Citizens & Northern Corporation (CZNC) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Citizens & Northern Annual Meeting 2020 Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mr. Brad Scovill, President and CEO. Thank you. Please go ahead, sir.

Thank you, and good afternoon, ladies and gentlemen. As Daniel introduced, I'm Brad Scovill, and I want to welcome everybody to the 33rd Annual Shareholders' Meeting of Citizens & Northern Corporation and before we call the meeting to order, I'd like to thank everyone involved with organizing the first-ever virtual meeting of our shareholders and acknowledge the shareholders have taken steps to join us on the call today. The world has certainly changed in dramatic ways over the last 6 or 8 weeks and we have all made adjustments due to the COVID-19 pandemic. We'll provide some insight into the steps that C&N has taken to provide for the health and safety of our team to support our customers and community as we move together through this challenging period. We'll also let you know that the Chairman of our C&N Board, Leo Lambert, had a mild stroke several weeks ago. He spent some time over at Geisinger Medical Center and rehab facilities and is now back up and following his doctors and we're assuming Dennis' orders to work hard toward a 100% recovery. So Leo great to have you on the call today and he's asked us to fill in for him for today's meeting. So I'm going to call the meeting to order, and once again, welcome our shareholders at the annual meeting. While this is a unique format and we do miss the opportunity to be with everyone in Wellsboro, we'll follow some familiar agenda to that, which we've used in the past. I'd also like to acknowledge the attendance of Chuck Ferry of Stevens & Lee, who serves as our Corporate Counsel; and Ivan Cilik, who partner with Baker Tilly, who oversees the audit-related services performed by his firm. Thanks to both of the gentlemen and their staffs for the good work they do on behalf of the shareholders and they will be available to respond to questions later in the meeting. We'll begin with the business portion of the meeting and provide results of voting on the proxy items, provide some abbreviated comments on our results and business activities without the normal slide deck and finish with responses to questions that you may have. The slide you all see will guide us through the agenda. Since we don't have the usual slides, we also want to get on the record that we're operating today's meeting with the usual disclaimer regarding forward-looking statements that we have provided at previous meetings. So shareholders who logged in with a controlled number will have access to submit questions and vote through the -- questions through the moderated messaging Q&A system. You can also vote. The questions will be addressed by myself and the management team with support from Mr. Ferry and Mr. Cilik and finally, just no recording devices for the meeting are permitted. So thank you for that. So in accordance with the corporate bylaws and duty set forth by the Board of Directors and consistent with the Board's action at a special meeting, I ask for a motion to appoint myself Chairman of today's meeting.

So move.

We have a motion and a second. Call a question, all in favor, aye?

Aye.

Aye.

Oppose? Okay. Motion carries. Also, as set forth in the duties of the Chairman of the Board and rules of order, I appoint our Corporate Secretary, Kimberly N. Battin as Secretary of this assembly. I ask the secretary to make note of the appointments. Now I'd like to request the presentation of the affidavit of mailing of notice and proxy statement to shareholders of record February 3, 2020, and order the affidavit to be filed.

Mr. Chairman, as set forth in the Affidavit notice of the meeting and proxy statement were mailed to the shareholders on March 6, 2020.

Thank you. So notice of the meeting has been mailed to all stockholders as provided by the bylaws and statutes. The meeting has been called for the purpose of electing 3 Class 3 directors to serve for 3 -- a term of 3 years; secondly, approving in an advisory or nonbinding vote, the compensation of the company's named executive officers as disclosed in the proxy statement; ratifying the action of the Board of Directors and the appointment of the firm of Baker Tilly Virchow Krause, LLP as independent auditors of the corporation; and to transact such other business may be properly brought before the meeting. The shareholders of record February 3, 2020, holding a total of 13,749,048 shares of Citizens & Northern Corporation stock are entitled to vote either in person or by proxy, a record of all shareholders as of February 3, 2020, is in the possession of the secretary. If any shareholders who have not voted previously wish to do so, please vote now online by following the instructions that we have provided to them. Madam Secretary, is there a majority of the common stock represented in person or by proxy, which would represent a quorum?

