Actionable news
0
All posts from Actionable news
Actionable news in CFG: CITIZENS FINANCIAL GROUP Inc,

Citizens Financial Group, Inc. Reports Third Quarter Net Income Of $220 Million;

The following excerpt is from the company's SEC filing.

Diluted EPS of $0.40

up 18% from third quarter 2014

Focused execution on growth and efficiency initiatives drives positive operating leverage

PROVIDENCE, RI (October 23, 2015) Citizens Financial Group, Inc. (NYSE: CFG or Citizens) today reported third quarter net income of $220 million, or $0.40 per diluted common share, compared with third quarter 2014 net income of $189 million, or $0.34 per diluted common share. Third quarter 2015 net income was up $30 million from second quarter 2015 net income of $190 million, and diluted EPS increased $0.05 from $0.35 in second quarter 2015. As expect ed, the company recorded no restructuring charges and special items in third quarter 2015 compared with $25 million after-tax, or $0.05 per diluted common share, in second quarter 2015, and $13 million after-tax, or $0.02 per diluted common share, in the third quarter 2014, as detailed in the

Discussion of Results

portion of this release. Third quarter 2015 diluted EPS totaled $0.40 compared to Adjusted diluted EPS* of $0.40 in second quarter 2015 and $0.36 in third quarter 2014, reflecting the continued focus on enhancing efficiency and delivering revenue growth in the face of the persistent low-rate environment. Third quarter 2015 net income available to common stockholders was reduced by $7 million, or $0.01 per share, related to preferred stock dividends.

Chairman and Chief Executive Officer Bruce Van Saun commented, We delivered solid financial results this quarter, reflecting good execution of our growth and efficiency initiatives. During the quarter we continued to add strong leadership to our management team, namely Don McCree to lead our Commercial business, John Bahnken to run Wealth Management, and Chris Nard to run our Mortgage business. We are making significant strides in improving our overall performance and delivering for our stakeholders.

Return on Average Tangible Common Equity (ROTCE)* of 6.6% in third quarter 2015 improved from 5.9% in second quarter 2015 and 5.8% in third quarter 2014. Third quarter 2015 results compare with Adjusted ROTCE* of 6.7% in second quarter 2015 and 6.2% in third quarter 2014.

Citizens also announced that its board of directors declared a quarterly cash dividend of $0.10 per common share. The dividend is payable on November 19, 2015 to shareholders of record at the close of business on November 5, 2015.

Key Highlights

Third quarter highlights, as compared with second quarter 2015, include 2% net interest income growth, a four basis point improvement in net interest margin, positive operating leverage given good expense discipline, and continued loan growth and business momentum. Tangible book value per share increased by 2%.

These are non-GAAP financial measures. Please see Non-GAAP Reconciliation Tables at the end of this release for an explanation of our use of non-GAAP financial measures and their reconciliation to GAAP. Where there is a reference to an Adjusted result in a paragraph, all measures which follow that Adjusted result are also Adjusted and exclude restructuring charges and special items as applicable. There were no restructuring charges or special items recorded in third quarter 2015.

Compared with third quarter 2014 Adjusted results*, third quarter 2015 results also reflect strong positive operating leverage, with 4% total revenue growth and a 1% increase in noninterest expense, improving our efficiency ratio to 66% from 68%.

Third Quarter 2015 vs. Second Quarter 2015

Results

Total revenue increased 1%, as 2% growth in net interest income was partially offset by a reduction in noninterest income from relatively strong second quarter 2015 levels.

Net interest income of $856 million increased $16 million, driven by average loan growth of 1% and an additional day in the quarter.

Net interest margin of 2.76% increased four basis points largely reflecting modest balance sheet deleveraging and improving retail and commercial loan yields, partially offset by an increase in deposit costs.

Noninterest income of $353 million decreased $7 million, as an increase in other income, including $8 million in branch real estate gains, and service charges and fee growth was more than offset by an $8 million reduction in mortgage servicing rights valuation, lower capital markets fees from relatively strong second quarter levels, and a $7 million reduction in securities gains.

Noninterest expense of $798 million decreased $43 million, driven by a $40 million decrease in restructuring charges and special items. Noninterest expense was down slightly from adjusted second quarter 2015 levels as the benefit of lower equipment expense and other expense was partially offset by an increase in outside services.

Efficiency ratio of 66% improved 400 basis points driven by a $40 million decrease in restructuring charges and special items. The efficiency ratio improved 1% from an Adjusted efficiency ratio* of 67% in second quarter 2015.

Provision for credit losses of $76 million remained broadly stable.

Balance Sheet

Average interest-earning assets of $123.0 billion decreased $188 million, as loan growth of $1.2 billion, largely in student, mortgage, auto, and commercial real estate was more than offset by a decrease in short-term investment portfolio assets, largely interest-bearing cash balances.

