<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994 COMMISSION FILE NO. 0-16084
----------------- -------
CITIZENS & NORTHERN CORPORATION
-------------------------------
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-2451943
- ------------------------ --------------------------------
(State of Incorporation) (Employer Identification Number)
ADDRESS OF PRINCIPAL EXECUTIVE OFFICE: THOMPSON STREET
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RALSTON, PA 17763
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MAILING ADDRESS OF EXECUTIVE OFFICE: 90-92 MAIN STREET
---------------------
WELLSBORO, PA 16901
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REGISTRANT'S TELEPHONE NUMBER (INCLUDING AREA CODE): 717-265-6171
------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
----
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $1.00 A SHARE
-------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for shorter periods that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
--- ---
Indicate by check mark if the disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The number of shares outstanding of the issuer's class of common stock as of
March 1, 1995:
- -------------
$1.00 Par Value 4,962,456 Shares
---------
The aggregate market value of the registrant's common stock held by
non-affiliates at March 1, 1995: $95,527,278
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<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Annual Report to Shareholders for the Year Ended December 31,
1994 (Annual Report) are incorporated by reference into Parts I and II
Portions of the Proxy Statement for the Annual Shareholders Meeting to be held
April 18, 1995 (Proxy Statement) are incorporated by reference into Part III
Location in Form 10-K Incorporated Information
- --------------------- ------------------------
PART II
Item 5. Market for Registrant's Page 37 of the Annual Report
Common Stock and Related
Stockholder Matters
Item 6. Selected Financial Data Pages 37 and 38 of the Annual Report
Item 7. Management's Discussion and Page 21 through 36 of the Annual
Analysis of the Financial Report
Condition and Results of
Operations
Item 8. Financial Statements and Page 3 through 20 and page 37 of the
Supplementary Data Annual Report
PART III
Item 10. Directors and Executive Page 2 through 6 of the Proxy
Officers of the Registrant Statement
Item 11. Executive Compensation Page 6 through 8 of the Proxy
Statement
Item 12. Security Ownership of Page 2 through 6 of the Proxy
Certain Beneficial Owners Statement
and Management
Item 13. Certain Relationships and Page 18 of the Annual Report
Related Transactions Page 11 of the Proxy Statement
Number of pages, not including Cover Page, is 8
<PAGE>
PART I
ITEM 1. BUSINESS
The information appearing in the Annual Report under the caption
"Description of Business" on page 44 is herein incorporated by reference.
REGULATION AND SUPERVISION
THE CORPORATION
The Corporation is a one-bank holding company formed under the provisions
of Section 3 of the Federal Reserve Act. The Corporation is under the direct
supervision of the Federal Reserve Board and must comply with the reporting
requirements of the Federal Bank Holding Company Act.
A one-bank or multi-bank holding company is prohibited under Section
3(a)(3) of the Act from acquiring either directly or indirectly 5% or more of
the voting shares of any bank or bank holding company without prior Board
approval. Additionally, Section 3(a)(3) prevents, without prior Board approval,
an existing bank holding company from increasing its ownership in an existing
subsidiary bank unless a majority (greater than 50 percent) of the shares are
already owned (Section 3(a)(B)). A bank holding company which owns more than 50
percent of a bank's shares may buy and sell those shares freely without Board
approval, provided the ownership never drops to 50 percent or less. If the
holding company owns 50 percent or less of a bank's shares, prior Board approval
is required before each additional acquisition of shares takes place until
ownership exceeds 50 percent.
Under current Pennsylvania law, which became effective March 4, 1990, bank
holding companies located in any state may acquire banks and bank holding
companies located in Pennsylvania provided that the laws of such state grant
reciprocal rights to Pennsylvania bank holding companies and that 75% of the
domestic deposits are located in a state granting reciprocity.
THE BANK
The Bank is a state chartered nonmember bank, supervised by and under the
reporting requirements of the Pennsylvania Department of Banking and the Federal
Deposit Insurance Corporation.
ITEM 2. PROPERTIES
The Bank fully owns fifteen (15) banking offices as listed below. All
offices have been modernized to meet the demands for the Bank's services and to
give a pleasant and comfortable atmosphere in which to conduct the Bank's
business.
1. Executive Offices - 90-92 Main Street, Wellsboro, PA 16901
2. Corporate Headquarters - Thompson Street, Ralston, PA 17763
3. 428 South Main Street, Athens, PA 18810
4. 111 Main Street, Dushore, PA 18614
5. Main Street, East Smithfield, PA 18817
6. Main Street, Elkland, PA 16920
7. Route 49, Knoxville, PA 16928
8. Main Street, Laporte, PA 18626
9. Route 15, Liberty, PA 16930
1
<PAGE>
10. Route 220, Monroeton, PA 18832
11. R.D.#2, Sayre, PA 18840
12. Route 15, Tioga, PA 16946
13. 428 Main Street, Towanda, PA 18848
14. Elmira and East Main Street, Troy, PA 16947
15. Route 6, Wysox, PA 18854
All offices offer a full range of banking services, except the Monroeton
office, which does not offer safe deposit boxes.
There are no encumbrances against any of the properties owned by the Bank.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this Report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The information appearing in the Annual Report under the caption
"Supplementary Financial Data" on page 37 and the "Summary of Quarterly
Financial Data" on page 39 is herein incorporated by reference.
ITEM 6. SELECTED FINANCIAL DATA
The "Five Year Summary of Operations" on page 38 of the Annual Report is
herein incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information appearing in the Annual Report under the caption
"Management's Discussion and Analysis of the Financial Condition and
Results of Operations" on pages 21 through 36, is incorporated herein
by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements (and footnotes thereto) and the
Summary of Quarterly Financial Data presented in the Annual Report is herein
incorporated by reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
2
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Identification of Directors. The information appearing under the
caption "Election of Directors" on pages 2 through 4 of the Corporation's Proxy
Statement dated March 20, 1995, is herein incorporated by reference.
(b) Identification of Executive Officers. The information appearing under
the caption "Corporation's and Bank's Executive Officers" on pages 5 through 6
of the Corporation's Proxy Statement dated March 20, 1995, is herein
incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information appearing under the caption "Executive Compensation" on page 8
of the Corporation's Proxy Statement dated March 20, 1995, is herein
incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information appearing under the caption "Election of Directors" on pages 2
through 4 and under the caption "Corporation's and Bank's Executive Officers" on
pages 5 through 6 of the Corporation's Proxy Statement is herein incorporated by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information appearing in footnote 12 to the Consolidated Financial
Statements included on page 18 in the Annual Report is herein incorporated by
reference.
Information appearing under the caption "Certain Transactions" on page 11
of the Corporation's Proxy Statement is herein incorporated by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1.) The following consolidated financial statements and reports are
set forth in Item 8.
Page
----
Report of Independent Certified Public Accountants 20
Financial Statements:
Consolidated Balance Sheet - December 31, 1994 and 1993 3
Consolidated Statement of Income - Years Ended
December 31, 1994, 1993 and 1992 4
3
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Page
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Consolidated Statement of Changes in Stockholders' Equity -
Years Ended December 31, 1994, 1993 and 1992 5
Consolidated Statement of Cash Flows - Years
Ended December 31, 1994, 1993 and 1992 6
Notes to Consolidated Financial Statements 7 - 20
(2.) Financial statement schedules are either omitted because
inapplicable or included in the financial statements or related notes.
Individual financial statements of Bucktail Life Insurance Company, a
consolidated subsidiary have been omitted, as neither the assets nor the income
from continuing operations before taxes exceed ten percent of the consolidated
totals.
(3.) Exhibits (numbered as in Item 601 of Regulation S-K)
2. Plan of Acquisition, Reorganization,
Arrangement, Liquidation or Succession Not applicable
3.(i) Articles of Incorporation *
3.(ii) Bylaws of the Registrant *
4. Articles of Incorporation of the
Registrant as currently in effect *
9. Voting Trust Agreement Not applicable
10. Material Contracts Not applicable
11. Statement re Computation of Per Share
Earnings Not applicable
12. Statements re Computation of Ratios Not applicable
13. Annual Report to Shareholders
16. Letter re Change in Certifying Accountant Not applicable
18. Letter re Change in Accounting Principles Not applicable
21. List of Subsidiaries 8
22. Published Report Regarding Matters
Submitted to Vote of Security Holders Not applicable
23. Consents of Experts and Counsel Not applicable
24. Power of Attorney Not applicable
27. Financial Data Schedules None
28. Information from Reports Furnished to
State Insurance Regulatory Authorities Not applicable
99. Additional Exhibits Not applicable
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
1994.
* omitted in the interest of brevity
4
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CITIZENS & NORTHERN CORPORATION
March 20, 1995 By: WILLIAM K. FRANCIS /S/
- ------------------ ----------------------------------
Date William K. Francis
Chairman, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
March 20, 1995 By: JAMES W. SEIPLER /S/
- ------------------ ----------------------------------
Date James W. Seipler
Treasurer
5
<PAGE>
BOARD OF DIRECTORS
J. ROBERT BOWER /S/ LAWRENCE F. MASE /S/
- ---------------------------- ----------------------------
J. Robert Bower Lawrence F. Mase
R. ROBERT DECAMP /S/ ROBERT J. MURPHY /S/
- ---------------------------- ----------------------------
R. Robert DeCamp Robert J. Murphy
R. JAMES DUNHAM /S/ EDWARD H. OWLETT, III /S/
- ---------------------------- ----------------------------
R. James Dunham Edward H. Owlett, III
ADELBERT E. ELDRIDGE /S/ F. DAVID PENNYPACKER /S/
- ---------------------------- ----------------------------
Adelbert E. Eldridge F. David Pennypacker
WILLIAM K. FRANCIS /S/ LEONARD SIMPSON /S/
- ---------------------------- ----------------------------
William K. Francis Leonard Simpson
LAURENCE R. KINGSLEY /S/ HOWARD W. SKINNER /S/
- ---------------------------- ----------------------------
Laurence R. Kingsley Howard W. Skinner
EDWARD L. LEARN /S/ DONALD E. TREAT /S/
- ---------------------------- ----------------------------
Edward L. Learn Donald E. Treat
JOHN H. MACAFEE /S/
- ----------------------------
John H. Macafee
6
<PAGE>
EXHIBIT INDEX
3.(i) Articles of Incorporation of the Registrant as currently in effect are
herein incorporated by reference to Exhibit D to Registrant's Form
S-4, Registration Statement dated March 27, 1987.
3.(ii) Bylaws of the Registrant as currently in effect are herein
incorporated by reference to Exhibit E to Registrant's Form S-4,
Registration Statement dated March 27, 1987.
4. Articles of Incorporation of the Registrant as currently in effect are
herein incorporated by reference to Exhibit D to Registrant's Form
S-4, Registration Statement dated March 27, 1987.
10. Page 29 of Registrant's Form S-4, Registration Statement dated
March 27, 1987, is herein incorporated by reference.
13. Annual Report to Shareholders
21. List of Subsidiaries
7
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Citizens & Northern Corporation
We have audited the accompanying consolidated balance sheets of Citizens &
Northern Corporation and subsidiaries ("Corporation") as of December 31, 1994
and 1993, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1994. These financial statements are the responsibility of
the Corporation's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Citizens &
Northern Corporation and subsidiaries as of December 31, 1994 and 1993, and
the results of its operations and its cash flows for each of the three years in
the period ended December 31, 1994, in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the financial statements, the Corporation changed
its methods of accounting for securities and income taxes in 1993. Also, as
described in Note 10 to the financial statements, the Corporation changed its
method of accounting for postretirement health care insurance benefits and life
insurance benefits in 1992.
/S/ PARENTE, RANDOLPH, ORLANDO, CAREY
& ASSOCIATES
PARENTE, RANDOLPH, ORLANDO,
CAREY & ASSOCIATES
Williamsport, Pennsylvania
January 23, 1995
8
<PAGE>
TO OUR STOCKHOLDERS:
Citizens & Northern Corporation continues to be a strong financial
performer, even though 1994 earnings were not at the same high level as the
record 1993 performance.
Net after-tax earnings in 1994 were $7,494,000, or $1.51 per share,
compared to $8,127,000, or $1.64 per share, in 1993. Most of the difference
can be attributed to security losses of $219,000 in 1994, compared with
security gains of $646,000 in 1993.
C&N maintained a high return-on-assets ratio of 1.35% and a high
return-on-equity ratio of 14.4% in 1994.
Assets totaled $546.5 million at year-end 1994, compared to $560.1
million at year-end 1993. This difference can be attributed to unrealized
gains or losses on available-for-sale securities, which on December 31,
1994, showed a net loss of $8,589,000 compared to $5,592,000 in gains on
December 31, 1993, or a negative difference of $14,181,000.
Total deposits for the year increased $7.6 million to a record high of
$399.3 million at the end of 1994. C&N experienced very good net loan
growth in 1994 of $19,305,000 to a new record of $254.2 million at year end.
Cash dividends for 1994 amounted to a new record of 61.5 cents per
share plus a stock dividend of 1 percent. In October, 1994, a 2 for 1 stock
split was effected in the form of a 100% stock dividend. C&N has
approximately 5 million shares outstanding with over 1,800 shareholders and
a book value at the end of 1994 of $11.16 per share before the adjustment
for unrealized holding losses on available-for-sale securities.
A new 3,000-square-foot banking office was opened in August, 1994 in
East Smithfield. The new facility offers two drive-up windows and five
inside teller stations, as well as two offices, a conference room and
off-street parking. The teller area at our Dushore office had a small
face-lift and a new teller window was added. Also, additional customer
parking was added at our Sayre office.
In September, C&N became one of the first banks in Pennsylvania, as
well as the country, to offer a new check processing system called
"imaging". Checks are not returned to the customers, but images of the
checks are printed on the customers' statements. This eliminates the
handling of the checks a great number of times. This service provides the
customers with a clear and concise statement of their account and an easily
stored record of their checks. "Imaging" saves much staff handling time and
postage costs for the bank.
Beginning in November, the Trust Department of C&N began offering the
sale of mutual funds for the convenience of our customers. We are hopeful
that this new service will satisfy the needs of our banking community.
Two of our executive officers retired in 1994 and their presence and
guidance will be greatly missed. Howard W. Skinner retired as senior vice
president in April after 30 years of service and Jean L. Ward retired as
vice president in May after 33 years of service.
Craig G. Litchfield was named as senior vice president in April. He
has been with Citizens & Northern for 22 years and is presently in charge of
all branch office operations.
Edward H. "Ted" Owlett, Esq. retired from our Board of Directors in
April and became a director emeriti. Ted has served for over 38 years on
our Board and has seen the Bank grow from one office of less than $5 Million
<PAGE>
in assets to our present fifteen offices and $547 Million in assets. His
devotion and guidance have provided important leadership which has made C&N
an outstanding community bank.
C&N is dedicated to the pursuit of new and better ways to serve our
banking area. Our position as a local full-service community bank can only
be continued if we help to maintain healthy and productive communities in
which we serve. C&N is fortunate to have progressive and dedicated
directors and staff to direct its progress into the future.
