8-K

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) July 16, 2020

CITIZENS & NORTHERN CORPORATION

(Exact name of registrant as specified in its charter)

Pennsylvania	0-16084	23-2451943
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer 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 six-month periods ended June 30, 2020. On July 16, 2020, the Company issued a press release titled “C&N Declares Dividend and Announces Second Quarter 2020 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 July 23, 2020. 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 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 July 16, 2020, titled “C&N Declares Dividend and Announces Second Quarter 2020 Unaudited Financial Results.”

Exhibit 99.2: Unaudited financial information included in “banCNotes” report to be mailed to shareholders on or about July 23, 2020.

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:  7/16/2020	By:	/s/ Mark A. Hughes
		Treasurer and Chief Financial Officer

EX-99.1

Exhibit 99.1

	Contact:  Charity Frantz
July 16, 2020	570-724-0225
	charityf@cnbankpa.com

C&N DECLARES DIVIDEND AND ANNOUNCES SECOND QUARTER 2020 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 six-month periods ended June 30, 2020.

Dividend Declared

On July 16, 2020, C&N’s Board of Directors declared a regular quarterly cash dividend of $0.27 per share. The dividend is payable on August 7, 2020 to shareholders of record as of July 27, 2020.

Acquisitions of Covenant Financial, Inc. and Monument Bancorp, Inc.

C&N’s acquisition of Covenant Financial, Inc. (“Covenant”) was completed July 1, 2020. Covenant was the parent company of Covenant Bank, a commercial bank which operated a community bank office in Bucks County, Pennsylvania and another in Chester County, Pennsylvania. Pursuant to the transaction, Covenant merged with and into C&N and Covenant Bank merged with and into C&N’s bank subsidiary, Citizens & Northern Bank. Based on the average of the high and low C&N stock trading prices of $20.32 per share on July 1, 2020, the total transaction value was approximately $63.3 million, including approximately 75% of the consideration paid in C&N common stock and 25% paid in cash. Holders of Covenant common stock prior to the consummation of the merger held approximately 12.9% of C&N’s common stock outstanding immediately following the merger. With the addition of Covenant, C&N is projected to have assets of approximately $2.3 billion.

The acquisition of Covenant follows the acquisition of Monument Bancorp, Inc. (“Monument”) on April 1, 2019. Monument was the parent company of Monument Bank, with two community banking offices and a lending office in Bucks County, Pennsylvania. Monument merged with and into C&N and Monument Bank merged with and into Citizens & Northern Bank. The total transaction value of the Monument acquisition was $42.7 million.

In the first six months of 2020, C&N incurred pre-tax merger-related expenses related to the Covenant transaction of $1.1 million, including expenses totaling $983,000 in the second quarter 2020. Merger-related expenses include severance and similar expenses as well as initial expenses related to conversion of Covenant’s core customer system data into C&N’s core system and legal and other professional expenses. Management estimates total pre-tax merger-related expenses associated with the Covenant transaction will be approximately $8.0 million, with most of the expenses expected to be incurred in the third quarter 2020.

Merger-related expenses associated with the Monument transaction totaled $3.6 million in the first six months of 2019, including $3.3 million in the second quarter 2019.

Unaudited Financial Information

Net income was $0.39 per diluted share in the second quarter 2020, up from $0.30 in the first quarter 2020 and $0.27 in the second quarter 2019. For the six months ended June 30, 2020, net income per diluted share was $0.70, up from $0.67 per share for the first six months of 2019.

Earnings for 2020 and 2019 have been impacted by merger-related expenses from the Covenant and Monument transactions. As described below, excluding merger-related expenses and net realized gains on securities, adjusted (non-U.S. GAAP) earnings of $0.45 per share for the second quarter 2020 were slightly lower than the comparative $0.46 per share for the second quarter 2019, and adjusted (non-U.S. GAAP) earnings were $0.76 per share for the first six months of 2020 as compared to $0.89 per share for the first six months of 2019.

The following table provides a reconciliation of C&N’s second quarter and six months ended June 30, 2020 and 2019 unaudited earnings results under U.S. generally accepted accounting principles (U.S. GAAP) to comparative non-U.S. GAAP results excluding merger-related expenses and net realized gains on securities. Management believes disclosure of unaudited second quarter and six-months ended June 30, 2020 and 2019 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)	2nd Quarter 2020								2nd Quarter 2019
	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	$	6,693	$	1,255	$	5,438	$	0.39	$	4,342		$	693		$	3,649		$	0.27
Add: Merger-Related Expenses		983		200		783				3,301			673			2,628
Net Gains on Available-for-Sale Debt
Securities		0		0		0				(7	)		(1	)		(6	)
Adjusted Earnings, Excluding Effect of Merger-
Related Expenses and Net Gains on Available-
for Sale Debt Securities (Non-U.S. GAAP)	$	7,676	$	1,455	$	6,221	$	0.45	$	7,636		$	1,365		$	6,271		$	0.46

	6 Months Ended June 30, 2020								6 Months Ended June 30, 2019
	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	$	11,675	$	2,071	$	9,604	$	0.70	$	10,413		$	1,674		$	8,739		$	0.67
Add: Merger-Related Expenses		1,124		229		895				3,612			739			2,873
Net Gains on Available-for-Sale Debt
Securities		0		0		0				(7	)		(1	)		(6	)
Adjusted Earnings, Excluding Effect of Merger-
Related Expenses and Net Gains on Available-
for Sale Debt Securities (Non-U.S. GAAP)	$	12,799	$	2,300	$	10,499	$	0.76	$	14,018		$	2,412		$	11,606		$	0.89

(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 second quarter and June 30, 2020 year-to-date unaudited earnings results as compared to the first quarter 2020 and comparative periods of 2019 are presented below.

2

Second Quarter 2020 as Compared to First Quarter 2020

Net income was $5,438,000, or $0.39 per diluted share, for the second quarter 2020, up from $4,166,000, or $0.30 per diluted share, in the first quarter 2020. Excluding the effects of merger-related expenses, adjusted (non-U.S. GAAP) earnings per share were $0.45 per share for the second quarter 2020, up from a similarly adjusted $0.31 per share for the first quarter 2020. Other significant variances were as follows:

· C&N recognized a credit for loan losses of $176,000 in the second quarter 2020, a reduction in expense of $1,704,000 as compared to the provision for loan losses of $1,528,000 recognized in the first quarter 2020. The credit for loan losses in the second quarter 2020 included the benefit of repayment of a loan for less than the full principal balance, resulting in a charge-off of $107,000 on a commercial loan for which an allowance for loan losses of $674,000 had been recorded at March 31, 2020. In comparison, the provision for loan losses in the first quarter 2020 included the impact of recording a specific allowance of $1,193,000 related to a commercial loan. The specific allowance on this commercial loan remained at $1,193,000 at June 30, 2020. The outstanding balance on this commercial loan was $3.5 million at June 30, 2020 and March 31, 2020. In total, the second quarter 2020 provision included a net credit of $255,000 from the impact of a reduction in outstanding loans, excluding U.S. Small Business Administration (SBA) Paycheck Protection Program (“PPP”) loans; a net credit of $143,000 related to specific loans (net decrease in specific allowances on loans of $271,000 partially offset by net charge-offs of $128,000); a credit of $22,000 in the net charge-off experience factors used to estimate the allowance; and a charge of $244,000 attributable to increases in qualitative factors. There was no provision for loan losses recorded on PPP loans because the SBA guarantees the loans, subject to compliance with program requirements.

