Form 8-K CITIZENS & NORTHERN CORP For: Oct 17



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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported)
October 17, 2019

 

CITIZENS
& NORTHERN CORPORATION

(Exact name of registrant as specified in
its charter)

 

Pennsylvania   0-16084   23-2451943
(State or other jurisdiction of   (Commission   (I.R.S. Employer
incorporation)   File Number)   Identification No.)

 

90-92 Main Street, Wellsboro, PA       16901
(Address of Principal Executive Office)       (Zip Code)

 

Registrant’s telephone number, including
area code (570) 724-3411

 

N/A
(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended
to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨   Written communications pursuant to Rule 425 under the Securities
Act (17 CFR 230.425)

 

¨   Soliciting material pursuant to Rule 14a-12 under the Exchange
Act (17 CFR 240.14a-12)

 

¨   Pre-commencement communications pursuant to Rule 14d-2(b)
under the Exchange Act (17 CFR 240.14d-2(b))

 

¨   Pre-commencement communications pursuant
to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

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

 

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

  

Indicate by checkmark whether the registrant
is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR 230.405) or Rule 12b-2 of the Securities
Exchange Act of 1934 (17 CFR 240.12b-2)

 

Emerging
growth company   
¨

 

If an emerging
growth company, indicate by checkmark 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
  ¨

 

 

 

ITEM 2.02. Results of Operations and
Financial Condition

 

Citizens & Northern Corporation (the
“Company”) announced unaudited, consolidated financial results for the three-month and nine-month periods ended September
30, 2019. On October 17, 2019, the Company issued a press release titled “C&N Declares Dividend and Announces Third Quarter
2019 Unaudited Financial Results,” a copy of which is furnished as Exhibit 99.1 to this Current Report on Form 8-K and is
incorporated herein by reference. The Company’s “banCNotes,” a report that includes unaudited financial information,
will be mailed to shareholders on or about October 24, 2019. A copy of the unaudited quarterly financial information included in
banCNotes is furnished as Exhibit 99.2 to this Current Report on Form 8-K and is incorporated herein by reference. Also, supplemental,
unaudited financial information is furnished as Exhibit 99.3 to this Current Report on Form 8-K and is incorporated herein by reference.

 

ITEM 8.01. Other Events

 

On October 17, 2019, the Company’s
Board of Directors declared a cash dividend on its common stock of $0.27 per share. The dividend is payable November 8, 2019 to
shareholders of record as of October 28, 2019. The Company announced the dividend in the press release which is attached hereto
as Exhibit 99.1 and incorporated herein by reference.

 

ITEM 9.01. Financial Statements and
Exhibits

 

(a)  Not applicable.

(b)  Not applicable.

(c)  Not applicable.

(d)  Exhibits.

 

Exhibit 99.1: Press Release issued by Citizens & Northern Corporation dated October 17, 2019, titled “C&N Declares Dividend and Announces Third Quarter 2019 Unaudited Financial Results.”

 

Exhibit 99.2: Unaudited financial information included in “banCNotes” report to be mailed to shareholders on or about October 24, 2019.

 

Exhibit 99.3: Supplemental, unaudited financial information.

  

Signatures

 

Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this Current Report on Form 8-K to be signed on its behalf by the undersigned,
thereunto duly authorized.

 

 

    CITIZENS & NORTHERN CORPORATION
       
       
Date: 10/17/19   By: /s/ Mark A. Hughes
      Treasurer and Chief Financial Officer

 

 

 

Exhibit 99.1

 

    Contact: Charity Frantz
October 17, 2019   570-724-0225
    charityf@cnbankpa.com

 

C&N
DECLARES DIVIDEND AND Announces THIRD QUARTER 2019 UNAUDITED Financial RESULTS

 

For Immediate Release:

 

Wellsboro,
PA –
Citizens & Northern Corporation (“C&N”)
(NASDAQ: CZNC) announced
its most recent dividend declaration and its unaudited, consolidated financial results for the three-month and nine-month periods
ended September 30, 2019.

 

Dividend Declared

 

C&N’s
Board of Directors declared a regular quarterly cash dividend of $0.27 per share. The dividend is payable on November 8, 2019 to
shareholders of record as of October 28, 2019. Declaration of the dividend was made at the October 17, 2019 meeting of C&N’s
Board of Directors.

 

Merger with Monument Bancorp, Inc.

 

C&N’s merger with 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 C&N common stock issued with a value of $33.1 million and cash paid totaling $9.6
million. Holders of Monument common stock prior to the consummation of the merger held approximately 9.4% of C&N’s common
stock outstanding immediately following the merger.

 

In connection with the merger, effective
April 1, 2019, C&N recorded goodwill of $16.7 million and a core deposit intangible asset of $1.5 million. Total loans acquired
on April 1, 2019 were valued at $259.3 million, while total deposits assumed were valued at $223.3 million, borrowings were valued
at $111.6 million and subordinated debt was valued at $12.4 million. The subordinated debt included an instrument with a fair value
of $5.4 million that was redeemed on April 1, 2019 with no realized gain or loss. C&N acquired available-for-sale debt securities
valued at $94.6 million and sold the securities in early April for approximately no realized gain or loss. The assets purchased
and liabilities assumed in the merger were recorded at their estimated fair values at the time of closing and may be adjusted for
up to one year subsequent to the acquisition.

 

Merger-related expenses for the nine months
ended September 30, 2019 totaled $3.8 million, including costs associated with termination of data processing contracts, conversion
of Monument’s customer accounting data into C&N’s core system, severance and similar expenses, legal and other
professional fees and various other costs. Management expects additional merger-related expenses associated with the Monument merger
subsequent to September 30, 2019 will be insignificant.

 

Unaudited Financial Information

 

Net income was $0.39 per diluted share in
the third quarter 2019 as compared to $0.27 in the second quarter 2019 and $0.45 in the third quarter 2018. For the nine months
ended September 30, 2019, net income per diluted share was $1.06 as compared to $1.33 per share for the first nine months of 2018.
Earnings for the nine months ended September 30, 2019 and for the second quarter 2019 were significantly impacted by the Monument
acquisition, including the effects of non-recurring merger-related expenses described earlier. Further, interest income on loans
acquired from Monument, partially offset by interest expense on deposits, borrowings and subordinated debt assumed, contributed
to growth in C&N’s net interest income, while costs associated with the expansion contributed to an increase in noninterest
expenses.

 

 

Earnings for the third quarter 2018 and
nine months ended September 30, 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 the third quarter 2018, C&N recorded
a pre-tax gain on Visa Class B stock of $571,000 and a pre-tax loss on available-for-sale debt securities of $2,000. In the nine
months ended September 30, 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 $284,000.

 

The following table provides a reconciliation
of C&N’s third quarter and September 30, 2019 year-to-date unaudited earnings results under U.S. generally accepted accounting
principles (U.S. GAAP) to comparative non-U.S. GAAP results excluding Monument merger-related expenses and realized gains and losses
on securities. Management believes disclosure of unaudited third quarter and nine-months ended September 30, 2019 and 2018 earnings
results, adjusted to exclude the impact of these items, provides useful information to investors for comparative purposes.

 

RECONCILIATION OF NET INCOME AND

DILUTED EARNINGS PER SHARE TO NON-U.S.