William K. Francis
Chairman and President
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(In Thousands, Except Share Data) December 31,
1994 1993
<S> <C> <C>
ASSETS
Cash and Due from Banks
Noninterest-Bearing $ 11,572 $ 12,343
Interest-Bearing 835 779
- --------------------------------------------------------------------------------------------
Total Cash and Cash Equivalents 12,407 13,122
Available-for-Sale Securities 260,624 301,027
Held-to-Maturity Securities (estimated fair value of
$1,138 and $1,128 in 1994 and 1993, respectively) 1,196 1,069
Loans, Net 254,243 234,938
Bank Premises and Equipment, Net 6,920 5,456
Foreclosed Assets Held for Sale 644 323
Accrued Interest Receivable 3,861 3,945
Other Assets 6,583 175
- --------------------------------------------------------------------------------------------
TOTAL ASSETS $ 546,478 $ 560,055
============================================================================================
LIABILITIES
Deposits
Noninterest-Bearing $ 42,855 $ 41,049
Interest-Bearing 356,408 350,590
- --------------------------------------------------------------------------------------------
Total Deposits 399,263 391,639
Dividends Payable 786 730
Borrowed Funds 98,500 109,307
Accrued Interest and Other Liabilities 1,133 1,874
- --------------------------------------------------------------------------------------------
TOTAL LIABILITIES 499,682 503,550
- --------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common Stock, Par Value $1.00 per Share 5,016 4,991
Authorized 10,000,000; Issued 5,016,352
and 4,966,684 in 1994 and 1993, respectively
Stock Dividend Distributable 1,016 820
Paid in Capital 10,610 9,815
Retained Earnings 39,743 36,287
- --------------------------------------------------------------------------------------------
Total 56,385 51,913
Unrealized Holding Gain (Loss) on Available-for-Sale Securities (8,589) 5,592
Less: Treasury Stock at Cost
103,030 shares at December 31, 1994 (1,000)
102,010 shares at December 31, 1993 (1,000)
- --------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 46,796 56,505
- --------------------------------------------------------------------------------------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 546,478 $ 560,055
============================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME
(In Thousands, Except Per Share Data) Years Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $23,329 $22,732 $22,176
Interest on Balances with Depository Institutions 63 32 17
Interest on Loans to Political Subdivisions 315 195 265
Interest on Federal Funds Sold 13 77 43
Income from Available-for-Sale and
Held-to-Maturity Securities:
Taxable 15,268 12,871 13,147
Tax Exempt 2,655 2,616 2,515
Dividends 666 599 644
- --------------------------------------------------------------------------------------------
Total Interest and Dividend Income 42,309 39,122 38,807
- --------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on Deposits 15,523 14,810 15,915
Interest on Other Borrowings 5,282 3,586 2,809
- --------------------------------------------------------------------------------------------
Total Interest Expense 20,805 18,396 18,724
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Interest Margin 21,504 20,726 20,083
Provision for Possible Loan Losses 737 708 1,326
- --------------------------------------------------------------------------------------------
Interest Margin After Provision for Possible Loan Losses 20,767 20,018 18,757
- --------------------------------------------------------------------------------------------
OTHER INCOME
Service Charges on Deposit Accounts 1,071 1,081 1,073
Service Charges and Fees 286 255 218
Trust Department Income 582 546 476
Insurance Commissions, Fees and Premiums 602 598 493
Other Operating Income 341 226 109
Trading Account Gains, Net -- -- 19
Realized Gains (Losses) on Available-for-Sale
and Held-to-Maturity Securities, Net (219) 646 279
- --------------------------------------------------------------------------------------------
Total Other Income 2,663 3,352 2,667
- --------------------------------------------------------------------------------------------
OTHER EXPENSES
Salaries and Wages 5,004 4,764 4,465
Pensions and Other Employee Benefits 1,620 1,662 1,511
Occupancy Expense, Net 692 622 618
Furniture and Equipment Expense 556 508 508
Other Operating Expenses 5,725 5,363 4,642
- --------------------------------------------------------------------------------------------
Total Other Expenses 13,597 12,919 11,744
- --------------------------------------------------------------------------------------------
Income Before Income Tax Provision and Cumulative
Effect of Accounting Change 9,833 10,451 9,680
Income Tax Provision 2,339 2,557 2,390
- -------------------------------------------------------------------------------------------
Income Before Cumulative Effect of Accounting Change 7,494 7,894 7,290
Cumulative Effect of Change in Accounting for
Income Taxes -- (233) --
- --------------------------------------------------------------------------------------------
NET INCOME $ 7,494 $ 8,127 $ 7,290
============================================================================================
INCOME PER SHARE BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE $ 1.51 $ 1.59 $ 1.47
============================================================================================
NET INCOME PER SHARE $ 1.51 $ 1.64 $ 1.47
============================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands, Except Per Share Data) Common Stock Unrealized
Stock Dividend Paid In Retained Holding Treasury
Shares Amount Distributable Capital Earnings Gain (Loss) Stock Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1991, As
Previously Reported 2,434 $2,434 $ 511 $ 8,781 $29,902 $ -- $(1,000) $40,628
2 for 1 Stock Split (Issued
October 14, 1994) 2,508 2,508 -- -- (2,508) -- -- --
Net Income -- -- -- -- 7,290 -- -- 7,290
Stock Dividend Issued 25 25 (511) 486 -- -- -- --
Cash Dividends Declared, $.49 share -- -- -- -- (2,408) -- -- (2,408)
Stock Dividend Declared, 1% -- -- 572 -- (572) -- -- --
- -------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1992 4,967 4,967 572 9,267 31,704 -- (1,000) 45,510
Net Income -- -- -- -- 8,127 -- -- 8,127
Stock Dividend Issued 24 24 (572) 548 -- -- -- --
Cash Dividends Declared, $.55 share -- -- -- -- (2,724) -- -- (2,724)
Stock Dividend Declared, 1% -- -- 820 -- (820) -- -- --
Unrealized Holding Gain on Available-
for-Sale Securities -- -- -- -- -- 5,592 -- 5,592
- -------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1993 4,991 4,991 820 9,815 36,287 5,592 (1,000) 56,505
Net Income -- -- -- -- 7,494 -- -- 7,494
Stock Dividend Issued 25 25 (820) 795 -- -- -- --
Cash Dividends Declared, $.61 share -- -- -- -- (3,022) -- -- (3,022)
Stock Dividend Declared, 1% -- -- 1,016 -- (1,016) -- -- --
Unrealized Holding Loss on Available-
for-Sale Securities -- -- -- -- -- (14,181) -- (14,181)
- -------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994 5,016 $5,016 $1,016 $10,610 $39,743 $(8,589) $(1,000) $46,796
==========================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands) Years Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 7,494 $ 8,127 $ 7,290
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Provision for Possible Loan Losses 737 708 1,326
Realized (Gain) Loss on Available-for-Sale and
Held-to-Maturity Securities, Net 219 (646) (279)
Trading Account Gains, Net -- -- (19)
Gain on Sale of Premises and Equipment (8) -- (6)
Loss on the Sale of Foreclosed Assets 16 -- --
Proceeds from Sales of Trading Account Securities -- -- 4,823
Purchase of Trading Account Securities -- -- (4,804)
Gain on Sale of Other Assets (265) -- --
Provision for Depreciation 627 552 529
Accretion and Amortization 62 1,010 1,944
Deferred Income Tax 263 (392) (566)
Decrease (Increase) in Accrued Interest
Receivable and Other Assets (343) 2,110 673
Increase (Decrease) in Accrued Interest Payable and
Other Liabilities 378 (1,298) (231)
- ----------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 9,180 10,171 10,680
- ----------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sales of Held-to-Maturity Securities -- 51,632 523
Proceeds from Maturities of Held-to-Maturity Securities 196 72,605 57,397
Purchase of Held-to-Maturity Securities (320) (120,356) (43,870)
Proceeds from Sales of Available-for-Sale Securities 60,391 75,819 31,886
Proceeds from Maturities of Available-for-Sale Securities 48,972 27,065 17,585
Purchase of Available-for-Sale Securities (90,732) (182,941) (64,095)
Proceeds from Sale of Premises and Equipment 29 8 32
Proceeds from Sale of Other Assets 266 -- --
Net Increase in Loans (20,752) (14,152) (27,239)
Purchase of Premises and Equipment (2,113) (575) (925)
Sale of Foreclosed Assets 373 379 282
- ----------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (3,690) (90,516) (28,424)
- -----------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase in Deposits 7,624 24,443 23,073
Increase (Decrease) in Short Term Borrowings (5,807) 57,307 (32,500)
Proceeds from Long Term Borrowings 10,000 -- 30,000
Repayment of Long Term Borrowings (15,000) -- --
Dividends Declared (3,022) (2,724) (2,408)
- -----------------------------------------------------------------------------------------------
Net Cash Provided by (Used In) Financing Activities (6,205) 79,026 18,165
- ----------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (715) (1,319) 421
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 13,122 14,441 14,020
- ----------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 12,407 $ 13,122 $ 14,441
==============================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest Paid $ 20,316 $ 18,197 $ 18,808
==============================================================================================
Income Taxes Paid $ 2,405 $ 2,851 $ 3,007
==============================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS FOR FINANCIAL REPORTING - The consolidated financial statements include
the accounts of Citizens & Northern Corporation ("Corporation"), Citizens &
Northern Bank ("Bank") and Bucktail Life Insurance Company, after elimination of
all significant intercompany accounts and transactions.
INVESTMENT SECURITIES - As of December 31, 1993, the Corporation adopted
Statement of Financial Accounting Standards No. 115 ("SFAS No. 115"),
"Accounting for Certain Investments in Debt and Equity Securities," for
accounting and reporting investment securities. In accordance with SFAS No.
115, such investments are accounted for as follows:
HELD-TO-MATURITY SECURITIES - includes debt securities that the Corporation
has the positive intent and ability to hold to maturity. These securities
are reported at cost adjusted for amortization of premiums and accretion of
discounts, computed using a method approximating a level-yield basis.
AVAILABLE-FOR-SALE SECURITIES - includes debt and equity securities not
classified as held-to-maturity securities. Such securities are reported at
fair value, with unrealized holding gains and losses excluded from earnings
and reported as a separate component of stockholders' equity. The
Corporation reclassified securities with a book value of $141,229,000 from
held-to-maturity to available-for-sale as of December 31, 1993.
<PAGE>
Realized gains and losses on the sale of available-for-sale and held-to-maturity
securities are computed on the basis of specific identification of the adjusted
cost of each security.
The fair value of investments, except certain state and municipal securities, is
estimated based on bid prices published in financial newspapers or bid
quotations received from securities dealers. The fair value of certain state
and municipal securities is not readily available through market sources other
than dealer quotations, so fair value estimates are based on quoted market
prices of similar instruments, adjusted for differences between the quoted
instruments and the instruments being valued.
LOANS AND LEASE FINANCE RECEIVABLES ("LOANS") - Loans are stated at face value,
net of unearned discount, unamortized deferred loan fees and costs and the
allowance for possible loan losses. Interest on loans is credited to operations
based on the principal amount outstanding. The accrual of interest on loans is
discontinued when, in the opinion of management, collection of interest is
doubtful. Upon such discontinuance, all unpaid accrued interest is reversed.
The Corporation recognizes nonrefundable fees and certain direct loan
origination costs over the life of the related loan as an adjustment of the loan
yield using the interest method. For loans made before 1988, the Corporation
has recognized such fees and costs in the year received or incurred.
ALLOWANCE FOR POSSIBLE LOAN LOSSES - The allowance for possible loan losses is
established through a provision for possible loan losses charged to expense.
The allowance represents an amount which, in management's judgment, will be
adequate to absorb probable losses on existing loans which may become
uncollectible. Management's judgment in determining the adequacy of the
allowance is based on evaluations of the collectibility of loans. These
evaluations take into consideration such factors as changes in the nature and
volume of the loan portfolio, current economic conditions which may affect the
borrower's ability to pay, overall portfolio quality and review of specific
problem loans. This evaluation is performed by management quarterly.
Loans are charged against the allowance for possible loan losses when management
believes that the collection of the principal is unlikely.
In May 1993, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards (SFAS) No. 114, "Accounting by Creditors for
Impairment of a Loan". SFAS No. 114 applies to loans other than groups of
smaller-balance homogenous loans (generally residential mortgage, credit card
and consumer loans) that are collectively evaluated for impairment. The
standard requires that impairment of such loans be measured generally based on
the present value of expected future principal and interest cash flows,
discounted at the loan's effective interest rate, and established as a valuation
allowance related to those impaired loans. Under SFAS No. 114, a loan is
considered impaired when, based on current information and events, it is
probable that a creditor will be unable to collect all amounts due. Presently,
credit losses on all loans are accounted for through the allowance for possible
loan losses, which is maintained at a level adequate to absorb losses inherent
in the portfolio. The Corporation does not currently anticipate a material
increase in the allowance as a result of implementing the new standard, which is
effective January 1, 1995.
BANK PREMISES AND EQUIPMENT - Bank premises and equipment are stated at cost
less accumulated depreciation. Repair and maintenance expenditures which extend
the useful life of an asset are capitalized and other repair expenditures are
expensed as incurred.
When premises or equipment are retired or sold, the remaining cost and
accumulated depreciation are removed from the accounts and any gain or loss is
credited or charged to income. Depreciation expense is computed on the
straight-line method.
FORECLOSED ASSETS HELD FOR SALE - Foreclosed assets held for sale consist of
real estate acquired by foreclosure and is carried at the lower of fair value
minus estimated cost to sell or cost. The book value of foreclosed assets held
for sale at December 31, 1994 and December 31, 1993 was $644,000 and $323,000,
respectively.
<PAGE>
Foreclosed assets held for sale amounting to $711,000, $625,000 and $318,000
were acquired from the foreclosure of real estate loans during 1994, 1993 and
1992, respectively.
EMPLOYEE BENEFIT PLANS - The Corporation has a noncontributory defined benefit
pension plan covering substantially all of its employees. It is the
Corporation's policy to fund pension costs on a current basis to the extent
deductible under existing tax regulations. Such contributions are intended to
provide not only for benefits attributed to service to date, but also for those
expected to be earned in the future.
The Corporation has also established a nonqualified "Supplemental Executive
Retirement Plan" for selected key executives.
The Corporation also has a profit-sharing plan which provides tax deferred
salary savings under Section 401 (k) of the Internal Revenue Code.
POSTRETIREMENT BENEFITS - Net periodic postretirement benefits costs are based
on provisions of Statement of Financial Accounting Standards (SFAS) No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions".
INCOME TAXES - Provisions for deferred income taxes are made as a result of
temporary differences in financial and income tax methods of accounting. These
differences relate principally to provisions for possible loan losses,
amortization of loan origination fees and costs, depreciation of bank premises
and equipment and accretion of discounts on investment securities.
In 1993, the Corporation implemented Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes". SFAS No. 109 requires an asset
and liability approach for accounting and reporting for income taxes. The
cumulative effect of the adoption of SFAS No. 109 as of January 1, 1993 resulted
in an increase in net income for 1993 of $233,000 or $0.05 per share.
PER SHARE DATA - Earnings and cash dividends per share are based on the weighted
average number of shares outstanding, adjusted in each reporting period to give
retroactive effect to stock dividends declared in the fourth quarter of each
year, payable in the first quarter of the next year. Weighted average shares
used for computation of earnings per share also reflect the issuance of a 2 for
1 stock split recorded in the form of a stock dividend on October 14, 1994.
The weighted average number of shares used in the earnings and dividends per
share computations were 4,962,456 for 1994, 1993 and 1992.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS - In the ordinary course of business,
the Corporation has entered into off-balance sheet financial instruments
consisting of commitments to extend credit and standby letters of credit. Such
financial instruments are recorded in the financial statements when they become
payable.
CASH FLOWS - The Corporation utilizes the net reporting of cash receipts and
cash payments for certain deposit and lending activities. The Corporation
considers amounts due from banks and federal funds sold to be cash equivalents.
Generally, federal funds are purchased and sold for one-day periods.
TRUST ASSETS AND INCOME - Assets held by the Corporation in a fiduciary or
agency capacity for its customers are not included in the financial statements
since such items are not assets of the Corporation. Trust income is reported on
a cash basis, which is not materially different from the accrual basis.
REPORTING FORMAT - Certain 1993 and 1992 financial information has been
reclassified where necessary to conform to the 1994 financial statement
presentation.
In addition, the Corporation has restated its financial statements to reflect
the October 14, 1994 stock split as if it had occurred on January 1, 1992.
2. CASH AND DUE FROM BANKS:
Banks are required to maintain reserves consisting of vault cash and deposit
balances with the Federal Reserve Bank in their district. The reserves are
based on deposit
<PAGE>
levels during the year and account activity and other services provided by the
Federal Reserve Bank. Average daily currency, coin, and cash balances with the
Federal Reserve Bank needed to cover reserves against deposits for 1994 ranged
from $4,062,000 to $5,360,000. For 1993, these balances ranged from $3,710,000
to $4,994,000. Average daily cash balances with the Federal Reserve Bank
required to cover services provided for the Bank ranged from $425,000 to
$525,000 for 1994 and amounted to $525,000 throughout 1993. Total balances
restricted at December 31, 1994 and December 31, 1993, were $1,643,000 and
$2,494,000, respectively.
Deposits with one financial institution are insured up to $100,000. The
Corporation maintains cash and cash equivalents with certain financial
institutions in excess of the insured amount.
3. SECURITIES:
Amortized cost and the estimated fair value of securities at December 31, 1994
and 1993 are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1994
Gross Gross
Unrealized Unrealized Estimated
(In Thousands) Amortized Holding Holding Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE SECURITIES:
Obligations of the U.S. Treasury $ 2,511 $ -- $ (212) $ 2,299
Obligations of Other U.S. Government Agencies 13,099 4 (345) 12,758
Obligations of States and Political Subdivisions 40,722 538 (1,621) 39,639
Other Securities 4,482 127 (61) 4,548
Mortgage-backed Securities 198,953 32 (15,876) 183,109
- ----------------------------------------------------------------------------------------------
Total Debt Securities 259,767 701 (18,115) 242,353
Marketable Equity Securities 13,871 4,555 (155) 18,271
- ----------------------------------------------------------------------------------------------
Total $273,638 $5,256 $(18,270) $260,624
==============================================================================================
HELD-TO-MATURITY SECURITIES:
Obligations of the U.S. Treasury $ 101 $ -- $ (4) $ 97
Mortgage-backed Securities 1,095 4 (58) 1,041
- ----------------------------------------------------------------------------------------------
Total $ 1,196 $ 4 $ (62) $ 1,138
==============================================================================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1993
Gross Gross
Unrealized Unrealized Estimated
(In Thousands) Amortized Holding Holding Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE SECURITIES:
Obligations of the U.S. Treasury $ 2,514 $ -- $ (2) $ 2,512
Obligations of States and Political Subdivisions 40,760 2,043 (50) 42,753
Other Securities 5,768 300 -- 6,068
Mortgage-backed Securities 231,086 1,605 (496) 232,195
- ----------------------------------------------------------------------------------------------
Total Debt Securities 280,128 3,948 (548) 283,528
Marketable Equity Securities 12,426 5,137 (64) 17,499
- ----------------------------------------------------------------------------------------------
Total $292,554 $9,085 $ (612) $301,027
==============================================================================================
HELD-TO-MATURITY SECURITIES,
Mortgage-backed Securities $ 1,069 $ 59 $ -- $ 1,128
==============================================================================================
</TABLE>
The amortized cost and estimated fair value of investment debt securities at
December 31, 1994 are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties. Maturities of
mortgage-backed securities have been estimated based on the contractual
maturity.
<PAGE>
<TABLE>
<CAPTION>
Estimated
(In Thousands) Amortized Fair
Cost Value
<S> <C> <C>
AVAILABLE-FOR-SALE SECURITIES:
Due in one year or less $ 11,525 $ 11,155
Due after one year through five years 8,285 8,262
Due after five years through ten years 66,626 62,033
Due after ten years 173,331 160,903
- ----------------------------------------------------------------------------------------------
Total $259,767 $242,353
==============================================================================================
HELD-TO-MATURITY SECURITIES:
Due after one year through five years $ 101 $ 97
Due after five years through ten years 63 65
Due after ten years 1,032 976
- ----------------------------------------------------------------------------------------------
Total $ 1,196 $ 1,138
==============================================================================================
</TABLE>
The following table shows the amortized cost and maturity distribution of
the debt securities portfolio at December 31, 1994:
<TABLE>
<CAPTION>
Maturity Distribution and Weighted Average Yield
(In Thousands) One - Five - After
Within Five Ten Ten
One Year Yield Years Yield Years Yield Years Yield Total Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AVAILABLE-FOR-SALE
SECURITIES:
Obligations of the
U.S. Treasury $ -- -- $ 2,511 5.11 $ -- -- $ -- -- $ 2,511 5.11
Obligations of Other
U.S. Government
Agencies -- -- -- -- 7,099 5.81 6,000 7.00 13,099 6.36
Obligations of States
and Political
Subdivisions 2,000 7.93 3,200 7.47 6,355 7.15 29,167 6.18 40,722 6.52
Other Securities -- -- 2,000 8.23 15 7.10 2,467 6.65 4,482 7.35
Mortgage-backed
Securities 9,525 6.21 574 9.46 53,157 6.04 135,697 7.18 198,953 6.84
- -----------------------------------------------------------------------------------------------
Total $11,525 6.51 $ 8,285 7.07 $66,626 6.12 $173,331 7.00 $259,767 6.75
===============================================================================================
HELD-TO-MATURITY
SECURITIES:
Obligations of the
U.S. Treasury $ -- -- $ 101 6.43 $ -- -- $ -- -- $ 101 6.43
Mortgage-backed
Securities -- -- -- -- 63 8.90 1,032 7.99 1,095 8.04
- -----------------------------------------------------------------------------------------------
Total $ -- -- $ 101 6.43 $ 63 8.90 $ 1,032 7.99 $ 1,196 7.91
===============================================================================================
</TABLE>
There is no concentration of investments that exceeds 10 percent of
stockholders' equity on any individual issuer, excluding those guaranteed by the
U.S. Government or its agencies.
