NII Growth, Fee Income to Aid Citizens’ (CFG) Q3 Earnings


Citizens Financial Group (CFG Quick QuoteCFG ) is scheduled to report third-quarter 2022 earnings results on Oct 19, before market open. Its quarterly earnings are expected to have declined year over year, while revenues are likely to have improved.

In the prior quarter, this Providence, RI-based bank surpassed the Zacks Consensus Estimate on net interest income (NII) growth on the rise in loan balances. Further, strong balance sheet growth, backed by an improving economy, was a tailwind. However, higher expenses are a spoilsport.

Citizens Financial has an impressive earnings surprise history. The company’s earnings surpassed the Zacks Consensus Estimate in all of the trailing four quarters, the surprise being 9.2%, on average.

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

 Factors at Play

Loans:  While lending activity improved sequentially in the third quarter, the pace of loan growth across most categories slowed as the quarter progressed. Per the Fed’s latest data, residential real estate loans and consumer loans slightly moderated in the third quarter from the second quarter.

Encouragingly, commercial real estate loan and commercial and industrial loan growth accelerated in the quarter under review. This is likely to have aided the company’s third-quarter performance as most of its loan portfolio comprises commercial loans.

NII: In addition to loan growth, there was a rise in interest rates in the quarter. The Federal Reserve raised rates by 150 basis points in the quarter. The policy rate reached 3-3.25%, the highest since 2008. Thus, loan growth and higher rates are expected to have positively impacted the company’s NII.

Management expects NII to be up 5.5-7% on a sequential basis.

The Zacks Consensus Estimate of $1.59 billion for NII indicates a 6.1% increase from the prior quarter.

Fee Income: The geopolitical tensions related to the Russian-Ukraine war continued to dampen the equity market performance in the third quarter. Trust and investment services fees are likely to have been negatively impacted by a decrease in assets under management from outflows and lower equity market levels. The consensus mark for the same is pegged at $66 million, flat from the prior quarter’s reported figure.

Mortgage originations, both purchase and refinancing, continued to decline in the third quarter. Also, in the third quarter, mortgage rates increased, with the rate on the 30-year fixed mortgage crossing the 6% mark in September. The climb in mortgage rates has taken a toll on the origination market. These factors are expected to have lowered Citizens Financial’s mortgage banking fees in the to-be-reported quarter. The consensus estimate for the same, pegged at $65 million, suggests a 9.7% fall sequentially.

The company’s eased overdraft fee policy and an overall decline in deposits resulted in lower service charges and fees revenues.

The macro-environment for deal-making considerably reduced in third-quarter 2022. Hence, with a decrease in global merger and acquisition volumes, the company’s capital markets fees are likely to have been negatively impacted. Nonetheless, past acquisitions to enhance its advisory competencies might have aided amid industry headwinds.

The consensus estimate for non-interest income is pegged at $520 million, suggesting a 5.3% sequential increase.Per management, non-interest income is anticipated to be stable on a sequential basis.

Expenses: Despite its TOP 7 efficiency initiatives, Citizens Financial’s expenses are expected to have flared up on investments in newer technologies and building fee income capabilities organically. Management expects underlying non-interest expenses to grow 1% on a sequential basis.

Key Developments During the Quarter

In July, Citizens Financial announced a definitive agreement to acquire select assets and liabilities of Paladin Advisors, an independent, registered investment advisor, to fortify its presence in a key market and enhance the investment capabilities of its private wealth management team.

Earnings Whispers

Our proven does not show that an earnings beat is likely for CFG this time around. This is because Citizens Financial 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 this time around.

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 Financial is 0.00%.

Zacks Rank: The company currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for third-quarter earnings is pegged at $1.22 and has moved marginally downward over the past month, reflecting the bearish sentiments of analysts. Also, the consensus mark of $2.13 billion for third-quarter revenues indicates a 28.1% year-over-year rise.

Stocks Worth a Look

A few finance stocks, which you may want to consider, as these have the right combination of elements to post an earnings beat in their upcoming releases per our model, are Associated Banc-Corp (ASB Quick QuoteASB ) and BankUnited (BKU Quick QuoteBKU ) .

Associated Banc-Corp is scheduled to release third-quarter 2022 earnings on Oct 20. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +0.57%.

The Earnings ESP for BKU is +1.32% and the company carries a Zacks Rank #3 at present. BKU is slated to report third-quarter 2022 results on Oct 20.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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