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Key Factors to Affect Citizens Financial's (CFG) Q3 Earnings
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Citizens Financial Group (CFG - Free Report) is scheduled to report third-quarter 2023 earnings on Oct 18, before market open. The company’s earnings and revenues are likely to have declined year over year.
In the last reported quarter, CFG’s earnings missed the Zacks Consensus Estimate due to a rise in expenses and a decline in loans. Nonetheless, results reflected an increase in net interest income (NII) and fee income.
Citizens Financial has an unimpressive earnings surprise history. The company’s earnings surpassed the Zacks Consensus Estimate in one of the trailing four quarters and missed thrice, the negative surprise being 3.36%, on average.
Citizens Financial Group, Inc. Price and EPS Surprise
In September, CFG announced a balance sheet optimization plan to strengthen its capital and liquidity position. Accordingly, the company intends to reduce its non-core loan portfolio by $9.2 billion from $13.7 billion as of the second-quarter 2023 end.
Management seems to be in no rush to sell the non-core portfolio and intends to avoid recording losses related to the sales. The reduction is likely to take place by 2025 end. Citizens Financial expects to utilize the proceeds from asset sales to pay off its high-cost funding and support organic loan growth that will exceed non-core loan portfolio run-off. Further, management expects to ring-fence its collateralized borrowings to fund auto loans.
Factors at Play
Loans: The lending environment weakened in the quarter under review with the pace of loan growth across most categories slowing down. Per the Fed’s latest data, the demand for commercial and industrial loans was soft in July and August, while real estate loans and consumer loans (specifically credit cards) witnessed decent demand. Moreover, in third-quarter 2023, CFG ceased originating indirect auto loans, while retaining existing ones on its balance sheet. These factors are expected to have affected CFG’s loan balance in the third quarter.
Nonetheless, past bank acquisitions, and a strong franchise in the greater New York City and Philadelphia Metro areas are expected to have helped CFG in navigating the challenging lending environment.
We estimate average interest earnings assets for the quarter under review to be $200 billion, marginally down on a sequential basis.
NII: The Fed increased rates by 25 basis points in July and then kept the rates unchanged to a 22-year high of 5.25-5.5% during the September FOMC meeting. With high interest rates, the company is expected to have seen an increase in funding costs. This is likely to have affected NII and margins to some extent in the third quarter.
Moreover, a weaker lending environment is likely to have adversely impacted NII on a sequential basis. Management expects NII to be down nearly 4% from the second-quarter reported figure of $1.59 billion.
The Zacks Consensus Estimate for NII is pegged at $1.52 billion, suggesting a 4% decrease from the prior quarter. Our estimate of $1.52 billion implies a 4.2% sequential decrease.
Fee Income: Trust and investment services fees are likely to have declined on the back of lower asset values. Nonetheless, the consensus mark is pegged at $67 million, indicating a 3% increase from the prior quarter’s reported figure. Our estimate for the metric is $65.3 million.
In the third quarter, mortgage rates continued to increase, with the rate on a 30-year fixed mortgage reaching 7.31% in September, the highest level in nearly 23 years. The climb in mortgage rates, which kept home buyers on the sidelines, led to a smaller origination market, both purchase and refinancing, compared with the prior-year quarter. These factors are expected to have lowered Citizens Financial’s mortgage banking fees in the to-be-reported quarter. Nonetheless, our estimate of $61 million indicates a rise of 3.4% sequentially.
Global deal-making is likely to have continued shrinking in the quarter to be reported from the prior year, with deal volume and total deal value numbers crashing. Headwinds like geopolitical tensions, government shutdown, ‘sticky’ inflation, high interest rates and fears of a global economic slowdown continued to weigh on deal-making. Therefore, CFG’s capital market fees are likely to have declined in the to-be-reported quarter. The Zacks Consensus Estimate for capital market fees is pegged at $86 million, indicating a sequential rise of 4.9%.
Citizens Financial’s efforts to enhance deposit balances on the back of past acquisitions are likely to have aided service charge and fee revenues in the quarter under review. The Zacks Consensus Estimate for the same is pegged at $103 million, indicating a 2% increase from the prior quarter’s reported level. Our estimate for the metric is $108.2 million.