GAAP MEASURE

(Dollars In Thousands, Except Per Share Data)

(Unaudited)  

  

    3rd Quarter 2019     3rd Quarter 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  
    Provision     (1)     Income     Share     Provision     (1)     Income     Share  
Results as Presented Under U.S. GAAP   $ 6,403     $ 1,096     $ 5,307     $ 0.39     $ 6,697     $ 1,111     $ 5,586     $ 0.45  
Add: Merger-Related Expenses     206       59       147               200       6       194          
Less: Gain on Restricted Equity Security                                     (571 )     (119 )     (452 )        
Net (Gains) Losses on Available-for-Sale Debt Securities     (13 )     (3 )     (10 )             2       0       2          
Adjusted Earnings, Excluding 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)   $ 6,596     $ 1,152     $ 5,444     $ 0.40     $ 6,328     $ 998     $ 5,330     $ 0.43  

  

    9 Months Ended Sept. 30, 2019     9 Months Ended Sept. 30, 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  
    Provision     (1)     Income     Share     Provision     (1)     Income     Share  
Results as Presented Under U.S. GAAP   $ 16,816     $ 2,770     $ 14,046     $ 1.06     $ 19,561     $ 3,229     $ 16,332     $ 1.33  
Add: Merger-Related Expenses     3,818       798       3,020               200       6       194          
Less: Gain on Restricted Equity Security                                     (2,321 )     (487 )     (1,834 )        
Net (Gains) Losses on Available-for-sale Debt Securities     (20 )     (4 )     (16 )             284       59       225          
Adjusted Earnings, Excluding 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)   $ 20,614     $ 3,564     $ 17,050     $ 1.31     $ 17,724     $ 2,807     $ 14,917     $ 1.21  

 

(1) Income tax has been allocated based on an income tax rate of 21%. The tax benefit associated with merger-related expenses has
been adjusted to reflect the estimated nondeductible portion of the expenses.

 

 

Additional highlights related to C&N’s
third quarter and September 30, 2019 year-to-date unaudited earnings results as compared to the second quarter 2019 and comparative
periods of 2018 are presented below.

 

Third Quarter 2019 as Compared to Second Quarter 2019

 

Net income was $5,307,000 in the third quarter
2019 as compared to $3,649,000 in the second quarter 2019. Excluding the impact of merger-related expenses and net securities gains,
adjusted earnings for the third quarter 2019 were $5,444,000 as compared to the similarly adjusted second quarter 2019 earnings
of $6,271,000. The reduction in adjusted earnings in the third quarter 2019 in comparison to the prior quarter resulted mainly
from an increase in the provision for loan losses. The provision for loan losses was $1,158,000 in the third quarter 2019 as compared
to a credit of $4,000 in the second quarter 2019. This increase in expense was due to a specific allowance of $678,000 related
to a commercial real estate secured loan with a balance of $1,261,000 at September 30, 2019 as well as an increase in the collectively
determined portion of the allowance for loan losses related mainly to loan growth. Other significant variances were as follows:

 

· Net interest income increased $72,000 (0.51%) in the third quarter 2019 over the total for the second quarter 2019. Average
outstanding loans increased $25.1 million (2.3% or 9.0% annualized), reflecting growth in commercial loans from C&N’s
new markets in Southeastern PA and York County as well as growth in residential mortgage loans. Average total deposits increased
$20.5 million, including an increase in municipal deposits mainly due to seasonal factors. The net interest margin was 3.81% for
the third quarter 2019, down from 3.89% in the second quarter 2019. The average yield on earning assets decreased 0.08% while the
average rate paid on interest-bearing liabilities decreased 0.01%.

 

· Noninterest income of $4,963,000 in the third quarter 2019 was up $114,000 from the second quarter 2019 total. Service charges
on deposit accounts increased $159,000, net gains from sales of residential mortgage loans increased $89,000 and other noninterest
income increased $33,000 due primarily to an increase in dividends on Federal Home Loan Bank of Pittsburgh (FHLB) stock. These
increases were partially offset by a reduction in total trust and brokerage revenues of $132,000 and a reduction in loan servicing
fees, net of $89,000. The reduction in loan servicing fees resulted from a decrease in the fair value of servicing rights.

 

· Noninterest expense, excluding merger-related expenses, totaled $11,486,000 in the third quarter 2019, an increase of $64,000
over the second quarter 2019 amount. Significant variances included the following:

 

Ø Pensions and other employee benefits expense increased $224,000 in the third quarter 2019 as expense for the second quarter
was reduced by a nonrecurring credit of $201,000 for previous overpayment of claims on C&N’s partially self-insured health
plan.

 

Ø Salaries and wages expense increased $204,000 including expenses related to staffing increases in lending and credit administration.

 

Ø Data processing expenses decreased $160,000, as second quarter expenses included costs associated with operating two core systems
from April 1, 2019 until conversion of former Monument customer data to C&N’s core system was completed in late June.

 

Ø Other noninterest expense decreased $160,000, including a reduction of $112,000 in FDIC insurance expense and an adjustment
to reduce over-accruals of various expenses totaling $91,000. C&N recorded a net credit for FDIC insurance of $6,000 in the
third quarter 2019, including an estimated (accrued) assessment of $99,000 for third quarter offset by a credit against the previously
accrued second quarter assessment of $105,000. The credit resulted from the FDIC’s Deposit Insurance Fund (DIF) reserve ratio
of 1.40% at June 30, 2019 exceeding a targeted maximum of 1.38%. At September 30, 2019, C&N’s remaining balance of available
credits, to be applied by the FDIC in subsequent quarters if the DIF reserve ratio exceeds the target, was $277,000.

 

Ø Professional fees expense decreased $89,000, including decreases in expense related to employee sales and service training
and employee recruiting costs.

 

 

Third Quarter 2019 as Compared to Third Quarter 2018

 

As described above, third quarter 2019 net
income was $5,307,000, and excluding the impact of merger-related expenses and net securities gains, would be $5,444,000. In comparison,
third quarter 2018 net income was $5,586,000, and excluding the impact of merger-related expenses and net securities gains, would
be $5,330,000. Other significant variances were as follows:

 

· Third quarter 2019 net interest income of $14,277,000 was $2,718,000 (23.5%) higher than the total for the third quarter 2018.
Total average earning assets increased $294.3 million, including an increase in average loans outstanding of $309.9 million, reflecting
the impact of the Monument acquisition and additional loan growth. Total average deposits increased $194.0 million, including deposits
assumed from Monument. The net interest margin of 3.81% for the third quarter 2019 was 0.06% lower than the third quarter 2018
margin of 3.87%. The average yield on earning assets was 0.33% higher in the third quarter 2019 as compared to the same period
in 2018, while the average rate paid on interest-bearing liabilities increased 0.52% between periods. The increase in average rate
on interest-bearing liabilities resulted primarily from comparatively higher rates on time deposits and short-term borrowings assumed
from Monument. Accretion and amortization of purchase accounting-related adjustments from marking financial instruments to fair
value had a positive effect on net interest income in the third quarter 2019 of $195,000, including an increase in income on loans
of $377,000 partially offset by increases in interest expense on time deposits of $137,000 and on short-term borrowings of $45,000.
The net positive impact to the third quarter 2019 net interest margin from accretion and amortization of purchase accounting adjustments
was 0.05%.

 

· The provision for loan losses was $1,158,000 for the third quarter 2019 as compared to $60,000 in the third quarter 2018. The
third quarter 2019 provision included a charge of $790,000 related to specific loans (increase in specific allowances on loans
of $689,000 and net charge-offs of $101,000), and a net $368,000 charge to increase the collectively determined portion of the
allowance attributable mainly to loan growth. As noted above, the provision related to specific loans included recognition of an
allowance of $678,000 for one commercial loan with an outstanding balance of $1,261,000 at September 30, 2019. In comparison, the
provision in the third quarter 2018 included $40,000 related to the change in total specific allowances on impaired loans, as adjusted
for net charge-offs during the period, and a net $20,000 related to an increase in the collectively determined allowance for loan
losses.