· Net interest income totaled $14,246,000 in the second quarter 2020, down slightly from the first quarter 2020 amount of $14,282,000. The net interest margin was 3.65% in the second quarter 2020, down from 3.83% in the first quarter 2020. The average yield on earning assets decreased 0.33% while the average rate paid on interest-bearing liabilities decreased 0.18%. Margin compression reflected the impact of a significant drop in interest rates, as C&N experienced accelerated prepayments of principal in the loan and securities portfolios. Average outstanding loans increased $63.0 million, including average PPP loans of $77.8 million, and average total deposits increased $88.8 million. Growth in average deposits included the effects of deposits recognized from PPP activity and seasonal growth in municipal deposits.

· Total noninterest income was $5,528,000 in the second quarter 2020, up $247,000 from the first quarter 2020 amount. Significant variances included the following:

Ø Net gains from sales of loans totaled $1,564,000 in the second quarter 2020, an increase of $1,249,000 over the first quarter total. The volume of residential mortgage loans soared in the second quarter 2020, as refinancing activity increased dramatically due to historically low interest rates.

Ø Total trust and brokerage revenues of $1,565,000 were up $86,000 from the first quarter 2020, reflecting the seasonal collection of fees related to income tax consulting and tax return preparation.

Ø Other noninterest income totaled $431,000, a decrease of $556,000 from the first quarter total. In the first quarter 2020, income from realization of tax credits totaled $504,000, including tax credits related to the Pennsylvania Educational Improvement Tax Credit program of $450,000. No revenue from tax credits was recorded in the second quarter 2020.

Ø Service charges on deposit accounts totaled $831,000 in the second quarter 2020, a decrease of $419,000, as the volume of consumer and business overdraft activity fell.

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Ø Loan servicing fees, net, were negative $158,000 (a decrease in revenue) in the second quarter 2020 as compared to negative $14,000 in the first quarter 2020. The fair value of mortgage servicing rights decreased $270,000 in the second quarter 2020, as compared to a decrease of $126,000 in the first quarter 2020, reflecting market assumptions that prepayments will increase due to lower interest rates.

· Noninterest expense, excluding merger-related expenses, totaled $12,274,000 in the second quarter 2020, a decrease of $638,000 from the first quarter 2020 amount. Significant variances included the following:

Ø Pensions and other employee benefits expense were $419,000 lower in the second quarter 2020 as compared to the first quarter, reflecting the customary seasonal increase in payroll taxes and related benefit costs in the first quarter of each year.

Ø Other noninterest expense decreased $216,000. Within this category, significant variances included the following:

§ Donations expense decreased $477,000, as the first quarter total included donations totaling $500,000 under the Pennsylvania Educational Improvement Tax Credit program.

§ Expenses related to other real estate properties totaled $25,000, a decrease of $81,000.

§ Incentive-based expenses payable to a consultant related to the overdraft privilege program totaled $6,000, a decrease of $45,000.

§ Travel and entertainment expenses totaled $23,000, a decrease of $41,000.

§ Other operational losses totaled $304,000, an increase of $264,000 over the first quarter amount, including an estimated accrual of $300,000 for penalties related to certain information returns.

§ Losses on other real estate properties totaled $80,000 in the second quarter 2020 as compared to net gains of $52,000 in the first quarter.

§ FDIC assessments expense totaled $111,000 in the second quarter as compared to $2,000 in the first quarter. For the previous several quarters, the FDIC had provided credits based on the funding level of the insurance fund that had offset all of the amounts that C&N would have otherwise been assessed. In the second quarter, C&N utilized a credit of $64,000, with no additional credit currently available to offset against assessments.

Ø Occupancy expense decreased $81,000, reflecting lower fuel and utility costs mainly due to seasonal changes in weather conditions.

Ø Professional fees expense increased $85,000, including employment recruiting costs associated with hiring a Trust and Financial Management Group executive.

4

Second Quarter 2020 as Compared to Second Quarter 2019

As described above, second quarter 2020 net income was $5,438,000, and excluding the impact of merger-related expenses, adjusted (non-U.S. GAAP) earnings were $6,221,000. In comparison, second quarter 2019 net income was $3,649,000, and excluding merger-related expenses and net securities gains, adjusted (non-U.S. GAAP) earnings were $6,271,000. Other significant variances were as follows:

· The credit for loan losses (reduction in expense) was $176,000 in the second quarter as compared to a credit of $4,000 in the second quarter 2019. Details concerning the second quarter 2020 credit for loan losses are provided above.

· Second quarter 2020 net interest income of $14,246,000 was slightly higher than the second quarter 2019 total of $14,205,000. The net interest margin of 3.65% in the second quarter 2020 was down from 3.89% in the second quarter 2019. The average yield on earning assets of 4.22% in the second quarter 2020 was down 0.46% from the second quarter 2019, while the average rate paid on interest-bearing liabilities of 0.83% was lower by 0.29% from the second quarter 2019 level. Average outstanding loans in the second quarter 2020 of $1.231 billion were up $126.2 million (11.4%) from the corresponding second quarter 2019 amount. The average balance of PPP loans was $77.8 million in the second quarter 2020, as C&N participated in the PPP from its inception in early April 2020. Excluding PPP loans, average outstanding loans were 4.4% higher in the second quarter 2020 as compared to the second quarter 2019. Average total deposits of $1.349 billion in the second quarter 2020 were up $79.9 million from the second quarter 2019, with much of the growth attributable to PPP activity.

· Total noninterest income for the second quarter 2020 was up $679,000 from the second quarter 2019 total. Significant variances included the following:

Ø Net gains from sales of loans of $1,564,000 for the second quarter 2020 were up $1,343,000 from the total for the second quarter 2019. The increase reflects an increase in volume of mortgage loans sold, due mainly to increased refinancing activity resulting from falling interest rates.

Ø Service charges on deposit accounts of $831,000 in the second quarter 2020 were down $446,000 from the second quarter 2019 amount, as the volume of consumer and business overdraft activity fell.

Ø Net revenue from loan servicing fees decreased $193,000, as net fees were negative $158,000 (a decrease in revenue) in the second quarter 2020 as compared to net revenue of $35,000 in the second quarter 2019. The fair value of mortgage servicing rights decreased $270,000 in the second quarter 2020, as compared to a decrease of $71,000 in the second quarter 2019, reflecting market assumptions that prepayments will increase due to lower interest rates.

· Noninterest expense, excluding merger-related expenses, increased $852,000 in the second quarter 2020 over the second quarter 2019 amount. Significant variances included the following:

Ø Pensions and other employee benefits expense increased $394,000, mainly due to increased health care expenses from C&N’s partially self-insured plan.

Ø Professional fees expense increased $133,000, including costs associated with a change in certain trust administrative activities to handle them on an outsourced basis.

Ø Salaries and wages expense increased $88,000 (1.7%), reflecting the net impact of several factors, including: an increase in number of personnel to 337 full-time equivalent (FTEs) from 332 at June 30, 2019; annual merit-based salary adjustments; an increase in overtime pay related mainly to mortgage lending activity; a reduction in expense due to a higher proportion of payroll costs capitalized (added to the carrying value of loans) due to the high volume of PPP loans originated; and a slight reduction in incentive compensation expense.

5

Ø Data processing expenses increased $78,000 (8.1%), including the impact of increases in software licensing costs associated with lending, trust and other functions.

