10-K - CZNC - Equibles

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM10-K

(Mark One)

xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition periodfrom _______________ to _________________________.

Commission file number: 0-16084

CITIZENS & NORTHERNCORPORATION

(Exact name of Registrant as specified in its charter)

PENNSYLVANIA	23-2451943
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

90-92 MAIN STREET, WELLSBORO, PA 16901

(Address of principal executive offices) (Zip code)

570-724-3411

(Registrant's telephone number including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Trading Symbol	Name<br> of Each Exchange on Which Registered
Common Stock Par Value $1.00	CZNC	NASDAQ Capital Market

Securities registered pursuant to section 12(g) of the Act: None

Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,“ “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨ Accelerated filer x Non-accelerated filer ¨ Smaller reporting company x Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The aggregate market value of the registrant's common stock held by non-affiliates at June 30, 2019, the registrant’s most recently completed second fiscal quarter, was $348,405,379.

The number of shares of common stock outstanding at February 13, 2020 was 13,762,993.

DOCUMENTS INCORPORATEDBY REFERENCE

Portions of the registrant’s proxy statement for the annual meeting of its shareholders to be held April 16, 2020 are incorporated by reference into Parts III and IV of this report.

TABLE OF CONTENTS

	Page(s)
Part I:
Item 1. Business	3-4
Item 1A. Risk Factors	4-6
Item 1B. Unresolved Staff Comments	6
Item 2. Properties	7
Item 3. Legal Proceedings	7
Item 4. Mine Safety Disclosure	7
Part II.
Item<br> 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	8-10
Item 6. Selected Financial Data	11-12
Item<br> 7. Management's Discussion and Analysis of Financial Condition<br> and Results of Operations	13-36
Item 8. Financial Statements and Supplementary Data	37-86
Item<br> 9. Changes in and Disagreements with Accountants on Accounting<br> and Financial Disclosure	87
Item 9A. Controls and Procedures	87-88
Item 9B. Other Information	88
Part III:
Item 10. Directors, Executive Officers and Corporate Governance	88
Item 11. Executive Compensation	88
Item<br> 12. Security Ownership of Certain Beneficial Owners and Management<br> and Related Stockholder Matters	88
Item<br> 13. Certain Relationships and Related Transactions, and Director<br> Independence	88
Item 14. Principal Accountant Fees and Services	88
Part IV:
Item 15. Exhibits and Financial Statement Schedules	89-92
Signatures	93

PART I

ITEM 1. BUSINESS

Citizens & Northern Corporation (“Corporation”) is a holding company whose principal activity is community banking. The Corporation’s principal office is located in Wellsboro, Pennsylvania. The largest subsidiary is Citizens & Northern Bank (“C&N Bank” or the “Bank”). The Corporation’s other wholly-owned subsidiaries are Citizens & Northern Investment Corporation and Bucktail Life Insurance Company (“Bucktail”). Citizens & Northern Investment Corporation was formed in 1999 to engage in investment activities. Bucktail reinsures credit and mortgage life and accident and health insurance on behalf of C&N Bank.

The Corporation’s acquisition of Monument Bancorp, Inc. (“Monument”) 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, Pennsylvania. Monument merged with and into the Corporation and Monument Bank merged with and into C&N Bank. Total purchase consideration was $42.7 million, including 1,279,825 shares of the Corporation’s 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 the Corporation’s common stock outstanding immediately following the merger.

In December 2019, the Corporation announced a plan of merger to acquire Covenant Financial, Inc. (“Covenant”) in a transaction valued on December 18, 2019 at approximately $77 million. Under the terms of the definitive agreement, the Corporation will pay cash for 25% of the Covenant shares and will convert 75% of Covenant shares to the Corporation’s 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 $516 million at December 31, 2019. Pursuant to the plan of merger, Covenant will merge with and into the Corporation and Covenant Bank will merge with and into C&N Bank 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.

C&N Bank is a Pennsylvania banking institution that was formed by the consolidation of Northern National Bank of Wellsboro and Citizens National Bank of Towanda on October 1, 1971. Subsequent mergers included: First National Bank of Ralston in May 1972; Sullivan County National Bank in October 1977; Farmers National Bank of Athens in January 1984; and First National Bank of East Smithfield in May 1990. In 2005, the Corporation acquired Canisteo Valley Corporation and its subsidiary, First State Bank, a New York State chartered commercial bank with offices in Canisteo and South Hornell, NY. In 2010, the First State Bank operations were merged into C&N Bank and Canisteo Valley Corporation was merged into the Corporation. On May 1, 2007, the Corporation acquired Citizens Bancorp, Inc. (“Citizens”), with banking offices in Coudersport, Emporium and Port Allegany, Pennsylvania. Citizens Trust Company, the banking subsidiary of Citizens, was merged with and into C&N Bank as part of the transaction. C&N Bank has held its current name since May 6, 1975, at which time C&N Bank changed its charter from a national bank to a Pennsylvania bank.

C&N Bank provides an extensive range of banking services, including deposit and loan products for personal and commercial customers. The Bank also maintains a trust division that provides a wide range of financial services, such as 401(k) plans, retirement planning, estate planning, estate settlements and asset management. In January 2000, C&N Bank formed a subsidiary, C&N Financial Services Corporation (“C&NFSC”). C&NFSC is a licensed insurance agency that provides insurance products to individuals and businesses. In 2001, C&NFSC added a broker-dealer division, which offers mutual funds, annuities, educational savings accounts and other investment products through registered agents. C&NFSC’s operations are not significant in relation to the total operations of the Corporation.

In December 2017, C&N Bank established Northern Tier Holding LLC, to acquire, hold and dispose of real property acquired by the Bank. C&N Bank is the sole member of Northern Tier Holding LLC.

Over the past few years, the Corporation has begun to execute on a growth strategy. Presently, a majority of C&N Bank’s operations are conducted in its legacy markets in the northern tier of Pennsylvania and southern tier of New York. In 2019, with the acquisition of Monument and the opening of a lending office in York, Pennsylvania, the Bank expanded into new markets in Southeastern and southcentral Pennsylvania. Management expects the acquisition of Covenant to be completed in 2020, which will further increase the volume of activity in southeastern Pennsylvania.

All phases of the Bank’s business are competitive. The Bank competes with online financial institutions, local commercial banks headquartered in our market areas and other commercial banks with branches in our market area. Many of the online financial institutions and some of the banks that have branches in our market areas are larger in overall size. With respect to lending activities and attracting deposits, the Bank also competes with savings banks, savings and loan associations, insurance companies, regulated small loan companies and credit unions. Also, the Bank competes with mutual funds for deposits. C&N Bank competes with insurance companies, investment counseling firms, mutual funds and other business firms and individuals for trust, investment management, brokerage and insurance services. The Bank is generally competitive with all financial institutions in our service areas with respect to interest rates paid on time and savings deposits, service charges on deposit accounts and interest rates charged on loans. The Bank serves a diverse customer base and is not economically dependent on any small group of customers or on any individual industry.

At December 31, 2019, C&N Bank had total assets of $1,638,285,000, total deposits of $1,259,440,000, net loans outstanding of $1,172,386,000 and 336 full-time equivalent employees.

Most activities of the Corporation and its subsidiaries are regulated by federal or state agencies. The primary regulatory relationships are described as follows:

·	The Corporation is a bank holding company<br>formed under the provisions of Section 3 of the Federal Reserve Act. The Corporation is under the direct supervision of the Federal<br>Reserve and must comply with the reporting requirements of the Federal Bank Holding Company Act.
·	C&N Bank is a state-chartered, nonmember<br>bank, supervised by the Federal Deposit Insurance Corporation and the Pennsylvania Department of Banking and Securities.
---	---
·	C&NFSC is a Pennsylvania corporation.<br>The Pennsylvania Department of Insurance regulates C&NFSC’s insurance activities. Brokerage products are offered through<br>third party networking agreements.
---	---
·	Bucktail is incorporated in the state<br>of Arizona and supervised by the Arizona Department of Insurance.
---	---

A copy of the Corporation’s annual report on Form 10-K, quarterly reports on Form 10-Q, current events reports on Form 8-K, and amendments to these reports, will be furnished without charge upon written request to the Corporation’s Treasurer at P.O. Box 58, Wellsboro, PA 16901. Copies of these reports will be furnished as soon as reasonably possible after they are filed electronically with the Securities and Exchange Commission. The information is also available through the Corporation’s web site at www.cnbankpa.com.

ITEM 1A. RISK FACTORS

The Corporation is subject to the many risks and uncertainties applicable to all banking companies, as well as risks specific to the Corporation’s geographic locations. Although the Corporation seeks to effectively manage risks, and maintains a level of equity that exceeds the banking regulatory agencies’ thresholds for being considered “well capitalized” (see Note 18 to the consolidated financial statements), management cannot predict the future and cannot eliminate the possibility of credit, operational or other losses. Accordingly, actual results may differ materially from management's expectations. Some of the Corporation’s significant risks and uncertainties are discussed below.

Credit Risk from Lending Activities- A significant source of risk is the possibility that losses will be sustained because borrowers, guarantors and related parties may fail to perform in accordance with the terms of their loan agreements. Most of the Corporation’s loans are secured, but some loans are unsecured. With respect to secured loans, the collateral securing the repayment of these loans may be insufficient to cover the obligations owed under such loans. Collateral values may be adversely affected by changes in economic, environmental and other conditions, including declines in the value of real estate, changes in interest rates, changes in monetary and fiscal policies of the federal government, wide-spread disease, terrorist activity, environmental contamination and other external events. In addition, collateral appraisals that are out of date or that do not meet industry recognized standards may create the impression that a loan is adequately collateralized when it is not. The Corporation has adopted underwriting and credit monitoring procedures and policies, including regular reviews of appraisals and borrower financial statements, that management believes are appropriate to mitigate the risk of loss. Also, as discussed further in the “Provision and Allowance for Loan Losses” section of Management’s Discussion and Analysis, the Corporation attempts to estimate the amount of losses that may be inherent in the portfolio through a quarterly evaluation process that includes several members of management and that addresses specifically identified problem loans, as well as other quantitative data and qualitative factors. Such risk management and accounting policies and procedures, however, may not prevent unexpected losses that could have a material adverse effect on the Corporation’s financial condition, results of operations or liquidity.

Interest Rate Risk - Business risk arising from changes in interest rates is an inherent factor in operating a banking organization. The Corporation’s assets are predominantly long-term, fixed-rate loans and debt securities. Funding for these assets comes principally from shorter-term deposits and borrowed funds. Accordingly, there is an inherent risk of lower future earnings or decline in fair value of the Corporation’s financial instruments when interest rates change. Significant fluctuations in interest rates could have a material adverse effect on the Corporation’s financial condition, results of operations or liquidity.

Limited Geographic Diversification -The Corporation grants commercial, residential and personal loans to customers primarily in the Corporation’s legacy markets of the northern tier of Pennsylvania and southern tier of New York and, effective with the acquisition of Monument and opening of the York lending office in 2019, in southeastern and southcentral Pennsylvania. Although the Corporation has a diversified loan portfolio, a significant portion of its debtors’ ability to honor their contracts is dependent on the local economic conditions within these regions. Deterioration in economic conditions could adversely affect the quality of the Corporation's loan portfolio and the demand for its products and services, and accordingly, could have a material adverse effect on the Corporation's financial condition, results of operations or liquidity.

Competition - All phases of the Corporation’s business are competitive. Some competitors are much larger in total assets and capitalization than the Corporation, have greater access to capital markets and can offer a broader array of financial services. There can be no assurance that the Corporation will be able to compete effectively in its markets. Furthermore, developments increasing the nature or level of competition could have a material adverse effect on the Corporation's financial condition, results of operations or liquidity.

Growth Strategy –As described in Item 1, in 2019, the Corporation acquired Monument and opened a lending office in York, Pennsylvania. Also, in December 2019, the Corporation entered into an agreement to acquire Covenant. Further, management intends to continue to pursue additional acquisition opportunities. The Corporation’s future financial performance will depend on its ability to execute its strategic plan and manage its future growth. Failure to execute these plans could have a material adverse effect on the Corporation’s financial condition, results of operations or liquidity.

Breach of Information Security and TechnologyDependence - The Corporation relies on software, communication, and information exchange on a variety of computing platforms and networks and over the Internet. Despite numerous safeguards, the Corporation cannot be certain that its systems are entirely free from vulnerability to attack or other technological difficulties or failures. The Corporation relies on the services of a variety of vendors to meet its data processing and communication needs. If information security is breached or other technology difficulties or failures occur, information may be lost or misappropriated, services and operations may be interrupted, and the Corporation could be exposed to claims from customers. Any of these results could have a material adverse effect on the Corporation’s financial condition, results of operations or liquidity.

Government Regulation and Monetary Policy- The Corporation and the banking industry are subject to extensive regulation and supervision under federal and state laws and regulations. The requirements and limitations imposed by such laws and regulations limit the way the Corporation conducts its business, undertakes new investments and activities and obtains financing. These regulations are designed primarily for the protection of the deposit insurance funds and consumers and not to benefit the Corporation's shareholders. Financial institution regulation has been the subject of significant legislation in recent years and may be the subject of further significant legislation in the future, none of which is in the control of the Corporation. Significant new laws or changes in, or repeals of, existing laws could have a material adverse effect on the Corporation's financial condition, results of operations or liquidity. Further, federal monetary policy, particularly as implemented through the Federal Reserve System, significantly affects short-term interest rates and credit conditions, and any unfavorable change in these conditions could have a material adverse effect on the Corporation's financial condition, results of operations or liquidity.

Bank Secrecy Act and Related Laws andRegulations - These laws and regulations have significant implications for all financial institutions. In recent years, they have increased due diligence requirements and reporting obligations for financial institutions, created new crimes and penalties, and required the federal banking agencies, in reviewing merger and other acquisition transactions, to consider the effectiveness of the parties to such transactions in combating money laundering activities. Even innocent noncompliance and inconsequential failure to follow the regulations could result in significant fines or other penalties, which could have a material adverse impact on the Corporation's financial condition, results of operations or liquidity.

TheFederal Home Loan Bank of Pittsburgh - Through its subsidiary (C&N Bank), the Corporation is a member of the Federal Home Loan Bank of Pittsburgh (FHLB-Pittsburgh), which is one of 11 regional Federal Home Loan Banks. The Corporation has a line of credit with the FHLB-Pittsburgh that is secured by a blanket lien on its loan portfolio. Access to this line of credit is critical if a funding need arises. However, there can be no assurance that the FHLB-Pittsburgh will be able to provide funding when needed, nor can there be assurance that the FHLB-Pittsburgh will provide funds specifically to the Corporation should its financial condition deteriorate and/or regulators prevent that access. The inability to access this source of funds could have a materially adverse effect on the Corporation’s financial flexibility if alternate financing is not available at acceptable interest rates. The failure of the FHLB-Pittsburgh or the FHLB system in general, may materially impair the Corporation’s ability to meet short- and long-term liquidity needs or to meet growth plans.

The Corporation owns common stock of the FHLB-Pittsburgh to qualify for membership in the FHLB system and access services from the FHLB-Pittsburgh. The FHLB-Pittsburgh faces a variety of risks in its operations including interest rate risk, counterparty credit risk, and adverse changes in its regulatory framework. In addition, the 11 Federal Home Loan Banks are jointly liable for the consolidated obligations of the FHLB system. To the extent that one FHLB cannot meet its obligations, other FHLBs can be called upon to make required payments. Such risks affecting the FHLB-Pittsburgh could adversely impact the value of the Corporation’s investment in the common stock of the FHLB-Pittsburgh and/or affect its access to credit.

Soundnessof Other Financial Institutions - In addition to the FHLB-Pittsburgh, the Corporation maintains other credit facilities that provide it with additional liquidity. These facilities include secured and unsecured borrowings from the Federal Reserve Bank and third-party commercial banks. The Corporation believes that it maintains a strong liquidity position and that it is well positioned to withstand foreseeable market conditions. However, legal agreements with counterparties typically include provisions allowing them to restrict or terminate the Corporation’s access to these credit facilities with or without advance notice and at their sole discretion.

Financial institutions are interconnected because of trading, clearing, counterparty, and other relationships. Financial market conditions have been negatively impacted in the past and such disruptions or adverse changes in the Corporation's results of operations or financial condition could, in the future, have a negative impact on available sources of liquidity. Such a situation may arise due to circumstances that are outside the Corporation’s control, such as general market disruptions or operational problems affecting the Corporation or third parties. The Corporation’s efforts to monitor and manage liquidity risk may not be successful or sufficient to deal with dramatic or unanticipated reductions in available liquidity. In such events, the Corporation’s cost of funds may increase, thereby reducing net interest income, or the Corporation may need to sell a portion of its securities and/or loan portfolio, which, depending upon market conditions, could necessitate realizing a loss.

Securities Markets – The fair value of the Corporation's available-for-sale debt securities, as well as the revenues the Corporation earns from its Trust and Financial Management and brokerage services, are sensitive to price fluctuations and market events.

Declines in the values of the Corporation’s securities holdings, combined with adverse changes in the expected cash flows from these investments, could result in other-than-temporary impairment charges. For additional information regarding debt securities, see the “Securities” section of Management’s Discussion and Analysis and Note 7 to the consolidated financial statements.

The Corporation's Trust and Financial Management revenue is determined, in part, from the value of the underlying investment portfolios. Accordingly, if the values of those investment portfolios decrease, whether due to factors influencing U.S. or international securities markets, in general, or otherwise, the Corporation's revenue could be negatively impacted. In addition, the Corporation's ability to sell its brokerage services is dependent, in part, upon consumers' level of confidence in securities markets.

Mortgage Banking – Since 2009, the Corporation has originated and sold residential mortgage loans to the secondary market through the MPF Xtra program. Since 2014, the Corporation has also originated and sold residential mortgage loans to the secondary market through the MPF Original program. Both of these programs are administered by the Federal Home Loan Banks of Pittsburgh and Chicago. At December 31, 2019, the total outstanding balance of residential mortgages sold and serviced through the two programs amounted to $178,446,000. The Corporation must strictly adhere to the MPF Xtra and MPF Original program guidelines for origination, underwriting and servicing loans, and failure to do so may result in the Corporation being forced to repurchase loans or being dropped from the program. As of December 31, 2019, the total outstanding balance of residential mortgage loans the Corporation has repurchased as a result of identified instances of noncompliance amounted to $1,770,000. If the volume of such forced repurchases of loans were to increase significantly, or if the Corporation were to be dropped from the programs, it could have a material adverse effect on the Corporation’s financial condition, results of operations or liquidity.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2. PROPERTIES

Except as noted below, the Bank owns its operating properties. All of the properties are in good condition. None of the owned properties are subject to encumbrance.

A listing of properties is as follows:

Main administrative offices:

90-92 Main Street	or	10 Nichols Street
Wellsboro, PA 16901		Wellsboro, PA 16901

Branch offices - Citizens & Northern Bank:

428 S. Main Street	514 Main Street	41 Main Street
Athens, PA 18810	Laporte, PA 18626	Tioga, PA 16946
10 North Main Street	4534 Williamson Trail	428 Main<br>Street**
Coudersport, PA 16915	Liberty, PA 16930	Towanda,<br>PA 18848
465 North Main Street	1085 S. Main Street	64 Elmira<br>Street
Doylestown, PA 18901	Mansfield, PA 16933	Troy, PA 16947
111 W. Main Street	612 James Monroe Avenue	90-92 Main<br>Street
Dushore, PA 18614	Monroeton, PA 18832	Wellsboro,<br>PA 16901
563 Main Street	3461 Route 405 Highway	1510 Dewey<br>Avenue
East Smithfield, PA 18817	Muncy, PA 17756	Williamsport,<br>PA 17701
104 W. Main Street	33 Swamp Road, Unit 7**	130 Court<br>Street**
Elkland, PA 16920	Newtown, PA 18940	Williamsport,<br>PA 17701
135 East Fourth Street	100 Maple Street	1467 Golden<br>Mile Road
Emporium, PA 15834	Port Allegany, PA 16743	Wysox, PA 18854
230 Railroad Street	1827 Elmira Street	2 East Mountain<br>Avenue**
Jersey Shore, PA 17740	Sayre, PA 18840	South Williamsport,<br>PA 17702
102 E. Main Street	3 Main Street	6250 County<br>Rte 64
Knoxville, PA 17740	Canisteo, NY 14823	Hornell,<br>NY 14843

Loan production offices of Citizens & Northern Bank:

250 East Water Street	2951 Whiteford Road Suite 102**	65 West Street Road Suite A201**
Elmira, NY 14901	York, PA 17402	Warminster, PA 18974

Facilities management office:

13 Water Street
Wellsboro, PA 16901

** designates leased facility

ITEM 3. LEGAL PROCEEDINGS

The Corporation and the Bank are involved in various legal proceedings incidental to their business. Management believes the aggregate liability, if any, resulting from such pending and threatened legal proceedings will not have a material adverse effect on the Corporation’s financial condition or results of operations.

ITEM 4. MINE SAFETY DISCLOSURE

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT'SCOMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

QUARTERLY SHARE DATA

Trades of the Corporation’s stock are executed through various brokers who maintain a market in the Corporation’s stock. The Corporation’s stock is listed on the NASDAQ Capital Market with the trading symbol CZNC. As of December 31, 2019, there were 2,094 shareholders of record of the Corporation’s common stock.

The following table sets forth the high and low sales prices of the common stock and dividends declared per quarter during 2019 and 2018.

	2019						2018
					Dividend						Dividend
					Declared						Declared
					per						per
	High		Low		Quarter		High		Low		Quarter
First quarter	$	27.07	$	23.60	$	0.37	$	25.41	$	22.00	$	0.27
Second quarter		29.25		25.02		0.27		27.72		22.64		0.27
Third quarter		27.00		22.52		0.27		28.99		25.42		0.27
Fourth quarter		28.58		24.23		0.27		28.48		23.72		0.27

Future dividend payments will depend upon maintenance of a strong financial condition, future earnings and capital and regulatory requirements. Also, the Corporation and C&N Bank are subject to restrictions on the amount of dividends that may be paid without approval of banking regulatory authorities. These restrictions are described in Note 18 to the consolidated financial statements.

Effective April 21, 2016, the Corporation’s Board of Directors approved a treasury stock repurchase program. Under this program, the Corporation is authorized to repurchase up to 600,000 shares of the Corporation's common stock or slightly less than 5% of the Corporation's issued and outstanding shares at April 19, 2016. The Board of Directors’ April 21, 2016 authorization provides that: (1) the treasury stock repurchase program shall be effective when publicly announced and shall continue thereafter until suspended or terminated by the Board of Directors, in its sole discretion; and (2) all shares of common stock repurchased pursuant to the new program shall be held as treasury shares and be available for use and reissuance for purposes as and when determined by the Board of Directors including, without limitation, pursuant to the Corporation’s Dividend Reinvestment and Stock Purchase Plan and its equity compensation program. To date, no purchases have been made under this repurchase program.

The following table sets forth a summary of purchases by the Corporation, in the open market, of its equity securities during the fourth quarter 2019:

Period	Average Price Paid per<br><br> Share		Maximum Number of<br><br> Shares that May Yet be<br><br> Purchased Under the<br><br> Plans or Programs
October 1 - 31, 2019	$	-	600,000
November 1 - 30, 2019	$	-	600,000
December 1 - 31, 2019	$	-	600,000

PERFORMANCE GRAPH

Set forth below is a chart comparing the Corporation’s cumulative return to stockholders against the cumulative return of the Russell 2000 and a Peer Group Index of similar banking organizations selected by the Corporation for the five-year period commencing December 31, 2014 and ended December 31, 2019. The index values are market-weighted dividend-reinvestment numbers, which measure the total return for investing $100.00 five years ago. This meets Securities & Exchange Commission requirements for showing dividend reinvestment share performance over a five-year period and measures the return to an investor for placing $100.00 into a group of bank stocks and reinvesting any and all dividends into the purchase of more of the same stock for which dividends were paid.

	Period Ending
Index	12/31/14		12/31/15	12/31/16	12/31/17	12/31/18	12/31/19
Citizens & Northern Corporation		100.00	107.01	140.37	134.19	154.24	172.49
Russell 2000 Index		100.00	95.59	115.95	132.94	118.30	148.49
Peer Group		100.00	106.24	145.30	171.70	158.94	186.98

Peer Group includes all publicly traded SEC filing Commercial Banks & Thrifts within NJ, NY, OH and PA with assets between $750M and $3.5B as of 9/30/2019

Source:S&P Global Market Intelligence

EQUITY COMPENSATION PLAN INFORMATION

The following table sets forth information concerning the Stock Incentive Plan and Independent Directors Stock Incentive Plan, both of which have been approved by the Corporation’s shareholders. The figures shown in the table below are as of December 31, 2019.

					Number of
	Number of		Weighted-		Securities
	Securities to be		average		Remaining
	Issued Upon		Exercise		for Future
	Exercise of		Price of		Issuance Under
	Outstanding		Outstanding		Equity Compen-
	Options		Options		sation Plans
Equity compensation plans approved by<br> shareholders		75,897	$	18.69		333,832
Equity compensation plans not approved by<br> shareholders		0		N/A		0

More details related to the Corporation’s equity compensation plans are provided in Notes 1 and 13 to the consolidated financial statements.

ITEM 6. SELECTED FINANCIAL DATA

As of or for the Year Ended December 31,
INCOME STATEMENT (In Thousands)	2019		2018		2017		2016		2015
---	---	---	---	---	---	---	---	---	---	---
Interest and dividend income	$	64,771	$	50,328	$	45,863	$	44,098	$	44,519
Interest expense		10,283		4,625		3,915		3,693		4,602
Net interest income		54,488		45,703		41,948		40,405		39,917
Provision for loan losses		849		584		801		1,221		845
Net interest income after provision for loan losses		53,639		45,119		41,147		39,184		39,072
Noninterest income excluding securities gains		19,284		18,597		16,153		15,511		15,478
Net gains on securities		23		2,033		257		1,158		2,861
Loss on prepayment of debt		0		0		0		0		2,573
Merger-related expenses		4,099		328		0		0		0
Noninterest expense excluding<br> loss on prepayment of debt and merger-related expenses		45,438		39,158		36,967		34,744		33,030
Income before income tax provision		23,409		26,263		20,590		21,109		21,808
Income tax provision		3,905		4,250		7,156		5,347		5,337
Net income	$	19,504	$	22,013	$	13,434	$	15,762	$	16,471
Net income attributable to common shares	$	19,404	$	21,903	$	13,365	$	15,677	$	16,387
PER COMMON SHARE:
---	---	---	---	---	---	---	---	---	---	---
Basic earnings per share	$	1.46	$	1.79	$	1.10	$	1.30	$	1.35
Diluted earnings per share	$	1.46	$	1.79	$	1.10	$	1.30	$	1.35
Cash dividends declared per share	$	1.18	$	1.08	$	1.04	$	1.04	$	1.04
Book value per common share at period-end	$	17.82	$	16.02	$	15.43	$	15.36	$	15.39
Tangible book value per common share at period-end	$	15.66	$	15.05	$	14.45	$	14.37	$	14.41
Weighted average common shares outstanding - basic		13,298,736		12,219,209		12,115,840		12,032,820		12,149,252
Weighted average common shares outstanding - diluted		13,321,559		12,257,368		12,155,136		12,063,055		12,171,084
END OF PERIOD BALANCES (Dollars In Thousands)
Available-for-sale debt securities	$	346,723	$	363,273	$	355,937	$	394,106	$	417,904
Gross loans		1,182,222		827,563		815,713		751,835		704,880
Allowance for loan losses		9,836		9,309		8,856		8,473		7,889
Total assets		1,654,145		1,290,893		1,276,959		1,242,292		1,223,417
Deposits		1,252,660		1,033,772		1,008,449		983,843		935,615
Borrowings and subordinated debt		144,847		48,768		70,955		64,629		92,263
Stockholders' equity		244,452		197,368		188,443		186,008		187,487
Common shares outstanding		13,716,445		12,319,330		12,214,525		12,113,228		12,180,623
AVERAGE BALANCES (In Thousands)
Total assets		1,540,469		1,276,140		1,247,759		1,229,866		1,243,209
Earning assets		1,437,993		1,205,429		1,169,569		1,147,549		1,159,298
Gross loans		1,057,559		822,346		780,640		723,076		657,727
Deposits		1,213,687		1,027,831		990,917		970,447		968,201
Stockholders' equity		229,446		187,895		188,958		188,373		188,905

ITEM 6. SELECTED FINANCIAL DATA (Continued)

As of or for the Year Ended December 31,
KEY RATIOS	2019			2018			2017			2016			2015
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
Return on average assets		1.27	%		1.72	%		1.08	%		1.28	%		1.32	%
Return on average equity		8.50	%		11.72	%		7.11	%		8.37	%		8.72	%
Average equity to average assets		14.89	%		14.72	%		15.14	%		15.32	%		15.19	%
Net interest margin (1)		3.86	%		3.90	%		3.82	%		3.76	%		3.69	%
Efficiency (2)		60.73	%		59.69	%		60.74	%		59.22	%		56.66	%
Cash dividends as a % of diluted earnings per share		80.82	%		60.34	%		94.55	%		80.00	%		77.04	%
Tier 1 leverage		13.10	%		14.78	%		14.23	%		14.27	%		14.31	%
Tier 1 risk-based capital		19.19	%		23.24	%		21.95	%		22.48	%		23.29	%
Total risk-based capital		20.70	%		24.42	%		23.07	%		23.60	%		24.40	%
Tangible common equity/tangible assets		13.22	%		14.50	%		13.95	%		14.15	%		14.49	%
Nonperforming assets/total assets		0.80	%		1.37	%		1.47	%		1.43	%		1.31	%
Nonperforming loans/total loans		0.88	%		1.94	%		2.10	%		2.07	%		2.09	%
Allowance for loan losses/total loans		0.83	%		1.12	%		1.09	%		1.13	%		1.12	%
Net charge-offs/average loans		0.03	%		0.02	%		0.05	%		0.09	%		0.04	%
(1)<br> Rates of return on tax-exempt securities and loans are calculated on a fully-taxable equivalent basis.
(2) The efficiency ratio is calculated by dividing:<br> (a) total noninterest expense excluding merger-related expenses and losses from prepayment of debt, by (b) the sum of net<br> interest income (including income from tax-exempt securities and loans on a fully-taxable equivalent basis) and noninterest income excluding securities gains or losses.

ITEM 7. MANAGEMENT'S DISCUSSION ANDANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Certain statements in this section and elsewhere in this Annual Report on Form 10-K are forward-looking statements. Citizens & Northern Corporation and its wholly-owned subsidiaries (collectively, the Corporation) intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Reform Act of 1995. Forward-looking statements, which are not historical facts, are based on certain assumptions and describe future plans, business objectives and expectations, and are generally identifiable by the use of words such as, "should", “likely”, "expect", “plan”, "anticipate", “target”, “forecast”, and “goal”. These forward-looking statements are subject to risks and uncertainties that are difficult to predict, may be beyond management’s control and could cause results to differ materially from those expressed or implied by such forward-looking statements. Factors which could have a material, adverse impact on the operations and future prospects of the Corporation include, but are not limited to, the following:

·	changes in monetary and fiscal policies<br>of the Federal Reserve Board and the U.S. Government, particularly related to changes in interest rates
·	changes in general economic conditions
---	---
·	legislative or regulatory changes
---	---
·	downturn in demand for loan, deposit and<br>other financial services in the Corporation’s market area
---	---
·	increased competition from other banks<br>and non-bank providers of financial services
---	---
·	technological changes and increased technology-related<br>costs
---	---
·	changes in accounting principles, or the<br>application of generally accepted accounting principles
---	---
·	failure to achieve merger-related synergies<br>and difficulties in integrating the business and operations of acquired institutions.
---	---

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.

COMPLETED AND PENDING ACQUISITIONS

The Corporation’s acquisition of Monument Bancorp, Inc. (“Monument”) 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, Pennsylvania. Total purchase consideration was $42.7 million, including 1,279,825 shares of the Corporation’s 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 the Corporation’s common stock outstanding immediately following the merger.

In connection with the transaction, the Corporation 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. The Corporation 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, the Corporation 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 December 31, 2019, including costs associated with termination of data processing contracts, conversion of Monument’s customer accounting data into the Corporation’s core system, severance and similar expenses, legal and other professional fees and various other costs.

In December 2019, the Corporation announced a plan of merger to acquire Covenant Financial, Inc. (“Covenant”) in a transaction valued on December 18, 2019 at approximately $77 million. Under the terms of the definitive agreement, the Corporation will pay cash for 25% of the Covenant shares and will convert 75% of Covenant shares to the Corporation’s 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 $516 million at December 31, 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, the Corporation 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.

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EARNINGS OVERVIEW

Net income for the year ended December 31, 2019 was $19,504,000, or $1.46 per diluted share as compared to 2018 net income of $22,013,000 or $1.79 per share. Earnings for the year ended December 31, 2019 were significantly impacted by the Monument acquisition, including the effects of merger-related expenses described earlier. Earnings for the year ended December 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. Excluding the impact of merger-related expenses and net securities gains, adjusted (non-U.S. GAAP) earnings for 2019 would be $22,756,000 or $1.70 per share as compared to similarly adjusted (non-GAAP) earnings of $20,712,000 or $1.68 per share for 2018.

The following table provides a reconciliation of the Corporation’s 2019 earnings results under U.S. generally accepted accounting principles (U.S. GAAP) to comparative non-U.S. GAAP results excluding merger-related expenses and realized gains and losses on securities. Management believes disclosure of 2019 and 2018 earnings results, adjusted to exclude the impact of these items, provides useful information to investors for comparative purposes.

RECONCILIATIONOF NET INCOME AND

DILUTEDEARNINGS PER SHARE TO NON-U.S.

GAAPMEASURE

	Year<br> Ended Dec. 31, 2019											Year<br> Ended Dec. 31, 2018
	Income									Diluted		Income									Diluted
	Before			Income						Earnings		Before			Income						Earnings
	Income			Tax						per		Income			Tax						per
	Tax			Provision			Net			Common		Tax			Provision			Net			Common
(Dollars<br>In Thousands, Except Per Share Data)	Provision			(1)			Income			Share		Provision			(1)			Income			Share
Results as<br> Presented Under U.S. GAAP	$	23,409		$	3,905		$	19,504		$	1.46	$	26,263		$	4,250		$	22,013		$	1.79
Add: Merger-Related Expenses		4,099			829			3,270					328			23			305
Less: Gain on Restricted<br> Equity Security													(2,321	)		(487	)		(1,834	)
Net (Gains) Losses on<br> Available-for-sale Debt
Securities		(23	)		(5	)		(18	)				288			60			228
Adjusted Earnings, Excluding<br> Effect of Merger-
Related Expenses, Gain on Restricted Equity
Security and Net Gains and Losses on
Available-for-Sale Debt Securities
(Non-U.S. GAAP)	$	27,485		$	4,729		$	22,756		$	1.70	$	24,558		$	3,846		$	20,712		$	1.68
(1)	Income tax has been allocated based on an income tax rate of 21%. The tax benefit associated with<br>merger-related expenses has been adjusted to reflect the estimated nondeductible portion of the expenses.
---	---

In 2019, interest income on loans acquired from Monument, partially offset by interest expense on deposits, borrowings and subordinated debt assumed, contributed to growth in net interest income, while costs associated with the expansion contributed to an increase in noninterest expenses.

Other significant variances were as follows:

Net interest income was up $8,785,000 (19.2%) in 2019 over 2018, reflecting the benefits of growth, particularly from the Monument acquisition as well as loan growth from the York office (opened in March 2019) and organic loan and deposit growth from the Corporation’s legacy markets. The net interest margin was 3.86% for 2019, down from 3.90% in 2018. In 2019, the net interest margin included a net positive impact from accretion and amortization of purchase accounting adjustments of 0.04%. The average yield on earning assets in 2019 was up 0.30% over 2018, while the average rate paid on interest-bearing liabilities was up 0.46% between periods. The Monument acquisition and other factors contributed to growth in average noninterest-bearing demand deposits of $39.4 million and average stockholders’ equity (excluding accumulated other comprehensive income) of $33.8 million, which helped to offset some of the impact on the margin of compression in the interest rate spread.

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| --- | | · | The provision for loan losses of $849,000 for 2019 was higher than the 2018 provision by $265,000. The higher provision in 2019 resulted mainly from significant loan growth. The 2019 provision included a net reduction in expense of $232,000 related to specific loans (net decrease in specific allowances on loans of $554,000 and net charge-offs of $322,000), a net $1,193,000 charge attributable to loan growth and a net reduction in expense of $112,000 related to changes in historical loss and qualitative factors and the unallocated portion of the allowance. In comparison, the 2018 provision included $457,000 related to the change in total specific allowances on impaired loans, as adjusted for net charge-offs during the period, a charge of $178,000 due to loan growth and a net reduction in expense of $51,000 related to decreases in historical loss and qualitative factors. | | --- | --- | | · | Noninterest income increased $687,000, or 3.7%, in 2019 over 2018. Total trust and brokerage revenue increased $516,000 as trust revenue reflected growth in assets under management from market value appreciation as well as new business and brokerage revenue increased as a result of an increase in volume. Increases in volume also led to increases in net gains from sales of mortgage loans of $242,000, interchange revenue from debit card transactions of $208,000 and service charges on deposit accounts of $187,000. Other noninterest income decreased $278,000, as the total for 2018 included income of $438,000 from a life insurance arrangement in which benefits were split between the Corporation and heirs of a former employee. Loan servicing fees, net, decreased $247,000, as the fair value of servicing rights decreased $331,000 in 2019 as compared to a decrease of $83,000 in 2018. The reduction in valuation of servicing fees at December 31, 2019 reflected the impact of higher assumed mortgage prepayments from lower interest rates. | | --- | --- | | · | Noninterest expense, excluding merger-related expenses, increased $6,280,000 in 2019 over 2018. Significant variances included the following: | | --- | --- | | Ø | Salaries and wages expense increased $3,453,000, including $2,707,000 related to the Corporation’s new ventures in southeastern and southcentral Pennsylvania. | | --- | --- | | Ø | Pensions and other employee benefits increased $578,000, mainly due to the increased number of employees resulting from expansion into new markets. | | --- | --- | | Ø | Other noninterest expense increased $1,454,000. Within other noninterest expense, expenses and net losses on other real estate properties increased $385,000, mainly due to significant costs incurred related to one commercial workout situation. Other increases within this category included increases in advertising expense of $327,000, loan collection expenses of $264,000, amortization of core deposit intangibles of $220,000, consulting related to the overdraft privilege program of $145,000 and credit card operating costs of $111,000. Also, within other noninterest expense, donations expense decreased $249,000 reflecting a 2018 donation of real estate that resulted in expense of $250,000 with no similar item in 2019. | | --- | --- | | Ø | Data processing expenses increased $653,000, including significant increases in software licensing costs associated with lending, Trust and other functions. Other expense increases within this category included consulting expenses related to renegotiation of an interchange processing contract, costs related to product development efforts in connection with a fintech organization and costs from operating two core processing systems for most of the second quarter 2019. | | --- | --- | | Ø | Automated teller machine and interchange expense decreased $201,000, reflecting cost reductions pursuant to a renegotiated service contract. | | --- | --- |

More detailed information concerning fluctuations in the Corporation’s earnings results are provided in other sections of Management’s Discussion and Analysis.

CRITICAL ACCOUNTING POLICIES

The presentation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect many of the reported amounts and disclosures. Actual results could differ from these estimates.

A material estimate that is particularly susceptible to significant change is the determination of the allowance for loan losses. The Corporation maintains an allowance for loan losses that represents management’s estimate of the losses inherent in the loan portfolio as of the balance sheet date and recorded as a reduction of the investment in loans. Management believes the allowance for loan losses is adequate and reasonable. Notes 1 and 8 to the consolidated financial statements provide an overview of the process management uses for evaluating and determining the allowance for loan losses, and additional discussion of the allowance for loan losses is provided in a separate section later in Management’s Discussion and Analysis. Given the very subjective nature of identifying and valuing loan losses, it is likely that well-informed individuals could make materially different assumptions, and could, therefore calculate a materially different allowance value. While management uses available information to recognize losses on loans, changes in economic conditions may necessitate revisions in future years. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Corporation’s allowance for loan losses. Such agencies may require the Corporation to recognize adjustments to the allowance based on their judgments of information available to them at the time of their examination.

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| --- |

Another material estimate is the calculation of fair values of the Corporation’s debt securities. For most of the Corporation’s debt securities, the Corporation receives estimated fair values of debt securities from an independent valuation service, or from brokers. In developing fair values, the valuation service and the brokers use estimates of cash flows, based on historical performance of similar instruments in similar interest rate environments. Based on experience, management is aware that estimated fair values of debt securities tend to vary among brokers and other valuation services.

As described in Note 7 to the consolidated financial statements, management evaluates securities for other-than-temporary impairment (“OTTI”). In making that evaluation, consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) whether the Corporation intends to sell the security or more likely than not will be required to sell the security before its anticipated recovery. Management’s assessments of the likelihood and potential for recovery in value of securities are subjective and based on sensitive assumptions.

NET INTEREST INCOME

The Corporation’s primary source of operating income is net interest income, which is equal to the difference between the amounts of interest income and interest expense. Tables I, II and III include information regarding the Corporation’s net interest income in 2019 and 2018. In each of these tables, the amounts of interest income earned on tax-exempt securities and loans have been adjusted to a fully taxable-equivalent basis. Accordingly, the net interest income amounts reflected in these tables exceed the amounts presented in the consolidated financial statements. The discussion that follows is based on amounts in the tables.

Fully taxable equivalent net interest income was $55,532,000 in 2019, $8,528,000 (18.1%) higher than in 2018. Interest income was $14,186,000 higher in 2019 as compared to 2018; interest expense was also higher by $5,658,000 in comparing the same periods. As presented in Table II, the Net Interest Margin was 3.86% in 2019 as compared to 3.90% in 2018, and the “Interest Rate Spread” (excess of average rate of return on earning assets over average cost of funds on interest-bearing liabilities) decreased to 3.56% in 2019 from 3.72% in 2018.

