Lanny’s Recent Purchase – Citizens & Northern (CZNC)… Again.

Two months ago was my last individual stock purchase.  The market was showing signs of distress and on Thursday, August 28th, a purchase was made.  This has been a familiar face to not just me, but both dividend diplomats and the price was right for an additional purchase.  The position I further enhanced was primarily due to industry knowledge, yield and direction financial institutions are heading.  Let’s find out why I purchased more shares in Citizens and Northern (CZNC)!

Citizens & Northern (CZNC) Stock Purchase


Well, it wasn’t the first time I bought CZNC, with Bert making a purchase back in January of this year, and me making an investment last year wayyy back in January of 2015.  Even though this wasn’t on my August stock watch list, and I recently invested a bigger position in April, I wanted to own more shares.  Further, I still had $3,316 left to use for my traditional IRA account, which was in relation to Part 3 of my tax minimization strategy, and I thought – what better use than for Citizens & Northern (CZNC).  Why was this even more important to place into that account?  Well, at the price I paid, $20.75, the yield was at 5.01% (therefore, minimizing taxes on those dividends) and the financial institution industry is on a consolidation track, whereas – if they get acquired at some point, I won’t have the immediate capital gains taxation as well.  A win-win, for now, in my book.  Funny enough, it coincidentally tied into Bert making an additional purchase into Target (TGT), and I had put the limit order on this stock, but since it is so thinly traded, took an additional day or so for the price to trigger.

Due to the industry knowledge and the recent price decrease in CZNC, as they were trading as high as $22.00 at one point in early February, this came heavily back on my radar.  A $1.25 drop from $22 equates to a 5.68% drop.  Further, they announced a share-buyback program of 5% of all shares outstanding, and all earnings remaining consistent, would lead to a share price of well into the mid $21 range based on the latest purchase price we had in April.  Further, this bank falls into that “sweet-spot” as it relates to size in that “just over $1 billion in total assets”.  Which means, they will either acquire further banks or they will become acquired at some point.  With a 5%+ yield, I definitely don’t mind being paid a consistent dividend, pick up more shares and to also have the potential of this event in my back pocket.  They have taken their share of 6 months worth of heft provision for loan losses, however, I would expect that figure to normalize the last 6 months and earnings should be better.

Lanny’s CZNC Stock Purchase Summary

I deployed a total capital amount of $1,687.70 to purchase 81 shares of CZNC at a market price of $20.75 plus a $6.95 transaction fee,.  This wasn’t quite the big gun that I’m trying to use this year when making purchases over $3,000, but given that I had not made a purchase in quite some time, the price has come down over 5% in the near term and I wanted to save some capital for additional depreciation of the investment or a different investment in the traditional IRA if this does occur.  The yield was at 5.01% at the time of purchased, they announced another buy back (as we know I love the share buyback and what it means for dividend investors) and with the purchase added $84.24 to my forward dividend income based on my portfolio.  Further concluding thoughts…

Is CZNC a large cap stock? No.  Is this a Dividend Aristocrat? No.  On the watch list?  No.  What happened is that I was able to find the right stock, with the right yield, in the right industry, for the right price.  This adds great yield, great spot in a tax-advantaged account and I know own a whopping 229.1927 shares that is producing $238.36 per year or $59.59 on a quarterly basis.  On each dividend, I am almost picking up an additional 3 shares, which I’m completely excited for, all mostly in tax-advantaged accounts.

What do you guys think of this purchase?  I still have my eyes on a few entities in Target (TGT), T. Rowe Price (TROW) and Pfizer (PFE), but in the meantime, I wanted to capture more shares at the price point CZNC delivered.  Thoughts on this company?  Any insight or further ideas/suggestions?  I have noticed quite a bit more of stock purchasing from the slight depreciation last week, hoping it continues for all of us!  Thanks and hope everyone had a great weekend, appreciate you for stopping by.


21 thoughts on “Lanny’s Recent Purchase – Citizens & Northern (CZNC)… Again.

  1. The metrics look stable but I worry about 2 things with them. They started paying a cash dividend in 1987 plus a 1% annual stock dividend. They raised the cash div regularly through the tech bubble but then cut from .18 to .13 in 3/2003. Red flag, but did raise it back to .19 the next quarter. Next stop: financial crisis. No div increase in 2008 (which is fine) but a huge cut from .24 to .08 in Jan 2010 (when it lost $4 in earnings). It’s .26 now but they haven’t raised it in 11 quarters, since January of 2014. Their earnings growth is also negative from 2012. With interest rates this low, looks like the company is not executing well. It’s also been underperforming the S&P Financials Index all year. I love the high dividend, but it’s a risk reward situation.

    • Wow..great analysis and made me to stop thinking about buying this stock.. Delicious dividend yield but as you’ve described, looks risky. I guess with 5% yield, you’d expect that.

      • Mayfey,

        It’s good to read other comments all day. But also – should compare what other institutions had to go through, simply because they were also a bank, just like all others, in the financial institutions crisis (2008-2010 for them). Earnings can be controlled via provision and asset quality. Keep your eyes on it and you can see my responses above and to DDU. There are a few angles with this investment! Thank you for the comment and hope you are enjoying the thorough discussion.


