<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from ________ to ___________
Commission file number: 0-16084
CITIZENS & NORTHERN CORPORATION
(Exact name of Registrant as specified in its charter)
Pennsylvania 23-2451943
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
90-92 Main Street
Wellsboro, Pa. 16901
(Address of principal executive offices)(Zip code)
717-724-3411
(Registrant's telephone number including area code)
Not applicable
(Former name, former address, and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
--- ---
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Title Outstanding
Common Stock ($1.00 par value) 5,220,083 Shares Issued and
Outstanding April 1, 1998
<PAGE>
CITIZENS & NORTHERN CORPORATION
Index
<TABLE>
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statement of Condition - March 31, 1998 and
December 31, 1997 Page 3
Consolidated Statement of Income - Three Months Ended
March 31, 1998 and March 31, 1997 Page 4
Consolidated Statement of Cash Flows - Three Months Ended
March 31, 1998 and March 31, 1997 Page 5
Notes to Consolidated Financial Statements Page 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation Pages 7 through 18
Item 3. Information About Market Risk Pages 15 Through 17
Part II. Other Information Page 19
Item 1. Legal Proceedings
Items 2 and 3 have been omitted as they are not applicable
to registrant.
Item 6. Exhibits and Reports on Form 8-K
Signatures Page 20
</TABLE>
2
<PAGE>
CITIZENS & NORTHERN CORPORATION - FORM 10 - Q
Part I - Financial Information
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
Unaudited Audited
(In Thousands) March 31, December 31,
1998 1997
--------- ------------
<S> <C> <C>
ASSETS
Cash & Due From Banks $14,390 $13,449
Interest Bearing Deposits 681 804
Available-for-Sale Securities:
U.S. Treasury Securities 2,538 2,538
Securities of Other U.S. Government Agencies 65,822 74,449
Mortgage Backed Securities 113,759 129,190
Obligations of States and Municipal Subdivisions 67,066 64,614
Other Securities 47,016 35,796
Total Available-for-Sale Securities 296,201 306,587
Held-to-Maturity Securities:
U.S. Treasury Securities 629 632
Securities of Other U.S. Government Agencies 500 350
Mortgage Backed Securities 561 615
Total Held-to-Maturity Securities 1,690 1,597
Federal Funds Sold 17,000
Loans:
Loans to Political Subdivisions 5,903 5,975
Other Loans 275,241 279,488
Total Loans 281,144 285,463
Less - Allowance for Possible Loan Losses (4,750) (4,913)
Unearned Income (33) (37)
Loans, Net 276,361 280,513
Bank Premises and Equipment 6,708 6,720
Other Real Estate 508 230
Accrued Interest on Bonds and Loans 3,770 4,808
Other Assets 975 645
TOTAL ASSETS $618,284 $615,353
LIABILITIES
Deposits:
Demand $48,117 $46,916
Interest Checking 36,377 40,880
Money Market 106,167 104,894
Savings 45,595 45,332
Other Time 201,678 204,234
Total Deposits 437,934 442,256
Dividends Payable 1,023 1,013
Borrowed Funds 50,657 40,661
Federal Funds Purchased 10,000
Securities Sold Under Agreement to Repurchase 34,400 29,800
Other Liabilities 7,171 6,088
TOTAL LIABILITIES 531,185 529,818
SHAREHOLDERS' EQUITY
Common Stock, Par Value $ 1.00 per Share 5,220 5,168
Authorized 10,000,000; Issued 5,220,083
and 5,168,354 in 1998 and 1997, respectively
Stock Dividend Distributable 1,706
Paid in Capital 15,460 13,799
Retained Earnings 54,176 52,519
Total 74,856 73,192
Unrealized Gains on Available-for-Sale Securities 13,230 13,335
Less: Treasury Stock at Cost
105,804 shares at March 31, 1998 (987)
105,311 shares at December 31, 1997 (992)
TOTAL SHAREHOLDERS' EQUITY 87,099 85,535
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $618,284 $615,353
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
3
<PAGE>
CITIZENS & NORTHERN CORPORATION - FORM 10 - Q
Part I - Financial Information (Continued)
Item 1. Financial Statements (Continued)
<TABLE>
<CAPTION>
Three Months Ended
CONSOLIDATED STATEMENT OF INCOME March 31,
(In Thousands) (Unaudited) ------------------
1998 1997
Current (Prior Year)
------- -----------
<S> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $7,013 $6,999
Interest on Balances with Depository Institutions 10 9
Interest on Loans to Political Subdivisions 89 94
Interest on Federal Funds Sold 60 56
Income from Available-for-Sale and
Held-to-Maturity Securities:
Taxable 3,545 3,635
Tax Exempt 928 859
Dividends 228 207
Total Interest and Dividend Income 11,873 11,859
INTEREST EXPENSE
Interest on Deposits 4,494 4,419
Interest on Other Borrowings 1,230 1,318
Total Interest Expense 5,724 5,737
Interest Margin 6,149 6,122
Provision for Possible Loan Losses 191 181
Interest Margin After Provision for Possible Loan Losses 5,958 5,941
OTHER INCOME
Service Charges on Deposit Accounts 250 266
Service Charges and Fees 77 59
Trust Department Income 316 261
Insurance Commissions, Fees and Premiums 102 109
Other Operating Income 21 44
Total Other Income Before Realized Gains on Securities, Net 766 739
Realized Gains on Securities, (Net) 754 787
Total Other Income 1,520 1,526
OTHER EXPENSES
Salaries and Wages 1,599 1,496
Pensions and Other Employee Benefits 442 469
Occupancy Expense, Net 200 172
Furniture and Equipment Expense 194 162
Other Operating Expense 1,502 1,504
Total Other Expenses 3,937 3,803
Income Before Income Tax Provision 3,541 3,664
Income Tax Provision 860 901
NET INCOME $2,681 $2,763
PER SHARE DATA:
Net Income - Basic $0.52 $0.54
Net Income - Diluted $0.52 $0.54
Dividend Per Share $0.20 $0.18
Number Shares Used in Computation - Basic 5,114,145 5,113,084
Number Shares Used in Computation - Diluted 5,123,042 5,115,489
Number Shares Issued 5,220,038 5,168,354
Number Shares Authorized 10,000,000 10,000,000
Dividends Actually Paid $0.20 $0.18
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Net Income $2,681 $2,763
Other Comprehensive Income (Loss):
Unrealized Holding Gains on Available-for-Sale Securities
Gains (Losses) arising during the year 595 (3,414)
Reclassification Adjustment (754) (787)
Other Comprehensive Income (Loss) before Income Tax (159) (4,201)
Income Tax related to Other Comprehensive Income (Loss) 54 1,428
Other Comprehensive Income (Loss) (105) (2,773)
Comprehensive Income (Loss) $2,576 ($10)
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
4
<PAGE>
CITIZENS & NORTHERN CORPORATION - FORM 10 - Q
Part I - Financial Information (Continued)
Item 1. Financial Statements (Continued)
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
(In Thousands) Three Months Ended
--------------------------------
March 31, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income 2,681 2,763