Investment securities carried at approximately $26,710,000 and $34,802,000 at
December 31, 1994 and 1993, respectively, were pledged as collateral for public
deposits, trusts and certain other deposits as provided by law.
At December 31, 1993, the Bank owned a Bear Stearns 1987-4 Residual Interest
Certificate, which was considered less than investment grade by regulatory
agencies. As such, the investment was included in other assets. The FDIC
required the Bank to write this investment down to market value as of September
30, 1989. The write down amounted to $729,000. This security was sold on
<PAGE>
February 10, 1994 for $265,000. The carrying value and market value at December
31, 1993 were $1.00 and $242,000, respectively. Earnings recorded during 1994,
1993 and 1992 amounted to $15,000, $194,000 and $-0-, respectively.
In 1994, gross realized gains from the sale of available-for-sale securities
were $780,000, while gross realized losses amounted to $999,000.
In 1993 and 1992, proceeds from the sale of debt securities amounted to
$126,641,000 and $32,409,000, respectively. The respective gross gains realized
for 1993 and 1992 were $872,000 and $96,000. The respective gross losses
realized for 1993 and 1992 were $457,000 and $49,000. Net realized gains on the
sale of equity securities were $231,000 in 1993 and $232,000 in 1992.
4. NET LOANS AND LEASE FINANCE RECEIVABLES:
Major categories of loans and leases included in the loan portfolio are
summarized as follows:
<TABLE>
<CAPTION>
December 31,
(In Thousands) % of % of
1994 Total 1993 Total
<S> <C> <C> <C> <C>
Real Estate - Construction $ 2,593 1.00 2,224 .93
Real Estate - Mortgage 193,095 74.70 176,518 73.93
Consumer 37,531 14.52 37,713 15.80
Agriculture 3,154 1.22 3,207 1.34
Commercial 13,625 5.27 13,046 5.46
Other 2,459 .95 1,782 .75
Political Subdivisions 5,870 2.27 4,114 1.72
Lease Receivables 168 .07 176 .07
- ------------------------------------------------------------------------------------
Total 258,495 100.00 238,780 100.00
Less Unearned Discount (23) (25)
- ------------------------------------------------------------------------------------
258,472 238,755
Less Allowance for Possible Loan Losses (4,229) (3,817)
- ------------------------------------------------------------------------------------
Net Loans and Lease Finance Receivables $254,243 $234,938
====================================================================================
</TABLE>
At December 31, 1994 and 1993, net unamortized loan fees and costs of $2,032,000
and $1,972,000, respectively, have been offset against the carrying value of
loans.
There is no concentration of loans to borrowers engaged in similar businesses or
activities which exceeds 10% of total loans at December 31, 1994.
<TABLE>
<CAPTION>
LOAN MATURITY DISTRIBUTION
December 31, 1994
Over One
Year but After
(In Thousands) One Year Less than Five
or Less Five Years Years Total
<S> <C> <C> <C> <C>
Real Estate - Construction $ 2,593 $ -- $ -- $ 2,593
Real Estate - Mortgage 89,965 43,939 59,191 193,095
Consumer 15,459 12,588 9,484 37,531
Agriculture 1,367 1,648 139 3,154
Commercial 11,576 1,862 187 13,625
Other 1,195 128 1,136 2,459
Political Subdivisions 1,259 2,318 2,293 5,870
Lease Receivables 36 132 -- 168
- ------------------------------------------------------------------------------------
Total $123,450 $ 62,615 $ 72,430 $258,495
====================================================================================
</TABLE>
Loans in the preceding table with maturities of over one year but less than five
years and after five years are all fixed rate loans. All loans due on demand or
at a
<PAGE>
variable rate are shown as one year or less.
Loans on which the accrual of interest has been discontinued or reduced amounted
to $624,000 at December 31, 1994, and $843,000 at December 31, 1993. If these
loans had been current throughout their respective terms, the interest income
which would have been recorded would have approximated $69,000, $90,000 and
$85,000 for the years ended December 31, 1994, 1993 and 1992, respectively.
Interest income on such loans is recorded only as received. No interest was
received on these loans for the years ended December 31, 1994, 1993 or 1992.
Loans on which the original terms have been restructured totaled $207,000 and
$105,000 at December 31, 1994 and December 31, 1993, respectively. None of the
loans on which the original terms were changed are past due.
Loans which were more than 90 days past due and still accruing interest at
December 31, 1994 and December 31, 1993 totaled $2,743,000 and $2,899,000,
respectively.
Transactions in the allowance for possible loan losses were as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
(In Thousands) 1994 1993 1992
<S> <C> <C> <C>
Balance at Beginning of Year $ 3,817 $ 3,356 $ 2,548
Provision Charged to Operations 737 708 1,326
Loans Charged Off (519) (578) (682)
Recoveries 194 331 164
- ------------------------------------------------------------------------------------
Balance at End of Year $ 4,229 $ 3,817 $ 3,356
====================================================================================
</TABLE>
The Corporation grants commercial, residential and personal loans to
customers primarily in Tioga, Bradford, Sullivan and Lycoming Counties.
Although the Corporation has a diversified loan portfolio, a significant
portion of its debtors' ability to honor their contracts is dependent on the
local economic conditions within the region.
5. BANK PREMISES AND EQUIPMENT:
Bank premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
(In Thousands) December 31,
1994 1993
<S> <C> <C>
Land $ 350 $ 331
Buildings and Improvements 7,880 6,931
Furniture and Equipment 5,057 4,308
----------------------------------------------------------------------
Total 13,287 11,570
Less Accumulated Depreciation 6,367 6,114
--------------------------------------------------------------------
Net $ 6,920 $ 5,456
====================================================================
</TABLE>
Depreciation expense included in occupancy expense and furniture and equipment
expense was comprised of the following:
<TABLE>
<CAPTION>
(In Thousands) Years Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Buildings and Improvements $ 274 $ 254 $ 241
Furniture and Equipment 353 298 288
--------------------------------------------------------------------
Total $ 627 $ 552 $ 529
====================================================================
</TABLE>
6. DEPOSITS:
<PAGE>
Included in interest-bearing deposits are certificates of deposit issued in the
amounts of $100,000 or more. These certificates and their remaining maturities
are as follows:
<TABLE>
<CAPTION>
(In Thousands) December 31,
1994 1993
<S> <C> <C>
Three months or less $ 2,521 $ 4,867
Three through six months 2,746 2,364
Six through twelve months 1,168 6,613
Over twelve months 1,740 2,200
- ----------------------------------------------------------------------------
Total $ 8,175 $16,044
============================================================================
</TABLE>
The interest paid on such deposits amounted to approximately $668,000, $444,000
and $537,000 for the years ended December 31, 1994, 1993 and 1992, respectively.
7. BORROWED FUNDS:
Borrowed funds include the following:
<TABLE>
<CAPTION>
(In Thousands) December 31,
1994 1993
<S> <C> <C>
Federal Funds Purchased (a) $ -- $ 6,000
FlexLine (b) -- 20,000
Other Borrowed Funds (c) 53,500 45,000
Repurchase Agreements (d) 45,000 38,307
- ----------------------------------------------------------------------------
Total Borrowed Funds (e) $ 98,500 $109,307
============================================================================
<FN>
(a) Federal Funds Purchased generally represent the overnight Federal Funds
transactions with correspondent banks. The weighted average interest rate
for the periods ended December 31, 1994, 1993 and 1992 was 4.31%, 3.35% and
3.62%, respectively. The maximum amount outstanding at any time was
$15,000,000, $17,800,000 and $15,500,000 for those same periods.
(b) FlexLine is a line of credit with the Federal Home Loan Bank of Pittsburgh
used on an overnight basis. The total amount available under the line is
approximately 10% of qualifying assets or $54,000,000 at December 31, 1994.
The weighted average interest rate for 1994, 1993 and 1992 was 4.31%, 3.35%
and 3.62%, respectively. The maximum outstanding balance was $30,000,000
in 1994, $40,000,000 in 1993 and $32,000,000 in 1992.
(c) Other Borrowed Funds consist of separate loans with the Federal Home Loan
Bank of Pittsburgh.
December 31,
(In Thousands) 1994 1993
Variable rate at 3.325%, maturity April 18, 1994 $ -- $ 5,000
Fixed rate at 5.81%, maturity December 19, 1994 -- 10,000
Fixed rate at 6.17%, maturity April 2, 1995 10,000 10,000
Fixed rate at 5.96%, maturity May 19, 1995 5,000 5,000
Fixed rate at 5.86%, maturity June 12, 1995 5,000 5,000
Fixed rate at 5.84%, maturity June 23, 1995 5,000 5,000
Fixed rate at 5.64%, maturity June 30, 1995 5,000 5,000
Variable rate at 5.625%, maturity July 12, 1995 3,500 --
Variable rate at 5.6875%, maturity July 27, 1995 10,000 --
Variable rate at 5.675%, maturity April 18, 1996 10,000 --
---------------------------------------------------------------------------
Total Other Borrowed Funds $53,500 $45,000
===========================================================================
All advances are collateralized by the Corporation's Federal Home Loan
Bank stock,
<PAGE>
mortgage-backed securities and first-mortgage loans under a blanket
floating-lien agreement.
(d) Repurchase Agreements represent the sale and agreement to repurchase
specified securities at an agreed-upon price plus a negotiated rate of
interest, as follows:
December 31,
(In Thousands) 1994 1993
Fixed rate at 3.45%, maturity March 28, 1994 $ -- $18,307
Fixed rate at 3.45%, maturity April 12, 1994 -- 20,000
Fixed rate at 6.00%, maturity February 27, 1995 25,000 --
Fixed rate at 6.40%, maturity March 13, 1995 20,000 --
-------------------------------------------------------------------------------
Total Repurchase Agreements $45,000 $38,307
===============================================================================
The weighted average interest rate on repurchase agreements for 1994 and
1993 was 4.56% and 3.41%, respectively. The carrying value and market
value of the underlying securities at December 31, 1994 was $74,524,000
and $68,195,000, respectively. The maximum outstanding borrowings were
$47,474,000 in 1994. The carrying value and market value of the
underlying securities at December 31, 1993 were $45,954,000 and
$45,978,000, respectively. The maximum outstanding borrowings were
$38,307,000 in 1993. There were no repurchase agreements in 1992.
(e) The aggregate average funds borrowed for the years ended December 31, 1994,
1993 and 1992 were $104,179,000, $76,366,000 and $52,926,000, respectively.
The weighted average interest rate was 5.07%, 4.70% and 5.31% for those
same periods.
</TABLE>
8. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards (SFAS) No. 107, "Disclosures about
Fair Value of Financial Instruments", requires that the Corporation disclose
estimated fair values for its financial instruments. Fair value estimates are
made at a specific point in time, based on relevant market information and
information about the financial instrument. These estimates do not reflect any
premium or discount that could result from offering for sale at one time the
Corporation's entire holdings of a particular financial instrument. Because no
market exists for a significant portion of the Corporation's financial
instruments, fair value estimates are based on judgments regarding future
expected loss experience, current economic conditions, risk characteristics of
various financial instruments and other factors. These estimates are subjective
in nature and involve uncertainties and matters of significant judgment and
therefore cannot be determined with precision. Changes in assumptions can
significantly affect the estimates. Estimated fair values have been determined
by the Corporation using historical data, as generally provided in the
Corporation's regulatory reports, and an estimation methodology suitable for
each category of financial instruments. The method for determining the
estimated fair value of the Corporation's investment securities is described in
Note 1. The Corporation's fair value estimates, methods and assumptions are set
forth below for the Corporation's other financial instruments.
CASH AND DUE FROM BANKS - The carrying value for cash and due from banks
approximates the fair value because they mature in 90 days or less and do not
present unanticipated credit concerns.
LOANS - Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as commercial, commercial
real estate, residential mortgage, credit card and other consumer. Each loan
category is further segmented into fixed and adjustable rate interest terms and
by performing and nonperforming categories. The fair value of performing loans,
except residential mortgage and credit card loans, is calculated by discounting
scheduled cash flows through the estimated maturity using estimated market
discount rates that reflect the credit and interest rate risk inherent in the
loan. The estimate of maturity is based on the Corporation's historical
experience with repayments for each loan classification, modified, as required,
by an estimate of the effect of current economic and lending conditions. For
performing residential mortgage loans, fair value is
<PAGE>
estimated by discounting contractual cash flows adjusted for prepayment
estimates using discount rates based on secondary market sources adjusted to
reflect differences in servicing and credit costs. For credit card loans,
cash flows and maturities are estimated based on contractual interest rates
and historical experience. Fair value for nonperforming loans is based on
recent appraisals or estimates prepared by the Corporation's lending officers.
The following table presents information on loans:
<TABLE>
<CAPTION>
December 31, 1994
Average Average Estimated
Book Historical Maturity Discount Calculated
Value Yield (Years)(1) Rate (2) Fair Value
<S> <C> <C> <C> <C> <C>
Real Estate:
Real Estate Fixed $118,049 9.15 4.03 9.75 $114,347
Real Estate Variable 77,067 8.17 .40 8.60 76,748
- ---------------------------------------------------------------------------------------
Total Real Estate 195,116 191,095
- ---------------------------------------------------------------------------------------
Consumer:
Consumer Fixed 25,382 8.91 1.18 10.60 25,081
Consumer Variable 1,134 8.82 .04 9.10 1,134
Credit Card 9,896 14.90 3.10 14.90 9,896
Key Loans 1,119 18.00 5.10 18.00 1,119
- ---------------------------------------------------------------------------------------
Total Consumer 37,531 37,230
- ---------------------------------------------------------------------------------------
Agricultural 3,102 10.02 1.52 9.73 3,120
- ---------------------------------------------------------------------------------------
Commercial:
Commercial Fixed 4,045 9.68 1.29 10.00 4,031
Commercial Variable 9,580 9.64 .04 9.35 9,580
- ---------------------------------------------------------------------------------------
Total Commercial 13,625 13,611
- ---------------------------------------------------------------------------------------
Other Loans 2,459 7.69 .36 8.50 2,459
Political Subdivisions 5,870 6.19 4.00 6.84 5,686
Leases 168 8.42 1.84 8.00 168
Nonperforming 624 -- -- -- 624
- ---------------------------------------------------------------------------------------
Total Loans $258,495 $253,993
=======================================================================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1993
Average Average Estimated
Book Historical Maturity Discount Calculated
Value Yield (Years)(1) Rate (2) Fair Value
<S> <C> <C> <C> <C> <C>
Real Estate:
Real Estate Fixed $103,051 9.29 3.99 10.25 $100,597
Real Estate Variable 75,691 6.43 .55 8.05 75,196
- ---------------------------------------------------------------------------------------
Total Real Estate 178,742 175,793
- ---------------------------------------------------------------------------------------
Consumer:
Consumer Fixed 25,527 10.29 1.15 9.80 25,574
Consumer Variable 1,533 6.93 .04 7.35 1,533
Credit Card 9,539 14.90 3.10 14.90 9,539
Key Loans 1,168 18.00 5.01 18.00 1,168
- ---------------------------------------------------------------------------------------
Total Consumer 37,767 37,814
- ---------------------------------------------------------------------------------------
Agricultural 3,193 8.82 1.48 7.91 3,252
- ---------------------------------------------------------------------------------------
Commercial:
Commercial Fixed 4,334 10.01 1.51 10.00 4,325
Commercial Variable 9,169 7.06 .04 7.00 9,169
- ---------------------------------------------------------------------------------------
Total Commercial 13,503 13,494
- ---------------------------------------------------------------------------------------
Other Loans 442 6.40 .45 6.50 442
Political Subdivisions 4,114 5.90 2.38 5.43 4,213
Leases 176 6.00 3.13 2.00 196
Nonperforming 843 -- -- -- 843
- ---------------------------------------------------------------------------------------
Total Loans $238,780 $236,047
=======================================================================================
<FN>
(1) Average maturity represents the expected cash-flow period, which in some
instances is different from the stated maturity.
<PAGE>
(2) Management has made estimates of fair value discount rates that it
believes to be reasonable. However, because there is no market for many
of these financial instruments, management has no basis to determine
whether the fair value presented above would be indicative of the value
negotiated in an actual sale.
</TABLE>
DEPOSITS - The fair value of deposits with no stated maturity, such as
noninterest-bearing demand deposits, savings, money market and interest
checking accounts is equal to the amount payable on demand at December 31,
1994. The fair value on all other deposit categories is based on the
discounted value of contractual cash flows. The discount rate is estimated
using the rates currently offered for deposits of similar remaining
maturities.
