8-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

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

Date of Report (Date of earliest event reported) April 13, 2016

CITIZENS & NORTHERN CORPORATION

(Exact name of registrant as specified in its charter)

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

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

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

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

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

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

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

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

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

ITEM 2.02. Results of Operations and Financial Condition

Citizens & Northern Corporation announced unaudited, consolidated financial results for the three months ended March 31, 2016. On April 13, 2016, Citizens & Northern Corporation issued a press release titled “C&N Announces First Quarter 2016 Unaudited Financial Results,” a copy of which is furnished as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference. Citizens & Northern Corporation’s “banCNotes,” a report that includes unaudited financial information, will be mailed to shareholders on or about April 20, 2016. A copy of the unaudited quarterly financial information included in banCNotes is furnished as Exhibit 99.2 to this Current Report on Form 8-K and is incorporated herein by reference. Also, supplemental, unaudited financial information is furnished as Exhibit 99.3 to this Current Report on Form 8-K and is incorporated herein by reference.

ITEM 9.01. Financial Statements and Exhibits

(a) Not applicable.

(b) Not applicable.

(c) Not applicable.

(d) Exhibits.

Exhibit 99.1: Press Release issued by Citizens & Northern Corporation dated April 13, 2016, titled “C&N Announces First Quarter 2016 Unaudited Financial Results.”

Exhibit 99.2: Unaudited financial information included in “banCNotes” report to be mailed to shareholders on or about April 20, 2016.

Exhibit 99.3: Supplemental, unaudited financial information.

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Signatures

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

	CITIZENS & NORTHERN CORPORATION
Date:  4/13/16	By:	/s/ Mark A. Hughes
		Treasurer and Chief Financial Officer

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EX-99.1

Exhibit 99.1

 

	Contact:  Charity Frantz
April 13, 2016	570-724-0225
	charityf@cnbankpa.com

C&N Announces FIRST QUARTER 2016 UNAUDITED Financial RESULTS

For Immediate Release:

Wellsboro, PA – Citizens & Northern Corporation (C&N) announced its unaudited, consolidated financial results for the three-month period ended March 31, 2016.

Net income per diluted share was $0.29 in the first quarter 2016, as compared to $0.33 per share in the fourth quarter 2015 and $0.31 per share in the first quarter 2015. The return on average assets for the first quarter 2016 was 1.18%, and the return on average equity was 7.60%. Highlights related to C&N’s earnings results for the comparative periods are presented as follows:

First Quarter 2016 as Compared to Fourth Quarter 2015

· Net interest income totaled $10,033,000 in the first quarter 2016, up from $9,949,000 in the fourth quarter 2015. The net interest margin improved to 3.81% in the first quarter 2016 as compared to 3.69% in the fourth quarter 2015, as the average rate paid on borrowed funds dropped to 2.30% from 3.16%. The lower rate on borrowed funds resulted from a $24 million prepayment of a repurchase agreement in the fourth quarter 2015 with an interest rate of 4.265%, and an increase in short-term borrowings at lower rates than had been incurred on the repurchase agreement.

· The provision for loan losses was $368,000 in the first quarter 2016, up from $319,000 in the fourth quarter 2015. The higher provision for loan losses in the most recent quarter resulted from an increase in the collectively determined portion of the allowance for loan losses, including the effect of an increase in the average net charge-off percentage used to calculate the allowance due to a partial charge-off of $595,000 on one commercial loan in the first quarter 2016.

· Noninterest revenue totaled $3,690,000 in the first quarter 2016, down $309,000 (7.7%) from the fourth quarter amount 2015 of $3,999,000. Service charges on deposit accounts were $97,000 (7.9%) lower in the most recent quarter as compared to the fourth quarter 2015, consistent with seasonal trends in most recent years. Other operating income was $102,000 lower in the first quarter 2016 as compared to the fourth quarter 2015, reflecting fourth quarter 2015 income from a life insurance arrangement of $212,000, with no comparative amount received in the first quarter 2016, partially offset by an increase of $134,000 in income from the redemption of tax credits.

· In the first quarter 2016, realized gains from securities totaled $383,000, including gains from sales of bank stocks of $249,000. In the fourth quarter 2015, C&N had realized gains from securities of $1,776,000 and recognized a loss of $1,663,000 from prepayment of the repurchase agreement (borrowing) described above. In 2015, C&N prepaid the repurchase agreement in two installments, including a second quarter prepayment of $10 million and a fourth quarter prepayment of $24 million. There were no prepayments of borrowings in the first quarter 2016.