Accretion and amortization of purchase accounting-related adjustments had a positive effect on net interest income of $560,000, including an increase in income on loans of $1,100,000 partially offset by increases in interest expense on time deposits of $407,000 and on short-term borrowings of $133,000. The net positive impact to the net interest margin from accretion and amortization of purchase accounting adjustments was 0.04%.

INTEREST INCOME AND EARNING ASSETS

Interest income totaled $65,815,000 in 2019, an increase of 27.5% from 2018. Interest and fees on loans receivable increased $14,234,000, or 34.3%, to $55,725,000 in 2019 from $41,491,000 in 2018. Table III shows the increase in interest on loans includes $12,696,000 attributable to an increase in volume and $1,538,000 related to an increase in average rate. The average balance of loans receivable increased $235,213,000 (28.6%) to $1,057,559,000 in 2019 from $822,346,000 in 2018. The increase in average balance reflects the Corporation’s purchase of Monument on April 1, 2019 as well as significant commercial loan growth throughout 2019. The average yield on loans in 2019 was 5.27% compared to 5.05% in 2018.

Interest income on available-for-sale debt securities totaled $9,531,000 in 2019, a reduction of $156,000 from the total for 2018. As indicated in Table II, average available-for-sale debt securities (at amortized cost) totaled $357,284,000 in 2019, a decrease of $2,839,000 (0.8%) from 2018. The average yield on available-for-sale debt securities decreased to 2.67% in 2019 from 2.69% in 2018.

Interest income from interest-bearing deposits in banks totaled $514,000 in 2019, an increase of $99,000 over the total for 2018. The most significant categories of assets within this category include interest-bearing balances held with the Federal Reserve and investments in certificates of deposit issued by other banks. The increase in interest income from interest-bearing deposits with banks includes the effects of an increase in yield to 2.37% in 2019 from 1.90% in 2018, consistent with market increases in short-term interest rates over the course of 2018 that had a positive impact on short-term asset yields in the earlier months of 2019.

INTEREST EXPENSE AND INTEREST-BEARING LIABILITIES

Interest expense increased $5,658,000, or 122.3%, to $10,283,000 in 2019 from $4,625,000 in 2018. Table II shows that the overall cost of funds on interest-bearing liabilities increased to 1.02% in 2019 from 0.56% in 2018.

Total average deposit balances (interest-bearing and noninterest-bearing) increased 18.1%, to $1,213,687,000 in 2019 from $1,027,831,000 in 2018, mainly as a result of the Monument acquisition.

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Interest expense on deposits increased $4,488,000 in 2019 over 2018. The average rate on interest-bearing deposits increased to 0.89% in 2019 from 0.48% in 2018. Interest expense on time deposits increased $3,777,000 in 2019 of which $2,373,000 is from an increase in average rate and $1,404,000 due to an increase in volume. The increase in average rate on deposits reflects comparatively higher rates on deposits assumed from Monument, including significant growth in higher-cost time deposits. Amortization of purchase accounting-related adjustments added 0.05% to the average rate on total interest-bearing deposits.

Interest expense on borrowed funds increased $1,170,000 in 2019 as compared to 2018. Total average borrowed funds increased $32,277,000 to $82,712,000 in 2019 from $50,435,000 in 2018. The average rate on total borrowed funds was 2.53% in 2019 compared to 1.83% in 2018. The increase in the average rate on borrowed funds in 2019 reflects the impact of increases in market rates over the course of 2018 and the first quarter 2019 and the impact of higher-cost subordinated debt assumed from Monument.

| 17 |

---
---	---	---	---	---	---	---	---
	Years Ended December 31,				Increase/
(In Thousands)	2019		2018		(Decrease)
INTEREST INCOME
Interest-bearing due from banks	$	514	$	415	$	99
Available-for-sale securities
Taxable		7,008		6,189		819
Tax-exempt		2,523		3,498		(975	)
Total available-for-sale securities		9,531		9,687		(156	)
Loans receivable:
Taxable		53,086		38,667		14,419
Tax-exempt		2,639		2,824		(185	)
Total loans receivable		55,725		41,491		14,234
Other earning assets		45		36		9
Total Interest Income		65,815		51,629		14,186
INTEREST EXPENSE
Interest-bearing deposits:
Interest checking		1,155		950		205
Money market		962		549		413
Savings		246		153		93
Time deposits		5,827		2,050		3,777
Total interest-bearing deposits		8,190		3,702		4,488
Borrowed funds:
Short-term		733		366		367
Long-term		1,013		557		456
Subordinated debt		347		0		347
Total borrowed funds		2,093		923		1,170
Total Interest Expense		10,283		4,625		5,658
Net Interest Income	$	55,532	$	47,004	$	8,528
(1)	Interest income from tax-exempt securities and loans has been adjusted to<br>a fully taxable-equivalent basis, using the Corporation’s<br>marginal federal income tax rate of 21%.
---	---
(2)	Fees on loans are included with interest on loans and amounted to $919,000 in 2019 and<br> $912,000 in 2018.
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TABLEII - ANALYSIS OF AVERAGE DAILY BALANCES AND RATES

	Year						Year
	Ended			Rate of			Ended			Rate of
	12/31/2019			Return/			12/31/2018			Return/
	Average			Cost of			Average			Cost of
(Dollars in Thousands)	Balance			Funds %			Balance			Funds %
EARNING ASSETS
Interest-bearing due from banks	$	21,711			2.37	%	$	21,800			1.90	%
Available-for-sale securities,
at amortized cost:
Taxable		284,072			2.47	%		262,461			2.36	%
Tax-exempt		73,212			3.45	%		97,662			3.58	%
Total available-for-sale securities		357,284			2.67	%		360,123			2.69	%
Loans receivable:
Taxable		988,560			5.37	%		746,309			5.18	%
Tax-exempt		68,999			3.82	%		76,037			3.71	%
Total loans receivable		1,057,559			5.27	%		822,346			5.05	%
Other earning assets		1,439			3.13	%		1,160			3.10	%
Total Earning Assets		1,437,993			4.58	%		1,205,429			4.28	%
Cash		19,906						17,674
Unrealized gain/loss on securities		1,347						(8,343	)
Allowance for loan losses		(8,876	)					(9,033	)
Bank premises and equipment		15,914						15,156
Intangible Assets		25,531						11,952
Other assets		48,654						43,305
Total Assets	$	1,540,469					$	1,276,140
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
Interest checking	$	217,910			0.53	%	$	217,638			0.44	%
Money market		194,849			0.49	%		180,835			0.30	%
Savings		167,677			0.15	%		152,889			0.10	%
Time deposits		344,446			1.69	%		227,060			0.90	%
Total interest-bearing deposits		924,882			0.89	%		778,422			0.48	%
Borrowed funds:
Short-term		33,521			2.19	%		25,226			1.45	%
Long-term		43,917			2.31	%		25,209			2.21	%
Subordinated debt		5,274			6.58	%		0			0.00	%
Total borrowed funds		82,712			2.53	%		50,435			1.83	%
Total Interest-bearing Liabilities		1,007,594			1.02	%		828,857			0.56	%
Demand deposits		288,805						249,409
Other liabilities		14,624						9,979
Total Liabilities		1,311,023						1,088,245
Stockholders' equity, excluding
other comprehensive income/loss		228,103						194,333
Other comprehensive income/loss		1,343						(6,438	)
Total Stockholders' Equity		229,446						187,895
Total Liabilities and Stockholders' Equity	$	1,540,469					$	1,276,140
Interest Rate Spread					3.56	%					3.72	%
Net Interest Income/Earning Assets					3.86	%					3.90	%
Total Deposits (Interest-bearing
and Demand)	$	1,213,687					$	1,027,831
(1)	Rates of return on tax-exempt securities and loans are presented on a fully taxable-equivalent<br>basis,
---	---

using the Corporation’s marginal federal income tax rate of 21%.

(2)	Nonaccrual loans have been included with loans for the purpose of analyzing net interest earnings.

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TABLEIII - ANALYSIS OF VOLUME AND RATE CHANGES

	Year Ended 12/31/19 vs. 12/31/18
	Change in			Change in			Total
(In Thousands)	Volume			Rate			Change
EARNING ASSETS
Interest-bearing due from banks	$	(2	)	$	101		$	99
Available-for-sale securities:
Taxable		525			294			819
Tax-exempt		(847	)		(128	)		(975	)
Total available-for-sale securities		(322	)		166			(156	)
Loans receivable:
Taxable		12,963			1,456			14,419
Tax-exempt		(267	)		82			(185	)
Total loans receivable		12,696			1,538			14,234
Other earning assets		9			0			9
Total Interest Income		12,381			1,805			14,186
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
Interest checking		1			204			205
Money market		46			367			413
Savings		16			77			93
Time deposits		1,404			2,373			3,777
Total interest-bearing deposits		1,467			3,021			4,488
Borrowed funds:
Short-term		144			223			367
Long-term		431			25			456
Subordinated debt		347			0			347
Total borrowed funds		922			248			1,170
Total Interest Expense		2,389			3,269			5,658
Net Interest Income	$	9,992		$	(1,464	)	$	8,528
(1)	Changes in income on tax-exempt securities and loans are presented on a fully taxable-equivalent basis, using<br>the Corporation’s marginal federal income tax rate of 21%.
---	---
(2)	The change in interest due to both volume and rates has been allocated to volume and rate<br> changes in proportion to the relationship of the absolute dollar amounts of the change in each.
---	---

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NONINTEREST INCOME

The table below presents a comparison of noninterest income, excludes realized gains and losses on securities (which are discussed in the Earnings Overview section of Management’s Discussion and Analysis), and the gain on a restricted equity security (Visa Class B stock) in 2018.

TABLEIV - COMPARISON OF NONINTEREST INCOME

	Years Ended
	December 31,						%
(Dollars in Thousands)	2019		2018		Change		Change
Trust and financial management revenue	$	6,106	$	5,838				4.6
Brokerage revenue		1,266		1,018				24.4
Insurance commissions, fees and premiums		167		105				59.0
Service charges on deposit accounts		5,358		5,171				3.6
Service charges and fees		332		343		)		(3.2	)
Interchange revenue from debit card transactions		2,754		2,546				8.2
Net gains from sales of loans		924		682				35.5
Loan servicing fees, net		100		347		)		(71.2	)
Increase in cash surrender value of life insurance		402		394				2.0
Other noninterest income		1,875		2,153		)		(12.9	)
Total noninterest income, excluding realized gains
(losses) on securities, net	$	19,284	$	18,597				3.7

All values are in US Dollars.

Total noninterest income, excluding realized gains and losses on securities, increased $687,000 (3.7%) in 2019 compared to 2018. Changes of significance are discussed in the narrative that follows.

·	Trust and financial management revenue increased<br>$268,000 (4.6%), reflecting growth in the value of trust assets under management attributable to market appreciation, particularly<br>in the latter portion of 2019, as well as new business. At December 31, 2019, the value of trust assets under management was $1,007,113,000,<br>an increase of 16.8% from $862,517,000 at December 31, 2018.
·	Brokerage revenue increased $248,000 (24.4%),<br>mainly due to increased volume of brokerage transactions compared to 2018.
---	---
·	Service charges on deposit accounts increased<br>$187,000 (3.6%), which includes $52,000 attributable to the assumption of former Monument deposit accounts.
---	---
·	Interchange revenue from debit card transactions<br>increased $208,000 (8.2%), reflecting an increase in transaction volume.
---	---
·	Net gains from sales of loans increased $242,000<br>(35.5%) due to increased volume of residential mortgage loans sold. The increased sales volume in 2019 reflected a decision to<br>retain fewer mortgage loans on the balance sheet to accommodate funding for increased commercial lending opportunities in southeastern<br>and southcentral Pennsylvania. The increased sales volume was also attributable, in part, to increased refinancing activity consistent<br>with falling interest rates in the latter portion of the year. Gains on sales of loans totaled 3.1% of the origination cost of<br>loans sold in 2019 as compared to 3.2% in 2018.
---	---
·	Loan servicing fees, net, decreased $247,000,<br>as the fair value of mortgage loan servicing rights decreased $331,000 in 2019 as compared to a decrease of $83,000 in 2018. At<br>December 31, 2019, the value of mortgage servicing rights (included in other assets in the consolidated balance sheets) was $1,277,000,<br>or 0.72% of the outstanding balance of loans sold and serviced, down from $1,404,000 or 0.82% of the outstanding balance of loans<br>sold and serviced at December 31, 2018. The reduction in valuation of servicing fees at December 31,2019 reflected the impact of<br>higher assumed mortgage prepayments from lower interest rates.
---	---
·	Other noninterest income decreased $278,000,<br>as the 2018 total included $438,000 from a life insurance arrangement in which benefits were split between the Corporation and<br>heirs of a former employee. Income from tax credits decreased $167,000 to $155,000 in 2019 from $322,000 in 2018 as the 2018 total<br>included $154,000 from a donation of real estate. Dividends on FHLB-Pittsburgh stock increased $167,000 to $487,000 in 2019 from<br>$320,000 in 2018. Interchange revenue from credit card transactions increased $87,000 to $213,000 in 2019 from $126,000 in 2018<br>and revenue from merchant services increased $50,000 to $424,000 in 2019 from $374,000 in 2018.
---	---

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NONINTEREST EXPENSE

TABLEV - COMPARISON OF NONINTEREST EXPENSE

	Years Ended
	December 31,						%
(Dollars In Thousands)	2019		2018		Change		Change
Salaries and wages	$	20,644	$	17,191				20.1
Pensions and other employee benefits		5,837		5,259				11.0
Occupancy expense, net		2,629		2,497				5.3
Furniture and equipment expense		1,289		1,196				7.8
Data processing expenses		3,403		2,750				23.7
Automated teller machine and interchange expense		1,103		1,304		)		(15.4	)
Pennsylvania shares tax		1,380		1,318				4.7
Professional fees		1,069		976				9.5
Telecommunications		744		748		)		(0.5	)
Directors' fees		673		706		)		(4.7	)
Other noninterest expense		6,667		5,213				27.9
Total noninterest expense, excluding merger-
related expenses		45,438		39,158				16.0
Merger-related expenses		4,099		328				1,149.7
Total noninterest expense	$	49,537	$	39,486				25.5

All values are in US Dollars.

Total noninterest expenses increased $10,051,000 (25.5%) in 2019 as compared to 2018. Total noninterest expenses excluding merger-related expenses increased $6,280,000 (16.0%) in 2019 as compared to 2018. Merger-related expenses are discussed in the Completed and Pending Acquisitions section of Management’s Discussion and Analysis. Other changes of significance are discussed in the narrative that follows.

·	Salaries and wages expense increased $3,453,000<br>(20.1%), including $2,707,000 related to new operations in southeastern Pennsylvania (former Monument locations) and the southcentral<br>Pennsylvania (York) location, as well as costs arising from increased staffing for credit administration and other lending support<br>functions. At December 31, 2019, the Corporation had 336 full-time equivalent employees as compared to 299 at December 31, 2018.
·	Pensions and other employee benefits expense<br>increased $578,000 (11.0%), mainly due to the additional staffing related to the new ventures. Within this category, employee health<br>insurance expense totaled $1,964,000 in 2019, an increase of $48,000 (2.5%) over 2018. In 2019, health insurance expense was reduced<br>by the effect of a credit of $201,000 resulting from prior overpayment of claims on the partially self-insured plan.
---	---
·	Occupancy expense increased $132,000 (5.3%),<br>reflecting the addition of the locations in southeastern and southcentral Pennsylvania.
---	---
·	Data processing expenses increased $653,000<br>(23.7%), including the impact of increases in software licensing costs associated with lending, trust and other functions. Other<br>expense increases within this category included consulting expenses related to renegotiation of an interchange processing contract,<br>costs related to product development efforts in connection with a fintech organization and costs from operating two core processing<br>systems for most of the second quarter 2019.
---	---
·	Automated teller machine and interchange<br>expense decreased $201,000 from 2018 to 2019 reflecting cost reductions pursuant to a renegotiated service contract.
---	---
·	Other noninterest expense increased $1,454,000.<br>Within this category, significant changes were as follows:
---	---
Ø	Expenses and net losses on other real estate<br>properties increased $385,000 and loan collection expenses increased $264,000, including significant costs incurred related to<br>one commercial workout situation.
---	---
Ø	Advertising expense increased $327,000, reflecting<br>costs associated with re-branding and targeted marketing efforts.
---	---
Ø	Amortization of core deposit intangibles<br>increased $220,000, reflecting expense associated with the Monument acquisition.
---	---

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| --- | | Ø | Consulting expense related to the overdraft privilege program increased $145,000 to $263,000 in 2019 from $118,000 in 2018, reflecting an increase in amounts payable based on enhancements to the program, including the impact of an under-accrual of $41,000 in 2018. | | --- | --- | | Ø | Within this category, credit card operating costs totaled $257,000 in 2019, an increase of $111,000 over 2018. | | --- | --- | | Ø | Donations expense decreased $249,000 reflecting a 2018 donation of real estate that resulted in expense of $250,000 with no similar item in 2019. | | --- | --- |

INCOME TAXES

The effective income tax rate was 16.7% of pre-tax income in 2019, up from 16.2% in 2018.The Corporation’s effective tax rates differed from the statutory rate of 21% mainly because of the effects of tax-exempt interest income. The higher effective income tax rate in 2019 as compared to 2018 reflected the impact of a reduction in tax-exempt interest income, as the Corporation’s average total investment in tax-exempt securities (at amortized cost) and tax-exempt loans was $31.5 million lower in 2019 than in 2018, as proceeds from maturities and calls of tax-exempt assets were reinvested mainly in taxable securities and loans.

The Corporation recognizes deferred tax assets and liabilities based on differences between the financial statement carrying amounts and the tax basis of assets and liabilities. At December 31, 2019, the net deferred tax asset was $2,618,000, down from the balance at December 31, 2018 of $4,110,000. The most significant change in temporary difference components was a net decrease of $2,079,000 related to unrealized gains or losses on available-for-sale securities. At December 31, 2019, the net deferred tax liability associated with the unrealized gain was $934,000, while at December 31, 2018, the deferred tax asset associated with the unrealized loss was $1,145,000.

The Corporation regularly reviews deferred tax assets for recoverability based on history of earnings, expectations for future earnings and expected timing of reversals of temporary differences. Realization of deferred tax assets ultimately depends on the existence of sufficient taxable income, including taxable income in prior carryback years, as well as future taxable income. Further, the value of the benefit from realization of deferred tax assets would be impacted if income tax rates were changed from currently enacted levels.

Management believes the recorded net deferred tax asset at December 31, 2019 is fully realizable; however, if management determines the Corporation will be unable to realize all or part of the net deferred tax asset, the Corporation would adjust the deferred tax asset, which would negatively impact earnings.

Additional information related to income taxes is presented in Note 14 to the consolidated financial statements.

SECURITIES

The objectives of the Corporation’s available-for-sale debt securities (investment) portfolio are to maintain high credit quality, achieve good portfolio balance, support liquidity needs, maximize return on earning assets within reasonable risk parameters, provide an adequate amount of pledgeable securities, support local communities by purchasing securities they issue for public projects and programs, provide a means to hedge the Corporation’s interest rate risk exposure, and minimize taxes. Management continually evaluates the size and mix of securities held in the available-for-sale debt securities portfolio while considering these objectives.

Table VI shows the composition of the available-for-sale debt securities portfolio at December 31, 2019 and 2018. Comparison of the amortized cost totals of available-for-sale debt securities at each year-end presented reflects a decrease of $26,447,000 to $342,278,000 at December 31, 2019 from $368,725,000 at December 31, 2018. The reduction in securities resulted from opportunities for loan growth, as management identified opportunities to reinvest proceeds from maturities and sales of securities into loans. Within the securities portfolio, mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies and tax-exempt obligations of states and political subdivisions (municipal bonds) decreased, while investments in taxable municipal bonds and U.S. Government agency bonds increased. These changes in portfolio mix were based on changes in liquidity and interest rate risk management needs and current market yields for various categories of securities.

As reflected in Table VI, the fair value of available-for-sale securities as of December 31, 2019 was $4,445,000, or 1.3%, greater than the total amortized cost basis. In comparison, the aggregate unrealized loss position at December 31, 2018 was $5,452,000, or 1.5% of the total amortized cost basis. The unrealized appreciation in the portfolio in 2019 resulted mainly from a decrease in interest rates.

Management has reviewed the Corporation’s holdings as of December 31, 2019 and concluded that unrealized losses on all of the securities in an unrealized loss position are considered temporary. Note 7 to the consolidated financial statements provides more detail concerning the Corporation’s processes for evaluating securities for other-than-temporary impairment. Management will continue to closely monitor the status of impaired securities in 2020.

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| --- | | TABLE VI - INVESTMENT SECURITIES | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | 2019 | | | | 2018 | | | | | | Amortized | | Fair | | Amortized | | Fair | | | (In Thousands) | Cost | | Value | | Cost | | Value | | | AVAILABLE-FOR-SALE DEBT SECURITIES: | | | | | | | | | | Obligations of U.S. Government agencies | $ | 16,380 | $ | 17,000 | $ | 12,331 | $ | 12,500 | | Obligations of states and political subdivisions: | | | | | | | | | | Tax-exempt | | 68,787 | | 70,760 | | 84,204 | | 83,952 | | Taxable | | 35,446 | | 36,303 | | 27,618 | | 27,699 | | Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies: | | | | | | | | | | Residential pass-through securities | | 58,875 | | 59,210 | | 54,827 | | 53,445 | | Residential collateralized mortgage obligations | | 115,025 | | 114,723 | | 148,964 | | 145,912 | | Commercial mortgage-backed securities | | 47,765 | | 48,727 | | 40,781 | | 39,765 | | Total Available-for-Sale Debt Securities | $ | 342,278 | $ | 346,723 | $ | 368,725 | $ | 363,273 |

The following table presents the contractual maturities and the weighted-average yields (calculated based on amortized cost) of investment securities as of December 31, 2019. Yields on tax-exempt securities are presented on a fully taxable-equivalent basis. For callable securities, yields on securities purchased at a discount are based on yield-to-maturity, while yields on securities purchased at a premium are based on yield to the first call date. Yields on mortgage-backed securities are estimated and include the effects of prepayment assumptions. Actual maturities may differ from contractual maturities because counterparties may have the right to call or prepay obligations with or without call or prepayment penalties.

(In Thousands, Except for Percentages)	Within<br> One<br> Year				One- <br> Five <br> Years				Five- <br> Ten<br> Years				After <br> Ten <br> Years				Total
AVAILABLE-FOR-SALE DEBT SECURITIES:
Obligations of U.S. Government agencies	$	0	0.00	%	$	0	0.00	%	$	7,513	3.16	%	$	8,867	3.43	%	$	16,380	3.30	%
Obligations of states and political subdivisions:
Tax-exempt		2,777	3.36	%		16,230	3.03	%		27,900	2.90	%		21,880	3.48	%		68,787	3.13	%
Taxable		4,439	2.62	%		15,396	2.94	%		7,296	3.40	%		8,315	3.17	%		35,446	3.05	%
Sub-total	$	7,216	2.90	%	$	31,626	2.99	%	$	42,709	3.03	%	$	39,062	3.40	%	$	120,613	3.13	%
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities																		58,875	2.41	%
Residential collateralized mortgage obligations																		115,025	1.84	%
Commercial mortgage-backed securities																		47,765	2.61	%
Total																	$	342,278	2.50	%

The Corporation’s mortgage-backed securities and collateralized mortgage obligations have stated maturities that may differ from actual maturities due to borrowers’ ability to prepay obligations. Cash flows from such investments are dependent upon the performance of the underlying mortgage loans and are generally influenced by the level of interest rates. As rates increase, cash flows generally decrease as prepayments on the underlying mortgage loans decrease. As rates decrease, cash flows generally increase as prepayments increase due to increased refinance activity and other factors. In the table above, the entire balances and weighted-average rates for mortgage-backed securities and collateralized mortgage obligations are shown in one period.

FINANCIAL CONDITION

This section includes information regarding the Corporation’s lending activities or other significant changes or exposures that are not otherwise addressed in Management’s Discussion and Analysis. Significant changes in the average balances of the Corporation’s earning assets and interest-bearing liabilities are described in the Net Interest Income section of Management’s Discussion and Analysis. Other significant balance sheet items, including securities, the allowance for loan losses and stockholders’ equity, are discussed in separate sections of Management’s Discussion and Analysis. There are no significant concerns that have arisen related to the Corporation’s off-balance sheet loan commitments or outstanding letters of credit at December 31, 2019, and management does not expect the amount of purchases of bank premises and equipment or the Covenant acquisition to have a material, detrimental effect on the Corporation’s financial condition in 2020.

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Table VII shows the composition of the loan portfolio as of the end of the years 2015 through 2019. From December 31, 2015 through December 31, 2018, total loans outstanding increased $122.7 million (17.4%) and the overall mix by segment remained fairly constant, with residential mortgage loans of approximately 55% to 56% of the portfolio at each year-end, and commercial loans of 43% to 44% of the portfolio. At December 31, 2019, gross loans outstanding totaled $1,182,222,000, an increase of $354.7 million (42.9%) from December 31, 2018. As previously noted, a significant portion of the Corporation’s loan growth in 2019 is attributable to the Monument acquisition and to new loans originated in the southeastern and southcentral Pennsylvania markets. In comparing gross outstanding balances at December 31, 2019 and 2018, total commercial loans increased $225.3 million (63.7%) and total residential mortgage loans increased $129.8 million (28.4%). The overall mix of the loan portfolio at December 31, 2019 was slightly less than 50% residential mortgage and 49% commercial loans.

While the Corporation’s lending activities are primarily concentrated in its market areas, a portion of the Corporation’s commercial loan segment consists of participation loans. Participation loans represent portions of larger commercial transactions for which other institutions are the “lead banks”. Although not the lead bank, the Corporation conducts detailed underwriting and monitoring of participation loan opportunities. Participation loans are included in the “Commercial and industrial,” “Commercial loans secured by real estate”, “Political subdivisions” and “Other commercial” classes in the loan tables presented in this Form 10-K. Total participation loans outstanding amounted to $64,633,000 at December 31, 2019, down from $67,340,000 at December 31, 2018. At December 31, 2019, the balance of participation loans outstanding includes a total of $46,206,000 to businesses located outside of the Corporation’s market areas. Also, included within participation loans are “leveraged loans,” meaning loans to businesses with minimal tangible book equity and for which the extent of collateral available is limited, though typically at the time of origination the businesses have demonstrated strong cash flow performance in their recent histories. Leveraged participation loans totaled $9,947,000 at December 31, 2019 and $13,315,000 at December 31, 2018.

Table VIII presents loan maturity data as of December 31, 2019. The interest rate simulation model used to prepare Table VIII classifies certain loans under different categories from the categories that appear in Table VII. Fixed-rate loans are shown in Table VIII based on their contractually scheduled principal repayments, and variable-rate loans are shown based on the date of the next change in rate. Table VIII shows that fixed-rate loans are approximately 30% of the loan portfolio and approximately 48% of the portfolio are variable-rate loans that re-price after more than one year. Variable-rate loans re-pricing after more than one year include residential and commercial real estate secured loans. The Corporation’s substantial investment in long-term, fixed-rate loans and variable-rate loans with extended periods until re-pricing is one of the concerns management attempts to address through interest rate risk management practices.

Since 2009, the Corporation has originated and sold residential mortgage loans to the secondary market through the MPF Xtra program administered by the Federal Home Loan Banks of Pittsburgh and Chicago. Residential mortgages originated and sold through the MPF Xtra program consist primarily of conforming, prime loans sold to the Federal National Mortgage Association (Fannie Mae), a quasi-government entity. In 2014, the Corporation began to originate and sell residential mortgage loans to the secondary market through the MPF Original program, which is also administered by the Federal Home Loan Banks of Pittsburgh and Chicago. Residential mortgages originated and sold through the MPF Original program consist primarily of conforming, prime loans sold to the Federal Home Loan Bank of Pittsburgh. In late 2019, the Corporation began to originate and sell larger-balance, nonconforming mortgages under the MPF Direct Program, which is also administered by the Federal Home Loan Banks of Pittsburgh and Chicago. The Corporation will not retain servicing rights for loans sold under the MPF Direct Program. In 2019, the Corporation’s activity under the MPF Direct Program was minimal.

For loan sales originated under the MPF programs, the Corporation provides customary representations and warranties to investors that specify, among other things, that the loans have been underwritten to the standards established by the investor. The Corporation may be required to repurchase a loan and reimburse a portion of fees received or reimburse the investor for a credit loss incurred on a loan, if it is determined that the representations and warranties have not been met. Such repurchases, or reimbursements generally result from an underwriting or documentation deficiency. At December 31, 2019, the total outstanding balance of loans the Corporation has repurchased as a result of identified instances of noncompliance amounted to $1,770,000, and the corresponding total outstanding balance of repurchased loans at December 31, 2018 was $2,146,000.

At December 31, 2019, outstanding balances of loans sold and serviced through the MPF Xtra and Original programs totaled $178,446,000, including loans sold through the MPF Xtra program of $104,707,000 and loans sold through the Original program of $73,739,000. At December 31, 2018, outstanding balances of loans sold and serviced through the two programs totaled $171,742,000, including loans sold through the MPF Xtra program of $96,841,000 and loans sold through the Original Program of $74,901,000. Based on the fairly limited volume of required repurchases to date, no allowance has been established for representation and warranty exposures as of December 31, 2019 and December 31, 2018.

For loans sold under the Original program, the Corporation provides a credit enhancement whereby the Corporation would assume credit losses in excess of a defined First Loss Account (“FLA”) balance, up to specified amounts. The FLA is funded by the Federal Home Loan Bank of Pittsburgh based on a percentage of the outstanding balance of loans sold. At December 31, 2019, the Corporation’s maximum credit enhancement obligation under the MPF Original Program was $4,618,000, and the Corporation has recorded a related allowance for credit losses in the amount of $333,000 which is included in Accrued interest and other liabilities in the accompanying consolidated balance sheets. At December 31, 2018, the Corporation’s maximum credit enhancement obligation under the MPF Original Program was $4,157,000, and the related allowance for credit losses was $328,000. The Corporation does not provide a credit enhancement for loans sold through the Xtra program.

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TABLE VII - Five-year Summary of Loans by Type

(Dollars In Thousands)	2019				2018				2017				2016				2015
Residential mortgage:
Residential mortgage loans - first liens	$	510,641		43.2	$	372,339		45.0	$	359,987		44.1	$	334,102		44.4	$	304,783		43.2
Residential mortgage loans - junior liens		27,503		2.3		25,450		3.1		25,325		3.1		23,706		3.2		21,146		3.0
Home equity lines of credit		33,638		2.8		34,319		4.1		35,758		4.4		38,057		5.1		39,040		5.5
1-4 Family residential construction		14,798		1.3		24,698		3.0		26,216		3.2		24,908		3.3		21,121		3.0
Total residential mortgage		586,580		49.6		456,806		55.2		447,286		54.8		420,773		56.0		386,090		54.8
Commercial:
Commercial loans secured by real estate		301,227		25.5		162,611		19.6		159,266		19.5		150,468		20.0		154,779		22.0
Commercial and industrial		126,374		10.7		91,856		11.1		88,276		10.8		83,854		11.2		75,196		10.7
Political subdivisions		53,570		4.5		53,263		6.4		59,287		7.3		38,068		5.1		40,007		5.7
Commercial construction and land		33,555		2.8		11,962		1.4		14,527		1.8		14,287		1.9		5,122		0.7
Loans secured by farmland		12,251		1.0		7,146		0.9		7,255		0.9		7,294		1.0		7,019		1.0
Multi-family (5 or more) residential		31,070		2.6		7,180		0.9		7,713		0.9		7,896		1.1		9,188		1.3
Agricultural loans		4,319		0.4		5,659		0.7		6,178		0.8		3,998		0.5		4,671		0.7
Other commercial loans		16,535		1.4		13,950		1.7		10,986		1.3		11,475		1.5		12,152		1.7
Total commercial		578,901		49.0		353,627		42.7		353,488		43.3		317,340		42.2		308,134		43.7
Consumer		16,741		1.4		17,130		2.1		14,939		1.8		13,722		1.8		10,656		1.5
Total		1,182,222		100.0		827,563		100.0		815,713		100.0		751,835		100.0		704,880		100.0
Less: allowance for loan losses		(9,836	)			(9,309	)			(8,856	)			(8,473	)			(7,889	)
Loans, net	$	1,172,386			$	818,254			$	806,857			$	743,362			$	696,991

TABLE VIII – LOAN MATURITY DISTRIBUTION

	As of December 31,2019
	Fixed-Rate Loans								Variable- or Adjustable-Rate Loans
	1 Year		1-5		>5				1 Year		1-5		>5
(In Thousands)	or Less		Years		Years		Total		or Less		Years		Years		Total
Real Estate	$	3,988	$	67,529	$	187,706	$	259,223	$	167,318	$	320,011	$	180,631	$	667,959
Commercial		18,277		24,801		33,266		76,344		99,643		43,483		18,154		161,280
Consumer		3,768		9,833		3,786		17,387		29		0		0		29
Total	$	26,033	$	102,163	$	224,758	$	352,954	$	266,990	$	363,494	$	198,785	$	829,268

PROVISION AND ALLOWANCE FOR LOAN LOSSES

The Corporation maintains an allowance for loan losses that represents management’s estimate of the losses inherent in the loan portfolio as of the balance sheet date and recorded as a reduction of the investment in loans. Notes 1 and 8 to the consolidated financial statements provide an overview of the process management uses for evaluating and determining the allowance for loan losses.

While management uses available information to recognize losses on loans, changes in economic conditions may necessitate revisions in future years. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Corporation’s allowance for loan losses. Such agencies may require the Corporation to recognize adjustments to the allowance based on their judgments of information available to them at the time of their examination.

The allowance for loan losses was $9,836,000 at December 31, 2019, up from $9,309,000 at December 31, 2018. Table X shows that the collectively determined portion of the allowance increased $1,081,000 across all loan classes, including an increase in the collectively determined portion of the allowance related to commercial loans of $811,000. This increase was primarily due to loan growth in 2019.

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Table X shows total specific allowances on impaired loans decreased $554,000 to $1,051,000 at December 31, 2019 from $1,605,000 at December 31, 2018. This net decrease included the impact of specific allowances totaling $1,365,000 at December 31, 2018 on two commercial loans being eliminated in the first quarter 2019. These two loans were no longer considered impaired at March 31, 2019, were returned to full accrual status in the first quarter 2019 and remained in full accrual status at December 31, 2019. Partially offsetting this reduction, in the third quarter 2019 the Corporation recorded a specific allowance of $678,000 on a commercial construction loan with an outstanding balance of $1,261,000 at December 31, 2019.

Loans acquired from Monument that were identified as having a deterioration in credit quality (purchased credit impaired, or PCI), were valued at $441,000 at April 1, 2019 and December 31, 2019. The remainder of the portfolio was deemed to be the performing component of the portfolio. The calculation of the fair value of performing loans at acquisition included a discount for credit losses of $1,914,000, reflecting an estimate of the present value of credit losses based on market expectations. In the last nine months of 2019, the Corporation recognized accretion of the discount of $698,000, with a remaining discount for credit losses of $1,216,000 at December 31, 2019. None of the performing loans purchased were found to be impaired at December 31, 2019, and the purchased performing loans were excluded from the loan pools for which the general component of the allowance for loan losses was calculated. Accordingly, there was no allowance for loan losses at December 31, 2019 on loans purchased from Monument, which was the main reason the allowance dropped to 0.83% of total outstanding loans at December 31, 2019 from 1.12% at December 31, 2018.

The provision for loan losses by segment for 2019 and 2018 is as follows:

(InThousands)	2019		2018
Residential mortgage	$	374	$	173
Commercial		197		204
Consumer		192		207
Unallocated		86		0
Total	$	849	$	584

The provision for loan losses is further detailed as follows:

Residential mortgage segment
(In thousands)	2019			2018
Increase in total specific allowance on impaired loans, adjusted for the effect of net charge-offs	$	238		$	144
Increase (decrease) in collectively determined portion of the allowance attributable to:
Loan growth		171			94
Changes in historical loss experience factors		47			(65	)
Changes in qualitative factors		(82	)		0
Total provision for loan losses -
Residential mortgage segment	$	374		$	173
Commercial segment
---	---	---	---	---	---	---
(In thousands)		2019			2018
(Decrease) increase in total specific allowance on impaired loans, adjusted for the effect of net charge-offs	$	(614	)	$	180
Increase (decrease) in collectively determined portion of the allowance attributable to:
Loan growth		1,025			45
Changes in historical loss experience factors		(371	)		(21	)
Changes in qualitative factors		157			0
Total provision for loan losses -
Commercial segment	$	197		$	204

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---
---	---	---	---	---	---
(In thousands)		2019			2018
Increase in total specific allowance on impaired loans, adjusted for the effect of net charge-offs	$	144		$	133
Increase (decrease) in collectively determined portion of the allowance attributable to:
Loan (reduction) growth		(3	)		39
Changes in historical loss experience factors		31			34
Changes in qualitative factors		20			1
Total provision for loan losses -
Consumer segment	$	192		$	207
Total - All segments
---	---	---	---	---	---	---
(In thousands)		2019			2018
(Decrease) increase in total specific allowance on impaired loans, adjusted for the effect of net charge-offs	$	(232	)	$	457
Increase (decrease) in collectively determined portion of the allowance attributable to:
Loan growth		1,193			178
Changes in historical loss experience factors		(293	)		(52	)
Changes in qualitative factors		95			1
Sub-total		763			584
Unallocated		86			0
Total provision for loan losses -
All segments	$	849		$	584

For the periods shown in the tables immediately above, the provision related to increases or decreases in specific allowances on impaired loans was affected by changes in the results of management’s assessment of the amount of probable or actual (charged-off) losses associated with a small number of larger, individual loans. This line item also includes net charge-offs or recoveries from smaller loans that had not been individually evaluated for impairment prior to charge-off.

In the tables immediately above, the portion of the net change in the collectively determined allowance attributable to loan growth was determined by applying the historical loss experience and qualitative factors used in the allowance calculation at the end of the preceding period to the net increase in loans outstanding (excluding loans specifically evaluated for impairment) for the period.

The effect on the provision of changes in historical loss experience and qualitative factors, as shown in the tables above, was determined by: (1) calculating the net change in each factor used in determining the allowance at the end of the period as compared to the preceding period, and (2) applying the net change in each factor to the outstanding balance of loans at the end of the preceding period (excluding loans specifically evaluated for impairment).

In 2019, net charge-offs were $322,000, including charge-offs of $379,000 and recoveries of $57,000. The Corporation’s overall net charge-off experience in 2019 was consistent with results over the past several years. Table XII shows the average rate of net charge-offs as a percentage of loans was 0.03% in 2019, with an annual average over the five-year period ended December 31, 2019 of 0.04%, and annual average rates ranging from a high of 0.09% in 2016 to a low of 0.02% in 2018.

Table XI presents information related to past due and impaired loans, and loans that have been modified under terms that are considered troubled debt restructurings (TDRs). Total nonperforming loans as a percentage of outstanding loans was 0.88% at December 31, 2019, down from 1.94% at December 31, 2018, and nonperforming assets as a percentage of total assets was 0.80% at December 31, 2019, down from 1.37% at December 31, 2018. Table XI presents data at the end of each of the years ended December 31, 2015 through 2019. Table XI shows that total nonperforming loans as a percentage of loans of 0.88% at December 31, 2019 was lower than the corresponding year-end ratio from 2015 through 2018. Similarly, the December 31, 2019 ratio of total nonperforming assets as a percentage of assets of 0.80% was lower than the corresponding ratio from 2015 through 2018. These improved credit-related ratios reflect the impact of acquired loans from Monument and significant additional loan growth in 2019, with a minimal amount of loans purchased or originated in 2019 classified as nonperforming, as well as a reduction in total nonperforming assets.

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Total impaired loans of $5,486,000 at December 31, 2019 are down $4,288,000 from the corresponding amount at December 31, 2018 of $9,774,000. In 2019, the two commercial loans referred to above for which specific allowances were eliminated were not considered to be impaired at December 31, 2019 but were considered impaired at December 31, 2018. Total outstanding balances of these loans were $3,781,000 at December 31, 2018. Table XI shows that the total balance of impaired loans at December 31, 2019 was lower than the year-end amounts over the period 2015-2018, which ranged from a low of $9,511,000 in 2017 to a high of $10,860,000 in 2016.

Total nonperforming assets of $13,311,000 at December 31, 2019 are $4,411,000 lower than the corresponding amount at December 31, 2018, summarized as follows:

·	Total nonaccrual loans at December 31,<br>2019 of $9,218,000 was $3,895,000 lower than the corresponding December 31, 2018 total of $13,113,000.
·	Total loans past due 90 days or more and<br>still accruing interest amounted to $1,207,000 at December 31, 2019, a decrease of $1,699,000 from the total at December 31, 2018.
---	---
·	Foreclosed assets held for sale consisted<br>of real estate, and totaled $2,886,000 at December 31, 2019, an increase of $1,173,000 from $1,703,000 at December 31, 2018. Of<br>this increase, $871,000 related to a property acquired through the Monument acquisition. At December 31, 2019, the Corporation<br>held ten such properties for sale, with total carrying values of $292,000 related to residential real estate, $70,000 of land and<br>$2,524,000 related to commercial real estate. At December 31, 2018, the Corporation held six such properties for sale, with total<br>carrying values of $64,000 related to residential real estate, $110,000 of land and $1,529,000 related to commercial real estate.<br>The Corporation evaluates the carrying values of foreclosed assets each quarter based on the most recent market activity or appraisals<br>for each property.
---	---

As reflected in Table XI, total loans past due 30-89 days and still accruing interest amounted to $8,889,000 at December 31, 2019, up from $7,142,000 at December 31, 2018 but lower than the amount at December 31, 2017 of $9,449,000. These variances include the effect of fluctuations in 30-89 day past due residential mortgage loans, which totaled $7,249,000 at December 31, 2019, up from $5,835,000 at December 31, 2018 but slightly lower than the amount at December 31, 2017 of $7,236,000. Management monitors the status of delinquent residential mortgage loans on an ongoing basis and has considered delinquency trends, which were generally favorable throughout most of 2019, in evaluating the allowance for loan losses at December 31, 2019.

