Thursday, May 19 2022

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Citizens & Northern Corporation (CZNC) is a $2 billion PA-based commercial bank. The bank provides banking and mortgage services to individuals and businesses in North Central Pennsylvania and Southern New York. As of December 31, 2020, it operated 29 branches. The bank operates a wealth management practice that has grown assets under management.

From a loan portfolio perspective, ~78% of the loan portfolio is real estate related and ~18% is C&I products. The bank’s credit qualities are not as comparable to those of peer banks, given its consecutive NPLs of over 1%. The only year Citizens reported PNPs below 1% was fiscal year 2019.

Regarding the funding mix, the bank’s term deposits represent approximately 20% of the total funding mix and have remained unchanged since fiscal 2016.

Mergers and acquisitions have been part of driving value for citizens. In the past five years, the bank has acquired two banks, the details of which are as follows:

  • December 18, 2019 Covenant Financial, Inc.
  • September 28, 2018 Monument Bancorp, Inc.

History of citizens and mergers and acquisitions in the North

CapIQ, Business Deposits

While we appreciate the management team that uses mergers and acquisitions to create value, we don’t fully understand why management was using dilutive cash as trade consideration to acquire a publicly traded bank when the stock was down. price of 1.8x-1.9x P/TBV.

Transaction Review

Citizens & Northern Corporation reported net income of $30.6 million for 2021, compared to $19.2 million for the previous year. Earnings per share were $1.92 versus $1.30 a year earlier. Revenue for the year increased to $100.2 million from $87.9 million for 2020. During the fourth quarter, Citizens & Northern Corporation reported ROA and ROE of 1.2% and 9 .7%, respectively. Net interest income/income is 78.9%. The NIM is 3.65% and the Tier 1 capital ratio is 15.36%

From a profitability standpoint, the bank has consistently generated a return on investment above 1% over the past four years, with the exception of fiscal 2020, which suffered credit losses due to the impact of COVID 19. The high efficiency ratio of 50% suggests that the management team cares more about its compensation and shareholder return.

Northern Citizens and Finances

Company deposits


The stock is priced at 13.0x P/E and 1.6x P/TBV.

Citizen and Northern Exploitation Statistics

Business Deposits, CapIQ


From a risk perspective, the poor credit quality reflects the quality of the management team. Acquiring a bank with dilutive cash and not taking advantage of expensive stocks is not as effective in terms of purchase price considerations. Management overheads are inflated for a bank of this size. Finally, the bank’s shares have returned 20% over the past five years, while CEO pay has increased by 31% between FY17 and FY20, a much shorter window than a five-year stock return. .

From a rewards perspective, the bank increased EPS by 8%. The bank will likely continue to leverage mergers and acquisitions to create shareholder value. The asset management business will likely drive further growth in fee income.


In our view, Citizens & Northern is not a well-managed bank from a credit quality and acquisition discipline perspective. The management team did not even try to improve the financing mix, which is surprising. Over the past few years, the share price has appreciated by 20% while CEO compensation has increased by 31% between FY17 and FY20. We avoid banking for the poor risk/reward ratio and corporate governance.


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