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Will Fee Income Growth Bolster Citizen's (CFG) Q1 Earnings?

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Citizens Financial Group CFG is scheduled to report first-quarter 2021 results on Apr 16, before the opening bell. While its earnings are expected to have improved year over year, revenues might have declined.

Before we look at the factors that might have influenced the first-quarter earnings, let’s see how the company performed in the previous quarter.

In fourth-quarter 2020, this Providence, RI-based bank surpassed the Zacks Consensus Estimate on rise in fee income backed by a solid rise in mortgage banking and capital market fees. However, rise in provisions and elevated expenses hurt the company’s results.

Citizens has an impressive earnings surprise history. The company’s earnings exceeded the Zacks Consensus Estimate in two of the trailing four quarters for as many misses, the surprise being 111.3%, on average.

Factors at Play

Net Interest Income (NII): The lending scenario in the first quarter was muted, mainly in the home equity and commercial real estate loans front (accounting for almost 52% of the company’s total loans and leases).This, along with interest rates at near-zero level in order to protect the economy from the impacts of the coronavirus pandemic, are likely to have dented the company’s net interest margin, thereby impacting its NII.

However, the Zacks Consensus Estimate of $169.2 for the quarter’s average interest earning assets billion indicates an 12.1% improvement from the prior-year quarter’s reported number.

The consensus estimate of $1.10 billion for NII suggests a nearly 5% year-over-year decline.

Management projects NII to sequentially decline slightly on account of lower day count. Net interest margin and earnings assets are expected to have been stable.

Capital Market Fees: Continuing with the momentum that started in the second half of last year, the IPO market remained active during the to-be-reported quarter. Also, as companies kept building liquidity to tide over the coronavirus crisis, there was a rise in follow-up equity issuances.

Further, amid near-zero interest rates and the Federal Reserve’s steady bond purchase program (that began in March 2020), bond issuance volumes were strong as companies took this as an opportunity to bolster their balance sheets. So, growth in Citizens’ equity and debt underwriting fees is expected to have been robust during the quarter.

Fee Income: Per the Fed’s data, deposits improved during the first quarter but deposit service charges are likely to be softer sequentially, due to fewer days and lower incidence fees given extra money from stimulus checks.

Continued strength in equity markets, driven by a spike in volatility and higher client activities, is likely to have boosted the company’s investment service and trust fees.

Moreover, due to record low mortgage rates, demand for mortgage refinancing activities and fresh originations remained strong in the quarter. As a result, Citizens is expected to have witnessed higher mortgage banking fees. The Zacks Consensus Estimate for the same is pegged at $163 million, indicating a 2.5% rise from the year-ago quarter.

Card fees are likely to have improved on higher consumer spending owing to decreased unemployment level, consumer optimism on new stimulus package as well as extensive vaccination drives.

Given the anticipations of a rise in most components, the consensus estimate for non-interest income is pegged at $536 million, suggesting 7.8% growth.
However, management expects fee income to be sequentially down in high-single digits, reflecting lower mortgage banking fees as margins continue to tighten as far as seasonal impacts are concerned.

Expenses: Despite its TOP 6 efficiency initiatives, Citizens’ expenses are expected to have flared up due to investments in enhanced data analytics and technology to improve customer experience. Notably, the company projects non-interest expenses to be sequentially up 2-3%, reflecting seasonal factors.

Asset Quality: Management expects relatively stable net charge offs in the range of 50-60 bps of average loans from the previous quarter.
The consensus estimate for total net charge-offs non-performing assets is pegged at $167 million, which calls for a 21.9% increase from the prior-year quarter’s reported figure.

Earnings Whispers

Citizens does not have the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Earnings ESP for Citizens is -0.13%.

Zacks Rank: The company currently carries a Zacks Rank of 3.

Citizens Financial Group, Inc. Price and EPS Surprise

Citizens Financial Group, Inc. Price and EPS Surprise
Citizens Financial Group, Inc. Price and EPS Surprise

Citizens Financial Group, Inc. price-eps-surprise | Citizens Financial Group, Inc. Quote

The Zacks Consensus Estimate for its earnings for the quarter is pegged at 97 cents, which suggests substantial growth from the year-ago reported number. However, the consensus estimate for sales of $1.65 billion indicates a marginal decline.

Stocks to Consider

Here are some finance stocks that you may want to consider as these have the right combination of elements to post earnings beat in their upcoming releases, per our model.

The Earnings ESP for KeyCorp KEY is +0.03%. This Zacks #3 Ranked company is scheduled to report quarterly numbers on Apr 20. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Bank of New York Mellon Corporation BK is scheduled to report first-quarter 2021 results on Apr 16. The company has an Earnings ESP of +1.27% and currently carries a Zacks Rank of 3.

State Street Corporation STT is scheduled to report first-quarter 2021 results on Apr 16. The company, which carries a Zacks Rank of 3 at present, has an Earnings ESP of +0.40%.

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