· Noninterest expenses, excluding loss on prepayment of borrowings, totaled $9,072,000 in the first quarter 2016, up $656,000 (7.8%) from $8,416,000 in the fourth quarter 2015. Pensions and other employee benefits expense increased $353,000 in the first quarter 2016 as compared to the fourth quarter 2015, reflecting the timing of payroll taxes and other payroll-related expenses that are typically highest in the first quarter of each year. Professional fees expense increased $114,000 in the first quarter 2016 as compared to the fourth quarter 2015, including increases in the areas of employee sales and service training, information technology, marketing and outsourced commercial loan credit review. Other operating expense increased $174,000, including an increase in charitable donations of $150,000. A substantial portion of the first quarter 2016 donations resulted in tax credits to be applied against 2016 state taxes.

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First Quarter 2016 as Compared to First Quarter 2015

· Net interest income was up $83,000 (0.8%) in the first quarter 2016 as compared to the first quarter 2015. The first quarter 2016 net interest margin improved by 0.07% over the first quarter 2015 due to a lower cost of borrowed funds, reflecting the prepayment of a repurchase agreement as described above, and a more favorable mix of earning assets. Average total loans outstanding increased $77.2 million (12.4%) in the first quarter 2016 as compared to the first quarter 2015, while average total available-for-sale securities fell $94.5 million. The average balance of earning assets fell $23.6 million, reflecting a reduction in funding available for investment, as average total deposits decreased $21.4 million (2.2%).

· The first quarter 2016 provision for loan losses of $368,000 was $365,000 higher than the comparative first quarter 2015 amount of $3,000. As noted above, the provision in the most recent quarter included the impact of a recent increase in net charge-off experience related to a commercial loan. In comparison, the lower first quarter 2015 provision included the net effect of a decrease in qualitative factor percentages used in determining the collectively evaluated portion of the allowance for loan losses, lower loan balances and a reduction in the specific allowance on impaired loans.

· Noninterest revenue of $3,690,000 in the first quarter 2016 was higher by $134,000 (3.8%) than the first quarter 2015 amount. Service charges on deposit accounts were $116,000 (11.4%) higher in the first quarter 2016 than in the first quarter 2015, reflecting changes made in the fee structure of certain checking products effective in April 2015.

· Realized gains from securities of $383,000 in the first quarter 2016 exceeded the first quarter 2015 amount by $309,000.

· Noninterest expenses, excluding loss on prepayment of borrowings, of $9,072,000 in the first quarter 2016 exceeded the first quarter 2015 amount by $539,000 (6.3%). Salaries and wages expense increased $400,000 (11.5%), reflecting an increase in number of employees and the effects of a significant portion of 2016 employee annual performance evaluations and merit increases occurring in the first quarter. The average number of full-time equivalent employees was 288 in the first quarter 2016, up from 278 in the first quarter 2015, including new positions established for lending, lending support, information technology, training and marketing functions. Professional fees expense increased $133,000 in the first quarter 2016 over the first quarter 2015 amount, including increases related to employee sales and service training, information technology, marketing and outsourced commercial loan credit review.

Other Information:

Changes in other unaudited financial information are as follows:

· Total assets amounted to $1,216,544,000 at March 31, 2016, as compared to $1,223,417,000 at December 31, 2015 and $1,251,958,000 at March 31, 2015.

· Net loans outstanding (excluding mortgage loans held for sale) were $693,944,000 at March 31, 2016, as compared to $696,991,000 at December 31, 2015 and up 11.7% from $621,211,000 at March 31, 2015. In comparing outstanding balances at March 31, 2016 and 2015, total residential mortgage loans increased $21.2 million, or 5.8%, and total commercial loans increased $51.6 million, or 20.5%. The major components of the growth in commercial loans outstanding were an increase in loan participations with other financial entities of $24.4 million and an increase in loans to political subdivisions (municipal loans) of $18.9 million.

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· The outstanding balance of residential mortgages originated by C&N and sold to third parties, with servicing retained, totaled $153,778,000 at March 31, 2016 as compared to $152,448,000 at December 31, 2015 and $151,272,000 at March 31, 2015.