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities
Provision for Possible Loan Losses 191 181
Realized (Gain), on Available-for-Sale and
Held-to-Maturity Securities, Net (754) (787)
Provision for Depreciation 193 164
Accretion and Amortization 157 153
Deferred Income Tax (39) (61)
(Increase) Decrease in Accrued Interest
Receivable and Other Assets 708 (914)
Increase Accrued Interest Payable and Other Liabilities 1,187 2,655
Net Cash Provided by Operating Activities 4,324 4,154
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the Maturity of Held-to-Maturity Securities 55 142
Purchase of Held-to-Maturity Securities (150) (100)
Proceeds from Sales of Available-for-Sale Securities 28,201 13,811
Proceeds from Maturities of Available-for-Sale Securities 44,550 12,474
Purchase of Available-for-Sale Securities (61,927) (21,740)
Net (Increase) Decrease in Loans 3,961 (2,314)
Purchase of Premises and Equipment (181) (47)
Sale of Foreclosed Assets 5 162
Purchase of Other Real Estate (283)
Net Cash Used in Investing Activities 14,231 2,388
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase in Deposits (4,322) 2,184
Increase (Decrease) in Short Term Borrowings (5,400) 2,000
Proceeds from (Repayment of) Long Term Borrowings 9,996 (9,002)
Increase in Federal Funds Sold (17,000)
Sale of Treasury Stock 12
Dividends Declared (1,023) (911)
Net Cash Provided by Financing Activities (17,737) (5,729)
INCREASE IN CASH AND CASH EQUIVALENTS 818 813
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR $14,253 14,975
CASH AND CASH EQUIVALENTS, END OF YEAR $15,071 $15,788
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest Paid 4,477 6,660
Income Taxes Paid 855 73
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
CITIZENS & NORTHERN CORPORATION - FORM 10 - Q
Part I - Financial Information (Continued)
Item 1. Financial Statements (Continued)
Notes to Consolidated Financial Statements
1. The financial information included herein, with the exception of the
Consolidated Balance Sheet dated December 31, 1997, is unaudited; however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) that are, in the opinion of management, necessary to a fair
presentation of the financial position, results of operations and changes in
financial position for the interim periods.
Results reported for the three-month period ended March 31, 1998 may not be
indicative of the results for the year ended December 31, 1998.
This document has not been reviewed or confirmed for accuracy or relevance by
the Federal Deposit Insurance Corporation or any other regulatory agency.
2. New Statement of Financial Accounting Standards
SFAS No. 130 "Reporting Comprehensive Income", adopted in 1997, is effective for
all fiscal years beginning after December 15, 1997, and as such, it will be
effective for reporting periods in 1998. Comprehensive income includes all
changes in equity during a period from transactions and events from nonowner
sources. Before SFAS No. 130, some elements of comprehensive income were
presented in the income statement and others were reported in the equity section
of the statement of financial position. All elements now are required to be
brought together in a single amount of comprehensive income.
SFAS No. 131 "Disclosures About Segments of an Enterprise and Related
Information" was also adopted in 1997. SFAS No. 131 establishes standards for
disclosures about products, services, geographic areas and major customers. The
standard is effective for fiscal years beginning after December 15, 1997. The
adoption of SFAS No. 131 will not have a material effect on Citizens and
Northern's financial condition or results of operations.
SFAS No. 132 "Employers' Disclosure About Pensions and other Post Retirement
Benefits" was adopted in January 1998. SFAS No. 132 revises current note
disclosure requirements for employers' pensions and other retiree benefits. It
does not address recognition or measurement issues. SFAS No. 132 is effective
for fiscal years beginning after December 15, 1997. The adoption of SFAS No. 132
will not have a material effect on Citizens and Northern's financial condition
or results of operations.
6
<PAGE>
CITIZENS & NORTHERN CORPORATION - FORM 10 - Q
Part I - Financial Information (Continued)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
EARNINGS OVERVIEW
Net after-tax income for the three month period ended March 31, 1998 amounted to
$2,681 million or $.52 per share (on a basic and diluted basis). This compares
to $2,763 million or $.54 per share (on a basic and diluted basis) for the same
period in 1997. Total assets at March 31, 1998 were $618,300 million compared to
total assets at March 31, 1997 of $605,700 million.
Results for the first quarter of 1998 were in-line with management's
expectations that net income for the first quarter of 1998 would be about the
same as that of the first quarter of 1997. These expectations are contingent
upon the current interest rate environment and could change if interest rates
increase or decrease dramatically.
NET INTEREST MARGIN
Net interest margin or net interest income is the dollar amount of difference
between all interest income received and interest expense paid. The net interest
spread or interest margin is the difference, stated as a percentage, between the
average rate received on all interest-earning assets and the average rate paid
on all interest-bearing liabilities.
Net interest income for the three months ended March 31, 1998 remained nearly
unchanged when compared to the same three-month period in 1997. Respectively,
gross interest income for the periods ended March 31, 1998 and March 31, 1997
amounted to $11,873,000 and $11,859,000. Gross interest expense for the same
periods amounted to $5,724,000 and $5,737,000. Gross interest income and gross
interest expense for the three months ended December 31, 1997 totaled
$12,319,000 and $5,843,000, respectively. The increase in both numbers when
compared to the quarter ended March 31, 1998 can be attributed in a large part
to the two additional days in the last quarter of 1997. Average interest-bearing
assets for the three months ended March 31, 1998 and March 31, 1997 were,
respectively, $575,846,000 and $576,614,000. Average earning assets for the
three months ended December 31, 1997 were $580,120,000. Average interest-bearing
liabilities for the three-month periods ended March 31, 1998, December 31, 1997
and March 31, 1997 amounted to $478,878,000, $481,281,000 and $484,239,000,
respectively.
