TipRanks Smart Value #60: Capital Returns

Shrilekha Pethe on April 28, 2026

Dear Investors,

Welcome to the 60^th edition of the TipRanks Smart Value Newsletter.

This Week’s Top Value Pick: Citizens Financial Group (CFG)

Citizens Financial Group (CFG) is a U.S.-based regional bank providing a broad range of retail and commercial banking services, including deposits, lending, wealth management, and capital markets solutions. The company operates a diversified banking platform serving individuals, small businesses, and large corporate clients, with a strong presence in consumer lending and commercial finance. In recent years, Citizens has focused on expanding fee-based businesses such as wealth management and capital markets while enhancing its digital capabilities, positioning itself to drive more stable, diversified revenue streams and deepen customer relationships.

Branching Out

Citizens Financial Group traces its origins to 1828 with the founding of Citizens Savings Bank in Providence, Rhode Island, and thus reflecting a long-standing presence in retail banking. Its modern structure began to take shape in 1984, when it was incorporated as a bank holding company, enabling broader expansion across products and geographies. A major turning point occurred in 1988, when it was acquired by the Royal Bank of Scotland (RBS), providing the capital and infrastructure necessary to scale into a regional banking franchise.

Under RBS ownership, Citizens pursued an aggressive acquisition-led expansion strategy, extending its footprint across the Northeast, Mid-Atlantic, and Midwest while building out commercial lending capabilities alongside its retail base. This period was defined by balance sheet growth and platform integration, positioning the company as a diversified regional bank.

Following the global financial crisis, RBS restructured its operations and moved to divest non-core international assets, leading to Citizens’ IPO in 2014 and full separation by 2015. This marked a strategic inflection point, as the company shifted toward improving profitability, optimizing its balance sheet, and sharpening its geographic focus. As part of this transition, Citizens divested its Chicago-area branches to U.S. Bancorp, exiting a non-core market to concentrate on higher-return regions.

With its portfolio streamlined, Citizens entered a new phase of disciplined expansion. In 2018, it acquired Franklin American Mortgage Company, expanding its mortgage platform and extending its reach into Tennessee and Texas. In 2019, the acquisition of Clarfeld Financial Advisors strengthened its private wealth capabilities, marking an early push into fee-based businesses.

The pace of expansion accelerated in 2021, as Citizens built out its capital markets and advisory platform. The acquisition of JMP Group added investment banking, research, and trading capabilities, complemented by deals for Willamette Management Associates, DH Capital, and assets of Trinity Capital, collectively enhancing its M&A and corporate finance offerings.

At the same time, Citizens executed a transformative geographic expansion in 2022. The acquisition of Investors Bancorp added more than 150 branches and significantly deepened its Northeast presence. This was followed by the acquisition of 80 East Coast branches and the national online deposit business from HSBC, which added over 800,000 customer accounts and accelerated its national deposit strategy. Together, these transactions added more than 200 branches and materially scaled its retail franchise.

More recently, Citizens has continued to invest in advisory capabilities, including the 2026 acquisition of Matrix Capital Markets Group, while also focusing on scaling national lending platforms, enhancing digital capabilities, and deepening client relationships.

Citizens’ evolution reflects a clear strategic arc, from acquisition-driven expansion under RBS, to post-IPO simplification and geographic focus, followed by targeted investments in higher-growth, fee-based businesses and core market expansion. This transformation has supported more diversified revenue streams, stronger earnings growth, improved returns, and a more competitive position within the U.S. regional banking landscape.

Dual Engine

Citizens Financial Group operates a diversified banking model built around spread income from lending, complemented by a growing mix of fee-based businesses across wealth management, capital markets, and advisory services. At its core, the company generates revenue through net interest income, earning the spread between interest received on loans and interest paid on deposits, supported by a large, relatively low-cost deposit base and a broad lending portfolio spanning consumer, mortgage, commercial, and specialty finance.

The Consumer Banking segment provides a stable foundation, driven by deposits, residential mortgages, home equity loans, credit cards, and point-of-sale and education financing. These products are tied to everyday financial needs, creating recurring customer engagement and consistent balance sheet growth. In parallel, the Commercial Banking segment serves middle-market and corporate clients through lending, treasury management, and risk management solutions, while also generating fee income from capital markets activities such as underwriting, syndication, and advisory.