<TABLE>
<CAPTION>
December 31, 1994
Book Estimated
(In Thousands) Value Fair Value
<S> <C> <C>
Noninterest-bearing Demand Deposits $ 42,855 $ 42,855
Interest-bearing Deposits:
Money Market 81,387 81,387
Interest Checking 42,098 42,098
Savings 52,587 52,587
Certificates of Deposit 102,299 102,912
Other Time 78,037 78,037
- ---------------------------------------------------------------------------------------
Total Interest-Bearing Deposits 356,408 357,021
- ---------------------------------------------------------------------------------------
Total Deposits $399,263 $399,876
=======================================================================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1993
Book Estimated
(In Thousands) Value Fair Value
<S> <C> <C>
Noninterest-bearing Demand Deposits $ 41,049 $ 41,049
Interest-bearing Deposits:
Money Market 73,080 73,080
Interest Checking 41,510 41,510
Savings 52,965 52,965
Certificates of Deposit 112,971 112,847
Other Time 70,064 70,774
- ---------------------------------------------------------------------------------------
Total Interest-Bearing Deposits 350,590 351,176
- ---------------------------------------------------------------------------------------
Total Deposits $391,639 $392,225
=======================================================================================
</TABLE>
The fair value estimates above do not include the benefit that results from
the low-cost funding provided by the deposit liabilities compared to the cost
of borrowing funds in the market, commonly referred to as the core deposit
intangible.
BORROWED FUNDS - Rates currently available to the Corporation for borrowed
funds with similar terms and remaining maturities are used to estimate fair
value of existing borrowed funds.
<TABLE>
<CAPTION>
December 31, 1994
Estimated
(In Thousands) Carrying Fair
Value Value
<S> <C> <C>
Securities Sold Under Agreement to Repurchase $ 45,000 $ 45,000
Other Borrowings from the Federal Home Loan Bank:
Fixed Rate 30,000 30,035
Variable Rate 23,500 23,502
- ---------------------------------------------------------------------------------------
Total Borrowed Funds $ 98,500 $ 98,537
=======================================================================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1993
Estimated
(In Thousands) Carrying Fair
Value Value
<S> <C> <C>
Securities Sold Under Agreement to Repurchase $ 38,307 $ 38,307
Federal Funds Purchased 6,000 5,967
FlexLine 20,000 20,000
Other Borrowings from the Federal Home Loan Bank:
Fixed Rate 40,000 40,152
Variable Rate 5,000 5,000
- ---------------------------------------------------------------------------------------
Total Borrowed Funds $109,307 $109,426
=======================================================================================
</TABLE>
<PAGE>
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT - There is no
material difference between the notional amount and the estimated fair value
of off-balance sheet items which total $44,583,000 at December 31, 1994 and
$47,625,000 at December 31, 1993 and are primarily comprised of unfunded loan
commitments which are generally priced at market at the time of funding.
9. EMPLOYEE BENEFIT PLANS:
The Corporation has a noncontributory defined benefit pension plan (the
"Plan") for all employees meeting certain age and length of service
requirements. Benefits are based primarily on years of service and the
average annual compensation during the highest five consecutive years within
the final ten years of employment. The Corporation's funding policy is
consistent with the funding requirements of federal law and regulations.
Plan assets are comprised of common stock and U.S. government and corporate
debt securities. Net periodic pension cost includes the following components:
<TABLE>
<CAPTION>
(In Thousands) Years Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Service cost benefits earned during the period $ 208 $ 201 $ 166
Interest cost on projected benefit obligation 322 312 265
Return on assets (71) (271) (192)
Net amortization and deferral (339) (112) (179)
Amortization of transition gain (23) (22) (22)
- ---------------------------------------------------------------------------------------
Net periodic pension cost $ 97 $ 108 $ 38
=======================================================================================
</TABLE>
At December 31, 1994, the accumulated benefit obligation and the vested
benefit obligation were $3,353,000 and $3,346,000, respectively. The funded
status of the Plan and amount recognized in the Corporation's consolidated
balance sheet were as follows:
<TABLE>
<CAPTION>
(In Thousands) December 31,
1994 1993
<S> <C> <C>
Plan assets at fair value $ 4,882 $ 4,706
Projected benefit obligation (4,236) (4,797)
- ---------------------------------------------------------------------------------------
Excess (deficiency) of assets over projected benefit obligation 646 (91)
Unrecognized net gain being recognized over employees'
average remaining service life (365) (388)
Deferred unexpected (gain) loss (72) 598
- ---------------------------------------------------------------------------------------
Prepaid pension cost $ 209 $ 119
=======================================================================================
</TABLE>
The projected benefit obligation at December 31, 1994 and 1993 was determined
using an assumed discount rate of 8.25% and 7% respectively, and an assumed
long-term rate of compensation increase of 5.5% for both years. The assumed
long-term rate of return on plan assets was 8.0% as of December 31, 1994 and
8.5% as of December 31, 1993.
The Corporation has a profit sharing plan which incorporates the tax deferred
salary savings provisions of Section 401 (k) of the Internal Revenue Code.
The Corporation's matching contributions to the plan depend upon the tax
deferred contributions of employees. The Corporation's basic and matching
contributions for 1994, 1993 and 1992 were $328,000, $351,000 and $343,000,
respectively.
The Corporation also has a nonqualified supplemental deferred compensation
arrangement with its key officers. Charges to expense for officers'
supplemental deferred compensation for 1994, 1993 and 1992 amounted to
$83,000, $166,000 and $125,000, respectively.
<PAGE>
10. POSTRETIREMENT HEALTH CARE INSURANCE BENEFITS:
In addition to the Corporation's defined benefit pension plan, the
Corporation sponsors a defined benefit health care plan that provides
postretirement medical benefits and life insurance to employees who meet
certain age and length of service requirements. Effective January 1, 1992,
the plan contains cost-sharing features which causes participants to pay for
all future increases in costs related to benefit coverage. The Corporation's
policy is to fund the cost of the plan in amounts equal to the Corporation's
share of medical benefit and life insurance premium costs.
As of January 1, 1992, the Corporation adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions".
The following table shows the plan's funded status reconciled with amounts
recognized in the Corporation's balance sheet at December 31, 1994 and
December 31, 1993:
<TABLE>
<CAPTION>
(In Thousands) 1994 1993
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ (410) $ (426)
Active plan participants (274) (363)
- ----------------------------------------------------------------------------------------
Total accumulated postretirement benefit obligation (684) (789)
Plan assets at fair value -- --
- ----------------------------------------------------------------------------------------
Accumulated postretirement benefit obligation in excess of plan assets (684) (789)
Unrecognized net gain (135) (23)
Unrecognized transition obligation 656 693
- ----------------------------------------------------------------------------------------
Accrued postretirement benefits cost $ (163) $ (119)
========================================================================================
</TABLE>
Net periodic postretirement benefits cost for 1994, 1993 and 1992 includes
the following components:
<TABLE>
<CAPTION>
(In Thousands) 1994 1993 1992
<S> <C> <C> <C>
Service cost $ 17 $ 18 $ 30
Interest cost on accumulated postretirement benefit obligation 51 53 59
Amortization of transition obligation over 21 years 36 37 36
- ----------------------------------------------------------------------------------------
Net periodic postretirement benefits cost $ 104 $ 108 $ 125
========================================================================================
</TABLE>
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 8.25%.
11. INCOME TAXES:
The following temporary differences gave rise to the net deferred tax (asset)
liability at December 31, 1994 and 1993:
<TABLE>
<CAPTION>
(In Thousands) 1994 1993
<S> <C> <C>
Deferred Tax Liabilities:
Bond Accretion $ 188 $ 132
Depreciation 124 85
Pension Expense 70 41
Unrealized Holding Gains on Available-for-Sale Securities -- 2,881
- ------------------------------------------------------------------------------------------
Total 382 3,139
- ------------------------------------------------------------------------------------------
Deferred Tax Assets:
Loan Fees and Costs (567) (671)
Security Write-down -- (186)
SERP Plan (101) (179)
Postretirement Benefits (57) (42)
Loan Loss Provision (1,205) (998)
Unrealized Holding Losses on Available-for-Sale Securities (4,425) --
- ------------------------------------------------------------------------------------------
Total (6,355) (2,076)
- ------------------------------------------------------------------------------------------
Deferred Tax (Asset) Liability, Net $(5,973) $ 1,063
==========================================================================================
</TABLE>
<PAGE>
The federal income tax provision is comprised of the following components:
<TABLE>
<CAPTION>
Years ended December 31,
(In Thousands) 1994 1993 1992
<S> <C> <C> <C>
Currently Payable $ 2,069 $ 2,715 $ 2,956
Deferred Provision (Benefit) 270 (158) (566)
- ------------------------------------------------------------------------------------------
Total Provision $ 2,339 $ 2,557 $ 2,390
==========================================================================================
</TABLE>
Components of the deferred income tax provision (benefit), and the tax effect
of each, are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
(In Thousands) 1994 1993 1992
<S> <C> <C> <C>
Postretirement Benefits $ (15) $ (19) $ (24)
Pension Plan 29 41 (13)
SERP Plan 78 (56) (43)
Loan Fees/Costs 104 (52) (250)
Bond Accretion 56 62 41
Security Write-down/Recovery 186 62 --
Loan Loss Provision (207) (190) (274)
Depreciation 39 (6) (3)
- ------------------------------------------------------------------------------------------
Total Deferred Provision (Benefit) $ 270 $(158) $(566)
==========================================================================================
</TABLE>
The following tabulation is a reconciliation of the
expected provision for
federal income taxes determined by application of the statutory rates at
which income is expected to be taxed and the actual income tax provision:
<TABLE>
<CAPTION>
Years Ended December 31,
1994 1993 1992
(In Thousands) Amount Percentage Amount Percentage Amount Percentage
<S> <C> <C> <C> <C> <C> <C>
Expected Provision $ 3,343 34.0% $ 3,553 34.0% $ 3,291 34.0%
Nontaxable Bond Interest (901) (9.2) (888) (8.5) (855) (9.0)
Nontaxable Loan Interest (107) (1.1) (66) (.6) (90) (.9)
Nondeductible Interest Expense 113 1.2 95 .9 98 1.0
Dividends Received Deduction (102) (1.0) (75) (.7) (56) (.6)
Other, Net (7) (.1) (62) (.6) 2 .2
- --------------------------------------------------------------------------------------
Effective Income Tax and Rates $ 2,339 23.8% $ 2,557 24.5% $ 2,390 24.7%
======================================================================================
</TABLE>
12. RELATED PARTY TRANSACTIONS:
Loans to executive officers, directors of the Corporation and its subsidiary
and any associates of the foregoing persons are as follows:
<TABLE>
<CAPTION>
(In Thousands)
Beginning Other Ending
Name of Borrower Balance New Loans Repayments Changes Balance
<S> <C> <C> <C> <C> <C>
15 Directors, 4 Executive Officers 1994 $3,566 $1,910 $(1,349) $ 5 $4,132
15 Directors, 5 Executive Officers 1993 3,696 358 (388) (100) 3,566
15 Directors, 5 Executive Officers 1992 2,447 2,627 (1,326) (52) 3,696
</TABLE>
The above transactions were made in the ordinary course of business on
substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with other persons
and do not involve more than normal risks of
<PAGE>
collectibility. Other changes represent transfers in and out of the related
party category.
13. OFF-BALANCE-SHEET RISK:
The Corporation is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit
and standby letters of credit. These instruments involve, to varying
degrees, elements of credit, interest rate or liquidity risk in excess of the
amount recognized in the consolidated balance sheet. The contract amount of
these instruments express the extent of involvement the Corporation has in
particular classes of financial instruments.
The Corporation's exposure to credit loss from nonperformance by the other
party to the financial instruments for commitments to extend credit and
standby letters of credit is represented by the contractual amount of these
instruments. The Corporation uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.
Financial instruments whose contract amounts represent credit risk at
December 31, 1994:
<TABLE>
<CAPTION>
Contract Amount
<S> <C>
Commitments to extend credit $40,169,000
Standby letters of credit $ 4,414,000
</TABLE>
Commitments to extend credit are legally binding agreements to lend to
customers. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of fees. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future liquidity
requirements. The Corporation evaluates each customer's credit worthiness on
a case-by-case basis. The amount of collateral obtained if deemed necessary
by the Corporation on extension of credit is based on management's credit
assessment of the counterparty.
Standby letters of credit are conditional commitments issued by the
Corporation guaranteeing performance by a customer to a third party. Those
guarantees are issued primarily to support public and private borrowing
arrangements, including commercial paper, bond financing and similar
transactions. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to
customers.
14. REGULATORY MATTERS:
Federal regulators have adopted capital adequacy standards for all bank
holding companies and banks which measure a banking company's capital to the
risk profile of its assets. The regulation assigns a risk factor to each
asset classification for the purpose of determining risk-based assets.
Capital is then measured in relation to risk-based assets and in 1994 and
1993 bank holding companies and banks must have a total capital ratio of at
least 8% of their risk-based assets. At least half of this capital, or 4%,
must be Tier 1 Capital (core capital), which consists of stockholders' equity
and qualifying perpetual preferred stock together with related surplus and
retained earnings. The remaining portion, known as Tier 2 Capital, consists
of limited life preferred stock, qualifying debt instruments and the
allowance for possible loan losses.
The Corporation's total capital ratio for the years ended December 31, 1994
and 1993 was 18.36% and 17.35%, respectively. At December 31, 1994 and 1993,
the core capital to risk-weighted assets was 17.11% and 16.14%, respectively.
Capital ratio calculations exclude unrealized holding gains and losses on
available-for-sale securities.
Restrictions imposed by Federal Reserve Regulation H limit dividend payments
in any year to the current year's net income plus the retained net income of
the prior two years without prior approval of the Federal Reserve Board.
Accordingly, Company dividends in 1995 may not exceed $9,875,000, plus
Company net income for 1995. Additionally, banking regulators limit the
amount of dividends that may be paid by the Bank to the Corporation.
Retained earnings against which dividends may be paid without prior approval
of the banking regulators amounted to approximately $39,743,000 at December
31, 1994, subject to the minimum capital ratio requirements noted above.
Restrictions imposed by federal law prohibit the Corporation from borrowing
from the Bank unless the loans are secured in specific amounts. Such secured
loans to the Corporation
<PAGE>
are generally limited to 10% of the Bank's stockholders' equity or $5,161,000
at December 31, 1994.
15. PARENT COMPANY ONLY:
The following is condensed financial information for Citizens & Northern
Corporation.
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEET
(In Thousands) December 31,
1994 1993
<S> <C> <C>
ASSETS
Cash $ 14 $ 25
Available-for-Sale Securities 3,163 1,905
Subsidiary Investments
Citizens & Northern Bank 42,582 53,422
Bucktail Life Insurance Company 1,287 1,201
- -----------------------------------------------------------------------------------------
Total Subsidiary Investments 43,869 54,623
Dividend Receivable 800 800
- -----------------------------------------------------------------------------------------
TOTAL ASSETS $ 47,846 $ 57,353
=========================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Borrowed Funds and Other Liabilities $ 264 $ 118
Dividends Payable 786 730
Stockholders' Equity 46,796 56,505
- -----------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 47,846 $ 57,353
=========================================================================================
</TABLE>
<TABLE>
<CAPTION>
CONDENSED INCOME STATEMENT
(In Thousands) Years Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Dividend from Subsidiary $3,731 $4,300 $2,440
Other Dividend Income 73 28 --
Available-for-Sale Securities Gains 107 -- --
Expenses (50) (6) (11)
- -----------------------------------------------------------------------------------------
Income Before Equity in Undistributed Earnings of Subsidiaries 3,861 4,322 2,429
Equity in Undistributed Earnings of Subsidiaries 3,633 3,805 4,861
- -----------------------------------------------------------------------------------------
NET INCOME $7,494 $8,127 $7,290
=========================================================================================
</TABLE>
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF CASH FLOWS
(In Thousands) Years Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 7,494 $ 8,127 $ 7,290
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Non-cash Dividends Received (686) (1,150) --
Equity Securities Gains (107) -- --
Equity in Undistributed Net Income of Subsidiaries (3,633) (3,805) (4,861)
Increase in Other Assets -- (170) (55)
Increase in Other Liabilities 99 96 54
- -----------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 3,167 3,098 2,428
- -----------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Available-for-Sale Securities (503) (408) --
Proceeds from Sale of Available-for-Sale Securities 347 -- --
- -----------------------------------------------------------------------------------------
Net Cash Used In Investing Activities (156) (408) --
- -----------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends Declared (3,022) (2,724) (2,408)
- -----------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (11) (34) 20
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 25 59 39
- -----------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 14 $ 25 $ 59
=========================================================================================
</TABLE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Citizens & Northern Corporation
We have audited the accompanying consolidated balance sheets of Citizens &
Northern Corporation and subsidiaries ("Corporation") as of December 31, 1994
and 1993, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the three years in the
period ended December 31, 1994. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Citizens
& Northern Corporation and subsidiaries as of December 31, 1994 and 1993, and
the results of its operations and its cash flows for each of the three years
in the period ended December 31, 1994, in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the financial statements, the Corporation changed
its methods of accounting for securities and income taxes in 1993. Also, as
described in Note 10 to the financial statements, the Corporation changed its
method of accounting for postretirement health care insurance benefits and
life insurance benefits in 1992.
Williamsport, Pennsylvania
January 23, 1995
<PAGE>
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
JANUARY 19, 1995
TO THE STOCKHOLDERS AND
BOARD OF DIRECTORS OF
CITIZENS & NORTHERN CORPORATION
Management of Citizens & Northern Corporation and its subsidiaries has
prepared the consolidated financial statements and other information in the
"Annual Report and Form 10-K" in accordance with generally accepted
accounting principles and is responsible for its accuracy.
In meeting its responsibility, management relies on internal accounting and
related control systems, which include selection and training of qualified
personnel, establishment and communication of accounting and administrative
policies and procedures, appropriate segregation of responsibilities and
programs of internal audit. These systems are designed to provide reasonable
assurance that financial records are reliable for preparing financial
statements and maintaining accountability for assets and that assets are
safeguarded against unauthorized use or disposition. Such assurance cannot be
absolute because of inherent limitations in any internal control system.