Ø Pennsylvania shares tax expense increased $76,000 (21.9%), reflecting the impact of an increase in Citizens & Northern Bank’s stockholder’s equity.

Six Months Ended June 30, 2020 as Compared to Six Months Ended June 30, 2019

Net income for the six-month period ended June 30, 2020 was $9,604,000, or $0.70 per diluted share, while net income for the first six months of 2019 was $8,739,000, or $0.67 per share. Excluding the impact of merger-related expenses and net securities gains, adjusted (non-U.S. GAAP) earnings for the first six months of 2020 would be $10,499,000 or $0.76 per share as compared to similarly adjusted earnings of $11,606,000 or $0.89 per share for the first six months of 2019. Other significant variances were as follows:

· For the first six months of 2020, the provision for loan losses was $1,352,000, an increase in expense of $2,313,000 as compared to the credit for loan losses of $961,000 recorded in the first six months of 2019. As noted above, in 2020, the provision includes the effects of recording a specific allowance of $1,193,000 on a commercial loan in the first quarter, partially offset by the benefit from recording a charge-off of $107,000 in the second quarter 2020 on a commercial loan for which the previously-established allowance had been $674,000. In total, the provision for the first six months of 2020 included a net charge of $1,067,000 related to specific loans (net increase in specific allowances on loans of $905,000 and net charge-offs of $162,000); a charge of $646,000 attributable to increases in qualitative factors; a credit of $272,000 from the impact of a reduction in outstanding loans, excluding PPP loans; and a credit of $89,000 in the net charge-off experience factors used to estimate the allowance. The credit for loan losses in the first six months of 2019 included a benefit from eliminating specific allowances on commercial loans that were no longer considered impaired.

· Net interest income was up $2,608,000 (10.1%) for the first six months of 2020 over the same period in 2019, reflecting the benefits of growth related to the Monument acquisition. The net interest margin was 3.73% for the first six months of 2020, down from 3.96% in 2019. The average yield on earning assets was 0.21% lower in 2020 as compared to 2019, while the average rate paid on interest-bearing liabilities was 0.01% lower in comparing the same periods. Average outstanding loans of $1.2 billion for the first six months of 2020 were up $234.7 million (24.3%) from the corresponding total for the first six months of 2019, reflecting the impact of the Monument acquisition which closed April 1, 2019 as well as significant loan growth in the second quarter 2019. Average total deposits of $1.304 billion for the first six months of 2020 were up $158.8 million from the 2019 total, reflecting the impact of the Monument acquisition, PPP-related activity and other factors.

· Total noninterest income, excluding realized securities gains, for the first six months of 2020 was up $1,554,000 from the total for the first six months of 2019. Significant variances included the following:

Ø Net gains from sales of loans totaled $1,879,000 in the first six months of 2020, an increase of $1,571,000 over the total for the first six months of 2019. As noted above, the increase reflects an increase in volume of mortgage loans sold, due mainly to increased refinancing activity resulting from falling interest rates.

Ø Other noninterest income totaled $1,418,000, an increase of $451,000 over 2019. Income from realization of tax credits was $351,000 higher in the first six months of 2020 as compared to 2019. Also, dividend income from Federal Home Loan Bank stock was up $99,000, reflecting a higher average balance of stock held due to increased borrowings.

6

Ø Interchange revenue from debit card transactions totaled $1,449,000 for the first six months of 2020, an increase of $107,000 (8.0%), reflecting an increase in transaction volumes.

Ø Trust and financial management revenue of $3,044,000 was $101,000 (3.4%) higher in the first six months of 2020 as compared to 2019, reflecting the impact of fees from new business growth in 2019.

Ø Service charges on deposit accounts of $2,081,000 in the first six months of 2020 were down $446,000 (17.6%) from the total for the first six months of 2019, as the volume of consumer and business overdraft activity fell significantly in the second quarter 2020.

Ø Net revenue from loan servicing fees decreased $235,000, as net fees were negative $172,000 (a decrease in revenue) in the first six months of 2020 as compared to net revenue of $63,000 in the first six months of 2019. The fair value of mortgage servicing rights decreased $396,000 in the first six months of 2020, as compared to a decrease of $148,000 in the first six months of 2019.

· Noninterest expense, excluding merger-related expenses, increased $3,068,000 for the six months ended June 30, 2020 over the total for the first six months of 2019. Significant variances included the following:

Ø Total salaries and wages and benefits expenses increased $1,749,000, reflecting: inclusion of the former Monument operations for six months in 2020 as compared to three months in 2019; annual merit-based salary adjustments; an increase in overtime pay related mainly to mortgage lending activity; a reduction in expense due to a higher proportion of payroll costs capitalized (added to the carrying value of loans) due to the high volume of PPP loans originated; a slight reduction in incentive compensation expense; and an increase in health care expense due to higher claims on C&N’s partially self-insured plan.

Ø Data processing expenses increased $293,000, including the impact of increases in software licensing costs associated with lending, trust and other functions.

Ø Professional fees expense increased $290,000, including costs associated with a change in certain trust administrative activities to handle them on an outsourced basis.

Ø Other noninterest expense increased $254,000. Within this category, significant variances included the following:

§ Donations expense increased $427,000, mainly due to an increase in donations associated with the Pennsylvania Educational Improvement Tax Credit program.

§ Other operational losses increased $337,000, including an estimated accrual of $300,000 for penalties related to certain information returns.

§ Expenses related to other real estate properties decreased $244,000 and collection expenses decreased $215,000. The reduction in both of these expense categories resulted from the completion in the first quarter 2020 of a complex commercial workout situation for which a significant amount of expenses were incurred in 2019.

§ FDIC assessments expense decreased $81,000, as a significant portion of the assessed amounts for the first two quarters of 2020 were offset by credits based on the funding level of the insurance fund.

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Other Information:

Changes in other unaudited financial information are as follows:

· Total assets amounted to $1,745,466,000 at June 30, 2020, up from $1,629,445,000 at March 31, 2020 and up 8.4% from $1,609,685,000 at June 30, 2019.

· Net loans outstanding (excluding mortgage loans held for sale) were $1,230,387,000 at June 30, 2020, up from $1,156,143,000 at March 31, 2020 and up 11.0% from $1,108,483,000 at June 30, 2019. In comparing outstanding balances at June 30, 2020 and 2019, total commercial loans were up $138.4 million (26.6%), including PPP loans of $97.1 million, total residential mortgage loans were lower by $10.3 million (1.8%) and total consumer loans were down $3.4 million (16.9%). The outstanding balance of residential mortgage loans originated and serviced by C&N that have been sold to third parties was $210,778,000 at June 30, 2020, up $37.9 million (21.9%) from June 30, 2019.

· The recorded investment in PPP loans at June 30, 2020 of $97.1 million included contractual principal balances totaling $100.1 million, reduced by net deferred loan origination fees of $3.0 million. The term of most of C&N’s PPP loans is two years, with repayment from the SBA to occur sooner to the extent the loans are forgiven.

· To work with clients impacted by COVID-19, C&N is offering short-term loan modifications (deferrals) on a case-by-case basis to borrowers who were current in their payments prior to modification. These loans are not reported as past due or troubled debt restructurings during the deferral period. Most of the deferrals under this program were originated in March and the second quarter 2020, typically for a 90-day period. There have been 706 loans for which deferrals have been granted through June 30, 2020 with an aggregate recorded investment of approximately $202 million at the time of deferral. At June 30, 2020, there were 541 loans, with an aggregate recorded investment of approximately $159 million, that remained in deferral status under the program.