The composition of interest-bearing assets and interest-bearing liabilities has
not changed significantly since March 31, 1997, with the exception of borrowed
funds. Average borrowed funds for the quarter ended March 31, 1997 and March 31,
1998 were $83,514,000 and $96,613,000, respectively. The decline in average
borrowed funds between the periods ended March 31, 1997 and March 31, 1998 is
due to a very narrow interest differential between long and short term interest
rates, thereby eliminating funding opportunities with spreads large enough to
compensate for risk.
The net interest spread, the difference between total interest earned on all
earning assets and the interest paid on all interest-bearing liabilities, was
3.51 percent, 3.54 percent and 3.40 percent for the three months ended March 31,
1998, March 31, 1997 and December 31, 1997, respectively. On March 2, 1998
management lowered its prime lending rate from 8.50 percent to 8.25 percent,
offsetting the decrease with a reduction in rates paid on long-term certificates
of deposit. Management expects that the net interest spread for the balance of
1998 will remain in the 3.40 percent to 3.50 percent range and that net interest
income will approximate that of 1997.
7
<PAGE>
CITIZENS & NORTHERN CORPORATION - FORM 10 - Q
Part I - Financial Information (Continued)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Table I - Average Daily Balances and Rates
<TABLE>
<CAPTION>
Rate of Rate of Rate of
(In Thousands) Return/ Return/ Return/
Cost of Cost of Cost of
Funds Funds Funds
-------------- --------------- ---------------
EARNING ASSETS 03/31/98 % 12/31/97 % 03/31/97 %
---------- --- ----------- --- ----------- ---
<S> <C> <C> <C> <C> <C> <C>
Available-for-Sale Securities:
U. S. Treasury Securities $2,519 6.12 $2,514 5.53 $2,505 5.18
Securities of Other U.S. Government Agencies and 75,798 7.15 41,968 7.15 31,808 6.99
Corporations
Mortgage Backed Securities 117,549 6.74 163,942 6.75 181,750 6.73
Obligations of States and Political Subdivisions 62,498 6.02 59,554 6.04 56,170 6.20
Stock 16,639 5.53 15,039 5.81 15,313 5.48
Other Securities 10,529 7.16 4,536 1.15 3,340 2.06
Total Available-for-Sale Securities 285,532 6.63 287,553 6.51 290,886 6.52
Held-to-Maturity Securities:
U. S. Treasury Securities 630 7.72 601 5.66 599 6.77
Securities of Other U. S. Government Agencies and 450 7.21 297 7.41 133 6.66
Corporations
Mortgage Backed Securities 584 7.64 689 7.55 745 7.62
Total Held-to-Maturity Securities 1,664 7.56 1,587 6.81 1,477 7.14
Interest-bearing Due from Banks 619 6.55 795 6.79 548 6.66
Federal Funds Sold 4,838 5.03 6,132 5.45 4,273 5.32
Loans:
Real Estate Loans 224,614 8.98 223,510 9.05 220,166 9.04
Consumer 31,853 19.80 32,293 20.08 32,672 19.96
Agricultural 2,481 10.13 2,689 10.12 2,770 9.96
Commercial/Industrial 17,367 9.43 16,743 9.59 16,875 9.61
Other 745 7.62 754 8.22 520 7.80
Political Subdivisions 5,918 6.10 6,355 6.15 6,198 6.15
Leases 215 7.55 236 7.63 229 5.31
Total Loans 283,193 10.17 282,580 10.28 279,430 10.29
Total Earning Assets 575,846 8.36 578,647 8.34 576,614 8.34
Cash 12,105 12,228 11,918
Securities Valuation Reserve 20,035 9,907 8,667
Allowance for Possible Loan Losses (4,946) (4,844) (4,769)
Other Assets 5,454 5,745 6,492
Bank Premises & Equipment 6,773 6,594 6,555
Total Assets $615,267 $608,277 $605,477
INTEREST-BEARING LIABILITIES
Interest Checking $36,537 2.45 $38,334 2.47 $38,341 2.45
Money Market 107,914 4.56 107,287 4.55 104,125 4.56
Savings 45,212 2.48 46,338 2.48 46,297 2.48
Certificates of Deposit 121,516 5.54 119,226 5.49 117,522 5.46
Individual Retirement Accounts 79,597 5.65 78,662 5.99 78,927 5.86
Other Time Deposits 1,927 2.74 2,223 2.52 1,947 2.71
Federal Funds Purchased 2,661 8.69 663 4.98 467 6.08
Other Borrowed Funds 83,514 5.70 88,548 5.63 96,613 5.50
Total Interest-bearing Liabilities 478,878 4.85 481,281 4.84 484,239 4.80
Demand Deposits 42,392 42,780 41,149
Other Liabilities 7,756 8,211 8,769
TOTAL LIABILITIES 529,026 532,272 534,157
Stockholders' Equity 72,906 69,440 65,599
Securities Valuation Reserve 13,335 6,565 5,721
Total Liabilities and Stockholders' Equity $615,267 $608,277 $605,477
Interest Rate Spread 3.51 3.50 3.54
</TABLE>
8
<PAGE>
CITIZENS & NORTHERN CORPORATION - FORM 10 - Q
Part I - Financial Information (Continued)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Table II - Effect of Volume and Rate Changes in Interest
Income and Interest Expense
<TABLE>
<CAPTION>
Three-Month Periods Ended March 31, 1998/1997
---------------------------------------------
(In Thousands) Change in Change in Total
Volume Rate Change
---------------------------------------------
<S> <C> <C> <C>
EARNING ASSETS
Available-for-Sale Securities:
U. S. Treasury Securities $6 $6
Securities of Other U.S. Government Agencies and Corporations $775 13 788
Mortgage Backed Securities (1,068) 9 (1,059)
Obligations of States and Political Subdivisions 93 (24) 69
Stock 18 2 20
Other Securities 79 90 169
Total Available-for-Sale Securities (103) 96 (7)
Held-to-Maturity Securities:
U. S. Treasury Securities 1 1 2
Securities of Other U.S. Government Agencies and Corporations 6 0 6
Mortgage Backed Securities (3) 0 (3)
Total Held-to-Maturity Securities 4 1 5
Interest-bearing Due from Banks 1 (0) 1
Federal Funds Sold 7 (3) 4
Loans:
Real Estate Loans 98 (32) 66
Consumer (40) (13) (53)
Agricultural (7) 1 (6)
Commercial/Industrial 11 (7) 4
Other 4 (0) 4
Political Subdivisions (4) (1) (5)
Leases (0) 1 1
Total Loans 62 (51) 11
Total Interest Income (29) 43 14
INTEREST- BEARING LIABILITIES
Interest Checking (11) (0) (11)
Money Market 43 0 43
Savings (7) 1 (6)
Certificates of Deposit 54 26 80
Individual Retirement Accounts 10 (41) (31)
Other Time Deposits (0) 0 0
Federal Funds Purchased 46 4 50
Other Borrowed Funds (186) 48 (138)
Total Interest Expense (51) 38 (13)
NET INTEREST INCOME $22 $5 $27
</TABLE>
The change in interest due to both volume and rates has been allocated to volume
and rate changes in proportion to the relationship of the absolute dollar amount
of the change in each.