Yes, Mr. Chairman, there is.

Thank you. So we have a quorum, and the meeting will continue. Next, I'd like to request the motion to dispense with the reading of the minutes of the annual meeting of April 18, 2019, do I have a motion?

Pellegrino move.

Move.

So we have a motion and a second. All in favor, aye?

Aye.

Aye.

Aye.

Os? Motion carries. In accordance with the bylaws, the Board has appointed Harold F. Hoose, III; Thomas L. Rudy, Jr.; and Kimberly N. Battin as judges of elections. Now that everyone has had the opportunity to vote, I declare the polls for the 2020 annual meeting closed. And now I'd like to introduce the members of our Board, all of whom are present today beginning with the nominees that will serve as Class 3 directors. So our nominees today are Timothy E. Schoener, Aaron K. Singer and myself, J. Bradley Scovill. Our continuing directors in Class I are Bobbi J. Kilmer, Terry L. Lehman; and Frank G. Pellegrino. And our continuing directors in Class 2 are Clark S. Frame; Susan E. Hartley, Leo F. Lambert; and Leonard Simpson. As indicated in the proxy statement, the Board of Directors determined, in accordance with the bylaws, the size of the Board is currently set at 10 members classified into 3 classes. So I'd call for a motion now to elect the following nominees as Class 3 directors for a term of 3 years; Timothy E. Schoener, J. Bradley Scovill and Aaron K. Singer. Do I have a motion?

Pellegrino move.

We have motion.

Second.

We have a motion and a second. Thank you. Judges of elections, the results of the vote, please?

The motion for election of nominees as Class III directors passed with no less than 67.5% of the shares present or represented by proxy voting in favor, excluding broker non-votes, no fewer than 97% of the shares voted in favor of each nominee.

Thank you. For the question of the election of 3 Class 3 directors for 3 years as nominated, the eyes have it, Mr. Schoener, Mr. Scovill and Mr. Singer stand elected. Next, I call for a motion to approve the advisory or nonbinding vote on the 2019 compensation of named executive officers as disclosed in the proxy statement. Do I have a motion?

Pellegrino move.

Second.

We have a motion and a second. Judges of elections, the results of the vote, please?

The motion to approve the advisory nonbinding vote on the 2019 compensation for named executive officers, as disclosed in the proxy statement passed was 88.3% of the shares voting in favor.

Great. Thank you. For the question of approval of 2019 compensation for named executive Officers, the eyes have it and the proposal stands approved. And lastly, I call for a motion to ratify the action of the Board of Directors and the appointment of the firm of Baker Tilly Virchow Krause, LLP as independent officers (sic) [ auditors ] of the corporation, do I have a motion?

Move by Singer.

Pellegrino second.

We have a motion and a second. Judges of elections, the results of the vote, please?

The motion for ratification of the action of the Board of Directors, appointing Baker Tilly Virchow Krause, LLP as independent auditors of the corporation for 2020 passed with 98.7% of the shares voting in favor.