· Total nonperforming assets as a percentage of total assets was 1.33% at June 30, 2020, up from 0.99% at March 31, 2020 and 0.95% at June 30, 2019. Nonperforming loans with a valuation allowance increased $5,480,000, to $12,189,000 at June 30, 2020 from $6,709,000 at March 31, 2020. Similarly, total nonaccrual loans increased $6,454,000, to $18,763,000 at June 30, 2020 from $12, 309,000 at March 31, 2020. At June 30, 2020, there were three commercial loan relationships with an aggregate outstanding balance of $7,576,000 that management identified as impaired and classified as nonaccrual in the second quarter 2020. The total specific allowance for loan losses related to these impaired loans was $504,000 at June 30, 2020. The impact of these increases in impaired and nonaccrual loans was partially offset by removal from those classifications of the commercial loan noted earlier, which had a balance of $1,255,000 and a specific allowance of $674,000 at March 31, 2020 and which was paid off with a charge-off of $107,000 in the second quarter. In addition, there was a commercial loan with an outstanding balance of $815,000 at March 31, 2020 with a specific allowance of $60,000 that was no longer considered impaired at June 30, 2020 due to improved circumstances with the underlying business, and which was restored to accrual status in the second quarter.

· Deposits and repo sweep accounts totaled $1,383,382,000 at June 30, 2020, up from $1,252,319,000 at March 31, 2020, and up 7.5% from $1,287,335,000 at June 30, 2019.

· Total shareholders’ equity was $255,791,000 at June 30, 2020, up from $251,228,000 at March 31, 2020 and $239,716,000 at June 30, 2019. Within shareholders’ equity, the portion of accumulated other comprehensive income related to available-for-sale debt securities was $11,472,000 at June 30, 2020, up from $9,230,000 at March 31, 2020 and $3,138,000 at June 30, 2019. Fluctuations in accumulated other comprehensive income 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 June 30, 2020, 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, including as projected to include the effect of the Covenant acquisition.

· Assets under management by C&N’s Trust and Financial Management Group amounted to $984,853,000 at June 30, 2020, up 13.2% from $869,636,000 at March 31, 2020 and 3.8% from $948,998,000 at June 30, 2019. Fluctuations in values of assets under management reflect the impact of high recent market volatility attributable to COVID-19 and other factors.

8

Citizens & Northern Corporation is the bank holding company for Citizens & Northern Bank, headquartered in Wellsboro, Pennsylvania which operates 29 banking offices located in Bradford, Bucks, Cameron, Chester, Lycoming, McKean, Potter, Sullivan and Tioga Counties in Pennsylvania and Steuben County in New York, as well as loan production offices in Elmira, New York and Warminster and York, Pennsylvania. Citizens & Northern Corporation trades on NASDAQ under the symbol “CZNC.” For more information about Citizens & Northern Bank and Citizens & Northern Corporation, visit www.cnbankpa.com.

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: the effect of COVID-19 and related events, which could have a negative effect on C&N’s business prospects, financial condition and results of operations, including as a result of quarantines; market volatility; market downturns; changes in consumer behavior; business closures; deterioration in the credit quality of borrowers or the inability of borrowers to satisfy their obligations to C&N (and any related forbearances or restructurings that may be implemented); changes in the value of collateral securing outstanding loans; changes in the value of the investment securities portfolio; effects on key employees, including operational management personnel and those charged with preparing, monitoring and evaluating the companies’ financial reporting and internal controls; declines in the demand for loans and other banking services and products, as well as increases in non-performing loans, owing to the effects of COVID-19 in the markets served by C&N and in the United States as a whole; declines in demand resulting from adverse impacts of the disease on businesses deemed to be “non-essential” by governments and individual customers in the markets served by C&N; or branch or office closures and business interruptions.triggered by the disease; 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 caused by factors other than COVID-19; 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.

9

EX-99.2

EXHIBIT 99.2

June 30, 2020 QUARTERLY REPORT

Dear Shareholder:

The second quarter of 2020 was a volatile and challenging period marked by the ongoing uncertainties created by the COVID-19 pandemic. Statistics and details regarding the impact of the disease dominated the news cycle as all levels of government, health care providers, businesses and individuals focused on controlling the spread of the virus. At the same time, there was a continuous debate about when and how to “re-open” various sectors of the economy activity as the shut-down lengthened and unemployment levels skyrocketed. Leaders in all areas were forced to adjust to rapidly changing circumstances and new information creating confusion and frustration. Adding to the uncertainty was the inconsistent impact of the virus across the country resulting in differing responses depending on where people live and/or work. These efforts were coordinated from “socially distanced” locations making in-person communication regarding very complex issues nearly impossible for many.

Financial markets were hit hard late in the first quarter as measured by the major stock market averages as well as challenges in the bond and money markets. Swift and unprecedented action by the Federal Reserve and Congress stabilized markets and provided support throughout the second quarter. As of June 30^th, interest rates remained at historic lows, the major stock indices recovered much, if not all, of their earlier losses, new unemployment claims had come down significantly, and a substantial number of jobs were being filled each week. With all that being said, we still lack clarity on how to control the virus, consistently treat those infected, and the introduction of vaccine(s) that will prevent the spread.

C&N’s pandemic committee coordinated efforts to comply with directives, best practices, and government mandates to manage the health and welfare of our Team, customers, and communities. Prior investments in technology enabled much of our staff to productively work from home and many customers to conduct much of their business through enhancements in our digital channels and our outstanding connection center (call/chat) Team. When allowed in our various markets, we thoughtfully reopened branch offices and safely welcomed back customers who value in-person service.

While future economic growth remains uncertain, the C&N Team was focused on delivering value to customers as they work through issues specific to their circumstances. Total Paycheck Protection Program (PPP) loans reached nearly $100 million to approximately 1,000 business customers by the end of the second quarter. The forgiveness process for these loans is still being clarified but we expect a large percentage of customers to qualify for full relief. We also produced an unprecedented volume of residential mortgage loans as we assisted borrowers to refinance at lower rates or purchase new properties. We continued to work with borrowers on payment relief/deferrals, although the number of requests slowed down substantially as the quarter progressed.

After adjusting for merger related expenses in both 2019 and 2020, second quarter net income and earnings per share were essentially unchanged. Net interest income was slightly higher, although there was some compression in the net interest margin. A credit for loan losses of $176,000 contributed to net income during the second quarter of 2020 compared to a smaller credit of $4,000 in 2019. The credit for loan losses in the second quarter 2020 included the benefit of recording a charge-off of $107,000 on a commercial loan for which an allowance for loan losses of $674,000 had been recorded at March 31, 2020. In total, the second quarter 2020 provision included a net credit of $255,000 from the impact of a reduction in outstanding loans, excluding PPP loans; a net credit of $143,000 related to specific loans (net decrease in specific allowances on loans of $271,000 partially offset by net charge-offs of $128,000); a credit of $22,000 in the net charge-off experience factors used to estimate the allowance; and a charge of $244,000 attributable to increases in qualitative factors. Noninterest income increased by approximately 14% primarily due to record gains on the sale of mortgage loans. Noninterest expenses, excluding merger-related expenses, were 7.5% above the second quarter of 2019, driven primarily by increases in health care related costs, professional fees, data processing expenses and Pennsylvania shares tax.

