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

Hello, and welcome to the Citizens & Northern Corporation 2025 Annual Meeting of Shareholders. Please note that this meeting is being recorded. [Operator Instructions]

Welcome to the 37th Annual Meeting of Shareholders of Citizens & Northern Corporation. Shareholders who have logged in using their control number may ask questions at any time during the meeting. Shareholders who have logged in as a guest will not be able to ask questions. [Operator Instructions]. We will address questions at the end of the meeting after Brad Scovill's comments. I'll now call the meeting to order. My name is Terry Lehman, Board Chair; I also chair the Risk Committee and the M&A Committee and a member of the Audit and Compensation Committee. I've been appointed by the Board of Directors to be Chair of this Annual Meeting of Shareholders. Glenn James has similarly been appointed Secretary of this meeting. Glenn serves as General Counsel and Corporate Secretary for Citizens & Northern Corporation. I now ask the Secretary to present the affidavit of mailing of notice of the meeting and proxy statement.

Mr. Chairman, as set forth in the affidavit, the notice of meeting and the proxy statement were mailed to the shareholders on 14 March 2025.

Proper notice of this meeting having been given, the order of business will be, one, introductions of the directors; two, voting on the 3 proposals set out in the meeting notice; three, President's remarks; and four, questions and answers. Now I would like you to introduce our Board of Directors. The Board is very engaged throughout the year and has solid committee leadership. Brad Scovill, President and Member of Risk and M&A Committees; Susan Hartley, Governance and Nominating Committee Chair and member of the Risk Committee; Leo Lambert, member of Audit and M&A Committees; Frank Pellegrino, Wealth Committee Chair and member of the Compensation and M&A Committees; Aaron Singer, member of the Risk, Audit and Governance and Nominating Committees; Bobbi Kilmer, Compensation Committee Chair and member of the Risk, M&A and Governance and Nominating Committees; Stephen Dorwart, Audit Committee Chair and member of the Wealth and Compensation Committees; Rob Loughery, member of the Risk and Governance Committees, Helen Santiago, member of the Wealth and Audit Committees and Kate Shattuck, member of the Wealth Compensation and Governance and Nominating Committees. You can find each director's bio in the proxy statement, starting at Page 9. I'd also like to acknowledge Nicole Spiker, Partner of Crowe LLP, the company's independent registered public accounting firm. This meeting has been called for the purpose of; one, the election of 4 Class II Directors to serve for a term of 3 years and until their successors are elected; two, approving in an advisory vote, the compensation of the corporation's named executive officers for 2024; three, ratifying the appointment of Crowe LLP as independent registered public accounting firm for the year ending December 31, 2025; and four, transacting such other business as may properly come before the meeting. Shareholders of record as of February 5, 2025, holding a total of 15,467,390 shares are entitled to vote in person or by proxy. The Secretary holds a record of all shares as of the record date. Any shareholders who have not previously voted may do so now online by clicking on the voting link on your meeting screen and following the instructions provided. Mr. Secretary, do we have a quorum?

Majority of the shares being represented in person or by proxy, Mr. Chairman, we have a quorum.

As the first order of business, may I have a motion to waive reading of the minutes of last year's Annual Meeting of Shareholders?

So I move. Second.

There's a second. In accordance with the bylaws, the Board of Directors have appointed Tom Rudy, Harold Hoose and Blair Rush as judges of election. Is there anyone who has not voted but wants to vote? Hearing none, I declare the polls closed. I call for a motion to elect the following nominees as Class II directors for a term of 3 years and until their successors are elected. Susan E. Hartley, Leo F. Lambert; Helen S. Santiago, Katherine W. Shattuck.

So move.

Do I have a second?

Second.

We have a motion and a second. Judges of election may we have the results of the vote?

The motion for election of the nominees as Class II Directors passed with no less than 51% of the shares present or represented by proxy voting in favor of each nominee.

On the question of the election of 4 Class II directors for 3-year terms and until their successors are elected each of the nominees receiving a majority of the votes cast. Ms. Hartley, Mr. Lambert, Ms. Santiago and Ms. Shattuck stand elected. I now call for a motion to approve the 2024 compensation of the named executive officers as disclosed in the proxy statement.

So moved.

Is there a second?

Second.

We have a motion and a second. Judges of election may we have the results of the vote?

The motion to approve the advisory nonbinding vote on the 2024 compensation for named executive officers as disclosed in the proxy statement, passed with 70.9% of the shares voting in favor.

On the question of the approval of the 2024 compensation of the named executive officers, a majority of votes being cast to approve that compensation, that compensation stands approved. I now call for a motion to ratify the appointment of Crowe LLP as the corporation's independent registered public accounting firm for 2025.

So moved.

I second.

We have a motion and a second. Judges of election may we have the results of the vote?

The motion to ratify the appointment of Crowe LLP as the corporation's independent registered public accounting firm for 2025, as disclosed in the proxy statement passed with 99.1% of the shares voting in favor.

On the question of ratification of the appointment of Crowe LLP as independent registered public accounting firm, a majority of the votes being cast to ratify the appointment of Crowe stands ratified. This concludes the business portion of this meeting. And now I have the pleasure to turn the virtual podium over to our President, Brad Scovill, to give you his report on the state of the company. Brad?