9
<PAGE>
CITIZENS & NORTHERN CORPORATION - FORM 10 - Q
Part I - Financial Information (Continued)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The Allowance for Possible Loan Losses is a reserve established by management
and the Board of Directors, which they believe will absorb future loan losses
based on management's assessment of the quality and volume of the loan
portfolio. The assessment is performed on an ongoing basis and reviewed by the
board of Directors quarterly.
The quarterly review process is performed by a loan quality committee consisting
of the President, Chief Financial Officer, Executive Vice-Presidents in charge
of loans and branch administration and monitored by the Corporation's auditor.
The committee reviews the "Watch List" (a collection of loans that have had a
history of delinquency), past due reports, nonperforming loans and historical
information related to charge-offs and recoveries by loan category.
The reserve balance is then allocated across the various loan categories to
determine the unallocated or excess reserve balance. The allocation is performed
using two different methods. The first method, a historical method based on five
years of information, calculates the ratio of average losses by type to the
average outstanding balance by type. The ratio is then applied to the current
outstanding balance of the various loan categories to determine the amount of
reserve to be allocated to the loan category. In addition to the historical
calculated amount, at times the committee will add additional amounts to the
calculated total if it is aware of a particular problem or the five-year average
is not representative of current conditions. The second allocation method
extracts loans by a quality rating system. The ratings are substandard, doubtful
and loss. Regulatory guidelines are then applied: 15 percent of the substandard
category, 50 percent of the doubtful classification and 100 percent of the loss
category loans.
Other factors used to measure the level of the reserve are loan growth, economic
conditions of the market area and peer group comparisons.
The following tables present current and historical information on the loan
portfolio and the Reserve for Possible Loan Losses.
TABLE III
Reserve for Possible Loan
Losses - Reconciliation
<TABLE>
<CAPTION>
Estimated Actual Actual Actual Actual Actual
Dec. 31, Mar. 31, Dec. 31, Dec. 31, Dec. 31, Dec 31,
1998 1998 1997 1996 1995 1994
--------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Beginning Balance January 1, $4,913,334 $4,913,334 $4,775,960 $4,579,210 $4,228,741 $3,816,982
Provision Charged to Earnings 763,416 190,854 797,032 700,500 736,500 737,496
Year-to-Date Recoveries 125,000 32,132 124,407 167,926 187,473 194,312
Year-to-Date Charge-offs (900,000) (385,976) (784,065) (671,676) (573,504) (520,049)
Ending Balance $4,901,750 $4,750,344 $4,913,334 $4,775,960 $4,579,210 $4,228,741
</TABLE>
10
<PAGE>
CITIZENS & NORTHERN CORPORATION - FORM 10 - Q
Part I - Financial Information (Continued)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
<TABLE>
<CAPTION>
TABLE IV - FIVE YEAR HISTORY OF LOAN LOSSES Projected
(In Thousands) 1998 1997 1996 1995 1994 1993 AVERAGE
---- ---- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Loans * 298,838 285,426 278,597 264,182 258,472 238,755 265,086
Net Charge-offs 775 660 504 387 326 247 425
Allowance for Possible Loan Losses Balance 4,906 4,913 4,776 4,579 4,229 3,817 4,463
Provision for Loan Losses Charged to Earnings 768 797 701 737 737 708 736
Earnings 9,876 10,107 9,255 7,866 7,494 8,127 8,570
Earnings Coverage of Net Charge-offs 12.7 x 15.3 x 18.4 x 20.3 x 23.0 x 32.9 x 22
Allowance Coverage of Net Charge-offs 6.3 x 7.4 x 9.5 x 11.8 x 13.0 x 15.5 x 11
Loans Ninety Days or More Past Due and
Still Accruing 2,925 2,900 2,994 2,915 2,743 2,899 2,890
Net Charge-offs as a Percent of the Provision 100.9% 82.8 % 71.9 % 52.5 % 44.2 % 34.9 % 57
Year-End Nonperforming Loans 1,200 1,412 864 279 624 843 804
Allowance as a Percentage of Gross Loans: *
Bank (1) March 31, 1998 1.69% 1.72 % 1.71 % 1.73 % 1.64 % 1.60 % 2
Peer Group (2) December 31, 1997 1.50% 1.43 % 1.50 % 1.61 % 1.65 % 1.82 % 2
</TABLE>
- ----------
* Gross Loans less Unearned Discount
TABLE V - Reserve Allocation - Historical
<TABLE>
<CAPTION>
Est.
