Citizens Financial Group (CFG Quick QuoteCFG - Free Report) is scheduled to report second-quarter 2021 results on Jul 20, before the opening bell. While its earnings are expected to have improved year over year, revenues might display a decline.

Before we look at the factors that are likely to have influenced the company’s second-quarter performance, let’s see how it fared in the previous quarter.

In first-quarter 2021, this Providence, RI-based bank surpassed the Zacks Consensus Estimate on fee income growth backed by a solid increase in mortgage banking and capital market fees. However, contraction of margin hurt the company’s results.

Citizens has a decent earnings surprise history. The company’s earnings exceeded the Zacks Consensus Estimate in three of the trailing four quarters and missed in the other, the surprise being 136.4%, on average.

Citizens Financial Group, Inc. Price and EPS Surprise

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

Factors at Play

Fee Income: Per the Fed’s data, deposits improved during the second quarter. This is likely to have resulted in higher revenues from service charges on deposits. Continued strength in equity markets, driven by a modest spike in volatility and client activities, is likely to have boosted the company’s investment service and trust fees.

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.

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 battle the coronavirus crisis, there was a modest improvement in follow-up equity issuances.

In addition, amid near-zero interest rates and the Federal Reserve’s steady bond purchase program (that began in March 2020), bond issuance volumes were decent. Thus, growth in Citizens’ equity and debt underwriting fees is expected to have been robust during the quarter.

Nonetheless, mortgage production is likely to have declined sequentially during the April-June quarter. A moderation in refinancing activity is expected to have hurt mortgage revenues. As a result, Citizens might have witnessed lower mortgage banking fees. The Zacks Consensus Estimate for the same is pegged at $113 million, indicating a 59% plunge from the year-ago quarter.
Also, the consensus estimate for non-interest income is pegged at $502 million, suggesting a 15% decline.

Management expects fee income to be sequentially down in high-single digits, reflecting lower mortgage banking fees as margins continue to tighten.

Net Interest Income (NII): The lending scenario in the second quarter was muted, mainly in the home equity loans, while commercial real estate loans (both accounting for almost 72% of the company’s total loans and leases) offered some support. This, along with flattening of the yield curve and interest rates remaining at near-zero level in order to protect the economy from the impacts of the pandemic, is likely to have dented the company’s net interest margin, thereby impacting its NII.

The consensus estimate of $1.12 billion for NII suggests a nearly 3% year-over-year decline.

Nonetheless, the Zacks Consensus Estimate of $169.2 for the quarter’s average interest earning assets billion calls for a 4.2% improvement from the prior-year quarter’s reported number.

Management projects the quarterly NII to be sequentially up 2-2.5%. Net interest margin is anticipated to have been modestly up and more broadly stable. Earnings assets are also expected to have been stable.

Expenses: Despite its TOP 6 efficiency initiatives, Citizens’ expenses are expected to have flared up on investments in enhanced data analytics and technology to improve customer experience. The company, however, projects non-interest expenses to be down slightly.

Asset Quality: With continued improvement in the macroeconomic condition in the second quarter, increased vaccination rates and support from stimulus packages, the company’s asset quality is likely to have improved. Management anticipates relatively stable net charge offs in the range of 30-40 basis points of average loans from the previous quarter, with meaningful reserve release through provisions.

The consensus estimate for total net charge-offs non-performing assets is pegged at $99 million, which calls for a 33% decrease 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 0.00%.

Zacks Rank: The company currently sports a Zacks Rank of 1 (Strong Buy).

The Zacks Consensus Estimate for quarterly earnings is pegged at $1.14, suggesting substantial growth from the year-ago reported number. The earnings estimate for the current quarter moved 3.6% north in the past seven days. However, the consensus mark of $1.63 billion for second-quarter revenues indicates a 6.6% 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 an earnings beat in their upcoming releases, per our model.

KeyCorp (KEY Quick QuoteKEY - Free Report) is slated to report quarterly results on Jul 20. The company has an Earnings ESP of +0.26% and carries a Zacks Rank of 3, currently. You can see the complete list of today’s Zacks #1 Rank stocks here.

BankUnited, Inc. (BKU Quick QuoteBKU - Free Report) is set to release earnings numbers on Jul 22. The company holds a Zacks Rank of 3, at present and has an Earnings ESP of +3.07%.

The Bank Of New York Mellon (BK Quick QuoteBK - Free Report) is slated to report quarterly results on Jul 15. The company currently has an Earnings ESP of +1.84% and carries a Zacks Rank of 3.