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Expansion Moves Aid Citizens Financial (CFG) Amid Rising Cost
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Citizens Financial Group, Inc. (CFG - Free Report) has undertaken several major acquisitions in the recent past to enhance corporate advisory capabilities and strengthen the banking franchise. Yet, rising costs are limiting its bottom-line growth.
Last December, Citizens Financial announced a definitive agreement to acquire substantially all assets of DH Capital LLC. In November, the company closed its definitive merger agreement with JMP Group in an all-cash transaction announced in early September. This marks its fourth purchase since May. These aside, acquisition moves to buy bank branches will strengthen CFG’s consumer banking foothold and balance sheet.
Such inorganic growth moves are supported by a solid liquidity position. As of Sep 30, 2021, the company held long-term borrowed funds worth $6.95 billion, which has been witnessing a declining trend over the last few quarters. As of the same date, the total available liquidity was $76 billion.
CFG remains on track with organic growth, having recorded decent loans and deposits growth. A decline in interest-bearing deposit costs has reduced funding expenses. We believe that it is well positioned to grow further, backed by the gradually improving U.S. economy.
CFG’s focus on executing a series of revenue and efficiency initiatives led to the introduction of the “Tapping Our Potential” (TOP) program in late 2014. The TOP 6 Program is expected to deliver $400-$425 million in pre-tax run-rate benefit by 2021-end. A strong capital base and impressive capital deployment plans are other positives.
Yet, cost escalation is a key concern for Citizens Financial. Costs are likely to be elevated due to investments in newer technologies and focus on building fee income capabilities organically. Though these investments might benefit the company over the long run, the increasing current expense level is limiting bottom-line expansion in the near term.
Also, the Federal Reserve's accommodative monetary policy stance and the prevailing low interest-rate environment are likely to continue straining the bank’s margins. The company’s net interest margin (NIM) shrunk in 2019 and 2020, with the declining trend continuing in the first six months of 2021. Nonetheless, NIM improved in third-quarter 2021. Despite decent loan demand, NIM is expected to continue being impacted in the near term, as the central bank maintains its relatively accommodative and moderately hawkish monetary policy at least in the near term.
Lack of diversification in the loan portfolio is worrisome for Citizens Financial. The company’s loan portfolio comprises a significant amount of commercial loans (47% of loans and leases as of Sep 30, 2021). This can be risky for the company amid an uncertain economy and competitive markets.
Shares of the company have gained 14.8% over the past six months compared with 13.5% growth recorded by the industry.
Some better-ranked stocks from the same space include Banner (BANR - Free Report) , HomeStreet (HMST - Free Report) and OceanFirst Financial (OCFC - Free Report) , each carrying a Zacks Rank #2 (Buy) at present.
The Zacks Consensus Estimate for Banner’s 2022 earnings has been revised marginally upward over the past 30 days. Banner’s shares have risen 19.8% in the past year.
Earnings estimates for HomeStreet have been unrevised for 2022 over the past 30 days. Over the past year, HMST’s shares have rallied 43.9%.
Earnings estimates for OceanFirst have been unrevised for 2022 over the past 30 days. The OCFC stock has rallied 13.6% in the past year.
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Expansion Moves Aid Citizens Financial (CFG) Amid Rising Cost
Citizens Financial Group, Inc. (CFG - Free Report) has undertaken several major acquisitions in the recent past to enhance corporate advisory capabilities and strengthen the banking franchise. Yet, rising costs are limiting its bottom-line growth.
Last December, Citizens Financial announced a definitive agreement to acquire substantially all assets of DH Capital LLC. In November, the company closed its definitive merger agreement with JMP Group in an all-cash transaction announced in early September. This marks its fourth purchase since May. These aside, acquisition moves to buy bank branches will strengthen CFG’s consumer banking foothold and balance sheet.
Such inorganic growth moves are supported by a solid liquidity position. As of Sep 30, 2021, the company held long-term borrowed funds worth $6.95 billion, which has been witnessing a declining trend over the last few quarters. As of the same date, the total available liquidity was $76 billion.
CFG remains on track with organic growth, having recorded decent loans and deposits growth. A decline in interest-bearing deposit costs has reduced funding expenses. We believe that it is well positioned to grow further, backed by the gradually improving U.S. economy.
CFG’s focus on executing a series of revenue and efficiency initiatives led to the introduction of the “Tapping Our Potential” (TOP) program in late 2014. The TOP 6 Program is expected to deliver $400-$425 million in pre-tax run-rate benefit by 2021-end. A strong capital base and impressive capital deployment plans are other positives.
Yet, cost escalation is a key concern for Citizens Financial. Costs are likely to be elevated due to investments in newer technologies and focus on building fee income capabilities organically. Though these investments might benefit the company over the long run, the increasing current expense level is limiting bottom-line expansion in the near term.
Also, the Federal Reserve's accommodative monetary policy stance and the prevailing low interest-rate environment are likely to continue straining the bank’s margins. The company’s net interest margin (NIM) shrunk in 2019 and 2020, with the declining trend continuing in the first six months of 2021. Nonetheless, NIM improved in third-quarter 2021. Despite decent loan demand, NIM is expected to continue being impacted in the near term, as the central bank maintains its relatively accommodative and moderately hawkish monetary policy at least in the near term.
Lack of diversification in the loan portfolio is worrisome for Citizens Financial. The company’s loan portfolio comprises a significant amount of commercial loans (47% of loans and leases as of Sep 30, 2021). This can be risky for the company amid an uncertain economy and competitive markets.
Shares of the company have gained 14.8% over the past six months compared with 13.5% growth recorded by the industry.
CFG currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stocks Worth a Look
Some better-ranked stocks from the same space include Banner (BANR - Free Report) , HomeStreet (HMST - Free Report) and OceanFirst Financial (OCFC - Free Report) , each carrying a Zacks Rank #2 (Buy) at present.
The Zacks Consensus Estimate for Banner’s 2022 earnings has been revised marginally upward over the past 30 days. Banner’s shares have risen 19.8% in the past year.
Earnings estimates for HomeStreet have been unrevised for 2022 over the past 30 days. Over the past year, HMST’s shares have rallied 43.9%.
Earnings estimates for OceanFirst have been unrevised for 2022 over the past 30 days. The OCFC stock has rallied 13.6% in the past year.