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Why Is Citizens Financial (CFG) Down 2% Since the Last Earnings Report?
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It has been about a month since the last earnings report for Citizens Financial Group, Inc. (CFG - Free Report) . Shares have lost about 2% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it 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 catalysts.
Riding on higher revenues, Citizens Financial delivered a positive earnings surprise of 19.6% in first-quarter 2017. Earnings per share came in at $0.61, beating the Zacks Consensus Estimate of $0.51. Also, the reported figure improved 49% year over year. Results include the benefit of the state tax settlement of $23 million or $0.04 per share.
Excluding the benefit, net income came in at $297 million, up 33% year over year. Adjusted earnings came in at $0.57 per share, up 39% from the prior-year quarter.
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 Revenue, Loans & Deposits Growth Continues
Total revenue for the quarter was $1.38 billion, surpassing the Zacks Consensus Estimate of $1.34 billion. Additionally, revenues were up 12% year over year.
Citizens Financial’s net interest income increased 11% year over year to $1.0 billion. The rise is primarily attributable to average loan growth. In addition, net interest margin expanded 10 basis points (bps) year over year to 2.96%, mainly due to enhanced loan yields, partly mitigated by securities portfolio growth, and elevated deposit and funding costs.
Also, non-interest income climbed 15% year over year to $379 million. The rise was stemmed by strength in almost all components of income, partially offset by reduced net securities gains and service charges and fees.
Non-interest expenses were up 5% year over year to $854 million. The increase highlights rise in all categories of expenses.
Efficiency ratio declined to 62% in first-quarter 2017 from 66% in the prior-year quarter. Generally, lower ratio is indicative of the bank’s improved efficiency.
As of Mar 31, 2017, period end total loan and lease balances increased 7% year over year to $108.8 billion, while total deposits rose 9% from the year-ago quarter to $112.1 billion.
Credit Quality: A Mixed Bag
As of Mar 31, 2017, allowance for loan and lease losses remained stable year over year at $1.2 billion. Provision for credit losses grew 5% year over year to $96 million.
Also, net charge-offs for the quarter jumped 5% year over year to $87 million. Additionally, total non-performing loans and leases were down 3% year over year to $1.05 billion.
Solid Capital Position
Citizens Financial remained well capitalized in the quarter. As of Mar 31, 2017, Common equity Tier 1 capital ratio was 11.2% compared with 11.6% at the end of the prior-year quarter. Further, Tier 1 leverage ratio came in at 9.9% as against 10.4% as of Mar 31, 2016. Total Capital ratio was 14.0% compared with 15.1% in the prior-year quarter.
Capital Deployment Update
As part of the company’s 2016 Capital Plan, the company repurchased 3.4 million shares during first-quarter 2017. Notably, including common stock dividends, the company returned $202 million to shareholders as of Mar 31, 2017.
Full-Year 2017
Citizens Financial expects a stronger balance sheet position in 2017 reflected through mid single-digit average earning assets, loans and deposits growth sequentially.
Further, management expects revenues to grow at a higher rate compared to expenses for generating meaningful operating leverage.
Management plans to repurchase up to $260 million in shares throughout the first half of 2017.
Regarding NII, management expects it to increase 8–-9% in 2017. NIM is expected to increase 8–10 bps.
Additionally, management expects provision expenses along with the tax rate to be almost stable.
Notably, the company expects CET1 ratio to be around 11.2% by the year end. Also, it expects the dividend payout and loan-to-deposit ratios to be 24% and 99%, respectively.
The company anticipates an increase in fed funds rates in June and November/December. Also, a cut in the unemployment rate along with an increase in GDP by 2–2.5% is expected by the end of 2017. These economic factors are expected to benefit the company in the year.
Efficiency Initiatives
During the second quarter of 2015, Citizens Financial 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 and expects to achieve a pre-tax benefit of $100–$115 million including tax efficiency benefit of $20 million.
