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Dr. Paul Price
Dr. Paul Price
Articles (513)  | Author's Website |

2 High-Risk/High Yield/ Potentially High Reward Banks: Citizens Republic Bancorp and Corus Bankshares

February 12, 2008 | About:

Citizens Republic Bancorp [NDQ:CRBC] Feb. 12, close: $12.80

Yield = 9.06% 52-week range: $10.41 - $24.79

Corus Bankshares [NDQ:CORS] Feb 12, close: $11.19

Yield = 8.93% 52-week range: $8.74 - $19.41

Vitually all bank stocks have been hammered in the market due to mortgage and credit-related weakness across the US economy. Many of these financial institutions will weather the storm, survive and eventually flourish. The two stocks noted above seem to have that capacity.

Both their shares have been beaten up already and expectations now appear to be reflecting very pessimistic assumptions for 2008 and beyond. Despite this, both companies are paying hefty dividends while you wait [9.06% and 8.93% for CRBC and CORS respectively].

Citizens Republic is a diversified financial services firm operating in Michigan, Wisconsin, Ohio, Iowa and Indiana. They have 241 branches and 268 ATMs. This is a small-town, conservatively run bank that appears to have avoided the bulk of the mortgage problems plaguing most banks. Actual 2007 EPS were $1.33 versus $1.67 before the credit debacle last year. The consensus of 7 analysts estimates for 2008 and 2009 are now $1.23 and $1.38 [knowing all the bad news about the housing market].

That makes the trailing P/E just 9.6X and the forward P/E 10.4X the very conservative view for the coming year's profits. Book Value is almost $21/share. While the dividend is covered by earnings, the payout ratio for 2007 was 87% so there is some risk of a cut in the future if business does not pick up. That said, management has raised the payout in 5 of the past 10 years and has never reduced it. At the current rate it is a 9.06% yield.

Guru David Dreman owned 975,000 share as of September 30, 2007.

The typical P/E for CRBC [looking backward] averaged around 15.5X so it could easily trade for 14X normalized earnings within a year or two should the housing panic settle down a bit. Using that mulitple of the current low-ball 2009 estimate would put these shares back at $19.32 within 24 months or plus 50.9% in addition to their juicy dividend. [CORS declared their normal 25 cent quarterly dividend today- payable in April].

Could this happen? Citizens Republic shares touched $26.95 - $42.25 at its highs in each calendar year from 1999 - 2007. My target price is under today's book value figure.

Do others see value here? As of September 30, 2007 these well informed investors thought so:

Barclays Global Investors held 7.55%

T. Rowe Price held 5.83%

Vanguard Group owned 2.76%

State Street Boston held 2.42%

Bank of NY - Mellon owned 2.25%

Legg Mason owned 1.71%

Dimensional Fund Advisors had 1.61%

Wells Fargo [WEB's big holding] owned 1.55%

Deutche Bank AKT. held 1.46%

DWS Dreman Small-Cap Value Fund had 1.0%

Higher than average risk? Yes.

Very nice total return potential? Absolutely.


Corus Bankshares is a holding company for Corus Bank, NA which is headquartered in Chicago, Il. They operated only 11 branch offices in the Chicgao area but had real estate related investments in many geographical areas including the hard hit Florida condo market. This hurts their future prospects as this area was a major loser when the real estate bubble burst. Actual EPS for 2007 were $1.87 but estimates for 2008 now run only $0.93 with the knowledge of the pain to come from their mortgage holdings.

Management has affirmed their view that the company is on sound financial footing on numerous occasions. Better still, they have ACTED that way. Last summer they paid an EXTRA $1/share special dividend and they have maintained their $0.25 quarterly payout reflecting their view that their overall condition is fine for the long term. Book Value was around $15 at year-end 2007.

There have been four insider buys [totaling 20,000 shares] in the past six months with no insider sales. All told, insiders hold 24.27 MM shares out of the 56 MM shares outstanding.

As noted with CRBC the dividend is NOT totally secure- it may very well be cut- but at current levels it is an 8.93% yield.

