Lower NII, Higher Costs to Hurt Citizens Financial's Q1 Earnings

Citizens Financial Group, Inc. CFG is scheduled to report its first-quarter 2025 results on April 16, 2025, before the opening bell. The bank’s first-quarter 2025 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 fourth 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 twice, matched once and surpassed on one occasion. On Average, the negative surprise is 3.05%.Citizens Financial Group, Inc. Price and EPS Surprise  Citizens Financial Group, Inc. price-eps-surprise | Citizens Financial Group, Inc. QuoteFactors to Influence CFG’s Q1 EarningsNII: The Federal Reserve kept interest rates unchanged at 4.25-4.5% in the first quarter of 2025, given sticky inflation and the impacts of Trump’s tariff on the economy. This is likely to have had a positive effect on CFG’s NII, given relatively higher yields on interest-earning assets, partially offset by higher funding costs.Management expects NII to decline 1.5-2.5% in the first quarter of 2025 from the fourth quarter’s reported figure of $1.34 million.The Zacks Consensus Estimate for NII for the first quarter of 2025 is pegged at $1.39 billion, indicating a 1.8% decline from the prior quarter’s reported figure. Our estimate for the metric is the same as the Zacks Consensus Estimate.Loans: In the first quarter, the lending scenario was not very impressive as Trump’s tariff plan resulted in uncertainty across the markets. Per the Federal Reserve’s latest data, demand for commercial and industrial loans, and consumer loans in the first two months of the quarter was decent. As a result, CFG’s lending activities are expected to have seen some improvements.The Zacks Consensus Estimate for average interest-earning assets is pegged at $196 billion, indicating a marginal decline from the prior quarter’s reported figure. We estimate the metric to be $195.3 billion.Non-Interest Income: Despite the Fed's interest rate cuts, mortgage rates did not decrease significantly and hovered around the 7% mark. As such, refinancing activities and origination volumes did not experience significant improvement. Thus, Citizens Financial is likely to have witnessed lower mortgage banking fees in the quarter-to-be-reported.The Zacks Consensus Estimate for mortgage banking fees is pegged at $55.5 million, indicating a 7.8% decline from the prior quarter’s reported figure. Our estimate for the metric is pegged at $53.9 million.The quarter witnessed heightened market volatility and client activity because of uncertainty related to Trump’s tariff plans. Also, the performance of the equity markets was subdued. Hence, Citizens Financial trust and investment services fees are likely to have recorded some improvements in the quarter to be reported. The Zacks Consensus Estimate for trust and investment services fees is pegged at $75.9 million, indicating a marginal increase from the previous quarter’s reported figure. Global mergers and acquisitions (M&As) in the first quarter of 2025 were less impressive than previously expected. While deal value and volume rose marginally in the quarter, this was majorly led by the Asia Pacific region. The year started on an extremely positive note, with the expectations of robust IB performance on the back of the Trump administration being business-friendly, and the likelihood of tax cuts and deregulations. However, none of these materialized, and the rebound fizzled as ambiguity over the tariff and ensuing trade war resulted in extreme market volatility. These developments have led to economic uncertainty, with data indicating a slowdown in the U.S. economy and mounting inflationary pressure. Hence, amid such a backdrop, companies started rethinking their M&A plans despite stabilizing rates and having significant investible capital. As such, CFG’s capital markets’ growth is expected to have been decent. The Zacks Consensus Estimate for capital markets fees is pegged at $113.9 million, indicating a sequential decline of 5.8%. We estimate the metric to be $120.6 million.The Zacks Consensus Estimate for the service charge and fee revenues is pegged at $106.5 million, indicating a decline of 2.3% from the prior quarter’s reported level. Our estimate for the metric is pegged at $108.5 million.The Zacks Consensus Estimate for card fees is pegged at $98.3 million, indicating a 1.3% decline from the prior quarter’s reported figure. We estimate the metric to reach $95 million.Management expects fee income in the first quarter to be down 2% from the fourth-quarter 2024 reported level. Further, the Zacks Consensus Estimate for the metric is pegged at $553.9 million, indicating a 3.5% sequential fall. Our estimate for the metric is pegged at $562 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 to rise 1-5-2% from the fourth-quarter 2024 reported level.Asset Quality: The company is likely to have set aside a substantial amount of money for potential bad loans, given the expectations of a higher for longer interest rate backdrop and tariff-related uncertainty. Our estimate for the non-accrual loans is pegged at $1.59 billion, indicating an increase of 8.1% from the year-ago level.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 are reported with our Earnings ESP Filter.Earnings ESP: Citizen Financial has an Earnings ESP of -0.27%.Zacks Rank: CFG currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.The Zacks Consensus Estimate for first-quarter earnings of 75 cents has been unchanged in the past seven days. The figure indicates an increase of 15.4% from the year-ago reported figure.The consensus estimate for first-quarter 2025 revenues is pegged at $1.94 billion, indicating a decline of 0.9% from the year-ago reported figure.Stocks to ConsiderHere are a couple of bank stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around.The Earnings ESP for First Horizon Corporation FHN is +3.80% and it carries a Zacks Rank #3 at present. The company is slated to report first-quarter 2025 results on April 16.Over the past seven days, the Zacks Consensus Estimate for FHN’s quarterly earnings has been unchanged at 40 cents.Truist Financial TFC is scheduled to announce first-quarter 2025 results on April 17. The company carries a Zacks Rank #3 at present and has an Earnings ESP of +0.15%. Quarterly earnings estimates for TFC have remianed unchanged at 86 cents over the past week.Zacks Names #1 Semiconductor StockIt's only 1/9,000th the size of NVIDIA which skyrocketed more than +800% since we recommended it. NVIDIA is still strong, but our new top chip stock has much more room to boom.With strong earnings growth and an expanding customer base, it's positioned to feed the rampant demand for Artificial Intelligence, Machine Learning, and Internet of Things. Global semiconductor manufacturing is projected to explode from $452 billion in 2021 to $803 billion by 2028.See This Stock Now for Free >>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 First Horizon Corporation (FHN): Free Stock Analysis Report Citizens Financial Group, Inc. (CFG): Free Stock Analysis Report Truist Financial Corporation (TFC): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks