Citizens Financial Group (CFG)

Regional banking company Citizens Financial Group (NYSE:CFG) announced better-than-expected revenue in Q4 CY2025, with sales up 9.2% year on year to $2.16 billion. Its non-GAAP profit of $1.13 per share was 2.2% above analysts’ consensus estimates.

Company Overview

Tracing its roots back to 1828 as a community-focused institution, Citizens Financial Group (NYSE:CFG) is a regional bank that provides retail and commercial banking services to individuals, small businesses, and large corporations across 14 states.

Regional banks, financial institutions operating within specific geographic areas, serve as intermediaries between local depositors and borrowers. They benefit from rising interest rates that improve net interest margins (the difference between loan yields and deposit costs), digital transformation reducing operational expenses, and local economic growth driving loan demand. However, these banks face headwinds from fintech competition, deposit outflows to higher-yielding alternatives, credit deterioration (increasing loan defaults) during economic slowdowns, and regulatory compliance costs. Recent concerns about regional bank stability following high-profile failures and significant commercial real estate exposure present additional challenges.

Citizens Financial Group competes with other regional banks like KeyBank (NYSE:KEY), Fifth Third Bank (NASDAQ:FITB), and PNC Financial Services (NYSE:PNC), as well as national institutions including Bank of America (NYSE:BAC), JPMorgan Chase (NYSE:JPM), and Wells Fargo (NYSE:WFC).

From lending activities to service fees, most banks build their revenue model around two income sources. Interest rate spreads between loans and deposits create the first stream, with the second coming from charges on everything from basic bank accounts to complex investment banking transactions. Regrettably, Citizens Financial Group’s revenue grew at a sluggish 3.6% compounded annual growth rate over the last five years. This fell short of our benchmark for the banking sector and is a rough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within financials, a half-decade historical view may miss recent interest rate changes, market returns, and industry trends. Citizens Financial Group’s recent performance shows its demand has slowed as its revenue was flat over the last two years. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, Citizens Financial Group reported year-on-year revenue growth of 9.2%, and its $2.16 billion of revenue exceeded Wall Street’s estimates by 0.7%.

Net interest income made up 72.3% of the company’s total revenue during the last five years, meaning lending operations are Citizens Financial Group’s largest source of revenue.

Our experience and research show the market cares primarily about a bank’s net interest income growth as non-interest income is considered a lower-quality and non-recurring revenue source.

Topline growth carries importance, but the overall profitability behind this expansion determines true value creation. For banks, the efficiency ratio captures this relationship by measuring non-interest expenses, including salaries, facilities, technology, and marketing, against total revenue.

Markets emphasize efficiency ratio trends over static measurements, recognizing that revenue compositions drive different expense bases. Lower efficiency ratios signal superior performance by indicating that banks are controlling costs effectively relative to their income.

Over the last five years, Citizens Financial Group’s efficiency ratio has increased by 8.7 percentage points, going from 60.2% to 64.5%. Said differently, the company’s expenses have increased at a faster rate than revenue, which usually raises questions unless the company is in high-growth mode and reinvesting its profits into attractive ventures.

In Q4, Citizens Financial Group’s efficiency ratio was 62.2%, close to analysts’ expectations.

For the next 12 months, Wall Street expects Citizens Financial Group to rein in some of its expenses as it anticipates an efficiency ratio of 61.4%.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Citizens Financial Group’s weak 3.5% annual EPS growth over the last five years aligns with its revenue performance. On the bright side, this tells us its incremental sales were profitable.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Citizens Financial Group, EPS didn’t budge over the last two years, a regression from its five-year trend. We hope it can revert to earnings growth in the coming years.

In Q4, Citizens Financial Group reported adjusted EPS of $1.13, up from $0.85 in the same quarter last year. This print beat analysts’ estimates by 2.2%. Over the next 12 months, Wall Street expects Citizens Financial Group’s full-year EPS of $3.87 to grow 29.9%.

Banks operate as balance sheet businesses, with profits generated through borrowing and lending activities. Valuations reflect this reality, emphasizing balance sheet strength and long-term book value compounding ability.

This is why we consider tangible book value per share (TBVPS) the most important metric to track for banks. TBVPS represents the real, liquid net worth per share of a bank, excluding intangible assets that have debatable value upon liquidation. Other (and more commonly known) per-share metrics like EPS can sometimes be murky due to M&A or accounting rules allowing for loan losses to be spread out.

Citizens Financial Group’s TBVPS grew at a decent 5.1% annual clip over the last five years. TBVPS growth has accelerated recently, growing by 16.5% annually over the last two years from $28.05 to $38.07 per share.

Over the next 12 months, Consensus estimates call for Citizens Financial Group’s TBVPS to grow by 6.5% to $40.53, lousy growth rate.

Leverage is core to a financial firm’s business model (loans funded by deposits). To ensure economic stability and avoid a repeat of the 2008 GFC, regulators require certain levels of capital and liquidity, focusing on the Tier 1 capital ratio.

Tier 1 capital is the highest-quality capital that a firm holds, consisting primarily of common stock and retained earnings, but also physical gold. It serves as the primary cushion against losses and is the first line of defense in times of financial distress.

This capital is divided by risk-weighted assets to derive the Tier 1 capital ratio. Risk-weighted means that cash and US treasury securities are assigned little risk while unsecured consumer loans and equity investments get much higher risk weights, for example.

New regulation after the 2008 financial crisis requires that all firms must maintain a Tier 1 capital ratio greater than 4.5%. On top of this, there are additional buffers based on scale, risk profile, and other regulatory classifications, so that at the end of the day, firms generally must maintain a 7-10% ratio at minimum.

Over the last two years, Citizens Financial Group has averaged a Tier 1 capital ratio of 10.7%, which is considered safe and well capitalized in the event that macro or market conditions suddenly deteriorate.

Return on equity (ROE) measures how effectively banks generate profit from each dollar of shareholder equity - a critical funding source. High-ROE institutions typically compound shareholder wealth faster over time through retained earnings, share repurchases, and dividend payments.

Over the last five years, Citizens Financial Group has averaged an ROE of 8%, uninspiring for a company operating in a sector where the average shakes out around 7.5%.

It was good to see Citizens Financial Group narrowly top analysts’ tangible book value per share expectations this quarter. We were also happy its revenue narrowly outperformed Wall Street’s estimates, which carried through to a slight EPS beat. Overall, this quarter was fine, but the stock traded down 1.3% to $59.05 immediately after reporting.

Before investing in or passing on Citizens Financial Group, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

Citizens Financial Group falls short of our quality standards. To kick things off, its revenue growth was weak over the last five years. And while its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its weak EPS growth over the last five years shows it’s failed to produce meaningful profits for shareholders. On top of that, its net interest income growth was weak over the last five years.

Citizens Financial Group’s P/B ratio based on the next 12 months is 1x. At this valuation, there’s a lot of good news priced in - we think there are better opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $67.88 on the company (compared to the current share price of $59.05).