Fee Income to Support Citizens Financial's Q3 Earnings Amid Lower NII

Core Viewpoint - Citizens Financial Group, Inc. (CFG) is expected to report a decline in earnings and revenues for the third quarter of 2024 compared to the previous year, with various factors influencing its financial performance [1][17]. Earnings Performance - In Q2 2024, CFG's earnings fell short of the Zacks Consensus Estimate due to lower net interest income (NII), increased provisions, and higher operating expenses, with an average negative surprise of 16.39% over the last four quarters [2]. - The consensus estimate for Q3 earnings is 78 cents per share, reflecting an 8.24% year-over-year decline, while revenues are projected at $1.94 billion, indicating a 3.6% decrease from the prior year [17]. Loan Demand and Interest Income - The lending environment is expected to have improved slightly due to clarity on the Federal Reserve's rate cut path, although demand for commercial real estate loans remains subdued [3]. - CFG's average interest-earning assets are estimated at $199 billion, a nearly 1% increase from the previous quarter, while NII is projected to decline by 1.7% to $1.39 billion [4][6]. Non-Interest Income - Mortgage rates have decreased to approximately 6.2%, leading to a surge in refinancing activities, which is likely to support CFG's mortgage banking fees, estimated at $55.9 million, a 3.5% rise from the prior quarter [7][8]. - Trust and investment services fees are expected to increase by 3.7% to $77.8 million, driven by strong client activity and equity market performance [9]. Capital Markets and Fees - Capital markets fees are anticipated to decline by 9.8% to $120.9 million due to regulatory scrutiny and geopolitical issues, while service charge and fee revenues are projected to rise by 1.7% to $107.8 million [10][11][12]. - Card fees are expected to decrease by 2.7% to $89.4 million, with overall fee income slightly up compared to the previous quarter [13]. Expenses and Asset Quality - CFG's expenses are likely to increase due to the opening of new private banking offices and investments in technology, with adjusted non-interest expenses expected to remain stable at $1.27 billion [14]. - The company is anticipated to set aside significant provisions for potential bad loans, particularly in commercial loans, with non-accrual loans estimated at $1.54 billion, a 1.2% increase from the previous quarter [15]. Earnings Prediction - CFG has a positive Earnings ESP of +0.31%, indicating a potential earnings beat, supported by a Zacks Rank of 3 [16].