Average deposits increased $2.5 billion, or 2%, driven by broad-based growth across money market, interest checking and demand deposits.

Nonperforming loans and leases (NPLs) decreased $16 million, or 2%, to 1.06% of loans and leases compared with 1.09% in second quarter 2015 and 1.19% third quarter 2014; Allowance coverage of NPLs increased to 116% from 114% in second quarter 2015 and 111% in third quarter 2014.

Capital strength remained robust with a common equity Tier 1 (CET1) capital ratio of 11.8%.

Third Quarter 2015 vs. Third Quarter 2014

Total revenue of $1.2 billion increased 4% from the prior year quarter, on 4% growth in net interest income and a 4% increase in noninterest income.

Net interest income of $856 million increased $36 million, driven by 8% average loan growth.

Noninterest income was up $12 million, largely as higher other income, card and trust and investment services fees were partially offset by lower mortgage banking, capital markets and foreign exchange and trade finance fees.

Noninterest expense decreased $12 million, driven by a $21 million decrease in restructuring charges and special items. Noninterest expense increased $9 million on an Adjusted basis* as a reduction in salaries and employee benefits was more than offset by increased advertising, insurance costs, outside services and equipment costs which included the impact of continued investments to drive growth.

Provision for credit losses of $76 million remained stable, largely reflecting the benefit of improvement in credit quality offset by the effect of continued loan growth.

Net income of $220 million increased $31 million, or 16%, from third quarter 2014 and increased $18 million, or 9%, from Adjusted* third quarter 2014 levels.

ROTCE of 6.6% compares with an Adjusted ROTCE* of 6.2% in the third quarter 2014.

Average interest-earning assets increased 5%, as loan and lease growth of 8% was partially offset by a 6% decrease in the investment portfolio.

Update on Plan Execution

Progress on initiatives to drive revenue growth and enhance efficiency continues:

Consumer Banking

Continued loan and deposit growth, with particular strength in student lending and unsecured credit; checking households up 2% from 3Q14 with new client cross-sell rates up 8%, and addition of new leadership in important growth areas such as Wealth and Mortgage.

Commercial Banking

Focus on enhancing risk adjusted returns and comprehensive pricing initiatives is helping to drive attractive loan growth, particularly in Franchise Finance and CRE, with improving loan yields; renewed emphasis on lowering cost of deposit growth is delivering results, and Treasury Solutions fees are up 7% from 3Q14.

Expense initiatives

Remain on track to reach our savings target of $200 million by end 2016.

Incremental revenue and efficiency initiatives are tracking as planned.

Balance sheet optimization initiatives

to improve effectiveness of deposit gathering efforts and to direct asset growth to higher return categories is progressing well.

TOP II initiatives

are building momentum early results for Treasury Solutions pricing initiative are in line with expectations, and Operations Transformation initiatives are being implemented. Consumer and Commercial cross-selling initiatives are showing encouraging early indications.

Earnings highlights

3Q15 change from

($s in millions, except per share data)

Pre-provision profit

Net income available to common shareholders

After-tax restructuring charges and special items

Net income available to common shareholders excluding restructuring charges and special items

Average common shares outstanding

Basic (in millions)

(29.0)

Diluted (in millions)

(26.8)

Diluted earnings per share

Diluted earnings per share, excluding restructuring charges and special items

Financial ratios

Noninterest income as a % of total revenue

Effective income tax rate

Efficiency ratio, excluding restructuring charges and special items

Return on average tangible common equity

Return on average tangible common equity excluding restructuring charges and special items

Return on average common equity

Return on average total assets

Return on average total tangible assets

Capital adequacy

(1)(2)

Common equity tier 1 capital ratio

Total capital ratio

Tier 1 leverage ratio

Asset quality

Total nonperforming loans and leases as a % of total loans and leases

Allowance for loan and lease losses as a % of loans and leases

Allowance for loan and lease losses as a % of nonperforming loans and leases

Net charge-offs as a % of average loans and leases

These are non-GAAP financial measures. Please see Non-GAAP Reconciliation Tables at the end of this release for an explanation of our use of non-GAAP financial measures and reconciliation of those non-GAAP financial measures to GAAP. All references to Adjusted results exclude restructuring charges and special items.

Current reporting period regulatory capital ratios are preliminary.

Capital adequacy and asset quality ratios calculated on a period-end basis, except net charge-offs.

CET1 capital under Basel III replaced Tier 1 common capital under Basel I effective January 1, 2015.

Discussion of Results:

Third quarter 2015 pre-provision profit of $411 million and net income of $220 million included no restructuring charges and special items. Second quarter 2015 pre-provision profit and net income were reduced by a net $40 million pre-tax, or $25 million after-tax, of restructuring charges and special items, largely related to efforts to improve processes and enhance efficiencies, as well as rebranding and separation from The Royal Bank of Scotland Group plc (RBS). Third quarter 2014 pre-provision profit and net income were reduced by a net $21 million pre-tax, or $13 million after-tax, of restructuring charges and special items. All references to Adjusted results* exclude the impact of restructuring charges and special items.