Also, like CRBC, there were many well-known and respected instituional holders as of September 30, 2007;

Franklin Resources held 5.18%

Putnam Investment Management owned 4.32%

Vanguard Group held 4.04%

E. S. Barr & Co. had 3.8%

Barclay's Global Investors owned 3.37%

Legg Mason held 3.23%

Bank of NY - Mellon had 2.23%5

State Street Corp. owned 2.09%

Dimensional Fund Advisors held 2.08%

Assuming Corus makes it through the real estate quagmire I think it could easily sell for $20 or higher based on a low normal price/book value and P/E looking out about 24 months. That would be a capital gain of over 79% plus the very good dividend yield now in place.

Is this a sure thing? Not a chance.

Could it happen? I think it will, but this one has more risk than most stocks due to its heavy real estate exposure. Their insiders seem to feel confident that things will work out well.

There you have it. CRBC is the 'chicken' way to play here while CORS is the more aggressive bet with perhaps more upside if all goes well. No guarantees on either of these working out great but I'd be pleased to report back to you after 2 years to let you know how I did with these.

About the author:

Dr. Paul Price


Visit Dr. Paul Price's Website

Rating: 3.6/5 (26 votes)


Seeing clearly
Seeing clearly - 9 years ago    Report SPAM
Sweeping generalizations based on fear and not even a basic understanding of the fundamentals of the company you are refering to is always the best way to invest......the sky is falling the sky is falling.
Danielw - 9 years ago    Report SPAM

Good point, Seeing clearly.

At the same time however, looking for high-risk, high-reward plays is the opposite of investing (and most emphatically value investing--for those who don't see the two as being synonymous).

An investment, for Graham, was a bond or stock that after careful consideration provided both safety of principal and a decent return.

His understanding of risk--based on the fundamentals of a company--was such that he required a wide margin of safety. This lowered any potential risks and increased potential rewards.

I don't relish pointing this stuff out, however it's hard not to given the philophy of those most of us come here to track. It's like walking into a synogogue and seeing a lot of people reading the Koran. That's their choice of course, but it'd be tempting not to ask what in the world they were doing here...

Dr. Paul Price
Dr. Paul Price - 9 years ago    Report SPAM

I have yet to see ANYTHING from you on this site other than criticism of others. Where are your suggestions for 'good value investing'? Nothing on your blog is 'blue chip' in any way and, in fact, most of the stocks you mention are obscure, non-US shares that nobody on this site has ever heard of.

Please direct me to what you have written on this site other than praise or distain for what others have posted. I have yet to find anything.
Danielw - 9 years ago    Report SPAM

I gave you two good suggestions on "value investing" above which showed the correct way to think about investing and risk.

I don't know if you're equating "blue chip" with risk here, but that would be a mistake. Anyway, Henderson Land, PotashCorp and Brookfield Asset Management are as blue chip as you can get. Billion dollar companies, with great balance sheets, excellent cash flow production, being run by a group of people who are hands down some of the best in their respective businesses. The same characteristics can be found in my small-caps... More importantly, I believe all were bought at significant discounts to fair value.

You seem to be making the conclusion here and elsewhere that you don't have to respond to your mistakes if you can instead "attack" everything about me, except for the logic and points I've made.

That's your decision of course, but the market doesn't care whether I write well or badly, or on this site just praise or criticise the writings of others. A person's portfolio will however over time reflect whether they have a basic understanding of risk and reward. Ignore help like this and expect your portfolio to suffer--even more than it has suffered already...

Dr. Paul Price
Dr. Paul Price - 9 years ago    Report SPAM
The CEO and a Director of Citizens Republic both made decent size open market buys on February 26th.

They obviously like their company's prospects.

CRBC Citizens Republic Bancorp Inc.


2008-02-26 Bought 4000 shares @ $12.24

CRBC Citizens Republic Bancorp Inc.


2008-02-26 Bought 3400 shares @ $12.41
Mattray253 - 9 years ago    Report SPAM
Quote from stocdocx99-


I have yet to see ANYTHING from you on this site other than criticism of others. Where are your suggestions for 'good value investing'? Nothing on your blog is 'blue chip' in any way and, in fact, most of the stocks you mention are obscure, non-US shares that nobody on this site has ever heard of.

Please direct me to what you have written on this site other than praise or distain for what others have posted. I have yet to find anything."

Daniel, Dr. Price has a very good point there. It is not cool just to cite your praise or distain for other's ideas. Shame on you! However, I do have a solution for you that will solve this problem:

Search for 100 random stocks that are near their low point in terms of their P/E ratio range. Then write an article for each stock using a cool pun in the title such as "Caught up in CIBER space" or "Got a LEG up" (leg mason) or "SHOPPING for a bargain" (Kohls).