Over the period 2015-2019, each period includes a few large commercial relationships that have required significant monitoring and workout efforts. As a result, a limited number of relationships may significantly impact the total amount of allowance required on impaired loans, and may significantly impact the amount of total charge-offs reported in any one period.

Management believes it has been conservative in its decisions concerning identification of impaired loans, estimates of loss, and nonaccrual status; however, the actual losses realized from these relationships could vary materially from the allowances calculated as of December 31, 2019. Management continues to closely monitor its commercial loan relationships for possible credit losses, and will adjust its estimates of loss and decisions concerning nonaccrual status, if appropriate.

Tables IX through XII present historical data related to the allowance for loan losses.

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TABLE IX - ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES

	Years Ended December 31,
(Dollars In Thousands)	2019			2018			2017			2016			2015
Balance, beginning of year	$	9,309		$	8,856		$	8,473		$	7,889		$	7,336
Charge-offs:
Residential mortgage		(190	)		(158	)		(197	)		(73	)		(217	)
Commercial		(6	)		(165	)		(132	)		(597	)		(251	)
Consumer		(183	)		(174	)		(150	)		(87	)		(94	)
Total charge-offs		(379	)		(497	)		(479	)		(757	)		(562	)
Recoveries:
Residential mortgage		12			8			19			3			1
Commercial		6			317			4			35			214
Consumer		39			41			38			82			55
Total recoveries		57			366			61			120			270
Net charge-offs		(322	)		(131	)		(418	)		(637	)		(292	)
Provision for loan losses		849			584			801			1,221			845
Balance, end of period	$	9,836		$	9,309		$	8,856		$	8,473		$	7,889
Net charge-offs as a % of average loans		0.03	%		0.02	%		0.05	%		0.09	%		0.04	%

TABLEX - COMPONENTS OF THE ALLOWANCE FOR LOAN LOSSES

	As of December 31,
(InThousands)	2019		2018		2017		2016		2015
ASC 310 - Impaired loans	$	1,051	$	1,605	$	1,279	$	674	$	820
ASC 450 - Collective segments:
Commercial		3,913		3,102		3,078		3,373		3,103
Residential mortgage		4,006		3,870		3,841		3,890		3,417
Consumer		281		233		159		138		122
Unallocated		585		499		499		398		427
Total Allowance	$	9,836	$	9,309	$	8,856	$	8,473	$	7,889

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TABLE XI - PAST DUE AND IMPAIRED LOANS,NONPERFORMING ASSETS AND TROUBLED DEBT RESTRUCTURINGS(TDRs)

	As of December 31,
(Dollars In Thousands)	2019			2018			2017			2016			2015
Impaired loans with a valuation allowance	$	3,375		$	4,851		$	4,100		$	3,372		$	1,933
Impaired loans without a valuation allowance		2,111			4,923			5,411			7,488			8,041
Total impaired loans	$	5,486		$	9,774		$	9,511		$	10,860		$	9,974
Total loans past due 30-89 days and still accruing	$	8,889		$	7,142		$	9,449		$	7,735		$	7,057
Nonperforming assets:
Total nonaccrual loans	$	9,218		$	13,113		$	13,404		$	8,736		$	11,517
Total loans past due 90 days or more and still accruing		1,207			2,906			3,724			6,838			3,229
Total nonperforming loans		10,425			16,019			17,128			15,574			14,746
Foreclosed assets held for sale (real estate)		2,886			1,703			1,598			2,180			1,260
Total nonperforming assets	$	13,311		$	17,722		$	18,726		$	17,754		$	16,006
Loans subject to troubled debt restructurings (TDRs):
Performing	$	889		$	655		$	636		$	5,803		$	1,186
Nonperforming		1,737			2,884			3,027			2,874			5,178
Total TDRs	$	2,626		$	3,539		$	3,663		$	8,677		$	6,364
Total nonperforming loans as a % of loans		0.88	%		1.94	%		2.10	%		2.07	%		2.09	%
Total nonperforming assets as a % of assets		0.80	%		1.37	%		1.47	%		1.43	%		1.31	%
Allowance for loan losses as a % of total loans		0.83	%		1.12	%		1.09	%		1.13	%		1.12	%
Allowance for loan losses as a % of nonperforming loans		94.35	%		58.11	%		51.70	%		54.40	%		53.50	%

TABLE XII - FIVE-YEAR HISTORY OF LOAN LOSSES

(Dollars In Thousands)	2019			2018			2017			2016			2015			Average
Average gross loans	$	1,057,559		$	822,346		$	780,640		$	723,076		$	657,727		$	808,270
Year-end gross loans		1,182,222			827,563			815,713			751,835			704,880		$	856,443
Year-end allowance for loan losses		9,836			9,309			8,856			8,473			7,889		$	8,873
Year-end nonaccrual loans		9,218			13,113			13,404			8,736			11,517		$	11,198
Year-end loans 90 days or more past due and still accruing		1,207			2,906			3,724			6,838			3,229			3,581
Net charge-offs		322			131			418			637			292			360
Provision for loan losses		849			584			801			1,221			845			860
Earnings coverage of charge-offs		76	x		210	x		56	x		37	x		85	x		93	x
Allowance coverage of charge-offs		31	x		71	x		21	x		13	x		27	x		33	x
Net charge-offs as a % of provision for loan losses		37.93	%		22.43	%		52.18	%		52.17	%		34.56	%		41.86	%
Net charge-offs as a % of average gross loans		0.03	%		0.02	%		0.05	%		0.09	%		0.04	%		0.04	%
Income before income taxes on a fully taxable equivalent basis		24,453			27,564			23,350			23,861			24,710			24,788

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CONTRACTUAL OBLIGATIONS AND OFF-BALANCESHEET ARRANGEMENTS

The Corporation’s significant fixed and determinable contractual obligations as of December 31, 2019 include repayment obligations related to time deposits and borrowed funds. Information related to maturities of time deposits is provided in Note 11 to the consolidated financial statements. Information related to maturities of borrowed funds is provided in Note 12 to the consolidated financial statements. The Corporation’s operating lease and other commitments at December 31, 2019 are immaterial. Information concerning operating lease commitments is provided in Note 17 to the consolidated financial statements. The Corporation’s significant off-balance sheet arrangements include commitments to extend credit and standby letters of credit. Off-balance sheet arrangements are described in Note 16 to the consolidated financial statements.

As described in more detail in the Financial Condition section of Management’s Discussion and Analysis, the Corporation sells residential mortgage loans for which the Corporation provides customary representations and warranties to investors that specify, among other things, that the loans have been underwritten to the standards established by the investor. The Corporation may be required to repurchase a loan and reimburse a portion of fees received or reimburse the investor for a credit loss incurred on a loan, if it is determined that the representations and warranties have not been met. At December 31, 2019, outstanding balances of such loans sold totaled $178,446,000.

Also, for loans sold under the MPF Original program, the Corporation provides a credit enhancement. At December 31, 2019, the Corporation’s maximum credit enhancement obligation under the MPF Original Program was $4,618,000, and the Corporation has recorded a related allowance for credit losses in the amount of $333,000 which is included in “Accrued interest and other liabilities” in the accompanying consolidated balance sheets.

LIQUIDITY

Liquidity is the ability to quickly raise cash at a reasonable cost. An adequate liquidity position permits the Corporation to pay creditors, compensate for unforeseen deposit fluctuations and fund unexpected loan demand. At December 31, 2019, the Corporation maintained overnight interest-bearing deposits with the Federal Reserve Bank of Philadelphia and other correspondent banks totaling $13,455,000.

The Corporation maintains overnight borrowing facilities with several correspondent banks that provide a source of day-to-day liquidity. Also, the Corporation maintains borrowing facilities with the Federal Home Loan Bank of Pittsburgh, secured by various mortgage loans.

The Corporation has a line of credit with the Federal Reserve Bank of Philadelphia’s Discount Window. Management intends to use this line of credit as a contingency funding source. As collateral for the line, the Corporation has pledged available-for-sale securities with a carrying value of $14,728,000 at December 31, 2019.

The Corporation’s outstanding, available, and total credit facilities at December 31, 2019 and 2018 are as follows:

	Outstanding				Available				Total Credit
	Dec. 31,		Dec. 31,		Dec. 31,		Dec. 31,		Dec. 31,		Dec. 31,
(In Thousands)	2019		2018		2019		2018		2019		2018
Federal Home Loan Bank of Pittsburgh	$	136,424	$	42,915	$	416,122	$	318,699	$	552,546	$	361,614
Federal Reserve Bank Discount Window		0		0		14,244		15,262		14,244		15,262
Other correspondent banks		0		0		45,000		45,000		45,000		45,000
Total credit facilities	$	136,424	$	42,915	$	475,366	$	378,961	$	611,790	$	421,876

The significant increase in credit available from the Federal Home Loan Bank of Pittsburgh in 2019 resulted from an increase in the borrowing base created by the acquisition of real estate secured loans from Monument. At December 31, 2019, the Corporation’s outstanding credit facilities with the Federal Home Loan Bank of Pittsburgh consisted of overnight borrowings of $64,000,000, short-term borrowings of $20,297,000 and long-term borrowings with a total amount of $52,127,000. At December 31, 2018, the Corporation’s outstanding credit facilities with the Federal Home Loan Bank of Pittsburgh consisted of overnight borrowings of $7,000,000 and long-term borrowings with a total amount of $35,915,000. Additional information regarding borrowed funds is included in Note 12 to the consolidated financial statements.

Additionally, the Corporation uses “RepoSweep” arrangements to borrow funds from commercial banking customers on an overnight basis. If required to raise cash in an emergency situation, the Corporation could sell available-for-sale debt securities to meet its obligations. At December 31, 2019, the carrying value of available-for-sale debt securities in excess of amounts required to meet pledging or repurchase agreement obligations was $170,948,000.

Management believes the Corporation is well-positioned to meet its short-term and long-term obligations.

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STOCKHOLDERS’ EQUITY AND CAPITALADEQUACY

As required by the Economic Growth, Regulatory Relief, and Consumer Protection Act (discussed further in the Recent Legislative Developments section of Management’s Discussion and Analysis), in August 2018, the Federal Reserve Board issued an interim final rule that expanded applicability of the Board’s small bank holding company policy statement. The interim final rule raised the policy statement’s asset threshold from $1 billion to $3 billion in total consolidated assets for a bank holding company or savings and loan holding company that: (1) is not engaged in significant nonbanking activities; (2) does not conduct significant off-balance sheet activities; and (3) does not have a material amount of debt or equity securities, other than trust-preferred securities, outstanding. The interim final rule provides that, if warranted for supervisory purposes, the Federal Reserve may exclude a company from the threshold increase. Management believes the Corporation meets the conditions of the Federal Reserve’s small bank holding company policy statement and is therefore excluded from consolidated capital requirements at December 31, 2019; however, C&N Bank remains subject to regulatory capital requirements administered by the federal banking agencies.

Details concerning capital ratios at December 31, 2019 and December 31, 2018 are presented below and in Note 18 to the consolidated financial statements. Management believes, as of December 31, 2019, that C&N Bank meets all capital adequacy requirements to which it is subject and maintains a capital conservation buffer (described in more detail below) that allows the Bank to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers. Further, the Corporation’s and C&N Bank’s capital ratios at December 31, 2019 and December 31, 2018 exceed the Corporation’s Board policy threshold levels.

														Minimum<br> To Be Well
						Minimum				Minimum<br> To Maintain				Capitalized<br> Under				Minimum<br> To Meet
						Capital				Capital<br> Conservation				Prompt<br> Corrective				the<br> Corporation's
	Actual					Requirement				Buffer<br> at Reporting Date				Action<br> Provisions				Policy<br> Thresholds
(Dollars In Thousands)	Amount		Ratio			Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
December 31, 2019:
Total<br> capital to risk-weighted assets:
Consolidated	$	228,057		20.70	%		N/A		N/A		N/A		N/A		N/A		N/A	$	115,689		³10.5%
C&N Bank		205,863		18.75	%		87,817		³8%		115,260		³10.5%		109,771		³10%		115,260		³10.5%
Tier<br> 1 capital to risk-weighted assets:
Consolidated		211,388		19.19	%		N/A		N/A		N/A		N/A		N/A		N/A		93,653		³8.5%
C&N Bank		195,694		17.83	%		65,863		³6%		93,306		³8.5%		87,817		³8%		93,306		³8.5%
Common equity tier 1 capital to risk-weighted assets:
Consolidated		211,388		19.19	%		N/A		N/A		N/A		N/A		N/A		N/A		77,126		³7%
C&N Bank		195,694		17.83	%		49,397		³4.5%		76,840		³7.0%		71,351		³6.5%		76,840		³7%
Tier 1 capital to average<br> assets:
Consolidated		211,388		13.10	%		N/A		N/A		N/A		N/A		N/A		N/A		129,126		³8%
C&N Bank		195,694		12.24	%		63,940		³4%		N/A		N/A		79,925		³5%		127,879		³8%
December 31, 2018:
Total capital to risk-weighted<br> assets:
Consolidated	$	199,226		24.42	%		N/A		N/A		N/A		N/A		N/A		N/A	$	85,653		³10.5%
C&N Bank		176,499		21.75	%		64,916		³8%		80,130		³9.875%		81,145		³10%		85,202		³10.5%
Tier 1 capital to risk-weighted<br> assets:
Consolidated		189,589		23.24	%		N/A		N/A		N/A		N/A		N/A		N/A		69,338		³8.5%
C&N Bank		166,862		20.56	%		48,687		³6%		63,901		³7.875%		64,916		³8%		68,976		³8.5%
Common equity tier 1 capital to risk-weighted assets:
Consolidated		189,589		23.24	%		N/A		N/A		N/A		N/A		N/A		N/A		57,102		³7%
C&N Bank		166,862		20.56	%		36,515		³4.5%		51,730		³6.375%		52,744		³6.5%		56,801		³7%
Tier 1 capital to average<br> assets:
Consolidated		189,589		14.78	%		N/A		N/A		N/A		N/A		N/A		N/A		102,634		³8%
C&N Bank		166,862		13.16	%		50,715		³4%		N/A		N/A		63,394		³5%		101,430		³8%

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Capital ratios presented in the table above were slightly lower at December 31, 2019 as compared to December 31, 2018 but remain at levels well in excess of regulatory requirements. Management expects C&N Bank to maintain capital levels that exceed the regulatory standards for well-capitalized institutions and the applicable capital conservation buffer, including the impact of the pending acquisition of Covenant, for the next 12 months and for the foreseeable future.

Future dividend payments will depend upon maintenance of a strong financial condition, future earnings and capital and regulatory requirements. In addition, the Corporation and C&N Bank are subject to restrictions on the amount of dividends that may be paid without approval of banking regulatory authorities. These restrictions are described in Note 18 to the consolidated financial statements. Further, although the Corporation is no longer subject to the specific consolidated capital requirements described herein, the Corporation’s ability to pay dividends, repurchase stock or engage in other activities may be limited by the Federal Reserve if the Corporation fails to hold sufficient capital commensurate with its overall risk profile.

In July 2013, the federal regulatory authorities issued a new capital rule based, in part, on revisions developed by the Basel Committee on Banking Supervision to the Basel capital framework (Basel III). This capital rule provides that, in order to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, a banking organization must hold a capital conservation buffer composed of common equity tier 1 capital above its minimum risk-based capital requirements. The buffer is measured relative to risk-weighted assets and is added to the minimum required risk-based capital ratios (as defined) for common equity tier 1 capital, tier 1 capital and total capital. In 2019, the minimum risk-based capital ratios, and the capital ratios including the capital conservation buffer, are as follows:

Minimum common equity tier 1 capital ratio	4.5	%
Minimum common equity tier 1 capital ratio plus
capital conservation buffer	7.0	%
Minimum tier 1 capital ratio	6.0	%
Minimum tier 1 capital ratio plus capital
conservation buffer	8.5	%
Minimum total capital ratio	8.0	%
Minimum total capital ratio plus capital
conservation buffer	10.5	%

A banking organization with a buffer greater than 2.5% would not be subject to additional limits on dividend payments or discretionary bonus payments; however, a banking organization with a buffer less than 2.5% would be subject to increasingly stringent limitations as the buffer approaches zero. The new rule also prohibits a banking organization from making dividend payments or discretionary bonus payments if its eligible retained income is negative in that quarter and its capital conservation buffer ratio was less than 2.5% as of the beginning of that quarter. Eligible net income is defined as net income for the four calendar quarters preceding the current calendar quarter, net of any distributions and associated tax effects not already reflected in net income. A summary of payout restrictions based on the capital conservation buffer is as follows:

Capital Conservation Buffer<br> <br>(as a % of risk-weighted assets)	Maximum Payout<br> <br>(as a % of eligible retained income)
Greater than 2.5%	No payout limitation applies
≤2.5% and >1.875%	60%
≤1.875% and >1.25%	40%
≤1.25% and >0.625%	20%
≤0.625%	0%

At December 31, 2019, C&N Bank’s Capital Conservation Buffer (also determined based on the minimum total capital ratio) was 10.75%.

The Corporation’s total stockholders’ equity is affected by fluctuations in the fair values of available-for-sale debt securities. The difference between amortized cost and fair value of available-for-sale debt securities, net of deferred income tax, is included in Accumulated Other Comprehensive Income (Loss) within stockholders’ equity. The balance in Accumulated Other Comprehensive Income (Loss) related to unrealized gains (losses) on available-for-sale debt securities, net of deferred income tax, amounted to $3,511,000 at December 31, 2019 and ($4,307,000) at December 31, 2018. Changes in accumulated other comprehensive income (loss) are excluded from earnings and directly increase or decrease stockholders’ equity. If available-for-sale debt securities are deemed to be other-than-temporarily impaired, unrealized losses are recorded as a charge against earnings, and amortized cost for the affected securities is reduced. Note 7 to the consolidated financial statements provides additional information concerning management’s evaluation of available-for-sale debt securities for other-than-temporary impairment at December 31, 2019.

Stockholders’ equity is also affected by the underfunded or overfunded status of defined benefit pension and postretirement plans. The balance in Accumulated Other Comprehensive Income (Loss) related to defined benefit plans, net of deferred income tax, was $180,000 at December 31, 2019 and $137,000 at December 31, 2018.

COMPREHENSIVE INCOME

Comprehensive Income is the total of (1) net income, and (2) all other changes in equity from non-stockholder sources, which are referred to as Other Comprehensive Income. Changes in the components of Accumulated Other Comprehensive Income (Loss) are included in Other Comprehensive Income, and for the Corporation, consist of changes in unrealized gains or losses on available-for-sale securities and changes in underfunded or overfunded defined benefit plans.

Comprehensive Income totaled $27,365,000 in 2019 as compared to $19,627,000 in 2018. In 2019, Comprehensive Income included: (1) Net Income of $19,504,000, which was $2,509,000 less than in 2018; (2) Other Comprehensive Income from unrealized gains on available-for-sale securities, net of deferred income tax, of $7,818,000 as compared to Other Comprehensive Loss of ($2,452,000) in 2018; and (3) Other Comprehensive Income from defined benefit plans of $43,000 in 2019 as compared to Other Comprehensive Income of $66,000 in 2018. Fluctuations in interest rates significantly affected fair values of available-for-sale securities in 2019 and 2018, and accordingly had an effect on Other Comprehensive Income (Loss) in each year.

RECENT LEGISLATIVE DEVELOPMENTS

On May 24, 2018, President Trump signed into law the Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Act”), which was designed to ease certain restrictions imposed by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Most of the changes made by the new Act can be grouped into five general areas: mortgage lending; certain regulatory relief for “community” banks; enhanced consumer protections in specific areas, including subjecting credit reporting agencies to additional requirements; certain regulatory relief for large financial institutions, including increasing the threshold at which institutions are classified as systemically important financial institutions (from $50 billion to $250 billion) and therefore subject to stricter oversight, and revising the rules for larger institution stress testing; and certain changes to federal securities regulations designed to promote capital formation.

As noted in the Stockholders’ Equity and Capital Adequacy section of Management’s Discussion and Analysis, as required by the Act, the Federal Reserve Board issued an interim final rule that expanded applicability of the Board’s small bank holding company policy statement, raising the policy statement’s asset threshold from $1 billion to $3 billion in total consolidated assets for a bank holding company or savings and loan holding company, subject to other conditions. Management believes the Corporation meets the conditions of the Federal Reserve’s small bank holding company policy statement and is therefore excluded from consolidated capital requirements at December 31, 2019. Further, qualification as a small bank holding company allows the Corporation to file more abbreviated, and less frequent, consolidated and holding company reports with the Federal Reserve.

Also, as required by the Act, in October 2019 the Federal Reserve Board, FDIC and Office of the Comptroller of the Currency finalized a rule that would provide qualifying community banking organizations an option to calculate a simple leverage ratio, rather than multiple measures of capital adequacy. Under the rule, a community banking organization would be eligible to elect the community bank leverage ratio framework if it has less than $10 billion in total consolidated assets, limited amounts of certain assets and off-balance sheet exposures, and a community bank leverage ratio greater than 9%. A qualifying community banking organization that has chosen the proposed framework would not be required to calculate the existing risk-based and leverage capital requirements. Such a community banking organization would be considered to have satisfied the risk-based and leverage capital requirements in the agencies’ generally applicable capital rule and be considered well capitalized for the agencies’ prompt corrective action rules provided it has a community bank leverage ratio greater than 9 percent. The Corporation is in the process of evaluating whether it will adopt the optional community bank leverage ratio framework.

Some of the other key provisions of the Act as it relates to community banks and bank holding companies include, but are not limited to: (i) designating mortgages held in portfolio as “qualified mortgages” for banks with less than $10 billion in assets, subject to certain documentation and product limitations; (ii) exempting banks with less than $10 billion in assets from Volcker Rule requirements relating to proprietary trading; (iii) assisting smaller banks with obtaining stable funding by providing an exception for reciprocal deposits from FDIC restrictions on acceptance of brokered deposits; (iv) raising the eligibility for use of short-form Call Reports from $1 billion to $5 billion in assets; and (v) clarifying definitions pertaining to high volatility commercial real estate loans (HVCRE), which require higher capital allocations, so that only loans with increased risk are subject to higher risk weightings.

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 2 to the consolidated financial statements for a description of recent accounting pronouncements and their recent or potential future effects on the Corporation’s financial statements.

ITEM 8. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
			December 31,
(In Thousands, Except Share and Per Share Data)			2018
ASSETS
Cash and due from banks:
Noninterest-bearing	17,667		$	20,970
Interest-bearing	17,535			16,517
Total cash and due from banks	35,202			37,487
Available-for-sale debt securities, at fair value	346,723			363,273
Marketable equity security	979			950
Loans held for sale	767			213
Loans receivable	1,182,222			827,563
Allowance for loan losses	(9,836	)		(9,309	)
Loans, net	1,172,386			818,254
Bank-owned life insurance	18,641			19,035
Accrued interest receivable	5,001			3,968
Bank premises and equipment, net	17,170			14,592
Foreclosed assets held for sale	2,886			1,703
Deferred tax asset, net	2,618			4,110
Goodwill	28,388			11,942
Core deposit intangibles	1,247			9
Other assets	22,137			15,357
TOTAL ASSETS	1,654,145		$	1,290,893
LIABILITIES
Deposits:
Noninterest-bearing	285,904		$	272,520
Interest-bearing	966,756			761,252
Total deposits	1,252,660			1,033,772
Short-term borrowings	86,220			12,853
Long-term borrowings	52,127			35,915
Subordinated debt	6,500			0
Accrued interest and other liabilities	12,186			10,985
TOTAL LIABILITIES	1,409,693			1,093,525
STOCKHOLDERS' EQUITY
Preferred stock, 1,000 par value; authorized 30,000<br> shares; 1,000 liquidation preference per share; no shares issued	0			0
Common stock, par value 1.00 per share; authorized<br> 20,000,000 shares; issued 13,934,996 and outstanding 13,716,445 at December 31, 2019; issued 12,655,171 and outstanding<br> 12,319,330 at December 31, 2018	13,935			12,655
Paid-in capital	104,519			72,602
Retained earnings	126,480			122,643
Treasury stock, at cost; 218,551 shares at December<br> 31, 2019 and 335,841 shares at December 31, 2018	(4,173	)		(6,362	)
Accumulated other comprehensive income (loss)	3,691			(4,170	)
TOTAL STOCKHOLDERS' EQUITY	244,452			197,368
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY	1,654,145		$	1,290,893

All values are in US Dollars.

The accompanying notes are an integral part of the consolidated financial statements.

Consolidated Statements of<br> Income	Years Ended December 31,
(In Thousands Except Per Share Data)	2019		2018
INTEREST INCOME
Interest and fees on loans:
Taxable	$	53,086	$	38,667
Tax-exempt		2,104		2,242
Interest on loans held for sale		22		14
Interest on balances with depository institutions		514		415
Income from available-for-sale debt securities:
Taxable		7,008		6,189
Tax-exempt		2,014		2,779
Dividends on marketable equity security		23		22
Total interest and dividend income		64,771		50,328
INTEREST EXPENSE
Interest on deposits		8,190		3,702
Interest on short-term borrowings		733		366
Interest on long-term borrowings		1,013		557
Interest on subordinated debt		347		0
Total interest expense		10,283		4,625
Net interest income		54,488		45,703
Provision for loan losses		849		584
Net interest income after provision for loan losses		53,639		45,119
NONINTEREST INCOME
Trust and financial management revenue		6,106		5,838
Brokerage revenue		1,266		1,018
Insurance commissions, fees and premiums		167		105
Service charges on deposit accounts		5,358		5,171
Service charges and fees		332		343
Interchange revenue from debit card transactions		2,754		2,546
Net gains from sale of loans		924		682
Loan servicing fees, net		100		347
Increase in cash surrender value of bank-owned life insurance		402		394
Other noninterest income		1,875		2,153
Sub-total		19,284		18,597
Gain on restricted equity security		0		2,321
Realized gains (losses) on available-for-sale debt securities, net		23		(288	)
Total noninterest income		19,307		20,630
NONINTEREST EXPENSE
Salaries and wages		20,644		17,191
Pensions and other employee benefits		5,837		5,259
Occupancy expense, net		2,629		2,497
Furniture and equipment expense		1,289		1,196
Data processing expenses		3,403		2,750
Automated teller machine and interchange expense		1,103		1,304
Pennsylvania shares tax		1,380		1,318
Professional fees		1,069		976
Telecommunications		744		748
Directors' fees		673		706
Merger-related expenses		4,099		328
Other noninterest expense		6,667		5,213
Total noninterest expense		49,537		39,486
Income before income tax provision		23,409		26,263
Income tax provision		3,905		4,250
NET INCOME	$	19,504	$	22,013
EARNINGS PER COMMON SHARE - BASIC	$	1.46	$	1.79
EARNINGS PER COMMON SHARE - DILUTED	$	1.46	$	1.79

The accompanying notes are an integral part of consolidated financial statements.

Consolidated Statements of Comprehensive Income	Years Ended December 31,
(In Thousands)	2019			2018
Net income	$	19,504		$	22,013
Unrealized gains (losses) on available-for-sale debt securities:
Unrealized holding gains (losses) on available-for-sale debt securities		9,920			(3,392	)
Reclassification adjustment for (gains) losses realized in income		(23	)		288
Other comprehensive gain (loss) on available-for-sale debt securities		9,897			(3,104	)
Unfunded pension and postretirement obligations:
Changes from plan amendments and actuarial gains and losses		87			101
Amortization of prior service<br> cost and net actuarial loss included in net periodic benefit cost		(32	)		(17	)
Other comprehensive gain on unfunded retirement obligations		55			84
Other comprehensive income (loss) before income tax		9,952			(3,020	)
Income tax related to other comprehensive (income) loss		(2,091	)		634
Net other comprehensive income (loss)		7,861			(2,386	)
Comprehensive income	$	27,365		$	19,627

The accompanying notes are an integral part of the consolidated financial statements.

Consolidated Statements of Changes in Stockholders' Equity
(In Thousands Except Share and Per Share Data)
													Accumulated
													Other
		Treasury			Common		Paid-in			Retained			Comprehensive			Treasury
		Shares			Stock		Capital			Earnings			(Loss) Income			Stock			Total
Balance, January 1, 2018	12,655,171		440,646		$	12,655	$	72,035		$	113,608		$	(1,507	)	$	(8,348	)	$	188,443
Impact of change in enacted<br> income tax rate (a)											325			(325	)				0
Impact of change in method of<br> premium amortization of callable debt securities (b)											(26	)		26					0
Impact of change in method of<br> accounting for marketable equity security (c)											(22	)		22					0
Net income											22,013								22,013
Other comprehensive loss, net														(2,386	)				(2,386		)
Cash dividends declared on common<br> stock, 1.08 per share											(13,255	)							(13,255		)
Shares issued for dividend<br> reinvestment plan			(59,330	)				385									1,124		1,509
Shares issued from treasury and<br> redeemed related to exercise of stock options			(18,862	)				(166	)								355		189
Restricted stock granted			(34,552	)				(655	)								655		0
Forfeiture of restricted stock			7,939					148									(148	)	0
Stock-based compensation expense								855											855
Balance, December 31, 2018	12,655,171		335,841			12,655		72,602			122,643			(4,170	)		(6,362	)	197,368
Net income											19,504								19,504
Other comprehensive income, net														7,861					7,861
Cash dividends declared on common<br> stock, 1.18 per share											(15,667	)							(15,667		)
Shares issued for dividend<br> reinvestment plan			(62,232	)				439									1,187		1,626
Shares issued from treasury and<br> redeemed related to exercise of stock options			(18,071	)				(146	)								344		198
Restricted stock granted			(48,137	)				(918	)								918		0
Forfeiture of restricted stock			3,758					71									(71	)	0
Stock-based compensation expense								798											798
Purchase of restricted stock for<br> tax withholding			7,392														(189	)	(189		)
Shares<br> issued for acquisition of Monument Bancorp, Inc., net of equity issuance costs	1,279,825					1,280		31,673											32,953
Balance, December 31, 2019	13,934,996		218,551		$	13,935	$	104,519		$	126,480		$	3,691		$	(4,173	)	$	244,452

All values are in US Dollars.

(a)	As described in more detail in the Recent Accounting Pronouncements - Adopted section of Note 2, this<br>reclassification resulted from adoption of Accounting Standards Update (ASU) 2018-02, Reclassification of Certain Tax Effects from<br>Accumulated Other Comprehensive Income, effective January 1, 2018.
(b)	As described in more detail in the Recent Accounting Pronouncements - Adopted section of Note 2, this<br>reclassification resulted from adoption of ASU 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20),<br>effective January 1, 2018.
---	---
(c)	As described in more detail in the Recent Accounting Pronouncements - Adopted section of Note 2, this<br>reclassification resulted from adoption of ASU 2016-01, Recognition and Measurement of Financial Assets and Liabilities, effective<br>January 1, 2018.
---	---

The accompanying notes are an integral part of the consolidated financial statements.

**<br><br>CONSOLIDATED STATEMENTS OF CASH FLOWS**
	Years Ended December 31,					****
(In Thousands)	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	19,504		$	22,013
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		849			584
Realized (gains) losses on available-for-sale debt securities, net		(23	)		288
Gain on restricted equity security		0			(2,321	)
Accretion and amortization on securities, net		1,341			1,044
Increase in cash surrender value of bank-owned life insurance		(402	)		(394	)
Depreciation and amortization of bank premises and equipment		1,749			1,754
Other accretion and amortization, net		(375	)		(6	)
Stock-based compensation		798			855
Deferred income taxes		172			(187	)
Decrease in fair value of servicing rights		331			83
Gains on sales of loans, net		(924	)		(682	)
Origination of loans held for sale		(29,978	)		(21,014	)
Proceeds from sales of loans held for sale		30,144			22,060
Decrease (increase) in accrued interest receivable and other assets		1,188			(413	)
(Decrease) increase in accrued interest payable and other liabilities		(2,068	)		1,957
Other		155			271
Net Cash Provided by Operating Activities		22,461			25,892
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash and cash equivalents used in business combination		(1,778	)		0
Proceeds from maturities of certificates of deposit		580			2,280
Purchase of certificates of deposit		0			(3,700	)
Proceeds from sales of available-for-sale debt securities		96,148			25,860
Proceeds from calls and maturities of available-for-sale debt securities		81,204			52,383
Purchase of available-for-sale debt securities		(57,655	)		(90,015	)
Redemption of Federal Home Loan Bank of Pittsburgh stock		10,137			6,145
Purchase of Federal Home Loan Bank of Pittsburgh stock		(9,208	)		(5,301	)
Net increase in loans		(96,628	)		(14,492	)
Proceeds from sale of restricted equity security		0			2,321
Proceeds from bank owned life insurance		796			1,442
Purchase of premises and equipment		(2,870	)		(1,167	)
Proceeds from sale of foreclosed assets		1,768			2,418
Other		174			178
Net Cash Provided by (Used in) Investing Activities		22,668			(21,648	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in deposits		(4,822	)		25,323
Net decrease in short-term borrowings		(38,307	)		(48,913	)
Proceeds from long-term borrowings		48,500			33,000
Repayments of long-term borrowings and subordinated debt		(38,173	)		(6,274	)
Sale of treasury stock		198			189
Purchase of vested restricted stock		(189	)		0
Common dividends paid		(14,041	)		(11,746	)
Net Cash Used in Financing Activities		(46,834	)		(8,421	)
DECREASE IN CASH AND CASH EQUIVALENTS		(1,705	)		(4,177	)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR		32,827			37,004
CASH AND CASH EQUIVALENTS, END OF YEAR	$	31,122		$	32,827
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Right-of-use assets recognized at adoption of ASU 2016-02	$	1,132		$	0
Leased assets obtained in exchange for new operating lease liabilities	$	745		$	0
Assets acquired through foreclosure of real estate loans	$	2,053		$	2,520
Interest paid	$	9,601		$	4,529
Income taxes paid	$	3,234		$	4,277

The accompanying notes are an integral part of the consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF OPERATIONS AND SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF CONSOLIDATION - The consolidated financial statements include the accounts of Citizens & Northern Corporation and its subsidiaries, Citizens & Northern Bank (“C&N Bank”), Bucktail Life Insurance Company and Citizens & Northern Investment Corporation (collectively, “Corporation”), as well as C&N Bank’s wholly-owned subsidiary, C&N Financial Services Corporation. In December 2018, C&N Bank established a new entity, Northern Tier Holding LLC, for the purpose of acquiring, holding and disposing of real property acquired by C&N Bank. C&N Bank is the sole member of Northern Tier Holding LLC. All material intercompany balances and transactions have been eliminated in consolidation.

NATURE OF OPERATIONS - The Corporation provides banking and related services to individual and corporate customers. Lending products include commercial, mortgage and consumer loans, as well as specialized instruments such as commercial letters-of-credit. Deposit products include various types of checking accounts, passbook and statement savings, money market accounts, interest checking accounts, Individual Retirement Accounts and certificates of deposit. As discussed further in Note 3, in 2019 the Corporation expanded its primary market area from its historic concentration in northcentral Pennsylvania and southern New York State by acquiring Monument Bancorp, Inc. (“Monument”) with offices in Southeastern Pennsylvania. In 2019, the Corporation also expanded into south central Pennsylvania by opening a lending office in York.

The Corporation provides Trust and Financial Management services, including administration of trusts and estates, retirement plans, and other employee benefit plans, and investment management services. The Corporation offers a variety of personal and commercial insurance products through C&N Financial Services Corporation. C&N Financial Services Corporation also offers mutual funds, annuities, educational savings accounts and other investment products through registered agents.

Management has determined that the Corporation has one reportable segment, “Community Banking.” All of the Corporation’s activities are interrelated, and each activity is dependent and assessed based on how each of the activities of the Corporation supports the others.

The Corporation is subject to competition from other financial institutions. It is also subject to regulation by certain federal and state agencies and undergoes periodic examination by those regulatory authorities. As a consequence, the Corporation’s business is particularly susceptible to being affected by future federal and state legislation and regulations.

USE OF ESTIMATES - The financial information is presented in accordance with generally accepted accounting principles and general practice for financial institutions in the United States of America (“U.S. GAAP”). In preparing financial statements, management is required to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements. In addition, these estimates and assumptions affect revenues and expenses in the financial statements and as such, actual results could differ from those estimates.

Material estimates that are particularly susceptible to change include: (1) the allowance for loan losses, (2) fair values of debt securities based on estimates from independent valuation services or from brokers and (3) assessment of impaired securities to determine whether or not the securities are other-than-temporarily impaired.

INVESTMENT SECURITIES - Investment securities are accounted for as follows:

Available-for-sale debt securities -includes debt securities not classified as held-to-maturity or trading. Such securities are reported at fair value, with unrealized gains and losses excluded from earnings and reported separately through accumulated other comprehensive income (loss), net of tax. Premiums on non-amortizing available-for-sale debt securities are amortized using the level yield method to the earliest call date, while discounts on non-amortizing securities are amortized to the maturity date. Premiums and discounts on amortizing securities (mortgage-backed securities) are amortized using the level yield method over the remaining contractual life of the securities, adjusted for actual prepayments. Realized gains and losses on sales of available-for-sale securities are computed on the basis of specific identification of the adjusted cost of each security. Securities within the available-for-sale portfolio may be used as part of the Corporation’s asset and liability management strategy and may be sold in response to changes in interest rate risk, prepayment risk or other factors.

Other-than-temporary impairment – Credit-related declines in the fair value of available-for-sale debt securities that are deemed to be other-than-temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment (OTTI) losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) the intent and ability of the Corporation to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value, and (4) whether the Corporation intends to sell the security or if it is more likely than not that the Corporation will be required to sell the security before the recovery of its amortized cost basis. The credit-related impairment is recognized in earnings and is the difference between a security’s amortized cost basis and the present value of expected future cash flows discounted at the security’s effective interest rate. For debt securities classified as held-to-maturity, if any, the amount of noncredit-related impairment is recognized in other comprehensive income and accreted over the remaining life of the debt security as an increase in the carrying value of the security.

| 42 |

| --- |

Marketable equity security – The marketable equity security is carried at fair value with unrealized gains and losses included in other noninterest income in the consolidated statements of income.

Restricted equity securities

Restricted equity securities consist primarily of Federal Home Loan Bank of Pittsburgh stock, and are carried at cost and evaluated for impairment. Holdings of restricted equity securities are included in Other Assets in the consolidated balance sheets, and dividends received on restricted securities are included in Other Income in the consolidated statements of income.

LOANS HELD FOR SALE - Mortgage loans held for sale are reported at the lower of cost or market, determined in the aggregate.

LOANS RECEIVABLE - Loans originated by the Corporation which management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at unpaid principal balances, less the allowance for loan losses and net deferred loan fees. Interest income is accrued on the unpaid principal balance. Loan origination and commitment fees, as well as certain direct origination costs, are deferred and amortized as a yield adjustment over the lives of the related loans using the interest method.

The loans receivable portfolio is segmented into residential mortgage, commercial and consumer loans. The residential mortgage segment includes the following classes: first and junior lien residential mortgages, home equity lines of credit and residential construction loans. The most significant classes of commercial loans are commercial loans secured by real estate, non-real estate secured commercial and industrial loans, loans to political subdivisions, commercial construction, multi-family residential and loans secured by farmland.

Loans are placed on nonaccrual status for all classes of loans when, in the opinion of management, collection of interest is doubtful. Any unpaid interest previously accrued on those loans is reversed from income. Interest income is not recognized on specific impaired loans unless the likelihood of further loss is remote. Interest payments received on loans for which the risk of further loss is greater than remote are applied as a reduction of the loan principal balance. Interest income on other nonaccrual loans is recognized only to the extent of interest payments received. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time (generally six months) and the ultimate collectability of the total contractual principal and interest is no longer in doubt. The past due status of all classes of loans receivable is determined based on contractual due dates for loan payments. Also, the amortization of deferred loan fees is discontinued when a loan is placed on nonaccrual status.

PURCHASED LOANS – The Corporation purchased loans in connection with its acquisition of Monument, some of which had, at the acquisition date of April 1, 2019, shown evidence of credit deterioration since origination. The Corporation considers several factors as indicators that an acquired loan has evidence of deterioration in credit quality. These factors include loans 90 days or more past due, loans with an internal risk rating of substandard or below, loans classified as nonaccrual by the acquired institution and loans that have been previously modified in a troubled debt restructuring. The purchased loans that showed evidence of credit impairment were designated as the purchased credit impaired (“PCI”) loans and were recorded at fair value, with no carryover of the allowance for loan losses. The PCI loans acquired are secured by real estate and the fair value of each loan at the acquisition date was determined based on the estimated proceeds to be derived from selling the collateral, net of selling costs. The PCI loans were placed into nonaccrual status upon acquisition (and remained in nonaccrual status at December 31, 2019) as the Corporation cannot reasonably estimate cash flows expected to be collected in order to compute yield on the loans.

For purchased loans that did not show evidence of credit deterioration at the acquisition date, the difference between the fair value of the loan at the acquisition date and the loan’s contractual amount is being amortized as a yield adjustment over the estimated remaining life of the loan using the effective interest method.

ALLOWANCE FOR LOAN LOSSES- The allowance for loan losses represents management’s estimate of losses inherent in the loan portfolio as of the balance sheet date and is recorded as a reduction to loans. The allowance for loan losses is increased by the provision for loan losses, and decreased by charge-offs, net of recoveries. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance. All, or part, of the principal balance of loans receivable are charged off to the allowance as soon as it is determined that the collection of all, or part, of the principal balance is highly unlikely. Non-residential consumer loans are generally charged off no later than when they are 120 days past due on a contractual basis, or earlier in the event of bankruptcy or if there is an amount deemed uncollectible.

