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Organic Growth & Strategic Initiatives Aid CFG, High Costs Ail
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Citizens Financial Group, Inc. (CFG - Free Report) remains well-poised for growth on the back of rising loans and deposit balances, along with efforts to improve its wealth management offerings. Additionally, strategic initiatives like Tapping Our Potential (TOP) will further support its financials. However, a rising cost base is likely to limit its bottom-line growth, and limited diversification in its loan portfolio presents an additional concern.
Key Growth Drivers for CFG
Efforts to Improve Wealth Management Unit: Citizens Financial’s long-term strategy involves growth in wealth management offerings, improved capabilities in the high-net-worth segment and expansion into key markets. In October 2023, it launched the Citizens Private Bank, strengthening its operations in the wealth management space. The company plans to open five to six private banking offices throughout 2024. It has been hiring personnel across private banking, wealth management and related support businesses to boost its growth plans. Management is on track to achieve breakeven in Citizens Private Bank in the second half of 2024.
Organic Growth Efforts: Citizens Financial exhibits a healthy loan and deposit base. The loans and leases, and deposits recorded a CAGR of 6.3% and 6.4%, respectively, over the last three years (2020–2023). While the uptrend persisted for total deposits in the first half of 2024 on the back of growth in retail and private banks, loans and leases witnessed a reverse trend in the same period. The acquisition of HSBC branches and Investors Bancorp added low-cost deposits and increased its branch network. Management believes its focus on relationship-based lending and attractive risk-adjusted return will likely support loan pipelines.
Further, its balance sheet optimization (BSO) plan includes a reduction of its non-core loan portfolio balance from $11.1 billion in 2023-end to $4.7 billion by 2025-end. The sale proceeds will be used to reduce its wholesale funding costs and support the organic relationship-based loan growth of its core portfolio.
Strategic Efficiency Initiatives: Citizens Financial’s focus on executing a series of revenue and efficiency initiatives led to the introduction of the TOP program in late 2014. The company launched its TOP 9 program, aiming for a pre-tax exit run rate benefit of around $135 million by the end of 2024. The program will focus on automation and improving efficiency and includes the use of artificial intelligence in its operations.
Challenges for CFG
Mounting Expenses: Escalating expenses are the key headwind for Citizens Financial. The company’s non-interest expenses witnessed a CAGR of 11.3% over the last three years (2020-2023), with an uptrend continuing in the first half of 2024.
Though management 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.
Commercial Loan Concentration: The loan portfolio of Citizens Financial contains a high amount of commercial loans (50.7% of total loans and leases as of June 30, 2024). The current rapidly changing macroeconomic backdrop may put some strain on commercial lending. Moreover, in case of any economic downturn, the credit quality of the loan category may deteriorate. Thus, the lack of loan portfolio diversification is likely to hurt the company’s financials if the economic situation worsens.
Over the past six months, shares of this Zacks Rank #3 (Hold) company have rallied 17.2%, outperforming the industry's 15.1% growth.
Image Source: Zacks Investment Research
Bank Stocks Worth a Look
Some better-ranked stocks from the banking space are Citizens Community Bancorp, Inc. (CZWI - Free Report) and Berkshire Hills Bancorp, Inc. (BHLB - Free Report) .
Estimates for CZWI’s current-year earnings have increased 6.6% in the past 60 days. The company’s shares have gained 18.6% over the past six months. Currently, CZWI sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Estimates for BHLB’s current-year earnings have increased nearly 1% upward in the past month. The company’s shares have jumped 22% over the past six months. At present, BHLB carries a Zacks rank #2 (Buy).
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Organic Growth & Strategic Initiatives Aid CFG, High Costs Ail
Citizens Financial Group, Inc. (CFG - Free Report) remains well-poised for growth on the back of rising loans and deposit balances, along with efforts to improve its wealth management offerings. Additionally, strategic initiatives like Tapping Our Potential (TOP) will further support its financials. However, a rising cost base is likely to limit its bottom-line growth, and limited diversification in its loan portfolio presents an additional concern.
Key Growth Drivers for CFG
Efforts to Improve Wealth Management Unit: Citizens Financial’s long-term strategy involves growth in wealth management offerings, improved capabilities in the high-net-worth segment and expansion into key markets. In October 2023, it launched the Citizens Private Bank, strengthening its operations in the wealth management space. The company plans to open five to six private banking offices throughout 2024. It has been hiring personnel across private banking, wealth management and related support businesses to boost its growth plans. Management is on track to achieve breakeven in Citizens Private Bank in the second half of 2024.
Organic Growth Efforts: Citizens Financial exhibits a healthy loan and deposit base. The loans and leases, and deposits recorded a CAGR of 6.3% and 6.4%, respectively, over the last three years (2020–2023). While the uptrend persisted for total deposits in the first half of 2024 on the back of growth in retail and private banks, loans and leases witnessed a reverse trend in the same period. The acquisition of HSBC branches and Investors Bancorp added low-cost deposits and increased its branch network. Management believes its focus on relationship-based lending and attractive risk-adjusted return will likely support loan pipelines.
Further, its balance sheet optimization (BSO) plan includes a reduction of its non-core loan portfolio balance from $11.1 billion in 2023-end to $4.7 billion by 2025-end. The sale proceeds will be used to reduce its wholesale funding costs and support the organic relationship-based loan growth of its core portfolio.
Strategic Efficiency Initiatives: Citizens Financial’s focus on executing a series of revenue and efficiency initiatives led to the introduction of the TOP program in late 2014. The company launched its TOP 9 program, aiming for a pre-tax exit run rate benefit of around $135 million by the end of 2024. The program will focus on automation and improving efficiency and includes the use of artificial intelligence in its operations.
Challenges for CFG
Mounting Expenses: Escalating expenses are the key headwind for Citizens Financial. The company’s non-interest expenses witnessed a CAGR of 11.3% over the last three years (2020-2023), with an uptrend continuing in the first half of 2024.
Though management 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.
Commercial Loan Concentration: The loan portfolio of Citizens Financial contains a high amount of commercial loans (50.7% of total loans and leases as of June 30, 2024). The current rapidly changing macroeconomic backdrop may put some strain on commercial lending. Moreover, in case of any economic downturn, the credit quality of the loan category may deteriorate. Thus, the lack of loan portfolio diversification is likely to hurt the company’s financials if the economic situation worsens.
Over the past six months, shares of this Zacks Rank #3 (Hold) company have rallied 17.2%, outperforming the industry's 15.1% growth.
Image Source: Zacks Investment Research
Bank Stocks Worth a Look
Some better-ranked stocks from the banking space are Citizens Community Bancorp, Inc. (CZWI - Free Report) and Berkshire Hills Bancorp, Inc. (BHLB - Free Report) .
Estimates for CZWI’s current-year earnings have increased 6.6% in the past 60 days. The company’s shares have gained 18.6% over the past six months. Currently, CZWI sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Estimates for BHLB’s current-year earnings have increased nearly 1% upward in the past month. The company’s shares have jumped 22% over the past six months. At present, BHLB carries a Zacks rank #2 (Buy).