Citizens Financial posted significantly higher profits in the third quarter thanks to a one-time boost to fee income and growth in loans and deposits, though the gains were held down by increases in both expenses and provision for credit losses.
The $147 billion-asset company on Friday reported net income of $297 million, a 35% jump from the same period last year, partly as a result of an after-tax benefit of $19 million from the sale of a Troubled Debt Restructuring portfolio. Earnings per share rose 40% to 56 cents.
Citizens, based in Providence, R.I., sold off $310 million of real estate-secured consumer loans and used $33 million of the resulting $72 million pre-tax gain to optimize its balance sheet and fund its ongoing efficiency initiatives. Another $8 million was eaten up by costs associated with a broad review of the home-equity portfolio in conjunction with the TDR sale.
Revenue for the bank was $1.4 billion for the period ending Sept. 30, up 14% over the same period last year.
The bank reaped fee income of $435 million, an increase of 23% from the third quarter of 2015. The TDR transaction accounted for $72 million of that gain, while strong performance in capital markets and mortgage banking, along with service charges, accounted for much of the rest. These gains were partially offset by a 9% uptick in noninterest expenses, which totaled $867 million for the quarter.
Net interest income was $945 million, an increase of 10% over the prior-year quarter that was driven largely by 7% average loan growth and an improvement in the net interest margin of eight basis points. These benefits were counterbalanced by higher deposit costs.
Net chargeoffs also increased, by $8 million, resulting in a $10 million increase in Citizens' provision for loan losses, to $86 million.
During the quarter, Citizens bought back shares of its stock on the open market for the first time since splitting from the Royal Bank of Scotland, its former parent company. The bank repurchased 11 million shares of common stock, giving shareholders a return of $313 million.
"We remain focused on continuing to enhance shareholder returns," Citizens Chief Executive Bruce Van Saun said in a statement.
Citizens is forging ahead with its profitability initiatives. TOP II, as the second phase was dubbed, is providing $95 million to $100 million of pre-tax benefits this year, according to the bank.
The next phase of the profitability program, TOP III, which the bank unveiled last quarter, is expected to deliver between $73 million and $90 million of pre-tax revenue and expense benefits, along and $10 million to $15 million in tax benefits, by the end of 2017.