The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs a quarterly evaluation of the adequacy of the allowance. The allowance is based on the Corporation’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Corporation’s allowance for loan losses. Such agencies may require the Corporation to recognize adjustments to the allowance based on their judgments of information available to them at the time of their examination. In the process of evaluating the loan portfolio, management also considers the Corporation’s exposure to losses from unfunded loan commitments. As of December 31, 2019 and 2018, management determined that no allowance for credit losses related to unfunded loan commitments was required.

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The allowance consists primarily of two major components – (1) a specific component based on a detailed assessment of certain larger loan relationships, mainly commercial purpose, determined on a loan-by-loan basis; and (2) a general component for the remainder of the portfolio, except for the performing loans purchased in 2019 from Monument, based on a collective evaluation of pools of loans with similar risk characteristics. The general component is assigned to each pool of loans based on both historical net charge-off experience, and an evaluation of certain qualitative factors. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the above methodologies for estimating specific and general losses in the portfolio.

The specific component relates to loans that are classified as impaired based on a detailed assessment of certain larger loan relationships evaluated by a management committee referred to as the Watch List Committee. Specific loan relationships are identified for evaluation based on the related credit risk rating. For individual loans classified as impaired, an allowance is established when the collateral value less estimated selling costs, present value of discounted cash flows or observable market price of the impaired loan is lower than the carrying value of that loan.

The scope of loans reviewed individually each quarter to determine if they are impaired include all commercial loan relationships greater than $200,000 and any residential mortgage or consumer loans of $400,000 or more for which there is at least one extension of credit graded Special Mention, Substandard or Doubtful. Loans that are individually reviewed, but which are determined to not be impaired, are combined with all remaining loans that are not reviewed on a specific basis, and such loans are included within larger pools of loans based on similar risk and loss characteristics for purposes of determining the general component of the allowance. All loans classified as troubled debt restructurings and all commercial loan relationships less than $200,000 or other loan relationships less than $400,000 in the aggregate, but with an estimated loss of $100,000 or more, are individually evaluated for impairment.

Loans acquired from Monument that did not show evidence of credit deterioration at the acquisition date (April 1, 2019) were initially recorded at fair value, including a discount for credit losses reflecting an estimate of the present value of credit losses based on market expectations. None of the performing loans purchased were impaired at December 31, 2019, and these purchased performing loans were excluded from the loan pools for which the general component of the allowance for loan losses was calculated. A provision for loan losses on purchased performing loans would be recognized only when the required allowance for loan losses or charge-off would exceed any remaining purchase discount at the loan level.

The general component covers pools of loans by loan class including commercial loans not considered individually impaired, as well as smaller balance homogeneous classes of loans, such as residential real estate, home equity lines of credit and other consumer loans. Accordingly, the Corporation generally does not separately identify individual consumer and residential loans for impairment disclosures, unless such a loan: (1) is subject to a restructuring agreement, (2) has an outstanding balance of $400,000 or more and a credit grade of Special Mention, Substandard or Doubtful, or (3) has an estimated loss of $100,000 or more. The pools of loans for each loan segment are evaluated for loss exposure based upon average historical net charge-off rates, adjusted for qualitative factors. The time period used in determining the average historical net charge-off rate for each loan class is based on management’s evaluation of an appropriate time period that captures an historical loss experience relevant to the current portfolio. Qualitative risk factors (described in the following paragraph) are evaluated for the impact on each of the three distinct segments (residential mortgage, commercial and consumer) within the loan portfolio. Each qualitative factor is assigned a value to reflect improving, stable or declining conditions based on management’s judgment using relevant information available at the time of the evaluation. Any adjustments to the factors are supported by a narrative documentation of changes in conditions accompanying the allowance for loan losses calculation.

The qualitative factors used in the general component calculations are designed to address credit risk characteristics associated with each segment. The Corporation’s credit risk associated with all of the segments is significantly impacted by these factors, which include economic conditions within its market area, the Corporation’s lending policies, changes or trends in the portfolio, risk profile, competition, regulatory requirements and other factors.

Loans are classified as impaired when, based on current information and events, it is probable that the Corporation will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial loans by the fair value of the collateral (if the loan is collateral dependent), by future cash flows discounted at the loan’s effective rate or by the loan’s observable market price.

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For commercial loans secured by real estate, estimated fair values are determined primarily through third-party appraisals. When a real estate secured loan becomes impaired, a decision is made regarding whether an updated certified appraisal of the real estate is necessary. This decision is based on various considerations, including the age of the most recent appraisal, the loan-to-value ratio based on the original appraisal and the condition of the property. Appraised values are discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property.

For commercial and industrial loans secured by non-real estate collateral, such as accounts receivable, inventory and equipment, estimated fair values are determined based on the borrower’s financial statements, inventory reports, accounts receivable aging data or equipment appraisals or invoices. Indications of value from these sources are generally discounted based on the age of the financial information or the quality of the assets.

Loans whose terms are modified are classified as troubled debt restructurings if the Corporation grants such borrowers concessions and it is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a troubled debt restructuring generally involve reductions in required payments, an extension of a loan’s stated maturity date or a temporary reduction in interest rate. Loans classified as troubled debt restructurings are designated as impaired. Nonaccrual troubled debt restructurings may be restored to accrual status if the ultimate collectability of principal and interest payments under the modified terms is not in doubt, and there has been a period (generally, for at least six consecutive months) of satisfactory payment performance by the borrower either immediately before or after the restructuring.

BANK PREMISES AND EQUIPMENT- Bank premises and equipment are stated at cost less accumulated depreciation. Repair and maintenance expenditures which extend the useful lives of assets are capitalized, and other repair and maintenance expenditures are expensed as incurred. Depreciation expense is computed using the straight-line method.

IMPAIRMENT OF LONG-LIVED ASSETS - The Corporation reviews long-lived assets, such as premises and equipment and intangibles, for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. These changes in circumstances may include a significant decrease in the market value of an asset or the manner in which an asset is used. If there is an indication the carrying value of an asset may not be recoverable, future undiscounted cash flows expected to result from use of the asset are estimated. If the sum of the expected cash flows is less than the carrying value of the asset, a loss is recognized for the difference between the carrying value and fair market value of the asset.

FORECLOSED ASSETS HELD FOR SALE - Foreclosed assets held for sale consist of real estate acquired by foreclosure and are initially recorded at fair value, less estimated selling costs.

GOODWILL - Goodwill represents the excess of the cost of acquisitions over the fair value of the net assets acquired. Goodwill is tested at least annually at December 31 for impairment, or more often if events or circumstances indicate there may be impairment. The Corporation has the option of performing a qualitative assessment to determine whether any further quantitative testing for impairment is necessary. The option of whether or not to perform a qualitative assessment is made annually.

CORE DEPOSIT INTANGIBLES – Amortization of core deposit intangibles is calculated using an accelerated method. In determining amortization using the accelerated method for any given period, the amount of expected cash flows for that period that were used in determining the acquisition-date fair value is divided by the total amount of expected cash flows over the life of the asset. That percentage is multiplied by the initial carrying amount of the asset to arrive at amortization expense for that period. If the Corporation’s cash flow patterns differ significantly from the initial estimates, the amortization schedule would be adjusted prospectively.

SERVICING RIGHTS - The estimated fair value of servicing rights related to mortgage loans sold and serviced by the Corporation is recorded as an asset upon the sale of such loans. The valuation of servicing rights is adjusted quarterly, with changes in fair value included in Loan Servicing Fees, Net, in the consolidated statements of income. Significant inputs to the valuation include expected net servicing income to be received, the expected life of the underlying loans and the discount rate. The servicing rights asset is included in Other Assets in the consolidated balance sheets.

INCOME TAXES - Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases given the provisions of the enacted tax laws. Deferred tax assets are reduced, if necessary, by the amount of such benefits that are not expected to be realized based upon available evidence. Tax benefits from investments in limited partnerships that have qualified for federal low-income tax credits are recognized as a reduction in the provision for income tax over the term of the investment using the effective yield method. The Corporation includes income tax penalties in the provision for income tax. The Corporation has no accrued interest related to unrecognized tax benefits.

STOCK COMPENSATION PLANS - The Corporation’s stock-based compensation policy applies to all forms of stock-based compensation including stock options and restricted stock units. All stock-based compensation is accounted for under the fair value method as required by U.S. GAAP. The expense associated with stock-based compensation is recognized over the vesting period of each individual arrangement.

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The fair value of each stock option is estimated on the date of grant using the Black-Scholes-Merton option valuation model. The fair value of restricted stock is based on the current market price on the date of grant.

OFF-BALANCE SHEET FINANCIAL INSTRUMENTS- In the ordinary course of business, the Corporation has entered into off-balance sheet financial instruments consisting of commitments to extend credit and standby letters of credit. Such financial instruments are recorded in the financial statements when they become payable.

CASH FLOWS - The Corporation utilizes the net reporting of cash receipts and cash payments for certain deposit and lending activities. Cash equivalents include federal funds sold and all cash and amounts due from depository institutions and interest-bearing deposits in other banks with original maturities of three months or less.

REVENUE RECOGNITION - As of January 1, 2018, the Corporation adopted Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606), as well as subsequent ASUs that modified Topic 606. The Company elected to apply the ASU and all related ASUs using the modified retrospective implementation method. The implementation of the guidance had no material impact on the measurement or recognition of revenue of prior periods. The Corporation generally fully satisfies its performance obligations on its contracts with customers as services are rendered and the transaction prices are typically fixed; charged either on a periodic basis or based on activity. Because performance obligations are satisfied as services are rendered and the transaction prices are fixed, there is little judgment involved in applying Topic 606 that significantly affects the determination of the amount and timing of revenue from contracts with customers.

Additional disclosures related to the Corporation’s largest sources of noninterest income within the consolidated statements of income that are subject to Topic 606 are as follows:

Trust and financial management revenue– C&N Bank’s trust division provides a wide range of financial services, including wealth management services for individuals, businesses and retirement funds, administration of 401(k) and other retirement plans, retirement planning, estate planning and estate settlement services. Trust clients are located primarily within the Corporation’s geographic markets. Assets held in a fiduciary capacity by C&N Bank are not the Corporation’s assets and are therefore not included in the consolidated balance sheets. The fair value of trust assets under management was approximately $1,007,113,000 at December 31, 2019 and $862,517,000 at December 31, 2018. Trust and financial management revenue is included within noninterest income in the consolidated statements of income.

Trust revenue is recorded on a cash basis, which is not materially different from the accrual basis. The majority (approximately 82%, based on annual 2019 results) of trust revenue is earned and collected monthly, with the amount determined based on a percentage of the fair value of the trust assets under management. Wealth management fees are contractually agreed with each customer, and fee levels vary based mainly on the size of assets under management. The services provided under such a contract represent a single performance obligation under the ASU because it embodies a series of distinct goods or services that are substantially the same and have the same pattern of transfer to the customer. None of the contracts with trust customers provide for incentive-based fees. In addition to wealth management fees, trust revenue includes fees for provision of services, including employee benefit plan administration, tax return preparation and estate planning and settlement. Fees for such services are billed based on contractual arrangements or established fee schedules and are typically billed upon completion of providing such services. The costs of acquiring trust customers are incremental and recognized within noninterest expense in the consolidated statements of income.

Service charges on deposit accounts

Deposits are included as liabilities in the consolidated balance sheets. Service charges on deposit accounts include: overdraft fees, which are charged when customers overdraw their accounts beyond available funds; automated teller machine (ATM) fees charged for withdrawals by deposit customers from other financial institutions’ ATMs; and a variety of other monthly or transactional fees for services provided to retail and business customers, mainly associated with checking accounts. All deposit liabilities are considered to have one-day terms and therefore related fees are recognized in income at the time when the services are provided to the customers. Incremental costs of obtaining deposit contracts are not significant and are recognized as expense when incurred within noninterest expense in the consolidated statements of income.

Interchange revenue from debit card transactions– The Corporation issues debit cards to consumer and business customers with checking, savings or money market deposit accounts. Debit card and ATM transactions are processed via electronic systems that involve several parties. The Corporation’s debit card and ATM transaction processing is executed via contractual arrangements with payment processing networks, a processor and a settlement bank. As described above, all deposit liabilities are considered to have one-day terms and therefore interchange revenue from customers’ use of their debit cards to initiate transactions are recognized in income at the time when the services are provided and related fees received in the Corporation’s deposit account with the settlement bank. Incremental costs associated with ATM and interchange processing are recognized as expense when incurred within noninterest expense in the consolidated statements of income.

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2. RECENT ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board (FASB) issues ASUs to the FASB Accounting Standards Codification (ASC). This section provides a summary description of recent ASUs that have significant implications (elected or required) within the consolidated financial statements, or that management expects may have a significant impact on financial statements issued in the foreseeable future.

Recent Accounting Pronouncements - Adopted

Effective December 31, 2019, the Corporation elected early adoption of ASU 2017-04, Intangibles – Goodwill and Other (Topic 350), which simplified accounting for goodwill impairment by removing step 2 of the goodwill impairment test thus eliminating the need to determine the fair value of individual assets and liabilities of the reporting unit. Upon adoption of this ASU, goodwill impairment is the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. Adoption of this ASU did not have a material impact on the Corporation’s consolidated financial statements.

Effective January 1, 2019, the Corporation adopted ASU 2016-02, Leases (Topic 842), as modified by subsequent ASUs, which changed U.S. GAAP by requiring that lease assets and liabilities arising from operating leases be recognized on the balance sheet. Topic 842, as modified, does not significantly change the recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee from prior U.S. GAAP. For leases with a term of 12 months or less, the Corporation made an accounting policy election by class of underlying asset not to recognize lease assets and liabilities. The Corporation elected to adopt this pronouncement using an optional transition method resulting in recognition of right-of-use assets and lease liabilities for operating leases of $1,132,000 on its consolidated balance sheets at January 1, 2019, with no adjustment to stockholders’ equity and no material impact to its consolidated statements of income. At December 31, 2019, right-of-use assets of $1,637,000 were included in other assets, and the related liabilities totaling the same amount were included in accrued interest and other liabilities, in the consolidated balance sheets.

In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which permits, but does not require, entities to reclassify tax effects stranded in accumulated other

comprehensive income resulting from the Tax Cuts and Jobs Act of 2017 to retained earnings. Companies that elect to reclassify these amounts must reclassify stranded tax effects for all items accounted for in accumulated other comprehensive income. The Corporation elected early adoption and adopted this standard update, effective January 1, 2018. The Corporation’s stranded tax effects were related to valuation of the net deferred tax asset attributable to items of accumulated other comprehensive income (loss), which are unrealized gains (losses) on available-for-sale debt securities and unfunded defined benefit plan obligations. Adoption resulted in a reclassification between two categories of stockholders’ equity at January 1, 2018, with an increase of $325,000 in retained earnings and a decrease in accumulated other comprehensive loss for the same amount (no net change in stockholders’ equity).

Effective January 1, 2018, the Corporation elected early adoption of ASU 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20). This Update shortens the amortization period for certain callable debt securities held at a premium. Discounts will continue to be amortized to maturity. Adoption resulted in a reduction in retained earnings and corresponding increase in accumulated other comprehensive loss (no net change in stockholders’ equity) of $26,000 at January 1, 2018 for the cumulative after-tax impact of the change in accounting for debt securities held as of that date.

Effective January 1, 2018, the Corporation adopted ASU 2016-01, Recognition and Measurement of Financial Assets and Liabilities. The guidance affects the accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements of financial instruments. ASU 2016-01 was effective for the Corporation on January 1, 2018 and resulted in the following changes:

·	A marketable equity<br>security previously included in available-for-sale securities on the consolidated balance sheets is presented as a separate asset.
·	Changes in the fair<br>value of the marketable equity security are captured in the consolidated statements of income.
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·	Retained earnings<br>was reduced and a corresponding increase in accumulated other comprehensive loss was recognized (no net change in stockholders’<br>equity) of $22,000 at January 1, 2018 for the after-tax impact of the change in accounting for the unrealized loss on the marketable<br>equity security.
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·	Adoption of ASU<br>2016-01 also resulted in the use of an exit price to determine the fair value of financial instruments not measured at fair value<br>in the consolidated balance sheets. Further information regarding valuation of financial instruments is provided in Note 21.
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Recently Issued But Not Yet EffectiveAccounting Pronouncements

ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), as modified by subsequent ASUs, changes accounting for credit losses on loans receivable and debt securities from an incurred loss methodology to an expected credit loss methodology. Among other things, ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Accordingly, ASU 2016-13 requires the use of forward-looking information to form credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, though the inputs to those techniques will change to reflect the full amount of expected credit losses.

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In addition, ASU 2016-13 amends the accounting for credit losses on debt securities and purchased financial assets with credit deterioration. The effect of implementing this ASU is recorded through a cumulative-effect adjustment to retained earnings. The Corporation has formed a cross functional management team and is working with an outside vendor assessing alternative loss estimation methodologies and the Corporation’s data and system needs to evaluate the impact that adoption of this standard will have on the Corporation’s financial condition and results of operations. In November 2019, the FASB approved a delay of the required implementation date of ASU 2016-13 for smaller reporting companies, including the Corporation, resulting in a required implementation date for the Corporation of January 1, 2023.

ASU 2018-13, Fair Value Measurement (Topic 820) modifies disclosure requirements on fair value measurements. This ASU removes requirements to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements. ASU 2018-13 clarifies that disclosure regarding measurement uncertainty is intended to communicate information about the uncertainty in measurement as of the reporting date. ASU 2018-13 adds certain disclosure requirements, including disclosure of changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments in this ASU are effective for the Corporation beginning in the first quarter 2020. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty should be applied prospectively, while all other amendments should be applied retrospectively for all periods presented. The Corporation does not expect adoption of this ASU to have a material impact on its consolidated financial position or results of operations.

ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40) was issued to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement includes a software license. The amendments align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments. This guidance will become effective for the Corporation beginning in the first quarter 2020, with early adoption permitted. The Corporation does not expect adoption of this ASU to have a material impact on its consolidated financial statements.

3. BUSINESS COMBINATION AND PENDING ACQUISITION

Business Combination –Acquisition of Monument Bancorp, Inc.

On April 1, 2019, the Corporation completed its acquisition of 100% of the common stock of Monument. Monument was the parent company of Monument Bank, a commercial bank which operated two community bank offices and one lending office in Bucks County, Pennsylvania. Pursuant to the merger, Monument was merged into Citizens & Northern Corporation and Monument Bank was merged into C&N Bank. Management believes the acquisition provides an opportunity to leverage the Corporation’s capital and deposits in a higher growth market and aligns with the Corporation’s focus to proactively deploy capital to enhance long-term shareholder value.

The consolidated financial statements include the formerly separate Monument operations from April 1, 2019 through December 31, 2019. Since the activities of the former Monument operations have been combined with those of the Corporation, separate disclosure of Monument-related financial information included in the consolidated financial statements is not practicable.

Total purchase consideration was $42,651,000, including cash paid to former Monument shareholders totaling $9,517,000 and 1,279,825 shares of Corporation common stock issued with a value of $32,953,000, (net of costs directly related to stock issuance of $181,000 included in the cash portion of merger consideration transferred in the table below).

The merger was accounted for using the acquisition method of accounting and, accordingly, purchased assets, including identifiable intangible assets, and assumed liabilities were recorded at their respective acquisition date fair values. The fair value measurements of assets acquired and liabilities assumed are subject to refinement for up to one year after the closing date of the acquisition as additional information relative to closing date fair values become available. In the fourth quarter 2019, the Corporation recorded an adjustment to the initial fair value measurements of miscellaneous receivables and accrued liabilities made as of April 1, 2019. The adjustment resulted in an increase in other assets of $216,000 and a decrease in other liabilities of $14,000, with a corresponding reduction in goodwill of $230,000.

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The fair value of assets acquired (as adjusted in the fourth quarter 2019), excluding goodwill, totaled $375,138,000, while the fair value of liabilities assumed totaled $348,933,000. Goodwill represents consideration transferred in excess of the fair value of the net assets acquired. At December 31, 2019, goodwill associated with the acquisition was $16,446,000. The goodwill resulting from the acquisition represents the value expected from the expansion of the Corporation’s market into Southeastern Pennsylvania. Goodwill acquired in the Monument merger is not deductible for tax purposes as the acquisition is accounted for as a tax-free exchange for tax purposes.

The following table summarizes the consideration paid for Monument and the estimated fair values of the assets acquired and liabilities assumed at the acquisition date:

(In Thousands)
Fair value of consideration transferred:
Cash	$	9,698
Common stock issued		32,953
Total consideration transferred	$	42,651
Estimated fair values<br> of assets acquired and (liabilities) assumed: <br>(In Thousands)
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Cash and cash equivalents	$	7,920
Available-for-sale debt securities		94,568
Loans receivable		259,295
Accrued interest receivable		1,593
Bank premises and equipment		1,465
Foreclosed assets held for sale		1,064
Deferred tax asset, net		771
Core deposit intangible		1,461
Goodwill		16,446
Other assets		7,001
Deposits		(223,303	)
Short-term borrowings		(111,568	)
Subordinated debt		(12,375	)
Accrued interest and other liabilities		(1,687	)
Estimated excess fair value of assets acquired over liabilities assumed	$	42,651

In the consolidated statements of cash flows, noncash investing and financing activities include the issuance of common stock as part of the merger consideration as well as the following categories of assets acquired and liabilities assumed from Monument as reflected in the table above: available-for-sale debt securities, loans receivable, bank premises and equipment, foreclosed assets held for sale, core deposit intangible, goodwill, Federal Home Loan Bank of Pittsburgh stock of $5,478,000 (included in other assets above), deposits, short-term borrowings and subordinated debt.

Acquisition date fair values for available-for-sale securities were determined using Level 1 inputs consistent with the methods discussed further in Note 21. The Corporation sold the acquired securities in April 2019 for approximately no realized gain or loss.

The determination of estimated fair values of the acquired loans required the Corporation to make certain estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature. Based on such factors as past due status, nonaccrual status, bankruptcy status, and credit risk ratings, the acquired loans were evaluated, and four loans (from three relationships) displayed evidence of credit quality deterioration. These loans are accounted for under ASC 310-30 (purchased credit impaired, or “PCI”). The majority of the purchased loans did not display evidence of impairment, and thus are accounted for under ASC 310-20. Expected cash flows, both principal and interest, were estimated based on key assumptions covering such factors as prepayments, default rates and severity of loss given default. These assumptions were developed based on the portfolio characteristics as of the acquisition date as well as available market research. The fair value estimates for acquired loans were based on the amount and timing of expected principal, interest and other cash flows, including expected prepayments, discounted at prevailing market interest rates applicable to the types of acquired loans, which the Corporation considers Level 3 fair value measurements.

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Loans acquired from Monument were measured at fair value at the acquisition date with no carryover of an allowance for loan losses. The following table presents performing and PCI loans acquired, by loan segment and class, at April 1, 2019:

(In Thousands)	Performing		PCI		Total
Residential mortgage:
Residential mortgage loans - first liens	$	107,645	$	77	$	107,722
Residential mortgage loans - junior liens		2,433		0		2,433
Home equity lines of credit		2,674		0		2,674
1-4 Family residential construction		510		0		510
Total residential mortgage		113,262		77		113,339
Commercial:
Commercial loans secured by real estate		113,821		364		114,185
Commercial and industrial		7,571		0		7,571
Commercial construction and land		4,617		0		4,617
Loans secured by farmland		267		0		267
Multi-family (5 or more) residential		17,493		0		17,493
Other commercial loans		835		0		835
Total commercial		144,604		364		144,968
Consumer		988		0		988
Total	$	258,854	$	441	$	259,295

The following table presents the preliminary fair value adjustments made to the amortized cost basis of loans acquired at April 1, 2019:

(In Thousands)
Gross amortized cost at acquisition	$	263,334
Market rate adjustment		(1,807	)
Credit fair value adjustment on non-credit impaired loans (accretable)		(1,914	)
Credit fair value adjustment on impaired loans (non-accretable)		(318	)
Estimated fair value of acquired loans	$	259,295

The market rate adjustment represents the movement in interest rates, irrespective of credit adjustments, compared to the contractual rates of the acquired loans. The credit adjustment made on non-PCI loans represents changes in credit quality of the underlying borrowers from loan inception to the acquisition date.

The credit adjustment on PCI loans is derived in accordance with ASC 310-30 and represents the portion of the loan balances that have been deemed uncollectible for each loan. The PCI loans are secured by real estate and the fair value of each loan was determined based on the estimated proceeds to be derived from selling the collateral, net of selling costs. The PCI loans were placed into nonaccrual status upon acquisition (and remained in nonaccrual status at December 31, 2019) as the Corporation cannot reasonably estimate cash flows expected to be collected in order to compute yield on the loans.

The Corporation recognized a core deposit intangible of $1,461,000. The core deposit intangible represents the estimated value of lower-cost funding provided by the nonmaturity deposits assumed in comparison with the Corporation’s estimated cost of borrowing funds in the market. The core deposit intangible will be amortized over a weighted-average life of 4.4 years.

Deposit liabilities assumed were segregated into two categories: (1) nonmaturity deposits (checking, savings and money market), and (2) time deposits (deposit accounts with a stated maturity). The fair values of both categories of deposits were determined using level 2 fair value measurements. For nonmaturity deposits, the acquisition date outstanding balance of the assumed demand deposit accounts approximates fair value. In determining the fair value of time deposits, the Corporation discounted the contractual cash flows of the deposit accounts using prevailing market interest rates for time deposit accounts of similar type and duration.

Short-term borrowings assumed consisted of advances from the Federal Home Loan Bank of Pittsburgh. The fair value of short-term borrowings was determined using Level 2 measurements by discounting the contractual cash flows of the borrowings using Federal Home Loan Bank interest rates available April 1, 2019 for advances to the same maturities as those of the deposits assumed.

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Subordinated debt assumed included two issues: (1) agreements with par values totaling $5,375,000 which were redeemed on April 1, 2019; and (2) agreements with par values totaling $7,000,000, maturing April 1, 2027 and which may be redeemed at par beginning April 1, 2022. The fair value of subordinated debt was determined using Level 2 measurements by comparing the interest rates on the debt to the rates on similar recent issues of comparable size by other similar-sized banking companies. In the fourth quarter 2019, the Corporation redeemed subordinated debt with a par value of $500,000, resulting in a loss of $10,000 (included in other noninterest expense in the consolidated statements of income).

Merger-related expenses associated with the Monument transaction totaled of $3,812,000 in 2019 and $328,000 in 2018. Merger-related expenses include costs associated with termination of data processing contracts, conversion of Monument’s customer accounting data into the Corporation’s core system, severance and similar expenses, legal and other professional fees and various other costs.

The following table presents pro forma information as if the merger between the Corporation and Monument had been completed on January 1, 2018. The pro forma information does not necessarily reflect the results of operations that would have occurred had the merger taken place at the beginning of 2018. The supplemental pro forma information excludes the after-tax cost of merger-related expenses totaling $3,270,000 in 2019 and $305,000 in 2018. The pro forma information does not include the impact of possible business model changes nor does it consider any potential impacts of current market conditions or revenues, expense efficiencies or other factors.

	Year Ended
	Dec. 31,		Dec. 31,
(In Thousands Except Per Share Data)	2019		2018
Interest income	$	68,817	$	66,528
Interest expense		11,517		10,516
Net interest income		57,300		56,012
Provision for loan losses		894		1,059
Net interest income after provision for loan losses		56,406		54,953
Noninterest income		19,300		18,712
Net gains on securities		23		2,763
Other noninterest expenses		47,178		46,586
Income before income tax provision		28,551		29,842
Income tax provision		4,954		4,812
Net income	$	23,597	$	25,030
Earnings per common share - basic	$	1.65	$	1.84
Earnings per common share - diluted	$	1.64	$	1.84

Pending Acquisition of Covenant Financial,Inc.

In December 2019, the Corporation announced a plan of merger to acquire Covenant Financial, Inc. (“Covenant”) in a transaction valued on December 18, 2019 at approximately $77 million. Under the terms of the definitive agreement, the Corporation will pay cash for 25% of the Covenant shares and will convert 75% of Covenant shares to the Corporation’s 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 $516 million, liabilities of $474 million and stockholders’ equity of $42 million at December 31, 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 2019, the Corporation 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.

4. PER SHARE DATA

Basic earnings per common share are calculated using the two-class method to determine income attributable to common shareholders. Unvested restricted stock awards that contain nonforfeitable rights to dividends are considered participating securities under the two-class method. Distributed dividends and an allocation of undistributed net income to participating securities reduce the amount of income attributable to common shareholders. Income attributable to common shareholders is then divided by weighted-average common shares outstanding for the period to determine basic earnings per common share.

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Diluted earnings per common share are calculated under the more dilutive of either the treasury method or the two-class method. Diluted earnings per common share is computed using weighted-average common shares outstanding, plus weighted-average common shares available from the exercise of all dilutive stock options, less the number of shares that could be repurchased with the proceeds of stock option exercises based on the average share price of the Corporation's common stock during the period.

	Years Ended
	Dec. 31,			Dec. 31,
	2019			2018
Basic
Net income	$	19,504,000		$	22,013,000
Less: Dividends and undistributed earnings allocated to participating securities		(100,000	)		(110,000	)
Net income attributable to common shares	$	19,404,000		$	21,903,000
Basic weighted-average common shares outstanding		13,298,736			12,219,209
Basic earnings per common share (a)	$	1.46		$	1.79
Diluted
Net income attributable to common shares	$	19,404,000		$	21,903,000
Basic weighted-average common shares outstanding		13,298,736			12,219,209
Dilutive effect of potential common stock arising from stock options		22,823			38,159
Diluted weighted-average common shares outstanding		13,321,559			12,257,368
Diluted earnings per common share (a)	$	1.46		$	1.79

(a) Basic and diluted earnings per share under the two-class method are determined on net income reported on the income statement less earnings allocated to nonvested restricted shares with nonforfeitable dividends (participating securities).

The weighted-average number of nonvested restricted shares outstanding was 68,358 shares in 2019 and 61,778 shares in 2018.

Stock options that are anti-dilutive are excluded from net income per share calculations. There were no anti-dilutive instruments in 2019 or 2018.

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5. COMPREHENSIVE INCOME

Comprehensive income (loss) is the total of (1) net income, and (2) all other changes in equity from non-stockholder sources, which are referred to as other comprehensive income (loss). The components of other comprehensive income (loss), and the related tax effects, are as follows:

	Before-Tax			Income Tax			Net-of-Tax
(In Thousands)	Amount			Effect			Amount
2019
Unrealized gains on available-for-sale debt securities:
Unrealized holding gains on available-for-sale securities	$	9,920		($	2,084	)	$	7,836
Reclassification adjustment for gains realized in income		(23	)		5			(18	)
Other comprehensive income on available-for-sale debt securities		9,897			(2,079	)		7,818
Unfunded pension and postretirement obligations:
Changes from plan amendments and actuarial gains and losses
included in other comprehensive income		87			(19	)		68
Amortization of prior service cost and net actuarial loss
included in net periodic benefit cost		(32	)		7			(25	)
Other comprehensive income on unfunded retirement obligations		55			(12	)		43
Total other comprehensive income	$	9,952		($	2,091	)	$	7,861
	Before-Tax			Income Tax			Net-of-Tax
---	---	---	---	---	---	---	---	---	---
(In Thousands)	Amount			Effect			Amount
2018
Unrealized losses on available-for-sale debt securities:
Unrealized holding losses on available-for-sale securities	($	3,392	)	$	712		($	2,680	)
Reclassification adjustment for losses realized in income		288			(60	)		228
Other comprehensive loss on available-for-sale debt securities		(3,104	)		652			(2,452	)
Unfunded pension and postretirement obligations:
Changes from plan amendments and actuarial gains and losses
included in other comprehensive income		101			(21	)		80
Amortization of prior service cost and net actuarial loss
included in net periodic benefit cost		(17	)		3			(14	)
Other comprehensive income on unfunded retirement obligations		84			(18	)		66
Total other comprehensive loss	($	3,020	)	$	634		($	2,386	)

Changes in the components of accumulated other comprehensive income (loss), included in stockholders’ equity, are as follows:

	Unrealized					Accumulated
	Gains			Unfunded		Other
	(Losses)			Retirement		Comprehensive
(In Thousands)	on Securities			Obligations		Income (Loss)
2019
Balance, beginning of period	$	(4,307	)	$	137	$	(4,170	)
Other comprehensive income during year ended December<br> 31, 2019		7,818			43		7,861
Balance, end of period	$	3,511		$	180	$	3,691
2018
Balance, beginning of period	$	(1,566	)	$	59	$	(1,507	)
Impact of change in enacted income tax rate		(337	)		12		(325	)
Impact of change in the method of premium amortization<br> of callable debt securities		26			0		26
Impact of change in the method of accounting for<br> marketable equity security		22			0		22
Other comprehensive (loss) income during year ended<br> December 31, 2018		(2,452	)		66		(2,386	)
Balance, end of period	$	(4,307	)	$	137	$	(4,170	)

Items reclassified out of each component of accumulated other comprehensive income (loss) are as follows:

For the Year Ended December 31, 2019
(In Thousands)
	Reclassified from
	Accumulated Other
Details about Accumulated Other	Comprehensive			Affected Line Item in the Consolidated
Comprehensive Income (Loss) Components	Income (Loss)			Statements of Income
Unrealized gains and losses on available-for-sale debt<br> securities	$	(23	)	Realized gains on available-for-sale debt securities, net
		5		Income tax provision
		(18	)	Net of tax
Amortization of defined benefit pension and postretirement items:
Prior service cost		(31	)	Other noninterest expense
Actuarial gain		(1	)	Other noninterest expense
		(32	)	Total before tax
		7		Income tax provision
		(25	)	Net of tax
Total reclassifications for the period	$	(43	)

For the Year Ended December 31, 2018
(In Thousands)
	Reclassified from
	Accumulated Other
Details about Accumulated Other	Comprehensive			Affected Line Item in the Consolidated
Comprehensive Income (Loss) Components	Income (Loss)			Statements of Income
Unrealized gains and losses on available-for-sale debt securities	$	288		Realized losses on available-for-sale debt securities, net
		(60	)	Income tax provision
		228		Net of tax
Amortization of defined benefit pension and postretirement items:
Prior service cost		(30	)	Other noninterest expense
Actuarial loss		13		Other noninterest expense
		(17	)	Total before tax
		3		Income tax provision
		(14	)	Net of tax
Total reclassifications for the period	$	214

6. CASH AND DUE FROM BANKS

Cash and due from banks at December 31, 2019 and 2018 include the following:

	Dec. 31,		Dec. 31,
(In thousands)	2019		2018
Cash and cash equivalents	$	31,122	$	32,827
Certificates of deposit		4,080		4,660
Total cash and due from banks	$	35,202	$	37,487

Certificates of deposit are issues by U.S. banks with original maturities greater than three months. Each certificate of deposit is fully FDIC-insured. The Corporation maintains cash and cash equivalents with certain financial institutions in excess of the FDIC insurance limit.

The Corporation is required to maintain reserves against deposit liabilities in the form of cash and balances with the Federal Reserve Bank. The reserves are based on deposit levels, account activity, and other services provided by the Federal Reserve Bank. Required reserves were $20,148,000 at December 31, 2019 and $18,141,000 at December 31, 2018.

7. SECURITIES

Amortized cost and fair value of available-for-sale debt securities at December 31, 2019 and 2018 are summarized as follows:

			December 31, 2019
			Gross		Gross
			Unrealized		Unrealized
	Amortized		Holding		Holding			Fair
(In Thousands)	Cost		Gains		Losses			Value
Obligations of U.S. Government agencies	$	16,380	$	620	$	0		$	17,000
Obligations of states and political subdivisions:
Tax-exempt		68,787		2,011		(38	)		70,760
Taxable		35,446		927		(70	)		36,303
Mortgage-backed securities issued or guaranteed by<br> U.S. Government agencies or sponsored agencies:
Residential pass-through securities		58,875		472		(137	)		59,210
Residential collateralized mortgage obligations		115,025		308		(610	)		114,723
Commercial mortgage-backed securities		47,765		1,069		(107	)		48,727
Total	$	342,278	$	5,407	($	962	)	$	346,723

			December 31, 2018
			Gross		Gross
			Unrealized		Unrealized
	Amortized		Holding		Holding			Fair
(In Thousands)	Cost		Gains		Losses			Value
Obligations of U.S. Government agencies	$	12,331	$	169	$	0		$	12,500
Obligations of states and political subdivisions:
Tax-exempt		84,204		949		(1,201	)		83,952
Taxable		27,618		208		(127	)		27,699
Mortgage-backed securities issued or guaranteed by<br> U.S. Government agencies or sponsored agencies:
Residential pass-through securities		54,827		48		(1,430	)		53,445
Residential collateralized mortgage obligations		148,964		238		(3,290	)		145,912
Commercial mortgage-backed securities		40,781		166		(1,182	)		39,765
Total	$	368,725	$	1,778	($	7,230	)	$	363,273

The following table presents gross unrealized losses and fair value of available-for-sale debt securities with unrealized loss positions that are not deemed to be other-than-temporarily impaired, aggregated by length of time that individual securities have been in a continuous unrealized loss position at December 31, 2019 and 2018:

	Less Than 12 Months					12 Months or More					Total
December 31, 2019	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(In Thousands)	Value		Losses			Value		Losses			Value		Losses
Obligations of states and political subdivisions:
Tax-exempt	$	6,429	($	38	)	$	0	$	0		$	6,429	($	38	)
Taxable		5,624		(68	)		161		(2	)		5,785		(70	)
Mortgage-backed securities issued or guaranteed by<br> U.S. Government agencies or sponsored agencies:
Residential pass-through securities		9,771		(35	)		14,787		(102	)		24,558		(137	)
Residential collateralized mortgage obligations		31,409		(195	)		30,535		(415	)		61,944		(610	)
Commercial mortgage-backed securities		0		0			8,507		(107	)		8,507		(107	)
Total	$	53,233	($	336	)	$	53,990	($	626	)	$	107,223	($	962	)
	Less Than 12 Months					12 Months or More					Total
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
December 31, 2018	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(In Thousands)	Value		Losses			Value		Losses			Value		Losses
Obligations of states and political subdivisions:
Tax-exempt	$	5,084	($	11	)	$	32,684	($	1,190	)	$	37,768	($	1,201	)
Taxable		980		(2	)		11,418		(125	)		12,398		(127	)
Mortgage-backed securities issued or guaranteed by<br> U.S. Government agencies or sponsored agencies:
Residential pass-through securities		5,592		(4	)		42,309		(1,426	)		47,901		(1,430	)
Residential collateralized mortgage obligations		1,892		(8	)		101,662		(3,282	)		103,554		(3,290	)
Commercial mortgage-backed securities		0		0			32,552		(1,182	)		32,552		(1,182	)
Total	$	13,548	($	25	)	$	220,625	($	7,205	)	$	234,173	($	7,230	)

Gross realized gains and losses from available-for-sale securities and the related income tax provision were as follows:

(In Thousands)	2019			2018
Gross realized gains from sales	$	24		$	259
Gross realized losses from sales		(1	)		(547	)
Net realized gains (losses)	$	23		($	288	)
Income tax (credit) provision related to net realized gains (losses)	$	5		($	60	)

The amortized cost and fair value of available-for-sale debt securities by contractual maturity are shown in the following table as of December 31, 2019. Actual maturities may differ from contractual maturities because counterparties may have the right to call or prepay obligations with or without call or prepayment penalties.

	December 31, 2019
	Amortized		Fair
(In Thousands)	Cost		Value
Due in one year or less	$	7,216	$	7,247
Due from one year through five years		31,627		32,408
Due from five years through ten years		42,709		43,845
Due after ten years		39,061		40,563
Sub-total		120,613		124,063
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		58,875		59,210
Residential collateralized mortgage obligations		115,025		114,723
Commercial mortgage-backed securities		47,765		48,727
Total	$	342,278	$	346,723

Investment securities carried at $215,270,000 at December 31, 2019 and $229,418,000 at December 31, 2018 were pledged as collateral for public deposits, trusts and certain other deposits as provided by law. See Note 12 for information concerning securities pledged to secure borrowing arrangements.

Management evaluates securities for OTTI at least on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) whether the Corporation intends to sell the security or more likely than not will be required to sell the security before its anticipated recovery.

A summary of information management considered in evaluating debt and equity securities for OTTI at December 31, 2019 and 2018 is provided below.

Debt Securities

At December 31, 2019 and 2018, management performed an assessment for possible OTTI of the Corporation’s debt securities on an issue-by-issue basis, relying on information obtained from various sources, including publicly available financial data, ratings by external agencies, brokers and other sources. The extent of individual analysis applied to each security depended on the size of the Corporation’s investment, as well as management’s perception of the credit risk associated with each security. Based on the results of the assessment, management believes impairment of these debt securities at December 31, 2019 and 2018 to be temporary.

Equity Securities

C&N Bank is a member of the Federal Home Loan Bank of Pittsburgh (FHLB-Pittsburgh), which is one of 11 regional Federal Home Loan Banks. As a member, C&N Bank is required to purchase and maintain stock in FHLB-Pittsburgh. There is no active market for FHLB-Pittsburgh stock, and it must ordinarily be redeemed by FHLB-Pittsburgh in order to be liquidated. C&N Bank’s investment in FHLB-Pittsburgh stock, included in Other Assets in the consolidated balance sheets, was $10,131,000 at December 31, 2019 and $5,582,000 at December 31, 2018. The Corporation evaluated its holding of FHLB-Pittsburgh stock for impairment and deemed the stock to not be impaired at December 31, 2019 and December 31, 2018. In making this determination, management concluded that recovery of total outstanding par value, which equals the carrying value, is expected. The decision was based on review of financial information that FHLB-Pittsburgh has made publicly available.

The Corporation’s marketable equity security, with carrying values of $979,000 at December 31, 2019 and $950,000 at December 31, 2018, consisted exclusively of one mutual fund. There was an unrealized loss on the mutual fund of $21,000 at December 31, 2019 and $50,000 at December 31, 2018. The decrease in the unrealized loss of $29,000 in 2019 and the increase in the unrealized loss of $21,000 in 2018 are included in other noninterest income in the consolidated statements of income.

