quarter of 2024, CFG repurchased $325 million of common shares and paid $191 million in common dividends.

Outlook

Fourth- Quarter 2024 (Underlying Basis)

Management expects NII to be up 1.5-2.5% compared with the third quarter’s reported figure of $1.37 million.

Non-interest income is anticipated to be up mid to high single digit compared with $534 million in the third quarter.

Adjusted non-interest expenses are projected to be up 2% compared with the third-quarter 2024 level of $1.25 billion.

Net charge-offs are targeted to be broadly stable, compared to $192 million in the previous quarter.

The CET1 ratio is envisioned to be broadly stable compared to 10.6% in the third quarter of 2024.

The tax rate is expected to be around 20% compared with the third-quarter 2024 tax rate of 18.7%.

2024 Outlook (Underlying Basis)

Management expects NII to be down 6-9% from $6.2 billion in 2023.

NIM is expected in the range of 2.80-2.85%, down from 3.10% recorded in 2023.

Period-end loans are expected to be up 3-5%. Average loans are projected to be down 2-3%.

Average earnings assets are forecasted to be slightly up.

Non-interest income is anticipated to be up 6-9% from $1.9 billion reported in 2023.

Adjusted non-interest expenses are projected to be up 1-1.5% from $5 billion in 2023.

Net charge-offs are suggested to be around 50 bps, indicating a rise from 40 bps recorded in the prior year.

The CET1 ratio is envisioned to be around 10.5%.

The tax rate is expected to be around 21-22%.

Medium-Term Target

Management expects the CET1 ratio to converge to the 10.0-10.5% range.

The company targets NIM in the range of 3.25-3.40%.

The efficiency ratio is projected to be around the mid-50’s.

The company is expected to reach a dividend payout ratio of approximately 35-40%.

Management expects a return on average tangible common shareholders’ equity to be around 16-18%. The execution of the target will be supported by the company’s strategic initiatives as well as the NII tailwinds expected from 2025 to 2027.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

Currently, Citizens Financial Group has a poor Growth Score of F, a grade with the same score on the momentum front. However, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. 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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