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Fee Income to Aid Citizens (CFG) Q4 Earnings Amid Low Rates

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Citizens Financial Group (CFG - Free Report) is scheduled to report fourth quarter and 2020 results on Jan 20, before market open. While its revenues are expected to have improved year over year, earnings might have declined.

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

In third-quarter 2020, this Providence, RI-based bank lagged the Zacks Consensus Estimate on rise in provisions and expenses. However, a solid rise in mortgage banking and capital market fees supported revenue growth.

Factors at Play

Net Interest Income (NII): The lending scenario in the fourth 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 near-zero interest rates, is likely to have hurt Citizens’ NII.

However, the Zacks Consensus Estimate for average interest earning assets of $163.5 billion for the quarter indicates an 9.8% improvement from the prior-year quarter’s reported number.

The consensus estimate of $1.13 billion for NII suggests nearly 1% year-over-year decline.

Management expects NII to remain stable, assuming no PPP forgiveness benefit in the fourth quarter.

Capital Market Fees: The fourth quarter witnessed a bounce back in IPO activities. Also, as companies continued to build liquidity to tide over the pandemic-induced crisis, there was a rise in follow-up equity issuances.

Further, amid near-zero interest rates, 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 in the quarter.

Fee Income: Per the Fed’s data, deposits improved in the fourth quarter and are likely to have aided the company in bagging higher service charges and fees. Also, given the strong equity markets, trust and investment services fees are expected to have increased. The Zacks Consensus Estimate for the same of $54 million implies a rise of 3.8% from the prior quarter’s reported figure.

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 $207 million, indicating a substantial rise from year-ago quarter.

Decent consumer spending scenario on easing of lockdown measures is likely to have resulted in higher usage of debit/credit cards and might have favorably impacted card fees during the quarter.

Given the expectations of a rise in most components, the consensus estimate for non-interest income is pegged at $564 million, suggesting 14.2% growth.

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

Asset Quality: Management expects a reserve release in the fourth quarter, on account of reserve bills taken in 2020.

The consensus estimate for non-performing assets is pegged at $1.28 billion, which indicates a 70.6% increase from the prior-year quarter’s reported figure. Likewise, the consensus estimate for non-performing loans of $1.24 billion suggests a 76.8% rise.

Earnings Whispers

Citizens has 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 +1.13%.

Zacks Rank: The company currently carries a Zacks Rank #1 (Strong Buy).

The Zacks Consensus Estimate for its earnings for the quarter is pegged at 91 cents, which suggests a decline of 8.1% from the year-ago reported number. However, the consensus estimate for sales of $1.7 billion indicates 4% growth.

Other Stocks to Consider

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

BankUnited, Inc. (BKU - Free Report) is slated to release earnings figures on Jan 21. The company, which carries a Zacks Rank #2 (Buy) at present, has an Earnings ESP of +2.46%. You can see the complete list of today’s Zacks #1 Rank  stocks here.

U.S. Bancorp (USB - Free Report) is scheduled to release quarterly results on Jan 20. The company has an Earnings ESP of +0.44% and it currently carries a Zacks Rank of 3.

The Earnings ESP for KeyCorp (KEY - Free Report) is +3.19% and it carries a Zacks Rank of 3, at present. The company is slated to report quarterly numbers on Jan 21.

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Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

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U.S. Bancorp (USB) - free report >>

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BankUnited, Inc. (BKU) - free report >>

Citizens Financial Group, Inc. (CFG) - free report >>