Management also recognizes its responsibility to foster a climate in which
Company affairs are conducted with the highest ethical standards. The
Company's Code of Conduct, furnished to each employee and director, addresses
the importance of open internal communications, potential conflicts of
interest, compliance with applicable laws, including those related to
financial disclosure, the confidentiality of proprietary information and
other items. There is an ongoing program to assess compliance with these
policies.
The Audit Committee of the Company's Board of Directors consists solely of
outside directors. The Audit Committee meets periodically with management
and the independent accountants to discuss audit, financial reporting and
related matters. Parente, Randolph, Orlando, Carey & Associates and the
Company's internal auditors have direct access to the Audit Committee.
William K. Francis James W. Seipler
Chairman, Treasurer
President & CEO
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
1994 PERFORMANCE REVIEW
Citizens and Northern Corporation ("Corporation") and its major subsidiary,
Citizens and Northern Bank ("Bank"), recorded per share earnings of $1.51
for the year ended December 31, 1994. This compares to 1993 per share
earnings of $1.64.
The decline in earnings per share can be attributed to a loss from the
sale of available-for-sale securities in December, 1994 that effectively
decreased earnings per share by nearly $.13 net of tax.
1994 proved to be a formidable challenge for balance sheet management with
the continual increase in short term interest rates by The Federal Reserve
Open Market Committee.
1995 also will require extreme caution in the management of earning assets
and interest-bearing liabilities as net interest margins continue to shrink.
NET INTEREST MARGIN
1994/1993
The net interest margin is the difference between total interest earned on
the asset base and the interest expense paid on interest-bearing
liabilities. During 1994 the Corporation earned 7.91% on average interest
producing assets and paid 4.52% on all interest-bearing liabilities. This
allowed a net interest margin of 3.39%.
Average outstanding investment securities increased $32,762,000 during 1994,
primarily from the purchase of mortgage-backed instruments. The average
investment in municipal bonds also increased $3,420,000.
Loan growth during 1994 was somewhat higher than expected with year end gross
loans increasing $19,715,000. Deposit growth was lower than anticipated as
total year end deposits increased $7,624,000 over year end 1993, a sharp
contrast to the increase posted during 1993 of $24,443,000 over year end
1992.
For the year ended December 31, 1993 the rate of return on earning assets was
8.06% and the cost of interest-bearing liabilities was 4.36%, producing a net
interest margin of 3.70%. The decline in the net interest margin between the
comparable periods amounted to 31 basis points.
The pressure on the net interest margin can be attributed to rates paid on
short term deposit liabilities, primarily money market and interest checking
accounts that change interest rates weekly. The average rate paid on money
market and interest checking accounts during 1994 was 3.84% and 3.31%,
respectively. This compares to the average rates paid in 1993 of 3.12% and
2.75%. The average rate paid on certificates of deposit actually declined by
37 basis points as the older higher interest rate certificates matured during
the year.
The average cost of regular savings accounts declined in 1994 by 36 basis
points, reflecting the lowering of the rate paid from 3.00% to 2.50% in the
fourth quarter of 1993.
The cost of individual retirement accounts decreased slightly, dropping from
an average rate paid in 1993 of 6.98% to an average rate of 6.92% during 1994.
The cost of borrowed funds remained flat during the comparable periods. This
was due to the maturity schedule of a large portion of the funds. However,
the cost of borrowed funds began to increase dramatically during the final
quarter of 1994 because of Federal Reserve rate hikes and will impact the net
interest margin in 1995 as the borrowings mature. Average borrowings increased
$27,813,000 during 1994.
The increase in cost of borrowed funds during the fourth quarter of 1994 led
to the sale of a portion of the available-for-sale securities as the interest
margin between the securities and borrowings supporting the securities became
too thin. The amount of the securities sold
<PAGE>
amounted to just over twenty million dollars and realized losses on the sale
amounted to nearly one million dollars.
It is highly likely that a further restructuring of the available-for-sale
securities portfolio will be necessary early in 1995 if the Federal Reserve
again increases short term rates. The restructuring will result in the sale
of additional securities and the further reduction of short term debt.
The net interest margin may decline somewhat during the first half of 1995.
However, as the cash flow from the loan base and the investment portfolio
begins to reflect the higher rates, the margin should stabilize unless there
are any sudden and dramatic upward shifts in interest rates.
1993/1992
The net interest margin for the year ended December 31, 1993 amounted to
$20,726,000 compared to $20,083,000 for the previous year, an increase of
3.21%. The increase in the interest margin between the two periods can be
attributed to the increased volume of earning assets. The rate of return on
earning assets averaged 8.06%, a decline of 86 basis points compared to 1992.
Average earning assets increased $51,273,000 during 1993. This increase was
made possible by increased average deposits of $24,473,000 and increased
short term borrowings of $23,440,000. The acquired liabilities were used to
increase average total loans by $16,620,000 and investment securities by
$33,026,000. The increase in the loan portfolio was in real estate secured
loans, as nearly all of the other categories of loans declined. The increase
in the securities portfolio was in mortgage-backed instruments and municipal
bonds.
The rate of return on the loan portfolio declined 56 basis points compared to
1992 and the rate of return on the securities portfolio declined 121 basis
points.
On the other side of the balance sheet, average interest-bearing deposit
liabilities increased $14,816,000, primarily in individual retirement
accounts whose average outstanding balance increased $12,655,000. The
balance of the increase in the deposit base was in regular savings, money
market accounts and other time deposits. Interest checking accounts and
certificates of deposit balances also declined.
As previously mentioned, borrowings also increased as repurchase agreements
were used to acquire mortgage-backed securities. Average outstanding
repurchase agreements increased $17,452,000. Other borrowings from the
Federal Home Loan Bank of Pittsburgh increased $5,208,000.
The cost of funds declined 52 basis points, the result of a decrease in the
regular savings rate of one percentage point and a two percent drop in the
rate paid on individual retirement accounts. The reduction in rates was made
effective in the fourth quarter of 1993. The average rate paid on
certificates of deposit also declined 98 basis points as the longer term high
rate certificates matured. The rate paid on repurchase agreements during
1993 was 3.41% and the rate of return on mortgage-backed securities which
they supported ranged from 5.50% to just over 6.00%, generating earnings at a
spread of 200 to 250 basis points.
The net rate of return for 1993 was 3.70%. This compares to a net rate of
return during 1992 of 4.04%.
Tables I through V present the relationship between interest income, interest
expense and average balance sheet categories for the comparable periods.
<PAGE>
TABLE I -- ANALYSIS OF INTEREST INCOME AND EXPENSE
<TABLE>
(In Thousands) Years Ended December 31,
Change
Increase (Decrease)
1994 1993 1992 94/93 93/92
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Available-for-Sale Securities (2):
Obligations of the U.S. Treasury $ 128 $ -- $ -- $ 128 $ --
Obligations of Other U.S.
Government Agencies and
Corporations 617 -- -- 617 --
Mortgage Backed Securities 14,055 3,911 2,728 10,144 1,183
Obligations of States and
Political Subdivisions 2,655 -- -- 2,655 --
Stock 666 -- -- 666 --
Other Securities 375 -- -- 375 --
- -------------------------------------------------------------------------------
Total Available-for-Sale
Securities Income 18,496 3,911 2,728 14,585 1,183
- -------------------------------------------------------------------------------
Held-to-Maturity Securities (2):
Obligations of the U.S. Treasury 3 55 65 (52) (10)
Obligations of Other U.S.
Government Agencies and
Corporations -- -- 8 -- (8)
Mortgage Backed Securities 90 8,289 8,860 (8,199) (571)
Obligations of States and Political
Subdivisions -- 2,616 2,515 (2,616) 101
Stock -- 599 644 (599) (45)
Other Securities -- 616 1,486 (616) (870)
- -------------------------------------------------------------------------------
Total Held-to-Maturity Securities
Income 93 12,175 13,578 (12,082) (1,403)
- -------------------------------------------------------------------------------
Interest-bearing Due from Banks 63 32 17 31 15
Federal Funds Sold 13 77 43 (64) 34
Loans:
Real Estate 15,983 15,327 14,803 656 524
Consumer 5,799 5,886 5,710 (87) 176
Agricultural 296 284 283 12 1
Commercial 1,219 1,186 1,334 33 (148)
Other 19 34 31 (15) 3
Political Subdivisions 315 195 265 120 (70)
Leases 13 15 15 (2) --
- -------------------------------------------------------------------------------
Total Loan Income 23,644 22,927 22,441 717 486
- -------------------------------------------------------------------------------
Total Interest Income 42,309 39,122 38,807 3,187 315
===============================================================================
INTEREST EXPENSE
Interest-bearing Liabilities:
Interest Checking 1,360 1,066 1,258 294 (192)
Money Market 3,038 2,612 2,929 426 (317)
Savings 1,344 1,449 1,561 (105) (112)
Certificates of Deposit 4,841 5,334 6,670 (493) (1,336)
Individual Retirement Accounts 4,879 4,263 3,396 616 867
Other Time Deposits 61 85 101 (24) (16)
Federal Funds Purchased 498 466 475 32 (9)
Other Borrowed Funds 4,784 3,121 2,334 1,663 787
- -------------------------------------------------------------------------------
Total Interest Expense 20,805 18,396 18,724 2,409 (328)
===============================================================================
Net Interest Income (1) $21,504 $20,726 $20,083 $ 778 $ 643
===============================================================================
<FN>
(1) Net interest income, if reflected on a fully tax equivalent basis, would
have amounted to $22,820,000, $21,485,000 and $21,326,000 for 1994, 1993
and 1992, respectively.
(2) As discussed in the notes to the financial statements, the Corporation
adopted Statement of Financial Accounting Standards No. 115 as of
December 31, 1993, and reclassified a substantial portion of its
securities from "held-to-maturity" to "available-for-sale".
</TABLE>
<PAGE>
TABLE II -- ANALYSIS OF AVERAGE BALANCES AND RATES
<TABLE>
Rate of Rate of Rate of
(In Thousands) Return/ Return/ Return/
Cost of Cost of Cost of
Funds Funds Funds
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS 1994 % 1993 % 1992 %
Available-for-Sale Securities: (*)
Obligations of the U.S. Treasury $ 2,512 5.10 $ -- -- $ -- --
Obligations of Other U.S.
Government Agencies and
Corporations 9,761 6.32 -- -- -- --
Mortgage Backed Securities 219,627 6.40 59,196 6.61 39,719 6.87
Obligations of States and
Political Subdivisions 40,464 6.56 -- -- -- --
Stock 13,010 5.12 -- -- -- --
Other Securities 4,011 9.35 -- -- -- --
- -----------------------------------------------------------------------------------------
Total Available-for-Sale Securities 289,385 6.39 59,196 6.61 39,719 6.87
- -----------------------------------------------------------------------------------------
Held-to-Maturity Securities:
Obligations of the U.S. Treasury 50 6.00 892 6.17 801 8.11
Obligations of Other U.S. Government
Agencies and Corporations -- -- -- -- 100 8.30
Mortgage Backed Securities 1,185 7.34 143,965 5.76 125,044 7.09
Obligations of States and
Political Subdivisions -- -- 37,044 7.06 33,390 7.53
Stock -- -- 9,745 6.15 9,573 6.73
Other Securities -- -- 7,016 8.78 16,205 9.17
- -----------------------------------------------------------------------------------------
Total Held-to-Maturity Securities 1,235 7.29 198,662 6.13 185,113 7.34
- -----------------------------------------------------------------------------------------
Interest-bearing Due from Banks 1,114 5.92 1,016 3.15 607 2.80
Federal Funds Sold 346 3.76 2,564 3.00 1,371 3.14
Loans:
Real Estate 185,535 8.61 169,465 9.04 150,083 9.86
Consumer 35,073 16.53 37,528 15.68 37,958 15.04
Agricultural 3,028 9.78 3,020 9.40 2,850 9.93
Commercial 13,843 8.81 13,886 8.54 15,572 8.57
Other 272 6.99 500 6.80 432 7.18
Political Subdivisions 5,244 6.01 3,098 6.29 4,023 6.59
Leases 152 8.55 193 7.77 152 9.87
- -----------------------------------------------------------------------------------------
Total Loans 243,147 9.72 227,690 10.07 211,070 10.63
Less Unearned Discount -- (7) (32)
- -----------------------------------------------------------------------------------------
Net Loans and Leases 243,147 9.72 227,683 10.07 211,038 10.63
- -----------------------------------------------------------------------------------------
Total Earning Assets 535,227 7.91 489,121 8.06 437,848 8.92
Cash 13,775 12,107 10,456
Securities Valuation Reserve (851) -- --
Allowance for Possible Loan Losses (4,064) (3,627) (2,873)
Other Assets 4,372 5,686 5,931
Bank Premises and Equipment 6,199 5,113 5,317
- -----------------------------------------------------------------------------------------
Total Assets $554,658 $508,400 $456,679
=========================================================================================
LIABILITIES
Interest Checking $ 41,061 3.31 $ 38,784 2.75 $ 43,443 2.90
Money Market 79,050 3.84 81,277 3.12 75,021 3.90
Savings 53,853 2.50 50,654 2.86 46,131 3.38
Certificates of Deposit 109,174 4.43 111,021 4.80 115,311 5.78
Individual Retirement Accounts 70,537 6.92 61,116 6.98 48,461 7.01
Other Time Deposits 2,555 2.39 2,619 3.25 2,486 4.06
Federal Funds Purchased 11,565 4.31 13,914 3.35 13,134 3.62
Other Borrowed Funds 92,614 5.17 62,452 5.14 39,792 5.87
- -----------------------------------------------------------------------------------------
Total Interest-bearing Liabilities 460,409 4.52 421,837 4.36 383,779 4.88
Demand Deposits 39,282 35,925 26,268
Other Liabilities 2,877 3,945 3,757
- -----------------------------------------------------------------------------------------
Total Liabilities 502,568 461,707 413,804
Stockholders' Equity 52,629 46,693 42,875
Securities Valuation Reserve (539) -- --
- -----------------------------------------------------------------------------------------
Total Liabilities and Stockholders'
Equity $554,658 $508,400 $456,679
=========================================================================================
Interest Rate Spread 3.39 3.70 4.04
=========================================================================================
<FN>
(*) Average balances do not include unrealized gains and losses.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE III -- ANALYSIS OF THE EFFECT OF VOLUME AND RATE CHANGES IN INTEREST INCOME
AND INTEREST EXPENSE
Years Ended December 31, 1994/1993
(In Thousands)
Change in Change in Total
Volume Rate Change
<S> <C> <C> <C>
EARNING ASSETS
Available-for-Sale Securities:
U.S. Treasury Securities $ 128 $ -- $ 128
Securities of Other U.S. Government Agencies
and Corporations 617 -- 617
Mortgage-Backed Securities 10,271 (127) 10,144
Obligations of States and Political Subdivisions 2,655 -- 2,655
Stock 666 -- 666
Other Securities 375 -- 375
- ---------------------------------------------------------------------------------
Total Available-for-Sale Securities 14,712 (127) 14,585
- ---------------------------------------------------------------------------------
Held-to-Maturity Securities:
U.S. Treasury Securities (51) (1) (52)
Securities of Other U.S. Government Agencies
and Corporations -- -- --
Mortgage-Backed Securities (10,205) 2,006 (8,199)
Obligations of States and Political Subdivisions (1,308) (1,308) (2,616)
Stock (299) (300) (599)
Other Securities (616) -- (616)
- ---------------------------------------------------------------------------------
Total Held-to-Maturity Securities (12,479) 397 (12,082)
- ---------------------------------------------------------------------------------
Interest-bearing Due from Banks 4 27 31
Federal Funds Sold (79) 15 (64)
Loans:
Real Estate 1,406 (752) 654
Consumer (396) 309 (87)
Agricultural 1 12 13
Commercial (4) 36 32
Other (17) 1 (16)
Political Subdivisions 129 (9) 120
Leases -- 1 1
- ---------------------------------------------------------------------------------
Total Loans 1,119 (402) 717
- ---------------------------------------------------------------------------------
Total Interest Income 3,277 (90) 3,187
- ---------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES
Interest Checking 66 229 295
Money Market (74) 500 426
Savings 88 (193) (105)
Certificates of Deposit (88) (405) (493)
Individual Retirement Accounts 652 (36) 616
Other Time Deposits (3) (22) (25)
Federal Funds Purchased (87) 119 32
Other Borrowed Funds 1,554 109 1,663
- ---------------------------------------------------------------------------------
Total Interest Expense 2,108 301 2,409
- ---------------------------------------------------------------------------------
Net Interest Income $ 1,169 $ (391) $ 778
=================================================================================
</TABLE>
The change in interest due to both volume and rate has been allocated to volume
and rate changes in proportion to the relationship of the abolute dollar amounts
of the change in each.
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31, 1993/1992
(In Thousands)
Change in Change in Total
Volume Rate Change
<S> <C> <C> <C>
EARNING ASSETS
Available-for-Sale Securities:
U.S. Treasury Securities $ -- $ -- $ --
Securities of Other U.S. Government Agencies
and Corporations -- -- --
Mortgage-Backed Securities 1,291 (108) 1,183
Obligations of States and Political Subdivisions -- -- --
Stock -- -- --
Other Securites -- -- --
- ---------------------------------------------------------------------------------
Total Available-for-Sale Securities 1,291 (108) 1,183
- ---------------------------------------------------------------------------------
Held-to-Maturity Securities:
U.S. Treasury Securities 8 (18) (10)
Securities of Other U.S. Government Agencies
and Corporations (4) (4) (8)
Mortgage-Backed Securities 1,228 (1,799) (571)
Obligations of States and Political Subdivisions 264 (163) 101
Stock 12 (57) (45)
Other Securities (810) (60) (870)
- ---------------------------------------------------------------------------------
Total Held-to-Maturity Securities 698 (2,101) (1,403)
- ---------------------------------------------------------------------------------
Interest-bearing Due from Banks 13 2 15
Federal Funds Sold 36 (2) 34
Loans:
Real Estate 1,815 (1,291) 524
Consumer (66) 242 176
Agricultural 16 (15) 1
Commercial (144) (4) (148)
Other 5 (2) 3
Political Subdivisions (59) (11) (70)
Leases 3 (3) --
- --------------------------------------------------------------------------------
Total Loans 1,570 (1,084) 486
- --------------------------------------------------------------------------------
Total Interest Income 3,608 (3,293) 315
- --------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES
Interest Checking (131) (61) (192)
Money Market 230 (547) (317)
Savings 142 (254) (112)
Certificates of Deposit (240) (1,096) (1,336)
Individual Retirement Accounts 883 (16) 867
Other Time Deposits 5 (21) (16)
Federal Funds Purchased 27 (36) (9)
Other Borrowed Funds 743 44 787
- --------------------------------------------------------------------------------
Total Interest Expense 1,659 (1,987) (328)
- ---------------------------------------------------------------------------------
Net Interest Income $ 1,949 $ (1,306) $ 643
=================================================================================
</TABLE>
The change in interest due to both volume and rate has been allocated to volume
and rate changes in proportion to the relationship of the absolute dollar
amounts of the change in each.