On the same adjusted basis, net income (-10%) and earnings per share (-15%) for the first six months of 2020 declined compared to the same period in 2019. The primary driver of this decline was the provision for loan losses which was $1.35 million during the first half of 2020 compared to a credit of $961,000 for the same period in 2019, or a difference of $2.3 million. Net interest income increased 10% reflecting the benefits of growth related to the Monument acquisition. Total noninterest income grew by 16.8% year to date compared to 2019 with gains on mortgage sales as the primary driver, although a variety of other sources also contributed. Noninterest expenses, excluding merger-related expenses, increased 13.9%. This growth was substantially due to the inclusion of former Monument operations for six months during 2020 compared to three months in 2019, although higher data processing costs, professional fees and various other expenses also contributed.

We are pleased to report that all required regulatory and shareholder approvals supporting C&N’s acquisition of Covenant Bank were secured during the second quarter and the transaction closed on July 1^st. The integration teams continue working well together and are preparing for a successful conversion of systems scheduled for late August. We are excited to welcome customers, shareholders, and members of the Covenant staff to the C&N Team as we combine resources to create value in the years ahead.

C&N entered the COVID crisis, and related uncertainties, in a position of strength. This is especially evident in our capital ratios, which are at levels that demonstrate the capacity to absorb the acquisition of Covenant as well as significant credit losses, if they arise, while continuing to meet regulatory requirements to be considered well capitalized. A further indication of this strength was the Board’s declaration of the regular quarterly cash dividend of $.27 per share to shareholders of record on July 27, 2020, payable on August 8, 2020.

In closing, I want to recognize the ongoing efforts of the C&N Team as they remained focused on supporting our customers and communities throughout this challenging period. Their support of each other and C&N’s mission of creating lasting value through long-term relationships remains exceptional and is making a real impact on the lives of many.

Thank you to our shareholders for your confidence in this team and support of your Company.

J. Bradley Scovill

President and CEO

2

CONDENSED, CONSOLIDATED EARNINGS INFORMATION

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

	2ND			2ND
	QUARTER			QUARTER
	2020			2019
	(Current)			(Prior Year)			$ Incr. (Decr.)			% Incr. (Decr.)
Interest and Dividend Income	$	16,513		$	17,139		($	626	)		-3.65	%
Interest Expense		2,267			2,934			(667	)		-22.73	%
Net Interest Income		14,246			14,205			41			0.29	%
Credit for Loan Losses		(176	)		(4	)		(172	)		4300.00	%
Net Interest Income After Credit for Loan Losses		14,422			14,209			213			1.50	%
Noninterest Income		5,528			4,849			679			14.00	%
Net Gains on Available-for-sale Debt Securities		0			7			(7	)		-100.00	%
Merger-Related Expenses		983			3,301			(2,318	)		-70.22	%
Other Noninterest Expenses		12,274			11,422			852			7.46	%
Income Before Income Tax Provision		6,693			4,342			2,351			54.15	%
Income Tax Provision		1,255			693			562			81.10	%
Net Income	$	5,438		$	3,649		$	1,789			49.03	%
Net Income Attributable to Common Shares (1)	$	5,405		$	3,630		$	1,775			48.90	%
PER COMMON SHARE DATA:
Net Income - Basic	$	0.39		$	0.27		$	0.12			44.44	%
Net Income - Diluted	$	0.39		$	0.27		$	0.12			44.44	%
Dividend Per Share - Quarterly	$	0.27		$	0.27		$	0.00			0.00	%
Number of Shares Used in Computation - Basic		13,710,118			13,597,848
Number of Shares Used in Computation - Diluted		13,712,387			13,622,954

CONDENSED, CONSOLIDATED EARNINGS INFORMATION

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

	6 MONTHS ENDED
	JUNE 30,
	2020		2019
	(Current)		(Prior Year)			$ Incr. (Decr.)			% Incr. (Decr.)
Interest and Dividend Income	$	33,550	$	30,204		$	3,346			11.08	%
Interest Expense		5,022		4,284			738			17.23	%
Net Interest Income		28,528		25,920			2,608			10.06	%
Provision (Credit) for Loan Losses		1,352		(961	)		2,313			-240.69	%
Net Interest Income After Provision (Credit) for Loan Losses		27,176		26,881			295			1.10	%
Noninterest Income		10,809		9,255			1,554			16.79	%
Net Gains on Available-for-sale Debt Securities		0		7			(7	)		-100.00	%
Merger-Related Expenses		1,124		3,612			(2,488	)		-68.88	%
Other Noninterest Expenses		25,186		22,118			3,068			13.87	%
Income Before Income Tax Provision		11,675		10,413			1,262			12.12	%
Income Tax Provision		2,071		1,674			397			23.72	%
Net Income	$	9,604	$	8,739		$	865			9.90	%
Net Income Attributable to Common Shares (1)	$	9,550	$	8,693		$	857			9.86	%
PER COMMON SHARE DATA:
Net Income - Basic	$	0.70	$	0.67		$	0.03			4.48	%
Net Income - Diluted	$	0.70	$	0.67		$	0.03			4.48	%
Dividend Per Share - Quarterly	$	0.54	$	0.54		$	0.00			0.00	%
Dividend Per Share - Special	$	0.00	$	0.10		($	0.10	)		-100.00	%
Number of Shares Used in Computation - Basic		13,697,617		12,956,916
Number of Shares Used in Computation - Diluted		13,705,733		12,982,361

(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.

3

CONDENSED, CONSOLIDATED BALANCE SHEET DATA

(In Thousands) (Unaudited)        

	JUNE 30,		JUNE 30,		JUNE 30, 2020 vs 2019
	2020		2019		$ Incr. (Decr.)			% Incr. (Decr.)
ASSETS
Cash & Due from Banks	$	77,642	$	39,505	$	38,137			96.54	%
Available-for-sale Debt Securities		332,188		363,465		(31,277	)		-8.61	%
Loans Held for Sale		1,258		1,131		127			11.23	%
Loans, Net		1,230,387		1,108,483		121,904			11.00	%
Intangible Assets		29,511		30,013		(502	)		-1.67	%
Other Assets		74,480		67,088		7,392			11.02	%
TOTAL ASSETS	$	1,745,466	$	1,609,685	$	135,781			8.44	%
LIABILITIES
Deposits	$	1,381,178	$	1,284,143	$	97,035			7.56	%
Repo Sweep Accounts		2,204		3,192		(988	)		-30.95	%
Total Deposits and Repo Sweeps		1,383,382		1,287,335		96,047			7.46	%
Borrowed Funds		85,104		62,574		22,530			36.01	%
Subordinated Debt		6,500		7,000		(500	)		-7.14	%
Other Liabilities		14,689		13,060		1,629			12.47	%
TOTAL LIABILITIES		1,489,675		1,369,969		119,706			8.74	%
SHAREHOLDERS' EQUITY
Common Shareholders' Equity, Excluding Accumulated
Other Comprehensive Income (Loss)		244,080		236,284		7,796			3.30	%
Accumulated Other Comprehensive Income (Loss):
Net Unrealized Gains/Losses on
Available-for-sale Debt Securities		11,472		3,138		8,334			265.58	%
Defined Benefit Plans		239		294		(55	)		-18.71	%
TOTAL SHAREHOLDERS' EQUITY		255,791		239,716		16,075			6.71	%
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY	$	1,745,466	$	1,609,685	$	135,781			8.44	%