Restructuring charges and special items

3Q15 change from

Pre-tax total noninterest expense restructuring charges and special items

After-tax total noninterest expense restructuring charges and special items

Pre-tax restructuring charges and special items

Diluted EPS impact

($s in millions)

Adjusted noninterest expense

Adjusted pre-provision profit

Adjusted pretax income

Adjusted income tax expense

Adjusted net income

Preferred dividend

Adjusted net income available to common shareholders*

Adjusted diluted earnings per share*

Pre-provision profit of $411 million increased $12 million from Adjusted second quarter 2015* levels, reflecting a $9 million increase in total revenue and relatively flat noninterest expense. Third quarter 2015 net income of $220 million increased $5 million from Adjusted second quarter 2015* levels, largely reflecting strength in total revenue growth, continued expense discipline and an increase in the effective tax rate.

Pre-provision profit increased $39 million from Adjusted third quarter 2014 levels*, driven by a $48 million increase in total revenue, partially offset by noninterest expense growth. Compared to Adjusted third quarter 2014 results*, net income increased $18 million, or 9%, reflecting a $48 million increase in total revenue, partially offset by a $9 million increase in noninterest expense and an increase in the effective tax rate. Adjusted diluted earnings per share was up 11% given net income growth and a 5% reduction in share count.

Interest income:

Interest and fees on loans and leases and loans held for sale

Investment securities

Interest-bearing deposits in banks

Total interest income

Interest expense:

Deposits

Federal funds purchased and securities sold under agreements to repurchase

Other short-term borrowed funds

Long-term borrowed funds

Total interest expense

) bps

Net interest income of $856 million in third quarter 2015 increased $16 million from second quarter 2015 reflecting a $1.2 billion increase in average loans and leases, one additional day in the quarter, and improving investment portfolio and retail and commercial loan yields, partially offset by modestly higher deposit funding costs. Net interest margin improved four basis points to 2.76% in third quarter 2015, from 2.72% in second quarter 2015. The increase in the linked quarter margin was driven by modest balance sheet deleveraging and improving retail and commercial loan yields, partially offset by an increase in deposit costs.

Compared to third quarter 2014, net interest income increased $36 million largely as the benefit of average earning asset growth, improving investment portfolio yields, improving retail loan yields and a reduction in pay-fixed swap costs was partially offset by an increase in deposit costs, continued pressure from the persistent low-rate environment on loan yields, and higher borrowing costs related to the issuance of subordinated debt and senior notes. Net interest margin remained relatively stable with third quarter 2014 given the factors mentioned above, as well as the impact of modest balance sheet deleveraging.

Noninterest Income

Service charges and fees

Card fees

Trust and investment services fees

Mortgage banking fees

Capital markets fees

Foreign exchange and trade finance fees

Securities gains, net

Other income

Other income includes bank owned life insurance and other income.

Noninterest income of $353 million in the third quarter 2015 decreased $7 million from second quarter 2015, as a $15 million increase in other income due to $8 million in branch real estate gains, as well as improved service charges and fees, were partially offset by lower mortgage banking fees and capital markets fees, and a $7 million reduction in securities gains. Service charges and fees increased $6 million, reflecting seasonality and overall industry trends. Mortgage banking fees decreased $12 million, the result of an $8 million reduction in mortgage servicing rights valuation, as a second quarter 2015 write-up reversed to a modest impairment, and lower origination volumes and gain on sale spreads.

Compared to third quarter 2014, noninterest income increased $12 million driven by higher other income, trust and investment services fees, card fees and service charges and fees, which were partially offset by lower foreign exchange, trade finance fees, mortgage banking fees, and capital markets fees. Service charges and fees were relatively stable, and card fees and trust and investment services fees increased $4 million. Mortgage banking fees decreased $3 million as a $7 million decrease in mortgage servicing rights valuation more than offset improved gain on sale spreads.

Salaries and employee benefits

Outside services

Occupancy

Equipment expense

Amortization of software

Other operating expense

Total noninterest expense

Total noninterest expense, excluding restructuring charges and special items*

Noninterest expense of $798 million in third quarter 2015 decreased $43 million from second quarter 2015, largely due to a $40 million decrease in restructuring charges and special items. Excluding these charges, noninterest expense declined slightly from second quarter 2015 Adjusted* levels, as lower equipment and other expense were largely offset by an increase in outside services. Our efficiency initiatives continue to help fund investments in the businesses to drive future revenue growth.

Compared with third quarter 2014, noninterest expense decreased $12 million, as a $21 million decrease in restructuring charges and special items was partially offset by higher advertising...


More