<PAGE>
[TABLE IV AND TABLE V ARE GRAPHS]
NONINTEREST INCOME
1994/1993
Total noninterest income in 1994 declined $689,000 or 20.55% when compared to
1993. The decline was due to recognized net gains on securities transactions in
1993 totaling $646,000 and recognized net securities losses in 1994 amounting to
$219,000. The recognized net loss in 1994 was the result of the sale of
available-for-sale securities amounting to $60,610,000. Gross gains totaled
$780,000 and gross losses totaled $999,000.
A large portion of the loss was generated by a sale in late December of
securities with an amortized cost basis of $21,867,000. The purpose of the sale
was to pay down short term borrowings. The interest margin on the leveraged
borrowing was narrowing, thus not generating sufficient net interest income, and
the market value of the securities was beginning to erode.
The Corporation also sold the stock of several Pennsylvania banks. The sale of
stock in some cases was caused by the FDIC; it does not allow banks to hold
stock of Pennsylvania banks not traded on a recognized exchange. Other stocks
were sold because the holdings had become too large or management felt the stock
was overpriced.
The other category of noninterest income that changed significantly was other
operating income. The Corporation sold a 1987-4 Residual Interest Certificate,
recording a gain of $265,000. The security had been carried as an other asset
at $1.00 since 1989 when it had been written down at the request of the FDIC.
Earnings taken on the security and recorded as other income during 1994 amounted
to $15,000 versus $194,000 in 1993.
Other nonrecurring entries posted to other income include $14,000 for the sale
of fully depreciated equipment and interest totaling $10,000 received from the
Internal Revenue Service on amended tax returns for the years ended December 31,
1990 and 1991. The amended returns paid refunds amounting to $56,000 for those
years. The returns were amended because of incorrect depreciation taken for the
years involved.
1993/1992
In 1993 total noninterest income increased $685,000 or 25.68%. Most of the
increase was generated by realized gains on securities. Gains taken during 1993
and 1992 amounted to $646,000 and $279,000, respectively. The securities sold
were seasoned mortgage-backed instruments that had begun to decline in market
value. Other service charges and fees increased slightly by $37,000. This
increase can be attributed to increased usage of bank services as no changes
were made in fees schedules during 1993.
Trust department income increased $70,000. This was due to the increase in
benefit plans provided to corporations and individual proprietorships by the
trust department.
Insurance commission, fees and premiums increased $105,000 when comparing 1993
to 1992; however, the insurance subsidiary earned only $76,000 in 1993 compared
to $163,000 in 1992. The decline in earnings was caused by higher than normal
losses due to accident and health claims and life claims. Expenses of the
subsidiary are included in other operating expense.
Earnings recorded on the previously mentioned 1987-4 Residual Interest
Certificate during 1993 amounted to $194,000 versus $13,000 in 1992.
<PAGE>
<TABLE>
<CAPTION>
TABLE VI -- COMPARISON OF NONINTEREST INCOME
(In Thousands) Years Ended December 31,
% %
1994 Change 1993 Change 1992
<S> <C> <C> <C> <C> <C>
OTHER INCOME
Service Charges on Deposit Accounts $1,071 (.93) $1,081 .75 $1,073
Service Charges and Fees 286 12.16 255 16.97 218
Trust Department Income 582 6.59 546 14.71 476
Insurance Commissions, Fees and Premiums 602 .67 598 21.30 493
Other Operating Income 341 50.88 226 107.34 109
Trading Account Gains, Net -- -- -- (100.00) 19
Realized Gains (Losses) on
Available-for-Sale
and Held-to-Maturity Securities, Net (219) (133.90) 646 131.54 279
- --------------------------------------------------------------------------------------
Total Other Income $2,663 (20.55) $3,352 25.68 $2,667
======================================================================================
</TABLE>
OTHER NONINTEREST EXPENSE
Other operating expense increased $678,000 or 5.25%. Salaries and wages
increased 5.04% during 1994 or $240,000. The increase is the result of merit
raises and new employees and is within the range that the Corporation feels is
normal and necessary for its employees. Full time equivalent employees at year
end 1994 and 1993 were 194 and 189, respectively.
Pensions and employee benefits declined slightly during 1994. This was due to
the drop in the contribution to the Bank's profit sharing plan. The
contribution was lower in 1994 because of the retirement of several employees
who had been with the bank for many years. The retirement of two executive
officers also caused the contribution to the supplemental employees retirement
plan to be $83,000 less than 1993. Payments to retirees for accumulated sick
days and gifts amounted to $63,000 and $15,000 for 1994 and 1993, respectively.
Occupancy expense during 1994 increased $70,000 or 11.25%. This was due to
increased building maintenance costs, including janitors' supplies, that
increased $31,000 over 1993. Depreciation also increased $20,000 over 1993.
This was due to the construction of a new office in East Smithfield and the
extensive renovation of other offices. The balance of the increase was caused
by increases in insurance, taxes, etc.
Furniture and fixtures expense increased 9.45%. This was due to an increase in
depreciation of $55,000 and the installation of a check imaging system in the
fall of 1994. The capital expenditure for the system was $877,000. However,
because checks no longer have to be filed or mailed back to customers the Bank
should realize a savings in labor and postage costs.
Other operating costs also increased 6.75% or $362,000 over 1993. The increase
in other expense was due almost entirely to credit card processing costs, FDIC
insurance and Pennsylvania Shares tax. They increased $241,000, $52,000 and
$44,000, respectively.
1993/1992
Salaries and wages increased $299,000. The increase was caused by merit
increases of approximately 6.00%.
Employee benefits increased nearly 10% or $151,000. The major reason for the
increase was pension plan expense that increased $70,000 over the previous year.
The increase was caused by an increase in covered payroll. The change
dramatically increased the projected benefit obligation that is used to
calculate annual pension expense. Also contributing to the increase in pension
costs was the decline in earnings generated by the plan assets.
Hospitalization insurance increased $18,000 over 1992. Several other items
including workmen's compensation, the contribution to the profit sharing plan
and the employer's share of social security tax also posted small increases.
Occupancy and furniture and fixture expenses were virtually unchanged.
Other operating expense increased $721,000 or 15.53%. This increase can be
directly attributed to increases in the following expense items: credit card
processing costs, FDIC insurance, Pennsylvania Shares tax and donations.
Credit card processing costs increased $273,000, FDIC insurance increased
$45,000 and Pennsylvania Shares tax increased $43,000 over the previous year.
The Corporation also made two large donations during 1993. The Corporation
donated a building to be utilized as a library in the village of Elkland. The
carrying value of the building was $61,000. Also, a donation of appreciated
stock with a book value of $36,000 was made to the Soldiers and Sailors Hospital
during its fund drive.
<PAGE>
<TABLE>
<CAPTION>
TABLE VII -- COMPARISON OF NONINTEREST EXPENSE
(In Thousands) Years Ended December 31,
% %
1994 Change 1993 Change 1992
<S> <C> <C> <C> <C> <C>
OTHER EXPENSE
Salaries and Wages $ 5,004 5.04 $ 4,764 6.70 $ 4,465
Pensions and Other Employee Benefits 1,620 (2.53) 1,662 9.99 1,511
Occupancy Expense, Net 692 11.25 622 .65 618
Furniture and Equipment Expense 556 9.45 508 -- 508
Other Operating Expense 5,725 6.75 5,363 15.53 4,642
- --------------------------------------------------------------------------------------
Total Other Expense $13,597 5.25 $12,919 10.01 $11,744
======================================================================================
</TABLE>
INCOME TAXES
The Corporation's tax provision reflected as a per share cost to shareholders
amounted to $.47, $.52 and $.48, respectively for 1994, 1993, and 1992. The
amount of tax payable per common share for those years was $.42, $.55 and $.60,
respectively. The per share tax payable for 1994 is an estimate only as the
return has not been prepared.
The difference between the amount of tax currently payable and the amount
reflected on the Corporation's income statement is due to temporary differences.
Generally, temporary differences occur when items of income or expense are
included in taxable income at one date for tax return purposes and at a
different date for financial statement purposes.
The most significant items creating timing differences are bond accretion,
depreciation, loan loss expense, loan fees and expenses and employee benefit
plans.
The Tax Reform Act of 1986 eliminated a portion of income that had been tax
free. Interest on qualified municipal bonds and loans had previously been tax
exempt. The Tax Reform Act requires a portion of interest expense paid on
liabilities used to acquire these tax free investments to be disallowed as a
deduction.
There are still items of income that are not fully taxable. Certain dividends
received from domestic corporations enjoy a tax exclusion of 70% of the amount
received.
During 1993, Statement of Financial Accounting Standard No. 109, "Accounting for
Income Taxes," was adopted. The standard requires deferred income taxes to be
recorded at current tax rates. With the implementation of SFAS No. 109, the
Corporation recognized an increase in income of $233,000. This adjustment was
the result of a decline in current tax rates. This adjustment was reflected as
"The Cumulative Effect of an Accounting Change" on the Corporation's income
statement.
The reader should refer to Note 11 on pages 17 and 18 for a more complete
understanding of income tax expense.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses is a reserve created by charges to
earnings to cover current and future losses which may occur in the loan
portfolio.
The balance in the reserve is reviewed by management and the Board of Directors
quarterly. Factors used to determine the adequacy include the following:
1. Portfolio quality as determined by a review of an outside independent
appraiser.
2. Regulatory examinations.
3. A monthly review of the "Watch List" by management and The Board of
Directors.
4. Regulatory policy statements.
<PAGE>
5. Ability to recover losses and earnings coverage of losses.
PORTFOLIO QUALITY
The Corporation employs the services of an independent loan appraiser who
reviews loans based on parameters supplied by The Board of Directors. The
review is very comprehensive and includes the examination of loan documentation,
borrower's cash flow or ability to repay based on current financial information
and the collateral associated with each loan.
The report prepared by the loan appraiser isolates all loans the reviewer
perceives to be problems. The loans are then categorized as loans that are
improperly documented, substandard, doubtful and loss.
The loan portfolio is normally reviewed annually by the FDIC or the Pennsylvania
Department of Banking. After each review, a list of charge-offs is presented to
management.
The Corporation also charges off loans that it feels may be uncollectible at the
end of each quarter.
<TABLE>
<CAPTION>
TABLE VIII -- CLASSIFIED LOAN COMPARISONS
(In Thousands)
Brown Brown Brown Brown Brown
Consulting Consulting Consulting Consulting Consulting
Co., Inc. Co., Inc. Co., Inc. Co., Inc. Co., Inc.
6/94 5/93 11/92 5/92 10/91
<S> <C> <C> <C> <C> <C>
Substandard $9,823 $7,647 $7,338 $5,832 $4,518
Doubtful 346 668 1,143 945 1,141
Loss 91 40 321 102 551
- --------------------------------------------------------------------------------------------
Total $10,260 $8,355 $8,802 $6,879 $6,210
============================================================================================
% of Net Loans 4.0% 3.6% 3.9% 3.1% 3.1%
============================================================================================
</TABLE>
PROJECTED LOSS PREDICTIONS
The Corporation also prepares loss predictions quarterly based on charge-off
history. The predictions are calculated on the ratio of charge-offs by loan
type applied to the current outstanding balance. The ratios are calculated
using a six year history of charge-offs.
Two predictions are prepared -- most likely and worst case scenario. The most
likely prediction uses the most recent six years excluding the year with the
largest charge-offs and the year with the least charge-offs. The worst case
includes the year that experienced the largest charge-offs.
After the estimated charge-offs are determined the reserve balance is
calculated and a determination is made as to the adequacy. The reserve is
then divided into allocated and unallocated portions. A comparison is made
to the Corporation's peer group quarterly.
<PAGE>
<TABLE>
<CAPTION>
TABLE IX -- LOAN LOSS HISTORY FOR THE PAST SIX YEARS
(In Thousands)
1994 1993 1992 1991 1990 1989 Average
<S> <C> <C> <C> <C> <C> <C> <C>
*Net Loans $258,472 $238,755 $225,475 $199,072 $190,544 $159,715 $221,386
Net Charge Offs 325 247 518 3,142 115 222 704
Allowance Balance 4,229 3,817 3,356 2,548 2,539 2,284 3,340
Provision for Loan
Losses 737 708 1,326 3,151 326 275 1,037
Earnings 7,494 8,127 7,290 5,643 5,342 4,268 6,461
Earnings Coverage of
Net Charge Offs 23.1 x 32.9 x 14.1 x 1.8 x 46.5 x 19.2 x 9.2 x
Allowance Coverage of
Net Charge Offs 13.0 x 15.45 x 6.48 x .81 x 22.1 x 10.3 x 4.7 x
Accruing Loans
Contractually
90 Days Past Due 2,743 2,899 2,532 3,810 2,425 1,684 2,699
Net Charge Offs as a
% of Provision 44.1% 34.9% 39.1% 99.7% 35.3% 80.7% 67.9%
Year End Nonperforming 624 843 1,351 417 309 264 637
Allowance as a % of
Net Loans 1.64% 1.60% 1.49% 1.28% 1.33% 1.43% 1.49%
Peer Group (1) 1.65% 1.82% 1.60% 1.44% 1.34% 1.32% 1.50%
<FN>
* Gross loans less unearned discount
(1) At September 30, 1994
</TABLE>
MONTHLY "WATCH LIST" REVIEW
The Bank prepares a monthly "watch list" of delinquent or otherwise potential
problem loans. The list is distributed to branch managers or lending officers
responsible for the loans. The branch manager or lending officer must update
each loan on the list. A review of the list after it is updated isolates loans
which are still delinquent, possible charge-offs, bankruptcies, foreclosures,
etc.
This list also reflects large problem loans that may require a separate reserve
allocation or increase in the monthly charge to earnings.
REGULATORY POLICY STATEMENT
The FDIC, in conjunction with other regulatory agencies, has issued an
interagency policy statement outlining the responsibility of the Board of
Directors as it relates to the loan loss reserve. The statement requires that
the Board of Directors maintain a reserve for possible loan losses that is at
least equal to all substandard loans after a deduction of estimated collateral
for those loans. The reserve must be equal to or exceed one-half of all loans
classified as doubtful and loss.
The board must ensure that all loan guidelines are adhered to, that all loan
documentation is in place and that all collateral liens are perfected.
<TABLE>
<CAPTION>
TABLE X -- ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
(In Thousands)
Years Ended December 31,
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Balance at Beginning of Year $3,817 $3,356 $2,548 $2,539 $2,284
- ---------------------------------------------------------------------------
Charge Offs
Real Estate Loans -- 95 32 15 33
Installment Loans 266 195 218 213 107
Credit Cards and Related Plans 144 183 139 154 43
Commercial and All Other Loans 109 105 293 2,893 9
- ---------------------------------------------------------------------------
Total Charge Offs 519 578 682 3,275 192
- ---------------------------------------------------------------------------
Recoveries
Real Estate Loans 4 -- -- 15 --
Installment Loans 68 84 59 72 57
Credit Card and Related Plans 42 41 22 3 3
Commercial and All Other Loans 80 206 83 43 17
- ---------------------------------------------------------------------------
Total Recoveries 194 331 164 133 77
- ---------------------------------------------------------------------------
Net Charge Offs 325 247 518 3,142 115
Merger -- -- -- -- 44
Additions Charged to Operations 737 708 1,326 3,151 326
- ---------------------------------------------------------------------------
Balance at End of Year $4,229 $3,817 $3,356 $2,548 $2,539
===========================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE XI -- ALLOCATION OF ALLOWANCE FOR LOAN LOSSES BY LOAN TYPE
(In Thousands)
1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C>
Mortgage $ 35 $ 35 $ 18 $ 11 $ 17 $ 45
Consumer 241 205 188 136 22 112
Commercial 443 583 558 653 55 155
Letter of Credit
Commitments 86 112 115 -- -- --
All Other Commitments 300 299 351 -- -- --
- -------------------------------------------------------------------------------------
Total Allocated 1,105 1,234 1,230 800 94 312
Unallocated 3,124 2,583 2,126 1,748 2,445 1,972
- -------------------------------------------------------------------------------------
Total Allowance $4,229 $3,817 $3,356 $2,548 $2,539 $2,284
=====================================================================================
</TABLE>
The above allocation is based on estimates and subjective judgments and is not
necessarily indicative of the specific amounts or loan categories in which
losses may ultimately occur.
ABILITY TO REPLENISH RESERVE THROUGH EARNINGS
The Corporation has demonstrated the ability, when necessary, to weather adverse
economic conditions and occasionally higher than normal charge-offs. At year
end 1994 the earnings coverage of net charge-offs was 23 times. The
Corporation's peer group was just over 17 times according to information
available as of September 30, 1994.