In the year ended December 31, 2018, the Corporation recorded pre-tax gains from sales of a restricted equity security (Visa Class B stock) totaling $2,321,000. The Corporation had received 19,789 shares of Visa Class B stock pursuant to Visa’s 2007 initial public offering. Until the second quarter 2018, the carrying value of the shares was $0, which represented the Corporation’s cost basis. Class B shares are subject to restrictions on transfer, essentially limiting their transferability to other owners of Class B shares. In the second and third quarters of 2018, the Corporation sold all of its Visa Class B stock.

A summary of realized and unrealized gains and losses recognized on equity securities is as follows:

(In Thousands)	2019		2018
Net gains recognized during the period on equity<br> securities	$	29	$	2,300
Less: net gains recognized during the<br> period on equity securities sold during the period		0		(2,321	)
Unrealized gains (losses) recognized during the period<br> on equity securities still held at the reporting date	$	29	$	(21	)

8. LOANS

Loans outstanding at December 31, 2019 and 2018 are summarized as follows:

Summary of Loans by Type	Dec. 31,			Dec. 31,
(In Thousands)	2019			2018
Residential mortgage:
Residential mortgage loans - first liens	$	510,641		$	372,339
Residential mortgage loans - junior liens		27,503			25,450
Home equity lines of credit		33,638			34,319
1-4 Family residential construction		14,798			24,698
Total residential mortgage		586,580			456,806
Commercial:
Commercial loans secured by real estate		301,227			162,611
Commercial and industrial		126,374			91,856
Political subdivisions		53,570			53,263
Commercial construction and land		33,555			11,962
Loans secured by farmland		12,251			7,146
Multi-family (5 or more) residential		31,070			7,180
Agricultural loans		4,319			5,659
Other commercial loans		16,535			13,950
Total commercial		578,901			353,627
Consumer		16,741			17,130
Total		1,182,222			827,563
Less: allowance for loan losses		(9,836	)		(9,309	)
Loans, net	$	1,172,386		$	818,254

In the table above, outstanding loan balances are presented net of deferred loan origination fees, net, of $2,482,000 at December 31, 2019 and $1,999,000 at December 31, 2018.

As described in Note 3, effective April 1, 2019, the Corporation acquired loans pursuant to the acquisition of Monument. The loans acquired from Monument were recorded at an initial fair value of $259,295,000. The gross amortized cost of loans acquired from Monument on April 1, 2019 was reduced $1,807,000 based on movements in interest rates (market rate adjustment) and was also reduced $1,914,000 based on a credit fair value adjustment on non-impaired loans and by $318,000 based on a credit fair value adjustment on impaired loans. In 2019, adjustments to these initial discounts to the carrying amounts of loans were recognized as follows:

				Credit
	Market			Adjustment on			Credit
	Rate			Non-impaired			Adjustment on
(In Thousands)	Adjustment			Loans			PCI Loans
Adjustments to gross amortized cost of loans at acquisition	$	(1,807	)	$	(1,914	)	$	(318	)
Accretion recognized in interest income		392			698
Recovery from PCI loan pay-off								10
Adjustments to gross amortized cost of loans at December 31, 2019	$	(1,415	)	$	(1,216	)	$	(308	)

The Corporation grants loans to individuals as well as commercial and tax-exempt entities. Commercial, residential and personal loans are made to customers geographically concentrated in northcentral Pennsylvania, the southern tier of New York State, southeastern Pennsylvania and southcentral Pennsylvania. Although the Corporation has a diversified loan portfolio, a significant portion of its debtors’ ability to honor their contracts is dependent on the local economic conditions within the region. There is no concentration of loans to borrowers engaged in similar businesses or activities that exceed 10% of total loans at December 31, 2019.

Transactions within the allowance for loan losses, summarized by segment and class, were as follows:

Year Ended December 31, 2019	Dec. 31,		****		****	****		****		****	Dec. 31,
(In Thousands)	2018<br><br> Balance		Charge-offs			Recoveries		Provision (Credit)			2019 <br><br>Balance
Allowance for Loan Losses:
Residential mortgage:
Residential mortgage loans - first liens	$	3,156	$	(166	)	$	4	$	411		$	3,405
Residential mortgage loans - junior liens		325		(24	)		2		81			384
Home equity lines of credit		302		0			5		(31	)		276
1-4 Family residential construction		203		0			1		(87	)		117
Total residential mortgage		3,986		(190	)		12		374			4,182
Commercial:
Commercial loans secured by real estate		2,538		0			0		(617	)		1,921
Commercial and industrial		1,553		(6	)		6		(162	)		1,391
Commercial construction and land		110		0			0		856			966
Loans secured by farmland		102		0			0		56			158
Multi-family (5 or more) residential		114		0			0		42			156
Agricultural loans		46		0			0		(5	)		41
Other commercial loans		128		0			0		27			155
Total commercial		4,591		(6	)		6		197			4,788
Consumer		233		(183	)		39		192			281
Unallocated		499		0			0		86			585
Total Allowance for Loan Losses	$	9,309	$	(379	)	$	57	$	849		$	9,836
Year Ended December 31, 2018	Dec. 31,										Dec. 31,
---	---	---	---	---	---	---	---	---	---	---	---	---
(In Thousands)	2017<br><br> Balance		Charge-offs			Recoveries		Provision (Credit)			2018 <br><br>Balance
Allowance for Loan Losses:
Residential mortgage:
Residential mortgage loans - first liens	$	3,200	$	(108	)	$	4	$	60		$	3,156
Residential mortgage loans - junior liens		224		0			4		97			325
Home equity lines of credit		296		(50	)		0		56			302
1-4 Family residential construction		243		0			0		(40	)		203
Total residential mortgage		3,963		(158	)		8		173			3,986
Commercial:
Commercial loans secured by real estate		2,584		(21	)		0		(25	)		2,538
Commercial and industrial		1,065		(144	)		6		626			1,553
Commercial construction and land		150		0			0		(40	)		110
Loans secured by farmland		105		0			0		(3	)		102
Multi-family (5 or more) residential		172		0			311		(369	)		114
Agricultural loans		57		0			0		(11	)		46
Other commercial loans		102		0			0		26			128
Total commercial		4,235		(165	)		317		204			4,591
Consumer		159		(174	)		41		207			233
Unallocated		499		0			0		0			499
Total Allowance for Loan Losses	$	8,856	$	(497	)	$	366	$	584		$	9,309

In the evaluation of the loan portfolio, management determines two major components for the allowance for loan losses – (1) a specific component based on an assessment of certain larger relationships, mainly commercial purpose loans, on a loan-by-loan basis; and (2) a general component for the remainder of the portfolio, except for performing loans purchased in 2019 from Monument, based on a collective evaluation of pools of loans with similar risk characteristics. The general component is assigned to each pool of loans based on both historical net charge-off experience, and an evaluation of certain qualitative factors. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the above methodologies for estimating specific and general losses in the portfolio.

Loans acquired from Monument that were identified as having a deterioration in credit quality (purchased credit impaired, or PCI) were valued at $441,000 at April 1, 2019 and December 31, 2019. The remainder of the portfolio was deemed to be the performing component of the portfolio. None of the performing loans purchased were found to be impaired at December 31, 2019, and the performing loans purchased in 2019 were excluded from the loan pools for which the general component of the allowance for loan losses was calculated.

In determining the larger loan relationships for detailed assessment under the specific allowance component, the Corporation uses an internal risk rating system. Under the risk rating system, the Corporation classifies problem or potential problem loans as “Special Mention,” “Substandard,” or “Doubtful” on the basis of currently existing facts, conditions and values. Loans that do not currently expose the Corporation to sufficient risk to warrant classification as Substandard or Doubtful, but possess weaknesses that deserve management’s close attention, are deemed to be Special Mention. Substandard loans include those characterized by the distinct possibility that the Corporation will sustain some loss if the deficiencies are not corrected. Loans classified as Doubtful have all the weaknesses inherent in those classified as Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Risk ratings are updated any time that conditions or the situation warrants. Loans not classified are included in the “Pass” column in the table below.

The following tables summarize the aggregate credit quality classification of outstanding loans by risk rating as of December 31, 2019 and 2018:

									Purchased
December 31, 2019			Special						Credit
(In Thousands)	Pass		Mention		Substandard		Doubtful		Impaired		Total
Residential Mortgage:
Residential Mortgage loans - first liens	$	500,963	$	193	$	9,324	$	84	$	77	$	510,641
Residential Mortgage loans - junior liens		26,953		79		471		0		0		27,503
Home Equity lines of credit		33,170		59		409		0		0		33,638
1-4 Family residential construction		14,798		0		0		0		0		14,798
Total residential mortgage		575,884		331		10,204		84		77		586,580
Commercial:
Commercial loans secured by real estate		294,397		4,773		1,693		0		364		301,227
Commercial and Industrial		114,293		9,538		2,543		0		0		126,374
Political subdivisions		53,570		0		0		0		0		53,570
Commercial construction and land		32,224		0		1,331		0		0		33,555
Loans secured by farmland		6,528		4,681		1,042		0		0		12,251
Multi-family (5 or more) residential		30,160		0		910		0		0		31,070
Agricultural loans		3,343		335		641		0		0		4,319
Other commercial loans		16,416		0		119		0		0		16,535
Total commercial		550,931		19,327		8,279		0		364		578,901
Consumer		16,720		0		21		0		0		16,741
Totals	$	1,143,535	$	19,658	$	18,504	$	84	$	441	$	1,182,222

December 31, 2018			Special
(In Thousands)	Pass		Mention		Substandard		Doubtful		Total
Residential Mortgage:
Residential mortgage loans - first liens	$	363,407	$	937	$	7,944	$	51	$	372,339
Residential mortgage loans - junior liens		24,841		176		433		0		25,450
Home equity lines of credit		33,659		59		601		0		34,319
1-4 Family residential construction		24,698		0		0		0		24,698
Total residential mortgage		446,605		1,172		8,978		51		456,806
Commercial:
Commercial loans secured by real estate		156,308		740		5,563		0		162,611
Commercial and Industrial		84,232		5,230		2,394		0		91,856
Political subdivisions		53,263		0		0		0		53,263
Commercial construction and land		11,887		0		75		0		11,962
Loans secured by farmland		5,171		168		1,796		11		7,146
Multi-family (5 or more) residential		7,180		0		0		0		7,180
Agricultural loans		4,910		84		665		0		5,659
Other commercial loans		13,879		0		71		0		13,950
Total commercial		336,830		6,222		10,564		11		353,627
Consumer		17,116		0		14		0		17,130
Totals	$	800,551	$	7,394	$	19,556	$	62	$	827,563

As shown in the tables immediately above, total loans classified as special mention increased to $19,658,000 at December 31, 2019 from $7,394,000 at December 31, 2018. At December 31, 2019, there were 60 loans classified as special mention, with an average balance of $328,000. In comparison, at December 31, 2018, there were 53 loans classified as special mention, with an average balance of $140,000. Of the total balance of special mention loans at December 31, 2019, loans of $500,000 or more totaled $15,357,000, or 78% of the total. Special mention loans with balances of $500,000 or more at December 31, 2019 included 9 commercial loans to 7 different borrowers, summarized with comparative December 31, 2018 (if applicable) as follows:

					Risk
	Balance,		Balance,		Rating
	December 31,		December 31,		December 31,
(In Thousands)	2019		2018		2018
4 loans downgraded in 2019	$	6,668	$	7,043		Pass
1 loan with no change in rating in 2019		984		1,098		Special Mention
2 loans upgraded in 2019		3,570		3,781		Substandard
2 loans originated in 2019		4,135		0		N/A
Total Special Mention Loans of $500,000 or More at December 31, 2019	$	15,357	$	11,922

There was no specific allowance for loan losses recorded on any loans classified as special mention at December 31, 2019. At December 31, 2018, there were specific allowances totaling $1,365,000 on the 2 loans in the table above that were upgraded from substandard at December 31, 2018 to special mention at December 31, 2019. These loans were no longer considered impaired in 2019 and the specific allowances were eliminated in 2019. One of the loans originated in 2019 and classified as special mention at December 31, 2019, with an outstanding balance of $3,500,000 at December 31, 2019, was made on a partially unsecured basis. The Corporation estimates the liquidation value of the related collateral, net of selling costs, would be approximately $1,500,000, with a shortfall of $2,000,000. Despite the shortfall from the estimated value of the collateral, based on available information, the Corporation believes the loan should be repaid in full due to the high reported value of the borrower’s net worth.

At December 31, 2019, total loans classified as substandard amounted to $18,504,000, down from $19,556,000 at December 31, 2018. At December 31, 2019, there were 225 loans classified as substandard, with an average balance of $82,000. In comparison, at December 31, 2018, there were 215 loans classified as substandard, with an average balance of $91,000. Of the total balance of substandard loans at December 31, 2019, loans of $500,000 or more totaled $4,185,000, or 23% of the total, with the largest balance from one commercial construction loan with an outstanding balance of $1,261,000 and a specific allowance for loan losses of $678,000.

The following tables present a summary of loan balances and the related allowance for loan losses summarized by portfolio segment and class for each impairment method used as of December 31, 2019 and 2018:

	Loans:								Allowance<br> for Loan Losses:
					Purchased
December 31, 2019	Individually		Collectively		Performing				Individually		Collectively
(In Thousands)	Evaluated		Evaluated		Loans		Totals		Evaluated		Evaluated		Totals
Residential mortgage:
Residential<br> mortgage loans - first liens	$	1,023	$	405,186	$	104,432	$	510,641	$	0	$	3,405	$	3,405
Residential mortgage loans<br> - junior liens		368		24,730		2,405		27,503		176		208		384
Home equity lines of credit		0		32,147		1,491		33,638		0		276		276
1-4<br> Family residential construction		0		14,640		158		14,798		0		117		117
Total<br> residential mortgage		1,391		476,703		108,486		586,580		176		4,006		4,182
Commercial:
Commercial loans secured<br> by real estate		684		198,532		102,011		301,227		0		1,921		1,921
Commercial and industrial		1,467		122,313		2,594		126,374		149		1,242		1,391
Political subdivisions		0		53,570		0		53,570		0		0		0
Commercial construction<br> and land		1,261		29,710		2,584		33,555		678		288		966
Loans secured by farmland		607		11,386		258		12,251		48		110		158
Multi-family (5 or more)<br> residential		0		10,617		20,453		31,070		0		156		156
Agricultural loans		76		4,243		0		4,319		0		41		41
Other<br> commercial loans		0		15,947		588		16,535		0		155		155
Total<br> commercial		4,095		446,318		128,488		578,901		875		3,913		4,788
Consumer		0		16,741		0		16,741		0		281		281
Unallocated														585
Total	$	5,486	$	939,762	$	236,974	$	1,182,222	$	1,051	$	8,200	$	9,836
	Loans:						Allowance for Loan Losses:
---	---	---	---	---	---	---	---	---	---	---	---	---
December 31, 2018	Individually		Collectively				Individually		Collectively
(In Thousands)	Evaluated		Evaluated		Totals		Evaluated		Evaluated		Totals
Residential mortgage:
Residential mortgage loans - first liens	$	991	$	371,348	$	372,339	$	0	$	3,156	$	3,156
Residential mortgage loans - junior liens		293		25,157		25,450		116		209		325
Home equity lines of credit		0		34,319		34,319		0		302		302
1-4 Family residential construction		0		24,698		24,698		0		203		203
Total residential mortgage		1,284		455,522		456,806		116		3,870		3,986
Commercial:
Commercial loans secured by real estate		4,302		158,309		162,611		781		1,757		2,538
Commercial and industrial		2,157		89,699		91,856		659		894		1,553
Political subdivisions		0		53,263		53,263		0		0		0
Commercial construction and land		0		11,962		11,962		0		110		110
Loans secured by farmland		1,349		5,797		7,146		49		53		102
Multi-family (5 or more) residential		0		7,180		7,180		0		114		114
Agricultural loans		665		4,994		5,659		0		46		46
Other commercial loans		0		13,950		13,950		0		128		128
Total commercial		8,473		345,154		353,627		1,489		3,102		4,591
Consumer		17		17,113		17,130		0		233		233
Unallocated												499
Total	$	9,774	$	817,789	$	827,563	$	1,605	$	7,205	$	9,309

Summary information related to impaired loans as of December 31, 2019 and 2018 is as follows:

	December 31, 2019						December 31, 2018
	Unpaid						Unpaid
	Principal		Recorded		Related		Principal		Recorded		Related
(In Thousands)	Balance		Investment		Allowance		Balance		Investment		Allowance
With no related allowance recorded:
Residential mortgage loans - first liens	$	645	$	617	$	0	$	750	$	721	$	0
Residential mortgage loans - junior liens		42		42		0		54		54		0
Commercial loans secured by real estate		684		684		0		1,787		1,787		0
Commercial and industrial		563		563		0		817		817		0
Loans secured by farmland		129		129		0		862		862		0
Agricultural loans		76		76		0		665		665		0
Consumer		0		0		0		17		17		0
Total with no related allowance recorded		2,139		2,111		0		4,952		4,923		0
With a related allowance recorded:
Residential mortgage loans - first liens		406		406		0		270		270		0
Residential mortgage loans - junior liens		326		326		176		239		239		116
Commercial loans secured by real estate		0		0		0		2,515		2,515		781
Commercial and industrial		904		904		149		1,340		1,340		659
Construction and other land loans		1,261		1,261		678		0		0		0
Loans secured by farmland		478		478		48		487		487		49
Total with a related allowance recorded		3,375		3,375		1,051		4,851		4,851		1,605
Total	$	5,514	$	5,486	$	1,051	$	9,803	$	9,774	$	1,605

In the table immediately above, two loans to one borrower are presented under the Residential mortgage loans – first liens and Residential mortgage loans – junior liens classes. These loans are collateralized by one property, and the allowance associated with these loans was determined based on an analysis of the total amounts of the Corporation’s exposure in comparison to the estimated net proceeds if the Corporation were to sell the property.

The average balance of impaired loans and interest income recognized on impaired loans is as follows:

					Interest Income Recognized
	Average Investment in				on Impaired Loans
	Impaired Loans				on a Cash Basis
	Year Ended December 31,				Year Ended December 31,
(In Thousands)	2019		2018		2019		2018
Residential mortgage:
Residential mortgage loans - first lien	$	1,440	$	980	$	87	$	52
Residential mortgage loans - junior lien		288		297		12		11
Home equity lines of credit		26		0		4		0
Total residential mortgage		1,754		1,277		103		63
Commercial:
Commercial loans secured by real estate		1,562		4,897		19		141
Commercial and industrial		1,186		708		25		47
Commercial construction and land		556		0		71		0
Loans secured by farmland		1,276		1,357		49		35
Multi-family (5 or more) residential		0		314		0		0
Agricultural loans		399		542		31		46
Other commercial loans		20		0		4		0
Total commercial		4,999		7,818		199		269
Consumer		3		18		0		1
Total	$	6,756	$	9,113	$	302	$	333

The breakdown by portfolio segment and class of nonaccrual loans and loans past due ninety days or more and still accruing is as follows:

	December 31, 2019				December 31, 2018
	Past Due				Past Due
	90+ Days and				90+ Days and
(In Thousands)	Accruing		Nonaccrual		Accruing		Nonaccrual
Residential mortgage:
Residential mortgage loans - first liens	$	878	$	4,679	$	1,633	$	4,750
Residential mortgage loans -<br> junior liens		53		326		151		239
Home equity lines of credit		71		73		219		27
Total residential mortgage		1,002		5,078		2,003		5,016
Commercial:
Commercial loans secured by real estate		107		1,148		394		3,958
Commercial and industrial		15		1,051		18		2,111
Commercial construction and land		0		1,311		0		52
Loans secured by farmland		43		565		459		1,297
Agricultural loans		0		0		0		665
Other commercial		0		49		0		0
Total commercial		165		4,124		871		8,083
Consumer		40		16		32		14
Totals	$	1,207	$	9,218	$	2,906	$	13,113

The amounts shown in the table immediately above include loans classified as troubled debt restructurings (described in more detail below), if such loans are considered past due ninety days or more, or nonaccrual.

The tables below present a summary of the contractual aging of loans as of December 31, 2019 and 2018:

	As<br> of December 31, 2019								As<br> of December 31, 2018
	Current<br> &								Current<br> &
	Past<br> Due		Past<br> Due		Past<br> Due				Past<br> Due		Past<br> Due		Past<br> Due
	Less<br> than		30-89		90+				Less<br> than		30-89		90+
(In Thousands)	30<br> Days		Days		Days		Total		30<br> Days		Days		Days		Total
Residential<br> mortgage:
Residential mortgage loans - first liens	$	499,024	$	7,839	$	3,778	$	510,641	$	361,362	$	6,414	$	4,563	$	372,339
Residential mortgage loans - junior liens		27,041		83		379		27,503		24,876		184		390		25,450
Home equity lines of credit		33,115		452		71		33,638		33,611		480		228		34,319
1-4 Family residential construction		14,758		40		0		14,798		24,531		167		0		24,698
Total<br> residential mortgage		573,938		8,414		4,228		586,580		444,380		7,245		5,181		456,806
Commercial:
Commercial loans secured by real estate		299,640		737		850		301,227		160,668		226		1,717		162,611
Commercial and industrial		126,221		16		137		126,374		90,915		152		789		91,856
Political subdivisions		53,570		0		0		53,570		53,263		0		0		53,263
Commercial construction and land		33,505		0		50		33,555		11,910		0		52		11,962
Loans secured by farmland		11,455		666		130		12,251		5,390		487		1,269		7,146
Multi-family (5 or more) residential		31,070		0		0		31,070		7,104		76		0		7,180
Agricultural loans		4,318		1		0		4,319		5,624		29		6		5,659
Other commercial loans		16,535		0		0		16,535		13,950		0		0		13,950
Total<br> commercial		576,314		1,420		1,167		578,901		348,824		970		3,833		353,627
Consumer		16,496		189		56		16,741		16,991		93		46		17,130
Totals	$	1,166,748	$	10,023	$	5,451	$	1,182,222	$	810,195	$	8,308	$	9,060	$	827,563

Nonaccrual loans are included in the contractual aging immediately above. A summary of the contractual aging of nonaccrual loans at December 31, 2019 and 2018 is as follows:

	Current &
	Past Due		Past Due		Past Due
	Less than		30-89		90+
(In Thousands)	30 Days		Days		Days		Total
December 31, 2019 Nonaccrual Totals	$	3,840	$	1,134	$	4,244	$	9,218
December 31, 2018 Nonaccrual Totals	$	5,793	$	1,166	$	6,154	$	13,113

Loans whose terms are modified are classified as Troubled Debt Restructurings (TDRs) if the Corporation grants such borrowers concessions and it is deemed that those borrowers are experiencing financial difficulty. Loans classified as TDRs are designated as impaired and reviewed each quarter to determine if a specific allowance for loan losses is required. The outstanding balance of loans subject to TDRs, as well as the contractual aging information at December 31, 2019 and 2018 is as follows:

Troubled Debt Restructurings (TDRs):

	Current &
	Past Due		Past Due		Past Due
	Less than		30-89		90+
(In Thousands)	30 Days		Days		Days		Nonaccrual		Total
December 31, 2019 Totals	$	889	$	0	$	0	$	1,737	$	2,626
December 31, 2018 Totals	$	612	$	43	$	0	$	2,884	$	3,539

At December 31, 2019 and 2018, there were no commitments to loan additional funds to borrowers whose loans have been classified as TDRs.

A summary of TDRs that occurred during 2019 and 2018 is as follows:

(Balances in Thousands)
	2019				2018
			Post-				Post-
	Number		Modification		Number		Modification
	of		Recorded		of		Recorded
	Loans		Investment		Loans		Investment
Residential mortgage - first liens:
Reduced monthly payments and extended maturity date		1	$	271		0	$	0
Reduced monthly payments for a six-month period		0		0		1		80
Residential mortgage - junior liens,
Reduced monthly payments and extended maturity date		1		18		0		0
Commercial loans secured by real estate,
Extended interest only payments for a six-month period		0		0		2		36
Commercial and industrial:
Extended interest only payments for a six-month period		0		0		1		46
Reduced monthly payments and extended maturity date		8		177		0		0
Commercial construction and land,
Extended interest only payments and reduced monthly
payments with a balloon payment at maturity		1		1,261		0		0
Agricultural loans,
Reduced monthly payments and extended maturity date		1		84		0		0
Total		12	$	1,811		4	$	162

There were no differences between the outstanding contractual amounts and the recorded investments in receivables resulting from TDRs that occurred in 2019 and 2018. At December 31, 2019, the Corporation maintained a specific allowance for loan losses of $678,000 related to the commercial construction loan for which a TDR occurred in 2019. The other loans for which TDRs were granted in 2019 are associated with one relationship for which payment defaults occurred in 2019 as described below.

In 2019 and 2018, payment defaults on loans for which modifications considered to be TDRs were entered into within the previous 12 months are summarized as follows:

	2019				2018
	Number				Number
	of		Recorded		of		Recorded
(Balances in Thousands)	Loans		Investment		Loans		Investment
Residential mortgage - first liens		1	$	261		0		0
Residential mortgage - junior liens		1		18		0		0
Commercial and industrial		8		170		0		0
Agricultural loans		1		81		0		0
Total		11	$	530		0	$	0

All of the TDRs for which payment defaults occurred in 2019 were related to one commercial relationship. These loans were individually evaluated for impairment at December 31, 2019 and 2018, and no specific allowance for loan losses was recognized because the estimated values of collateral and U.S. Government (Small Business Administration) guarantees exceeded the outstanding balances of the loans.

The carrying amount of foreclosed residential real estate properties held as a result of obtaining physical possession (included in Foreclosed assets held for sale in the consolidated balance sheets) is as follows:

	Dec. 31,		Dec. 31,
(In Thousands)	2019		2018
Foreclosed residential real estate	$	292	$	64

The recorded investment of consumer mortgage loans secured by residential real properties for which formal foreclosure proceedings were in process is as follows:

	Dec. 31,		Dec. 31,
(In Thousands)	2019		2018
Residential real estate in process of foreclosure	$	1,717	$	1,097

9. BANK PREMISES AND EQUIPMENT

	December 31,
(In Thousands)	2019			2018
Land	$	3,199		$	2,803
Buildings and improvements		28,403			27,343
Furniture and equipment		13,618			16,577
Construction in progress		1,655			2
Total		46,875			46,725
Less: accumulated depreciation		(29,705	)		(32,133	)
Net	$	17,170		$	14,592

Depreciation expense is included in the following line items of the consolidated statements of income:

(In Thousands)	2019		2018
Occupancy expense	$	775	$	849
Furniture and equipment expense		692		684
Data processing expenses		239		183
Telecommunications expenses		43		38
Total	$	1,749	$	1,754

10. GOODWILL AND OTHER INTANGIBLE ASSETS,NET

Information related to the core deposit intangibles is as follows:

	December 31,
(In Thousands)	2019			2018
Gross amount	$	3,495		$	2,034
Accumulated amortization		(2,248	)		(2,025	)
Net	$	1,247		$	9

Amortization expense was $223,000 in 2019, including $214,000 related to the Monument transaction described in Note 3, and $3,000 in 2018. The amount of amortization expense to be recognized in each of the ensuing five years is as follows:

(In Thousands)
2020	$	249
2021		193
2022		160
2023		133
2024		125

Changes in the carrying amount of goodwill are summarized in the following table:

	December 31,
(In Thousands)	2019		2018
Balance, beginning of period	$	11,942	$	11,942
Goodwill arising in business combination		16,446		0
Balance, end of period	$	28,388	$	11,942

In testing goodwill for impairment as of December 31, 2019, the Corporation by-passed performing a qualitative assessment and performed a quantitative assessment based on comparison of the Corporation’s market capitalization to its stockholders’ equity, resulting in the determination that the fair value of its reporting unit, its community banking operation, exceeded its carrying value. Accordingly, there was no goodwill impairment at December 31, 2019.

The Corporation’s assessment of goodwill for impairment at December 31, 2018 was based on assessment of qualitative factors to determine whether it was more likely than not that the fair value of its community banking operation was less than its carrying amount. The qualitative factors assessed included the Corporation’s recent financial performance, economic conditions in the Corporation’s market area, macroeconomic conditions and other factors. Based on the assessment of qualitative factors, the Corporation determined that it was not more likely than not that the fair value of the community banking operation had fallen below its carrying value, and therefore, the Corporation did not perform a more detailed, two-step goodwill impairment test and concluded there was no goodwill impairment as of December 31, 2018.

11. DEPOSITS

At December 31, 2019, the scheduled maturities of time deposits are as follows:

(In Thousands)
2020	$	238,887
2021		83,197
2022		28,968
2023		12,003
2024		11,610
2025		30
Total	$	374,695

Time deposits of more than $250,000 totaled $84,476,000 at December 31, 2019 and $36,094,000 at December 31, 2018. As of December 31, 2019, the remaining maturities or time to next re-pricing of time deposits more than $250,000 was as follows:

(In Thousands)
Three months or less	$	19,176
Over 3 months through 12 months		52,093
Over 1 year through 3 years		6,601
Over 3 years		6,606
Total	$	84,476

12. BORROWED FUNDS AND SUBORDINATEDDEBT

Short-term borrowings (initial maturity within one year) include the following:

	Dec. 31,		Dec. 31,
(In Thousands)	2019		2018
FHLB-Pittsburgh borrowings	$	84,292	$	7,000
Customer repurchase agreements		1,928		5,853
Total short-term borrowings	$	86,220	$	12,853

Short-term borrowings from FHLB-Pittsburgh are as follows:

	Dec. 31,		Dec. 31
(In Thousands)	2019		2018
Overnight borrowing	$	64,000	$	7,000
Other short-term advances		20,292		0
Total short-term FHLB-Pittsburgh borrowings	$	84,292	$	7,000

Overnight borrowings from FHLB-Pittsburgh had an interest rate of 1.81% at December 31, 2019 and 2.62% at December 31, 2018. At December 31, 2019, other short-term advances included seven advances totaling $20,297,000 which are presented in the table net of the unamortized purchase accounting adjustment, with a weighted-average effective rate of 2.28%.

The weighted average interest rate on total short-term borrowings outstanding was 1.88% at December 31, 2019 and 1.47% at December 31, 2018. The maximum amount of total short-term borrowings outstanding at any month-end was $86,220,000 in 2019 and $74,646,000 in 2018.

The Corporation had available credit with other correspondent banks totaling $45,000,000 at December 31, 2019 and 2018. These lines of credit are primarily unsecured. No amounts were outstanding at December 31, 2019 or 2018.

The Corporation has a line of credit with the Federal Reserve Bank of Philadelphia’s Discount Window. At December 31, 2019, the Corporation had available credit in the amount of $14,244,000 on this line with no outstanding advances. At December 31, 2018, the Corporation had available credit in the amount of $15,262,000 on this line with no outstanding advances. As collateral for this line, the Corporation has pledged available-for-sale securities with a carrying value of $14,728,000 at December 31, 2019 and $15,710,000 at December 31, 2018.

The FHLB-Pittsburgh loan facility is collateralized by qualifying loans secured by real estate with a book value totaling $778,877,000 at December 31, 2019 and $495,143,000 at December 31, 2018. Also, the FHLB-Pittsburgh loan facility requires the Corporation to invest in established amounts of FHLB-Pittsburgh stock. The carrying values of the Corporation’s holdings of FHLB-Pittsburgh stock (included in Other Assets) were $10,131,000 at December 31, 2019 and $5,582,000 at December 31, 2018. The Corporation’s total credit facility with FHLB-Pittsburgh was $552,546,000 at December 31, 2019, including an unused (available) amount of $416,127,000. At December 31, 2018, the Corporation’s total credit facility with FHLB-Pittsburgh was $361,614,000, including an unused (available) amount of $318,699,000.

The Corporation engages in repurchase agreements with certain commercial customers. These agreements provide that the Corporation sells specified investment securities to the customers on an overnight basis and repurchases them on the following business day. The weighted average rate paid by the Corporation on customer repurchase agreements was 0.10% at December 31, 2019 and December 31, 2017. The carrying value of the underlying securities was $1,951,000 at December 31, 2019 and $5,890,000 at December 31, 2018.

LONG-TERM BORROWINGS

Long-term borrowings from FHLB-Pittsburgh are as follows:

	Dec. 31,		Dec. 31,
(In Thousands)	2019		2018
Loans matured in 2019 with a weighted-average rate of 2.36%	$	0	$	32,000
Loans maturing in 2020 with a weighted-average rate of 2.73%		5,069		3,271
Loans maturing in 2021 with a weighted-average rate of 1.54%		6,000		0
Loans maturing in 2022 with a weighted-average rate of 2.03%		20,000		0
Loans maturing in 2023 with a weighted-average rate of 1.70%		20,500		0
Loan maturing in 2025 with a rate of 4.91%		558		644
Total long-term FHLB-Pittsburgh borrowings	$	52,127	$	35,915

In connection with the Monument acquisition, the Corporation assumed subordinated debt agreements with par values totaling $7,000,000, maturing April 1, 2027, which may be redeemed at par beginning April 1, 2022. The agreements have fixed annual interest rates of 6.50%. The subordinated debt was recorded at fair value, which was deemed to be equal to par value. In the fourth quarter 2019, the Corporation redeemed subordinated debt with a par value of $500,000, resulting in a loss of $10,000 (included in other noninterest expense in the consolidated statements of income). At December 31, 2019, the carrying value of the subordinated debt on the consolidated balance sheet is $6,500,000.

13. EMPLOYEE AND POSTRETIREMENT BENEFITPLANS

DEFINED BENEFIT PLANS

The Corporation sponsors a defined benefit health care plan that provides postretirement medical benefits and life insurance to employees who meet certain age and length of service requirements. Full-time employees no longer accrue service time toward the Corporation-subsidized portion of the medical benefits. The plan contains a cost-sharing feature which causes participants to pay for all future increases in costs related to benefit coverage. Accordingly, actuarial assumptions related to health care cost trend rates do not significantly affect the liability balance at December 31, 2019 and December 31, 2018 and are not expected to significantly affect the Corporation's future expenses. The Corporation uses a December 31 measurement date for the postretirement plan.

In an acquisition in 2007, the Corporation assumed the Citizens Trust Company Retirement Plan, a defined benefit pension plan. This plan covers certain employees who were employed by Citizens Trust Company on December 31, 2002, when the plan was amended to discontinue admittance of any future participant and to freeze benefit accruals. Information related to the Citizens Trust Company Retirement Plan has been included in the tables that follow. The Corporation uses a December 31 measurement date for this plan.

The following table shows the funded status of the defined benefit plans:

	Pension						Postretirement
(In Thousands)	2019			2018			2019			2018
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year	$	870		$	850		$	1,349		$	1,497
Service cost		0			0			33			40
Interest cost		28			25			50			51
Plan participants' contributions		0			0			184			206
Actuarial (gain) loss		91			11			(63	)		(192	)
Benefits paid		(13	)		(16	)		(227	)		(253	)
Benefit obligation at end of year	$	976		$	870		$	1,326		$	1,349
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year	$	847		$	923		$	0		$	0
Actual return on plan assets		137			(60	)		0			0
Employer contribution		0			0			43			47
Plan participants' contributions		0			0			184			206
Benefits paid		(13	)		(16	)		(227	)		(253	)
Fair value of plan assets at end of year	$	971		$	847		$	0		$	0
Funded status at end of year	$	(5	)	$	(23	)	$	(1,326	)	$	(1,349	)

At December 31, 2019 and 2018, the following pension plan and postretirement plan liability amounts were recognized in the consolidated balance sheets:

	Pension				Postretirement
(In Thousands)	2019		2018		2019		2018
Accrued interest and other liabilities	$	5	$	23	$	1,326	$	1,349

At December 31, 2019 and 2018, the following items included in accumulated other comprehensive income had not been recognized as components of expense:

Items not yet recognized as acomponent of net periodic benefit cost:

	Pension				Postretirement
(In Thousands)	2019		2018		2019			2018
Prior service cost	$	0	$	0	$	(248	)	$	(279	)
Net actuarial loss (gain)		255		299		(236	)		(194	)
Total	$	255	$	299	$	(484	)	$	(473	)

For the defined benefit pension plan, amortization of the net actuarial loss is expected to be $16,000 in 2020. For the postretirement plan, the estimated amount of prior service cost that will be amortized from accumulated other comprehensive income into net periodic benefit cost in 2020 is a reduction in expense of $31,000, and net actuarial gain of $7,000 is expected to be amortized in 2020.

The accumulated benefit obligation for the defined benefit pension plan was $976,000 at December 31, 2019 and $870,000 at December 31, 2018.

The components of net periodic benefit costs from defined benefit plans are as follows:

	Pension						Postretirement
(In Thousands)	2019			2018			2019			2018
Service cost	$	0		$	0		$	33		$	40
Interest cost		28			25			50			51
Expected return on plan assets		(22	)		(20	)		0			0
Amortization of prior service cost		0			0			(31	)		(30	)
Recognized net actuarial loss (gain)		20			13			(21	)		0
Total net periodic benefit cost	$	26		$	18		$	31		$	61

The weighted-average assumptions used to determine net periodic benefit cost are as follows:

	Pension						Postretirement
	2019			2018			2019			2018
Citizens Trust Company Retirement Plan and postretirement plan:
Discount rate		4.10	%		3.55	%		4.50	%		3.75	%
Expected return on plan assets		4.68	%		4.32	%		N/A			N/A
Rate of compensation increase		N/A			N/A			N/A			N/A

The weighted-average assumptions used to determine benefit obligations as of December 31, 2019 and 2018 are as follows:

	Pension						Postretirement
	2019			2018			2019			2018
Discount rate		3.55	%		4.10	%		3.25	%		4.50	%
Rate of compensation increase		N/A			N/A			N/A			N/A

Estimated future benefit payments, including only estimated employer contributions for the postretirement plan, which reflect expected future service, are as follows:

(In Thousands)	Pension		Postretirement
2020	$	431	$	81
2021		11		85
2022		13		89
2023		181		81
2024		11		84
2025-2029		349		478

No estimated minimum contribution to the defined benefit pension plan is required in 2020, though the Corporation may make discretionary contributions.

The expected return on pension plan assets is a significant assumption used in the calculation of net periodic benefit cost. This assumption reflects the average long-term rate of earnings expected on the funds invested or to be invested to provide for the benefits included in the projected benefit obligation.

The fair values of pension plan assets at December 31, 2019 and 2018 are as follows:


Mutual funds invested principally in:
Cash and cash equivalents	3	%	3	%
Debt securities	38	%	40	%
Equity securities	49	%	45	%
Alternative funds	10	%	12	%
Total	100	%	100	%

C&N Bank’s Trust and Financial Management Department manages the investment of the pension plan assets. The Plan’s securities include mutual funds invested principally in debt securities, a diversified mix of large, mid- and small-capitalization U.S. stocks, foreign stocks and alternative asset classes such as real estate, commodities, and inflation-protected securities. The fair values of plan assets are determined based on Level 1 inputs (as described in Note 21). The Plan’s assets do not include any shares of the Corporation’s common stock.

PROFIT SHARING AND DEFERRED COMPENSATION PLANS

The Corporation has a profit sharing plan that incorporates the deferred salary savings provisions of Section 401(k) of the Internal Revenue Code. The Corporation’s matching contributions to the Plan depend upon the tax deferred contributions of employees. The Corporation’s total basic and matching contributions were $891,000 in 2019 and $717,000 in 2018.

The Corporation has an Employee Stock Ownership Plan (ESOP). Contributions to the ESOP are discretionary, and the ESOP uses funds contributed to purchase Corporation stock for the accounts of ESOP participants. These purchases are made on the market (not directly from the Corporation), and employees are not permitted to purchase Corporation stock under the ESOP. The ESOP includes a diversification feature, which allows participants, upon reaching age 55 and 10 years of service (as defined), to sell up to 50% of their Corporation shares over a period of 6 years. As of December 31, 2019, and 2018, there were no shares allocated for repurchase by the ESOP.

Dividends paid on shares held by the ESOP are charged to retained earnings. All Corporation shares owned through the ESOP are included in the calculation of weighted-average shares outstanding for purposes of calculating earnings per share - basic and diluted. The ESOP held 473,171 shares of Corporation stock at December 31, 2019 and 444,843 shares at December 31, 2018, all of which had been allocated to Plan participants. The Corporation’s contributions to the ESOP totaled $718,000 in 2019 and $605,000 in 2018.

The Corporation has a nonqualified supplemental deferred compensation arrangement with its key officers. Charges to operating expense for officers’ supplemental deferred compensation were $251,000 in 2019 and $242,000 in 2018.

The Corporation also has a nonqualified deferred compensation plan that allows selected officers the option to defer receipt of cash compensation, including base salary and any cash bonuses or other cash incentives. This nonqualified deferred compensation plan does not provide for Corporation contributions.

STOCK-BASED COMPENSATION PLANS

The Corporation has a Stock Incentive Plan for a selected group of senior officers. A total of 850,000 shares of common stock may be issued under the Stock Incentive Plan. Awards may be made under the Stock Incentive Plan in the form of qualified options (“Incentive Stock Options,” as defined in the Internal Revenue Code), nonqualified options, stock appreciation rights or restricted stock. Historically through December 31, 2019, all awards made under this Plan have consisted of Incentive Stock Options or restricted stock. Incentive Stock Options have an exercise price equal to the market value of the stock at the date of grant, vest after 6 months and expire after 10 years. There are 223,867 shares available for issuance under the Stock Incentive Plan as of December 31, 2019.

Also, the Corporation has an Independent Directors Stock Incentive Plan. This plan permits awards of nonqualified stock options and/or restricted stock to non-employee directors. A total of 235,000 shares of common stock may be issued under the Independent Directors Stock Incentive Plan. The recipients’ rights to exercise stock options under this plan expire 10 years from the date of grant. The exercise prices of all stock options awarded under the Independent Directors Stock Incentive Plan are equal to market value as of the dates of grant. There are 109,965 shares available for issuance under the Independent Directors Stock Incentive Plan as of December 31, 2019.

