10-QPeriod: Q3 FY2018

CITIZENS FINANCIAL GROUP INC/RI Quarterly Report for Q3 Ended Sep 30, 2018

Filed November 7, 2018For Securities:CFGCFG-PHCFG-PECFG-PI

Summary

Citizens Financial Group, Inc. (CFG) reported a strong third quarter and nine-month performance for 2018, demonstrating significant year-over-year growth in key financial metrics. Net income available to common stockholders increased by 28% for the quarter and 28% for the nine months, reflecting robust revenue growth driven by both net interest income and noninterest income. The company's net interest margin saw an improvement, benefiting from higher interest-earning asset yields and a favorable shift in asset mix, although offset by rising funding costs. Loan and deposit growth remained positive. The efficiency ratio improved, indicating better cost management, and return on tangible common equity (ROTCE) saw a substantial increase, signaling improved profitability. Despite a rise in provision for credit losses, overall asset quality remained strong, with a stable allowance for loan and lease losses relative to total loans. The company also benefited from a lower effective income tax rate due to the 2017 tax reform.

Financial Highlights

38 data points
Beta

Revenue

$1.56B

Net Income

$443.00M

28.3% Net Margin

EPS (Diluted)

$0.91

Total Assets

$158.60B

Cash & Equivalents

$3.99B

Free Cash Flow

-$208.00M

Financial Statements
Beta
Revenue$1.56B
Interest Expense$329.00M
Net Income$443.00M
EPS (Basic)$0.92
EPS (Diluted)$0.91
Shares Outstanding (Basic)475.96M
Shares Outstanding (Diluted)477.60M

Key Highlights

  • 1Net income available to common stockholders increased by 28% year-over-year for both the third quarter and the first nine months of 2018.
  • 2Total revenue grew by 8% in Q3 2018 and 7% in the first nine months of 2018 compared to the prior year periods.
  • 3Net interest margin improved by 14 basis points to 3.19% in Q3 2018 and by 18 basis points to 3.18% in the first nine months of 2018, driven by higher asset yields.
  • 4Return on average tangible common equity (ROTCE) significantly improved, reaching 13.3% in Q3 2018 (up 316 bps YoY) and 12.6% for the nine months (up 284 bps YoY).
  • 5Efficiency ratio improved to 58.2% in Q3 2018 (down from 59.4% in Q3 2017) and to 58.8% for the nine months (down from 61.0% in the prior year).
  • 6Provision for credit losses increased slightly by 8% for the quarter and 1% for the nine months, with net charge-offs rising by 32% in the quarter and 2% for the nine months, primarily due to retail portfolio seasoning.
  • 7Common equity tier 1 (CET1) capital ratio stood at 10.8% as of September 30, 2018, remaining well above regulatory minimums.

Frequently Asked Questions

Revenue growth was primarily driven by an 8% increase in net interest income for the third quarter and a 9% increase for the nine months, attributed to higher interest-earning asset yields and a favorable mix shift towards higher-yielding assets. Noninterest income also contributed positively, with mortgage banking fees significantly boosted by the acquisition of Franklin American Mortgage Company (FAMC).

The FAMC acquisition contributed positively to noninterest income, particularly through increased mortgage banking fees ($24 million increase in Q3). However, it also resulted in FAMC-related costs and integration expenses, which increased noninterest expense by $25 million in Q3 and $9 million in integration costs. These factors were accounted for in both reported and 'Underlying' results.

The company reported that overall credit quality remained strong. While there was an increase in the provision for credit losses and net charge-offs, particularly in the retail portfolio due to seasoning in unsecured products, the allowance for loan and lease losses as a percentage of total loans remained stable. Nonperforming loans also decreased slightly.

Capital ratios remained robust and well above regulatory minimums. The Common Equity Tier 1 (CET1) capital ratio was 10.8% at September 30, 2018, a slight decrease from 11.2% at December 31, 2017, primarily due to risk-weighted asset growth and capital plan actions (dividends and share repurchases), which were partially offset by net income. The company's 2018 Capital Plan was approved by the FRB, allowing for increased dividends and share repurchases.