Further, the high interest rates and rising inflation are expected to have increased transactions and spending volumes, thereby supporting CFG’s card fees in the quarter to be reported. The consensus mark is pegged at $80 million and remains sequentially flat.
Per management, non-interest income is anticipated to be up 3% from $506 million in second-quarter 2023. Further, the consensus estimate is pegged at $515 million, suggesting a 1.7% sequential increase. Our estimate for the metric is $523.8 million.
Expenses: Despite its ongoing TOP 8 efficiency initiatives, Citizens Financial’s expenses are expected to have flared up on franchise expansion nationally and investments in newer technologies. Moreover, general inflationary pressures are likely to have inflated costs, whereas wage inflation is anticipated to have escalated personnel expenses.
Nonetheless, management projects underlying non-interest expenses to be relatively stable on a sequential basis.
Earnings Whispers
Our proven model does not conclusively predict an earnings beat for CFG this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) 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 Financial is -0.99%.
Zacks Rank: Citizens Financial currently carries a Zacks Rank of 3 (Hold).
The Zacks Consensus Estimate for third-quarter earnings per share is pegged at 93 cents and has moved marginally downward over the past month, reflecting the bearish sentiments of analysts. This indicates a decline of 28.5% from the prior-year quarter’s reported figure. Also, the consensus mark for revenues is pegged at $2.04 billion, indicating a year-over-year fall of 6.14%.
Stocks That Warrant a Look
First Citizens BancShares, Inc. (FCNCA - Free Report) and M&T Bank (MTB - Free Report) are a couple of stocks that you may want to consider, as these have the right combination of elements to post earnings beat this season.
The Earnings ESP for FCNCA is +3.85% and currently sports a Zacks Rank #1 (Strong Buy). It is slated to report third-quarter 2023 results on Oct 26. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for FCNCA’s third-quarter earnings has moved marginally north over the past week.
MTB is scheduled to release third-quarter 2023 results on Oct 18. It currently has an Earnings ESP of +1.01% and a Zacks Rank #3.
The Zacks Consensus Estimate for MTB’s third-quarter earnings has moved marginally north over the past week.
Image: Shutterstock
Key Factors to Affect Citizens Financial's (CFG) Q3 Earnings
Citizens Financial Group (CFG - Free Report) is scheduled to report third-quarter 2023 earnings on Oct 18, before market open. The company’s earnings and revenues are likely to have declined year over year.
In the last reported quarter, CFG’s earnings missed the Zacks Consensus Estimate due to a rise in expenses and a decline in loans. Nonetheless, results reflected an increase in net interest income (NII) and fee income.
Citizens Financial has an unimpressive earnings surprise history. The company’s earnings surpassed the Zacks Consensus Estimate in one of the trailing four quarters and missed thrice, the negative surprise being 3.36%, on average.
Citizens Financial Group, Inc. Price and EPS Surprise
Citizens Financial Group, Inc. price-eps-surprise | Citizens Financial Group, Inc. Quote
Key Developments During the Quarter
In September, CFG announced a balance sheet optimization plan to strengthen its capital and liquidity position. Accordingly, the company intends to reduce its non-core loan portfolio by $9.2 billion from $13.7 billion as of the second-quarter 2023 end.
Management seems to be in no rush to sell the non-core portfolio and intends to avoid recording losses related to the sales. The reduction is likely to take place by 2025 end. Citizens Financial expects to utilize the proceeds from asset sales to pay off its high-cost funding and support organic loan growth that will exceed non-core loan portfolio run-off. Further, management expects to ring-fence its collateralized borrowings to fund auto loans.
Factors at Play
Loans: The lending environment weakened in the quarter under review with the pace of loan growth across most categories slowing down. Per the Fed’s latest data, the demand for commercial and industrial loans was soft in July and August, while real estate loans and consumer loans (specifically credit cards) witnessed decent demand. Moreover, in third-quarter 2023, CFG ceased originating indirect auto loans, while retaining existing ones on its balance sheet. These factors are expected to have affected CFG’s loan balance in the third quarter.
Nonetheless, past bank acquisitions, and a strong franchise in the greater New York City and Philadelphia Metro areas are expected to have helped CFG in navigating the challenging lending environment.
We estimate average interest earnings assets for the quarter under review to be $200 billion, marginally down on a sequential basis.