TOP III Efficiency Initiatives
Citizens Financial announced the launch of TOP III efficiency initiatives. The new efficiency initiatives are anticipated to generate pre-tax revenue and expense benefits of $80–$95 million and pre-tax benefits of $20 million from tax efficiencies in 2017.
Efficiency
The company expects to benefit $55–$65 million by the end of 2017 through efficiency initiatives driven by following factors -
• In the consumer front, the company has streamlined staff in non-revenue areas and is now focused on branch optimization and efficiencies relation to the mortgage business. • In the commercial front, the company has largely completed the target to streamline loan process including relationship management coverage models, portfolio management and operations. • Also, the company has made good progress in simplifying and re-engineering processes in each of the functional areas particularly in Finance, HR, Risk and Technology. • In the fraud front, the company’s aim to improve algorithms and enhance chargeback process is underway.
Revenue Enhancement
Citizens Financial targets a run-rate benefit of $25–$30 million by the fourth quarter of 2017. It is expected to be driven by the following factors -
• The company is focused on attrition management though analytics to predict and reach out to at-risk commercial customers and proactively develop retention plans for the same. • Regarding unsecured lending, the company launched initiatives with good initial customer responses.
Tax Efficiencies
The company executed several initiatives mainly tied with R&D, renewable, other tax credit in order to match up tax rate to peer levels. Such initiatives are expected to result in 2017 tax rate of around 31% with pre-tax benefit of $20 million from tax efficiencies.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimate flatlined during the past month. There has been one revision higher for the current quarter compared to one lower.
Citizens Financial Group, Inc. Price and Consensus
At this time, the stock has a subpar Growth Score of 'D', however its momentum is doing better with a 'C'. Following the exact same course, the stock was allocated also a grade of 'B' on the value side, putting it in the top 40% 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.
Zacks' style scores indicate that the company's stock is more suitable for value investors than momentum investors.
Outlook
The stock sports a Zacks Rank #1 (Strong Buy). We are expecting an above average return from the stock in the next few months.
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Why Is Citizens Financial (CFG) Down 2% Since the Last Earnings Report?
It has been about a month since the last earnings report for Citizens Financial Group, Inc. (CFG - Free Report) . Shares have lost about 2% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it 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 catalysts.
Citizens Financial Q1 Earnings Beat, Expenses Rise
Riding on higher revenues, Citizens Financial delivered a positive earnings surprise of 19.6% in first-quarter 2017. Earnings per share came in at $0.61, beating the Zacks Consensus Estimate of $0.51. Also, the reported figure improved 49% year over year. Results include the benefit of the state tax settlement of $23 million or $0.04 per share.
Excluding the benefit, net income came in at $297 million, up 33% year over year. Adjusted earnings came in at $0.57 per share, up 39% from the prior-year quarter.
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 Revenue, Loans & Deposits Growth Continues
Total revenue for the quarter was $1.38 billion, surpassing the Zacks Consensus Estimate of $1.34 billion. Additionally, revenues were up 12% year over year.
Citizens Financial’s net interest income increased 11% year over year to $1.0 billion. The rise is primarily attributable to average loan growth. In addition, net interest margin expanded 10 basis points (bps) year over year to 2.96%, mainly due to enhanced loan yields, partly mitigated by securities portfolio growth, and elevated deposit and funding costs.
Also, non-interest income climbed 15% year over year to $379 million. The rise was stemmed by strength in almost all components of income, partially offset by reduced net securities gains and service charges and fees.
Non-interest expenses were up 5% year over year to $854 million. The increase highlights rise in all categories of expenses.
Efficiency ratio declined to 62% in first-quarter 2017 from 66% in the prior-year quarter. Generally, lower ratio is indicative of the bank’s improved efficiency.
As of Mar 31, 2017, period end total loan and lease balances increased 7% year over year to $108.8 billion, while total deposits rose 9% from the year-ago quarter to $112.1 billion.
Credit Quality: A Mixed Bag
As of Mar 31, 2017, allowance for loan and lease losses remained stable year over year at $1.2 billion. Provision for credit losses grew 5% year over year to $96 million.
