By Rachel Louise Ensign and Lisa Beilfuss
Citizens Financial Group Inc. said profit in its latest quarter
declined due to a big one-time gain from the sale of branches in
the comparable quarter in 2014.
Revenue dropped 18% to $1.2 billion due to the branch sale.
Shares fell about 4% in afternoon trading as the bank separately
raised doubt about a profitability target and announced that
shareholder Royal Bank of Scotland Group PLC plans to sell down
more of its stake in the lender.
The Providence, R.I.-based regional bank reported earnings of
$190 million, down sharply from $313 million a year earlier. On a
per-share basis, profit fell to 35 cents from 56 cents. Excluding
restructuring charges and other items, earnings per share rose to
40 cents from 37 cents.
Citizens' adjusted per-share earnings came in above Wall Street
expectations while revenue matched estimates. Analysts polled by
Thomson Reuters anticipated 36 cents in earnings per share and $1.2
billion in revenue.
The bank's results faced a tough comparison with the year-prior
quarter because of Citizens' 2014 sale of Chicago branches to U.S.
Bancorp and other recent restructuring moves.
The bank, which went public last year, also said Tuesday that it
took a $40 million hit during the quarter related to restructuring
efforts and its separation from RBS. Citizens also said it is
likely delaying one of its key profitability goals, which was a 10%
return on tangible common equity by the end of 2016, and will
provide new guidance on the metric in January. Jefferies analysts
said the move was "not surprising" since revenue expectations have
fallen amid low rates and fee-income headwinds.
Citizens added that RBS plans to sell down more of its stake in
the lender, which it has said it plans to get rid of by the end of
2016. The deal could come together next week and could see RBS cut
its stake in Citizens to between 20% to 25%, a person familiar with
the matter said.
In the June quarter, Citizens bought back 10.5 million shares
and took the RBS position down to 40.8%.
As part of Citizens' unyoking from RBS and its continuing
transformation, the lender has been building out its capital- and
global-markets offerings. Capital-markets fees increased 15% to $30
million in the latest quarter, while foreign-exchange and
trade-finance fees were flat at $22 million. Overall noninterest
income declined 44% to $360 million, but excluding the 2014 Chicago
branch sale, noninterest income rose 2.3%.
Average loans and leases increased 9% to $95.6 billion as
commercial loans rose 10% and retail loans grew 7%.
Citizens, which wants to cut $200 million of expenses by the end
of 2016, said noninterest expense fell 11% in the second quarter as
restructuring charges eased. The company's efficiency ratio, where
lower is better, rose to 70% from 64% a year earlier, due to lower
revenue. The bank said its "adjusted efficiency ratio" that strips
out special items and restructuring charges stood at 67%, down from
70% a year prior.
A larger provision for credit losses, up 57% from a year earlier
from $49 million to $77 million, also dented profit. Citizens said
the provision rose because of loan growth and higher charge-offs.
It joins fellow regional banks Comerica Inc. and Regions Financial
Corp. in boosting loss provisions over the quarter.
Net-interest margin, an important gauge of lending
profitability, fell to 2.72% from 2.77% in the first quarter and
2.87% a year earlier, but executives said that this metric will
likely now remain stable. Other regional-bank executives have made
similar comments during their earnings reports in recent weeks, a
sign that pressure from low-rates may finally be easing for these
lenders.
"We continue to make good progress in turning around the bank,"
said Bruce Van Saun, chief executive of Citizens. "The environment
I think is gradually improving and hopefully the Fed will raise
rates shortly."
Max Colchester contributed to this article.
Write to Rachel Louise Ensign at rachel.ensign@wsj.com and Lisa
Beilfuss at lisa.beilfuss@wsj.com
Corrections & Amplifications
A previous version of this article incorrectly stated the amount
of Citizens' average loans for the quarter. Average loans totaled
$95.6 billion, not $92.6 billion.
Write to Lisa Beilfuss at lisa.beilfuss@wsj.com
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