· Total nonperforming assets as a percentage of assets was 1.36% at March 31, 2016 as compared to 1.31% at December 31, 2015 and 1.33% at March 31, 2015. Although the total amount of nonperforming assets did not change significantly in the first quarter 2016, the amount of loans past due 30-89 days and accruing interest increased $4.3 million, to $11.4 million at March 31, 2016. The increase in the balance in the 30-89 days delinquent category included one commercial loan with an outstanding balance of $2.7 million that was 35 days past due (and had been current prior to the first quarter 2016), and an increase of $807,000 in 1-4 family residential mortgage loans.

· Deposits and repo sweep accounts totaled $962,989,000 at March 31, 2016, up from $940,530,000 at December 31, 2015 but down from $982,474,000 at March 31, 2015. The reduction in total deposits and repo sweeps at March 31, 2016 as compared to March 31, 2015 includes a reduction of $15.0 million in time deposits (mainly certificates of deposit and IRAs) and a $6.9 million reduction in noninterest-bearing demand (checking) deposits. At December 31, 2015, municipal deposits were down significantly from previous levels as a result of the Pennsylvania state budget impasse and related delays in funding municipal entities. In early 2016, the current Pennsylvania fiscal budget situation was resolved, and C&N’s deposit levels from these entities increased.

· Total shareholders’ equity was $188,310,000 at March 31, 2016 as compared to $187,487,000 at December 31, 2015 and $189,103,000 at March 31, 2015. Tangible common equity as a percentage of tangible assets was 14.64% at March 31, 2016, up from 14.28% a year earlier. In July 2014, C&N announced a common stock repurchase plan for the repurchase of up to 622,500 shares, or 5% of the total shares outstanding on July 16, 2014. In the first quarter 2016, 154,350 shares were repurchased for a total cost of $3,070,000, at an average price of $19.89 per share. Cumulatively through March 31, 2016, 589,550 shares had been repurchased. In April 2016, C&N repurchased the remainder of the shares authorized under the program. In total, 622,500 shares were repurchased for a total cost of $12,140,000, at an average price of $19.50 per share.

· Assets under management by C&N’s Trust and Financial Management Group amounted to $826,470,000 at March 31, 2016, up from $814,788,000 at December 31, 2015, and down 0.7% from $832,550,000 a year earlier, reflecting the effect of volatility in overall valuations of U.S. stocks.

Citizens & Northern Corporation is the parent company of Citizens & Northern Bank, a local, independent community bank providing complete financial, investment and insurance services through 26 full service offices throughout Tioga, Bradford, Sullivan, Lycoming, Potter, Cameron and McKean counties in Pennsylvania and in Canisteo and South Hornell, NY. C&N can be found on the worldwide web at www.cnbankpa.com. The Company’s stock is listed on NASDAQ Capital Market Securities under the symbol CZNC.

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

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EX-99.2

EXHIBIT 99.2

March 31, 2016 QUARTERLY REPORT

Dear Shareholder:

Earnings per share for the first quarter of 2016 was $.29 per share compared to $.31 in the first quarter of 2015. Return on average assets for the quarter was 1.18% and return on average equity was 7.60%. Providing perspective on a bank’s first quarter performance has always been challenging. It is historically the weakest period during the year for new business development, carries a variety of front-loaded compensation and benefits related expenses, and includes the short month of February that impacts certain accruals. While we felt the impact of all of these forces, we had a very solid quarter and made progress in several key areas.

Net interest income increased $83,000 in the first quarter of 2016 compared to the same period in 2015, driven primarily by growth in average loans outstanding of $77 million and a lower cost of funds due to the prepayment of high cost repurchase agreements during 2015. As a result, the net interest margin improved by ..07%, to 3.81% during the first three months of 2016 from 3.74% a year earlier. We continue to operate in a historically low interest rate environment despite the Federal Reserve’s December rate hike. Following that move, the yield curve has flattened which makes it more challenging to expand margins.

The provision for loan losses was $368,000 during the first quarter of 2016 compared to just $3,000 in 2015 reflecting the impact on the first quarter 2016 calculation of the allowance for loan losses of a $595,000 charge off of one commercial loan. C&N’s overall credit quality remains strong as reflected in our past due and non-performing loan metrics at March 31, 2016 compared to a year earlier.

