Citizens Financial Group (CFG, Financial) is a retail bank holding company operating primarily in the New England, Mid-Atlantic and Midwest regions of the United States. The bank operates through two segments: consumer and commercial banking. Headquartered in Providence, Rhode Island, where its roots date back to 1828, Citizens offers retail and commercial banking products and services to individuals, small businesses, middle-market companies, large corporations and institutions.
The management team is focused on delivering improved return on capital through a strong focus on organic growth and efficiency initiatives, along with a more disciplined allocation of capital and resources.
Citizens is the 14th largest bank in the U.S. with $188 billion in total assets at the end of 2021. The current market capitalization is $20.5 billion. It falls under the category of a “super-regional” bank, which sits between small-cap banks and the larger well-known mega-cap global banks.
Company breakdown
Commercial banking primarily targets companies and institutions with annual revenues of $25 million to $2.5 billion. This segment offers a broad complement of financial products and solutions, including lending and leasing, trade financing, deposit and treasury management, foreign exchange and interest rate risk management, corporate finance and debt and equity capital markets capabilities.
Consumer banking serves mostly retail customers and small businesses with annual revenues of less than $25 million. This division’s products and services include deposit products, mortgage and home equity lending, student loans, auto financing, credit cards, business loans and wealth management and investment services.
Recent financial results
Total revenues for full-year 2021 were down slightly to $6.65 billion, primarily due to lower interest rates, but net income surged due to the release of provisions for credit losses for the year compared to 2020, which showed a large increase in provisions for credit losses. Return on average tangible equity improved to 16.0% in 2021, up from 7.5% in 2020.
Tangible book value per share increased almost 6% to $34.61. The company’s capital ratios remain strong and investment-grade.
During the fourth-quarter 2021 earnings call, the company sounded positive with regards to continued growth in the commercial division, citing originations exceeding pre-pandemic levels as well as an increase in utilization rates. The company expects a gradual recovery in utilization over the coming quarters as supply chain challenges and labor shortages return to normal.
For 2022, the company is guiding for a 3% to 5% increase in net interest income and a mid-single-digit increase in average loan growth. Non-interest revenues, such as capital markets and wealth management fees, are expected to grow 4% to 7%.
Valuation
Analysts' earnings per share estimates for Citizens are $4.25 for 2022 and $5.07 for 2023. The price-earnings ration is low at 10.7, but most banks trade at low multiples due the cyclical nature of bank earnings.
On a book basis, Citizens trades at a price-to-tangible-book-value ratio of 1.41. The company is currently trading at a discount to industry peers; the average price-to-tangible-book-value ratio is 1.7 for super-regional banks.
The company currently pays a quarterly dividend of $0.39, which equates to an annualized dividend yield of 3.30%.
Guru trades
Recent Guru buyers of Citizens include Joel Greenblatt (Trades, Portfolio) and Hotkis & Wiley. Gurus who have recently sold the stock include Charles Brandes (Trades, Portfolio) and Robert Olstein (Trades, Portfolio).
Conclusion
Citizens Financial Group appears to be undervalued based on certain valuation metrics. The company has strategic plans in place to grow fee-based revenues to diversify away from interest rate reliance as well as to expand into other high growth markets. With multiple expansion and an above-average dividend yield, Citizens could provide above-market returns over the next three to five years by my estimates. Additionally, the company may one day make a good acquisition candidate for a mega-cap bank.
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