Total stock-based compensation expense is as follows:

(In Thousands)	2019		2018
Restricted stock	$	798	$	855
Stock options		0		0
Total	$	798	$	855

The following summarizes non-vested restricted stock activity for the year ended December 31, 2019:

				Weighted
				Average
	Number			Grant Date
	of Shares			Fair Value
Outstanding, December 31, 2018		60,345		$	23.81
Granted		48,137		$	24.47
Vested		(36,524	)	$	23.21
Forfeited		(3,758	)	$	25.08
Outstanding, December 31, 2019		68,200		$	24.53

Compensation cost related to restricted stock is recognized based on the market price of the stock at the grant date over the vesting period, adjusted for estimated and actual forfeitures. As of December 31, 2019, there was $822,000 total unrecognized compensation cost related to restricted stock, which is expected to be recognized over a weighted average period of 1.4 years.

In 2019 and 2018, the Corporation awarded shares of restricted stock under the Stock Incentive Plan, as follows:


Time-based awards to independent directors	7,620	9,086
Time-based awards to employees	26,827	17,147
Performance-based awards to employees	13,690	8,289
Total	48,137	34,522

Time-based restricted stock awards granted under the Independent Directors Stock Incentive Plan in 2019 and 2018 vest over one-year terms. Time-based restricted stock awards granted to employees in 2019 and 2018 vest ratably over three-year terms, subject to continued employment and satisfactory job performance. Performance-based restricted stock awards granted in 2019 and 2018 vest ratably over three-year terms, with vesting contingent upon meeting conditions based on the Corporation’s earnings as specified in the agreements.

There were no stock options granted in 2019 or 2018. A summary of stock option activity is presented below:

	2019					2018
				Weighted					Weighted
				Average					Average
				Exercise					Exercise
	Shares			Price		Shares			Price
Outstanding, beginning of year		115,714		$	18.49		165,660		$	18.49
Granted		0					0
Exercised		(31,304	)	$	17.65		(41,210	)	$	18.69
Forfeited		0					0
Expired		(8,513	)	$	19.88		(8,736	)	$	17.50
Outstanding, end of year		75,897		$	18.69		115,714		$	18.49
Options exercisable at year-end		75,897		$	18.69		115,714		$	18.49
Weighted-average fair value of options forfeited					N/A					N/A

The weighted-average remaining contractual term of outstanding stock options at December 31, 2019 was 2.7 years. The aggregate intrinsic value of stock options outstanding was $726,000 at December 31, 2019. The total intrinsic value of options exercised was $276,000 in 2019 and $291,000 in 2018.

The Corporation has issued shares from treasury stock for almost all stock option exercises through December 31, 2019. Management does not anticipate that stock repurchases will be necessary to accommodate stock option exercises in 2020.

In January 2020, the Corporation awarded 30,381 shares of restricted stock under the Stock Incentive Plan and 7,580 shares of restricted stock under the Independent Directors Stock Incentive Plans. The January 2020 restricted stock awards under the Stock Incentive Plan vest ratably over three years. The 2020 restricted stock issued under the Independent Directors Stock Incentive Plan vests over one year. Total estimated stock-based compensation for 2020 is $920,000. The restricted stock awards made in January 2020 are not included in the tables above.

14. INCOME TAXES

The net deferred tax asset at December 31, 2019 and 2018 represents the following temporary difference components:

	December 31,		December 31,
(In Thousands)	2019		2018
Deferred tax assets:
Unrealized holding losses on securities	$	0	$	1,145
Allowance for loan losses		2,080		2,005
Purchase accounting adjustments on loans		640		0
Other deferred tax assets		2,173		2,049
Total deferred tax assets		4,893		5,199
Deferred tax liabilities:
Unrealized holding gains on securities		934		0
Defined benefit plans - ASC 835		49		37
Bank premises and equipment		763		907
Core deposit intangibles		272		2
Other deferred tax liabilities		257		143
Total deferred tax liabilities		2,275		1,089
Deferred tax asset, net	$	2,618	$	4,110

The provision for income taxes includes the following:

(In thousands)	2019		2018
Currently payable	$	3,618	$	4,350
Tax expense resulting from allocations of certain tax benefits to equity or as a reduction in other assets		115		87
Deferred		172		(187	)
Total provision	$	3,905	$	4,250

A reconciliation of income tax at the statutory rate to the Corporation’s effective rate is as follows (amounts in thousands):

	2019						2018
(Amounts in thousands)	Amount			%			Amount			%
Statutory provision	$	4,916			21.00		$	5,515			21.00
Tax-exempt interest income		(853	)		(3.64	)		(1,046	)		(3.98	)
Increase in cash surrender value and other income from<br> life insurance, net		(91	)		(0.39	)		(170	)		(0.65	)
ESOP Dividends		(113	)		(0.48	)		(98	)		(0.37	)
State income tax, net of Federal benefit		122			0.52			125			0.48
Other, net		(76	)		(0.32	)		(76	)		(0.29	)
Effective income tax provision	$	3,905			16.68		$	4,250			16.18

In December 2017, the Corporation recognized an adjustment in the carrying value of the net deferred tax asset as a result of a reduction in the federal corporate income tax rate to 21%, effective January 1, 2018, from the 35% marginal rate that had previously been in effect. At December 31, 2017, the portion of the adjustment attributable to items of accumulated other comprehensive income (loss) were stranded in retained earnings, including components related to unrealized losses on securities and defined benefit plans. As described in Note 2, the Corporation elected early adoption of ASU 2018-02, resulting in a reclassification between two categories of stockholders’ equity at January 1, 2018, with an increase of $325,000 in retained earnings and a decrease in accumulated other comprehensive loss for the same amount (no net change in stockholders’ equity).

The Corporation has no unrecognized tax benefits, nor pending examination issues related to tax positions taken in preparation of its income tax returns. With limited exceptions, the Corporation is no longer subject to examination by the Internal Revenue Service for years prior to 2016.

15. RELATED PARTY TRANSACTIONS

Loans to executive officers, directors of the Corporation and its subsidiaries and any associates of the foregoing persons are as follows:

	Beginning		New					Other			Ending
(In Thousands)	Balance		Loans		Repayments			Changes			Balance
11 directors, 8 executive officers 2019	$	15,144	$	1,027	$	(1,850	)	$	134		$	14,455
11 directors, 8 executive officers 2018	$	14,412	$	3,553	$	(1,417	)	$	(1,404	)	$	15,144

In the table above, other changes represent net changes in the balance of existing lines of credit and transfers in and out of the related party category.

Deposits from related parties held by the Corporation amounted to $8,828,000 at December 31, 2019 and $9,622,000 at December 31, 2018.

16. OFF-BALANCE SHEET RISK

The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit, interest rate or liquidity risk in excess of the amount recognized in the consolidated balance sheets. The contract amounts of these instruments express the extent of involvement the Corporation has in particular classes of financial instruments.

The Corporation’s exposure to credit loss from nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual amount of these instruments. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

Financial instruments whose contract amounts represent credit risk at December 31, 2019 and 2018 are as follows:

(In Thousands)	2019		2018
Commitments to extend credit	$	256,896	$	191,672
Standby letters of credit		8,446		7,227

Commitments to extend credit are legally binding agreements to lend to customers. Commitments generally have fixed expiration dates or other termination clauses and may require payment of fees. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future liquidity requirements. The Corporation evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Corporation, for extensions of credit is based on management’s credit assessment of the counterparty.

Standby letters of credit are conditional commitments issued by the Corporation guaranteeing performance by a customer to a third party. Those guarantees are issued primarily to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Some of the standby letters of credit are collateralized by real estate or other assets, and others are unsecured. The extent to which proceeds from liquidation of collateral would be expected to cover the maximum potential amount of future payments related to standby letters of credit is not estimable. The Corporation has recorded no liability associated with standby letters of credit as of December 31, 2019 and 2018.

Standby letters of credit as of December 31, 2019 expire as follows:

Year of Expiration	(In Thousands)
2020	$	7,809
2021		523
2022		114
Total	$	8,446

17. OPERATING LEASE COMMITMENTS ANDCONTINGENCIES

The Corporation leases certain branch locations, office space and equipment. All leases are classified as operating leases. Leases with an initial term of 12 months or less are not recorded on the balance sheet and the related lease expense is recognized on a straight-line basis over the lease term.

Certain leases include options to renew, with renewal terms that can extend the lease term from one to eight years that are reasonably certain of being exercised. The discount rate used in determining the lease liability for each individual lease was the FHLB fixed advance rate which corresponded with the remaining lease term as of January 1, 2019 for leases that existed at adoption and as of the lease commencement date for leases subsequently entered into after January 1, 2019. At December 31, 2019, discount rates ranged from 2.77% to 3.50% with a weighted-average discount rate of 3.23%.

At December 31, 2019, right-of-use assets of $1,637,000 were included in other assets, and the related liabilities totaling the same amount were included in accrued interest and other liabilities, in the unaudited consolidated balance sheets. In 2019, right-of-use assets obtained in exchange for lease liabilities totaled $745,000. In 2019, operating lease expenses totaling $214,000 are included in occupancy expense, net, and $37,000 are included in furniture and equipment expense.

A maturity analysis of the Corporation’s lease liabilities at December 31, 2019 is as follows:

(In Thousands)

Lease Payments Due

2020	$	265
2021		265
2022		241
2023		229
2024		239
Thereafter		625
Total lease payments		1,864
Discount on cash flows		(227	)
Total lease liabilities	$	1,637

In the normal course of business, the Corporation is subject to pending and threatened litigation in which claims for monetary damages are asserted. In management’s opinion, the Corporation’s financial position and results of operations would not be materially affected by the outcome of these legal proceedings.

18. REGULATORY MATTERS

As required by the Economic Growth, Regulatory Relief, and Consumer Protection Act, in August 2018, the Federal Reserve Board issued an interim final rule that expanded applicability of the Board’s small bank holding company policy statement. The interim final rule raised the policy statement’s asset threshold from $1 billion to $3 billion in total consolidated assets for a bank holding company or savings and loan holding company that: (1) is not engaged in significant nonbanking activities; (2) does not conduct significant off-balance sheet activities; and (3) does not have a material amount of debt or equity securities, other than trust-preferred securities, outstanding. The interim final rule provides that, if warranted for supervisory purposes, the Federal Reserve may exclude a company from the threshold increase. Management believes the Corporation meets the conditions of the Federal Reserve’s small bank holding company policy statement and is therefore excluded from consolidated capital requirements at December 31, 2019; however, C&N Bank remains subject to regulatory capital requirements administered by the federal banking agencies.

Details concerning capital ratios at December 31, 2019 and December 31, 2018 are presented below. Management believes, as of December 31, 2019, that C&N Bank meets all capital adequacy requirements to which it is subject and maintains a capital conservation buffer (described in more detail below) that allows the Bank to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers. Further, as reflected in the table below, the Corporation’s and C&N Bank’s capital ratios at December 31, 2019 and December 31, 2018 exceed the Corporation’s Board policy threshold levels.

														Minimum To Be Well
						Minimum				Minimum To Maintain				Capitalized Under				Minimum To Meet
						Capital				Capital Conservation				Prompt Corrective				the Corporation's
	Actual					Requirement				Buffer at Reporting Date				Action Provisions				Policy Thresholds
(Dollars in Thousands)	Amount		Ratio			Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
December 31, 2019:
Total capital to risk-weighted assets:
Consolidated	$	228,057		20.70	%		N/A		N/A		N/A		N/A		N/A		N/A	$	115,689		³10.5%
C&N Bank		205,863		18.75	%		87,817		³8%		115,260		³10.5%		109,771		³10%		115,260		³10.5%
Tier 1 capital to risk-weighted assets:
Consolidated		211,388		19.19	%		N/A		N/A		N/A		N/A		N/A		N/A		93,653		³8.5%
C&N Bank		195,694		17.83	%		65,863		³6%		93,306		³8.5%		87,817		³8%		93,306		³8.5%
Common equity tier 1 capital to risk-weighted assets:
Consolidated		211,388		19.19	%		N/A		N/A		N/A		N/A		N/A		N/A		77,126		³7%
C&N Bank		195,694		17.83	%		49,397		³4.5%		76,840		³7.0%		71,351		³6.5%		76,840		³7%
Tier 1 capital to average assets:
Consolidated		211,388		13.10	%		N/A		N/A		N/A		N/A		N/A		N/A		129,126		³8%
C&N Bank		195,694		12.24	%		63,940		³4%		N/A		N/A		79,925		³5%		127,879		³8%
December 31, 2018:
Total capital to risk-weighted assets:
Consolidated	$	199,226		24.42	%		N/A		N/A		N/A		N/A		N/A		N/A	$	85,653		³10.5%
C&N Bank		176,499		21.75	%		64,916		³8%		80,130		³9.875%		81,145		³10%		85,202		³10.5%
Tier 1 capital to risk-weighted assets:
Consolidated		189,589		23.24	%		N/A		N/A		N/A		N/A		N/A		N/A		69,338		³8.5%
C&N Bank		166,862		20.56	%		48,687		³6%		63,901		³7.875%		64,916		³8%		68,976		³8.5%
Common equity tier 1 capital to risk-weighted assets:
Consolidated		189,589		23.24	%		N/A		N/A		N/A		N/A		N/A		N/A		57,102		³7%
C&N Bank		166,862		20.56	%		36,515		³4.5%		51,730		³6.375%		52,744		³6.5%		56,801		³7%
Tier 1 capital to average assets:
Consolidated		189,589		14.78	%		N/A		N/A		N/A		N/A		N/A		N/A		102,634		³8%
C&N Bank		166,862		13.16	%		50,715		³4%		N/A		N/A		63,394		³5%		101,430		³8%

In July 2013, the federal regulatory authorities issued a new capital rule based, in part, on revisions developed by the Basel Committee on Banking Supervision to the Basel capital framework (Basel III). This capital rule provides that, to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, a banking organization subject to the rule must hold a capital conservation buffer composed of common equity tier 1 capital above its minimum risk-based capital requirements. The buffer is measured relative to risk-weighted assets. In 2019, the minimum risk-based capital ratios, and the capital ratios including the capital conservation buffer, are as follows:

Minimum common equity tier 1 capital ratio	4.5	%
Minimum common equity tier 1 capital ratio plus<br> capital conservation buffer	7.0	%
Minimum tier 1 capital ratio	6.0	%
Minimum tier 1 capital ratio plus capital<br> conservation buffer	8.5	%
Minimum total capital ratio	8.0	%
Minimum total capital ratio plus capital<br> conservation buffer	10.5	%

A banking organization with a buffer greater than 2.5% over the minimum risk-based capital ratios would not be subject to additional limits on dividend payments or discretionary bonus payments; however, a banking organization with a buffer less than 2.5% would be subject to increasingly stringent limitations as the buffer approaches zero. Also, a banking organization is prohibited from making dividend payments or discretionary bonus payments if its eligible retained income is negative in that quarter and its capital conservation buffer ratio was less than 2.5% as of the beginning of that quarter. Eligible net income is defined as net income for the four calendar quarters preceding the current calendar quarter, net of any distributions and associated tax effects not already reflected in net income. A summary of payout restrictions based on the capital conservation buffer is as follows:

Capital Conservation Buffer	Maximum Payout
(as a % of risk-weighted assets)	(as a % of eligible retained income)
Greater than 2.5%		No payout limitation applies
≤2.5% and >1.875%		60%
≤1.875% and >1.25%		40%
≤1.25% and >0.625%		20%
≤0.625%		0%

At December 30, 2019, C&N Bank’s Capital Conservation Buffer, determined based on the minimum total capital ratio, was 10.75%.

Banking regulators limit the amount of dividends that may be paid by C&N Bank to the Corporation. Retained earnings against which dividends may be paid without prior approval of the banking regulators amounted to approximately $94,628,000 at December 31, 2019, subject to the minimum capital ratio requirements noted above.

Restrictions imposed by federal law prohibit the Corporation from borrowing from C&N Bank unless the loans are secured in specific amounts. Such secured loans to the Corporation are generally limited to 10% of C&N Bank’s tangible stockholder’s equity (excluding accumulated other comprehensive income) or $19,543,000 at December 31, 2019.

19. PARENT COMPANY ONLY

The following is condensed financial information for Citizens & Northern Corporation:

CONDENSED BALANCE SHEET	Dec. 31,		Dec. 31,
(In Thousands)	2019		2018
ASSETS
Cash	$	6,485	$	7,389
Investment in subsidiaries:
Citizens & Northern Bank		228,413		174,795
Citizens & Northern Investment Corporation		12,353		11,697
Bucktail Life Insurance Company		3,669		3,525
Other assets		109		6
TOTAL ASSETS	$	251,029	$	197,412
LIABILITIES AND STOCKHOLDERS' EQUITY
Subordinated debt	$	6,500	$	0
Other liabilities		77		44
Stockholders' equity		244,452		197,368
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	251,029	$	197,412

CONDENSED INCOME STATEMENT
(In Thousands)	2019			2018
Dividends from Citizens & Northern Bank	$	24,600		$	12,800
Expenses		(1,086	)		(681	)
Income before equity in (excess<br> distributions)/undistributed income of subsidiaries		23,514			12,119
Equity in (excess<br> distributions)/undistributed income of subsidiaries		(4,010	)		9,894
NET INCOME	$	19,504		$	22,013
CONDENSED STATEMENT OF CASH FLOWS
---	---	---	---	---	---	---
(In Thousands)	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	19,504		$	22,013
Adjustments to reconcile net income to net cash<br> provided by operating activities:
Loss on repayment of subordinated debt		10			0
Equity in (excess distributions)/undistributed income<br> of subsidiaries		4,010			(9,894	)
(Increase) decrease in other assets		(107	)		7
(Decrease) increase in other liabilities		(81	)		30
Net Cash Provided by Operating Activities		23,336			12,156
CASH FLOWS FROM INVESTING ACTIVITIES,
Net cash used in business combination		(9,698	)		0
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of subordinated debt		(510	)		0
Proceeds from sale of treasury stock		198			189
Purchase of treasury stock		(189	)		0
Dividends paid		(14,041	)		(11,746	)
Net Cash Used in Financing Activities		(14,542	)		(11,557	)
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(904	)		599
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR		7,389			6,790
CASH AND CASH EQUIVALENTS, END OF YEAR	$	6,485		$	7,389
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Investment of net assets<br> acquired in business combination in Citizens & Northern Bank	$	49,765		$	0
Common equity issued in business combination	$	32,953		$	0
Subordinated debt assumed in business combination	$	7,000		$	0
Other liabilities assumed in business combination	$	114		$	0
Interest paid	$	461		$	0

20. SUMMARY OF QUARTERLY CONSOLIDATEDFINANCIAL DATA (Unaudited)

The following table presents summarized quarterly financial data for 2019 and 2018:

SUMMARY OF QUARTERLY CONSOLIDATED FINANCIAL DATA

	2019 Quarter Ended
	Mar. 31,			June 30,			Sept. 30,		Dec. 31,
(In Thousands Except Per Share Data) (Unaudited)	2019			2019			2019		2019
Interest income	$	13,065		$	17,139		$	17,277	$	17,290
Interest expense		1,350			2,934			3,000		2,999
Net interest income		11,715			14,205			14,277		14,291
(Credit) provision for loan losses		(957	)		(4	)		1,158		652
Net interest income after (credit) provision<br> for loan losses		12,672			14,209			13,119		13,639
Other income		4,406			4,849			4,963		5,066
Net gains on available-for-sale debt securities		0			7			13		3
Merger-related expenses		311			3,301			206		281
Other expenses		10,696			11,422			11,486		11,834
Income before income tax provision		6,071			4,342			6,403		6,593
Income tax provision		981			693			1,096		1,135
Net income	$	5,090		$	3,649		$	5,307	$	5,458
Net income attributable to common shares	$	5,063		$	3,630		$	5,281	$	5,431
Net income per share – basic	$	0.41		$	0.27		$	0.39	$	0.40
Net income per share – diluted	$	0.41		$	0.27		$	0.39	$	0.40
	2018 Quarter Ended
---	---	---	---	---	---	---	---	---	---	---	---
	Mar. 31,		June 30,			Sept. 30,			Dec. 31,
	2018		2018			2018			2018
Interest income	$	11,890	$	12,334		$	12,800		$	13,304
Interest expense		993		1,079			1,241			1,312
Net interest income		10,897		11,255			11,559			11,992
Provision (credit) for loan losses		292		(20	)		60			252
Net interest income after provision (credit) for loan<br> losses		10,605		11,275			11,499			11,740
Other income		4,406		4,689			4,462			5,040
Gain on restricted equity security		0		1,750			571			0
Net losses on available-for-sale debt securities		0		(282	)		(2	)		(4	)
Merger-related expenses		0		0			200			128
Other expenses		9,895		9,684			9,633			9,946
Income before income tax provision		5,116		7,748			6,697			6,702
Income tax provision		741		1,377			1,111			1,021
Net income	$	4,375	$	6,371		$	5,586		$	5,681
Net income attributable to common shares	$	4,352	$	6,339		$	5,558		$	5,654
Net income per share – basic	$	0.36	$	0.52		$	0.45		$	0.46
Net income per share – diluted	$	0.36	$	0.52		$	0.45		$	0.46

21. FAIR VALUE MEASUREMENTS AND FAIRVALUES OF FINANCIAL INSTRUMENTS

The Corporation measures certain assets at fair value. Fair value is defined as the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. FASB ASC topic 820, “Fair Value Measurements and Disclosures” establishes a framework for measuring fair value that includes a hierarchy used to classify the inputs used in measuring fair value. The hierarchy prioritizes the inputs used in determining valuations into three levels. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The levels of the fair value hierarchy are as follows:

Level 1 – Fair value is based on unadjusted quoted prices in active markets that are accessible to the Corporation for identical assets. These generally provide the most reliable evidence and are used to measure fair value whenever available.

Level 2 – Fair value is based on significant inputs, other than Level 1 inputs, that are observable either directly or indirectly for substantially the full term of the asset through corroboration with observable market data. Level 2 inputs include quoted market prices in active markets for similar assets, quoted market prices in markets that are not active for identical or similar assets and other observable inputs.

Level 3 – Fair value is based on significant unobservable inputs. Examples of valuation methodologies that would result in Level 3 classification include option pricing models, discounted cash flows and other similar techniques.

The Corporation monitors and evaluates available data relating to fair value measurements on an ongoing basis and recognizes transfers among the levels of the fair value hierarchy as of the date of an event or change in circumstances that affects the valuation method chosen. Examples of such changes may include the market for a particular asset becoming active or inactive, changes in the availability of quoted prices, or changes in the availability of other market data.

At December 31, 2019 and 2018, assets measured at fair value and the valuation methods used are as follows:

			December 31, 2019
	Quoted Prices		Other
	in Active		Observable		Unobservable			Total
	Markets		Inputs		Inputs			Fair
(In Thousands)	(Level 1)		(Level 2)		(Level 3)			Value
Recurring fair value measurements
AVAILABLE-FOR-SALE DEBT SECURITIES:
Obligations of U.S. Government agencies	$	0	$	17,000	$	0		$	17,000
Obligations of states and political subdivisions:
Tax-exempt		0		70,760		0			70,760
Taxable		0		36,303		0			36,303
Mortgage-backed securities issued or<br> guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		0		59,210		0			59,210
Residential collateralized mortgage obligations		0		114,723		0			114,723
Commercial mortgage-backed securities		0		48,727		0			48,727
Total available-for-sale debt securities		0		346,723		0			346,723
Marketable equity security		979		0		0			979
Servicing rights		0		0		1,277			1,277
Total recurring fair value measurements	$	979	$	346,723	$	1,277		$	348,979
Nonrecurring fair value measurements
Impaired loans with a valuation allowance	$	0	$	0	$	3,375		$	3,375
Valuation allowance		0		0		(1,051	)		(1,051	)
Impaired loans, net		0		0		2,324			2,324
Foreclosed assets held for sale		0		0		2,886			2,886
Total nonrecurring fair value measurements	$	0	$	0	$	5,210		$	5,210

			December 31, 2018
	Quoted Prices		Other
	in Active		Observable		Unobservable			Total
	Markets		Inputs		Inputs			Fair
(In Thousands)	(Level 1)		(Level 2)		(Level 3)			Value
Recurring fair value measurements
AVAILABLE-FOR-SALE DEBT SECURITIES:
Obligations of U.S. Government agencies	$	0	$	12,500	$	0		$	15,500
Obligations of states and political subdivisions:
Tax-exempt		0		83,952		0			83,952
Taxable		0		27,699		0			27,699
Mortgage-backed securities issued or<br> guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		0		53,445		0			53,445
Residential collateralized mortgage obligations		0		145,912		0			145,912
Commercial mortgage-backed securities		0		39,765		0			39,765
Total available-for-sale debt securities		0		363,273		0			363,273
Marketable equity security		950		0		0			950
Servicing rights		0		0		1,404			1,404
Total recurring fair value measurements	$	950	$	363,273	$	1,404		$	365,627
Nonrecurring fair value measurements
Impaired loans with a valuation allowance	$	0	$	0	$	4,851		$	4,851
Valuation allowance		0		0		(1,605	)		(1,605	)
Impaired loans, net		0		0		3,246			3,246
Foreclosed assets held for sale		0		0		1,703			1,703
Total nonrecurring fair value measurements	$	0	$	0	$	4,949		$	4,949

Management’s evaluation and selection of valuation techniques and the unobservable inputs used in determining the fair values of assets valued using Level 3 methodologies include sensitive assumptions. Other market participants might use substantially different assumptions, which could result in calculations of fair values that would be substantially different than the amount calculated by management. The following table shows quantitative information regarding significant techniques and inputs used at December 31, 2019 and 2018 for servicing rights assets measured using unobservable inputs (Level 3 methodologies) on a recurring basis:

	Fair Value at
	12/31/19		Valuation	Unobservable				Method or Value As of
Asset	(In Thousands)		Technique	Input(s)				12/31/19
Servicing rights	$	1,277	Discounted cash flow	Discount rate		12.50	%	Rate used through modeling period
				Loan prepayment speeds		183.00	%	Weighted-average PSA of loan balances of payments are<br> late late fees assessed
				Servicing fees		0.25	%
						4.00	%
						5.00	%
					$	1.94		Miscellaneous fees per account per month
				Servicing costs	$	6.00		Monthly servicing cost per account
					$	24.00		Additional monthly servicing cost per loan on loans<br> more than 30 days delinquent of loans more than 30 days delinquent annual increase in servicing costs
						1.50	%
						3.00	%

	Fair Value at
	12/31/18		Valuation	Unobservable				Method or Value As of
Asset	(In Thousands)		Technique	Input(s)				12/31/18
Servicing rights	$	1,404	Discounted cash flow	Discount rate		12.50	%	Rate used through modeling period
				Loan prepayment speeds		114.00	%	Weighted-average PSA of loan<br> balances of payments are late late fees assessed
				Servicing fees		0.25	%
						4.00	%
						5.00	%
					$	1.94		Miscellaneous fees per account per month
				Servicing costs	$	6.00		Monthly servicing cost per account
					$	24.00		Additional monthly servicing cost<br> per loan on loans more than 30 days delinquent of loans more than 30 days delinquent annual increase in servicing costs
						1.50	%
						3.00	%

The fair value of servicing rights is affected by expected future interest rates. Increases (decreases) in future expected interest rates tend to increase (decrease) the fair value of the Corporation’s servicing rights because of changes in expected prepayment behavior by the borrowers on the underlying loans.

Following is a reconciliation of activity for Level 3 assets (servicing rights) measured at fair value on a recurring basis:

	Years Ended December 31,
(In Thousands)	2019			2018
Balance, beginning of period	$	1,404		$	1,299
Issuances of servicing rights		204			188
Unrealized losses included in earnings		(331	)		(83	)
Balance, end of period	$	1,277		$	1,404

At December 31, 2019 and 2018, quantitative information regarding significant techniques and inputs used for nonrecurring fair value measurements using unobservable inputs (Level 3 methodologies) are as follows:

(In Thousands, Except Percentages)<br><br> Asset	Balance<br> at<br><br> 12/31/19		Valuation<br><br> Allowance at<br><br> 12/31/19		Fair<br> Value at<br><br> 12/31/19		Valuation<br><br> Technique	Unobservable<br><br> Inputs
Impaired loans:
Residential<br> mortgage loans - first and junior liens	$	732	$	176	$	556	Sales comparison	Discount to<br> appraised value	30	%
Commercial:
Commercial<br> and industrial		106		89		17	Sales comparison	Discount to appraised<br> value	69	%
Commercial<br> and industrial		798		60		738	Liquidation of accounts<br> receivable	Discount to borrower's<br> financial statement value	15	%
Commercial<br> construction and land		1,261		678		583	Sales comparison	Discount to appraised<br> value	47	%
Loans<br> secured by farmland		478		48		430	Sales comparison	Discount to appraised<br> value	46	%
Total impaired loans	$	3,375	$	1,051	$	2,324
Foreclosed<br> assets held for sale - real estate:
Residential (1-4 family)	$	292	$	0	$	292	Sales comparison	Discount to appraised<br> value	46	%
Land		70		0		70	Sales comparison	Discount to appraised<br> value	53	%
Commercial real estate		2,524		0		2,524	Sales comparison	Discount to appraised<br> value	39	%
Total<br> foreclosed assets held for sale	$	2,886	$	0	$	2,886

(In Thousands, Except Percentages)<br> Asset	Balance<br> at<br> 12/31/18		Valuation<br><br> Allowance at<br> 12/31/18		Fair<br> Value at<br> 12/31/18		Valuation<br><br> Technique	Unobservable<br><br> Inputs
Impaired loans:
Residential<br> mortgage loans - first liens
	$	509	$	116	$	393	Sales comparison	Discount to<br> appraised value	26	%
Commercial:
Commercial<br> loans secured by real estate		2,515		781		1,734	Sales comparison	Discount to appraised<br> value	16	%
Commercial<br> and industrial		75		75		0	Sales comparison	Discount to appraised<br> value	100	%
Commercial<br> and industrial		1,265		584		681	Sales comparison	Discount to borrower's<br> financial statement value	36	%
Loans<br> secured by farmland		487		49		438	Sales comparison	Discount to appraised<br> value	56	%
Total impaired loans	$	4,851	$	1,605	$	3,246
Foreclosed<br> assets held for sale - real estate:
Residential (1-4 family)	$	64	$	0	$	64	Sales comparison	Discount to appraised<br> value	68	%
Land		110		0		110	Sales comparison	Discount to appraised<br> value	61	%
Commercial real estate		1,529		0		1,529	Sales comparison	Discount to appraised<br> value	20	%
Total<br> foreclosed assets held for sale	$	1,703	$	0	$	1,703

Certain of the Corporation’s financial instruments are not measured at fair value in the consolidated financial statements. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. Certain financial instruments and all nonfinancial instruments are excluded from disclosure requirements. Therefore, the aggregate fair value amounts presented may not represent the underlying fair value of the Corporation.

The estimated fair values, and related carrying amounts, of the Corporation’s financial instruments that are not recorded at fair value are as follows:

	Valuation		December 31, 2019				December 31, 2018
	Method(s)		Carrying		Fair		Carrying		Fair
(In Thousands)	Used		Amount		Value		Amount		Value
Financial assets:
Cash and cash equivalents		Level 1	$	31,122	$	31,122	$	32,827	$	32,827
Certificates of deposit		Level 2		4,080		4,227		4,660		4,634
Restricted equity securities (included in Other Assets)		Level 2		10,321		10,321		5,712		5,712
Loans, net		Level 3		1,172,386		1,181,000		818,254		825,809
Accrued interest receivable		Level 2		5,001		5,001		3,968		3,968
Financial liabilities:
Deposits with no stated maturity		Level 2		877,965		877,965		804,207		804,207
Time deposits		Level 2		374,695		376,738		229,565		229,751
Short-term borrowings		Level 2		86,220		86,166		12,853		12,617
Long-term borrowings		Level 2		52,127		52,040		35,915		35,902
Accrued interest payable		Level 2		311		311		142		142

Report of Independent RegisteredPublic Accounting Firm

Stockholders and Board of Directors of

Citizens & Northern Corporation

Opinions on the Financial Statementsand Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Citizens & Northern Corporation and subsidiaries (collectively the "Corporation") as of December 31, 2019 and 2018, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows, for the years then ended, and the related notes (collectively referred to as the "consolidated financial statements"). We also have audited the Corporation’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Corporation as of December 31, 2019 and 2018, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control –Integrated Framework: (2013) issued by COSO.

Basis for Opinions

The Corporation’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Corporation's consolidated financial statements and an opinion on the Corporation’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As described in Management’s Report on Internal Control over Financial Reporting, management excluded from its assessment of internal control over financial reporting Monument Bancorp, Inc., which was acquired on April 1, 2019, and whose financial statements constitute assets of approximately 19.8% of the Corporation’s consolidated total assets, and interest income and noninterest income of approximately 14.3% of the Corporation’s consolidated total interest income and noninterest income, as of and for the year ended December 31, 2019. Accordingly, our audit did not include the internal control over financial reporting of Monument Bancorp, Inc.

Definition and Limitations of InternalControl Over Financial Reporting

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

We have served as the Corporation’s auditor since 1979.

Williamsport, Pennsylvania

February 20, 2020

ITEM 9. CHANGES IN AND DISAGREEMENTSWITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

ITEM 9A. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLSAND PROCEDURES

The Corporation’s management, under the supervision of and with the participation of the Corporation’s Chief Executive Officer and Chief Financial Officer, has carried out an evaluation of the design and effectiveness of the Corporation’s disclosure controls and procedures as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Securities Exchange Act of 1934 as of the end of the period covered by this report. This evaluation did not include an assessment of those disclosure controls and procedures that are involved in, and did not include an assessment of, internal control over financial reporting as it relates to Monument Bancorp, Inc. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Corporation’s disclosure controls and procedures are effective to ensure that all material information required to be disclosed in reports the Corporation files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.

Except as described in the following paragraph, there were no significant changes in the Corporation’s internal control over financial reporting that occurred during the period covered by this report that have materially affected, or that are reasonably likely to affect, our internal control over financial reporting.

The Monument Bancorp, Inc. acquisition was completed April 1, 2019, and during the last three quarters of 2019 the Corporation has been engaged in integrating processes and internal control over financial reporting for the former Monument locations into those of the Corporation. In late June 2019, the integration of Monument’s core customer data system into the Corporation’s system was completed. Though completion of the Monument core system conversion was a significant milestone, at December 31, 2019, the Corporation’s management had not yet completed changes to processes, information technology systems and other components of internal control over financial reporting as part of integration activities.

MANAGEMENT’S REPORT ON INTERNALCONTROL OVER FINANCIAL REPORTING

The Corporation’s management is responsible for establishing and maintaining effective internal control over financial reporting, as that term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). The Corporation’s system of internal control over financial reporting has been designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. The Corporation’s internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Corporation’s assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Corporation are being made only in accordance with authorizations of the Corporation’s management and directors; and (3) provide reasonable assurance regarding prevention, or timely detection and correction of unauthorized acquisition, use or disposition of the Corporation’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect and correct misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

The Corporation’s management assessed the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2019, based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated Framework(2013). Based on that assessment, we concluded that, as of December 31, 2019, the Corporation’s internal control over financial reporting is effective based on the criteria established in Internal Control – Integrated Framework (2013).

The Corporation acquired Monument Bancorp, Inc. (“Monument”) effective April 1, 2019. Management excluded from its assessment of the Corporation’s internal control over financial reporting, as of December 31, 2019, Monument’s internal control over financial reporting associated with assets of approximately 19.8% of the Corporation’s consolidated total assets, and interest income and noninterest income of approximately 14.3% of the Corporation’s consolidated total interest income and noninterest income, as of and for the year ended December 31, 2019.

Baker Tilly Virchow Krause, LLP, the independent registered public accounting firm that audited the Corporation’s consolidated financial statements, has issued an audit report on the Corporation’s internal control over financial reporting as of December 31, 2019. That report appears immediately prior to this report.

February 20, 2020	By:	/s/<br>J. Bradley Scovill
Date		President and Chief Executive Officer
February 20, 2020	By:	/s/ Mark A. Hughes
Date		Treasurer<br>and Chief Financial Officer

ITEM 9B. OTHER INFORMATION

There was no information the Corporation was required to disclose in a report on Form 8-K during the fourth quarter 2019 that was not disclosed.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERSAND CORPORATE GOVERNANCE

Information concerning Directors and Executive Officers is incorporated herein by reference to disclosure under the captions “Proposal 1 - Election of Directors,” “Executive Officers,” “Information Concerning Security Ownership” and “Meetings and Committees of the Board of Directors” of the Corporation’s proxy statement dated March 6, 2020 for the annual meeting of stockholders to be held on April 16, 2020.

The Corporation’s Board of Directors has adopted a Code of Ethics, available on the Corporation’s web site at www.cnbankpa.com for the Corporation’s employees, officers and directors. (The provisions of the Code of Ethics are also included in the Corporation’s employee handbook.)

ITEM 11. EXECUTIVE COMPENSATION

Information concerning executive compensation is incorporated herein by reference to disclosure under the captions “Compensation Discussion and Analysis” and “Executive Compensation Tables” of the Corporation’s proxy statement dated March 6, 2020 for the annual meeting of stockholders to be held on April 16, 2020.

ITEM 12. SECURITY OWNERSHIP OF CERTAINBENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information concerning security ownership of certain beneficial owners and management is incorporated herein by reference to disclosure under the caption “Beneficial Ownership of Executive Officers and Directors” of the Corporation’s proxy statement dated March 6, 2020 for the annual meeting of stockholders to be held on April 16, 2020.

“Equity Compensation Plan Information” as required by Item 201(d) of Regulation S-K is incorporated by reference herein from Item 5 (Market for Registrant’s Common Equity and Related Stockholder Matters) of this Form 10-K.

ITEM 13. CERTAIN RELATIONSHIPS ANDRELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Information concerning loans and deposit balances with Directors and Executive Officers is provided in Note 15 to the Consolidated Financial Statements, which is included in Part II, Item 8 of this Annual Report on Form 10-K. Additional information, including information concerning director independence, is incorporated herein by reference to disclosure appearing under the captions “Director Independence” and "Related Person Transaction and Policies" of the Corporation's proxy statement dated March 6, 2020 for the annual meeting of stockholders to be held on April 16, 2020.

ITEM 14. PRINCIPAL ACCOUNTANT FEESAND SERVICES

Information concerning services provided by the Corporation’s independent auditor Baker Tilly Virchow Krause, LLP, the audit committee’s pre-approval policies and procedures for such services, and fees paid by the Corporation to that firm, is incorporated herein by reference to disclosure under the caption “Fees of Independent Public Accountants” of the Corporation’s proxy statement dated March 6, 2020 for the annual meeting of stockholders to be held on April 16, 2020.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENTSCHEDULES

(a) (1). The following consolidated financial statements are set forth in Part II, Item 8:

	Page
Report of Independent Registered Public Accounting Firm	85-86
Financial Statements:
Consolidated Balance Sheets - December 31, 2019 and 2018	37
Consolidated Statements of Income - Years Ended December 31, 2019 and<br> 2018	38
Consolidated Statements of Comprehensive Income - Years Ended December 31, 2019 and 2018	39
Consolidated Statements of Changes in Stockholders' Equity - Years Ended December 31, 2019 and 2018	40
Consolidated Statements of Cash Flows - Years Ended December 31, 2019 and 2018	41
Notes to Consolidated Financial Statements	42-84

(a)(2) Financial statement schedules are not applicable or included in the financial statements or related notes.