 

· Third quarter 2019 noninterest income was $501,000 higher than the third quarter 2018 total. Total trust and brokerage revenue
increased $150,000, mainly from increased brokerage revenue attributable to an increase in volume. In addition, net gains from
sales of residential mortgage loans increased $146,000, other noninterest income increased $109,000 primarily due to increases
in dividends on FHLB stock, merchant income and credit card interchange, and service charges on deposits accounts increased $105,000.

 

· Noninterest expense, excluding merger-related expenses, increased $1,853,000 in the third quarter 2019 over the third quarter
2018 amount. Significant variances included the following:

 

Ø Salaries and wages expense increased $1,217,000, including $863,000 from C&N’s new ventures in Southeastern PA and
York County.

 

Ø Pensions and other employee benefits expense increased $212,000, consistent with the increases in personnel from new ventures.

 

Ø Other noninterest expense increased $280,000. Within other noninterest expense, advertising expenses related to rebranding
efforts and other activities were $179,000 higher in the third quarter 2019 compared to third quarter 2018, and amortization of
core deposit intangibles increased $73,000 in 2019 compared to 2018.

 

Ø Data processing expenses increased $135,000, reflecting costs related to product development efforts in connection with a fintech
organization and other increases in software licensing costs.

 

 

Nine Months Ended September 30, 2019 as Compared to Nine
Months Ended September 30, 2018

 

Net income for the nine-month period ended
September 30, 2019 was $14,046,000, or $1.06 per diluted share, while net income for the first nine months of 2018 was $16,332,000,
or $1.33 per share. Excluding the impact of merger-related expenses and net securities gains, adjusted earnings for the first nine
months of 2019 would be $17,050,000 or $1.31 per share as compared to similarly adjusted earnings of $14,917,000 or $1.21 per share
for the first nine months of 2018. Other significant variances were as follows:

 

· Net interest income was up $6,486,000 (19.2%) for the first nine months of 2019 over the same period in 2018, reflecting the
benefits of growth related to the Monument acquisition. The net interest margin was 3.90% for the first nine months of 2019, up
from 3.86% in 2018. The net interest margin for the first nine months of 2019 included a net positive impact from accretion and
amortization of purchase accounting adjustments of 0.02%. For the first nine months of 2019, the average yield on earning assets
was up 0.37% as compared to the same period in 2018, while the average rate paid on interest-bearing liabilities was up 0.46% between
periods. Despite compression in the interest rate spread, the increase in the net interest margin reflected growth in average earning
assets of $203.9 million, while in comparison, average interest-bearing liabilities increased $149.0 million. The excess growth
in earning assets was funded mainly by an increase of $39.9 million in average noninterest-bearing demand deposits and by an increase
in average stockholders’ equity (excluding accumulated other comprehensive income) of $31.7 million.

 

· The provision for loan losses was $197,000 for the first nine months of 2019 as compared to $332,000 in the first nine months
of 2018. The 2019 provision included a credit of $370,000 related to specific loans (net charge-offs of $249,000, less a net reduction
in specific allowances on loans of $619,000), a net $481,000 charge to increase the collectively determined portion of the allowance
attributable mainly to loan growth and an $86,000 increase in the unallocated allowance. In comparison, the provision in 2018 included
$153,000 related to the change in total specific allowances on impaired loans, as adjusted for net charge-offs during the period
and a net charge of $179,000 related to an increase in the collectively determined allowance for loan losses.

 

· Noninterest income was $661,000 higher for the first nine months of 2019 as compared to the first nine months of 2018. Total
trust and brokerage revenue increased $330,000 reflecting significant growth in brokerage revenue attributable to increased volume,
interchange revenue from debit card transactions increased $184,000, service charges on deposit accounts increased $126,000, and
net gains from sales of loans increased $104,000. Loan servicing fees, net, decreased $254,000, as the fair value of servicing
rights decreased $312,000 in 2019 as compared to a decrease of $58,000 in 2018. The reduction in valuation of servicing fees at
September 30, 2019 reflected the impact of higher assumed mortgage prepayments from lower interest rates.

 

· Noninterest expense, excluding merger-related expenses, increased $4,392,000 for the nine months ended September 30, 2019 over
the total for the first nine months of 2018. Significant variances included the following:

 

Ø Salaries and wages expense increased $2,669,000, including $1,852,000 related to C&N’s new ventures in Southeastern
PA and York County.

 

Ø Other noninterest expense increased $1,115,000. Within other noninterest expense, expenses and net losses on other real estate
properties increased $432,000, mainly due to significant costs incurred related to one commercial workout situation. Other increases
within this category included increases in loan collection expenses of $270,000, advertising expense of $204,000, amortization
of core deposit intangibles of $146,000, credit card operating costs of $97,000, insurance of $62,000, other taxes of $42,000 and
consulting related to the overdraft privilege program of $36,000. Also, within other noninterest expense, donations expense decreased
$245,000 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 $565,000, reflecting the costs of operating two core processing systems for most of the
second quarter 2019 as well as costs related to product development efforts in connection with a fintech organization and other
increases in software licensing costs.

 

Ø Automated teller machine and interchange expense decreased $225,000, reflecting cost reductions pursuant to a renegotiated
service contract.

 

 

Other Information:

 

Changes
in other unaudited financial information are as follows:

 

· Total assets amounted to $1,642,587,000 at September 30, 2019, up from $1,609,685,000 at June 30, 2019 and up 27.8% from $1,285,439,000
at September 30, 2018.

 

· Net loans outstanding (excluding mortgage loans held for sale) were $1,130,143,000 at September 30, 2019, up from $1,108,483,000
at June 30, 2019 and up 38.9% from $813,717,000 at September 30, 2018. In comparing outstanding balances at September 30, 2019
and 2018, total commercial loans increased $183.3 million (52.2%), total residential mortgage loans increased $130.5 million (28.7%)
and total consumer loans increased $3.1 million (17.6%). At September 30, 2019, the outstanding balance of commercial loan participations
with other financial entities was $58.5 million, down from $66.3 million at June 30, 2019 and $65.7 million at September 30, 2018.

 

· Total nonperforming assets as a percentage of total assets was 0.86% at September 30, 2019, down from 0.95% at June 30, 2019
and 1.30% at September 30, 2018. The reduction in this ratio as compared to the level at September 30, 2018 included the impact
of acquiring non-impaired loans from Monument in the second quarter 2019 along with reduced balances of loans past due 90 days
or more and nonaccrual loans from C&N’s legacy portfolio. Included within nonperforming assets are loans considered impaired
upon their purchase from Monument (“PCI Loans”). PCI Loans totaled $441,000 at April 1, 2019 and September 30, 2019.

 

· Deposits and repo sweep accounts totaled $1,298,649,000 at September 30, 2019, up from $1,287,335,000 at June 30, 2019 and
up 23.8% from $1,049,368,000 at September 30, 2018.

 

· Total shareholders’ equity was $242,939,000 at September 30, 2019, up from $239,716,000 at June 30, 2019 and $189,987,000
at September 30, 2018. Within shareholders’ equity, the portion of accumulated other comprehensive income (loss) related
to available-for-sale debt securities was $4,173,000 at September 30, 2019, up from $3,138,000 at June 30, 2019 and ($8,502,000)
at September 30, 2018. Fluctuations in accumulated other comprehensive income (loss) related to valuations of available-for-sale
debt securities have been caused by changes in interest rates.