Great. Thank you. Thank you, Tom. All right. So we're -- we conclude the actions from the proxy. Appreciate everybody's engagement. We had good voting again this year. And obviously, good support for the 3 initiatives that were on the proxy ballot. Just a few comments. Again, we don't have a slide deck, and I think we might all agree that trying to recall 2019 feels like it was about 10 years ago at this point with what's taken place over the last 4 to 8 weeks. So just a couple of things to highlight for everybody, for the shareholders. Been a couple of changes on the Board since last year. Director Towner retired, Director Schoener joined us as an appointed director and he was just now elected this year. And a longtime member of our Board, Dennis Beardslee, retired as of today. So we've had a couple of changes in the composition of the Board and we're looking forward to a couple more changes as we work towards the transaction with Covenant based on the terms of that deal. I'd like to say thank you, first, to our Board and to our leadership team. We do -- they do a tremendous amount of work in normal times, whatever normal was 2 months ago, right? But it's hard to overstate the job that this group has done to lead our company in recent weeks. Our ongoing focus on our mission, vision and values that we built the company on are shining through. And I would just observe that our focus on relationships is a big deal. Relationships really don't matter, building them takes time. They don't matter until they do, and you can't build a relationship in the moment when you need it. So all the hard work that's been done inside the company and to build relationship with our clients is really shining through right now. So I want to thank that group along with our entire team at C&N as we work through all of this together. Some quick highlights on 2019. We've been executing the strategic plan. We had a successful conversion and integration of monument. Clark Frame joined our Board as we finished that deal. So Clark, welcome to the Board as well. We established an LPO in York, and we obviously announced the Covenant transaction towards the end of the year as well. So our strategic plan for growth and expansion is well underway. Solid core earnings and fundamentals and our risk profile is really strong and the results that we posted last year include ongoing investments to build out our culture and capacity to sustain growth and expansion that we've started on and also creating value over time for our shareholders. The continued investments in people, technology and other resources to support our ability to serve customers as the world was changing even then at a pretty historic and rapid pace. So if we think back to last year, with things that were evolving in our society with technology and how we were looking forward to serving customers, the pace was pretty quick and we layered on top of all the expansion activities last year, the rebranding that you've all seen, and that's been very well received and very successful. So we finished the year in a very strong position, really healthy core business, which we believe, is going to sustain C&N through the current crisis and into the future. There are a lot of moving parts that we're all facing and adjusting to at a pace that has accelerated even past what we were looking at as we were in the middle of last year and towards the end of last year and the challenges that we're all facing have changed as well. There's a lot of prognostication on what and how our lives and businesses will change permanently, but -- and they will, but we really don't have a lot of clarity today on what those changes are going to look like. In many ways, the future we were moving to has accelerated, making our ongoing investments in technology and digital delivery very productive as more customers have adopted recently, at least some of the tools as their physical access to our branches has been more limited. As we rolled into the pandemic, the banking was determined to be an essential service. So we obviously need to be in business and have to be a business to serve our customers and our communities in the country. As you know, we responded very well. But there always have been unexpected challenges that we've always faced. But certainly, none of this magnitude and pervasive impact. As I said earlier, we come into this in a real position of strength. We have reacted as we always do with calm, thoughtful approach and approaching things as a team. But I would suggest infused with a great sense of urgency given the pace and magnitude of the challenges and customer impact. And when we layer on to that, what's taking place from a federal state local government and health systems standpoint, all of the new legislation, regulation and directives that have come down, making these adjustments as a real testament to how the team has responded. We have an existing pandemic plan and committee that was already in place, which we activated in early March. Our initial focus was on our internal team distancing, providing them with secured technology, paying close attention to the cybersecurity, a number of altered policies to support their families and really focusing on communication internally so that we're able to focus on customers and what we knew their needs would be with calm and confidence, while about half of our employees went from their working at work mode to working at home mode and, in many cases, adding child care on top of that. So we wanted folks to be in a position where they felt comfortable that their jobs were there and that we could support them in doing their jobs so that we turned our attention to customers and their financial needs during these emotional and turbulent times and with the changes that they were feeling and our ability to access -- their ability to access our services through our branches became more limited. They were working to refinance existing mortgages, given the reduced interest rates. We need to support their cash flow needs with short-term payment relief until we have more clarity on where things are going. There