Also, net charge-offs for the quarter jumped 5% year over year to $87 million. Additionally, total non-performing loans and leases were down 3% year over year to $1.05 billion.
Solid Capital Position
Citizens Financial remained well capitalized in the quarter. As of Mar 31, 2017, Common equity Tier 1 capital ratio was 11.2% compared with 11.6% at the end of the prior-year quarter. Further, Tier 1 leverage ratio came in at 9.9% as against 10.4% as of Mar 31, 2016. Total Capital ratio was 14.0% compared with 15.1% in the prior-year quarter.
Capital Deployment Update
As part of the company’s 2016 Capital Plan, the company repurchased 3.4 million shares during first-quarter 2017. Notably, including common stock dividends, the company returned $202 million to shareholders as of Mar 31, 2017.
Full-Year 2017
Citizens Financial expects a stronger balance sheet position in 2017 reflected through mid single-digit average earning assets, loans and deposits growth sequentially.
Further, management expects revenues to grow at a higher rate compared to expenses for generating meaningful operating leverage.
Management plans to repurchase up to $260 million in shares throughout the first half of 2017.
Regarding NII, management expects it to increase 8–-9% in 2017. NIM is expected to increase 8–10 bps.
Additionally, management expects provision expenses along with the tax rate to be almost stable.
Notably, the company expects CET1 ratio to be around 11.2% by the year end. Also, it expects the dividend payout and loan-to-deposit ratios to be 24% and 99%, respectively.
The company anticipates an increase in fed funds rates in June and November/December. Also, a cut in the unemployment rate along with an increase in GDP by 2–2.5% is expected by the end of 2017. These economic factors are expected to benefit the company in the year.
Efficiency Initiatives
During the second quarter of 2015, Citizens Financial 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 and expects to achieve a pre-tax benefit of $100–$115 million including tax efficiency benefit of $20 million.
TOP III Efficiency Initiatives
Citizens Financial announced the launch of TOP III efficiency initiatives. The new efficiency initiatives are anticipated to generate pre-tax revenue and expense benefits of $80–$95 million and pre-tax benefits of $20 million from tax efficiencies in 2017.
Efficiency
The company expects to benefit $55–$65 million by the end of 2017 through efficiency initiatives driven by following factors -
• In the consumer front, the company has streamlined staff in non-revenue areas and is now focused on branch optimization and efficiencies relation to the mortgage business.
• In the commercial front, the company has largely completed the target to streamline loan process including relationship management coverage models, portfolio management and operations.
• Also, the company has made good progress in simplifying and re-engineering processes in each of the functional areas particularly in Finance, HR, Risk and Technology.
• In the fraud front, the company’s aim to improve algorithms and enhance chargeback process is underway.
Revenue Enhancement
Citizens Financial targets a run-rate benefit of $25–$30 million by the fourth quarter of 2017. It is expected to be driven by the following factors -
• The company is focused on attrition management though analytics to predict and reach out to at-risk commercial customers and proactively develop retention plans for the same.
• Regarding unsecured lending, the company launched initiatives with good initial customer responses.
Tax Efficiencies
The company executed several initiatives mainly tied with R&D, renewable, other tax credit in order to match up tax rate to peer levels. Such initiatives are expected to result in 2017 tax rate of around 31% with pre-tax benefit of $20 million from tax efficiencies.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimate flatlined during the past month. There has been one revision higher for the current quarter compared to one lower.
Citizens Financial Group, Inc. Price and Consensus
Citizens Financial Group, Inc. Price and Consensus | Citizens Financial Group, Inc. Quote
VGM Scores
At this time, the stock has a subpar Growth Score of 'D', however its momentum is doing better with a 'C'. Following the exact same course, the stock was allocated also a grade of 'B' on the value side, putting it in the top 40% 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.
Zacks' style scores indicate that the company's stock is more suitable for value investors than momentum investors.
Outlook
The stock sports a Zacks Rank #1 (Strong Buy). We are expecting an above average return from the stock in the next few months.