4

EX-99.3

EXHIBIT 99.3 – Supplemental, Unaudited Financial Information

CONDENSED, CONSOLIDATED FINANCIAL HIGHLIGHTS
(Dollars In Thousands, Except Per Share Data)       (Unaudited)
	AS OF OR FOR THE
	SIX MONTHS ENDED						%
	JUNE 30,						INCREASE
	2020			2019			(DECREASE)
EARNINGS PERFORMANCE
Net Income	$	9,604		$	8,739			9.90	%
Return on Average Assets (Annualized)		1.15	%		1.21	%		-4.96	%
Return on Average Equity (Annualized)		7.71	%		8.07	%		-4.46	%
BALANCE SHEET HIGHLIGHTS
Total Assets	$	1,745,466		$	1,609,685			8.44	%
Available-for-Sale Debt Securities		332,188			363,465			-8.61	%
Loans (Net)		1,230,387			1,108,483			11.00	%
Allowance for Loan Losses		11,026			8,200			34.46	%
Deposits and Repo Sweep Accounts		1,383,382			1,287,335			7.46	%
OFF-BALANCE SHEET
Outstanding Balance of Mortgage Loans Sold with Servicing Retained	$	210,778		$	172,910			21.90	%
Trust Assets Under Management		984,853			948,998			3.78	%
SHAREHOLDERS' VALUE (PER COMMON SHARE)
Net Income - Basic	$	0.70		$	0.67			4.48	%
Net Income - Diluted	$	0.70		$	0.67			4.48	%
Dividends - Quarterly	$	0.54		$	0.54			0.00	%
Dividends - Special	$	0.00		$	0.10			-100.00	%
Common Book Value	$	18.53		$	17.51			5.83	%
Tangible Common Book Value (a)	$	16.39		$	15.32			6.98	%
Market Value (Last Trade)	$	20.65		$	26.33			-21.57	%
Market Value /  Common Book Value		111.44	%		150.37	%		-25.89	%
Market Value /  Tangible Common Book Value		125.99	%		171.87	%		-26.69	%
Price Earnings Multiple (Annualized)		14.75			19.65			-24.94	%
Dividend Yield (Annualized, Excluding Special Dividend)		5.23	%		4.10	%		27.56	%
Common Shares Outstanding, End of Period		13,807,157			13,687,999			0.87	%

CONDENSED, CONSOLIDATED FINANCIAL HIGHLIGHTS (Continued)
(Dollars In Thousands, Except Per Share Data)       (Unaudited)
	AS OF OR FOR THE
	SIX MONTHS ENDED						%
	JUNE 30,						INCREASE
	2020			2019			(DECREASE)
SAFETY AND SOUNDNESS
Tangible Common Equity / Tangible Assets (a)		13.19	%		13.28	%		-0.68	%
Nonperforming Assets / Total Assets		1.33	%		0.95	%		40.00	%
Allowance for Loan Losses / Total Loans		0.89	%		0.73	%		21.92	%
Total Risk Based Capital Ratio (b)		21.32	%		20.97	%		1.67	%
Tier 1 Risk Based Capital Ratio (b)		19.69	%		19.51	%		0.92	%
Common Equity Tier 1 Risk Based Capital Ratio (b)		19.69	%		19.51	%		0.92	%
Leverage Ratio (b)		12.82	%		13.13	%		-2.36	%
AVERAGE BALANCES
Average Assets	$	1,676,009		$	1,440,745			16.33	%
Average Equity	$	249,005		$	216,589			14.97	%
EFFICIENCY RATIO (c)
Net Interest Income on a Fully Taxable-Equivalent
Basis (c)	$	28,989		$	26,485			9.45	%
Noninterest Income		10,809			9,255			16.79	%
Total (1)	$	39,798		$	35,740			11.35	%
Noninterest Expense Excluding Merger Expenses (2)	$	25,186		$	22,118			13.87	%
Efficiency Ratio = (2)/(1)		63.28	%		61.89	%		2.25	%

(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	$	1,745,466		$	1,609,685
Less: Intangible Assets, Primarily Goodwill		(29,511	)		(30,013	)
Tangible Assets	$	1,715,955		$	1,579,672
Total Shareholders' Equity	$	255,791		$	239,716
Less: Intangible Assets, Primarily Goodwill		(29,511	)		(30,013	)
Tangible Common Equity (3)	$	226,280		$	209,703
Common Shares Outstanding, End of Period (4)		13,807,157			13,687,999
Tangible Common Book Value per Share = (3)/(4)	$	16.39		$	15.32

(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 merger-related expenses.  These expenses include expenses related to the acquisition of Covenant Financial, Inc., which closed July 1, 2020. Also excluded are expenses related to the acquisition of Monument Bancorp, Inc. , which closed April 1, 2019.  

2

QUARTERLY CONDENSED, CONSOLIDATED
INCOME STATEMENT INFORMATION
(Dollars In Thousands, Except Per Share Data)	For the Three Months Ended:
(Unaudited)	June 30,			March 31,		Dec. 31,		Sept. 30,		June 30,			March 31,
	2020			2020		2019		2019		2019			2019
Interest income	$	16,513		$	17,037	$	17,290	$	17,277	$	17,139		$	13,065
Interest expense		2,267			2,755		2,999		3,000		2,934			1,350
Net interest income		14,246			14,282		14,291		14,277		14,205			11,715
(Credit) provision for loan losses		(176	)		1,528		652		1,158		(4	)		(957	)
Net interest income after (credit) provision for loan losses		14,422			12,754		13,639		13,119		14,209			12,672
Noninterest income		5,528			5,281		5,066		4,963		4,849			4,406
Net gains on securities		0			0		3		13		7			0
Merger-related expenses		983			141		281		206		3,301			311
Other noninterest expenses		12,274			12,912		11,834		11,486		11,422			10,696
Income before income tax provision		6,693			4,982		6,593		6,403		4,342			6,071
Income tax provision		1,255			816		1,135		1,096		693			981
Net income	$	5,438		$	4,166	$	5,458	$	5,307	$	3,649		$	5,090
Net income attributable to common shares	$	5,405		$	4,146	$	5,431	$	5,281	$	3,630		$	5,063
Basic earnings per common share	$	0.39		$	0.30	$	0.40	$	0.39	$	0.27		$	0.41
Diluted earnings per common share	$	0.39		$	0.30	$	0.40	$	0.39	$	0.27		$	0.41

