Loan Growth, Mortgage to Aid Citizens (CFG) Q2 Earnings

Citizens Financial Group CFG is scheduled to report second-quarter 2020 results on Jul 17, 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 second-quarter earnings, let’s see how the company performed in the previous quarter.

In first-quarter 2020, this Providence, RI-based bank lagged Zacks Consensus Estimate on a substantial rise in provisions due to the adoption of the accounting method of Current Expected Credit Losses and the coronavirus outbreak-related crisis. However, rise in revenues and a strong capital position were the key positives.

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

Net Interest Income (NII) Higher: A decent lending scenario mainly in the commercial & industrial loans front is expected to have supported interest income during the quarter.

Also, the Zacks Consensus Estimate for average interest earning assets of $118.4 billion for the quarter indicates a 4.3% improvement from the previous quarter.

However, a decline in interest rates in March to near-zero level as a move to protect the economy from the impacts of the coronavirus outbreak is likely to have hurt the company’s net interest margin, thereby, impacting NII.

The Zacks Consensus Estimate of $762 million for NII suggests 1.3% sequential growth.

Notably, management expects NII to rise in mid-single digits sequentially due to expectations of loan growth, partially offset by a decline in margins.

Capital Market Fees Muted: As companies tried to build liquidity to tide over the pandemic-led crisis, there was a substantial rise in follow-up equity issuances in the second quarter. However, IPO activities declined in the quarter before picking up a bit in the last weeks of June.

Also, global M&A activity during the second quarter was significantly hampered due to the coronavirus outbreak. Thus, Citizens’ capital market fees are likely to have been lower in the second quarter.

Fee Income Lower: Per the Fed’s data, deposits improved in the second quarter and are likely to have aided the company in bagging higher service charges and fees. 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 witnessed higher mortgage banking fees.

However, the trend of consumer spending was unimpressive during the quarter, which is likely to have impacted card fees. Also, given the weak equity markets, trust and investment services fees are expected to have declined. The Zacks Consensus Estimate for trust fees of $4.7 million implies a fall of 5.6% from the prior quarter’s reported figure.

Given the expectations of a fall in most components, the Zacks Consensus Estimate for non-interest income is pegged at $151 million, suggesting a 7.9% fall sequentially.

Management expects non-interest income to be down in mid-single digits compared with the previous quarter on the impacts of the COVID-19 outbreak on service charges, card and other fees.

Expenses Higher: 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.

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 carries a Zacks Rank #3.

The Zacks Consensus Estimate for its earnings for the quarter is pegged at 9 cents, which suggests a decline of 90.6% from the year-ago reported number. However, the consensus estimate for sales of $1.68 billion indicates 3.3% year-over-year growth.

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.

CullenFrost Bankers, Inc. CFR is scheduled to release quarterly earnings on Jul 30. The company, which carries a Zacks Rank #3 currently, has an Earnings ESP of +6.27%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Earnings ESP for Bank OZK OZK is +52.86% and it currently carries a Zacks Rank of 3. The company is slated to report quarterly numbers on Jul 23.

The Earnings ESP for Associated Banc-Corp ASB is +7.31% and the company presently carries a Zacks Rank #3. It is scheduled to report quarterly numbers on Jul 23.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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