LOAN CLASSIFICATION 1998 1997 1996 1995 1994 1993 Average
------------------- ---- ---- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, Agricultural, Municipal & Other 30,338 25,751 30,054 26,481 22,794 26,530 26,322 0.00115 X 30,338 = 35
Real Estate - Mortgage 225,000 220,358 215,123 201,350 195,688 172,756 201,055 0.00043 X 225,000 = 97
Credit Card & Related Plans 10,000 9,084 8,902 9,934 9,896 9,212 9,406 0.01667 X 10,000 = 440
All Other Loans to Individuals 33,500 30,270 24,518 26,417 30,094 30,282 28,316 0.00587 X 33,500 = 262
Total Loans 298,838 285,463 278,597 264,182 258,472 238,780 265,099 0.00166 298,838
Letter of Credit Commitments 5,500 5,012 5,106 2,633 4,415 5,046 4,442 0.00115 X 5,500 = 6
All Other Commitments
Consumer 30,000 27,728 28,049 24,811 24,202 23,323 25,623 0.00587 X 30,000 = 176
Mortgage 11,000 10,497 5,802 7,276 9,566 9,466 8,521 0.00043 X 11,000 = 5
Commercial 13,000 13,045 10,825 10,201 9,901 9,790 10,752 0.00115 X 13,000 = 15
Impaired Loans 500 274 113 228 500
Total Allocated 1,536
Unallocated 3,377
Reserve Balance 4,913
</TABLE>
The reserve balance allocation ratio is determined using the six-year average
net charge-offs divided by the six-year average loan balance by type.
11
<PAGE>
CITIZENS & NORTHERN CORPORATION - FORM 10 - Q
Part I - Financial Information (Continued)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
<TABLE>
<CAPTION>
TABLE VI -Reserve Allocation Based on Regulatory Standards March 31, 1998
Loan Classifications
- --------------------------------------------------------------------------------------
<S> <C>
Substandard 15 % 1,182,389
Doubtful 50 % 313,728
Loss 100 % 340,258
FASB 114 Allocation 333,043
- --------------------------------------------------------------------------------------
Required Reserve 2,169,419
Unallocated 2,581,502
- --------------------------------------------------------------------------------------
Total Reserve 4,750,921
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
CITIZENS & NORTHERN CORPORATION - FORM 10 - Q
Part I - Financial Information (Continued)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
<TABLE>
<CAPTION>
Three-Month Periods Ended
TABLE VII - COMPARISON OF NONINTEREST INCOME -------------------------
(In Thousands) March 31, March 31, % $
1998 1997 Change Change
--------- -------- ------ ------
<S> <C> <C> <C> <C>
Service Charges on Deposit Accounts $250 $266 (0.06) ($16)
Service Charges and Fees 77 59 0.31 18
Trust Department Income 316 261 0.21 55
Insurance Commissions, Fees and Premiums 102 109 (0.06) (7)
Other Operating Income 21 44 (0.52) (23)
Total Other Operating Income before Realized
Gains (Losses) on Securities, Net 766 739 0.04 27
Realized Gains (Losses) on Securities, Net 754 787 (0.04) (33)
Total Other Income $1,520 $1,526 0.00 $(6)
</TABLE>
Total Other Operating Income increased 3.6 percent or $27,000 during the quarter
ended March 31, 1998 when compared to the quarter ended March 31, 1997.
Categories of Other Operating Income include Service Charges on Deposit
Accounts, Other Service Charges and Fees, Trust Department Income, Bucktail Life
Insurance Co. Premiums and Other Operating Income.
Service Charges on Deposit Accounts, consisting of account activity charges and
overdraft charges, has declined slightly during the past two years. Normally,
income generated from deposit accounts on a quarterly basis would average
somewhere between $275,000 and $285,000. During the past two consecutive
quarters it has averaged about $258,000. The decrease is due to a decline in the
number of daily overdrafts and an increase in the number of customers utilizing
Money Market Accounts and payroll accounts.
Payroll accounts are free if direct deposit is utilized; the total number of
accounts has increased by nearly 500 since March 31, 1997.
Service Charges and Fees, consisting of debit card fees, credit card annual
fees, official check sales and check cashing fees, increased just over $18,000
or 31 percent when comparing the quarters ended March 31, 1998 and March 31,
1997. When comparing the quarters ended March 31, 1998 and December 31, 1997,
Service Charges and Fees increased only minimally at $6,000.
Trust Department Income for the quarters ended March 31, 1998, March 31, 1997
and December 31, 1997 amounted to $316,000, $261,000 and $230,000, respectively.
The significant increase posted during the first quarter of 1998 is directly
related to the amount of trust assets under management. For the periods ended
March 31, 1998, March 31, 1997 and December 31, 1997, trust assets under
management amounted to $252,926, $195,609 and $229,500, respectively. The growth
in trust assets is the result of an aggressive sales program and increases in
the market values of account holdings.
Insurance Commissions, Fees and Premiums decreased $7,000 when comparing the
quarters ended March 31, 1998 and March 31, 1997 and $17,000 when comparing the
quarters ended March 31, 1998 and December 31, 1997. The decrease is the result
of a lack of loan activity and alternate sources of credit life and accident and
health insurance.
Other Operating Income is made up primarily of safe deposit box rentals,
earnings or losses on the "Supplemental Employees Retirement Plan" ("SERP") and
gains received on the sale of bank assets. The amounts reflected for the
quarters ended March 31, 1998, March 31, 1997 and December 31, 1997 were
$21,000, $44,000 and $2,000, respectively. The fluctuation in the recorded
amounts is due to the timing of the posting of "SERP" income and the variance in
"SERP" income caused by fluctuations in the balance of the "SERP" plan.
Normally, Other Operating Income will average $12,000 to $15,000 per quarter.
13
<PAGE>
CITIZENS & NORTHERN CORPORATION - FORM 10 - Q
Part I - Financial Information (Continued)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
<TABLE>
<CAPTION>
Three-Month Periods Ended
TABLE VIII- COMPARISON OF NONINTEREST EXPENSE -------------------------
March 31, March 31, $ %
1998 1997 Change Change
--------- --------- ------ ------
(In Thousands)
<S> <C> <C> <C> <C>
Salaries and Wages 1,599 1,496 103 6.89
Pensions and Other Employee Benefits 442 469 (27) (5.76)
Occupancy Expense, Net 200 172 28 16.28
Furniture and Equipment Expense 194 162 32 19.75
Other Operating Expense 1,502 1,504 (2) (0.13)
Total Other Expense 3,937 3,803 134 3.52
</TABLE>
Salaries and Wages increased 6.8 percent or $103,000 during the quarter ended
March 31, 1998 when compared to the quarter ended March 31, 1997. The increase
is the result of annual merit raises as the number of full time equivalent
employees ranges between 203 to 205. When comparing the salaries and wage totals
for the quarters ended March 31, 1998 and December 31, 1997, the increase
amounted to $83,000 or just over 5 percent.