QUARTERLY CONDENSED, CONSOLIDATED
BALANCE SHEET INFORMATION
(In Thousands) (Unaudited)	As of:
	June 30,		March 31,		Dec. 31,		Sept. 30,		June 30,		March 31,
	2020		2020		2019		2019		2019		2019
ASSETS
Cash & Due from Banks	$	77,642	$	32,678	$	35,202	$	51,443	$	39,505	$	44,002
Available-for-Sale Debt Securities		332,188		342,416		346,723		363,467		363,465		357,646
Loans Held for Sale		1,258		579		767		2,033		1,131		0
Loans, Net		1,230,387		1,156,143		1,172,386		1,130,143		1,108,483		817,136
Intangible Assets		29,511		29,573		29,635		29,939		30,013		11,949
Other Assets		74,480		68,056		69,432		65,562		67,088		59,267
TOTAL ASSETS	$	1,745,466	$	1,629,445	$	1,654,145	$	1,642,587	$	1,609,685	$	1,290,000
LIABILITIES
Deposits	$	1,381,178	$	1,249,912	$	1,252,660	$	1,294,882	$	1,284,143	$	1,039,911
Repo Sweep Accounts		2,204		2,407		1,928		3,767		3,192		5,132
Total Deposits and Repo Sweeps		1,383,382		1,252,319		1,254,588		1,298,649		1,287,335		1,045,043
Borrowed Funds		85,104		108,144		136,419		75,714		62,574		32,844
Subordinated Debt		6,500		6,500		6,500		7,000		7,000		0
Other Liabilities		14,689		11,254		12,186		18,285		13,060		9,986
TOTAL LIABILITIES		1,489,675		1,378,217		1,409,693		1,399,648		1,369,969		1,087,873
SHAREHOLDERS' EQUITY
Common Shareholders' Equity, Excluding
Accumulated Other Comprehensive Income (Loss)		244,080		241,754		240,761		238,479		236,284		202,768
Accumulated Other Comprehensive Income (Loss):
Net Unrealized Gains (Losses) on Available-for-sale Securities		11,472		9,230		3,511		4,173		3,138		(941	)
Defined Benefit Plans Adjustment, Net		239		244		180		287		294		300
TOTAL SHAREHOLDERS' EQUITY		255,791		251,228		244,452		242,939		239,716		202,127
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY	$	1,745,466	$	1,629,445	$	1,654,145	$	1,642,587	$	1,609,685	$	1,290,000

3

AVAILABLE-FOR-SALE DEBT SECURITIES	June 30, 2020				March 31, 2020				December 31, 2019
(In Thousands)	Amortized		Fair		Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value		Cost		Value
Obligations of U.S. Government agencies	$	10,706	$	11,673	$	15,704	$	16,408	$	16,380	$	17,000
Obligations of states and political subdivisions:
Tax-exempt		86,897		91,643		78,126		81,072		68,787		70,760
Taxable		38,022		39,784		35,764		37,074		35,446		36,303
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		49,852		51,520		54,280		55,752		58,875		59,210
Residential collateralized mortgage obligations		87,527		89,435		101,130		103,556		115,025		114,723
Commercial mortgage-backed securities		44,664		48,133		45,727		48,554		47,765		48,727
Total Available-for-Sale Debt Securities	$	317,668	$	332,188	$	330,731	$	342,416	$	342,278	$	346,723

Summary of Loans by Type
(Excludes Loans Held for Sale)
(In Thousands)	June 30,			March 31,			Dec. 31,			June 30,
	2020			2020			2019			2019
Residential mortgage:
Residential mortgage loans - first liens	$	493,214		$	508,387		$	510,641		$	484,479
Residential mortgage loans - junior liens		25,632			27,028			27,503			28,880
Home equity lines of credit		31,826			32,090			33,638			35,224
1-4 Family residential construction		15,621			14,121			14,798			27,994
Total residential mortgage		566,293			581,626			586,580			576,577
Commercial:
Commercial loans secured by real estate		293,304			295,860			301,227			279,267
Commercial and industrial		120,202			132,308			126,374			115,264
Small Business Administration - Paycheck
Protection Program		97,103			0			0			0
Political subdivisions		43,134			43,613			53,570			52,308
Commercial construction and land		40,348			33,340			33,555			21,197
Loans secured by farmland		11,433			11,524			12,251			7,251
Multi-family (5 or more) residential		32,699			32,370			31,070			26,749
Agricultural loans		3,874			3,886			4,319			5,234
Other commercial loans		16,579			16,430			16,535			13,037
Total commercial		658,676			569,331			578,901			520,307
Consumer		16,444			16,516			16,741			19,799
Total		1,241,413			1,167,473			1,182,222			1,116,683
Less: allowance for loan losses		(11,026	)		(11,330	)		(9,836	)		(8,200	)
Loans, net	$	1,230,387		$	1,156,143		$	1,172,386		$	1,108,483

Loans Held for Sale
(In Thousands)	June 30,			March 31,			Dec. 31,			June 30,
	2020			2020			2019			2019
Residential mortgage loans originated and serviced - outstanding balance	$	212,036		$	182,989		$	179,213		$	174,041
Less: outstanding balance of loans sold		(210,778	)		(182,410	)		(178,446	)		(172,910	)
Loans held for sale, net	$	1,258		$	579		$	767		$	1,131

4

ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES

(In Thousands)        

	3 Months			3 Months			6 Months			6 Months
	Ended			Ended			Ended			Ended
	June 30,			March 31,			June 30,			June 30,
	2020			2020			2020			2019
Balance, beginning of period	$	11,330		$	9,836		$	9,836		$	9,309
Charge-offs		(146	)		(48	)		(194	)		(179	)
Recoveries		18			14			32			31
Net (charge-offs)		(128	)		(34	)		(162	)		(148	)
(Credit) provision for loan losses		(176	)		1,528			1,352			(961	)
Balance, end of period	$	11,026		$	11,330		$	11,026		$	8,200

PAST DUE AND IMPAIRED LOANS, NONPERFORMING ASSETS

AND TROUBLED DEBT RESTRUCTURINGS (TDRs)

(Dollars In Thousands)        

	June 30,			March 31,			Dec 31,			June 30,
	2020			2020			2019			2019
Impaired loans with a valuation allowance	$	12,189		$	6,709		$	3,375		$	1,785
Impaired loans without a valuation allowance		2,091			1,581			2,111			4,479
Total impaired loans	$	14,280		$	8,290		$	5,486		$	6,264
Total loans past due 30-89 days and still accruing	$	5,124		$	8,372		$	8,889		$	4,407
Nonperforming assets:
Total nonaccrual loans	$	18,763		$	12,309		$	9,218		$	9,289
Total loans past due 90 days or more and still accruing		2,812			2,093			1,207			2,631
Total nonperforming loans		21,575			14,402			10,425			11,920
Foreclosed assets held for sale (real estate)		1,593			1,685			2,886			3,305
Total nonperforming assets	$	23,168		$	16,087		$	13,311		$	15,225
Loans subject to troubled debt restructurings (TDRs):
Performing	$	265		$	372		$	889		$	972
Nonperforming		790			1,730			1,737			489
Total TDRs	$	1,055		$	2,102		$	2,626		$	1,461
Total nonperforming loans as a % of loans		1.74	%		1.23	%		0.88	%		1.07	%
Total nonperforming assets as a % of assets		1.33	%		0.99	%		0.80	%		0.95	%
Allowance for loan losses as a % of total loans		0.89	%		0.97	%		0.83	%		0.73	%
Allowance for loan losses as a % of nonperforming loans		51.11	%		78.67	%		94.35	%		68.79	%

