Is Citizens First Corp. (NASDAQ:CZFC) a good stock to buy right now? CZFC is a bank holding company with $434 million in assets and 10 branches in Kentucky. The bank recently reported second quarter EPS of $0.35 on revenue of $4.62 million. Loan demand was slightly down, with total loans disbursed decreasing 1.4% from the second half of 2014 to the first half of 2015. Credit quality improved, with non-performing assets to total assets down from 0.6% to 0.29% year over year.
Insiders have been buying Citizens First. According to SEC filings, President and CEO Todd Kanipe bought 500 shares on June 1, 1,000 shares on May 5, and 1,000 shares on April 24. Another insider, director Sarah Glenn Grise, bought 275 shares on April 28.
The insiders join hedge funds Mendon Capital Advisors and Hutchin Hill Capital as major holders of Citizens First. Mendon Capital Advisors owned 19,318 shares at the end of March, worth about $239,000 while Hutch Hill Capital owned 25,000 shares in the first quarter, worth $310,000. Mendon Capital Advisors increased its stake by 21% between January and March 31 while Hutchin Hill Capital kept its stake the same.
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We believe Citizens First Corp. (NASDAQ:CZFC) is a buy. Because of a potential upcoming catalyst, Citizens First shares offer a “heads I win a lot, tails I win a little or don’t lose much” bet.
Because of its microcap status, Citizens First shares are under-followed. The under-followed nature of the bank undervalues Citizens First’s stock. Although the bank earns a respectable return on equity of 9.44% and a respectable return on assets of 0.83%, the bank trades at 0.96x its tangible book value of $13.20 per share. This compares to peers that trade at an average of 1.4x tangible book.
Citizens First trades below tangible book value because the bank hasn’t paid a common dividend since December 2008. Rather than returning capital to common shareholders, the bank has been buying back securities that it issued in exchange for Federal TARP assistance. After steadily paying back the Federal government, Citizens First has completely exited from the Federal TARP program. The bank bought back the last 254,218 warrants that it issued to the government on April 15.
Citizens First Corporation’s complete exit from all aspects of the TARP program gives management the freedom to return capital to shareholders. According to management, Citizens First Corporation is considering returning capital in the form of a dividend in the near future. With a trailing twelve month EPS of $1.37 per share, the bank has an earnings yield of 10.8% and could sustain a dividend yield of 3% and still have a payout ratio of under 30%.
Because management is conservative, we do not anticipate that Citizens First Corporation will pay a 3% dividend yield. Because its loan growth is weak, we do not believe the bank deserves the peer average 1.4x tangible book multiple either.
If the bank starts off with a 1% dividend yield, we believe the Citizens First Corp. (NASDAQ:CZFC) will trade at 1.1x tangible book. If the bank pays a 2% dividend yield, we see Citizens First trading for 1.2x tangible book, giving shares 25% upside. As with all illiquid stocks, shareholders are advised to use limit orders rather than market orders.
Disclosure: None