2. Plan of acquisition, reorganization, arrangement, liquidation or succession:
2.1 Agreement and Plan of Merger dated September 27, 2018, between the Corporation and Monument Bancorp, Inc.	Incorporated by reference to Exhibit 2.1 of the Corporation’s Form 8-K filed September 28, 2018
2.2 Agreement and Plan of Merger dated December 18, 2019, between the Corporation and Covenant Financial, Inc.	Incorporated by reference to Exhibit 2.1 of the Corporation’s Form 8-K filed December 18, 2019
3. (i) Articles of Incorporation	Incorporated by reference to Exhibit 3.1 of
	the Corporation's Form 8-K filed
	September 21, 2009
3. (ii) By-laws	Incorporated by reference to Exhibit 3.1 of the
	Corporation's Form 8-K filed April 19, 2013
4. (i) through (v) Instruments defining<br> the rights<br><br> <br>Of securities holders,<br> including indentures	Not applicable
4. (vi) Description of registrant’s securities	Filed herewith
9. Voting trust agreement	Not applicable
10. Material contracts:
10.1 Form of Time-Based Restricted Stock agreement dated January 31, 2020 between the Corporation and Executive Officers pursuant to the Citizens & Northern Corporation Stock Incentive Plan	Filed herewith
10.2 Form of Restricted Stock agreement dated January 31, 2020 between the Corporation and its independent directors pursuant to the Citizens & Northern Corporation Independent Directors Stock Incentive Plan	Filed herewith
10.3 2020 Annual Performance Incentive Award Plan	Filed herewith
10.4 2020 Annual Performance Incentive Award Plan - Mortgage Lenders	Filed herewith

10.5 Deferred Compensation Agreement dated December 17, 2015	Incorporated by reference to Exhibit 10.8 filed with Corporation’s 10-K on February 15, 2018
10.6 Second Amendment to Employment Agreement dated August 24, 2018 between the Corporation and J. Bradley Scovill	Incorporated by reference to Exhibit 10.1 filed with Corporation’s Form 8-K on August 24, 2018
10.7 First Amendment to Employment Agreement dated June 26, 2017 between the Corporation and J. Bradley Scovill	Incorporated by reference to Exhibit 10.1 filed with Corporation’s Form 8-K on June 27, 2017
10.8 Employment agreement dated March 2, 2015 between the Corporation and J. Bradley Scovill	Incorporated by reference to Exhibit 10.1 filed with Corporation’s Form 8-K on February 9, 2015
10.9 Employment agreement dated September 19, 2013 Corporation’s Form 8-K on September 19, 2013 between the Corporation and Mark A. Hughes	Incorporated by reference to Exhibit 10.2 filed with
10.10<br> Employment agreement dated September 19, 2013 Corporation’s Form 8-K on September 19, 2013 between the Corporation and Harold F. Hoose, III	Incorporated by reference to Exhibit 10.3 filed with
10.11<br> Employment agreement dated September 19, 2013 Corporation’s Form 8-K on September 19, 2013 between the Corporation and Deborah E. Scott	Incorporated by reference to Exhibit 10.4 filed with
10.12 Form of Indemnification Agreement dated September 20, 2018 between the Corporation and J. Bradley Scovill	Incorporated by reference to Exhibit 10.1 filed with<br> Corporation’s Form 10-Q on November 1, 2018
10.13 Form of Indemnification Agreement dated January 9, 2018 between the Corporation and Tracy E. Watkins	Incorporated by reference to Exhibit 10.6 filed with<br> Corporation’s 10-K on February 15, 2018
10.14 Form of Indemnification Agreement dated February 11, 2015 between the Corporation and Stan R. Dunsmore	Incorporated by reference to Exhibit 10.9 filed with<br> Corporation’s 10-K on February 26, 2015
10.15 Form of Indemnification Agreement dated January 2, 2013 between the Corporation and Shelley L. D'Haene	Incorporated by reference to Exhibit 10.5 filed with<br> Corporation’s Form 10-K on February 21, 2013
10.16 Form of Indemnification Agreement dated January 19, 2011 between the Corporation and John M. Reber	Incorporated by reference to Exhibit 10.6 filed with<br>Corporation's Form 10-K on Feb. 28, 2011
10.17 Form of Indemnification Agreements dated May 2004 between the Corporation and the Directors and certain officers	Incorporated by reference to Exhibit 10.1 filed with<br> Corporation’s 10-K on March 14, 2005
10.18 Change in Control Agreement dated January 9, 2018 between the Corporation and Tracy E. Watkins	Incorporated by reference to Exhibit 10.7 filed with<br> Corporation’s 10-K on February 15, 2018
10.19 Change in Control Agreement dated March 17, 2015 between the Corporation and Stan R. Dunsmore	Incorporated by reference to Exhibit 10.1 filed with<br> Corporation’s Form 10-Q on May 8, 2015
10.20 Change in Control Agreement dated January 2, 2013 between the Corporation and Shelley L. D'Haene	Incorporated by reference to Exhibit 10.7 filed with<br> Corporation’s Form 10-K on February 21, 2013
10.21 Change in Control Agreement dated January 20, 2005 between the Corporation and John M. Reber	Incorporated by reference to Exhibit 10.18 filed with<br> Corporation’s Form 10-K on February 18, 2016

10.22 Change in Control Agreement dated December 31, 2003 between the Corporation and Thomas L. Rudy, Jr.	Incorporated by reference to Exhibit 10.2 filed with the<br>Corporation's Form 10-K on March 14, 2005
10.23 Executive Compensation Recoupment Policy dated September 19, 2013	Incorporated by reference to Exhibit 10.5 filed with<br> Corporation’s Form 8-K on September 19, 2013
10.24 Fifth Amendment to Citizens & Northern Corporation Stock Incentive Plan	Incorporated by reference to Exhibit 10.1 filed with Form<br>8-K on December 21, 2018
10.25 Fourth Amendment to Citizens & Northern Corporation Stock Incentive Plan and Annual Incentive Plan	Incorporated by reference to Exhibit 10.6 filed with<br> Corporation's Form 8-K on September 19, 2013
10.26 Third Amendment to Citizens & Northern Corporation Stock Incentive Plan	Incorporated by reference to Exhibit A to the Corporation's<br>proxy statement dated March 18, 2008 for the annual meeting of stockholders held on April 15, 2008
10.27<br>Second Amendment to Citizens & Northern Corporation Stock Incentive Plan	Incorporated by reference to Exhibit 10.5 filed with<br>the Corporation's Form 10-K on March 10, 2004
10.28 First Amendment to Citizens & Northern Corporation Stock Incentive Plan	Incorporated by reference to Exhibit 10.6 filed with<br>the Corporation's Form 10-K on March 10, 2004
10.29 Citizens & Northern Corporation Stock Incentive Plan	Incorporated by reference to Exhibit 10.7 filed with<br>the Corporation's Form 10-K on March 10, 2004
10.30 Second Amendment to Citizens & Northern Independent Directors Stock incentive Plan	Incorporated by reference to Exhibit 10.2 filed with Form<br>8-K on December 21, 2018
10.31 First Amendment to Citizens & Northern Corporation Independent Directors Stock Incentive Plan	Incorporated by reference to Exhibit B to the Corporation's<br>proxy statement dated March 18, 2008 for the annual meeting of stockholders held on April 15, 2008
10.32 Citizens & Northern Corporation Independent Directors Stock Incentive Plan	Incorporated by reference to Exhibit A to the Corporation's<br>proxy statement dated March 19, 2001 for the annual meeting of stockholders held on April 17, 2001.
10.33 Citizens & Northern Corporation Supplemental Executive Retirement Plan (as amended and restated)	Incorporated by reference to Exhibit 10.21 filed with<br>the Corporation's Form 10-K on March 6, 2009
10.34 Form of Indemnification Agreements dated May 24, 2018 between the Corporation and Directors Bobbi J. Kilmer, Terry L. Lehman, Frank G. Pellegrino and Aaron K. Singer	Incorporated by reference to Exhibit 10.1 of the Corporation’s<br>Form 10-Q filed August 6, 2018
11. Statement re: computation of per share earnings	Information concerning the computation of earnings per<br> share is provided in Note 4 to the Consolidated Financial Statements, which is included in Part II, Item 8 of Form 10-K
12. Statements re: computation of ratios	Not applicable
13. Annual report to security holders, Form 10-Q or<br> quarterly report to security holders	Not applicable
14. Code of ethics	The Code of Ethics is available through the Corporation's<br>website at www.cnbankpa.com. To access the Code of Ethics, click on “About,” “Investor Relations,” “Corporate<br>Governance Policies,” and “Code of Ethics.”

16. Letter re: change in certifying accountant	Not applicable
18. Letter re: change in accounting principles	Not applicable
21. Subsidiaries of the registrant	Filed herewith
22. Published report regarding matters submitted to<br><br> <br>vote of security holders	Not applicable
23. Consent of Independent Registered Public Accounting Firm	Filed herewith
24. Power of attorney	Not applicable
31. Rule 13a-14(a)/15d-14(a) certifications:
31.1 Certification of Chief Executive Officer	Filed herewith
31.2 Certification of Chief Financial Officer	Filed herewith
32. Section 1350 certifications	Filed herewith
33. Report on assessment of compliance with servicing criteria<br> for<br><br> <br>asset-backed securities	Not applicable
34. Attestation report on assessment of compliance with servicing<br><br> <br>criteria for asset-backed securities	Not applicable
35. Service compliance statement	Not applicable
99. Additional exhibits:
99.1 Additional information mailed or made available online to<br><br> <br>shareholders with proxy statement and Form 10-K on<br><br> <br>March 6, 2020	Filed herewith
100. XBRL-related documents	Not applicable
101. Interactive data file	Filed herewith
104. Cover page interactive data file	Not applicable

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated.

By:	/s/ J. Bradley Scovill
President<br>and Chief Executive Officer
Date: February 20, 2020
By:	/s/ Mark A. Hughes
Treasurer and Principal Accounting Officer
Date: February 20, 2020

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

BOARD OF DIRECTORS

/s/	Dennis F. Beardslee	/s/	Frank<br> G. Pellegrino
	Dennis F. Beardslee		Frank G. Pellegrino
	Date: February 20, 2020		Date: February 20, 2020
/s/	Clark<br> S. Frame	/s/	Timothy E. Schoener
	Clark S. Frame		Timothy E. Schoener
	Date: February 20, 2020		Date: February 20, 2020
/s/	Susan E. Hartley	/s/	J. Bradley Scovill
	Susan E. Hartley		J. Bradley Scovill
	Date: February 20, 2020		Date: February 20, 2020
/s/	Bobbi J. Kilmer	/s/	Leonard Simpson
	Bobbi J. Kilmer		Leonard Simpson
	Date: February 20, 2020		Date: February 20, 2020
/s/	Leo<br> F. Lambert	/s/	Aaron K. Singer
	Leo F. Lambert		Aaron K. Singer
	Date: February 20, 2020		Date: February 20, 2020
/s/	Terry<br> L. Lehman
	Terry L. Lehman
	Date: February 20, 2020

EXHIBIT 4.(vi)

DESCRIPTION OF CITIZENS & NORTHERN CORPORATION COMMON STOCK

Authorized Capital; Dividend and Liquidation Rights.

C&N: The authorized capital stock of Citizens & Northern Corporation ("C&N") consists of twenty million (20,000,000) shares of common stock, par value one dollar ($1.00) per share, and thirty thousand (30,000) shares of preferred stock, par value one thousand dollars ($1,000.00) per share. The common stock is registered pursuant to Section 12(g) of the Securities Exchange Act of 1934. There are no shares of preferred stock outstanding. All outstanding shares of common stock are of the same class and have equal rights and attributes. The holders of common stock are entitled to one vote per share on all matters submitted to a vote. All shareholders are entitled to share equally in dividends, if any. In the event of liquidation, the holders of common stock are entitled to share ratably in all assets remaining after payment of all liabilities.

Special Meeting of Shareholders

C&N: Special meetings of the shareholders may be called at any time by the board of directors or by any three (3) or more shareholders owning in the aggregate, not less than twenty percent (20%) of the stock of C&N.

Preemptive Rights

C&N: There are no preemptive rights with respect to the common stock of C&N.

Shareholder Nomination of Directors

C&N: Under C&N’s articles of incorporation, nomination for election to the board of directors may be made by the board of directors or by any shareholder of any outstanding class of capital stock of C&N entitled to cast a vote for the election of directors. Nominations, other than those made by or on behalf of the existing management of C&N, shall be made in writing and shall be delivered or mailed to the President of C&N not less than fourteen (14) days nor more than fifty (50) days prior to any meeting of shareholders called for the election on directors.

Number and Classification of Directors

C&N: The number of directors of C&N may not be less than five (5) nor more than twenty-five (25). Directors are divided into three (3) classes (Class I, Class II, or Class III), with each class as nearly equal in number as possible. The term of office of each Class of directors is three (3) years, so that the term of office of one Class of directors expires each year when their respective successors have been duly elected and qualified.

Election of Directors; Cumulative Voting

C&N: At each meeting of the shareholders of C&N called for the election of directors, the shareholders have the right to one (1) vote for each share of common stock standing in their name for each director properly nominated. There are no cumulative voting rights with respect to the election of directors of C&N.

Director Qualifications

C&N: To qualify as a director of C&N, such person may not have attained the age of seventy-two (72) prior to the date of a regular annual meeting of the shareholders.

Vacancies

C&N: When a vacancy occurs among the directors, the remaining members of the board of directors, in accordance with the laws of the Commonwealth of Pennsylvania and the articles of incorporation of C&N, may appoint a director to fill such vacancy at any regular meeting of the board, or at a special meeting called for that purpose.

Special Meetings of the Board

C&N: Special meetings of the board may be called by the Chairman of the board or at the request of three (3) or more directors.

Pennsylvania Anti-Takeover Provisions

Under the PBCL, certain anti-takeover provisions apply to Pennsylvania “registered corporations.” C&N is a registered corporation, but has not opted out of the anti-takeover provisions relating to control share acquisitions and disgorgement of profits by certain controlling persons under Chapter 25, Subchapters G and H, respectively, of the PBCL or the anti-takeover provisions relating the rights of shareholders to demand fair value for their stock following a control transaction and to business combination transactions with interested shareholders under Chapter 25, Subchapters E and F, respectively, of the PBCL.

Amendment of Articles of Incorporation

C&N: Amendment of Articles 8 (number of directors), 9 (classes of directors), 12 (approval of certain entity transactions), 13 (beneficial ownership), 14 (shareholder meeting required), 15 (authority to amend bylaws) and 16 (evaluation of offers for certain entity transactions) of C&N’s articles of incorporation requires the affirmative vote of holders of at least seventy-five percent (75%) of the common stock of C&N unless at least sixty-six and two-thirds percent (66 2∕3 %) of the members of the board of directors of C&N approve the amendment, in which case, approval by the shareholders requires the affirmative vote of shareholders entitled to cast a majority of the votes that all shareholders are entitled to cast thereon. There is otherwise no express provision relating to the amendment of C&N’s articles of incorporation. Therefore, under the Pennsylvania law, an amendment to the articles of incorporation requires the approval of the board of directors and, except in limited cases where a greater vote may be required, the affirmative vote of holders of a majority of the votes cast by all shareholders entitled to vote on the matter and the affirmative vote of holders of a majority of the votes cast by all shareholders within each class or series of shares if such class or series is entitled to vote on the matter as a class.

Amendment of Bylaws

C&N: C&N’s Bylaws may be amended upon a vote of a majority of the entire board of directors at any meeting of the board, provided ten (10) days' notice of the proposed amendment has been given to each member of the board of directors, subject always to the power of the shareholders to make, amend, alter, change or repeal the bylaws of C&N by the affirmative vote of shareholders of common stock of C&N entitled to cast seventy five percent (75%) of the votes that all shareholders are entitled to cast thereon.

Required Vote for Certain Business Combinations.

C&N: C&N’s articles of incorporation require the affirmative vote of the holders of seventy-five percent (75%) of C&N’s common stock to approve any merger, consolidation, sale of all or substantially all of the assets of C&N assets, share exchange in which a person or entity acquires C&N’s issued and outstanding shares of capital stock pursuant to a vote of shareholders, or any transaction similar to, or having a similar effect to, any of the foregoing, unless such action is approved in advance by the affirmative vote of sixty-six and two-thirds percent (66 2∕3 %) of the C&N board of directors, in which case the provisions of the Pennsylvania Business Corporation Law will apply as to whether or not shareholder approval is necessary. Under the Pennsylvania Business Corporation Law, a merger must be approved by the holders of a majority of the votes cast by all shareholders entitled to vote thereon, provided that no vote of the shareholders is required if: (i) the articles of incorporation of the surviving association are identical to the articles on incorporation of the corporation for which shareholder approval is not required, (ii) each outstanding share of the corporation for which shareholder approval is not required is to continue as or be converted into an identical share of the surviving association, and (iii) the plan of merger provides that the shareholders of the corporation for which shareholder approval is not required are to hold in the aggregate shares of the surviving association to be outstanding immediately after the effectiveness of the merger entitled to cast at least a majority of the votes entitled to be cast generally for the election of directors.

Indemnification

C&N’s bylaws provide for the indemnification of directors and officers against certain types of claims made against them. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

EXHIBIT 10.1

CITIZENS & NORTHERN CORPORATION

1995 STOCKINCENTIVE PLAN (As Amended)

TIME-BASED RESTRICTED STOCK AGREEMENT

RESTRICTED STOCK AGREEMENT dated as of the 31st day of January, 2020, by and between Citizens & Northern Corporation (the "Corporation") and ______________ an employee of the Corporation or of a subsidiary (the "Recipient").

Pursuant to the Citizens & Northern Corporation 1995 Stock Incentive Plan (the "Plan"), as amended, the Compensation Committee of the Board of Directors (the "Committee") has determined that the Recipient is to be granted, on the terms and conditions set forth herein, _____ Restricted Shares of the Corporation's common stock and hereby grants such Restricted Shares.

1.	Number of Shares and Price.<br> Restricted Stock shall consist of shares of Stock that will be acquired by and issued<br> to the Recipient at a designated time approved by the board of directors, for no purchase<br> price, and under and subject to such transfer, forfeiture and other restrictions, conditions<br> or terms as shall be determined by the Committee, including but not limited to prohibitions<br> against transfer and substantial risks of forfeiture within the meaning of Section 83<br> of the Code.
2.	Rights of Recipient. Except as otherwise provided in the Plan or the Restricted Stock Agreement,<br> a Recipient of shares of Restricted Stock shall have all the rights as does a holder<br> of Stock, including without limitation the right to vote such shares and receive dividends<br> with respect thereto; however, during the time period of any restrictions, conditions<br> or terms applicable to such Restricted Stock, the shares thereof and the right to vote<br> the same and receive dividends thereon shall not be sold, assigned, transferred, exchanged,<br> pledged, hypothecated, encumbered or otherwise disposed of except as permitted by the<br> Plan or the Restricted Stock Agreement. Cash dividends shall be paid out and shall not<br> participate in Dividend Reinvestment. Stock dividends resulting in whole shares shall<br> be added to the shares held in the Restricted Account and shall be distributed to the<br> Recipient with subsequent distributions of any Award for which they accrued. Partial<br> shares that result from any stock dividend shall be paid to the Recipient in cash at<br> the time of the payment of the stock dividend. If the Restricted Shares expire prior<br> to the satisfaction of performance standards set forth in section 4 or due to forfeiture<br> as set forth in section 5, all shares accrued by virtue of stock dividends shall be forfeited.
---	---
3.	Holding of Restricted Shares. Each certificate for shares of Restricted Stock shall be deposited<br> with the Secretary of the Corporation, or the office thereof, and shall bear a legend<br> in substantially the following form and content:
---	---

This Certificate and theshares of Stock hereby represented are subject to the provisions of the Corporation’s Stock Incentive Plan and a certainagreement entered into between the owner and the Corporation pursuant to said Plan. The release of the Certificate and the sharesof Stock hereby represented from such provision shall occur only as provided by said Plan and Agreement, a copy of which are onfile in the office of the Secretary of the Corporation.

Upon the lapse or satisfactionof the restrictions, conditions and terms applicable to such Restricted Stock, a certificate for the shares of Stock without suchlegend shall be issued to the Recipient.

4.	Release and Lapse of Restricted Shares. The release of restrictions or expiration of restricted<br> shares awarded under this agreement shall occur over a period of three years. One-third<br> of the total shares will be distributed on the last business day in January each of the<br> three years following the award based on the Recipient’s satisfactory performance<br> of his or her job. All Restricted Shares not distributed due to the Recipient’s<br> unsatisfactory performance of his or her job shall expire and revert back to the Corporation<br> as of the release date on which such determinations are made. No partial shares may be<br> released, thus an amount equal to the next whole share amount will be released subject<br> to the specified performance criteria at each anniversary. The shares released may be<br> in certificate form, or may be directed to be held in a custodial account designated<br> by the Recipient.
5.	Terms of Forfeiture. If a Recipient’s employment with the Corporation, or a subsidiary, ceases for<br> any reason prior to the lapse of the restrictions, conditions or terms applicable to<br> his or her Restricted Stock, all of the Recipient’s Restricted Stock still subject<br> to unexpired restrictions, conditions or terms shall be forfeited absolutely by the Recipient<br> to the Corporation without payment or delivery of any consideration or other thing of<br> value by the Corporation or its affiliates, and thereupon and thereafter neither the<br> Recipient nor his or her heirs, personal or legal representatives, successors, assigns,<br> beneficiaries, or any claimants under the Recipient’s Last Will or laws of descent<br> and distribution, shall have any rights or claims to or interests in the forfeited Restricted<br> Stock or any certificates representing shares thereof, or claims against the Corporation<br> or its affiliates with respect thereto. Except in the case of disability, employment<br> ceases with the Corporation, or its Subsidiary, on the day the Recipient’s employment<br> is terminated with or without cause, or on their date of death. In the event of disability,<br> the Recipient’s employment is considered terminated on the date for which the Recipient<br> receives the final payment of the Corporation’s, or Subsidiary’s, short-term<br> disability.
---	---
6.	Non-Transferability of Restricted Stock. The Restricted Stock and this Restricted Stock Agreement shall<br> not be transferable.
---	---
7.	Change in Control. If any of the change in control events described in Section 11 of the<br> Plan occur, all shares of Restricted Stock shall fully vest and all restrictions on the<br> shares of Restricted Stock shall lapse as follows: In the case of an event specified<br> in clause (a) of the second sentence of the third paragraph of Section 11, the lapse<br> of all restrictions on the shares of Restricted Stock shall occur immediately prior to<br> the consummation of the described transaction and, in the case of an event specified<br> in clause (b) or (c) of said sentence, the full vesting and lapse of restrictions shall<br> occur upon occurrence of the described event.
---	---
8.	Notices. Any notice required or permitted under this Restricted Stock Agreement shall be deemed<br> given when delivered personally, or when deposited in a United States Post Office, postage<br> prepaid, addressed, as appropriate, to the Recipient either at his or her address herein<br> above set forth or such other address as he or she may designate in writing to the Corporation.
---	---
9.	Failure to Enforce Not a Waiver. The failure of the Corporation to enforce at any time any<br> provision of this Restricted Stock Agreement shall in no way be construed to be a waiver<br> of such provision or of any other provision hereof.
---	---
10.	Governing Law. This Restricted Stock Agreement shall be governed by and construed according<br> to the laws of the State of Pennsylvania.
---	---
11.	Incorporation of Plan. The Plan is hereby incorporated by reference and made a part hereof, and<br> the Restricted Stock and this Restricted Stock Agreement are subject to all terms and<br> conditions of the Plan.
---	---
12.	Amendments. This Restricted Stock Agreement may be amended or modified at any time by an instrument<br> in writing signed by the parties hereto.
---	---

IN WITNESS WHEREOF, the parties have executed this Restricted Stock Agreement on the day and year first above written.

By
	J. Bradley Scovill – President & CEO
The undersigned hereby accepts and agrees to all the terms and provisions of the foregoing Restricted Stock Agreement and to all the terms and provisions of the Citizens & Northern Corporation 1995 Stock Incentive Plan herein incorporated by reference.
	Recipient

EXHIBIT 10.2

CITIZENS & NORTHERN CORPORATION

INDEPENDENT DIRECTORS STOCK INCENTIVEPLAN

RESTRICTED STOCK AGREEMENT

A total of SevenHundred Fifty Eight (758) shares of RESTRICTED common STOCK, par value $1.00, of Citizens & Northern Corporation, a Pennsylvania business corporation (herein the “Corporation”) is hereby awarded as of January 31, 2020 to _________________ (herein the “Director”), subject in all respects to the terms and provisions of the Citizens & Northern Corporation Independent Directors Stock Incentive Plan (herein the “Plan”), dated April 17, 2001 and amended April 15, 2008 and December 20, 2018, and is incorporated herein by reference.

These shares cannot be sold, exchanged, transferred, pledged or otherwise disposed of, except in accordance with the Plan. These transferability restrictions will lapse on the last business day in January 2021, except as provided for in the Plan or described in the following section of this Agreement titled “Change in Control.”

CHANGE IN CONTROL

All Awards of Restricted Stock issued under the Plan which have not fully vested (i.e., continue to have restrictions that have not lapsed) shall automatically fully vest (i.e., all restrictions shall lapse) upon a change in control event as follows: (a) If the Corporation or its stockholders execute an agreement to dispose of all or substantially all of the Corporation’s assets or capital stock by means of sale, merger, consolidation, reorganization, liquidation or otherwise, as a result of which the Corporation’s stockholders as of immediately before such transaction will not own at least fifty percent (50%) of the total combined voting power of all classes of voting capital stock of the surviving entity (be it the Corporation or otherwise), the full lapse of any restrictions on shares of Restricted Stock shall occur immediately prior to the consummation of such transaction; (b) if there is an actual, attempted or threatened change in the ownership of at least twenty-five percent (25%) of all classes of voting capital stock of the Corporation through the acquisition of, or an offer to acquire such percentage of the Corporation’s voting capital stock by any person or entity, or persons or entities acting in concert or as a group, and such acquisition or offer has not been duly approved by the Board; or (c) if during any period of two (2) consecutive years, the individuals who at the beginning of such period constituted the Board, cease for any reason to constitute at least a majority of the Board, unless the election of each director of the Board, who was not a director of the Board at the beginning of such period, was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period, thereupon (upon the occurrence of the events described in clause (b) or (c)), the full vesting and lapse of any restrictions on shares of Restricted Stock shall occur.

Dated: January 31, 2020	CITIZENS & NORTHERN CORPORATION
		BY
ATTEST:			J. Bradley Scovill - President & CEO

Kimberly N. Battin, Corporate Secretary

The Director acknowledges receipt of a copy of the Plan and represents that he or she is familiar with the terms and provisions thereof. The Director hereby accepts this Award subject to all the terms and provisions of the Plan.

Dated:____________________	________________________________
	Director

EXHIBIT 10.3

2020Annual Performance Incentive Award Plan (*)

Part I: Plan Administration

Section 1: Purposeof the Plan

The purpose of the Performance Incentive Award Plan ("the Plan") is to provide variable compensation to those employees in key positions who attain and sustain consistently high levels of performance by meeting and exceeding goals and expectations that contribute to the success, profitability, and return to the shareholders of Citizens & Northern Corporation and affiliated Employer(s). The Plan is designed to support operational objectives and financial goals as defined by the long-range and short-range strategic and financial Plans. Additionally, the Plan is designed to provide a component of the management compensation package essential to retaining and attracting quality employees to key positions that contribute significantly to the bank’s financial performance. A key position for the purpose of this plan is a job role that is typically, within the community banking and financial services industries, eligible for performance-based incentive compensation.

Section 2: General Description

There are three components of the Plan: (1) corporate performance; (2) unit/functional performance; and (3) individualperformance. The corporate performance component will be subject to the Corporation’s attainment of financial goals relative to a defined peer group. To receive the corporate bonus payout, the company must achieve at least the threshold level. Further, the individual performance component will be subject to an evaluation of the participants’ overall contributions to the “team”. To earn the individual component, the participant must attain at least the threshold performance level.

The unit/functionalcomponent is based on the attainment of pre-established goals by the participant and often a team of participants in a given business unit, e.g., retail branch system, commercial lending team. Depending upon the participant’s function, Key Performance Indicators for the participant’s region, or the corporation as a whole, also may be evaluated to determine the unit/functional bonus. To receive the unit/functional bonus payout, the participant must achieve at least the threshold level. Even after attaining at least the Threshold performance, the plan permits the participant’s supervisor or the executive officer for the participant’s area to recommend no bonus payout, or a reduced amount (Corporate, Unit/Functional or Individual) if aspects of the participant’s performance are deemed unsatisfactory.

The Plan protects shareholders' interests by requiring that the goals established will enhance bottom line performance while not encouraging excessive risk-taking and that a minimum level of performance is achieved before any incentive award can be made. At the same time the Plan provides management with a means to retain and attract top performers who increase the organization’s financial performance by attaining their performance goals. The Plan requires that management perform an annual assessment and establishment of goals and provides a performance review and measurement system. The Plan requires management to consider non-financial goals designed to improve operational and risk management effectiveness, as well as financial goals, as appropriate for each participant’s position. The Plan permits future inclusion of additional positions during a Plan year, if the need arises.

(*) Employees who are actively engaged in interviewing residential real estate mortgage applicants, processing the applications and closing the loans are excluded from this plan. The Corporation has a separate incentive award plan for such employees.

The calculation of the bonus to be distributed to the Plan participants, and the incentive formulas, are constructed to provide awards consistent with strong corporate financial performance and the participant’s exceptional performance in his/her unit/functional area. The incentive formulas ensure a level of incentive award that is competitive with comparable positions and job levels in similar financial institutions, thus enabling Citizens & Northern to attract, retain, and motivate high-performing personnel and support continued growth and profitability. The determination of the bonus payable is described in Part II of this Plan.

The Plan is established to augment regular salary and benefit programs already in existence. The Incentive Plan is not meant to be a substitute for salary increases but supplemental to salary and as stated earlier, a reward for “exceptional” performance.

The Plan has been developed to recognize that the amount of incentive bonus award attainable by key executives should vary depending upon the executive’s position with the company and the competitive levels of incentive bonus for those positions within the banking and financial service industry. Thus threshold, target and maximum Incentive Opportunities are established for each position.

Section 3: Other Payment Conditions

Termination for Reasons Other Than Death, Permanent Disability or Retirement – In the event of termination of employment for reasons other than death, permanent disability or retirement, the participant, at the discretion of the committee, may forfeit all unpaid incentive awards.

The Compensation Committee of the Board, and management, reserve the right to deny or modify an award to any participant. Such action may be due to, but not limited to, the failure of the participant to properly perform during the Plan year. Economic or other circumstances and considerations may dictate that incentive bonuses be reduced or eliminated in any given year. Accordingly, the Board of Directors may amend, alter or terminate the Plan at any time.

In the event a participant becomes disabled for a period greater than two (2) weeks, any salary continuation as a result of the Corporation’s short and long-term disability programs will not be included in the base salary used for the incentive bonus calculation.

Section 4: Administration of the Plan

Throughout this Plan, reference to the actions and authority of the Compensation Committee of the Board of Directors ("the Committee") also presumes that the Committee will recommend, and the board of directors will approve or disapprove, final disposition of all matters pertaining to administration of the Plan. The Committee, with board approval, has the responsibility to interpret, administer, and amend the Plan as necessary. The recommendations of the Committee as approved by the board, affecting the construction, interpretation, and administration of the Plan shall be final and binding on all parties, including the Corporation, its subsidiaries and employees.

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At or before the beginning of each Plan year, the Committee will review and may revise the operating rules. Performance targets the Incentive Bonus Plan Performance Matrix, and the Incentive Opportunity levels for corporate, individual and unit/functional awards for attaining those targets may be changed in order to emphasize specific goals and objectives of the Plan and to maintain a competitive incentive program. However, it is expected that the Plan will require modification only when significant changes in the organization, goals, personnel, or performance occur. The Chief Executive Officer shall be the Plan Administrator with the power to control and oversee proper administration of the Plan and may recommend to the Committee proposed changes to the operating rules. Additionally, the Committee may engage a third-party expert to review and amend the plan.

An individual or individuals designated by the Chief Executive Officer will perform the computation of incentive awards. Maintenance of participant payment records shall be the responsibility of the Human Resource Director.

Finally, the committee, with board approval, may exclude extraordinary occurrences, which could affect the performance awards, either positively or negatively, but are by their nature outside the significant influence of Plan participants. The characteristics of such extraordinary occurrences are generally that they involve the senior management and the board of directors in:

·	The<br> original decision to take some action.
·	Mission-driven<br> strategic Initiatives that sacrifice short-term income for long-term gain.
---	---
·	Issues<br> most related to a restructuring of assets, or unusual expense or income realization.
---	---

Extraordinary occurrences may be excluded when calculating performance results to ensure that the best interests of the shareholders are protected and are not brought into conflict with the intent of the Plan. When and if extraordinary occurrences are excluded from the calculation of corporate performance measures, they should also be excluded in calculating the bonus.

Section 5: Plan Participants

Executive management shall select and recommend for participation in the Plan employees in those job positions that are responsible for directing, implementing and performing functions that have a significant influence on the profitability and operational performance of the bank (key employees). Those job positions which are selected for participation in the Plan will be in positions that normally include an incentive bonus component in the compensation package offered by similar financial institutions.

At or before the beginning of each Plan year, the Committee shall review the recommendations of management on the selection of those positions eligible for participation in the Plan for that year. Management shall recommend the Incentive Bonus Plan Performance Matrix for the year. Additionally, management shall recommend a threshold, target and maximum Incentive Opportunity percentage of base salary for each position. Participants shall be notified of their eligibility as soon as selection is completed, and the board of directors has adopted the Plan. The Committee shall review and recommend the inclusion of participants to the full board for their approval.

Positions and thus participants may be added during the Plan year at the discretion of management and the Committee, and the incentive award will be prorated from date of entry into the Plan.

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Section 6: Payment of Individual Incentive Compensation Awards

Within 60 days following the end of the Plan year and as soon as the participant’s performance has been evaluated and the financial and operating results are known, participants will receive their incentive payment as determined by the Incentive Bonus Plan Performance Matrix.

Section 7: Incentive Compensation Plan Operating Rules

Before the beginning of each Plan year, the Committee may review and revise, if deemed appropriate, Part II: Operating Rules of the Plan for the year then beginning. The operating rules shall include the following:

a)	Identification of positions<br> selected for participation in the Plan
b)	The method for determining the<br> amount of the total bonus to be paid to Plan participants, including the Incentive Bonus<br> Plan Performance Matrix.
---	---
c)	Schedules and formulas for determining<br> the amount of the incentive compensation awards to Plan participants for the Plan year<br> then beginning, including threshold, target and maximum performance measures and the<br> percentage of bonus award determined by corporate, functional/unit and individual performances.<br> Participants will be informed at or before the Plan year of the manner in which performance<br> will be evaluated.
---	---
d)	Other administrative and procedural<br> rules, which the committee considers appropriate.
---	---

After approval by the Committee and the board of directors, management shall, as soon as practical, inform each of the participants of the operating rules for the Plan year then beginning.

Section 8: Performance Progress Reporting

Semi-annually the Plan Administrator will be responsible for communicating attainment of corporate goals during the course of the Plan year. Participants and their direct supervisors will meet periodically to review their performance relative to the established unit/functional and individual goals.

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Section 9: Amendment or Termination of Plan

The committee, with concurrence of the board of directors, may terminate, amend, or modify this Plan at any time. The termination, amendment, or modification of the Plan may affect a participant's right to unpaid incentive compensation awards under this Plan.

Section 10: Other Considerations

Recoupment- Amounts allocated or paid pursuant to this Plan shall be subject to recovery by the Corporation under any claw back, recovery, recoupment or similar policy hereafter adopted by the Corporation, whether in connection with Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, as amended from time to time, or otherwise, whether or not required by law.

Active Employment Contingency-Except in the case of a retirement, if a participant voluntarily terminates his or her employment with the Corporation or Bank prior to the date of bonus payout, the bonus will be forfeited.

Right of Assignment - No right or interest of any participant in the Plan shall be assignable or transferable, or subject to any lien, directly, by operation of law, or otherwise, including levy, garnishment, attachment, pledge, or bankruptcy.

Right of Employment - The participation in or the receipt of an award under this Plan shall not guarantee any employee any right to continued employment; the right to dismiss any employee is specifically reserved to the organization. The receipt of an award for any one year shall not guarantee an employee the right to receive an award for any subsequent year.

Change of Position – If a participant transfers to another position in the organization that is not included in the Incentive Compensation Plan, they will cease being a Plan participant. At the time of the position change a determination will be made as to whether the participant will be eligible for a bonus for the period during which they were a participant.

Withholding for Taxes

The organization shall have the right to deduct from all payments under this Plan any federal, state or local taxes required by law to be withheld with respect to such payments.

Salary - Salary is defined as base earnings for the year, which includes any increase in weekly rate of pay but not including any referral awards, brokerage or insurance commissions, golden nugget payments, taxable fringe benefits or prior bonus payments.

Board Prerogatives – It will be the right of the Board of Directors to amend, alter and/or terminate the plan in its sole discretion at any time.

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Part II: Operating Rules

Section l: General

The following Incentive Compensation Plan Operating Rules will be in effect for the 2019 plan year and until revised. These operating rules are subject to change by the Committee before the start of the Plan year, with the approval of the board of directors. It is anticipated that the rules for 2019 will be revised only if significant changes occur in organization, operations, industry compensation practices, or other pertinent factors.

Section 2: Corporate Performance Component - Incentive Bonus Plan Performance Matrix for 2020

The corporate performance component of the Incentive Bonus is calculated based on comparison of C&N’s Return on Average Equity (ROAE) to that of a Peer Group. The chart below will determine the Incentive Opportunity percentage of base salary from which the corporate performance component of a participant’s bonus would be paid:

C&N's	Corporate
Percent	Award as
ROAE Rank	% of
vs Peer	Target
25	33%
30	46.4%
35	59.8%
40	73.2%
45	86.6%
50	100%
55	110.0%
60	120.0%
65	130.0%
70	140.0%
75	150%
80	150%
85	150%
90	150%
95	150%
100	150%
>100	150%

****************************************************************

*The Peer Group shall include selected publicly traded commercial banks and thrifts within MD, NJ, NY, OH,PA, and WV with total assets between $750 million and $3.5 Billion.

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EXHIBIT 10.4

2020Annual Performance Incentive Award Plan — Mortgage Lenders

*Section l:*Purpose of the Plan

The purpose of the Performance Incentive Award Plan ("the Plan") is to provide variable compensation to Citizens & Northern employees who are actively engaged in interviewing residential real estate applicants, processing the applications and closing the loans. The Plan is designed to reward mortgage lending employees who attain and sustain consistently high levels of performance by meeting and exceeding defined goals and to provide a component of the compensation package essential to retaining and attracting quality employees in mortgage lending positions. Incentive awards are not directly tied to Company/mortgage business profits nor the terms of the closed-end mortgage transaction or a proxy for a transaction term. The expense of the plan is incorporated into the Company's operating budget. The objective is to align the interests of these employees with the interests of the Company in obtaining superior performance results while being in compliance with the SAFE Act and 12 CFR Part 1026.36 (Regulation Z).

Section 2: General Description

There are two components of the Plan: (l) unit/functional performance; and (2) individual performance. The individualperformance component will be subject to an evaluation of the participants' overall contributions to the "team". To earn the individual component, the participant must attain at least the threshold performance level. The unit/functionalcomponent is based on the attainment of pre-established goals by the applicable branch or mortgage lending business unit. To receive the unit/functional bonus payout, the participant must achieve at least the threshold level.

In addition to goals based on production, the Plan requires management to consider non-financial goals designed to improve operational and risk management effectiveness, as appropriate for each participant's position. The Plan permits future inclusion of additional positions during a Plan year, if the need arises.

The incentive formulas ensure a level of incentive award that is competitive with comparable positions and job levels in similar financial institutions, thus enabling Citizens & Northern to attract, retain, and motivate high-performing mortgage lending employees.

The Plan has been developed to recognize that the amount of incentive bonus award attainable by key mortgage lending employees should vary depending upon the employee's position with the company and the competitive levels of incentive bonus for those positions within the banking and financial service industry. Thus threshold, target and maximum Incentive Opportunities are established for each position.

Section3: Other Payment Conditions

Termination for Reasons Other Than Death, Permanent Disability or Retirement — In the event of termination of employment for reasons other than death, permanent disability or retirement, the participant, at the discretion of the committee, may forfeit all unpaid incentive awards.

In the event a participant becomes disabled for a period greater than two (2) weeks, any salary continuation as a result of the Corporation's short and long-term disability programs will not be included in the base salary used for the incentive bonus calculation.

Section4: Administration of the Plan

Throughout this Plan, reference to the actions and authority of the Compensation Committee of the Board of Directors ("the Committee") presumes that the Committee will recommend, and the board of directors will approve or disapprove, final disposition of all matters pertaining to administration of the Plan. The Committee, with board approval, has the responsibility to interpret, administer, and amend the Plan as necessary. The recommendations of the Committee as approved by the board, affecting the construction, interpretation, and administration of the Plan shall be final and binding on all parties, including the Corporation, its subsidiaries and employees.

At or before the beginning of each Plan year, the Committee will review and may revise the operating rules. The Incentive Opportunity levels for individual and unit/functional awards for attaining those targets may be changed in order to maintain a competitive incentive program. However, it is expected that the Plan will require modification only when significant changes in the organization, goals, personnel, or performance occur. The Chief Executive Officer shall be the Plan Administrator with the power to control and oversee proper administration of the Plan and may recommend to the Committee proposed changes to the operating rules. Additionally, the Committee may engage a third-party expert to review and amend the plan.

Section5: Plan Participants

Executive management shall select and recommend for participation in the Plan employees in those job positions that are responsible for mortgage lending functions. Those job positions which are selected for participation in the Plan will be in positions that normally include an incentive bonus component in the compensation package offered by similar financial institutions.

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At or before the beginning of each Plan year, the Committee shall review the recommendations of management on the selection of those positions eligible for participation in the Plan for that year. Additionally, management shall recommend a threshold, target and maximum Incentive Opportunity percentage of base salary for each position. Participants shall be notified of their eligibility as soon as selection is completed, and the board of directors has adopted the Plan. The Committee shall review and recommend the inclusion of participants to the full board for their approval.

Positions and thus participants may be added during the Plan year at the discretion of management and the Committee, and the incentive award will be prorated from date of entry into the Plan.

Section6: Payment of Individual Incentive Compensation Awards

Within 60 days following the end of the Plan year and as soon as the participant's performance has been evaluated, participants will receive their incentive payment.

Section7: Incentive Compensation Plan Operating Rules

Before the beginning of each Plan year, the Committee may review and revise, if deemed appropriate, the operating rules of the Plan for the year then beginning. The operating rules shall include the following:

a)	Identification<br> of positions selected for participation in the Plan
b)	The<br> method for determining the amount of the total bonus to be paid to Plan participants.
---	---
c)	Schedules<br> and formulas for determining the amount of the incentive compensation awards to Plan<br> participants for the Plan year then beginning, including threshold, target and maximum<br> performance measures and the percentage of bonus award determined by functional/unit<br> and individual performances. Participants will be informed at or before the Plan year<br> of the manner in which performance will be evaluated.
---	---
d)	Other<br> administrative and procedural rules, which the Committee considers appropriate.
---	---

After approval by the Committee and the board of directors, management shall, as soon as practical, inform each of the participants of the operating rules for the Plan year then beginning.

Section8: Performance Progress Reporting

Participants and their direct supervisors will meet periodically to review their performance relative to the established unit/functional and individual goals.

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Section 9: Amendment or Termination of Plan

The Committee, with concurrence of the board of directors, may terminate, amend, or modify this Plan at any time. The termination, amendment, or modification of the Plan will not affect a participant's right to unpaid incentive compensation awards under this Plan.

Section 10: Other Considerations

Recoupment- Amounts allocated or paid pursuant to this Plan shall be subject to recovery by the Corporation under any claw back, recovery, recoupment or similar policy hereafter adopted by the Corporation, whether in connection with Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, as amended from time to time, or otherwise, whether or not required by law.

Active Employment Contingency- Except in the case of a retirement, if a participant voluntarily is not actively employed by the Corporation prior to the date of bonus payout, the bonus will be forfeited.

Right of Assignment - No right or interest of any participant in the Plan shall be assignable or transferable, or subject to any lien, directly, by operation of law, or otherwise, including levy, garnishment, attachment, pledge, or bankruptcy.

Right of Employment

The participation in or the receipt of an award under this Plan shall not guarantee any employee any right to continued employment; the right to dismiss any employee is specifically reserved to the organization. The receipt of an award for any one year shall not guarantee an employee the right to receive an award for any subsequent year.

