Higher Costs to Hurt Citizens Financial's Q4 Earnings, NII to Aid

Citizens Financial Group, Inc. CFG is scheduled to report its fourth-quarter 2024 results on Jan. 17, 2025, before the opening bell. The bank’s fourth-quarter 2024 revenues are expected to have declined from the year-ago quarter’s reported level, while earnings are expected to have improved.Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.In the third quarter, CFG witnessed a rise in non-interest income, along with reduced expenses. However, lower net interest income (NII) and declining loan and deposit balances were major headwinds. The company’s earnings missed the Zacks Consensus Estimate thrice and matched once. On Average, the negative surprise is 14.48%.Citizens Financial Group, Inc. Price and EPS Surprise Citizens Financial Group, Inc. price-eps-surprise | Citizens Financial Group, Inc. QuoteFactors to Influence CFG’s Q4 EarningsNII: In the fourth quarter, the Federal Reserve cut interest rates by 50 basis points to 4.25-4.5%. This, along with the rate cut in September, is likely to have offered some support to Citizens Financial’s NII as the rise in funding/deposit costs declined. Management expects NII to be up 1.5-2.5% in the fourth quarter of 2024 compared with the third quarter’s reported figure of $1.37 million.The Zacks Consensus Estimate for NII for the fourth quarter of 2024 is pegged at $1.4 billion, indicating a 2.4% rise from the prior quarter’s reported figure. Our estimate for the metric is pegged at $1.4 billion. Loans: The clarity on the Fed’s rate cut path and the stabilizing macroeconomic backdrop are likely to have provided support to the lending scenario. Per the latest Fed data, the demand for commercial and industrial and consumer loans remained modest during the fourth quarter of 2024. Therefore, CFG’s lending activity is expected to have seen an improvement in the quarter to be reported.The Zacks Consensus Estimate for average interest-earning assets for the fourth quarter of 2024 is pegged at $197 billion, which remained flat from the prior quarter’s reported figure. We estimate the metric to be $194.3 billion.Non-Interest Income: Despite the Fed's interest rate cuts, mortgage rates did not decrease significantly, ending the fourth quarter at approximately 6.8%, slightly increasing from 6.2% at the end of the third quarter. Despite this, refinancing activities and origination volumes remained decent. Thus, mortgage banking fees at Citizens Financial are likely to have seen some improvement.The Zacks Consensus Estimate for mortgage banking fees for the fourth quarter of 2024 is pegged at $48.1 million, indicating a 4.5% rise from the prior quarter’s reported figure. Our estimate for the metric is pegged at $53.9 million.Improved client activity and impressive equity market performance are likely to have boosted the company’s trust and investment services fees. The Zacks Consensus Estimate for trust and investment services fees in the fourth quarter of 2024 is pegged at $78.5 million, indicating a 3.3% increase from the previous quarter’s reported figure. Global mergers and acquisitions (M&As) experienced a strong rebound in the fourth quarter of 2024 following a sluggish 2023 and 2022. This is expected to have supported CFG’s capital markets fees. Deal value and volume were bolstered by solid financial performance, robust U.S. economic growth, buoyant markets and interest rate cuts. The anticipation of reduced regulatory oversight on M&As under the incoming Trump administration further fueled deal-making activity, while signs of recovery were evident in the capital markets. Yet, lingering geopolitical issues were a headwind. The Zacks Consensus Estimate for capital markets fees for the fourth quarter of 2024 is pegged at $127.1 million, indicating a sequential increase of 35.2%. We estimate the metric to be $108.6 million.The company’s efforts to enhance deposit balances on the back of past strategic acquisitions are likely to have aided service charge and fee revenues in the quarter under review. The Zacks Consensus Estimate for the service charge and fee revenues in the fourth quarter of 2024 is pegged at $110.2 million, indicating a rise of 1.1% from the prior quarter’s reported level. Our estimate for the metric is pegged at $108.4 million.The Zacks Consensus Estimate for card fees is pegged at $92.2 million, indicating a marginal decline from the prior quarter’s reported figure. We estimate the metric to reach $88.8 million.Management expects fee income in the fourth quarter to be up mid to high single digit compared with $534 million in the third quarter. Further, the Zacks Consensus Estimate for the metric is pegged at $560.9 million, indicating a 5.5% sequential increase. Our estimate for the metric is pegged at $548.8 million.Expenses: Though CFG is making efforts to control expenses and generate positive operating leverage, costs are likely to remain elevated due to the opening of private banking offices, franchise expansion nationally, and investments in newer technological advancements.Management projects adjusted non-interest expenses in the fourth quarter of 2024 to be up 2% compared with the third-quarter 2024 level of $1.25 billion.Asset Quality: The company is likely to have set aside a substantial amount of money for potential bad loans, given the expectations of higher for longer interest rate backdrop.The Zacks Consensus Estimate for non-accrual loans and leases for the fourth quarter of 2024 is pegged at $1.68 billion, indicating a marginal decline from the previous quarter's reported figure. Our estimate for the metric is pegged at $1.6 billion.What Our Model Unveils for CFGPer our proven model, the chances of Citizen Financial beating estimates this time are low.  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. That is not the case here, as you can see below. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.Earnings ESP: Citizen Financial has an Earnings ESP of -0.01%.Zacks Rank: USB currently carries a Zacks Rank of 3.The Zacks Consensus Estimate for fourth-quarter earnings of 83 cents has remained unchanged in the past seven days. The figure indicates a significant increase from the year-ago reported figure of 34 cents.The consensus estimate for fourth-quarter 2024 revenues is pegged at $1.96 billion, indicating a decline of 1.37% from the year-ago reported figure.Stocks to ConsiderHere are some other bank stocks that you may want to consider, as our model shows that these, too, have the right combination of elements to post earnings beat this time around.The Earnings ESP for Texas Capital Bancshares, Inc. TCBI is +2.04% and it carries a Zacks Rank #3 at present. The company is slated to report its fourth-quarter 2024 results on Jan. 23. You can see the complete list of today’s Zacks #1 Rank stocks here.Over the past seven days, the Zacks Consensus Estimate for TCBI’s quarterly earnings has moved downward.First Horizon Corporation FHN has an Earnings ESP of +3.18% and carries a Zacks Rank #2 at present. The company is scheduled to release its fourth-quarter 2024 earnings on Jan. 16.  FHN’s quarterly earnings estimates has remained unchanged in the past seven days.7 Best Stocks for the Next 30 DaysJust released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."Since 1988, the full list has beaten the market more than 2X over with an average gain of +24.1% per year. So be sure to give these hand picked 7 your immediate attention. See them now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Texas Capital Bancshares, Inc. (TCBI): Free Stock Analysis Report First Horizon Corporation (FHN): Free Stock Analysis Report Citizens Financial Group, Inc. 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