Wednesday, October 23, 2013

Bought me some shares in Citizens & Northern Corporation

Please read the disclaimer here: http://greedydragoninvestment.blogspot.com/p/about-greedy-dragon.html. Enjoy the article, bitches!


I added a few stocks to my portfolio in the past few weeks but couldn’t really find the time to talk about them in this blog. I was busy researching companies, playing BioShock Infinite on the Xbox 360, and catching up on Sons of Anarchy and Criminal Minds.

I bought me some shares in Citizens & Northern Corporation (stock quote: CZNC) for USD 20 a share. Citizens & Northern Corporation is a bank with good profits and a reasonable valuation of around 11.7 times earnings. The bank achieved returns on average assets (ROA) of 1.55% while Wells Fargo’s ROA was at 1.52% for the 9 months ended September 30, 2013. However, the bank achieved returns on average equity (ROE) of 10.57% which is below Wells Fargo’s ROE of 13.25% for the 9 months ended September 30, 2013. The reason for Citizens & Northern Corporation’s lower ROE is its very high capital ratios.

Some of the factors that contributed to Citizens & Northern Corporation’s superior profitability are its relatively healthy net interest margin, low charge-off rates and cost-efficient operations. As with all my analysis of U.S. banks, Citizens & Northern Corporation’s business performance will be benchmarked against Wells Fargo’s business performance. Wells Fargo is after all the badass, boss, jefe, don, big kahuna of the banking industry. Citizens & Northern Corporation had a net interest margin of 3.97% while its net charge-off rate was at only 0.19% for the quarter ended September 30, 2013. On the other hand, Wells Fargo had a net interest margin of 3.44% while its net charge-off rate was at 0.48% for the quarter ended September 30, 2013. Citizens & Northern Corporation has kept operating costs under control. The bank’s efficiency ratio of 57.14% for the 9 months ended September 30, 2013 is in line with Wells Fargo’s efficiency ratio of 58.2%.

The bank’s management has shown impressive skill at managing credit risks and maintaining the high quality of the bank’s loan book. Citizens & Northern Corporation’s net charge-off ratio was not just lower than Wells Fargo in the most recent quarter. The bank’s net charge-off ratio was, on average, significantly lower than Wells Fargo over the past 5 years which was a difficult period for banks. For the 5-year period of 2008-2012, Wells Fargo's net charge-off rate was between 1.17%-2.30% while Citizens & Northern Corporation’s net charge-off rate was only between 0.04%- 0.26%. The bank’s non-performing assets to total assets ratio stood at 0.83% as at September 30, 2013.

The bank has a strong deposit base to fund its loans, securities and other investments. The bank’s average loan to deposit ratio was 0.68 for the quarter ended September 30, 2013. 71% of the bank’s average deposits are made up of cheap deposits (checking, money market, savings and demand deposits) for the quarter ended September 30, 2013. Finally, Citizens & Northern Corporation has rock solid tier 1 and tier 2 capital ratios of 24.90% and 26.17% respectively as at September 30, 2013. This gives the bank the ability to absorb a large amount of losses before facing the risk of insolvency.

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