 

· Citizens & Northern Bank is subject to various regulatory capital requirements. At September 30, 2019, Citizens & Northern
Bank maintains regulatory capital ratios that exceed all capital adequacy requirements. Management expects the Bank to remain well-capitalized
for the foreseeable future.

 

· Assets under management by C&N’s Trust and Financial Management Group amounted to $959,215,000 at September 30, 2019,
up from $948,998,000 at June 30, 2019 and up 0.7% from $952,824,000 at September 30, 2018.

 

 

Citizens & Northern Corporation is the
parent company of Citizens & Northern Bank, an independent community bank providing complete financial, investment and insurance
services through 27 full service offices located in Tioga, Bradford, Sullivan, Lycoming, Potter, Cameron, McKean and Bucks counties
in Pennsylvania and in Canisteo and South Hornell, New York. C&N also offers commercial, residential and consumer lending services
through offices in York and Warminster in Pennsylvania and Elmira, New York. C&N can be found on the worldwide web at www.cnbankpa.com.
The Company’s stock is listed on the NASDAQ Capital Market under the symbol CZNC.

 

Safe Harbor Statement: Except for
historical information contained herein, the matters discussed in this release are forward-looking statements. Investors are cautioned
that all forward-looking statements involve risks and uncertainty, including without limitation, the following: changes in monetary
and fiscal policies 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 other financial services
in the Corporation’s market area; increased competition from other banks and non-bank providers of financial services; technological
changes and increased technology-related costs; changes in management’s assessment of realization of securities and other
assets; and changes in accounting principles, or the application of generally accepted accounting principles. Citizens & Northern
disclaims any intention or obligation to publicly update or revise any forward-looking statements, whether as a result of events
or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

 

 

 

EXHIBIT 99.2

 

 

 

September 30, 2019 QUARTERLY REPORT  

 

Dear Shareholder:

 

As you would expect, the ongoing integration of the Monument
Bank franchise remained a focus at C&N, following the successful June 24th systems conversion. The transition of
Monument customers to C&N’s products and systems went very smoothly and our Team worked well to address various challenges
following the changeover. As this important effort settles in, we are turning our attention to the regional market plan and fully
implementing our sales and relationship model. We are leveraging corporate resources and methodically building in-market capacity
to deliver treasury/cash management, mortgage, and wealth management services, as well as enhanced mobile and online capabilities,
to current and prospective customers. The additional services and delivery channels will enhance the customer experience and create
value as we meet a broader range of needs and deepen relationships. We have been pleased with the collaboration throughout the
process and our results to-date.

 

There is a similar theme with the York loan production office.
The Team continues to deliver strong loan growth and is building its impact in the market. They are working hard at implementing
a market plan to add relationship bankers and capacity to the region.

 

It is important to note that the regional Teams in C&N’s
legacy markets continue to drive results and expand relationships, as well. We broke ground for the new Towanda office on September
25th and expect to open this state-of-the-art facility in the spring of next year. Our focus over the past several years
to build a sustainable, value driven business model is maturing, as is the underlying capacity of our marketing Team and related
technology. The brand refresh we introduced last quarter has been well-received and will be essentially completed during the fourth
quarter.

 

Net income in the third quarter of 2019, excluding merger related
items and securities gains, increased by approximately 2% compared to the third quarter of 2018 while EPS decreased 7%, the difference
due to the additional shares issued in the Monument acquisition. Year-to-date, on the same basis, adjusted net income increased
14% and adjusted EPS grew 8%. The drivers include stronger net interest income, increased overall levels of noninterest income,
and managed growth in noninterest expenses. The consistent positive trends in these key areas continue to support an increased
run rate in core earnings. Looking forward, the economy appears to be solid despite an unsettled political environment. Fed policy
and the return to a flat yield curve inside the extended low interest rate environment present an ongoing challenge to sustaining
the net interest margin.

 

Third quarter results were impacted by a loan loss provision
$1.16 million compared to $60,000 in the third quarter of 2018, and credits to the provision during the first two quarters of 2019.
The higher provision this quarter was primarily due to a specific reserve on one problem loan of $678,000, combined with an increased
provision required to provide for ongoing loan growth.

 

 

C&N’s capital position enables the Company to pursue
growth and expansion and it remains strong following the Monument acquisition. When coupled with our positive earnings, these capital
levels support our plans for future growth and continuation of a strong cash dividend. On October 17, 2019, the Board of Directors
declared a cash dividend on common stock of $.27 per share payable on November 8, 2019. This results in an annual dividend of $1.08
and annualized yield of 4.11% based on C&N’s September 30, 2019 closing price of $26.28.

 

Thank you to all our loyal shareholders for your continued support
and interest in C&N.

 

J. Bradley Scovill

President and CEO

 

 

CONDENSED, CONSOLIDATED EARNINGS INFORMATION

(Dollars In Thousands, Except Per Share Data) (Unaudited)

 

    3RD
QUARTER
    3RD
QUARTER
                 
    2019     2018                  
    (Current)     (Prior Year)     $ Incr. (Decr.)     % Incr. (Decr.)  
Interest and Dividend Income   $ 17,277     $ 12,800     $ 4,477       34.98 %
Interest Expense     3,000       1,241       1,759       141.74 %
Net Interest Income     14,277       11,559       2,718       23.51 %
Provision for Loan Losses     1,158       60       1,098       1830.00 %
Net Interest Income After Provision for Loan Losses     13,119       11,499       1,620       14.09 %
Noninterest Income     4,963       4,462       501       11.23 %
Gain on Restricted Equity Security     0       571       (571 )     -100.00 %
Net Gains (Losses) on Available-for-sale Debt Securities     13       (2 )     15       -750.00 %
Merger-Related Expenses     206       200       6       3.00 %
Other Noninterest Expenses     11,486       9,633       1,853       19.24 %
Income Before Income Tax Provision     6,403       6,697       (294 )     -4.39 %
Income Tax Provision     1,096       1,111       (15 )     -1.35 %
Net Income   $ 5,307     $ 5,586     $ (279 )     -4.99 %
Net Income Attributable to Common Shares (1)   $ 5,281     $ 5,558     $ (277 )     -4.98 %
PER COMMON SHARE DATA:                                
Net Income – Basic   $ 0.39     $ 0.45     $ (0.06 )     -13.33 %
Net Income – Diluted   $ 0.39     $ 0.45     $ (0.06 )     -13.33 %
Dividend Per Share – Quarterly   $ 0.27     $ 0.27     $ 0.00       0.00 %
Number of Shares Used in Computation – Basic     13,627,676       12,228,833                  
Number of Shares Used in Computation – Diluted     13,646,818       12,271,536                  

 

CONDENSED, CONSOLIDATED EARNINGS INFORMATION

(Dollars In Thousands, Except Per Share Data) (Unaudited)        

 