Pensions and Other Employee Benefits consists primarily of social security
taxes, group life and health insurance, contributions to the 401 (k) plan and
pension expense. The cost of Pensions and Other Employee Benefits declined
$27,000 or nearly 6 percent when comparing the quarters ended March 31, 1998 and
March 31, 1997. The contributing factor to the decrease was the retirement of
the President and CEO and the associated retirement payments made during the
first quarter of 1997. When comparing the quarters ended March 31, 1998 and
December 31, 1997, the wages and benefits expense increased slightly at $17,000
or 4 percent.
Occupancy Expense, consisting of insurance, maintenance, real estate taxes,
depreciation and other utilities, increased 16 percent or $28,000 when comparing
the quarters ended March 1998 and March 1997. The increase was due to the
replacement of roofs on two branch offices and an extensive remodeling of one of
the branch locations. An adjacent property was also purchased at our Wellsboro
location at a cost of $75,000. When comparing the first quarter of 1998 to the
fourth quarter of 1997 the increase amounted to $9,000.
Furniture and Equipment Expense has also increased $32,000 or 19 percent when
comparing the March 1998 quarter to the March 1997 quarter. The increase is due
to the replacement of several vehicles and the purchases of a statement folder
inserter and a new data card machine. The combined cost of the data card machine
and the folder inserter was in excess of $150,000. A comparison of the quarters
ended March 31, 1998 and December 31, 1997 reflects a decline of $16,000;
however, it is expected that for the balance of 1998 equipment maintenance will
increase significantly with the recent installation of eight ATMs.
Other Operating Expense is comprised of several components. The largest
components are the Pennsylvania Shares Tax and credit card expense; combined
they constitute just over half of Other Operating Expense. Those components
posted significant increases between the quarters being compared. Credit card
costs increased $53,000 due primarily to an increase in ATM interchange fees.
The Pennsylvania Shares Tax, which is a tax on the Bank's capital, also
increased $16,000. Other Operating Expense for the quarter ended March 31, 1997
included losses on the sale of other real estate amounting to $53,000. Had those
losses not been recorded, the change between the comparable quarters would have
amounted to an increase of about 3 percent during the quarter ended March 31,
1998. A comparison of the quarters ended March 31, 1998 and December 31, 1997
reflects a minimal increase of just over 1 percent. The Corporation continually
monitors Other Operating Expense and has been successful in holding those
expenses to a minimum.
Realized Securities Gains amounted to $754,000 during the first quarter of 1998.
This compares to gains amounting to $787,000 during the same period in 1997. The
gains result from the sale of equity investments in banks and bank holding
companies located primarily in Pennsylvania. The equities are sold when
management and the Board of Directors feel that the stocks have become over
valued or the price has increased significantly due to mergers or merger
speculation. Gains taken also increase the return on the equity investments
which are somewhat lower than the balance of the portfolio. During the fourth
quarter of 1997, Realized Gains on the Sale of Available-for-Sale Securities
amounted to $132,000.
14
<PAGE>
CITIZENS & NORTHERN CORPORATION - FORM 10 - Q
Part I - Financial Information (Continued)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
STATEMENT OF CONDITION
Average total assets of the Corporation were $615,267,000 and $605,477,000 for
the three-month periods ended March 31, 1998 and March 31, 1997, respectively.
Excluding the unrealized gains on available-for-sale securities which amounted
to $20,035,000 at March 31, 1998 and $8,667,000 at March 31, 1997, the average
total assets of the Corporation were $595,232,000 and $596,810,000,
respectively. Average assets for the year ended December 31, 1997 amounted to
$608,277,000 and $598,370,000 with unrealized securities gains excluded.
The asset structure of the Corporation changed very little during the periods
being compared; average available-for sale securities decreased $5,354,000 and
average gross loans increased $3,763,000 when comparing the quarters ended March
31, 1998 and March 31, 1997. Average total available-for-sale investments and
average gross loans for the year ended December 31, 1997 were $287,553,000 and
$282,580,000, respectively, reflecting very little change from the comparable
quarters. The mix of components making up the portfolio of available-for-sale
investments did change somewhat as interest rates began to decline during the
fourth quarter of 1997. As rates declined, prepayments on mortgage-backed
investments increased by about 35 percent. Those prepayments were reinvested in
U. S. Agency investments, primarily Federal Home Loan Bank securities. The
composition of the loan portfolio changed slightly as mortgage prepayments
increased slightly and competition from third-party mortgage vendors offering
lower rates and fees became a factor.
The return on those earning assets has not changed significantly. The average
rate of return on earning assets for the quarters ended March 31, 1998, March
31, 1997 and the year ended December 31, 1997 were 8.36 percent, 8.34 percent
and 8.34 percent, respectively.
The liability side of the balance sheet saw deposit growth slow during the
latter half of 1997. Average total deposits for the three months ended March 31,
1998 amounted to $435,095,000 or less than 1 percent growth over year-end 1997.
Average deposits increased one and one half percent when comparing the quarter
ended March 31, 1997 and March 31, 1998. Deposit growth has centered around
money market accounts and certificates of deposit as other deposit categories
remain flat. Average borrowed funds have declined 11 percent at March 31, 1998
when compared to March 31, 1997. The decline is the result of a flat yield curve
with very few leveraging opportunities.
The average rates paid on interest-bearing liabilities also did not change
significantly. The average rates paid for the periods ended March 31, 1998,
March 31, 1997 and December 31, 1997 were 4.85 percent, 4.84 percent and 4.80
percent, respectively.
Management expects that 1998 will bring continued competition for deposits from
credit unions, brokerage houses and other nonbank competitors and it will
continue to look for innovative deposit products to hold current customers and
attract new business.