    • Al,

      Thank you. Yep, that is the history of the dividend. Luckily in 2003 when they cut it, they increased it over what they originally cut it from – so a slap and a pat you could say. But just like any bank – banks were actually hand cuffed in terms of dividends during the financial crises to help preserve capital. Do you think JPMorgan is a bad investment? Not sure if you knew this, but theirs was demolished to $0.05 per quarter and required heavy approval in 2011 to increase again. Most banks had to go through the same process. As such – earnings are earnings – provision of loan loss is the big judgment call on banks and those that are in this area see typically only 0.80-1.10% of loan loss to loans and they are on the upper end at the moment, therefore – earnings should be back on track expected in the 3rd quarter. However – I won’t guess or predict their earnings. Also – if you see my comment on div down under – I had 3 clients with similar asset sizes. 2 couldn’t grow and were acquired for hefty premiums while maintaining a solid dividend, the other bought two banks and have doubled in size almost AND have increased their dividend. A few other institutions in the area that I know have done the same. Stay tuned!


      • That’s a good point regarding takeovers. As rates begin to rise, larger banks may start doing more deals before rates are high enough for the economics to become prohibitive.

        • BigAl,

          You got it. Additionally – banks are sometimes challenged by lending opportunities in their geographical area, and the only way to grow the balance sheet is via expansion. From my client base – I have had 4 acquisitions this year, pending 2 more… And the deals continue… consolidation.


    • Doug,

      Thanks for the comment. Risk in any transaction for an investment. See my comment to div down under. This is an arena that I believe I know fairly well, which is why to most it should feel off the scale a bit! However, the dividend is safe and provision for loan loss is typically booked to increase an estimate of projected loan losses. Projected is the key word. A change in the amount of provision recorded can EASILY change the earnings side of a bank of this size : ) Aka – stay tuned to Q3!


    • Tristan,

      Thank you. It’s funny – these are similar banks that are my clients haha and it’s very strange how much and well I believe I know what they are going through. For instance – I had 3 clients that were around the $1-$1.3B in total asset mark. And guess what happened? They both maintain or increased their dividend, 2 got acquired at hefty premiums and the other bought 2 banks to become $2B in total asset sizes and have increased their dividend quite dramatically. End result – a win for any investor into that segment. This bank is in the same boat. Very interesting and time, time is going to tell quite a bit!


  2. Local banks certainly have a lot of appeal and most bank stocks are fairly cheap these days so great pickup again! You are going to get one heck of a DRIP with that stock. If I had capital I may have followed you into this trade!

    • Stefan,

      Thanks for seeing the beauty in Local Bank stocks. They are great for communities and are trying to stick with their roots, all while bringing their philosophy and tradition/culture into newly acquired areas. The DRIP will be fun, that’s for damn sure. The 4th quarter dividend should generate a few shares : ) Loving it.


  3. Just reread their quarterly report and my sense is they are positioning themselves to be an acquirer – particularly with the IT upgrades. Plus they have a little cash to burn with the loan sales. Downside is the 10% increase in wages – particularly with their weakness in annuity sales. All in all a good buy – they just missed the cut for my last purchases.

    Side note: Any thoughts on the $10B level? One of my banks (OZRK) chose to blast through it while another (WSBC) chose to dispose assets to stay under it – with their acquisitions.

    • Charlie,

      I do remember reading about the IT upgrades, so good call on that – usually banks do not want to invest in that if they plan on being acquired. Cash though – they could always pull on an overnight FHLB line or even an advance if need be – pending what they are allowed to pull to make any “purchase” haha.

      Ah… the bank of the Ozarks! Yes I have heard of them. I know quite a few banks that are doing what they can to stay under – typically squeeze the heck out of what they can, but then when they ultimately go over – they FLY over it by a few hundred million or even an extra billion or two via an acquisition. But with further requirements – I could see that being a move – especially for those that are acquiring and become that size, but don’t have the expertise to handle it. Eh?


  4. Nice job. I own CZNC and NWFL in my IRA thanks to your blog, and love that CZNC has no long-term debt.

    What are your thoughts on even smaller banks, in the $500 million asset range? I went looking for another regional bank and am considering Elmira Savings Bank (ESBK).

    • Brian,

      Awesome that you own CZNC & NWFL – great to have a fellow shareholder, that’s for sure : ) I agree with smaller banks as well. Do you know their EPS and payout ratio for Elmira??


      • They’re earning $1.20 a share and paying out 77% of that. Not much of a cushion, but their earnings seem pretty consistent, as they achieved that $1.20 by earning exactly 30 cents each of the past four quarters.

        • Brian,

          Yep – and with a decrease in provision, say in Q3 – then those earnings can be higher – the provision is a number that is easily altered, as their allowance is on the higher end of banks in the area. It’s very interesting, I don’t expect a dividend increase this year or next, but I do expect earnings to be very, very consistent at the $1.2-$1.4 mark. Also – 5% buy back of shares should help : )


  5. I worry with bank and financial institutions because I believe the regulatory market will shift drastically no matter who is our next Commander in Chief. Too much uncertainty for my blood.

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