    9 MONTHS ENDED              
    SEPTEMBER 30,              
    2019     2018              
    (Current)     (Prior Year)     $ Incr. (Decr.)     % Incr. (Decr.)  
Interest and Dividend Income   $ 47,481     $ 37,024     $ 10,457       28.24 %
Interest Expense     7,284       3,313       3,971       119.86 %
Net Interest Income     40,197       33,711       6,486       19.24 %
Provision for Loan Losses     197       332       (135 )     -40.66 %
Net Interest Income After Provision for Loan Losses     40,000       33,379       6,621       19.84 %
Noninterest Income     14,218       13,557       661       4.88 %
Gain on Restricted Equity Security     0       2,321       (2,321 )     -100.00 %
Net Gains (Losses) on Available-for-sale Debt Securities     20       (284 )     304       -107.04 %
Merger-Related Expenses     3,818       200       3,618       1809.00 %
Other Noninterest Expenses     33,604       29,212       4,392       15.03 %
Income Before Income Tax Provision     16,816       19,561       (2,745 )     -14.03 %
Income Tax Provision     2,770       3,229       (459 )     -14.21 %
Net Income   $ 14,046     $ 16,332     $ (2,286 )     -14.00 %
Net Income Attributable to Common Shares (1)   $ 13,974     $ 16,249     $ (2,275 )     -14.00 %
PER COMMON SHARE DATA:                                
Net Income – Basic   $ 1.06     $ 1.33     $ (0.27 )     -20.30 %
Net Income – Diluted   $ 1.06     $ 1.33     $ (0.27 )     -20.30 %
Dividend Per Share – Quarterly   $ 0.81     $ 0.81     $ 0.00       0.00 %
Dividend Per Share – Special   $ 0.10     $ 0.00     $ 0.10          
Number of Shares Used in Computation – Basic     13,182,960       12,209,879                  
Number of Shares Used in Computation – Diluted     13,206,244       12,248,669                  

 

(1)
Basic and diluted net income per common share are determined based on net income less earnings allocated to nonvested
restricted shares with nonforfeitable dividends.

 

 

CONDENSED, CONSOLIDATED BALANCE SHEET DATA

(In Thousands) (Unaudited)

 

    SEPTEMBER 30,     SEPTEMBER 30,     SEPTEMBER 30, 2019 vs 2018  
    2019     2018     $ Incr. (Decr.)     % Incr. (Decr.)  
ASSETS                                
Cash & Due from Banks   $ 51,443     $ 38,341     $ 13,102       34.17 %
Available-for-sale Debt Securities     363,467       358,706       4,761       1.33 %
Loans Held for Sale     2,033       551       1,482       268.97 %
Loans, Net     1,130,143       813,717       316,426       38.89 %
Intangible Assets     29,939       11,951       17,988       150.51 %
Other Assets     65,562       62,173       3,389       5.45 %
TOTAL ASSETS   $ 1,642,587     $ 1,285,439     $ 357,148       27.78 %
                                 
LIABILITIES                                
Deposits   $ 1,294,882     $ 1,043,947     $ 250,935       24.04 %
Repo Sweep Accounts     3,767       5,421       (1,654 )     -30.51 %
Total Deposits and Repo Sweeps     1,298,649       1,049,368       249,281       23.76 %
Borrowed Funds     75,714       35,985       39,729       110.40 %
Subordinated Debt     7,000       0       7,000          
Other Liabilities     18,285       10,099       8,186       81.06 %
TOTAL LIABILITIES     1,399,648       1,095,452       304,196       27.77 %
                                 
SHAREHOLDERS’ EQUITY                                
Common Shareholders’ Equity, Excluding Accumulated
Other Comprehensive Income (Loss)
    238,479       198,355       40,124       20.23 %
Accumulated Other Comprehensive Income (Loss):                                
Net Unrealized Gains/Losses on Available-for-sale Debt
Securities
    4,173       (8,502 )     12,675       -149.08 %
Defined Benefit Plans     287       134       153       114.18 %
TOTAL SHAREHOLDERS’ EQUITY     242,939       189,987       52,952       27.87 %
TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY   $ 1,642,587     $ 1,285,439     $ 357,148       27.78 %

 

 

 

EXHIBIT 99.3 – Supplemental, Unaudited Financial Information

 

 

 

CONDENSED, CONSOLIDATED FINANCIAL HIGHLIGHTS

(Dollars In Thousands, Except Per Share Data) (Unaudited)    

 

    AS OF OR FOR THE        
    NINE MONTHS ENDED     %  
    SEPTEMBER 30,     INCREASE  
    2019     2018     (DECREASE)  
EARNINGS PERFORMANCE                        
Net Income   $ 14,046     $ 16,332       -14.00 %
Return on Average Assets (Annualized)     1.25 %     1.71 %     -26.90 %
Return on Average Equity (Annualized)     8.33 %     11.64 %     -28.44 %
                         
BALANCE SHEET HIGHLIGHTS                        
Total Assets   $ 1,642,587     $ 1,285,439       27.78 %
Available-for-Sale Debt Securities     363,467       358,706       1.33 %
Loans (Net)     1,130,143       813,717       38.89 %
Allowance for Loan Losses     9,257       8,815       5.01 %
Deposits and Repo Sweep Accounts     1,298,649       1,049,368       23.76 %
                         
OFF-BALANCE SHEET                        
Outstanding Balance of Mortgage Loans Sold with
Servicing Retained
  $ 177,561     $ 171,516       3.52 %
Trust Assets Under Management     959,215       952,824       0.67 %
                         
SHAREHOLDERS’ VALUE (PER COMMON SHARE)                        
Net Income – Basic   $ 1.06     $ 1.33       -20.30 %
Net Income – Diluted   $ 1.06     $ 1.33       -20.30 %
Dividends – Quarterly   $ 0.81     $ 0.81       0.00 %
Dividends – Special   $ 0.10     $ 0.00          
Common Book Value   $ 17.73     $ 15.45       14.76 %
Tangible Common Book Value (a)   $ 15.54     $ 14.48       7.32 %
Market Value (Last Trade)   $ 26.28     $ 26.15       0.50 %
Market Value / Common Book Value     148.22 %     169.26 %     -12.43 %
Market Value / Tangible Common Book Value     169.11 %     180.59 %     -6.36 %
Price Earnings Multiple (Annualized)     18.59       14.75       26.03 %
Dividend Yield (Annualized, Excluding Special Dividend)     4.11 %     4.13 %     -0.48 %
Common Shares Outstanding, End of Period     13,703,022       12,297,274       11.43 %

 

 

CONDENSED, CONSOLIDATED FINANCIAL HIGHLIGHTS (Continued)

(Dollars
In Thousands, Except Per Share Data) (Unaudited)
   

 

    AS OF OR FOR THE        
    NINE MONTHS ENDED     %  
    SEPTEMBER 30,     INCREASE  
    2019     2018     (DECREASE)  
SAFETY AND SOUNDNESS                        
Tangible Common Equity / Tangible Assets (a)     13.21 %     13.98 %     -5.51 %
Nonperforming Assets / Total Assets     0.86 %     1.30 %     -33.85 %
Allowance for Loan Losses / Total Loans     0.81 %     1.07 %     -24.30 %
Total Risk Based Capital Ratio (b)     20.43 %     23.88 %     -13.48 %
Tier 1 Risk Based Capital Ratio (b)     18.94 %     22.76 %     -15.55 %
Common Equity Tier 1 Risk Based Capital Ratio (b)     18.94 %     22.76 %     -15.55 %
Leverage Ratio (b)     13.11 %     14.50 %     -9.38 %
                         
AVERAGE BALANCES                        
Average Assets   $ 1,503,262     $ 1,272,867       18.10 %
Average Equity   $ 224,874     $ 187,056       20.22 %
                         
EFFICIENCY RATIO (c)                        
Net Interest Income on a Fully Taxable-Equivalent                        
Basis (c)   $ 41,009     $ 34,692       18.21 %
Noninterest Income     14,218       13,557       4.88 %
Total (1)   $ 55,227     $ 48,249       14.46 %
Noninterest Expense Excluding Merger Expenses (2)   $ 33,604     $ 29,212       15.03 %
Efficiency Ratio = (2)/(1)     60.85 %     60.54 %     0.51 %