Great. Thank you, Terry, and greetings to C&N shareholders that have joined us today. Appreciate your interest and support of our terrific company. Last year, we celebrated the 160th anniversary of C&N and all that our bank has meant to our customers, communities, shareholders and teammates for more than a century and a half. Throughout its history, our bank has been resilient in the face of difficult challenges and thoughtfully pursued opportunities as it has supported generations of families and businesses that make up the communities we serve. This resilience is grounded in our mission of creating value through lifelong relationships, deepening our ties with customers and communities and sustaining a culture based on our values of teamwork, excellence, responsibility, accountability, respect, integrity, customer focus and having fun. In volatile times, the ability to make decisions that are consistent with these principles focus on strong fundamentals and remain poised is essential. To stay resilient, outside noise cannot distract us from making sound decisions, must be nimble without overreacting. However-- but we can't underreact either, but must make smart decisions that are in the best interest of C&N over time. In recent years, we have worked through COVID, high inflation and historic interest rate moves by the Fed in 2022 and '23. Bank failures during 2023 and the resulting fight for deposits and liquidity, persistent fears of recession, oppressive bank regulatory policy during the Biden years and now tariff and trade policy under the Trump administration that is creating uncertainty and volatility. Our poise, focus and consistency have been continuously tested, and we've concentrated on the fundamentals of growing deposits, improving our funding mix and liquidity, managing loan growth while maintaining credit quality, continuing appropriate investments in technology and our people and sustaining a strong overall risk profile. While the combination of events and our actions compressed our net interest margin and earnings for the past couple of years, in 2024 we began to see a turn in our earnings, most importantly, core earnings or PPNR. Some of the highlights include a net interest margin that stabilized the net interest income that began to increase on the same quarter year-over-year basis. Our non-margin revenue from wealth and mortgage businesses increased substantially. Overhead expenses were unchanged from 2023, consistent with the focus on bending our cost curve. As a result of that, our efficiency ratio, not as low as we would like it to be, improved to 68% in 2024 from 69.5% in 2023. Our long-run target is to drive efficiency back to its historic norm of approximately 60%. Also, our funding mix has much improved, and liquidity position strengthened. Our capital remains strong and supports plans for growth and continuation of our very solid dividend payout and C&N's overall risk profile is moderate and indicates capacity to scale the business. Regulators view C&N in a positive light as well as reflected in recent safety and soundness and compliance exams. So 2024 was a pivotal year, and we started 2025 with some positive trends as well. First quarter results were released yesterday and there are similar themes continuing as we roll into 2025. Net income and PPNR showed solid increases compared to the first quarter of '24. Our net interest margin and net interest income continued to improve compared to last year. And while the funding mix remains improved. There was a seasonal decline in municipal deposits and modest loan growth, the combination of which restrained and even larger earnings improvement during the first quarter. Our non-margin revenue continues to grow with early strength in the wealth business and other fees, while mortgage sales revenue has softened a bit seasonally. Overhead expenses are on track for budget and modest growth during the quarter. Credit quality remains solid as does the bank's overall risk profile. So we're off to a very good start in 2025. We've been optimistic that the new administration would promote more banking friendly policies and generally be good for the economy. We were correct about banking policy as there have already been numerous decisions by regulatory agencies that will reduce the burden on banks over time. And while we remain believers in the overall Trump agenda that will support long-term growth and stability, the tariff issue has introduced substantial near-term volatility. It's hard to handicap how and when things will settle domestically and internationally. So we are watching carefully, filtering out the noise, remaining poised, supporting our customers and focusing on making decisions that will create long-term value for C&N. This effort includes the many day-to-day decisions that drive profitable organic growth in our existing markets. It also includes driving additional growth and scaling our business through disciplined acquisitions. We are always active in building relationships with community banks we believe are a good strategic and cultural fit and that carry a high probability of creating shareholder value with low execution risk. Following our successful acquisitions of Monument and Covenant several years ago, we announced a deal that fits this profile after the market closed yesterday regarding our acquisition of Susquehanna Community Financial, headquartered in West Milton, PA. Susquehanna is a $600 million community bank operating in contiguous Central PA counties since 1920. We share similar histories, cultures and philosophies that we believe will strengthen C&N's ability to drive future profitable growth for the benefit of investors in both franchises. Our combined company will have approximately $3.2 billion or $3.3 billion in assets and firmly establishes C&N as the premier community bank in Central Pennsylvania. Press release and investor deck were both distributed at 4:30 yesterday and an 8-K was filed with the SEC, setting forth more details of the transaction and projected financial benefits. Transaction is still subject to customary regulatory approvals and to approval by Susquehanna's shareholders. We expect the transaction to close later this year. At that time, Chris Trate, currently, the Susquehanna's Board Chair, will join the C&N Board of Directors; Dave Runk, their CEO, is a good friend, and he will join the executive team as a Strategic Adviser; and Jeff Hollenbach will serve as our Region President for the Susquehanna region. We are excited to welcome these gentlemen, their entire team and Susquehanna's customers and shareholders into the C&N family. So C&N is off to a fast start in 2025. Our team is excited by the combination with Susquehanna as well as the opportunities we see in all our markets to drive profitable growth. We're once again facing outside noise and uncertainty but remain confident in our ability to execute and to create value for our customers, communities, teammates and shareholders. I'd like to thank all team members of C&N, our Board, our leadership team, our staff, our advisory board members for your commitment to the success of our great company and to our shareholders for your ongoing support. Back to you, Mr. Chairman, to run us through the rest of the meeting.

Thank you, Brad. The floor is now open for questions from our shareholders. To repeat, shareholders who logged in with a control number will have access to submit questions through the moderated messaging Q&A system. Are there any questions?

There are none.

All right. I would like to thank all of you who took the time to participate in today's meeting. Is there any further business to be brought before this body? Hearing none without objection, this meeting stands adjourned.