A key evolution in Citizens’ business model has been its deliberate shift toward higher-return, fee-based revenue streams. Investments in private banking and wealth management have expanded assets under management and advisory fees, while acquisitions such as JMP Group and DH Capital have strengthened its capital markets and M&A advisory capabilities. These businesses are less directly tied to interest rate cycles and provide more diversified, capital-light earnings over time.

At the same time, Citizens continues to scale national lending platforms in areas such as specialty finance and point-of-sale lending, enabling growth beyond its physical footprint while maintaining disciplined underwriting. The expansion of its deposit franchise through acquisitions like Investors Bancorp and the East Coast branch network from HSBC has further enhanced funding stability and improved its ability to generate consistent net interest income.

Operationally, the company is investing in digital capabilities and data-driven platforms to improve customer experience, increase cross-selling, and drive efficiency. As scale improves, this supports operating leverage and margin expansion.

Citizens’ model combines relationship-driven lending, stable deposit funding, and an expanding suite of fee-based services, positioning it to generate more predictable earnings, improve returns, and sustain long-term cash flow generation.

Disciplined Growth

Citizens Financial Group is steadily improving the quality and durability of its earnings, with recent performance reflecting a clear shift toward higher-quality growth, stronger balance sheet composition, and disciplined execution.

The foundation lies in the bank’s core lending franchise, where the emphasis is shifting from volume to composition. While overall loan growth remains modest, the mix continues to improve as capital is redeployed into higher-return segments. In commercial lending, balances are supported by higher utilization and new originations, while commercial real estate exposure has been deliberately reduced—down roughly 4% quarter over quarter and 16% year over year—as part of a broader effort to lower risk. At the same time, higher-quality segments are expanding. The Private Bank added approximately $600 million in loans during the quarter, while consumer lending (excluding non-core portfolios) grew by about $300 million, primarily in real estate-secured categories. Legacy exposures, including the non-core auto portfolio, continue to run off at a steady pace of roughly $500 million per quarter, freeing up capital for redeployment into higher-return opportunities.

On the funding side, the improvement is increasingly visible in the mix rather than the headline growth rate. Deposit mix is improving, supported by a rising share of non-interest-bearing balances, which increased by $1.3 billion sequentially and $4.1 billion year over year. As a result, 43% of total deposits are now low-cost, while consumer deposits account for 64% of the total, well above the roughly 56% peer average. This more granular and stable funding base enhances balance sheet resilience and supports more predictable earnings across cycles.

Growth is also being supported by continued momentum in fee-generating businesses. Non-interest income is being supported by strength across multiple segments, including capital markets and wealth management, with the latter benefiting from higher client engagement and asset levels, contributing to a more balanced earnings profile. The Global Markets business also contributes through client-driven activity such as hedging, adding further diversification.

At the center of this strategy is the Private Bank, which stands out as a key driver of incremental growth and profitability. By gathering deposits from high-net-worth clients and deploying them into loans at spreads of approximately 400–425 basis points over deposit costs, the segment is structurally accretive to margins. The platform continues to expand, with $16.6 billion in deposits, $7.7 billion in loans, and $10.1 billion in client assets, supported by a growing footprint of nine offices, with plans to reach 11 by year-end and 25 to 30 over the next three to four years. This business is expected to remain a meaningful contributor to loan growth, with balances targeted at $11 billion to $13 billion by year-end.

At the same time, the bank is investing in efficiency and long-term scalability through its “Reimagine the Bank” program. This multi-year initiative targets $450 million in pretax profit improvement by 2028, with approximately $100 million of annualized benefits expected by the end of the 2026. The program is already self-funded, generating over $30 million in vendor savings and reducing the physical footprint through the closure of 19 corporate facilities. Technology, particularly AI, is playing a central role by driving meaningful productivity gains, including up to 30% improvements and significantly higher efficiency in certain engineering workflows. It is also being deployed in customer operations, with the goal of handling 25% of call center volume by year-end and scaling to 50% by 2027.

Credit discipline remains a core pillar of the strategy. The allowance for credit losses stands at 1.52%, reflecting a balanced approach that incorporates both improving portfolio mix and a more cautious macroeconomic outlook, including a mild recession scenario and somewhat higher energy prices. Exposure to private credit and non-bank financial institutions has been reviewed in detail, with management emphasizing strong structural protections and conservative underwriting standards.

