Citizens Bancshares Corp. (CZBS)

[56Chevy]

This bank has an interesting situation going on regarding their $7.462 Million dollar TARP loan they received in 2009.

You can read about in this in the 8-K the bank put out 5 years ago back in August of 2010.

http://yahoo.brand.edgar-online.com/displayfilinginfo.aspx?FilingID=7422187-916-14271&type=sect&TabIndex=2&companyid=10372&ppu=%252fdefault.aspx%253fcik%253d813640

But in a nutshell CZBS is certified as a Community Development Financial Institution [CDFI] which is relatively rare in that there are only 84 banking institutions across the country that are classified as CDFI's.

CDFI banks qualified for TARP just like all the other banks we follow but they could exchange their original TARP loan for another version of the TARP program that was designed specifically for CDFI's.

So what's the big deal? Under standard TARP terms, which most banks are under, they could borrow the funds for 5 years at 5% interest rate and if they hadn't paid it back in those 5 years the interest rate would jump to a chunky 9%. But CDFI banks could borrow the funds for 8 years at 2%!

Its a big deal to any banks' bottom line when they can borrow Million of dollars for 2% interest!

The goal for any bank that still owes TARP is to get it paid off asap...and rightfully so...but when your interest rate is only 2% that changes things. The best thing to do from an earnings standpoint is use that money for as long as possible. The D & O of a CDFI may not like having the loan any longer than is absolutely necessary because it may prohibit or put restrictions on their Pay & bonuses until its paid off...lol.. I can appreciate that... but its hard to argue when you've got 2% money to work with!

The good news is CZBS doesn't have to pay back its TARP until 2018. This gives them a good long while to use that $7MM and earn more money with it than it's costing them in interest payments. Banks with standard TARP terms don't have this luxury.

In CZBS's case I view their TARP debt as an advantage... at least in the short term for a couple years more.

I like everything about this bank! Good choice Salty!