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Soft Interest Income Rise to Mar Citizens (CFG) Q3 Earnings

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Citizens Financial Group (CFG - Free Report) is scheduled to report third-quarter 2019 results on Oct 18, before market open. Its revenues and earnings are expected to have risen year over year.

Before we look at the factors that might influence third-quarter earnings, let’s see how the company performed in the past quarters.

In second-quarter 2019, this Providence, RI-based bank displayed organic growth. Rise in revenues and strong capital position were the key highlights. However, higher expenses and provisions were concerns.

Citizens Financial Group, Inc. Price and EPS Surprise

Factors at Play

Soft Net Interest Income (NII) Growth: The quarter witnessed slowdown in commercial and industrial, and real estate lending scenarios. Though consumer loans witnessed an uptrend, NII is expected to have received little support. Also, the Fed’s decision to lower rates, flattening of the yield curve and steadily rising deposit betas during the quarter are likely to have impacted net interest margin to some extent.

However, rise in earning assets is likely to have boosted interest income. The Zacks Consensus Estimate for average interest earning assets of $146.6 billion for the to-be-reported quarter indicates a 3.1% rise from the year-ago reported figure.

The consensus estimate of $1.16 billion for NII suggests slight year-over-year growth.

Moreover, management expects average loans to have remained broadly stable in the quarter. Further, margin is expected to have declined on a sequential basis due to interest rate cuts.

Higher Capital Market Fees: Thethird quarter witnessed dismal capital markets performance due to several lingering concerns, including uncertainty related to the U.S.-China trade war and Brexit, and expectations of global economic slowdown. Also, despite a decent equity market performance, equity issuance is likely to have weakened.

While M&A deal value and volume witnessed a fall due to subdued business investments amid trade tensions during the quarter, Citizens’ might have charged higher advisory fees due to its solid business profile. The consensus estimate for capital market fees of $60 million indicates a 27.7% rise.

Rise in Fee Income: Per the Fed’s data, deposits improved in the third quarter, and are likely to have aided Citizens in bagging higher service charges and fees. Further, the trend of consumer spending was decent during the quarter, which is likely to have provided some support to the company’s top line. The consensus estimate for card fees of $63 million indicates a 8.2% increase.

Due to lower mortgage rates, mortgage refinancing activities and fresh originations picked pace in the quarter, as a result of which Citizens is expected to have reported higher mortgage banking fees. The Zacks Consensus Estimate for same is $65 million, indicating 32.7% rise.

Furthermore, given the decent equity markets, trust and investment services fees are expected to have risen 17.8% year over year to $53 million.

Given expectations of rise in most components, the Zacks Consensus Estimate for non-interest income is $472 million, up 13.5%.

Higher Expenses: Despite its TOP 5 efficiency initiatives, Citizens’ expenses are expected to have increased due to investments in enhanced data analytics and technology to improve customer experience.

Earnings Whispers

Our quantitative model doesn’t conclusively predict an earnings beat for Citizens this time around. The combination of a positive Earnings ESP and a Zacks Rank #3 (Hold) or better increases the odds of an earnings beat, which is not the case here.

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 -0.05%.

Zacks Rank:The stock currently carries a Zacks Rank #4 (Sell).

The Zacks Consensus Estimate for earnings for the quarter is 96 cents, which suggests improvement of 3.2% from the year-ago reported number. Also, the consensus estimate for sales of $1.63 billion indicates 4.2% growth.

Stocks to Consider

Huntington Bancshares Incorporated (HBAN - Free Report) has an Earnings ESP of +0.60% and holds a Zacks Rank of 3. It is slated to report quarterly results on Oct 24. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Earnings ESP for Cullen/Frost Bankers, Inc. (CFR - Free Report) is +0.28% and it also carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Oct 24.

The Earnings ESP for BancorpSouth Bank (BXS - Free Report) is +2.61%, and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Oct 21.

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