NII: The Fed increased rates by 25 basis points in July and then kept the rates unchanged to a 22-year high of 5.25-5.5% during the September FOMC meeting. With high interest rates, the company is expected to have seen an increase in funding costs. This is likely to have affected NII and margins to some extent in the third quarter.
Moreover, a weaker lending environment is likely to have adversely impacted NII on a sequential basis. Management expects NII to be down nearly 4% from the second-quarter reported figure of $1.59 billion.
The Zacks Consensus Estimate for NII is pegged at $1.52 billion, suggesting a 4% decrease from the prior quarter. Our estimate of $1.52 billion implies a 4.2% sequential decrease.
Fee Income: Trust and investment services fees are likely to have declined on the back of lower asset values. Nonetheless, the consensus mark is pegged at $67 million, indicating a 3% increase from the prior quarter’s reported figure. Our estimate for the metric is $65.3 million.
In the third quarter, mortgage rates continued to increase, with the rate on a 30-year fixed mortgage reaching 7.31% in September, the highest level in nearly 23 years. The climb in mortgage rates, which kept home buyers on the sidelines, led to a smaller origination market, both purchase and refinancing, compared with the prior-year quarter. These factors are expected to have lowered Citizens Financial’s mortgage banking fees in the to-be-reported quarter. Nonetheless, our estimate of $61 million indicates a rise of 3.4% sequentially.
Global deal-making is likely to have continued shrinking in the quarter to be reported from the prior year, with deal volume and total deal value numbers crashing. Headwinds like geopolitical tensions, government shutdown, ‘sticky’ inflation, high interest rates and fears of a global economic slowdown continued to weigh on deal-making. Therefore, CFG’s capital market fees are likely to have declined in the to-be-reported quarter. The Zacks Consensus Estimate for capital market fees is pegged at $86 million, indicating a sequential rise of 4.9%.
Citizens Financial’s efforts to enhance deposit balances on the back of past acquisitions are likely to have aided service charge and fee revenues in the quarter under review. The Zacks Consensus Estimate for the same is pegged at $103 million, indicating a 2% increase from the prior quarter’s reported level. Our estimate for the metric is $108.2 million.
Further, the high interest rates and rising inflation are expected to have increased transactions and spending volumes, thereby supporting CFG’s card fees in the quarter to be reported. The consensus mark is pegged at $80 million and remains sequentially flat.
Per management, non-interest income is anticipated to be up 3% from $506 million in second-quarter 2023. Further, the consensus estimate is pegged at $515 million, suggesting a 1.7% sequential increase. Our estimate for the metric is $523.8 million.
Expenses: Despite its ongoing TOP 8 efficiency initiatives, Citizens Financial’s expenses are expected to have flared up on franchise expansion nationally and investments in newer technologies. Moreover, general inflationary pressures are likely to have inflated costs, whereas wage inflation is anticipated to have escalated personnel expenses.
Nonetheless, management projects underlying non-interest expenses to be relatively stable on a sequential basis.
Earnings Whispers
Our proven model does not conclusively predict an earnings beat for CFG this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) 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 Financial is -0.99%.
Zacks Rank: Citizens Financial currently carries a Zacks Rank of 3 (Hold).
The Zacks Consensus Estimate for third-quarter earnings per share is pegged at 93 cents and has moved marginally downward over the past month, reflecting the bearish sentiments of analysts. This indicates a decline of 28.5% from the prior-year quarter’s reported figure. Also, the consensus mark for revenues is pegged at $2.04 billion, indicating a year-over-year fall of 6.14%.
Stocks That Warrant a Look
First Citizens BancShares, Inc. (FCNCA - Free Report) and M&T Bank (MTB - Free Report) are a couple of stocks that you may want to consider, as these have the right combination of elements to post earnings beat this season.
The Earnings ESP for FCNCA is +3.85% and currently sports a Zacks Rank #1 (Strong Buy). It is slated to report third-quarter 2023 results on Oct 26. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for FCNCA’s third-quarter earnings has moved marginally north over the past week.
MTB is scheduled to release third-quarter 2023 results on Oct 18. It currently has an Earnings ESP of +1.01% and a Zacks Rank #3.
The Zacks Consensus Estimate for MTB’s third-quarter earnings has moved marginally north over the past week.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.