 

(a) Tangible book value per
common share and tangible common equity as a percentage of tangible assets are non-U.S. GAAP ratios.  Management
believes this non-GAAP information is helpful in evaluating the strength of the Corporation’s capital and in providing an
alternative, conservative valuation of the Corporation’s net worth.  The ratios shown above are based on the
following calculations of tangible assets and tangible common equity:

 

Total Assets   $ 1,642,587     $ 1,285,439  
Less: Intangible Assets, Primarily Goodwill     (29,939 )     (11,951 )
Tangible Assets   $ 1,612,648     $ 1,273,488  
Total Shareholders’ Equity   $ 242,939     $ 189,987  
Less: Intangible Assets, Primarily Goodwill     (29,939 )     (11,951 )
Tangible Common Equity (3)   $ 213,000     $ 178,036  
                 
Common Shares Outstanding, End of Period (4)     13,703,022       12,297,274  
Tangible Common Book Value per Share = (3)/(4)   $ 15.54     $ 14.48  

 

(b)
Capital ratios for the most recent period are estimated.

 

(c)
The efficiency ratio is a non-GAAP ratio that is calculated as shown above.  For purposes of calculating the efficiency
ratio, net interest income on a fully taxable-equivalent basis includes amounts of interest income on tax-exempt securities and
loans that have been increased to a fully taxable-equivalent basis, using the Corporation’s marginal federal income tax rate of
21%. In the calculation above, management excluded 2019 expenses of $3.818 million related to the acquisition of Monument Bancorp,
Inc. which closed on April 1, 2019.  These 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, professional
fees and other expenses.

 

 

QUARTERLY
CONDENSED, CONSOLIDATED

INCOME
STATEMENT INFORMATION

(Dollars
In Thousands, Except Per Share Data)

(Unaudited)

 

    For the Three Months Ended:                          
    Sept. 30,     June 30,     March 31,     Dec. 31,     Sept. 30,     June 30,     March 31,  
    2019     2019     2019     2018     2018     2018     2018  
Interest income   $ 17,277     $ 17,139     $ 13,065     $ 13,304     $ 12,800     $ 12,334     $ 11,890  
Interest expense     3,000       2,934       1,350       1,312       1,241       1,079       993  
Net interest income     14,277       14,205       11,715       11,992       11,559       11,255       10,897  
Provision (credit) for loan losses     1,158       (4 )     (957 )     252       60       (20 )     292  
Net interest income after provision (credit) for loan
losses
    13,119       14,209       12,672       11,740       11,499       11,275       10,605  
Noninterest income     4,963       4,849       4,406       5,040       4,462       4,689       4,406  
Net gains (losses) on securities     13       7       0       (4 )     569       1,468       0  
Merger-related expenses     206       3,301       311       127       200       0       0  
Other noninterest expense     11,486       11,422       10,696       9,947       9,633       9,684       9,895  
Income before income tax provision     6,403       4,342       6,071       6,702       6,697       7,748       5,116  
Income tax provision     1,096       693       981       1,021       1,111       1,377       741  
Net income   $ 5,307     $ 3,649     $ 5,090     $ 5,681     $ 5,586     $ 6,371     $ 4,375  
Net income attributable to common shares   $ 5,281     $ 3,630     $ 5,063     $ 5,654     $ 5,558     $ 6,339     $ 4,352  
Basic earnings per common share   $ 0.39     $ 0.27     $ 0.41     $ 0.46     $ 0.45     $ 0.52     $ 0.36  
Diluted earnings per common share   $ 0.39     $ 0.27     $ 0.41     $ 0.46     $ 0.45     $ 0.52     $ 0.36  

 

QUARTERLY CONDENSED, CONSOLIDATED

BALANCE
SHEET INFORMATION

(In Thousands) (Unaudited)  

 

    As of:                                      
    Sept. 30,     June 30,     March 31,     Dec. 31,     Sept. 30,     June 30,     March 31,  
    2019     2019     2019     2018     2018     2018     2018  
ASSETS                                          
Cash & Due from Banks   $ 51,443     $ 39,505     $ 44,002     $ 37,487     $ 38,341     $ 51,475     $ 36,860  
Available-for-Sale Debt Securities     363,467       363,465       357,646       363,273       358,706       348,044       341,133  
Loans Held for Sale     2,033       1,131       0       213       551       177       225  
Loans, Net     1,130,143       1,108,483       817,136       818,254       813,717       809,816       808,300  
Intangible Assets     29,939       30,013       11,949       11,951       11,951       11,952       11,953  
Other Assets     65,562       67,088       59,267       59,715       62,173       62,543       59,645  
TOTAL ASSETS   $ 1,642,587     $ 1,609,685     $ 1,290,000     $ 1,290,893     $ 1,285,439     $ 1,284,007     $ 1,258,116  
                                                         
LIABILITIES                                                        
Deposits   $ 1,294,882     $ 1,284,143     $ 1,039,911     $ 1,033,772     $ 1,043,947     $ 1,040,899     $ 1,018,081  
Repo Sweep Accounts     3,767       3,192       5,132       5,853       5,421       5,169       5,482  
Total Deposits and Repo Sweeps     1,298,649       1,287,335       1,045,043       1,039,625       1,049,368       1,046,068       1,023,563  
Borrowed Funds     75,714       62,574       32,844       42,915       35,985       39,054       39,122  
Subordinated Debt     7,000       7,000       0       0       0       0       0  
Other Liabilities     18,285       13,060       9,986       10,985       10,099       9,706       9,049  
TOTAL LIABILITIES     1,399,648       1,369,969       1,087,873       1,093,525       1,095,452       1,094,828       1,071,734  
                                                         
SHAREHOLDERS’ EQUITY                                                        
Common Shareholders’ Equity, Excluding                                                        
Accumulated Other Comprehensive Income (Loss)     238,479       236,284       202,768       201,538       198,355       195,518       191,920  
Accumulated Other Comprehensive Income (Loss):                                                        
Net Unrealized Gains (Losses) on Available-for-sale Securities     4,173       3,138       (941 )     (4,307 )     (8,502 )     (6,476 )     (5,679 )
Defined Benefit Plans Adjustment, Net     287       294       300       137       134       137       141  
TOTAL SHAREHOLDERS’ EQUITY     242,939       239,716       202,127       197,368       189,987       189,179       186,382  
TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY   $ 1,642,587     $ 1,609,685     $ 1,290,000     $ 1,290,893     $ 1,285,439     $ 1,284,007     $ 1,258,116  

 

 

AVAILABLE-FOR-SALE DEBT SECURITIES

(In Thousands)

 

    September 30, 2019     June 30, 2019     December 31, 2018  
    Amortized     Fair     Amortized     Fair     Amortized     Fair  
    Cost     Value     Cost     Value     Cost     Value  
Obligations of U.S. Government agencies   $ 16,379     $ 17,096     $ 16,918     $ 17,570     $ 12,331     $ 12,500  
Obligations of states and political subdivisions:                                                
Tax-exempt     71,317       73,281       73,897       75,499       84,204       83,952  
Taxable     31,907       33,086       30,591       31,509       27,618       27,699  
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:                                                
Residential pass-through securities     62,051       62,245       55,098       55,141       54,827       53,445  
Residential collateralized mortgage obligations     127,950       127,815       139,513       139,484       148,964       145,912  
Commercial mortgage-backed securities     48,581       49,944       43,476       44,262       40,781       39,765  
Total Available-for-Sale Debt Securities   $ 358,185     $ 363,467     $ 359,493     $ 363,465     $ 368,725     $ 363,273  

