Citizens First Financial Corp CFSB
May 03, 2001 - 3:48pm EST by
2001 2002
Price: 14.25 EPS
Shares Out. (in M): 0 P/E
Market Cap (in $M): 0 P/FCF
Net Debt (in $M): 0 EBIT 0 0

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  • Community Bank
  • Discount to Tangible Book


Citizens First Financial Corporation is a small mid-west bank based in Bloomington, IL. Trading at 75% of book value and around 12 times 2001 EPS, CFSB hardly stands out among banks, but there are strong indications that this little piggy bank is going to market! Some may be wondering who would buy a bank with just five branches, so I will provide some geographic/economic background before listing the sell signs.

The Bloomington-Normal area has a population of about 100,000 and sits at the confluence of interstates I-39, I-55 and I-74. The work force is primarily white-collar, with major employers being several universities and insurance companies, including 15,000 at State Farm. The area enjoys the lowest unemployment rate in Illinois at 2.9% and is one of the fastest growing areas in Illinois.

The key financials from 1st Quarter 2001 are that CFSB has EPS of $0.37, $333 million in assets, $234 million in deposits, $61 million in debt (mainly FHLB advances) and book value of $19.16. The key operating ratios as of 12/31/00 are 13% capital ratio, 8.6% leverage ratio and 12.5% asset ratio; a bank is considered well-capitalized if these ratios are above 10%, 5% and 6%, respectively. The CEO estimates that they will earn $1.25 per share in 2001. The quarterly dividend is currently $0.06. The bank has been buying back shares, shrinking from 2.8 million shares at IPO in 1996 to the current shares outstanding of 1,568,512. Share buybacks were 301,333 in 1998, 225,696 in 1999 and 461,236 in 2000.

There are a number of indicators that this bank may be sold, most of which revolve around the CEO and around an outside shareholder. The CEO is 61 years old and controls 8% or 125,182 shares, of which 56,320 consist of unexercised options. When the bank went public in 1996, the bank instituted a five-year option plan for its three executives that vests 20% per year. Strike price is $12.30 and the remaining 20% will be exercisable on the last anniversary date, November 12, 2001. Executives and directors together control 377,127 shares or 24%. From the recent DEF 14A filing, the CEO's employment contract stipulates that he will receive three years of salary and benefits following any change in control of the bank, whether he leaves voluntarily or not. Additionally, the bank's ESOP has 218,346 shares or 13.9%, of which 153,946 have already been allocated to individuals.

An outside shareholder, James Dierberg, controls 141,493 shares, or 9%, mainly through Investors of America, LP, part of First Securities America. Mr. Dierberg owns and runs First Banks America (FBA), which is a bank-holding company that has been a serial buyer of banks. At the IPO, Investors had originally purchased 182,650 or 6.5%. Part of the reduction came in the 4th Quarter 2000, when CFSB conducted a modified dutch auction that bought back 391,000 shares at $16; the main impetus of the auction was to buyout dissident shareholder, Lawrence Seidman. After the auction, Investors owned 98,393 shares, but bought back 43,100 shares recently at an average cost of $14.17.

I calculate a target price of $27.20, which is based book value plus a 5% deposit premium. Book value as of 3/31/01 is $19.16, but add at least two quarters earnings of $0.58 to arrive at $19.74. 5% of the current $234 million in deposits is $11.7 million; divide that by 1,568,512 shares and you add $7.46 to $19.16 to obtain $27.20. On a pure book value basis, $27.20 equates to roughly 1.4 times book, which is within reason for these small thrift deals. Time frame is about 1-2 years.

There are a number of risks associated with CFSB, as it is not an outstanding bank from an operational and earnings stand point. As of 1st Quarter, ROE was 7.62% and ROA 0.68%, which are below industry averages of 12.5% and 1.0%. Their 20% investment in a web portal company tanked. In 3rd Quarter 2000, they increased their provisions for bad loans by $2 million, mainly due to one loan on a retail development. The past five years, CFSB has shifted its emphasis from originating residential & consumer loans to commercial, commercial real estate and construction/land loans (25%, 20% and 17%, respectively, in 2000). Earnings in 2000 were also helped by a one-time gain on sale of a branch.


Potential buyout, although it may be better described as a retirement vehicle for the CEO!
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