5

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
	6/30/2020			Return/			3/31/2020			Return/			6/30/2019			Return/
	Average			Cost of			Average			Cost of			Average			Cost of
	Balance			Funds %			Balance			Funds %			Balance			Funds %
EARNING ASSETS
Interest-bearing due from banks	$	37,799			0.44	%	$	19,401			1.68	%	$	22,398			2.67	%
Available-for-sale debt securities,
at amortized cost:
Taxable		244,019			2.27	%		265,157			2.41	%		289,041			2.53	%
Tax-exempt		82,050			3.09	%		69,850			3.14	%		73,928			3.60	%
Total available-for-sale debt securities		326,069			2.48	%		335,007			2.56	%		362,969			2.75	%
Loans receivable:
Taxable		1,094,432			4.99	%		1,108,118			5.25	%		1,035,672			5.46	%
Paycheck Protection Program (Taxable)		77,832			2.79	%		0						0
Tax-exempt		59,177			3.75	%		60,367			3.83	%		69,571			3.78	%
Total loans receivable		1,231,441			4.79	%		1,168,485			5.18	%		1,105,243			5.35	%
Other earning assets		2,206			3.65	%		1,460			3.03	%		1,423			3.10	%
Total Earning Assets		1,597,515			4.22	%		1,524,353			4.55	%		1,492,033			4.68	%
Cash		18,960						18,042						20,325
Unrealized gain/loss on securities		12,574						8,176						(101	)
Allowance for loan losses		(11,471	)					(10,015	)					(8,378	)
Bank premises and equipment		18,230						17,732						16,214
Intangible assets		29,543						29,607						30,040
Other assets		49,502						49,270						49,935
Total Assets	$	1,714,853					$	1,637,165					$	1,600,068
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
Interest checking	$	260,177			0.31	%	$	227,069			0.43	%	$	218,731			0.58	%
Money market		215,441			0.43	%		200,691			0.53	%		199,092			0.51	%
Savings		183,933			0.12	%		168,971			0.15	%		173,922			0.17	%
Time deposits		343,257			1.52	%		381,621			1.67	%		383,361			1.80	%
Total interest-bearing deposits		1,002,808			0.72	%		978,352			0.89	%		975,106			0.97	%
Borrowed funds:
Short-term		19,844			1.30	%		44,882			1.77	%		37,279			2.45	%
Long-term		72,917			1.73	%		64,065			1.85	%		35,167			2.60	%
Subordinated debt		6,500			6.56	%		6,500			6.62	%		7,000			6.59	%
Total borrowed funds		99,261			1.96	%		115,447			2.09	%		79,446			2.88	%
Total Interest-bearing Liabilities		1,102,069			0.83	%		1,093,799			1.01	%		1,054,552			1.12	%
Demand deposits		346,285						281,893						294,112
Other liabilities		15,891						14,071						15,454
Total Liabilities		1,464,245						1,389,763						1,364,118
Stockholders' equity, excluding accumulated other comprehensive income/loss		240,434						240,718						235,733
Accumulated other comprehensive income/loss		10,174						6,684						217
Total Shareholders' Equity		250,608						247,402						235,950
Total Liabilities and Shareholders' Equity	$	1,714,853					$	1,637,165					$	1,600,068
Interest Rate Spread					3.39	%					3.54	%					3.56	%
Net Interest Income/Earning Assets					3.65	%					3.83	%					3.89	%
Total Deposits (Interest-bearing and Demand)	$	1,349,093					$	1,260,245					$	1,269,218

(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.

6

Analysis of Average Daily Balances and Rates
(Dollars in Thousands)
	6 Months						6 Months
	Ended			Rate of			Ended			Rate of
	6/30/2020			Return/			6/30/2019			Return/
	Average			Cost of			Average			Cost of
	Balance			Funds %			Balance			Funds %
EARNING ASSETS
Interest-bearing due from banks	$	28,600			0.86	%	$	21,358			2.50	%
Available-for-sale debt securities,
at amortized cost:
Taxable		254,588			2.34	%		285,443			2.59	%
Tax-exempt		75,950			3.11	%		77,009			3.70	%
Total available-for-sale debt securities		330,538			2.52	%		362,452			2.82	%
Loans receivable:
Taxable		1,101,275			5.12	%		894,208			5.42	%
Paycheck Protection Program (Taxable)		38,916			2.79	%		0
Tax-exempt		59,772			3.79	%		71,064			3.88	%
Total loans receivable		1,199,963			4.98	%		965,272			5.31	%
Other earning assets		1,833			3.40	%		1,257			3.21	%
Total Earning Assets		1,560,934			4.38	%		1,350,339			4.59	%
Cash		18,501						18,629
Unrealized gain/loss on securities		10,375						(2,352	)
Allowance for loan losses		(10,743	)					(8,856	)
Bank premises and equipment		17,981						15,367
Intangible assets		29,575						21,045
Other assets		49,386						46,573
Total Assets	$	1,676,009					$	1,440,745
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
Interest checking	$	243,623			0.37	%	$	208,872			0.53	%
Money market		208,066			0.48	%		188,042			0.46	%
Savings		176,452			0.13	%		165,354			0.14	%
Time deposits		362,439			1.60	%		305,769			1.53	%
Total interest-bearing deposits		990,580			0.80	%		868,037			0.79	%
Borrowed funds:
Short-term		32,363			1.63	%		26,666			2.32	%
Long-term		68,491			1.79	%		34,929			2.57	%
Subordinated debt		6,500			6.59	%		3,520			6.59	%
Total borrowed funds		107,354			2.03	%		65,115			2.69	%
Total Interest-bearing Liabilities		1,097,934			0.92	%		933,152			0.93	%
Demand deposits		314,089						277,794
Other liabilities		14,981						13,210
Total Liabilities		1,427,004						1,224,156
Stockholders' equity, excluding accumulated other comprehensive income/loss		240,576						218,175
Accumulated other comprehensive income/loss		8,429						(1,586	)
Total Shareholders' Equity		249,005						216,589
Total Liabilities and Shareholders' Equity	$	1,676,009					$	1,440,745
Interest Rate Spread					3.46	%					3.66	%
Net Interest Income/Earning Assets					3.73	%					3.96	%
Total Deposits (Interest-bearing and Demand)	$	1,304,669					$	1,145,831

(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.

7

COMPARISON OF NONINTEREST INCOME
(In Thousands)	Three Months Ended								Six Months Ended
	June 30,			March 31,			June 30,		June 30,			June 30,
	2020			2020			2019		2020			2019
Trust and financial management revenue	$	1,565		$	1,479		$	1,583	$	3,044		$	2,943
Brokerage revenue		343			333			361		676			668
Insurance commissions, fees and premiums		52			33			48		85			78
Service charges on deposit accounts		831			1,250			1,277		2,081			2,527
Service charges and fees		84			63			89		147			168
Interchange revenue from debit card transactions		718			731			699		1,449			1,342
Net gains from sales of loans		1,564			315			221		1,879			308
Loan servicing fees, net		(158	)		(14	)		35		(172	)		63
Increase in cash surrender value of life insurance		98			104			99		202			191
Other noninterest income		431			987			437		1,418			967
Total noninterest income, excluding realized gains on securities, net	$	5,528		$	5,281		$	4,849	$	10,809		$	9,255

COMPARISON OF NONINTEREST EXPENSE
(In Thousands)	Three Months Ended						Six Months Ended
	June 30,		March 31,		June 30,		June 30,		June 30,
	2020		2020		2019		2020		2019
Salaries and wages	$	5,364	$	5,340	$	5,276	$	10,704	$	9,769
Pensions and other employee benefits		1,619		2,038		1,225		3,657		2,843
Occupancy expense, net		664		745		665		1,409		1,322
Furniture and equipment expense		311		358		333		669		634
Data processing expenses		1,040		1,018		962		2,058		1,765
Automated teller machine and interchange expense		275		297		277		572		466
Pennsylvania shares tax		423		422		347		845		694
Professional fees		464		379		331		843		553
Telecommunications		213		206		176		419		340
Directors' fees		178		170		141		348		324
Other noninterest expense		1,723		1,939		1,689		3,662		3,408
Total noninterest expense, excluding merger-related expenses		12,274		12,912		11,422		25,186		22,118
Merger-related expenses		983		141		3,301		1,124		3,612
Total noninterest expense	$	13,257	$	13,053	$	14,723	$	26,310	$	25,730

8