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Citizens Bancorp Analysis

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By pencils2
November 17, 2006

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Citizens Bancorp operates as the holding company of Citizens Bank of Northern California. Citizens Bank of Northern California was founded in 1995, and operates six banks in Nevada County. They have all the traditional banking products and services, along with other services such as savings and checking accounts (for personal and business users), commercial real estate, construction financing, residential loans, business acquisition or expansion loans, and business credit cards, just to name a few of their many services. They also offer online banking (a feature that my Dad finds very convenient), wire transfers, safe deposit boxes, and night drop deposit services.

This is probably the only public company that's headquartered in my hometown, Nevada City. Nevada City is a medium-sized town with a relatively small population (I don't think it is up to 10,000 people quite yet), and the overall Nevada County region is a pretty good size. I couldn't find any real recent population statistics, but as of 2000 the total population was 92,033, of which 70,756 were 18 years old and older.

Citizen's is an extremely obscure stock, not known to the overall stock market, but I like the direction Citizen's is heading in.


Because of its major obscurity, the only place to get extensive information on financials is Citizen's web site ( But it is enough financial info for me. Here are a few financials:

Market Cap                 40.81M
Shares Outstanding         1.7M
EPS (ttm)                  1.44
Net Income (ttm)           2.448M
P/E                        16.3
Profit Margin (mrq)        28.3% 
Return on Assets (mrq)     1.1%
Return on Equity (mrq)     16.1%  
Cash (mrq)                 12.466M
Debt (2Q)                  9.493M 

Well, as you can see, this is a pretty financially strong company. I especially find these numbers impressive considering the amount of banks that are in our area. I can think of six banks offhand that are located in Nevada City and nearby Grass Valley. But, Citizen's has one big advantage. Their banks are smaller, so they can squeeze into areas that larger banks (like Bank of America, for instance) couldn't get to. They can dodge the competition more so than other banks. But you can probably guess what I really find attractive: the balance sheet. This spring, Citizen's changed their name to Citizens Bank of Northern California from a previous Citizen's Bank of Nevada County. You might be crazy enough to think that they have expansion plans from this simple move! Well, they do. They are opening a store in Auburn this month, and it marks the first Citizen's bank to be outside of Nevada County. The strong balance sheet makes this expansion much easier, they'll be able to expand without worrying too much about having the cash to do so. Obviously, they've expanded pretty slowly to this point, but I sense that it will be starting to pick up.

Citizen's also has a strong profit margin, which I think is a very important contributer to a company raising its business value, so I was glad that Citizen's has one where it is, and they've had it in this range for quite awhile. The P/E is a little above the industry average of the bank (which sits near 14), but they deserve a little slack in this area. I mean, they have a market cap of just above $40 million and have expansion plans and a huge area to expand to, so the P/E is something I'm not paying to close attention to. I obviously don't want it to get out of control and get real high (I don't expect it to), but at current levels, and even a bit higher, I'm more than comfortable with it.

Citizen's recently reported 3Q earnings, and while they were down 5% YOY, they are still up for the year. Their share of the deposit market in Nevada County rose during the quarter, as total deposits with Citizen's equaled $235.1 million, an increase of 22% YOY. Total loans with Citizen's is now at $251.2 million, an increase of 30% YOY. So, you can see that the company's business is increasing at a very good pace, and that's all I want to see right now. As long as earnings aren't terribly hurt in the short-term and the company continues to see increased business, I'll be satisfied for the time being.

Competition / Risks

Competition in the banking area is not hard to come by, and it goes for this area. As I mentioned above, Citizen's has smaller banks, so it's easier for them to get a good location for a new bank while avoiding competition, and that's what they have done. I'm not sure if this is their strategy, but they've certainly done a great job of opening new locations and getting increased business, even with the many banks in this area. I don't consider competition a huge threat, because Citizen's management knows what areas of banking they are used for and what areas can use that, they really understand this area and the banking industry (their most recently hired bank manager has had 30 years experience with banking). I think competition is important to keep an eye on, but after living in Nevada County for all my life, I find it extremely impressive that Citizen's is where they are with just six stores. Here are the main risks I see:

-- Loans - As I have shown, loans make up more than 50% of Citizen's business, the other portion going to deposits. In this area, real estate is a big loan-business-generator, so a lot rests on the assumption that people won't default on their loans because of real estate troubles. Citizen's is very smart with their loans, but the big kicker would be if the real estate market really crashes, in which case they'd probably be stuck with unsellable land and would have to sell at a loss. I think Citizen's is smartly managed, and I think they'll be careful and always have been careful about who they loan money to. But, a serious downturn in the real estate market or Nevada County economy (which has done very well ever since Citizen's was started up) would be the main things that I see really putting a dent in the business.

-- Volume - Like recent Pencils Fund purchase Mexican Restaurants, Citizen's is a very obscure stock, in fact, they are much more obscure. How? They are trading on the OTC exchange, yesterday they had a grand total of 165 shares change hands, it is a very low volume stock. So, if for some reason I do want to sell, it will be hard to get out, especially if the stock is going down and the company is seriously hurt. It's a risk I'm comfortable taking, because I know they didn't get to where they are now by messing around. I think this is a very strong company and that they will do very well outside of Nevada County, so as they expand closer to the Sacramento area (they aren't real close yet, but in 10-15 years they probably will be going in that direction) and expand out of Nevada County, I see tremendous potential.


This is a tricky company to evaluate for five years out. The reason it's difficult to evaluate is because while I do expect them to expand their banks, I don't think we'll see real heavy expansion over the next five years. In fact, I don't think they should open more than eight or ten banks over the next five years, because heavy expansion at this stage of growth is what will really destroy any company. My expectation is that they'll open four new banks over the next five years, including the one in Auburn this month. They may open a few more than this, but for now, this will be my "most expected" expectation. I think this leaves time for new banks to get profitable (i.e., pay off most costs) and add to the bottom line. So, my expectation with EPS growth is 13% annually for the next five years. I really do plan on holding Citizen's for 15 years and beyond, and I don't think the next five years will bring real heavy growth. But, over the next 15 years, I think the growth rate will be much higher. So, you see where I'm going with this.

So, my expectation - 13% growth and a P/E of 16:

1.44 * (1.13^5) * 16 = 42.45

My low expectation - 10% growth and a P/E of 13:

1.44 * (1.10^5) * 13 = 30.15

My high expectation - 16% growth and a P/E of 18:

1.44 * (1.16^5) * 18 = 54.44


Beyond the fact that I'm investing in a hometown company, I think Citizen's has a very bright future. They've got intelligent, experienced management (who I'll try to get in contact with), good financials which will make future growth more smooth, and they have a strong brand name locally, which has really helped them attract customers. I think they have a good future in front of them with expansion, and I will be an owner as long as they keep doing what they've been doing up to this point.


David K

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