LIQUIDITY
Liquidity is the ability to raise cash quickly and at a reasonable cost. An
adequate liquidity position permits the Corporation to pay creditors, to
compensate for unforeseen deposit fluctuations and to fund unexpected loan
demand. Daily deposit decreases normally do not exceed $4,000,000 to $6,000,000
and new loan advances average less than $100,000 per day net of loan repayments.
In addition to the daily sources of cash, such as loan repayments, amortization
of mortgage-backed investments, maturing bonds and deposit growth, the
Corporation has several additional sources of liquidity: the sale of assets
(primarily investment securities), short-term or long-term borrowing. Sources of
borrowing include the Federal Home Loan Bank of Pittsburgh and several
correspondent bank relationships.
INTEREST RATE RISK AND MARKET RISK
The risk that arises from changes in interest rates is an inherent factor in
operating a bank. The risk associated with changes in interest rates is two
fold: the risk to earnings and the risk to the market values of assets and
liabilities.
15
<PAGE>
CITIZENS & NORTHERN CORPORATION - FORM 10 - Q
Part I - Financial Information (Continued)
Item 2. Management's Discussion and Analysis of Financial Condition
and
Results of Operations (Continued)
From an earnings risk perspective, an asset sensitive institution (positive
gap) will normally benefit from rising rates and a liability sensitive (negative
gap) will benefit from falling interest rates. Citizens & Northern Corporation
uses a simulation model that calculates earnings under varying interest rate
shock scenarios, most commonly up 100, 200 and 300 basis points and the same
rate scenarios in a falling rate environment. The Asset and Liability Committee
and the Board of Directors have established a 20 percent decrease in net
interest income as a parameter at a 200 basis point (2 percent) increase in
interest rates. The model is run monthly using the current maturity schedule of
the Corporation's assets and liabilities and certain prepayment assumptions.
The risk associated with interest rate increases and decreases as they relate to
the market value of the assets and liabilities of the Corporation are also
calculated using the same model and the same rate shock of plus and minus 100,
200, and 300 basis point swings in rates. Market values are estimated by
applying present value calculations to the Corporation's balance sheet and the
associated maturity schedule. The Asset and Liability Committee and Board of
Directors have also imposed a market loss limit of 25 percent at a 200 basis
point rate shock.
The model utilized to create Table IX makes estimates, at each level of interest
rate change, regarding cash flows from principal repayments on loans and
mortgage-backed securities and call activity on other investment securities.
Actual results could vary significantly from these estimates which could result
in significant differences in the calculation of projected changes in net
interest margin and market value of portfolio equity. Also, the model does not
make estimates related to changes in the composition of the deposit portfolio
that could occur due to rate competition and the table does not necessarily
reflect changes that management would make to realign the portfolio as a result
of changes in interest rates.
TABLE IX - EFFECT OF HYPOTHETICAL CHANGES IN INTEREST RATES
NIM = Net Interest Margin
MVPE = Market Value of Portfolio Equity
<TABLE>
<CAPTION>
(In Thousands) At March 31, 1999 At March 31, 1998
---------------------------------- ---------------------------------
Estimated Estimated Estimated Estimated
Change in Estimated Change in Change in Estimated Change in Change in
Interest Rates NIM NIM NIM MVPE MVPE MVPE
--------- ---------- ---------- --------- --------- ---------
(Basis Points) $ $ % $ %
<S> <C> <C> <C> <C> <C> <C>
Plus 300 20,334 (2,927) -12.58 57,765 (22,882) -28.37
Plus 200 21,312 (1,949) -8.38 65,603 (15,044) -18.65
Plus 100 22,249 (1,012) -4.35 73,501 (7,146) -8.86
Flat 23,261 80,647
Minus 100 23,926 665 2.86 90,368 9,721 12.05
Minus 200 24,551 1,290 5.55 98,540 17,893 22.19
Minus 300 25,158 1,897 8.16 106,982 26,335 32.65
</TABLE>
EQUITY SECURITIES RISK
The Corporation's equity securities portfolio consists of restricted stock,
primarily of the Federal Home Loan Bank of Pittsburgh ("FHLB") and investments
in stock of banks and bank holding companies located mainly in Pennsylvania.
FHLB stock can only be sold back to the FHLB or to another member institution at
par value. Accordingly, the Corporation's investment in FHLB stock is carried at
cost, which equals par value, and is evaluated for impairment. Factors that
might cause FHLB stock to become impaired are primarily regulatory in nature and
are related to potential problems in the residential lending market; for
example, the FHLB may be required to make dividend or other payments to the
Financing Corporation, the Resolution Funding Corporation, or other entities, in
amounts that could exceed the FHLB's total equity.
Investments in bank stocks are subject to the risk factors that affect the
banking industry in general, including competition from nonbank entities, credit
risk, interest rate risk and other factors, that could result in a decline in
market prices. Also, losses could occur in individual stock held by the
Corporation because of specific circumstances related to each bank. Further,
since the stocks held are bank and bank holding companies concentrated in
Pennsylvania, these investments could decline in market value if there is a
downturn in the state's economy.
Equity securities held as of March 31, 1998 and March 31, 1997 are as follows:
16
<PAGE>
CITIZENS & NORTHERN CORPORATION - FORM 10 - Q
Part I - Financial Information (continued)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
TABLE X - EQUITY SECURITIES
<TABLE>
<CAPTION>
Hypothetical Hypothetical
10 % Decline 20 % Decline
In In
(In Thousands) Fair Market Market
At March 31, 1998 Cost Value Value Value
- ----------------- ---- ----- ------------- -------------
<S> <C> <C> <C> <C>
Bank & Bank Holding Companies 12,554 29,667 (2,967) (5,933)
Fed. Home Loan Bank and Other Restricted Stocks 4,152 4,152 (415) (830)
Total 16,706 33,819 (3,382) (6,763)
</TABLE>
<TABLE>
<CAPTION>
Hypothetical Hypothetical
10 % Decline 20 % Decline
In In
(In Thousands) Fair Market Market
At March 31, 1997 Cost Value Value Value
- ----------------- ---- ----- ------------- -------------
<S> <C> <C> <C> <C>
Bank & Bank Holding Companies 11,565 21,000 (2,100) (4,200)
Fed. Home Loan Bank and Other Restricted Stocks 3,361 3,361 (336) (672)
Total 14,926 24,361 (2,436) (4,872)
</TABLE>
CAPITAL ADEQUACY
Under regulations published by the Federal Deposit Insurance Corporation and
other bank regulators, a bank's capital must be divided into two tiers. The
first tier or tier one capital consists primarily of common stock, retained
earnings, surplus and non-cumulative perpetual preferred stock. Tier two
includes the allowance for possible loan losses (limited to 1.25 percent of
risk-weighted assets), cumulative preferred stock and subordinated debt.
