Citizens & Northern Corporation announced its most recent dividend declaration and its unaudited, consolidated financial results for the three-month and annual periods ended December 31, 2019.
C&N’s board of directors declared a regular quarterly cash dividend of $0.27 per share. The dividend is payable on Feb. 7 to shareholders of record as of Jan. 27. Declaration of the dividend was made at the Jan. 16 meeting of C&N’s board of directors.
Acquisitions of Monument Bancorp, Inc. and Covenant Financial, Inc.
C&N’s acquisition of Monument Bancorp, Inc. was completed April 1, 2019. Monument was the parent company of Monument Bank, a commercial bank which operated two community bank offices and one lending office in Bucks County. Total purchase consideration was $42.7 million, including 1,279,825 shares of C&N common stock issued with a value of $33.1 million and cash paid totaling $9.6 million. Holders of Monument common stock prior to the consummation of the merger held approximately 9.4% of C&N’s common stock outstanding immediately following the merger.
In connection with the transaction, C&N recorded goodwill of $16.4 million and a core deposit intangible asset of $1.5 million. Total loans acquired on April 1, 2019 were valued at $259.3 million, while total deposits assumed were valued at $223.3 million, borrowings were valued at $111.6 million and subordinated debt was valued at $12.4 million. The subordinated debt included an instrument with a fair value of $5.4 million that was redeemed on April 1, 2019 with no realized gain or loss. C&N acquired available-for-sale debt securities valued at $94.6 million and sold the securities in early April for approximately no realized gain or loss. The assets purchased and liabilities assumed in the merger were recorded at their estimated fair values at the time of closing and may be adjusted for up to one year subsequent to the acquisition. In the fourth quarter 2019, C&N recorded adjustments to various assets acquired and liabilities assumed from the merger, resulting in a net reduction in goodwill of $230,000.
Merger-related expenses associated with the Monument transaction totaled $3.8 million for the year ended Dec. 31, 2019, including costs associated with termination of data processing contracts, conversion of Monument’s customer accounting data into C&N’s core system, severance and similar expenses, legal and other professional fees and various other costs.
In December 2019, C&N announced a plan of merger to acquire Covenant Financial, Inc. in a transaction valued on Dec. 18, 2019 at approximately $77 million. Under the terms of the definitive agreement, C&N will pay cash for 25% of the Covenant shares and will convert 75% of Covenant shares to C&N common stock. Covenant is the holding company for Covenant Bank, which operates banking offices in Bucks and Chester Counties of PA. Covenant had total assets of $512 million at September 30, 2019. The merger is subject to satisfaction of customary closing conditions, including receipt of regulatory approvals and approval of Covenant’s shareholders. The merger is expected to close in the third quarter 2020. In the fourth quarter 2019, C&N incurred merger-related expenses totaling $287,000 related to the planned acquisition of Covenant. Management estimates pre-tax merger-related expenses associated with the Covenant acquisition will total approximately $8 million ($6.6 million, net of tax), with most of the expenses expected to be incurred in the third quarter 2020.
Net income was $0.40 per diluted share in the fourth quarter 2019 as compared to $0.39 in the third quarter 2019 and $0.46 in the fourth quarter 2018. For the year ended December 31, 2019, net income per diluted share was $1.46 as compared to $1.79 per share in 2018. Earnings for the year ended December 31, 2019 were significantly impacted by the Monument acquisition, including the effects of merger-related expenses described earlier. Further, interest income on loans acquired from Monument, partially offset by interest expense on deposits, borrowings and subordinated debt assumed, contributed to growth in C&N’s net interest income, while costs associated with the expansion contributed to an increase in noninterest expenses.
Earnings for the year ended Dec. 31, 2018 included the benefit of a realized gain on a restricted equity security (Visa Inc. Class B stock) partially offset by the impact of a loss on available-for-sale debt securities. In 2018, pre-tax realized gains on Visa Class B stock totaled $2.3 million while pre-tax realized losses on available-for-sale securities totaled $288,000.