<TABLE>
<CAPTION>
TABLE XII -- FIVE YEAR BREAKDOWN OF LOANS
(In Thousands) December 31,
1994 % 1993 % 1992 % 1991 % 1990 %
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate -
Construction $ 2,593 1.00 $ 2,224 .93 $ 993 .44 $ 982 .49 $ 1,249 .65
Real Estate -
Mortgage 193,095 74.70 176,518 73.93 162,597 72.10 135,897 68.25 121,914 63.91
Consumer 37,531 14.52 37,713 15.80 39,173 17.37 38,305 19.24 40,778 21.38
Agriculture 3,154 1.22 3,207 1.34 3,065 1.36 2,467 1.24 2,030 1.06
Commercial 13,625 5.27 13,046 5.46 14,578 6.47 16,366 8.22 18,756 9.83
Other 2,459 .95 1,782 .75 1,492 .66 614 .31 850 .45
Political
Subdivisions 5,870 2.27 4,114 1.72 3,428 1.52 4,368 2.19 5,024 2.63
Lease
Receivables 168 .07 176 .07 190 .08 129 .06 164 .09
- -----------------------------------------------------------------------------------------------
Total 258,495 100.00 238,780 100.00 225,516 100.00 199,128 100.00 190,765 100.00
Less Unearned
Discount (23) (25) (41) (56) (221)
- -----------------------------------------------------------------------------------------------
258,472 238,755 225,475 199,072 190,544
Less Allowance
for Possible
Loan Losses (4,229) (3,817) (3,356) (2,548) (2,539)
- -----------------------------------------------------------------------------------------------
Net Loans and
Lease Finance
Receivables $254,243 $234,938 $222,119 $196,524 $188,005
===============================================================================================
</TABLE>
BALANCE SHEET
Average total assets of the Corporation for the year ended December 31, 1994
totaled $554,658,000. This compared to average total assets for 1993 and 1992
of $508,400,000 and $456,679,000, respectively.
<PAGE>
The increase in average total assets during 1994 was due to an increase in
average borrowed funds of $27,813,000 over 1993. Average total deposits
increased $14,116,000 over 1993 and $38,391,000 over 1992, an increase of 3.7%
and 10.7%, respectively.
The increase in deposits and borrowed funds was used to fund an increase in the
average investment portfolio of $32,762,000 and $65,788,000 over 1993 and 1992,
respectively. The portfolio increase was primarily in mortgage-backed
instruments.
The average balance in the loan portfolio also increased substantially during
the last two years. During 1994 the average loan portfolio increased
$15,464,000 or 6.79% over 1993 and $32,109,000 or 15.21% over 1992. The most
significant increase was in real estate secured loans.
The year end balance in bank premises and equipment also increased $1,464,000
during 1994. The Bank completed an extensive renovation program at several
branches and constructed a new facility at the East Smithfield, Pennsylvania
location. Also, during October, 1994 the Bank installed a state of the art
check processing system. The cost of the new equipment was $877,000. Checks
are captured, stored and returned to customers as images. It is no longer
necessary to file and return the original checks. It is expected that the
system will result in savings related to labor and postage costs.
On the liability side of the balance sheet, all average deposit categories
increased except certificates of deposit, money market accounts and other time
deposits. Certificates began a decline in 1992. Average outstanding
certificates for 1992, 1993 and 1994 were $115,311,000, $111,021,000 and
$109,174,000, respectively. The decline was caused by the lower rates paid
during those years. However, as the fourth quarter of 1994 ended, rates had
increased substantially and may cause balances to increase.
The decrease in average money market accounts was $2,227,000 during 1994, after
an increase of $6,256,000 in 1993. Average balances in interest checking
accounts declined $4,659,000 during 1993 and increased $2,277,000 in 1994. It
is felt that the balances in these accounts will again begin to increase as
rates begin to rise.
Regular and statement savings accounts that carry the lowest rate of interest
continue to be popular with the customer base. These accounts recorded
increases in average balances of $3,199,000 and $4,523,000 during 1994 and 1993,
respectively.
The Bank continues to remain very competitive in the individual retirement
account market, recording gains in average balances of $9,421,000 and
$12,655,000, respectively for 1994 and 1993. The success in maintaining this
type of account is the result of paying rates higher than the local market.
The Corporation has maintained a negative gap position for the past several
years. A negative gap means that interest sensitive liabilities reprice more
frequently than the offsetting interest-bearing assets. This strategy will
provide increased earnings during periods of stable and declining interest
rates.
During 1994 interest rates began to rise substantially as the Federal Reserve
Board raised short term rates several times. This caused management and the
Board of Directors to reverse its negative gap position and, in late 1994,
approximately $20,000,000 in available-for-sale investments were sold and short
term debt was repaid.
It is very likely that as short term debt begins to mature in the first quarter
of 1995 more securities will be sold to further reduce debt.
Net losses taken on the December 1994 sale of securities amounted to $955,000.
Similar losses may be recorded in the first quarter of 1995. The losses taken
will have an impact on earnings in 1995 though the amount is undetermined at
this time.
At the end of 1993 the Corporation implemented SFAS No. 115. SFAS No. 115
requires the Corporation to classify investment securities in three distinct
categories: held-for-investment, available-for-sale and trading account
securities. The classifications place restrictions on how the securities are
recorded in relation to how the portfolio is managed. Held-to-maturity
securities must be held until maturity and carried at amortized cost.
Available-for-sale securities must be reported at the current market value on
the reporting date. The offsetting increase or decrease in market value net of
tax must be reported as an increase or decrease in
<PAGE>
the capital of the Corporation. Trading account securities are carried at
market value with gains or losses in market value recorded on the income
statement.
Upon implementation of SFAS No. 115, management and the Board of Directors
decided to record all investments, except for debt securities held by the
insurance subsidiary, as available-for-sale. This provides management with some
flexibility in the management of the portfolio as interest rates change. As
rates change on liabilities, management can use the investment portfolio as a
tool to maintain a positive interest rate margin.
On December 31, 1994, the amount of unrealized losses on available-for-sale
securities, net of tax, amounted to $8,589,000 which compares to a net of tax
market appreciation of $5,592,000 on December 31, 1993.
The average capital of the Corporation remains very strong and averaged
$52,629,000 excluding the market value depreciation on the securities portfolio.
The ratio of average capital to average assets for 1994 was 9.49%. The
Corporation is classified as well capitalized by the federal regulators.
Issued and outstanding shares of the Corporation doubled during 1994 with the
issuance of a 2 for 1 stock split effected in the form of a stock dividend
declared by the Board of Directors at its regular meeting in September. The
financial information presented for all prior periods has been restated to
reflect the stock split.
LIQUIDITY AND INTEREST RATE SENSITIVITY
Liquidity is the Corporation's ability to raise funds on short notice due to
unexpected deposit runoff, unusually heavy loan demand or the maintenance of
required reserves. The primary source of funds is core deposits since the
Corporation discourages the acceptance of large short term deposits from outside
its market area.
Daily deposit swings historically have ranged from $2,000,000 to $5,000,000 and
do not present a problem. When deposits decline for a short period the
Corporation has the availability of several short term credit sources. The
Corporation has a flexline of credit with the Federal Home Loan Bank of
Pittsburgh that totaled $54,000,000 at year end 1994. Also available to the
Corporation are several credit lines through correspondent bank relationships
that total in excess of $20,000,000.
Interest rate sensitivity measures the repricing schedule of the Corporation's
assets and liabilities. The measured repricing intervals range from overnight
to the maturity of the longest mortgage in the loan or investment portfolio.
The time frame monitored most closely is one year.
The Corporation uses a simulator model purchased from Sendero Inc. The model
projects income and average balance sheet information on a monthly basis out to
one year. The model projects information under three balance sheet strategies
using flat, rising and falling interest rate scenarios.
The model also projects the increase or decrease in net interest income under
the three scenarios and the hypothetical increase or decrease in the market
value of the assets and liabilities and its net impact on the Corporation's
capital.
As mentioned under the balance sheet discussion, interest rate increases during
1994 will impact the net interest margin of the Corporation. The net spread
between interest on earning assets and interest-bearing liabilities declined
significantly in 1994. The net spread for 1994 dropped from 3.70% for 1993 to
3.39% in 1994.
Interest rate increases not only have an impact on the net spread but also erode
the market value of the investment portfolio. The gross unrealized loss at year
end 1994 amounted to just over $13,000,000 or a net after tax amount of
$8,589,000.
The Corporation began in late 1994 to reverse the situation by selling a portion
of its investment portfolio and reducing its short term debt. It is anticipated
that the process will continue into 1995 until the negative gap is narrowed.
<PAGE>
<TABLE>
<CAPTION>
TABLE XIII - RATE SENSITIVE ASSETS AND RATE SENSITIVE LIABILITIES
As of December 31, 1994 (In Thousands)
3 Mos. >3-6 >6-12 >1-3 >3-5 >5-10 >10-20 >20 Non-
ASSETS or Less Mos. Mos. Years Years Years Years Years Interest Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-Bearing Deposits $ 735 $ -- $ 100 $ -- $ -- $ -- $ -- $ -- $ -- $ 835
Available-for-Sale Securities:
U.S. Treasury Securities -- -- -- -- 2,299 -- -- -- -- 2,299
U.S. Agency Securities -- -- -- -- -- 6,671 6,087 -- -- 12,758
Mortgage Backed Securities 9,229 -- -- -- 576 49,379 113,755 10,170 -- 183,109
Municipals 500 -- 1,512 1,564 1,815 6,508 24,449 3,291 -- 39,639
Other Bonds -- -- -- 1,013 1,000 15 1,622 897 -- 4,547
Stocks -- -- -- -- -- -- -- 18,272 -- 18,272
- ---------------------------------------------------------------------------------------------------------------------------------
Total Available-for-Sale Securities 9,729 -- 1,512 2,577 5,690 62,573 145,913 32,630 -- 260,624
- ---------------------------------------------------------------------------------------------------------------------------------
Held-to-Maturity Securities:
U.S. Treasury Securities -- -- -- -- 101 -- -- -- -- 101
Mortgage Backed Securities -- -- -- -- -- 63 836 196 -- 1,095
- ---------------------------------------------------------------------------------------------------------------------------------
Total Held-to-Maturity Securities -- -- -- -- 101 63 836 196 -- 1,196
- ---------------------------------------------------------------------------------------------------------------------------------
Loans and Lease Financing:
Real Estate - Construction 2,593 -- -- -- -- -- -- -- -- 2,593
Real Estate - Mortgage 37,396 16,036 37,809 23,243 20,996 40,348 19,778 4 -- 195,610
Consumer 7,798 2,608 4,357 10,133 2,401 492 66 8,991 -- 36,846
Agriculture 716 227 417 1,117 531 104 25 -- -- 3,137
Commercial 10,833 429 645 1,447 473 165 -- -- -- 13,992
Other 172 2 21 28 -- -- -- -- -- 223
Political Subdivisions 836 215 304 1,204 914 1,438 986 33 -- 5,930
Leases 9 9 18 72 56 -- -- -- -- 164
- ---------------------------------------------------------------------------------------------------------------------------------
Total Loans 60,353 19,526 43,571 37,244 25,371 42,547 20,855 9,028 -- 258,495
Less: Unearned Discount -- -- -- -- -- -- -- -- (23) (23)
Allowance for Loan Losses -- -- -- -- -- -- -- -- (4,229) (4,229)
- ---------------------------------------------------------------------------------------------------------------------------------
Net Loans and Leases 60,353 19,526 43,571 37,244 25,371 42,547 20,855 9,028 (4,252) 254,243
- ---------------------------------------------------------------------------------------------------------------------------------
Cash and Due From Banks -- -- -- -- -- -- -- -- 11,572 11,572
Other Assets -- -- -- -- -- -- -- -- 18,008 18,008
- ---------------------------------------------------------------------------------------------------------------------------------
Total Assets 70,817 19,526 45,183 39,821 31,162 105,183 167,404 41,854 25,328 546,478
- ---------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND EQUITY
Interest-Bearing Deposits:
Money Market 81,387 -- -- -- -- -- -- -- -- 81,387
NOW and SNOW 42,098 -- -- -- -- -- -- -- -- 42,098
Christmas/Fund Clubs -- -- 847 -- -- -- -- -- -- 847
CD's 24,757 25,823 18,788 13,315 19,544 72 -- -- -- 102,299
Reg/Key Savings -- -- -- -- -- -- -- 52,587 -- 52,587
Golden Passbook Savings -- -- -- -- -- -- -- 1,117 -- 1,117
IRA's -- -- -- -- -- -- -- 76,073 -- 76,073
- ---------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Deposits 148,242 25,823 19,635 13,315 19,544 72 -- 129,777 -- 356,408
- ---------------------------------------------------------------------------------------------------------------------------------
Demand Deposits -- -- -- -- -- -- -- -- 42,855 42,855
Repurchase Agreements 45,000 -- -- -- -- -- -- -- -- 45,000
Borrowed Funds:
Variable 23,500 -- -- -- -- -- -- -- -- 23,500
Fixed -- 30,000 -- -- -- -- -- -- -- 30,000
- ---------------------------------------------------------------------------------------------------------------------------------
Total Borrowed Funds 23,500 30,000 -- -- -- -- -- -- -- 53,500
- ---------------------------------------------------------------------------------------------------------------------------------
Other Liabilities 786 -- -- -- -- -- -- -- 1,135 1,921
Stockholders' Equity -- -- -- -- -- -- -- -- 46,794 46,794
- ---------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Equity 217,528 55,823 19,635 13,315 19,544 72 -- 129,777 90,784 546,478
- ---------------------------------------------------------------------------------------------------------------------------------
Interest Rate Sensitivity Gap $(146,711)$(36,297) $25,548 $26,506 $11,618 $105,111 $167,604 $(87,923)$(65,456)$ --
=================================================================================================================================
</TABLE>
<PAGE>
CAPITAL ADEQUACY
The total capital excluding the valuation reserve for the available-for-sale
securities increased $4,472,000 in 1994. Dividends paid to shareholders
amounted to 40% of net income.
The adjustment to capital required by SFAS No. 115 for unrealized losses on the
securities portfolio in 1994 amounted to $(8,589,000). The adjustment is net of
tax at a rate of 34%. The gross adjustment was ($13,014,000).
The Corporation's ratio of capital to assets based on the year end balance sheet
for 1994 and 1993 amounted to 9.98% and 9.23%, respectively.
The Corporation's risk-based capital ratio, which measures the amount of risk
assets to total capital, was 18.36% and 17.35%, respectively for the years ended
1994 and 1993. All capital ratios exclude the market value adjustment for
available-for-sale securities.
There are no planned expenditures which would have a detrimental effect on
capital ratios or the results of operations.
The following table sets forth additional capital ratios.
<TABLE>
<CAPTION>
TABLE XIV -- CAPITAL RATIOS
(In Thousands)
December 31
1994 1993
<S> <C> <C>
TIER I Total Stockholders' Equity $ 55,385 $ 50,913
TIER II Allowance for Possible Loan Losses (1) 4,047 3,817
- ----------------------------------------------------------------------
Total Qualifying Capital $ 59,432 $ 54,730
======================================================================
Risk Adjusted Assets - Balance Sheet $279,807 $268,448
Risk Adjusted Assets - Off Balance Sheet 43,943 47,003
- ----------------------------------------------------------------------
Total Risk Adjusted Assets $323,750 $315,451
======================================================================
Ratios
TIER I Capital Ratio 17.11% 16.14%
Minimum Required December 31, 1994 4.00%
Minimum Required December 31, 1993 4.00%
Total Capital Ratio - Actual 18.36% 17.35%
Minimum Required December 31, 1994 8.00%
Minimum Required December 31, 1993 8.00%
<FN>
(1) Allowable inclusion equals up to 1.25% of Risk Adjusted Assets
</TABLE>
SUPPLEMENTARY FINANCIAL DATA
QUARTERLY SHARE DATA
The Corporation's stock is not traded on an established stock exchange;
however, stock transactions are effected through various brokers who maintain a
market in the Corporation's stock or trades are made on a person to person
basis. The following table sets forth the
<PAGE>
approximate high and low sales prices of the common stock during 1994, 1993 and
1992 as furnished by brokers and other sources considered by the Corporation to
be reliable.
<TABLE>
<CAPTION>
1994 1993 1992
Dividend Dividend Dividend
Declared Declared Declared
Per Per Per
High Low Quarter High Low Quarter High Low Quarter
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
First
Quarter $16.88 $16.50 $.15 $12.00 $11.63 $.13 $10.50 $10.50 $.12
Second
Quarter 18.31 17.50 .15 15.00 12.00 .13 10.50 10.50 .12
Third
Quarter 18.75 18.38 .155 15.50 15.00 .15 10.63 10.50 .13
Fourth
Quarter 20.25 19.00 .16 plus 16.25 15.00 .15 plus 11.63 11.25 .13 plus
1% stock 1% stock 1% stock
- ----------------------------------------------------------------------------------------------
<CAPTION>
COMMON STOCK AND PER SHARE DATA
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Net Income $ 1.51 $ 1.64 $ 1.47 $ 1.14 $ 1.06
Cash Dividends
Declared .61 .55 .49 .45 .44
Stock Dividend 1% 1% 1% 1% 1%
Number of Shares
Outstanding
(excluding shares
held in Treasury) 4,913,322 4,864,674 4,816,508 4,768,818 4,760,610
Number of Shares
Used for
Computation 4,962,456 4,962,456 4,962,456 4,970,566 5,059,990
Number of Shares
Issued 5,016,352 4,966,684 4,917,508 4,868,818 4,820,610
Number of Shares
Authorized 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000
Stockholders'
Equity Per Share $ 9.43 $ 11.39 $ 9.17 $ 8.17 $ 7.42
Stockholders'
Equity Per Share (*) $ 11.16 $ 10.26 $ 9.17 $ 8.17 $ 7.42
Number of
Stockholders at
Year End 1,901 1,819 1,809 1,775 1,729
<FN>
(*) Does not include unrealized holding gains or losses on available-for-sale
securities.