Change of Position — If a participant transfers to another position in the organization that is not included in the Incentive Compensation Plan, they will cease being a Plan participant. At the time of the position change a determination will be made as to whether the participant will be eligible for a bonus for the period during which they were a participant.

Withholding for Taxes - The organization shall have the right to deduct from all payments under this Plan any federal, state or local taxes required by law to be withheld with respect to such payments.

Salary

Salary is defined as base earnings for the year, which includes any increase in weekly rate of pay but not including any referral awards, brokerage or insurance commissions, golden nugget payments, taxable fringe benefits or prior bonus payments.

Board Prerogatives — It will be the right of the Board of Directors to amend, alter and/or terminate the plan in its sole discretion at any time. Any Incentive Bonus earned by the Participant at the time of amendment, alteration and/or termination shall remain due and payable as stated.

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EXHIBIT 21

	Jurisdiction or
Name	State of Incorporation
Citizens & Northern<br> Bank (A)	Pennsylvania
Bucktail Life Insurance<br>Company (A)	Arizona
Citizens & Northern<br>Investment Corporation (A)	Delaware
C&N Financial Services<br> Corporation (B)	Pennsylvania
Northern Tier Holding<br> LLC (B)	Pennsylvania
(A)	Wholly-owned subsidiary of Citizens & Northern Corporation
---	---
(B)	Wholly-owned subsidiary of Citizens & Northern Bank
---	---

EXHIBIT 23

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-162279 and 333-160682) and Form S-8 (No. 333-150517 and 333-138398) of Citizens & Northern Corporation and subsidiaries of our report dated February 20, 2020, relating to the consolidated financial statements and the effectiveness of Citizens & Northern Corporation and subsidiaries’ internal control over financial reporting, which appears in this annual report on Form 10-K for the year ended December 31, 2019.

/s/ Baker Tilly Virchow Krause, LLP

Williamsport, Pennsylvania

February 20, 2020

EXHIBIT 31.1

CERTIFICATION

I, J. Bradley Scovill, certify that:

1.	I have reviewed this annual report on Form 10-K of Citizens & Northern Corporation;
2.	Based on my knowledge, this annual report does not contain<br>any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the<br>circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
---	---
3.	Based on my knowledge, the financial statements, and<br>other financial information included in this annual report, fairly present in all material respects the financial condition, results<br>of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
---	---
4.	The registrant’s other certifying officer and I<br>are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)<br>and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the<br>registrant and we have:
---	---
a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures<br>to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated<br>subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being<br>prepared;
---	---
b)	designed such internal control over financial reporting, or caused such internal control over financial<br>reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting<br>and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
---	---
c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented<br>in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered<br>by this report based on such evaluation; and
---	---
d)	disclosed in this report any change in the registrant’s internal control over financial reporting<br>that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case<br>of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal<br>control over financial reporting; and
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5.	The registrant’s other certifying officer and I<br>have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors<br>and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
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a)	all significant deficiencies and material weaknesses in the design or operation of internal control<br>over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize<br>and report financial information; and
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b)	any fraud, whether or not material, that involves management or other employees who have a significant<br>role in the registrant’s internal control over financial reporting.
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February 20, 2020	By:	/s/ J. Bradley Scovill
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Date		President and Chief Executive Officer

EXHIBIT 31.2

CERTIFICATION

I, Mark A. Hughes, certify that:

1.	I have reviewed this annual report on Form 10-K of Citizens<br> & Northern Corporation;
2.	Based on my knowledge, this annual report does not contain<br>any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the<br>circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
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3.	Based on my knowledge, the financial statements, and<br>other financial information included in this annual report, fairly present in all material respects the financial condition, results<br>of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
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4.	The registrant’s other certifying officer and I<br>are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)<br>and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the<br>registrant and we have:
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a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures<br>to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated<br>subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being<br>prepared;
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b)	designed such internal control over financial reporting, or caused such internal control over financial<br>reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting<br>and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented<br>in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered<br>by this report based on such evaluation; and
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d)	disclosed in this report any change in the registrant’s internal control over financial reporting<br>that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case<br>of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal<br>control over financial reporting; and
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5.	The registrant’s other certifying officer and I<br>have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors<br>and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
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a)	all significant deficiencies and material weaknesses in the design or operation of internal control<br>over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize<br>and report financial information; and
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b)	any fraud, whether or not material, that involves management or other employees who have a significant<br>role in the registrant’s internal control over financial reporting.
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February 20, 2020	By:	/s/ Mark A. Hughes
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Date		Treasurer and Chief Financial Officer

EXHIBIT 32

SECTION 1350 CERTIFICATIONS

In connection with the Annual Report of Citizens & Northern Corporation (the “Corporation”) on Form 10-K for the year ended December 31, 2019, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned hereby certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to each of the undersigned’s best knowledge and belief:

(a) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 as amended; and

(b) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

February<br> 20, 2020	By:	/s/ J. Bradley Scovill
Date	President and Chief Executive<br> Officer
February<br> 20, 2020	By:	/s/ Mark A. Hughes
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Date	Treasurer and Chief Financial<br> Officer

EXHIBIT 99.1

2019 Annual Highlights GROW CHANGE
GROW<br> Through your partnership with C&N, you’ve come to know us as “Your Bank for a Lifetime” and “Your<br> Community Friend for World-Class Banking.” You’ve come to trust our experts as knowledgeable, honestly caring<br> people who are personally invested in you no matter how much you are financially invested in us. You see us out in the community,<br> contributing to local charities and organizations that share our passion to enhance the lives of our neighbors. You expect<br> us to continually introduce new, convenient technologies and services that make life easier. CHESTER ROBINSON As a full-service<br> financial institution, we have a unique approach. We know that earning money can be hard, but we don’t think trusting<br> who protects it should be. Trust is priceless. But just like your money, it must be earned and no one takes that more seriously<br> than us. JL ROBINSON The First National Bank of Wellsborough was founded in 1864 by CHESTER & JL ROBINSON Earlier this<br> year, we shortened our name to simply “C&N.” While we are legally still Citizens & Northern Corporation,<br> we are “C&N” to our communities, customers and teammates. While this change showcases a new, simpler name<br> and modernized logo and colors, our commitment to be your trusted financial partner for a lifetime will always be the same.<br> After all, life is easier when we’re in this together. Why “C&N?” C&N has a long, proud history<br> dating back to 1864. For over 150 years, we’ve grown as a 1
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CHANGE<br> strong, full-service financial institution with offices in 10 counties across Pennsylvania and New York. As we continue to<br> grow and expand into new markets, it has become necessary for us to distinguish our brand from other financial institutions<br> in those areas. At the same time, it was important to respect our heritage and history. The relationships we developed over<br> the years as Citizens & Northern have made us who we are today and have positioned us to give back to our local economy<br> and community. So, we wanted to find a way to maintain our heritage and the familiarity of our long-time customers while steering<br> us toward the future. OLD NEW Knowing that many people commonly referred to us as “C&N,” it seemed like an<br> obvious transition for our brand, but we wanted to be sure. So, we talked with our team members and customers, held focus<br> groups and did our research. That research confirmed our notions and made it an easy decision to rename our brand as “C&N.”<br> C&N’s Towanda Branch in the past & a rendering of the new state-of-the-art location What’s Next? We’ve<br> changed our look, but dedication to helping customers our people and reach their goals remains the same. No matter how or<br> where we continue to grow next, whatever you need, whenever you need it, we’re here. And like always, our aim is to<br> make it as easy as possible. Your hometown bank may have gotten a makeover, but rest assured, you know us well. 2
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Table<br> of Contents GrowChange - Editor Introduction 1 5 7 11 Guide - C&N Leadership Lead PresidentCEO - Shareholder Letter Doll<br> ars Sense - C&N Financial Profile - Quarterly Share Data - Operations Comparisons - End of Period Balances - Consolidated<br> Financial Data - C&N Wealth Management AwardsRecognition 17 21 Stripes - Giving Back, Giving Together Stars 3
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[LOGO]
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LEAD<br> GUIDE We are grateful to our Board members for lending their expertise to further the mission of C&N and for providing<br> us with valuable insight into the communities we serve. Executive (from left) Mark A. Hughes Team Board of Directors (from<br> left) Terry L. Lehman, CPA Retired Certified Public Accountant Leonard Simpson Attorney at Law & Sullivan County District<br> Attorney Timothy E. Schoener VP & CIO, UPMC Pinnacle Frank G. Pellegrino Owner & Developer, Carlton Associates, LLC<br> Dennis F. Beardslee Owner, Terrace Lanes Bowling Center Susan E. Hartley Attorney at Law Bobbi J. Kilmer President & CEO,<br> Claverack Rural Electric Cooperative Aaron K. Singer President & CEO, Metalkraft Industries, Inc. Clark S. Frame Retired<br> Chairman of the Board, Monument Bank Leo F. Lambert Chairman, President/GM Fitzpatrick & Lambert, Inc. J. Bradley Scovill<br> President & CEO, C&N EVP and Director Financial Division Deborah E. Scott EVP and Director Trust Division Stan R.<br> Dunsmore EVP and Chief Credit Officer Tracy E. Watkins EVP and Director of Human Resources J. Bradley Scovill President &<br> CEO Shelley L. D’Haene EVP and Senior Operations Officer Harold F. Hoose, III EVP and Director of Lending John M. Reber<br> EVP and Director of Risk Management Thomas L. Rudy, Jr. EVP and Director of Branch Delivery 5
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Corporate<br> Officers Mark A. Hughes Treasurer Kimberly N. Battin Corporate Secretary J. Bradley Scovill President & CEO Advisory Board<br> Bradford & Sullivan Counties Evan R. Barnes Casandra K. Blaney James A. Bowen Krystle R. Bristol Laura C. Cimino Warren<br> J. Croft John M. Estep Zachary R. Gates Taunya Knolles Rosenbloom J. Wesley Kocsis Dr. Stephen D. Laudermilch Kimberly J.<br> Mastrantonio Ryan D. Morales Jeffrey B. Paul Damian M. Rossettie William B. Saxe Eric Schoonover Mark W. Smith Andrew R. Wilcox<br> Bucks County Glenda R. Childs Michael J. Rush Joseph A. Fluehr, IV Irving N. Stein Linda J. Kilroy David E. Thompson Daniel<br> P. Marrazzo Cameron, McKean & Potter Counties John A. Abplanalp David Mark Errick Joseph R. Kightlinger Lori J. Reed Andrea<br> F. Streich Edwin W. Tompkins, III Lycoming County Robert T. Beiter Thomas F. Charles John M. Confer Roger D. Jarrett Daniel<br> K. Mathers Jeffrey M. Patterson John F. Perrotto Ronald W. Roan David A. Schall Tioga County Donald R. Abplanalp Brian A.<br> Bicksler Lawrence J. Connolly Matthew S. DeCamp Craig Eccher Mark R. Howe John C. Kenyon Danielle M. Lee Scott E. Lewis Anthony<br> L. Mosso David C. Murdock Mary C. Owlett William W. Roosa Ray E. Wheeland York County Thomas K. Baughman Alex E. Snyder Matthew<br> R. Doran Nicholas E. Hauck Ryan A. Myers 6
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PRESIDENTCEO<br> Dear Shareholder, Since its founding as First National Bank of Wellsborough in 1864, C&N has been building an exceptionally<br> strong community banking franchise serving the needs of the people and businesses in the northern tier region of Pennsylvania<br> and southern tier of upstate New York. Our mission of creating value through lifelong relationships has been a constant theme<br> supported by a culture based on core values that stand the test of time. This foundation has carried C&N through many<br> seasons of prosperity, depression, great recession, war and social transition. Across generations, C&N has managed to<br> grow and change to meet the needs of our customers and communities, while creating value for our shareholders. During the<br> first 100 years of our history, our growth was organic except for taking over the assets of Wellsboro National Bank in 1897.<br> Beginning in 1964, our position in the legacy markets mentioned above has been built through mergers with ten local banks<br> along with branch expansion into Lycoming County and a loan production office in Elmira, NY. As a result, we are the leader<br> in deposit market share in this footprint and have been a consistent high performer when measured by most key financial metrics.<br> More specifically, our strong capital position enables C&N to continue seeking growth that will profitably leverage your<br> investment in the Company. We have discussed in recent years how we are using this strength to invest in our Team, technology<br> and delivery channels to build capacity to support future growth and to keep pace with rapid changes in customer needs and<br> preferences. These investments have enhanced the value we create for customers in existing markets while preparing for expansion.<br> ...our strong capital position enables C&N to continue seeking growth... We have also been active in building relationships<br> that could lead us into attractive new markets. In 2019, these efforts produced results through the completion of the Monument<br> acquisition and announcement of the Covenant acquisition in Bucks County, PA, along with the opening of a loan production<br> office in York, PA. These are the first moves we have made outside our historic market area and are transformational for C&N.<br> We expect to close the Covenant acquisition in the third quarter of 2020, at which time our franchise in southeastern PA will<br> have offices in Bucks and Chester Counties with approximately $850 million in total 7
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assets.<br> When combined with our legacy markets, C&N will be a $2.2 billion bank and also boast a wealth management group that assists<br> customers with more than $1 billion in investments. Enhancing relationships in new markets with our broad set of services<br> holds significant potential and our capital and additional earnings supply the capacity for further expansion and growth.<br> Importantly, our regional structure and scale position C&N to enter new markets with a consistent relationship-focused<br> business model. Both Monument and Covenant, as well as the team we have assembled in York, have similar cultures and shared<br> core values. This alignment has smoothed the integration process and enabled the regional teams to focus on the customer experience<br> and continued growth. It ...the team was at its best supporting new teammates and customers, while delivering strong results<br> and remaining very engaged in our local communities. has also allowed the regional teams in legacy markets to remain focused<br> on delivering value to their customers and communities to sustain and leverage the core strength that C&N has built over<br> the years. Our broad set of banking, lending and wealth management solutions serve the needs of small/family-owned businesses,<br> professionals and individuals, regardless of geography. These products and services also produce a diverse revenue mix of<br> net interest income and noninterest income that strengthens C&N’s earnings capacity. The C&N brand was refreshed<br> in 2019 and is now consistent in all markets. The new look is simpler, reflects the energy of the C&N Team and is utilized<br> by all business lines. In our legacy markets, many referred to us as “C&N” already and in new markets the<br> change was necessary to distinguish our brand from other financial institutions in those areas. We have received an incredibly<br> positive response to this important initiative to support our growth and adapt to changes in the markets we serve. We will<br> continue to build on the alignment of the brand with our mission, vision, values and the experience that all who connect with<br> C&N should expect. Substantial growth and change create a variety of tests for any team and organization. Clearly, 2019<br> was a challenging year for the C&N Team as we layered the stress created by expansion and acquisition with the “routine”<br> changes encountered through the introduction of new technology, products and services, regulatory requirements and customer<br> needs and preferences. Our ongoing emphasis on values and culture paid dividends in 2019 as the Team was at its best supporting<br> new teammates and customers, while delivering strong results and remaining very engaged in our local communities. We went<br> into the year with a talented team of professionals and ended the year even stronger. We should all be proud of their performance<br> and I urge you to review the remainder of this report to sample the highlights of their contribution to C&N’s success.<br> 8
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Net<br> income, adjusting for merger related expenses and net securities gains, was $22.8 million or $1.70 per share in 2019 compared<br> to similarly adjusted earnings of $20.7 million or $1.68 per share in 2018. Net interest income increased $8.8 million, or<br> more than 19%, reflecting the benefits of growth from the Monument acquisition and loan growth in the York office, as well<br> as organic loan and deposit growth in legacy markets. The net interest margin declined .04% year-over-year due to higher funding<br> costs and a progressive flattening of the yield curve throughout the year despite an increase in asset yields generated through<br> solid loan growth. The fed funds rate was cut three times in 2019 by a total of .75% to a target of 1.50 -1.75%, reversing<br> the increases we experienced in 2018. This reversal began in late 2018 and reflected the Fed’s desire to support continued<br> growth and receding concerns regarding inflation. A year after changing course, longer-term rates remain remarkably close<br> to the fed funds target rate, creating a challenging environment to expand net interest margins. Our Core Values Teamwork<br> Together we are stronger. Respect Value one another. Responsibility & Accountability Work like you own it. Credit quality<br> remains strong and has been a focus of management as the portfolio grows and we enter new markets. We have sustained our historically<br> conservative credit culture and consistent policies and underwriting standards, and robust process for assessing the adequacy<br> of the allowance for potential loan losses. The loan loss provision increased by 45% during 2019 to $849,000, primarily to<br> support loan growth during the year. Most key credit quality metrics are stable or improving and economic conditions remain<br> solid across C&N’s markets and the country. Excellence Do your best. Every day. Every time. Integrity Do the right<br> thing when no one is looking. Noninterest income increased $687,000, or 3.7% during 2019 over 2018. The overall growth was<br> driven by production in the wealth management group, revenue from sales of mortgage loans, interchange revenues and service<br> charges which were partially offset by decreases in loan servicing fees and life insurance related income. Client-Focus Consider<br> your customer in everything you do. Have Fun Work hard! Play hard! WIN! Noninterest expense, excluding merger related expenses,<br> increased $6.3 million in 2019 over 2018. This increase reflects the impact of Monument and York and the salaries and benefits<br> that come with additional personnel. In addition to, and in combination with these new ventures, IT and marketing expenses<br> were higher during 2019. We expect that both line items will grow again in 2020 as we support expansion and continue to invest<br> in the systems and delivery channels that serve customer needs, improve productivity, and create efficiency. As we stated<br> in last year’s “Highlights,” leveraging C&N’s capital and paying off our investments to support<br> growth have been a 79
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priority<br> for the past several years. We executed on several significant initiatives during 2019 that enhance our ability to drive future<br> earnings growth and support a strong dividend and stock valuation. Our “currency” remains a strength in efforts<br> to grow and create additional shareholder value over time. Adjusted 2019 earnings per share remained strong and consistent<br> with 2018. We maintained the cash dividend at $1.08 per share, producing a dividend yield of 3.82% based on the December 31,<br> 2019 closing price of $28.25 per share. This closing price was a 6.89% increase from the $26.43 closing price a year earlier.<br> During 2019, James E. Towner retired from the Board of Directors and Jan E. Fisher resigned to pursue a professional opportunity<br> that prevented her continued service. Having served 19 and 17 years respectively, both Jim and Jan provided C&N with leadership,<br> advice and counsel throughout their tenure on the Board. We also welcomed Clark S. Frame and Timothy E. Schoener to the Board.<br> Clark joined C&N through the Monument acquisition and brings with him many years of business and banking experience as<br> an investor, executive and director. He was the founding Chairman and CEO of Monument and has lived and worked in Bucks County<br> for more than 30 years. Tim was appointed to the Board while serving as Vice President and Chief Information Officer at UPMC<br> Susquehanna in Williamsport, PA, and was recently named to the same position at UPMC Pinnacle in Harrisburg, PA. Tim brings<br> years of IT and executive experience to C&N and is a strategic addition given the critical role technology plays in our<br> business. We are pleased to have Clark and Tim on our board and look forward to their guidance and perspectives in the years<br> ahead. 2019 was truly a transformational year and a pivot point for our Company built on the momentum we generated in 2018.<br> Our Team enters 2020 believing that our collective efforts to grow and change have C&N positioned to deliver exceptional<br> value for our expanding family of customers, teammates, communities and shareholders in the years ahead. We thank you for<br> your continued confidence and support. J. Bradley Scovill President & CEO 10
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DOLLARS<br> SENSE Trades of the Corporation’s stock are executed through various brokers who maintain a market in the Corporation’s<br> stock. The Corporation’s stock is listed on NASDAQ Capital Market Securities with the trading symbol CZNC. The following<br> tables show the approximate high and low sales price of the common stock during 2018 and 2019. 2019 Quarterly Share Price<br> Data $30 $25 $20 High $15 Low $10 $5 First Quarter Second Quarter Third Quarter Fourth Quarter Cash Dividends Decl ared Cash<br> Dividends Decl ared 2019 2018 High Low High Low $25.41 $22.00 $0.27 First quarter $27.07 $23.60 $0.37 First quarter Second<br> quarter 29.25 25.02 0.27 Second quarter 27.72 22.64 0.27 Third quarter 27.00 22.52 0.27 Third quarter 28.99 25.42 0.27 Fourth<br> quarter 28.58 24.23 0.27 Fourth quarter 28.48 23.72 0.27 11
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Five-Year<br> Summary Operations Comparison $1.75 $1.20 $1.50 $1.00 $1.25 $.80 $1.00 $.60 $.75 $.40 $.50 $.20 2017 2016 2015 2019 2018 2019<br> 2018 2017 2016 2015 Diluted Earnings Per Share (In Thousands) Cash Dividends Declared Per Share INCOME STATEMENT (In Thousands)<br> 2019 2018 2017 2016 2015 PER COMMON SHARE DATA 2019 2018 2017 2016 2015 12 Basic earnings per share $1.46 $1.79 $1.10 $1.30<br> $1.35 Diluted earnings per share $1.46 $1.79 $1.10 $1.30 $1.35 Cash dividends declared per share $1.18 $1.08 $1.04 $1.04 $1.04<br> Book value per common share at period-end $17.82 $16.02 $15.43 $15.36 $15.39 Tangible book value per common share at period-end<br> $15.66 $15.05 $14.45 $14.37 $14.41 Weighted average common shares outstanding - basic 13,298,736 12,219,209 12,115,840 12,032,820<br> 12,149,252 Weighted average common shares outstanding - diluted 13,321,559 12,257,368 12,155,136 12,063,055 12,171,084 Interest<br> and dividend income $64,771 $50,328 $45,863 $44,098 $44,519 Interest expense 10,283 4,625 3,915 3,693 4,602 Net interest income<br> 54,488 45,703 41,948 40,405 39,917 Provision for loan losses 849 584 801 1,221 845 Net interest income after provision for<br> loan losses 53,639 45,119 41,147 39,184 39,072 Noninterest income excluding securities gains 19,284 18,597 16,153 15,511 15,478<br> Net gains on securities 23 2,033 257 1,158 2,861 Loss on prepayment of debt 0 0 0 0 2,573 Merger-related expenses 4,099 328<br> 0 0 0 Noninterest expense excluding loss on prepayment of debt and merger-related expenses 45,438 39,158 36,967 34,744 33,030<br> Income before income tax provision 23,409 26,263 20,590 21,109 21,808 Income tax provision 3,905 4,250 7,156 5,347 5,337 Net<br> income $19,504 $22,013 $13,434 $15,762 $16,471 Net income attributable to common shares $19,404 $21,903 $13,365 $15,677 $16,387
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Five-Year<br> Summary End of Period Balances $1,100,000 $1,600,000 $1,000,000 $1,400, $900,000 $1,200,000 $800,000 $1,000, $700,000 $800,<br> $600,000 $600, 2019 2018 2017 2016 2015 2019 2018 2017 2016 2015 Gross Loans (In Thousands) Total Assets (In Thousands) END<br> OF PERIOD BALANCES (In Thousands) 2019 2018 2017 2016 2015 AVERAGE BALANCES (In Thousands) 2019 2018 2017 2016 2015 13 Total<br> assets $1,540,469 $1,276,140 $1,247,759 $1,229,866 $1,243,209 Earning assets 1,437,993 1,205,429 1,169,569 1,147,549 1,159,298<br> Gross loans 1,057,559 822,346 780,640 723,076 657,727 Deposits 1,213,687 1,027,831 990,917 970,447 968,201 Stockholders' equity<br> 229,446 187,895 188,958 188,373 188,905 Available-for-sale debt securities $346,723 $363,273 $355,937 $394,106 $417,904 Gross<br> loans 1,182,222 827,563 815,713 751,835 704,880 Allowance for loan losses 9,836 9,309 8,856 8,473 7,889 Total assets 1,654,145<br> 1,290,893 1,276,959 1,242,292 1,223,417 Deposits 1,252,660 1,033,772 1,008,449 983,843 935,615 Borrowings and subordinated<br> debt 144,847 48,768 70,955 64,629 92,263 Stockholders' equity 244,452 197,368 188,443 186,008 187,487 Common shares outstanding<br> 13,716,445 12,319,330 12,214,525 12,113,228 12,180,623 000 000 000 000
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Five-Year<br> Summary End of Period Balances $1,300,000 $250,000 $1,200,000 $225,000 $1,100,000 $200,000 $1,000,000 $175,000 $900,000 $150,000<br> $800,000 $125,000 2019 2018 2017 2016 2015 2019 2018 2017 2016 2015 Shareholders’ Equity (In Thousands) Deposits (In<br> Thousands) KEY RATIOS 2019 2018 2017 2016 2015 (1) Rates of return on tax-exempt securities and loans are calculated on a<br> fully-taxable equivalent basis. (2) The efficiency ratio is calculated by dividing: (a) total non-interest expense excluding<br> merger-related expenses and losses from prepayment of debt, by (b) the sum of net interest income (including income from tax-exempt<br> securities and loans on a merger-related expenses and fully-taxable equivalent basis) and non-interest income excluding securities<br> gains or losses. 14 Return on average assets 1.27% 1.72% 1.08% 1.28% 1.32% Return on average equity 8.50% 11.72% 7.11% 8.37%<br> 8.72% Average equity to average assets 14.89% 14.72% 15.14% 15.32% 15.19% Net interest margin (1) 3.86% 3.90% 3.82% 3.76%<br> 3.69% Efficiency (2) 60.73% 59.69% 60.74% 59.22% 56.66% Cash earnings per share 80.82% 60.34%<br> 94.55% 80.00% 77.04% Tier 1 leverage 13.10% 14.78% 14.23% 14.27% 14.31% Tier 1 risk-based capital 19.19% 23.24% 21.95% 22.48%<br> 23.29% Total risk-based capital 20.70% 24.42% 23.07% 23.60% 24.40% Tangible common equity/tangible assets 13.22% 14.50% 13.95%<br> 14.15% 14.49% Nonperforming assets/total assets 0.80% 1.37% 1.47% 1.43% 1.31% Nonperforming loans/total loans 0.88% 1.94%<br> 2.10% 2.07% 2.09% Allowance for loan losses/total loans 0.83% 1.12% 1.09% 1.13% 1.12% Net charge-offs/average loans 0.03%<br> 0.02% 0.05% 0.09% 0.04%
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Quarterly<br> Consolidated Financial Data The following table presents summarized financial data for 2019 & 2018. st nd rd th 1 Quarter<br> March 31 2 Quarter June 30 3 Quarter Sept. 30 4 Quarter Dec. 31 2019 (In Thousands Except Per Share Data) (Unaudited) st nd<br> rd th 1 Quarter March 31 2 Quarter June 30 3 Quarter Sept. 30 4 Quarter Dec. 31 2018 (In Thousands Except Per Share Data)<br> (Unaudited) 15 Interest income $11,890 $12,334 $12,800 $13,304 Interest expense 993 1,079 1,241 1,312 Net interest income<br> 10,897 11,255 11,559 11,992 Provision (credit) for loan losses 292 (20) 60 252 Net interest income after provision (credit)<br> for loan losses 10,605 11,275 11,499 11,740 Other income 4,406 4,689 4,462 5,040 Gain on restricted equity security 0 1,750<br> 571 0 Net losses on available-for-sale debt securities 0 (282) (2) (4) Merger-related expenses 0 0 200 128 Other expenses<br> 9,895 9,684 9,633 9,946 Income before income tax provision 5,116 7,748 6,697 6,702 Income tax provision 741 1,377 1,111 1,021<br> Net income $4,375 $6,371 $5,586 $5,681 Net income attributable to common shares $4,352 $6,339 $5,558 $5,654 Net income per<br> share – basic $0.36 $0.52 $0.45 $0.46 Net income per share – diluted $0.36 $0.52 $0.45 $0.46 Interest income $13,065<br> $17,139 $17,277 $17,290 Interest expense 1,350 2,934 3,000 2,999 Net interest income 11,715 14,205 14,277 14,291 (Credit)<br> provision for loan losses (957) (4) 1,158 652 Net interest income after (credit) provision for loan losses 12,672 14,209 13,119<br> 13,639 Other income 4,406 4,849 4,963 5,066 Net gains on available-for-sale debt securities 0 7 13 3 Merger-related expenses<br> 311 3,301 206 281 Other expenses 10,696 11,422 11,486 11,834 Income before income tax provision 6,071 4,342 6,403 6,593 Income<br> tax provision 981 693 1,096 1,135 Net income $5,090 $3,649 $5,307 $5,458 Net income attributable to common shares $5,063 $3,630<br> $5,281 $5,431 Net income per share – basic $0.41 $0.27 $0.39 $0.40 Net income per share – diluted $0.41 $0.27<br> $0.39 $0.40
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Wealth<br> Management Data The following table presents summarized financial data for C&N’s Wealth Management. $1,050,000 $6,000<br> $875,000 $5,000 $700,000 $4,000 $525,000 $3,000 $350,000 $2,000 $175,000 $1,000 2019 2018 2017 2016 2015 2019 2018 2017 2016<br> 2015 Trust Assets Under Management Trust Revenue Wealth Management (In Thousands) 2019 2018 2017 2016 2015 INVESTMENTS (In<br> Thousands) 2019 2018 2017 2016 2015 ACCOUNTS (In Thousands) 2019 2018 2017 2016 2015 Some products are not FDIC insured or<br> guaranteed, not a deposit or other obligation of the bank, not guaranteed by the bank and are subject to investment risk,<br> including possible loss of the principal amount invested and are not insured by any other federal government agency. 16 Pension/profit<br> sharing $402,062 $342,501 $374,499 $369,916 $339,953 Investment management 307,068 256,430 256,348 223,737 211,645 Trusts<br> 196,660 176,428 185,300 177,860 166,433 Custody 89,241 79,786 93,598 98,844 92,451 Estates 9,175 4,941 4,397 7,367 1,874 Guardianships<br> 2,907 2,431 2,438 2,120 2,432 Total $1,007,113 $862,517 $916,580 $879,844 $814,788 Mutual Funds $611,539 $506,201 $536,731<br> $507,473 $458,942 Stocks 207,847 172,695 194,099 179,345 167,098 Bonds 101,966 103,037 104,184 100,249 88,471 Savings and<br> money market funds 71,936 68,129 69,659 80,860 90,038 Miscellaneous 7,346 6,798 6,069 6,864 7,216 Real Estate 6,349 5,517<br> 5,681 4,876 2,827 Mortgages 130 140 157 177 196 Total $1,007,113 $862,517 $916,580 $879,844 $814,788 Trust Assets Under Management<br> $1,007,113 $862,517 $916,580 $879,844 $814,788 Trust Revenue $6,106 $5,838 $5,399 $4,760 $4,626
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Impact<br> Player, Jill Pino (right) with her supervisor, Amy Ward (left) Impact Player, Kevin Dougherty (left) with his supervisor,<br> Hal Hoose (right) Impact Player, Chris Bolt (left) with his supervisor, Tom Nelson (right) AWARDS RECOGNITION TOP Award Winners<br> The TOP Award was presented to the team member leading their area in 2018. TOP Commercial Lender, based on Loan Growth TOP<br> Mortgage Lender, based on Loan Growth Courtney Cole, Coudersport Michelle Rae, Towanda TOP Insurance/Brokerage Employee, based<br> on New Business TOP Trust Employee, based on New Business TOP Branch Lender, based on Loan Growth TOP Universal banker, based<br> on Cross Sale/New Account Ratio Matt Landis, Troy Brian Tevlin, Wellsboro Jill Pino, Mansfield Ellen Conboy, Troy IMPACT Players<br> The IMPACT Players award recognizes six team members based not only on performance, but commitment. The recipients of this<br> award not only made measurable progress, but also upheld our C&N values in their interactions at every opportunity. Pictured<br> above from left. Jill Pino Kevin Dougherty Amy Long Chris Bolt Christina Moyer Renée Tevlin Community Office Manager,<br> Mansfield Commercial Lending, Sayre Wealth Management, Wellsboro Technical Support, Wellsboro Compliance, Wellsboro Treasury<br> Management, Wellsboro Spotlight Awards Spotlight Awards are given to team members who have not only consistently met their<br> goals, but have gone above and beyond in their role and in supporting their team members. 4th Quarter 2018 Allanna Whittemore,<br> Deposit Operations, Wellsboro Crystal Barrett, Branch Delivery, Mansfield Kristina Reynolds, Deposit Operations, Wellsboro<br> Melanie Kellogg, Branch Delivery, Knoxville Nancy Tubbs, Compliance, Wellsboro Marcie Wood, Branch Delivery, Troy Rhonda Washburn,<br> Branch Delivery, East Smithfield 1st Quarter 2019 2nd Quarter 2019 3rd Quarter 2019 17
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Impact<br> Player, Amy Long (left) with her supervisor, Deb Scott (right) Impact Player, Christina Moyer (left) with her supervisor,<br> John Reber (right) Impact Player, Renée Tevlin (right) with her supervisor, Chrissi Hume (left) 2019 Million Dollar<br> Club Lenders who closed $1,000,000 or more in loans in a calendar month Linda Bowen, Sayre Rachel Brill, Wellsboro Andee Bryan,<br> Mansfield Robert Burns, Doylestown Courtney Cole, Coudersport Brian Collins, Warminster Kevin Dougherty, Sayre Kelly Fasse,<br> Mansfield Linda Gordner, Muncy Jeffrey Grove, York Kathi Heimbach, Troy Will Holmes, Troy Mike Kilgour, York Daniel Miller,<br> Doylestown James Miller, Newtown Michelle Pedersen, Doylestown Jill Pino, Mansfield David Plummer, Newtown Michelle Rae, Towanda<br> Ryan Satalin, Wellsboro Stacey Sickler, Sayre Bruce Smithgall, Williamsport Tyler Sones, Williamsport Amy VanBlarcom-Lackey,<br> Towanda Mike Wetzel, Coudersport Kim Whiting, Emporium Rainmakers Team members who referred over $100,000 in closed business<br> to C&N’s Wealth Management Jesseca Acor, Canisteo Crystal Barrett, Mansfield Leasa Causer, Coudersport Ellen Conboy,<br> Troy Ben Crowley, Doylestown Mary D’Ottavio, Laporte Kevin Dougherty, Sayre Kelly Fasse, Mansfield Jeremy Gardner, East<br> Smithfield Linda Gordner, Muncy Gina Haffley, Jersey Shore Hannah Jackson, Monroeton Phyllis Jensen, Knoxville Melanie Kellogg,<br> Athens Elizabeth Loman, Williamsport Jessica Loper, Hornell Rebekah Lund-Immel, Dushore Anna Morgan-Schill, East Smithfield<br> Wesley O’Neil, Elkland Ryan Satalin, Wellsboro Amber Schwab, Emporium Ronald Seymour, Sayre Bruce Smithgall, Williamsport<br> Traci Spencer, East Smithfield Gail Steelman, Doylestown Lorri Stocum, Wellsboro Terry Turner, Dushore Amy Ward, Troy Rhonda<br> Washburn, East Smithfield Kathryn Wesneski, Liberty Ashley White, Wysox Marcie Wood, Troy 18
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2019<br> Retirees Service Award Recipients 40 Years Joan Grenell, Accounting, Laporte 30 Years William Holmes, Lending, Troy 20 Years<br> Larry Alderson, Wealth Management, Sayre James Butters, Wealth Management, Wellsboro Shelley D’Haene, Operations, Wellsboro<br> 15 Years Brandy Allen, Deposit Operations, Wellsboro Darci Baird, Wealth Management, Sayre Claudia Brown, Branch Delivery,<br> Tioga Diane Egly, Branch Delivery, Muncy Leslie Fassett, Branch Delivery, Monroeton Sara Heatley, Audit, Wellsboro Marcy Hughes,<br> Lending, Wellsboro Sheila Kingsley, Branch Delivery, Athens Jessica Loper, Branch Delivery, Hornell Kenna Marshall, Resource<br> Recovery, Muncy Brenda Mitchell, Branch Delivery, South Williamsport Melissa Peters, Branch Delivery, Troy John Reber, Risk<br> Management, Wellsboro Bruce Smithgall, Lending, Williamsport Kathryn Wesneski, Branch Delivery, Liberty 10 Years Leasa Causer,<br> Business Manager, Coudersport Janette Frey, Contact Center, Wellsboro Patricia Groover, Contact Center, Wellsboro Hannah Jackson,<br> Branch Delivery, Monroeton Lisa Milne, Branch Delivery, Wysox Renée Tevlin, Treasury Management, Wellsboro Joanne Weaver,<br> Branch Delivery, Tioga Darcey Yearick, Lending, Jersey Shore 5 Years Diane Carothers, Branch Delivery, South Williamsport<br> Courtney Cole, Lending, Coudersport Ellen Conboy, Branch Delivery, Troy Thomas Cooper, Deposit Operations, Wellsboro Charity<br> Frantz, Marketing, Wellsboro Hannah Jackson, Training, Wellsboro Elizabeth Johnson, Branch Delivery, Sayre Kelly Latimer,<br> Branch Delivery, Jersey Shore Elizabeth Loman, Branch Delivery, Williamsport Rebekah Lund-Immel, Branch Delivery, Dushore<br> Fawn Lynde, Branch Delivery, Elkland Joshua Sivers, Retirement Services, Wellsboro Amy VanBlarcom-Lackey, Lending, Towanda<br> Philip Walker, Lending, Wellsboro 27 years of service Lora Pier Deposit Operations, Wellsboro 18 years of service Terry Turner<br> Branch Delivery, Dushore 14 years of service Robert Baker Branch Delivery, Monroeton 7 years of service Anthony Peluso Controller,<br> Wellsboro 6 years of service Sandra Rush Branch Delivery, Doylestown 2 years of service Tamara Davis Lending, Elmira LPO Pictured<br> above: Brad Scovill, President & CEO (right) with retirees (from left) Nola Gross (retiring in early 2020), Terry Turner,<br> Nancy Hardes (retiring in early 2020) and Sandra Rush during their final company event in October 2019. 19
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Teresa<br> (Teri) L. Mitchell Scholarship Left photo: Teri Mitchell, the scholarship’s namesake. Right photo: (from top) Brad Scovill,<br> C&N President & CEO with Tracy Watkins, EVP & Director of Human Resources with Marcie Wood, Hannah Jackson, Kim<br> Battin, Lisa Milne and Vanessa Calaman In early 2019, C&N awarded four team members with the Teresa (Teri) L. Mitchell<br> Scholarship. This scholarship is a legacy scholarship that keeps the spirit of Teri and her dedication to C&N alive by<br> providing team members with paid attendance to the PA Bankers Association’s Women in Banking Conference. The recipients<br> of this award were: • • • • Hannah F. Jackson, Training Facilitator in Wellsboro Lisa Milne, Universal<br> Banker in Wysox Marcie Wood, Universal Banker in Troy Vanessa Calaman, Universal Banker in Wysox Also in attendance were Brad<br> Scovill, President and CEO, Kim Battin, Corporate Secretary, and Tracy Watkins, EVP & Director of Human Resources. The<br> scholarship was started in memoriam of Teresa L. Mitchell, a dedicated C&N team member for 37 years, to award educational<br> opportunities to C&N team members who display commitment to their ongoing professional development and a strong work ethic.<br> Teri held various positions over the course of her 37 years at C&N. Starting her career as a Bookkeeper, she also worked<br> as a teller in Wellsboro and then moved to the Wire Transfer Department. As the technology and department changed over the<br> years, Teri remained in what became the Funds Management Department and later became the Funds Management Supervisor. In recent<br> years, Teri worked in the Accounting Department and held the position of Treasury & Reconciliation Accountant. Teri expressed<br> her appreciation for the educational opportunities that were provided to her by C&N. She attended several conferences<br> throughout her years at C&N, including the Conference for Women, NACHA’s Payments Conferences and several technical<br> seminars related to her field of expertise. 20
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STARS<br> STRIPES &American Legion Veterans Fund Post 246&Post 846 &Blue Star Mothers&Delaware Valley Veterans Home&Honor<br> Guard&Leek Hunting and Mountain preserve&Military Share Food Bank &Patriots Cove&Rides for Vets&Bath VA<br> Hospital &Port Allegany VA Facility&Wilkes-Barre VA Hospital&Veterans Motorcycle Association Combat Veterans Fund&VFW<br> Veterans Fund Post 1536&Post 6750&Post 6755 Supporting our communities has always been inherent in our culture at<br> C&N. In 2015, our team members wanted to do more to help those in need. So, our Giving Back, Giving Together program was<br> formed. Since then, our team members have supported local Food Banks, Fire Departments & Emergency Services, hungry &<br> displaced children and education & literacy through our local public libraries. In 2019, C&N team members chose to<br> focus their efforts on local military servicemembers to ensure they have access to the care and resources they deserve. We<br> partnered with 16 organizations that have made it their mission to take care of our local military servicemembers who are<br> in need of assistance. Through the support of our friends & neighbors, we’ve been able to donate $78,472 Monetary<br> Donations 8,827 Item Donations 345 Volunteer Hours All of our partnering organizations are local and the donations are required<br> to go to local veterans and active military members in need of assistance. 21
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Proud<br> to support our community Since 2015, C&N teams have donated: $ Monetary Donations $327,410 Proud to Support our Military<br> Our donations in 2019 went xFeed a hungry soldier to Item Donations 26,530 & their family xSupport wounded warriors<br> during their recovery xProvide gas cards/rides to those traveling for treatment xMeet the needs of military personnel<br> & their families Volunteer Hours 779 xSend basic supplies to those serving overseas 22
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You<br> Us Welcome to C&N. Your community friend for world class banking. We know earning money can be hard, but we don’t<br> think trusting who protects it should be. Trust is priceless. But just like your money, it has to be earned. And no bank takes<br> that more seriously than C&N. Whether you enter through our doors or our technology, you will meet excellence. From our<br> complete financial services to our deep experience to our honestly caring people, we are personally invested in you no matter<br> how much you are financially invested in us. After all, your goals are our goals. Your success is our success. So why not<br> make the journey together as easy as it can be? Yes, the world can be a little cold these days, especially where your money<br> is concerned. But we assure you there’s a place in your community where it’s always warm. That’s
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