Noninterest revenue increased by $134,000, or 3.8%, in the first quarter of 2016 compared to 2015. Most notably, service charges on deposit accounts were higher by $116,000, or 11.4%, reflecting changes made to our checking accounts and fee structures effective April 2015. Trust revenues and gains from the sale of mortgage loans also increased reflecting solid first quarter performance from these two important business lines.

Noninterest expenses increased 6.5% to $9.072 million from $8.533 million in the first quarter of 2015. Included in expense growth is the impact of staff additions to drive and support loan growth, information technology, and marketing, as well as merit increases. A number of front loaded benefits related expenses also impacted personnel costs. Other drivers of noninterest expenses are the investments we are making in sales and service training, employee development, information technology, and marketing. All of these ongoing investments align with our objectives to build customer relationships and drive revenue growth over time.

As we have discussed over the past several quarters, loan growth has been strong. Net loans outstanding at March 31, 2016 were $694 million, an increase of $72.7 million, or 11.7%, from March 31, 2015. While loan balances remained flat between the end of 2015 through the end of the first quarter this year, our pipelines in both commercial and residential mortgage loans are robust and reflect the potential for healthy growth as we move into the second quarter.

C&N’s capital position continues to be very strong and we continue to support shareholder value through the cash dividend and stock repurchase program. The dividend paid during the first quarter remained at $.26 per share producing a yield of 5.23% based on the March 31, 2016 closing market price of $19.88. In the first quarter of 2016, 154,350 shares were repurchased at an average price of $19.89 per share under the program announced in July 2014. As of March 31, a cumulative total of 589,550 shares had been repurchased, and in April 2016, C&N repurchased the remainder of the shares authorized under the program. In total, 622,500 shares were repurchased at an average price of $19.50 for a total cost of $12.14 million.

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In closing, we extend a warm welcome to Frank Pellegrino and Terry Lehman who joined C&N’s Board of Directors in February. Frank, a member of our Lycoming County Regional Board for a number of years, is a successful business owner and a recognized leader in the community. Terry is an experienced CPA and “financial expert” who brings with him a deep understanding of banking and financial services through decades serving as an auditor and advisor to the industry. We look forward to their engagement and counsel as we pursue our mission of Creating Value Through Lifelong Relationships in the years ahead.

As always, thank you for your investment and ongoing support.

J. Bradley Scovill

President and CEO

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CONDENSED, CONSOLIDATED EARNINGS INFORMATION
(In Thousands, Except Per Share Data)   (Unaudited)
	1ST		1ST
	QUARTER		QUARTER
	2016		2015
	(Current)		(Prior Year)		$ Incr. (Decr.)			% Incr. (Decr.)
Interest and Dividend Income	$	10,937	$	11,163	$	(226	)		-2.02	%
Interest Expense		904		1,213		(309	)		-25.47	%
Net Interest Income		10,033		9,950		83			0.83	%
Provision for Loan Losses		368		3		365			12166.67	%
Net Interest Income After Provision for Loan Losses		9,665		9,947		(282	)		-2.84	%
Other Income		3,690		3,556		134			3.77	%
Net Gains on Available-for-sale Securities		383		74		309			417.57	%
Other Noninterest Expenses		9,072		8,533		539			6.32	%
Income Before Income Tax Provision		4,666		5,044		(378	)		-7.49	%
Income Tax Provision		1,093		1,229		(136	)		-11.07	%
Net Income	$	3,573	$	3,815	$	(242	)		-6.34	%
PER COMMON SHARE DATA:
Net Income - Basic	$	0.29	$	0.31	$	(0.02	)		-6.45	%
Net Income - Diluted	$	0.29	$	0.31	$	(0.02	)		-6.45	%
Dividend Per Share	$	0.26	$	0.26	$	0.00			0.00	%
Number Shares Used in Computation - Basic		12,155,108		12,268,306
Number Shares Used in Computation - Diluted		12,175,878		12,289,139