</TABLE>
Known "market makers" who handle Citizens & Northern Corporation common
stock transactions are:
Hopper Soliday & Company Ryan, Beck & Company
1500 Walnut Street 3 Parkway
Philadelphia, PA 19102 Philadelphia, PA 19102
800-526-6371 800-342-2325
Merrill Lynch, Pierce, Sandler O'Neill & Partners, LP
Fenner & Smith, Inc. Two World Trade Center
One West Third Street 104th Floor
Williamsport, PA 17701 New York, NY 10048
800-937-0769 800-635-6851
Anthony Misciagna & Company
6 Bird Cage Walk
<PAGE>
Holidaysburg, PA 16648
800-343-5149
<TABLE>
<CAPTION>
FIVE YEAR SUMMARY OF OPERATIONS
(In Thousands, Except Per Share Data)
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT
Interest Income $ 42,309 $ 39,122 $ 38,807 $ 39,120 $ 37,054
Interest Expense 20,805 18,396 18,724 21,806 22,938
- ------------------------------------------------------------------------------------------------
Interest Margin 21,504 20,726 20,083 17,314 14,116
Provision for Possible Loan Losses 737 708 1,326 3,151 326
- ------------------------------------------------------------------------------------------------
Interest Margin After
Provision for Possible Loan Losses 20,767 20,018 18,757 14,163 13,790
Other Income 2,882 2,706 2,369 2,460 2,455
Securities Gains (Losses) (219) 646 298 1,257 69
Other Expenses 13,597 12,919 11,744 10,616 9,523
- ------------------------------------------------------------------------------------------------
Income before Income Tax Provision 9,833 10,451 9,680 7,264 6,791
Income Tax Provision 2,339 2,557 2,390 1,621 1,449
- ------------------------------------------------------------------------------------------------
Income before Cumulative Effect of
Accounting Change 7,494 7,894 7,290 5,643 5,342
Cumulative Effect of Change in
Accounting for Income Taxes (Benefit) -- (233) -- -- --
- ------------------------------------------------------------------------------------------------
Net Income $ 7,494 $ 8,127 $ 7,290 $ 5,643 $ 5,342
================================================================================================
BALANCE SHEET AT YEAR END
Total Securities (Amortized Cost) (1) $261,820 $302,096 $217,811 $169,571 $200,848
Loans (excluding Unearned Discount) 258,472 238,755 225,475 199,072 190,544
Earning Assets 516,898 537,813 440,474 418,899 392,564
Total Assets 546,478 560,055 466,119 440,895 413,351
Total Deposits 399,263 391,639 367,196 344,122 331,236
Stockholders' Equity Before Adjustment
for Unrealized Gain or Loss on
Available-for-Sale Securities 55,385 50,913 n/a n/a n/a
Stockholders' Equity 46,796 56,505 45,510 40,628 37,565
Primary Capital 59,432 54,730 48,866 43,176 40,104
AVERAGE BALANCE SHEET
Total Securities (Amortized Cost) (1) $291,734 $258,874 $225,439 $200,996 $184,984
Loans (excluding Unearned Discount) 243,147 227,683 211,038 194,711 175,275
Earning Assets 535,227 489,121 437,848 396,259 360,155
Total Assets 554,658 508,400 456,679 417,147 381,469
Total Deposits 395,512 381,396 357,121 336,263 315,141
Stockholders' Equity Before Adjustment
for Unrealized Gain or Loss on
Available-for-Sale Securities 52,629 n/a n/a n/a n/a
Stockholders' Equity 52,090 46,693 42,875 38,722 35,441
FINANCIAL RATIOS
Return on Stockholders' Equity (3) 14.4% 17.4% 17.0% 14.6% 15.1%
Return on Assets (3) 1.35% 1.60% 1.60% 1.35% 1.40%
Primary Capital as a %
of Total Assets (2) 10.88% 9.77% 10.48% 9.79% 9.70%
Stockholders' Equity to Assets Before
Adjustment for Unrealized Gain or Loss
on Available-for-Sale Securities (3) 9.49% n/a n/a n/a n/a
Stockholders' Equity to Assets (3) 9.39% 9.18% 9.39% 9.28% 9.29%
Stockholders' Equity to Loans (3) 21.4% 20.5% 20.3% 19.9% 20.2%
Net Income To:
Total Interest Income 17.7% 20.8% 18.8% 14.4% 14.4%
Interest Margin 34.8% 39.2% 36.3% 32.6% 37.8%
Dividend as a % of Net Income 40.3% 33.5% 33.0% 39.3% 39.6%
<FN>
(1) Includes interest-bearing due from banks
(2) Balance Sheet at Year End
(3) Average Balance Sheet
</TABLE>
<PAGE>
SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table presents summarized quarterly financial data for 1994
and 1993 (in thousands, except per share data):
<TABLE>
<CAPTION>
1994 Quarter Ended
Mar 31 Jun 30 Sep 30 Dec 31
<S> <C> <C> <C> <C>
Interest Income $10,049 $10,353 $10,772 $11,135
Interest Expense 4,605 4,978 5,357 5,865
-------------------------------------------------------------------------
Interest Margin 5,444 5,375 5,415 5,270
Provision for Possible Loan Losses 184 185 184 184
-------------------------------------------------------------------------
Interest Margin After Provision
for Possible Loan Losses 5,260 5,190 5,231 5,086
Other Income 857 659 651 715
Securities Gains (Losses) 542 153 27 (941)
Other Expense 3,386 3,425 3,346 3,440
-------------------------------------------------------------------------
Income Before Income Taxes 3,273 2,577 2,563 1,420
Income Tax Provision 820 693 585 241
-------------------------------------------------------------------------
Net Income $ 2,453 $ 1,884 $ 1,978 $ 1,179
=========================================================================
Net Income Per Share $ .49 $ .38 $ .40 $ .24
=========================================================================
<CAPTION>
1993 Quarter Ended
Mar 31 Jun 30 Sep 30 Dec 31
<S> <C> <C> <C> <C>
Interest Income $9,387 $9,895 $9,979 $9,861
Interest Expense 4,293 4,761 4,741 4,601
-------------------------------------------------------------------------
Interest Margin 5,094 5,134 5,238 5,260
Provision for Possible Loan Losses 177 177 177 177
-------------------------------------------------------------------------
Interest Margin After Provision
for Possible Loan Losses 4,917 4,957 5,061 5,083
Other Income 573 698 686 749
Securities Gains 261 149 294 (58)
Other Expense 3,188 3,179 3,229 3,323
-------------------------------------------------------------------------
Income Before Income Taxes 2,563 2,625 2,812 2,451
Income Tax Provision 697 594 731 535
-------------------------------------------------------------------------
Income before Cumulative Effect
of Accounting Change 1,866 2,031 2,081 1,916
Cumulative Effect of Change in
Accounting for Income Taxes (Benefit) -- -- -- (233)
-------------------------------------------------------------------------
Net Income $1,866 $2,031 $2,081 $2,149
=========================================================================
Net Income Per Share $ .38 $ .41 $ .42 $ .43
=========================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TRUST DEPARTMENT
(All Figures in Thousands)
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Assets $146,178 $147,804 $132,550 $112,215 $91,631
Earnings 582 546 476 506 489
</TABLE>
The composition of trust assets and liabilities for the years ending 1994, 1993
and 1992 are shown in the following table:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
INVESTMENTS
Bonds $ 66,003 $ 65,761 $ 63,055
Stock 45,592 52,658 46,659
Savings and Money Market Funds 14,682 12,479 11,843
Mutual Funds 17,568 14,920 9,561
Mortgages 109 141 142
Real Estate 977 1,048 746
Miscellaneous 1,247 797 544
-------------------------------------------------------------------------
Total $146,178 $147,804 $132,550
=========================================================================
ACCOUNTS
Estates $ 1,455 $ 349 $ 344
Trusts 36,343 37,869 36,918
Guardianships 1,316 1,807 1,856
Pension/Profit Sharing 60,647 59,701 50,819
Investment Management 46,417 48,078 42,613
-------------------------------------------------------------------------
Total $146,178 $147,804 $132,550
=========================================================================
</TABLE>
STOCKHOLDER INQUIRIES
A copy of the Corporation's Annual Report for the year ended December 31, 1994,
on Form 10-K as required to be filed with the Securities and Exchange Commission
will be furnished to a stockholder without charge upon written request to the
Corporation's Treasurer at its principal office at P.O. Box 58, Wellsboro, PA
16901.
This statement has not been reviewed, or confirmed for accuracy or relevance, by
the Federal Deposit Insurance Corporation.
[FIVE YEAR PERFORMANCE GRAPHS]
DESCRIPTION OF BUSINESS
Citizens & Northern Corporation ("Corporation") is a one bank holding
company, whose principal subsidiary is Citizens & Northern Bank ("Bank").
The Bank is a Pennsylvania banking institution that was formed pursuant to
the consolidation of Northern National Bank of Wellsboro and Citizens National
Bank of Towanda on October 1, 1971. In May of 1972, the Bank merged with the
First National Bank of Ralston and on October 1, 1977, merged with the Sullivan
County National Bank. Then on January 1, 1984, the Bank merged with The Farmers
National Bank of Athens. On May 1, 1990, The First National Bank of East
Smithfield merged with the Bank. The Bank has held its current name since May
6, 1975, at which time the Bank changed its charter from a national bank to a
Pennsylvania bank. The Bank's principal office is located in Wellsboro,
Pennsylvania. On December 31, 1994, the Bank had total assets of $541,874,000,
total deposits of $399,263,000 and total loans outstanding of $258,495,000.
The Bank provides an extensive range of banking services, including
checking
<PAGE>
accounts, savings accounts, certificates of deposit, money market accounts,
personal, commercial and installment loans and such other type of deposits and
loans that are common to a full service bank for its size and structure. The
Bank also maintains a trust department that provides full fiduciary services.
The Corporation also owns a subsidiary, Bucktail Life Insurance Company,
which provides credit life and credit accident and health insurance for the
Bank. The business generated by Bucktail Life Insurance Company is
insignificant in relation to the total business of the Corporation.
The main office of the Bank is located at 90-92 Main Street, Wellsboro,
Pennsylvania. The Bank has a total of fifteen (15) banking offices all located
in the Pennsylvania counties of Bradford, Lycoming, Sullivan and Tioga. All
such properties are owned by the Bank. There are no encumbrances against any of
the Bank's properties.
As of December 31, 1994, the Bank had a total of 194 full time equivalent
employees. The Bank provides a variety of employment benefits and considers its
relationship with its employees to be good.
All phases of the Bank's business are competitive. The Bank primarily
competes in the market area composed of Tioga and Bradford counties, and
portions of Lycoming and Sullivan counties. The Bank competes with
approximately 15 commercial banks, including local commercial banks
headquartered in its market area as well as other commercial banks with branches
in the Bank's market area. Some of the banks that have branches in the Bank's
market area are larger in overall size than the Bank. The Bank, along with
other commercial banks, competes with respect to its lending activities as well
as in attracting demand and savings deposits with savings banks, saving and loan
associations, insurance companies, regulated small loan companies and credit
unions. The Bank also competes with insurance companies, investment counseling
firms, mutual funds and other business firms and individuals in corporate trust
and investment management services.
The Bank is generally competitive with all financial institutions in its
service areas with respect to interest rates paid on time and savings deposits,
service charges on deposit accounts and interest rates charged on loans.
<TABLE>
<CAPTION>
CITIZENS & NORTHERN CORPORATION
AND
CITIZENS & NORTHERN BANK
BOARD OF DIRECTORS
<S> <C>
J. Robert Bower John H. Macafee
Pharmacist Operator,
Mapoval Farms Inc.
R. Robert DeCamp
President and C.E.O., Lawrence F. Mase
Patterson Lumber Co. Inc. President, Mase's Inc.
R. James Dunham Robert J. Murphy
President, R.J.Dunham Inc. Retired, formerly
Department Store Attorney in law firm of
Davis, Murphy, Niemiec & Smith
Adelbert E. Eldridge
Retired Regional Director Edward H. Owlett, III
of Susquehanna Region of Attorney in law firm of
Pennsylvania Electric Co. Owlett, Lewis & Ginn, P.C.
William K. Francis F. David Pennypacker
Chairman, President, and C.P.A. in firm of
Chief Executive Officer Pennypacker & Zeigler, P.C.
Laurence R. Kingsley Leonard Simpson
Owner, L. R. Kingsley Attorney at Law
Lumber
Howard W. Skinner
<PAGE>
Edward L. Learn Retired, formerly Senior
Feed Mill Manager, Vice President
Purina Mills Inc.
Donald E. Treat
Owner, Treat Hardware
<CAPTION>
DIRECTORS EMERITI
<S> <C>
Roy W. Cummings, Sr. Edward H. Owlett
Chairman, Cummings Attorney in law firm of
Lumber Co. Inc. Owlett, Lewis & Ginn, P.C.
<CAPTION>
ADVISORY BOARDS
<S> <C> <C>
ATHENS LAPORTE TOWANDA & MONROETON
Terry W. Depew Randy R. Meckes Larry D. Sharer
R. Bruce Haner Kenneth F. Fry Wilson S. Quiggle
Wayne E. Lowery Marvin L. Higley Allen M. Alper
John H. Macafee Walter B. Neidig Adelbert E. Eldridge
Howard W. Skinner Leonard Simpson Robert J. Murphy
Jeffrey A. Smith
DUSHORE LIBERTY James Towner
Jerome C. Violette
Wayne E. Gavitt Ann L. Yuscavage
Ronald A. Gutosky Lyle R. Brion TROY
P. Dean Homer Gary Dinnison
Dennis McCarty Lawrence F. Mase Brian L. Canfield
Kerry A. Meehan Ray E. Wheeland Dennis F. Beardslee
Leslie W. Miller, Jr. Roy W. Cummings, Jr.
RALSTON Roy W. Cummings, Sr.
EAST SMITHFIELD Robert M. Hess
Daniel P. Clark Gregory W. Powers
Peggy Brown William W. Brooks, III
Roy L. Beardslee Willard S. Kuser WELLSBORO
Lawrence A. Burnett John W. Orr
Eugene K. Harris Richard L. Wilkinson
Laurence R. Kingsley SAYRE J. Robert Bower
Bennett R. Young R. Robert DeCamp
Stephan W. Bowen R. James Dunham
ELKLAND Sheila Henry John B. Kentch
George Howell Edward H. Owlett, III
Scott A. Keck John Steadle F. David Pennypacker
Eric Beard
John C. Kenyon TIOGA WYSOX
Edward L. Learn
Lois C. Wood Debra S. Kithcart
KNOXVILLE Joseph R. Borden, Jr. Lucille P. Donovan
John E. Brackley Robert L. Fulmer
Mary Rose Sacks Donald E. Treat Walter E. Warburton, Jr.
Clyde E. Beard Jean L. Ward
Gerald Bliss M. Frank Ward
Karl W. Kroeck
Robert S. Lugg
<CAPTION>
CITIZENS & NORTHERN BANK OFFICERS
<S> <C> <C> <C>
William K. Francis Robert E. Bolt Shawn M. Schreck Rita Y. Fisk
Chairman, President & Assistant Vice President Assistant Vice President Assistant Cashier
Chief Executive Officer & Compliance Officer
Stephan W. Bowen Mark C. Griffis
Craig G. Litchfield Assistant Vice President David C. Schucker Bankcard Plan Manager
Senior Vice President Assistant Vice President
Thomas L. Briggs Karen L. Keck
<PAGE>
Robert W. Anderson Trust Officer James H. Shelmire Bookkeeping Manager
Vice President - Data Systems Analyst
Processing Peggy A. Brown Glenda R. Marzo
Assistant Vice President Gerald W. Smith Assistant Auditor
Brian L. Canfield Trust Officer
Vice President Phylis W. Callear Patricia Marzo
Assistant Vice President Jan L. Southworth Assistant Cashier
Terry R. Depew Assistant Vice President
Vice President Daniel P. Clark Sandra J. McNeal
Assistant Vice President Nancy L. Tubbs Assistant Cashier
Keith E. Ferguson Assistant Vice President
Vice President Helen W. Ferris Judith L. Metcalf
Assistant Vice President Lois C. Wood Assistant Cashier
Wayne E. Gavitt Assistant Vice President
Vice President Joan L. Grenell Leonard Mitchell, III
Assistant Vice President Mary J. Wood Collection Officer
Scott A. Keck Trust Officer
Vice President Nicholas Helf, Jr. Janet R. Ordway
Trust Officer Ann L. Yuscavage Assistant Cashier
Matthew P. Prosseda Assistant Vice President
Vice President Elaine F. Johnston Karen B. Peterson
Assistant Vice President Raechelle N. Acker Assistant Cashier
Paul M. Ritter Assistant Cashier
Vice President & Debra S. Kithcart Eileen K. Ranck
Trust Officer Assistant Vice President Sandra G. Andrews Bankcard Operations
Assistant Cashier Manager
James W. Seipler Rhonda J. Litchfield
Controller & Cashier Trust Officer Bonnie L. Bennett Virginia L. Reap
Assistant Cashier Assistant Cashier
Larry D. Sharer Randy R. Meckes
Vice President Assistant Vice President Joan M. Blackwell Joseph A. Snell
Assistant Cashier Assistant Controller
Richard L. Wilkinson Kim L. Miller
Vice President Assistant Vice President Marcella Chaykosky Twila G. Starr
Assistant Cashier Assistant Cashier
Kathleen M. Osgood Jeffrey B. Osgood
Corporate Secretary Assistant Vice President Rick Cisco Charmaine H. Stempel
& Personnel Officer Technical Support Assistant Cashier
Klas G. Anderson Manager & Security Officer
Assistant Vice President Wilson S. Quiggle
Assistant Vice President Jerome Coleman Barbara J. Tubbs
Russell H. Bauman Assistant Cashier Assistant Cashier
Auditor Mary Rose Sacks
Assistant Vice President Diane B. Elvidge Eric E. Wertz
Assistant Cashier Bankcard Credit Officer
<CAPTION>
CITIZENS & NORTHERN CORPORATION OFFICERS
<S> <C> <C> <C>
William K. Francis Craig G. Litchfield James W. Seipler Kathleen M. Osgood
Chairman, President & Senior Vice President Treasurer Corporate Secretary
Chief Executive Officer
</TABLE>
<PAGE>
Exhibit 21
LIST OF SUBSIDIARIES
Jurisdiction or
Name State of Incorporation
- ---- ----- -- -------------
Citizens & Northern Bank Pennsylvania
Bucktail Life Insurance Company Arizona