The broader macro environment remains an important variable. Geopolitical tensions can introduce short-term volatility, particularly in capital markets activity, but underlying financial conditions remain stable, with resilient equity markets and only modest widening in credit spreads. The expectation that the Federal Reserve will hold rates steady through 2026 is modestly supportive for Citizens, given its asset-sensitive balance sheet, allowing it to sustain or gradually expand margins in a higher-for-longer rate environment. Management’s reaffirmation of full-year guidance across net interest income, fee income, expenses, and capital reflects confidence in the bank’s ability to execute within this environment.

While some risks remain, they are largely cyclical and manageable. Capital markets activity may fluctuate with geopolitical conditions, and certain credit segments, including private credit and technology-related borrowers, warrant ongoing monitoring. At the same time, near-term expenses remain elevated due to continued investments in talent and infrastructure, though these are expected to drive efficiency gains over time. The mortgage business also faces pressure from lower mortgage servicing rights valuations, which can introduce some earnings volatility, but these dynamics are primarily market-driven and could improve as rate conditions stabilize.

Citizens is strengthening its core franchise through a more favorable mix of loans and deposits, expanding into higher-return fee and wealth businesses, maintaining disciplined risk management, and operating within a macro environment that, while uncertain, remains broadly supportive. These structural improvements position the bank for more durable and higher-quality earnings over time.

Inflection Point

Over the past five years, Citizens Financial Group’s performance has reflected a mix of steady top-line expansion and cyclical earnings pressure. Revenues have grown at a CAGR of 5.5%, supported by net interest income expansion driven by loan growth, balance sheet repositioning, and periods of higher interest rates, alongside contributions from fee-based businesses such as capital markets and wealth management. However, EPS has declined by roughly 4% over the same period, as these gains were offset by higher credit costs, margin compression during lower-rate environments, and elevated expenses related to investments and restructuring. Share repurchases and operating improvements provided some support, but not enough to fully offset these headwinds.

CFG began the year on a strong footing, delivering a quarter that reflects both improving earnings power and better operating discipline, even as the broader macro environment remains uncertain.

Against this backdrop, CFG entered the year with stronger momentum, delivering a quarter that highlights improving earnings power and tighter operating discipline despite a still-uncertain macro environment. The bank reported earnings per share of $1.13, up 47% year over year and ahead of expectations. This performance was driven not only by revenue growth but also by disciplined cost control, resulting in positive operating leverage of approximately 700 basis points, with revenue growth meaningfully outpacing expense growth. Profitability has also improved, with return on tangible common equity (ROTCE) rising to 12.2%, reflecting this more efficient use of capital.

Net interest income remains the core earnings engine. NII increased 1.6% sequentially, supported by modest loan growth and continued expansion in net interest margin, although this was partially offset by a roughly $22 million day-count headwind due to fewer interest-earning days in the quarter. Net interest margin rose to 3.14%, up 7 basis points sequentially and 24 basis points year over year. This improvement was driven by several incremental factors, including a 5 basis point benefit from reduced drag associated with terminated swaps and the runoff of non-core assets, a 1 basis point contribution from fixed-rate asset repricing, and an additional 1 basis point benefit from a more favorable funding mix and lower costs.

Funding dynamics continue to support margins. Interest-bearing deposit costs declined by 16 basis points, while the cumulative deposit beta, a measure of how much rate changes are passed on to depositors, improved to 50%, indicating that only half of rate changes are being passed on to depositors. Management expects the cycle beta to settle in the high-40% range, which should help sustain margin performance over time. At the same time, deposits remain stable, with period-end balances at $184.0 billion and average deposits increasing 1% sequentially to $181.3 billion, supported by ongoing strength in the Private Bank.

Credit trends are stable to improving. Net charge-offs declined to 39 basis points from 43 basis points in the prior quarter, while the allowance for credit losses remained steady at 1.52%, indicating a balanced risk environment. Capital levels also remain strong, with a CET1 ratio of 10.5%, a key measure of a bank’s core equity capital relative to its risk-weighted assets, positioning the bank at the upper end of its target range and providing flexibility to support growth and shareholder returns.

Fee income provided additional support for earnings, with capital markets revenue reaching a record level and increasing 34% year over year, reinforcing the bank’s efforts to diversify beyond traditional spread income.

Balance sheet trends further support the improving outlook. Loan growth remained modest but constructive, with period-end loans increasing 1% sequentially to $143.7 billion and average loans reaching $143.4 billion, driven by Commercial and Private Bank activity. At the same time, the drag from non-core portfolio runoff continues to diminish, supporting a gradual shift toward a more growth-oriented and higher-quality loan mix.