 

Summary of Loans by Type

(Excludes Loans Held for Sale)

(In Thousands)

 

    Sept. 30,     June 30,     Dec. 31,     Sept. 30,  
    2019     2019     2018     2018  
Residential mortgage:                                
Residential mortgage loans – first liens   $ 487,425     $ 484,479     $ 372,339     $ 366,516  
Residential mortgage loans – junior liens     29,056       28,880       25,450       25,748  
Home equity lines of credit     35,492       35,224       34,319       34,283  
1-4 Family residential construction     32,699       27,994       24,698       27,661  
Total residential mortgage     584,672       576,577       456,806       454,208  
Commercial:                                
Commercial loans secured by real estate     297,519       279,267       162,611       159,212  
Commercial and industrial     115,213       115,264       91,856       91,472  
Political subdivisions     46,466       52,308       53,263       53,294  
Commercial construction and land     22,386       21,197       11,962       12,278  
Loans secured by farmland     7,103       7,251       7,146       7,208  
Multi-family (5 or more) residential     27,633       26,749       7,180       7,670  
Agricultural loans     5,145       5,234       5,659       5,670  
Other commercial loans     12,828       13,037       13,950       14,140  
Total commercial     534,293       520,307       353,627       350,944  
Consumer     20,435       19,799       17,130       17,380  
Total     1,139,400       1,116,683       827,563       822,532  
Less: allowance for loan losses     (9,257 )     (8,200 )     (9,309 )     (8,815 )
Loans, net   $ 1,130,143     $ 1,108,483     $ 818,254     $ 813,717  

 

Loans Held for Sale

(In Thousands)

 

    Sept. 30,     June 30,     Dec. 31,     Sept. 30,  
    2019     2019     2018     2018  
Residential mortgage loans originated and serviced – outstanding balance   $ 179,594     $ 174,041     $ 171,955     $ 172,067  
Less: outstanding balance of loans sold     (177,561 )     (172,910 )     (171,742 )     (171,516 )
Loans held for sale, net   $ 2,033     $ 1,131     $ 213     $ 551  

 

 

ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES

(In Thousands)

 

    3 Months     3 Months     9 Months     9 Months  
    Ended     Ended     Ended     Ended  
    Sept. 30,     June 30,     Sept. 30,     Sept. 30,  
    2019     2019     2019     2018  
Balance, beginning of period   $ 8,200     $ 8,256     $ 9,309     $ 8,856  
Charge-offs     (116 )     (68 )     (295 )     (418 )
Recoveries     15       16       46       45  
Net charge-offs     (101 )     (52 )     (249 )     (373 )
Provision (credit) for loan losses     1,158       (4 )     197       332  
Balance, end of period   $ 9,257     $ 8,200     $ 9,257     $ 8,815  

 

PAST DUE AND IMPAIRED LOANS, NONPERFORMING ASSETS

AND TROUBLED DEBT RESTRUCTURINGS (TDRs)

(Dollars In Thousands)

 

    Sept. 30,     June 30,     Dec 31,     Sept. 30,  
    2019     2019     2018     2018  
Impaired loans with a valuation allowance   $ 3,027     $ 1,785     $ 4,851     $ 3,623  
Impaired loans without a valuation allowance     2,916       4,479       4,923       4,455  
Total impaired loans   $ 5,943     $ 6,264     $ 9,774     $ 8,078  
                                 
Total loans past due 30-89 days and still accruing   $ 5,230     $ 4,407     $ 7,142     $ 4,455  
                                 
Nonperforming assets:                                
Total nonaccrual loans   $ 9,020     $ 9,289     $ 13,113     $ 10,911  
Total loans past due 90 days or more and still accruing     2,395       2,631       2,906       3,124  
Total nonperforming loans     11,415       11,920       16,019       14,035  
Foreclosed assets held for sale (real estate)     2,762       3,305       1,703       2,678  
Total nonperforming assets   $ 14,177     $ 15,225     $ 17,722     $ 16,713  
                                 
Loans subject to troubled debt restructurings (TDRs):                                
Performing   $ 924     $ 972     $ 655     $ 698  
Nonperforming     1,744       489       2,884       2,925  
Total TDRs   $ 2,668     $ 1,461     $ 3,539     $ 3,623  
                                 
Total nonperforming loans as a % of loans     1.00 %     1.07 %     1.94 %     1.71 %
Total nonperforming assets as a % of assets     0.86 %     0.95 %     1.37 %     1.30 %
Allowance for loan losses as a % of total loans (1)     0.81 %     0.73 %     1.12 %     1.07 %
Allowance for loan losses as a % of nonperforming loans     81.10 %     68.79 %     58.11 %     62.81 %

 

(1) Effective April 1, 2019, C&N recorded loans purchased
from Monument at fair value. Loans identified as having a deterioration in credit quality were valued at $441,000 at April 1,
2019 and September 30, 2019. The remainder of the portfolio was determined to be the performing component of the portfolio, valued
at $258,854,000 at April 1, 2019. The calculation of fair value included a discount for credit losses of $1,914,000, reflecting
an estimate of the present value of credit losses based on market expectations. None of the performing loans purchased were found
to be impaired in the second or third quarters 2019; accordingly, there was no allowance for loan losses on loans purchased from
Monument at June 30, 2019 or September 30, 2019.

 

 

Analysis of Average Daily Balances and Rates

(Dollars in Thousands)

 

    3 Months           3 Months           3 Months        
    Ended     Rate of     Ended     Rate of     Ended     Rate of  
    9/30/2019     Return/     6/30/2019     Return/     9/30/2018     Return/  
    Average     Cost of     Average     Cost of     Average     Cost of  
    Balance     Funds %     Balance     Funds %     Balance     Funds %  
EARNING ASSETS                                                
Interest-bearing due from banks   $ 26,539       2.38 %   $ 22,398       2.67 %   $ 34,540       1.99 %
Available-for-sale debt securities, at amortized cost:                                                
Taxable     285,114       2.41 %     289,041       2.53 %     269,054       2.39 %
Tax-exempt     69,472       3.34 %     73,928       3.60 %     93,475       3.63 %
Total available-for-sale debt securities     354,586       2.59 %     362,969       2.75 %     362,529       2.71 %
Loans receivable:                                                
Taxable     1,062,578       5.38 %     1,035,672       5.46 %     744,793       5.20 %
Tax-exempt     67,741       3.74 %     69,571       3.78 %     75,639       3.70 %
Total loans receivable     1,130,319       5.28 %     1,105,243       5.35 %     820,432       5.06 %
Other earning assets     1,515       2.88 %     1,423       3.10 %     1,124       2.82 %
Total Earning Assets     1,512,959       4.60 %     1,492,033       4.68 %     1,218,625       4.27 %
Cash     22,341               20,325               18,697          
Unrealized gain/loss on securities     4,915               (101 )             (8,641 )        
Allowance for loan losses     (8,322 )             (8,378 )             (8,984 )        
Bank premises and equipment     16,103               16,214               15,023          
Intangible assets     29,986               30,040               11,953          
Other assets     48,276               49,935               44,675          
Total Assets   $ 1,626,258             $ 1,600,068             $ 1,291,348          
                                                 