Risk-based capital guidelines published in 1990 require banks to maintain a
risk-based capital ratio of 8 percent, 4 percent of which must be tier one; the
remainder may be tier two. The total risk-based capital ratios at March 31,
1998, March 31, 1997 and December 31, 1997 were 24.13 percent, 22.70 percent and
22.99 percent, respectively.
The primary source of capital growth for the Corporation is earnings. Capital
growth for the quarters ended March 31, 1998 and March 31, 1997 on an annualized
basis was 9.25 percent and 11.25 percent, respectively; capital growth for the
year ended December 31, 1997 was 9.7 percent.
Total capital of the Corporation (excluding unrealized gains on
available-for-sale securities) at March 31, 1998, March 31, 1997 and December
31, 1997 was $73,869,000, $67,678,000 and $72,200,000, respectively.
The leverage ratio (capital divided by total liabilities), excluding unrealized
gains on available-for-sale securities, at March 31, 1998, March 31, 1997 and
December 31, 1997, was 13.9 percent, 12.6 percent and 13.6 percent,
respectively.
Planned capital expenditures during the next 12 months will amount to an
estimated $500,000. These capital expenditures will not have a detrimental
effect on capital ratios or results of operations.
17
<PAGE>
CITIZENS & NORTHERN CORPORATION - FORM 10 - Q
Part I - Financial Information (continued)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
YEAR 2000 COMPLIANCE
The "Year 2000" or "Y2K" problem is a computer problem that began when computers
began to store and process information. The problem occurs as a result of the
date format used in most older software and older computers. The year has often
been stored as a two digit number, e.g., 1998 as 98. When the date rolls forward
to 2000, most computers and computer software will look at the date as 00 or
1900. This could have a major impact on many calculations if not corrected.
Citizens & Northern Corporation began working on the problem in 1996 and is
nearly Year 2000 compliant. Testing of main frame computer software is scheduled
to begin in June of 1998 and to be completed by year-end 1998.
It is difficult to estimate the total cost of compliance since the work has been
done in-house and over a very long period of time. The main frame computer will
not have to be replaced; however, several PCs and PC software will be replaced,
and item processing software will have to be updated. The cost of PC replacement
is estimated to be about $50,000 and software upgrades will probably be equal to
that.
Citizens & Northern Corporation has ascertained through correspondence that
most of its significant vendors are Year 2000 compliant. The Corporation is in
the process of contacting its larger commercial loan customers and will hold
seminars at various locations to discuss and explain the problem to its customer
base.
INFLATION
Inflation affects nearly every aspect of banking, primarily interest rates. The
effect of inflation, when it is high, also has an impact on the cost of goods,
such as supplies, services and labor. Growth in the U.S. economy for 1998 is
projected at about 2 percent which is considered not to be inflationary. The
yield curve at this writing is still fairly flat, although long-term rates have
increased very slightly during the past week. In essence, inflation does not
appear to be a problem in the near-term and should not impact the results of
operations for the balance of 1998.
18
<PAGE>
CITIZENS & NORTHERN CORPORATION - FORM 10 - Q
Part II - Other Information
Item 1. Legal Proceedings
There are currently no pending lawsuits against Citizens & Northern Corporation.
Item 4. Submission of matters to a vote of security holders.
None
Item 5. Other Events
a. None
Item 6. Exhibits and Reports on Form 8 - K
a. Exhibits filed as a part of this report - None
b. No reports on Form 8 - K were filed during the period ended March 31,
1998.
19
<PAGE>
CITIZENS AND NORTHERN CORPORATION - FORM 10 - Q
Signature Page
SIGNATURES
Pursuant to the requirements 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
May 6, 1998 By: /s/ Craig G. Litchfield
- ----------- ------------------------------------
Date President and Chief Executive Officer
May 6, 1998 By: /s/ James W. Seipler
- ----------- --------------------------------------
Date Executive Vice President and Treasurer
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 14,390
<INT-BEARING-DEPOSITS> 681
<FED-FUNDS-SOLD> 17,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 296,201
<INVESTMENTS-CARRYING> 1,690
<INVESTMENTS-MARKET> 1,721
<LOANS> 276,361
<ALLOWANCE> 4,750
<TOTAL-ASSETS> 618,284
<DEPOSITS> 437,934
<SHORT-TERM> 10,000
<LIABILITIES-OTHER> 0
<LONG-TERM> 75,057
0
0
<COMMON> 5,220
<OTHER-SE> 81,879
<TOTAL-LIABILITIES-AND-EQUITY> 618,284
<INTEREST-LOAN> 7,013
<INTEREST-INVEST> 4,800
<INTEREST-OTHER> 60
<INTEREST-TOTAL> 11,873
<INTEREST-DEPOSIT> 4,494
<INTEREST-EXPENSE> 5,724
<INTEREST-INCOME-NET> 6,149
<LOAN-LOSSES> 191
<SECURITIES-GAINS> 754
<EXPENSE-OTHER> 3,937
<INCOME-PRETAX> 3,541
<INCOME-PRE-EXTRAORDINARY> 3,541
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,681
<EPS-PRIMARY> .52
<EPS-DILUTED> .52
<YIELD-ACTUAL> 8.36
<LOANS-NON> 1,652
<LOANS-PAST> 1,595
<LOANS-TROUBLED> 173
<LOANS-PROBLEM> 274
<ALLOWANCE-OPEN> 4,913
<CHARGE-OFFS> 386
<RECOVERIES> 32
<ALLOWANCE-CLOSE> 4,751
<ALLOWANCE-DOMESTIC> 1,536
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,377
</TABLE>