Looking ahead, management expects net interest income to grow by 3% to 4% in the second quarter, with net interest margin projected to expand to 3.22%–3.28% by the fourth quarter of 2026 and further to 3.30%–3.50% by the fourth quarter of 2027. The CET1 ratio is expected to remain in the 10.5%–10.6% range. With an asset-sensitive balance sheet, CFG is positioned to benefit modestly from a higher-for-longer rate environment. Combined with continued runoff of lower-return assets, improving credit trends, with net charge-offs expected to normalize to the mid-30 basis point range, and ongoing efficiency gains, the bank has a clear path toward higher profitability, with ROTCE targeted to increase from 12.2% to 16%–18% by 2027.

Re-Rating Story

Citizens Financial Group has delivered a strong stock performance, with shares rising more than 70% over the past year. This rally reflects accelerating EPS growth, improved financial performance, and growing investor confidence in the bank’s outlook. At its core is a multi-year net interest margin expansion story, as legacy headwinds unwind, supported by the scaling of the high-return Private Bank and increasing contributions from capital markets and other fee-based businesses. This progress has also been aided by favorable regulatory dynamics and consistent execution.

Reflecting these improvements, CFG is trading above its historical averages based on both non-GAAP trailing and forward P/E ratios as well as forward price-to-book value ratios, indicating that the market has already begun to re-rate the stock.

However, CFG’s positioning relative to peers such as KeyCorp, PNC Financial, Fifth Third Bancorp., Huntington Bancshares, and M&T presents a more nuanced picture. Citizens is trading at the higher end of the range based on trailing P/E ratios but toward the lower end on forward P/E and forward price-to-book, resulting in a mixed valuation profile.

This positioning reflects the bank’s current return on equity of approximately 7.8%, which remains below peers like Fifth Third Bancorp and Huntington Bancshares that typically generate returns in the low-teens. The gap is driven by elevated expenses from ongoing investments, residual balance sheet drag, and credit costs that remain above through-the-cycle levels. As these pressures ease through margin expansion, efficiency gains, and continued business mix improvement, the bank has a clear path to improving returns. The relatively lower forward price-to-book multiple suggests that while some improvement is reflected in the valuation, a full normalization to peer-level profitability has yet to be priced in.

This dynamic creates a favorable setup for investors, as further improvement in returns could drive both earnings growth and multiple expansion. Analysts remain bullish about CFG as the bank strengthens its balance sheet, providing capital flexibility to support growth, shareholder returns, and resilience through economic cycles. At the same time, expanding fee income, particularly from capital markets and wealth, along with the rapid growth of the Private Bank, is diversifying revenue streams and reducing reliance on net interest income, supporting more stable and higher-quality earnings over time.

Street consensus implies roughly 13% upside from current share levels, with more bullish forecasts implying an upside of around 24%. This optimism is reinforced by discounted cash flow analysis, which indicates that CFG shares may be trading at an estimated 41% discount to intrinsic value, suggesting meaningful valuation support for investors.

Citizens Financial Group has built a consistent capital return track record, having paid dividends for the past 11 years while continuing to grow its payout in the most recent year. Over the last decade, the bank has expanded its dividend at a CAGR of approximately 16%, reflecting meaningful long-term growth, even as payout levels adjusted through periods of macro and credit cycle volatility.

At current levels, the stock offers a dividend yield of 2.89%, notably above the broader financial sector average of 1.3%, reinforcing its income appeal. This commitment to shareholder returns was evident in the first quarter, when the bank returned a total of $498 million to shareholders, including $198 million in common dividends, while also repurchasing $300 million of stock at a weighted-average price of $62.40. The bank expects to repurchase shares worth $225 million in the second quarter.

Investing Takeaway

Citizens Financial Group presents a compelling value proposition shaped by a gap between current profitability and its improving underlying fundamentals. While the market has begun to recognize the bank’s progress, valuation still reflects a business that has not fully normalized its returns. This disconnect creates an opportunity for investors willing to look beyond near-term pressures.

The company is steadily repositioning toward higher-quality earnings through a better loan mix, more stable deposit funding, and a growing contribution from fee-based businesses. At the same time, ongoing efficiency initiatives and disciplined credit management are expected to support margin expansion and improve returns over time. As these structural improvements become more visible, the potential for both earnings growth and valuation expansion remains meaningful, making the stock attractive from a long-term value perspective.

Category: Smart Value