Then after you post these 100 articles wait 6 months and then brag about how 3 of them went up (all while ignoring the losers).

You will be poster of the month in no time, Daniel.


(And just so I don't fall in to the non contributing crowd, my last purchase was Citigroup at $24.4. This may go down significantly more, but there there huge upside, and at least a 50% MOS. Be prepared to average down!)

New_shareholder - 9 years ago    Report SPAM

Try figuring out how long it must take to research and compose even one of those write-ups. Then multiply that by whatever number of postings someone does to see how much time and effort it takes.

Then realize that every time a person takes a stand here they are subject to criticism and scorn if things don't work out for their pick. Perhaps that's why so few GuruFocus readers are willing to RISK saying anything that could be wrong.

I think that all posters who give serious thoughts to others should be appreciated and encouraged- not ridiculed.

A casual mention of a stock like you just gave will be forgotten and unaccountable in no time. Detailed and referenced postings stay around for months for people to attack if stocks go down.

Just take a look at the GuruFocus scoreboard to see how tough the past 6 - 12 months have been for even the best known value investors before you blast anyone here.

I'm new to this stuff but stockdock's writing is informative and funny. I've already bought a few of his selections and feel very good about why I own them.

A woman would never be so hard on anyone as I see people acting here lately for no apparent reason.

If you're not willing to put your own officially documented picks out here then you shouldn't be speaking like you just did.

Misty B.

Jnair - 9 years ago    Report SPAM

I couldn't have said that better :)

Any time Dr Price gets a post against him, he will start digging up the poster's past to see what they have recommended. You can dig me up as well, and I haven't given a single recommendation on this forum.

I will tell you this, to enjoy music you don't need to be a mucisian or singer. To watch baseball you don't need to be a baseball player. As a specatator and as a listner anyone has the right to criticize. And as reader of this forum, anyone has the right to post a comment on the posts here. At least, that was my understanding when I joined.

I guess, value investors just don't come up with stocks woth investing in, every minute. Dr. Price has at least "1 a Day", and that pretty much is as useless as having no recommendations at all.

(My last purchase was WAT at $58.15)
Danielw - 9 years ago    Report SPAM

You guys seem to think that criticism is a bad thing. I on the other hand would be ecstatic to have every single one of my thoughts on investing criticized by Marty Whitman or Charlie Munger.

Even if my maid pointed out a mistake in my thinking, I'd be grateful for that. It would be outrageous if I yelled at her about being "just a maid" or whatever. And it would be foolish to ignore any criticisms she gave for such a reason. The point is to improve the method, and thus future performance, not to never have to admit that I'm wrong--and thus paralyze my skills.

I read most of the books on Warren Buffett and had started on the Ben Graham books before meeting someone I consider one of the top investors. Luckily, he agreed to criticize my method if I agreed to do some initial research on stocks he didn't have time for.

Although my ego was badly bruised after each session, even though in retrospect he wasn't nearly as harsh on me as he could have been, I learned a ton from those exchanges. And they're more valuable to me now than any praise I've ever gotten.

Mattray253 - 9 years ago    Report SPAM

Huskie - 9 years ago    Report SPAM
"I gave you two good suggestions on "value investing" above which showed the correct way to think about investing and risk."

You did not do squat, you simply copied Martin Whitman
Danielw - 9 years ago    Report SPAM

"...you simply copied Martin Whitman."

You're right. My understanding of risk comes primarily from my readings of books on or by Whitman, Graham, and Buffett (among others). And I believe my comments accurately voice their views. But, I'm confused, as you seem to think this is a bad thing. There are far worse people to copy...


New_shareholder - 9 years ago    Report SPAM
Sounds like Daniel has no original thoughts. He always just quotes others and pats himself on the back for being a genius.
Dr. Paul Price
Dr. Paul Price - 9 years ago    Report SPAM
With both of these stocks slightly above where i posted them now I think I'm going to exit them to reduce my exposure to the housing field.

Use your own judgement if you hold these. They still have high potential but I'm moving on to other, less risky companies in the current environment.
Kfh227 - 9 years ago    Report SPAM
In value, where is there room for high risk?

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