INTEREST-BEARING LIABILITIES                                                
Interest-bearing deposits:                                                
Interest checking   $ 232,549       0.62 %   $ 218,731       0.58 %   $ 223,105       0.49 %
Money market     200,873       0.52 %     199,092       0.51 %     185,267       0.33 %
Savings     170,583       0.15 %     173,922       0.17 %     153,514       0.10 %
Time deposits     385,538       1.82 %     383,361       1.80 %     233,620       0.95 %
Total interest-bearing deposits     989,543       0.99 %     975,106       0.97 %     795,506       0.52 %
Borrowed funds:                                                
Short-term     25,823       2.24 %     37,279       2.45 %     13,062       1.18 %
Long-term     48,953       2.24 %     35,167       2.60 %     30,375       2.21 %
Subordinated debt     6,998       6.58 %     7,000       6.59 %     0       0.00 %
Total borrowed funds     81,774       2.62 %     79,446       2.88 %     43,437       1.90 %
Total Interest-bearing Liabilities     1,071,317       1.11 %     1,054,552       1.12 %     838,943       0.59 %
Demand deposits     300,183               294,112               252,093          
Other liabilities     13,584               15,454               11,147          
Total Liabilities     1,385,084               1,364,118               1,102,183          
Stockholders’ equity, excluding accumulated other comprehensive income/loss     237,000               235,733               195,854          
Accumulated other comprehensive income/loss     4,174               217               (6,689 )        
Total Shareholders’ Equity     241,174               235,950               189,165          
Total Liabilities and Shareholders’ Equity   $ 1,626,258             $ 1,600,068             $ 1,291,348          
Interest Rate Spread             3.49 %             3.56 %             3.68 %
Net Interest Income/Earning Assets             3.81 %             3.89 %             3.87 %
                                                 
Total Deposits (Interest-bearing and Demand)   $ 1,289,726             $ 1,269,218             $ 1,047,599          

 

(1) Annualized
rates of return on tax-exempt securities and loans are presented on a fully taxable-equivalent 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.
(3) Rates
of return on earning assets and costs of funds have been presented on an annualized basis.

 

 

Analysis of Average Daily Balances and Rates

(Dollars in Thousands)

 

    9 Months           9 Months        
    Ended     Rate of     Ended     Rate of  
    9/30/2019     Return/     9/30/2018     Return/  
    Average     Cost of     Average     Cost of  
    Balance     Funds %     Balance     Funds %  
EARNING ASSETS                                
Interest-bearing due from banks   $ 23,104       2.45 %   $ 23,727       1.80 %
Available-for-sale debt securities, at amortized cost:                                
Taxable     285,332       2.53 %     255,638       2.28 %
Tax-exempt     74,469       3.58 %     99,782       3.55 %
Total available-for-sale debt securities     359,801       2.75 %     355,420       2.64 %
Loans receivable:                                
Taxable     950,948       5.41 %     744,461       5.12 %
Tax-exempt     69,944       3.83 %     76,497       3.69 %
Total loans receivable     1,020,892       5.30 %     820,958       4.99 %
Other earning assets     1,344       3.08 %     1,158       2.89 %
Total Earning Assets     1,405,141       4.60 %     1,201,263       4.23 %
Cash     19,880               17,867          
Unrealized gain/loss on securities     97               (7,482 )        
Allowance for loan losses     (8,676 )             (9,049 )        
Bank premises and equipment     15,615               15,298          
Intangible assets     24,058               11,953          
Other assets     47,147               43,017          
Total Assets   $ 1,503,262             $ 1,272,867          
                                 
INTEREST-BEARING LIABILITIES                                
Interest-bearing deposits:                                
Interest checking   $ 216,851       0.56 %   $ 217,935       0.41 %
Money market     192,366       0.48 %     181,972       0.27 %
Savings     167,116       0.14 %     151,946       0.10 %
Time deposits     332,651       1.65 %     227,419       0.87 %
Total interest-bearing deposits     908,984       0.86 %     779,272       0.45 %
Borrowed funds:                                
Short-term     26,382       2.30 %     29,515       1.45 %
Long-term     39,655       2.44 %     21,931       2.15 %
Subordinated debt     4,692       6.58 %     0       0.00 %
Total borrowed funds     70,729       2.66 %     51,446       1.75 %
Total Interest-bearing Liabilities     979,713       0.99 %     830,718       0.53 %
Demand deposits     285,339               245,463          
Other liabilities     13,336               9,630          
Total Liabilities     1,278,388               1,085,811          
Stockholders’ equity, excluding accumulated other comprehensive income/loss     224,519               192,807          
Accumulated other comprehensive income/loss     355               (5,751 )        
Total Shareholders’ Equity     224,874               187,056          
Total Liabilities and Shareholders’ Equity   $ 1,503,262             $ 1,272,867          
Interest Rate Spread             3.61 %             3.70 %
Net Interest Income/Earning Assets             3.90 %             3.86 %
                                 
Total Deposits (Interest-bearing and Demand)   $ 1,194,323             $ 1,024,735          

 

(1) Annualized
rates of return on tax-exempt securities and loans are presented on a fully taxable-equivalent basis, using the Corporation’s
marginal federal income tax rate of 21% in 2018.
(2) Nonaccrual
loans have been included with loans for the purpose of analyzing net interest earnings.
(3) Rates
of return on earning assets and costs of funds have been presented on an annualized basis.

 

 

COMPARISON OF NONINTEREST INCOME

(In Thousands)

 

    Three Months Ended     Nine Months Ended  
    Sept. 30,     June 30,     Sept. 30,     Sept. 30,     Sept. 30,  
    2019     2019     2018     2019     2018  
Trust and financial management revenue   $ 1,479     $ 1,583     $ 1,427     $ 4,422     $ 4,375  
Brokerage revenue     333       361       235       1,001       718  
Insurance commissions, fees and premiums     71       48       15       149       72  
Service charges on deposit accounts     1,436       1,277       1,331       3,963       3,837  
Service charges and fees     91       89       95       259       263  
Interchange revenue from debit card transactions     722       699       660       2,064       1,880  
Net gains from sales of loans     310       221       164       618       514  
Loan servicing fees, net     (54 )     35       74       9       263  
Increase in cash surrender value of life insurance     105       99       100       296       295  
Other noninterest income     470       437       361       1,437       1,340  
Total noninterest income, excluding realized gains (losses) on securities, net   $ 4,963     $ 4,849     $ 4,462     $ 14,218     $ 13,557  

 

COMPARISON OF NONINTEREST EXPENSE

(In Thousands)

 

    Three Months Ended     Nine Months Ended  
    Sept. 30,     June 30,     Sept. 30,     Sept. 30,     Sept. 30,  
    2019     2019     2018     2019     2018  
Salaries and wages   $ 5,480     $ 5,276     $ 4,263     $ 15,249     $ 12,580  
Pensions and other employee benefits     1,449       1,225       1,237       4,292       4,047  
Occupancy expense, net     654       665       648       1,976       1,898  
Furniture and equipment expense     333       333       317       967       901  
Data processing expenses     802       962       667       2,567       2,002  
Automated teller machine and interchange expense     297       277       347       763       988  
Pennsylvania shares tax     341       347       326       1,035       998  
Professional fees     242       331       205       795       860  
Telecommunications     197       176       177       537       567  
Directors’ fees     162       141       197       486       549  
Other noninterest expense     1,529       1,689       1,249       4,937       3,822  
Total noninterest expense, excluding merger-related expenses     11,486       11,422       9,633       33,604       29,212  
Merger-related expenses     206       3,301       200       3,818       200  
Total noninterest expense   $ 11,692     $ 14,723     $ 9,833     $ 37,422     $ 29,412  

 





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