Citizens Financial Group (CFG Quick QuoteCFG - Free Report) is scheduled to report third-quarter 2021 results on Oct 20, before the opening bell. While its earnings are expected to have improved year over year, revenues are anticipated to have declined.

In second-quarter 2021, this Providence, RI-based bank surpassed the Zacks Consensus Estimate on a significant fall in provisions and a marginal rise in the loan balance. However, the contraction of margin hurt the company’s results.

Citizens has a decent earnings surprise history. The company’s earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters and missed in the other, the surprise being 21.2%, on average.

Factors at Play

Fee Income: Continued strength in equity markets, driven by a modest spike in volatility in September and decent client activities, is likely to have boosted the company’s fee income. Trust and investment services fees are likely to be supported by an increase in assets under management from robust inflows and higher equity market levels.

Strong client activity is also expected to have powered loan syndication fees, thereby, bolstering the company’s capital market fees.

Debit transactions and card spend exceeded the pre-pandemic levels in second-quarter 2021. Given the low unemployment level, consumer optimism on stimulus packages and economic recovery; this trend is likely to have continued in the third quarter, thereby boosting card fees.

Mortgage originations, both purchase and refinancing, continued to normalize in the third quarter. Mortgage banking revenues are facing tough comps from the origination boom in 2020, thanks to ultra-low mortgage rates. Nonetheless, given the strong housing market conditions, homebuying activities continued in the quarter under review. Hence, purchase originations are likely to have offered some relief. Amid this, The Zacks Consensus Estimate for mortgage banking fees is pegged at $109 million, indicating a 28% rise from the prior quarter’s reported figure.

Also, the consensus estimate for non-interest income is pegged at $506 million, suggesting a 4.3% increase.

Management expects fee income to be up 2-4%, sequentially, reflecting improvement in mortgage banking results and other categories as the economic recovery continues, partially offset by seasonal impacts.

Net Interest Income (NII): The lending scenario in the third quarter improved moderately as businesses reopened, corporate confidence rose and economic growth gained traction. Also, the yield on bonds steepened in the third quarter. However, these were partially offset by strong consumer balance sheets and persistently elevated payment rates.

Also, commercial and industrial loan portfolio remained weak as the low-interest rate environment has made borrowing through other avenues like capital markets more attractive. Nonetheless, real estate loans improved in the third quarter and are likely to have offered some support to the company’s loan growth and NII.

Management expects average loan growth in the third quarter to be up slightly sequentially, supported by spot loans growth. Management projects the quarterly NII to be sequentially up 2-3%. The net interest margin is anticipated to have been up in the low to mid-single digits. Earnings assets are also expected to have been stable.

The Zacks Consensus Estimate of $1.14 billion for NII indicates a rise of 1.2% sequentially.

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 projects non-interest expenses to be up slightly on a sequential basis.

For the quarter under review, the efficiency ratio is expected to be 60%, down from the prior quarter’s reported 60%. A decline in the efficiency ratio indicates higher profitability.

Asset Quality: With continued improvement in the macroeconomic condition in the third quarter, increased vaccination rates and support from stimulus packages; the company’s asset quality is likely to have improved.Moreover, low card delinquency rates and commercial bankruptcies indicate the backdrop of continued improvement in credit trends.

The company expects relatively stable net charge offs of 20-25 bps of average loans, with provisions less than net charge-offs.

The consensus estimate for total net charge-offs is pegged at $63 million, which calls for a 19% decrease from the prior quarter’s reported figure.

Citizens Buying Spree in Q3

In third-quarter 2021, Citizens announced or completed three acquisitions. This comprised the company entering definitive agreements to merge with Investors Bancorp, Inc. in July, and JMP Group in September.

Citizens expects the Investors Bancorp buyout to be instantly accretive to its earnings. Also, the merger will result in earnings accretion of 6.4% in 2023, and estimated annual cost synergies of $130 million. The purchase of JPM Group will augment its capital market capabilities,adding an institutional equities franchise — equity capital markets and research, and sales and trading capabilities — which will complement the company’s growing corporate banking and strategic advisory capabilities.

It completed the acquisition of Willamette Management Associates, a valuation consulting and forensic analysis firm. The deal helps to amplify Citizens' corporate financial advisory competencies and position it among the top valuation service providers in the country.

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 +1.15%.

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

The Zacks Consensus Estimate for quarterly earnings is pegged at $1.19, suggesting 75% growth from the year-ago reported number. Earnings estimates for the current quarter moved 3.5% north in the past 30 days, indicating bullish sentiments of analysts prior to the third-quarter earnings release. However, the consensus mark of $1.64 billion for third-quarter revenues indicates an 8.4% year-over-year decline.

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.

Fifth Third Bancorp (FITB Quick QuoteFITB - Free Report) is slated to report quarterly earnings on Oct 19. The company, which carries a Zacks Rank of 2 (Buy) at present, has an Earnings ESP of +0.46%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

BankUnited, Inc. (BKU Quick QuoteBKU - Free Report) is scheduled to release third-quarter results on Oct 21. The company currently has a Zacks Rank #3 and an Earnings ESP of +1.90%.

The Earnings ESP for KeyCorp (KEY Quick QuoteKEY - Free Report) is +0.56%. This Zacks #3 Ranked company is scheduled to report quarterly numbers on Oct 21.