Citizens Bancshares Corporation (CZBS)

Citizens Bancshares Corporation is a commercial bank providing various banking services to individual and corporate customers. Citizens Trust Bank has a rich history dating back to 1921 when it was founded by five African Americans to serve the African American community. It holds the distinction of being one of the first African American-owned banks to join the FDIC (1934) and the Federal Reserve System (1947).

Notes:

1. Highly Overcapitalized Bank: Citizens Bancshares is one of the most overcapitalized banks in the United States, providing a strong foundation for growth and stability.

2. Emergency Capital Investment Program (ECIP) Recipient: In mid-2022, Citizens received $95.7 million in ECIP funds from the U.S. Treasury in the form of preferred stock with highly favorable terms.

3. Attractive Valuation: The stock is trading at approximately 6x earnings and roughly 2/3 of its adjusted tangible book value, presenting a significant discount to intrinsic value.

4. Shareholder-Friendly Management: The company has reduced its share count by 10% over the last year and pays an annual dividend of $1.00 per share.

5. Consistent Profitability: The bank has been profitable for at least the last 30 years, including during the 2008/09 financial crisis.

6. Minority Depository Institution (MDI) and Community Development Financial Institution (CDFI) Status: This unique positioning allows access to various government grant programs and initiatives.

Catalysts

1. Redeployment of Low-Yield Assets: Converting risk-free securities to higher-yielding loans and reinvesting maturing securities at higher rates.

2. Potential M&A Opportunities: Management is actively seeking acquisition targets, particularly other ECIP banks, which could substantially increase earnings.

3. Continued Share Repurchases: Ongoing buybacks at current valuations will create significant shareholder value over time.

4. Potential Tender Offer: There are market rumors of a possible tender offer, which could provide a near-term boost to the stock price.

5. ECIP Preferred Stock Valuation: The potential for future redemption of ECIP preferred stock at a discount to par value could effectively turn it into a grant, unlocking additional value for common shareholders.

Risks

1. Interest Rate Environment: Rising deposit costs could pressure net interest margins, although the impact is expected to be minimal given the bank's low-cost deposit base.

2. Regulatory Changes: As an MDI and CDFI, changes in government policies or programs could affect the bank's access to certain benefits or funding sources.

3. Economic Downturn: A severe recession could impact loan quality and demand for banking services in the communities served by Citizens.

4. Limited Trading Liquidity: As a small-cap, OTC-traded stock, CZBS may have limited trading volume, potentially impacting price stability and ease of entry/exit for larger positions.

Valuation

• Market Capitalization: $123 million

• P/E Ratio: 6x

• Price/Tangible Book Value: 2.02x

• Dividend Yield: 2%

Adjusted for the fair value of ECIP preferred stock (assuming 25 cents on the dollar):

• Adjusted Shareholders' Equity: $126,002,000 ($70.50 per share)

• Price/Adjusted Book Value: 0.66x

Citizens Bancshares Corporation represents a compelling investment opportunity in an overlooked, well-managed community bank. The combination of its overcapitalized balance sheet, attractive valuation, and multiple growth catalysts positions CZBS for significant potential upside. The bank's unique status as an MDI and CDFI, coupled with its ECIP funding, provides a sustainable competitive advantage in its markets. While risks exist, the current valuation provides a substantial margin of safety. The ongoing share repurchases and management's focus on shareholder value creation further align investor interests with long-term value appreciation. Given these factors, CZBS appears to be an attractive investment for value-oriented investors with a long-term horizon.

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