Citizens & Northern Corporation (CZNC, Financial) showed up in my dividend screener results. It is a small cap bank holding company with a 5.04% dividend.
The company is headquartered in Wellsboro, Pennsylvania. The bank was originally founded in 1864 as The First National Bank of Wellsborough to serve local communities. Citizens & Northern Bank was formed on Oct. 1, 1971, when it merged with Northern National Bank of Wellsboro and Citizens National Bank of Towanda. Banking services are provided by its subsidiary, Citizens & Northern Bank, which owns 26 banking offices in the following counties:
- Bradford, Pennsylvania.
- Cameron, Pennsylvania.
- Lycoming, Pennsylvania.
- McKean, Pennsylvania.
- Potter, Pennsylvania.
- Sullivan, Pennsylvania.
- Tioga, Pennsylvania.
- Steuben, New York.
The map below shows the primary counties served.
Financials
Market capitalization is $247 million and total assets are $1.22 billion. The stock has traded in a tight range in the last 52 weeks between $19.07 and $21.45 per share. Shares are currently $20.53. Since 1996, the bank has only lost money in 2009 during the Great Recession. Tangible book value has risen from $9.43 per share in 2009 to $14.41 per share in 2015. The price of the stock is not cheap as the PE ratio is 15 and the Price to Tangible Book ratio is 1.41. The dividend yields 5.04% with a payout ratio of 0.77. There has been a dividend every year since at least 1996.
The net interest margin is a respectable 3.54% with the cost of funding from its earning assets at 0.32%. ROA is 1.11% and ROE is 8.16%. Its efficiency ratio is 65.04% which is about in line with banks of their size. Efficiency ratio simply measures expenses as a percentage of revenue. The common equity tier 1 capital ratio is 20.94% which is high. To put it in perspective, a bank with a common equity tier 1 capital ratio of 8% is considered well capitalized. Noncurrent loans to total loans is 2.12%. From 1996 to the present, the highest credit loss provision expense as a percentage of net loans was 0.32% in any single year.
The table below shows the company’s loan composition. 55% of the loans are in residential mortgages. Forty-three percent of the loans are commercial which includes categories such as commercial real estate, construction and agriculture. A very small percentage of loans are consumer loans such as auto loans.
Final thoughts
Citizens & Northern Corporation has positive characteristics such as its long history, its respectable net interest margin and its common equity tier 1 capital ratio. It also has risks. The dividend yield comes with a high payout ratio of 0.77. The company’s 10-K also speaks to geographic risk:
Virtually all of the corporation’s banking offices are located in the “Marcellus Shale,” an area extending across portions of New York state, Pennsylvania, Ohio, Maryland, West Virginia and Virginia. In recent years, most of the Pennsylvania counties in which the corporation operates were significantly affected by an upsurge in natural gas exploration as technological developments made exploration of the Marcellus Shale commercially feasible. After a surge of activity in 2009 through most of 2011, the market price of natural gas declined, causing Marcellus Shale natural gas exploration activity to slow, though some activity has continued to occur throughout the corporation’s market area. Through Dec. 31, 2015, the corporation has not experienced significant credit issues as a result of the expansion and subsequent reduction in Marcellus Shale-related activity.
If the Marcellus Shale region experiences an economic slowdown, it could eventually lead to lower lending and greater loan losses. Investors should perform their own due diligence if considering Citizens & Northern Corporation for their portfolios. Since this is a small-cap stock with low trading volumes, it’s a good idea to use limit orders.
Disclosure: I don’t own any Citizens & Northern.
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