were expanded government programs like PPP, or the Paycheck Protection Program. And we also are in the middle of ensuring that all of the stimulus checks get to the right accounts and that folks have that money in their accounts to move forward with. Just as a quick facade, the money in the PPP program that has been much written about and has got a lot of exposure ran out about 10:30 this morning, the initial tranche of $350 billion that was allocated for the country. We had 750 applications totaling -- the total amount of dollars we did not get to. We approved 500 and got approved by the SBA, 500 of those 750 applications, exactly 500. We've got an approval on $80 million of loans to our customers, those 500 customers. And in the last 12 days, we've actually closed $40 million of the $80 million of those loans have gotten that out into the system to support our customers. So an incredible job. That doesn't include the statistics around refinancings and payment deferrals and the other ways we've been working with customers to move them forward. Our call center and our online chat resources have been beefed up to support communication. And if you go to our website, we've got a tremendous resource center around all things COVID to help our customers cut through it and get good information. When we turn our attention to the community. Obviously, many needs have been created as a result of the pandemic, and we've also pivoted there to provide support where it's needed most. We completed our year of support for our military heroes with a record total of $88,000 raised. And along with countless items donated and hours committed and volunteered as we go through our process every year, our entire team voted just recently to change our focus to fighting hunger, which we had done early on in the Giving Back, Giving Together program, we just kicked off that program this week internally and also with a contribution of $25,000 to the Central Pennsylvania Food Bank as they ramp up their efforts to meet the significant increase in need for folks and their hunger needs. The team is already rallying to support this effort, and we'll be engaging community in the weeks and months ahead. The Covenant transaction is another important strategic move made by C&N to strengthen our presence in attractive markets, scheduled to close and convert systems in the third quarter and we remain on track. All the regulatory filings have been made. We've got positive responses early from those, and we see no obstacles or delays at this point from the regulatory filings in terms of closing. Our integration activities with the folks at Covenant have gone very well and remain on schedule despite the disruption and being able to be with them physically and the Boards of C&N and Covenant have mutually agreed on the 2 directors that will join the C&N Board following closing. That was one of the terms of the deal. So Stephen Dorwart, a CPA and longtime member of the Covenant Board and Rob Loughery, a real estate investor and developer and former Bucks County Commissioner will be joining the Board when we close the transaction. Both gentlemen are very qualified and will be strong representatives of our shareholders as they join the Board. And finally, the Board met earlier today by videoconference and approved the payment of our regular quarterly dividend of $0.27 a share, reflecting the financial strength of our company as we look forward. There's an 8-K that will be filed today to announce that and also announce that our earnings release for the first quarter will be made concurrent with the filing of the quarterly 10-Q sometime in early to mid-May. So that will be in that release as well. From a shareholder value standpoint, obviously, there's been historic volatility in the overall financial markets and C&N shares have been impacted like everyone else's have and at a similar level to what our peers in the industry have been impacted as investors are looking for some clarity in these uncertain times. And we expect volatility to continue regardless of the industry that you're in, we entered the pandemic in a position of strength and are working diligently on behalf of all our stakeholders to move through the crisis thoughtfully so that we emerge as a stronger company and poised to resume our growth and efforts to create long-term value for our owners. These are more than interesting times obviously that we are all adjusting to, and we won't be perfect as we take our steps along the way. We obviously don't know what the challenges and setbacks will be. And each day, as we got the announcement yesterday in the state of Pennsylvania, we got another directive about where and how we order masks and essential service businesses now and various other health-protecting directives that came from the state. But your Board, executive leadership and the entire C&N team are leaning into these issues. We're not backing away from them, we're leaning into them, and they've done a phenomenal job over the last 7 weeks and remain focused on creating value as we tackle these challenges together. So let me close my comments by thanking everyone for their support, our shareholders for their support, engagement and interest in the company. And now we'll open it up for any questions that we may have that come from folks attending the meeting today. Any questions? We have a screen in front of us, waiting for a question to show up. We see no questions at this point. We'll give it another couple of seconds. All right. Seeing no questions coming from the shareholders. Let me just say thank you one more time for your engagement and attendance today. We appreciate your support and we'll continue to be very open and transparent in our communication as we move through the next weeks and months to bring us out the other side to a successful future. Thank you. And with that, well, I'll take a motion to close out here.

I move here, Pellegrino.

Go second?

Second.

Second.

Great. The motion is second. With that, thanks once again and meeting adjourned.

Meeting is adjourned.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.