CONDENSED, CONSOLIDATED BALANCE SHEET DATA
(In Thousands, Except Per Share Data)    (Unaudited)
	MARCH 31,		MARCH 31,		MARCH 31, 2016 vs 2015
	2016		2015		$ Incr. (Decr.)			% Incr. (Decr.)
ASSETS
Cash & Due from Banks	$	41,173	$	36,430	$	4,743			13.02	%
Available-for-sale Securities		413,606		527,814		(114,208	)		-21.64	%
Loans Held for Sale		526		214		312			145.79	%
Loans, Net		693,944		621,211		72,733			11.71	%
Intangible Assets		11,969		11,989		(20	)		-0.17	%
Other Assets		55,326		54,300		1,026			1.89	%
TOTAL ASSETS	$	1,216,544	$	1,251,958	$	(35,414	)		-2.83	%
LIABILITIES
Deposits	$	955,848	$	976,634	$	(20,786	)		-2.13	%
Repo Sweep Accounts		7,141		5,840		1,301			22.28	%
Total Deposits and Repo Sweeps		962,989		982,474		(19,485	)		-1.98	%
Borrowed Funds		57,503		72,988		(15,485	)		-21.22	%
Other Liabilities		7,742		7,393		349			4.72	%
TOTAL LIABILITIES		1,028,234		1,062,855		(34,621	)		-3.26	%
SHAREHOLDERS' EQUITY
Common Shareholders' Equity, Excluding Accumulated
Other Comprehensive Income		182,914		181,437		1,477			0.81	%
Accumulated Other Comprehensive Income:
Net Unrealized Gains/Losses on
Available-for-sale Securities		5,347		7,654		(2,307	)		-30.14	%
Defined Benefit Plans		49		12		37			308.33	%
TOTAL SHAREHOLDERS' EQUITY		188,310		189,103		(793	)		-0.42	%
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY	$	1,216,544	$	1,251,958	$	(35,414	)		-2.83	%

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EX-99.3

EXHIBIT 99.3 – Supplemental, Unaudited Financial Information

 

CONDENSED, CONSOLIDATED FINANCIAL HIGHLIGHTS
(In Thousands, Except Per Share Data)       (Unaudited)
	3 MONTHS ENDED						%
	MARCH 31,						INCREASE
	2016			2015			(DECREASE)
EARNINGS PERFORMANCE
Net Income	$	3,573		$	3,815			-6.34	%
Return on Average Assets		1.18	%		1.23	%		-4.07	%
Return on Average Equity		7.60	%		8.08	%		-5.94	%
BALANCE SHEET HIGHLIGHTS
Total Assets	$	1,216,544		$	1,251,958			-2.83	%
Available-for-Sale Securities		413,606			527,814			-21.64	%
Loans (Net)		693,944			621,211			11.71	%
Allowance for Loan Losses		7,661			7,134			7.39	%
Deposits and Repo Sweep Accounts		962,989			982,474			-1.98	%
OFF-BALANCE SHEET
Outstanding Balance of Mortgage Loans Sold
with Servicing Retained		153,778			151,272			1.66	%
Trust Assets Under Management		826,470			832,550			-0.73	%
SHAREHOLDERS' VALUE
(PER COMMON SHARE)
Net Income - Basic	$	0.29		$	0.31			-6.45	%
Net Income - Diluted	$	0.29		$	0.31			-6.45	%
Dividends	$	0.26		$	0.26			0.00	%
Common Book Value	$	15.59		$	15.51			0.52	%
Tangible Common Book Value	$	14.60		$	14.53			0.48	%
Market Value (Last Trade)	$	19.88		$	20.18			-1.49	%
Market Value /  Common Book Value		127.52	%		130.11	%		-1.99	%
Market Value /  Tangible Common Book Value		136.16	%		138.89	%		-1.97	%
Price Earnings Multiple (Annualized)		17.14			16.27			5.35	%
Dividend Yield (Annualized)		5.23	%		5.15	%		1.55	%
Common Shares Outstanding, End of Period		12,081,030			12,193,184			-0.92	%
SAFETY AND SOUNDNESS
Tangible Common Equity / Tangible Assets		14.64	%		14.28	%		2.52	%
Nonperforming Assets / Total Assets		1.36	%		1.33	%		2.26	%
Allowance for Loan Losses / Total Loans		1.09	%		1.14	%		-4.39	%
Total Risk Based Capital Ratio (a)		24.05	%		25.19	%		-3.14	%
Tier 1 Risk Based Capital Ratio (a)		22.99	%		23.98	%		-2.88	%
Common Equity Tier 1 Risk Based Capital Ratio (a)		22.99	%		23.98	%		-2.88	%
Leverage Ratio (a)		14.27	%		13.86	%		3.25	%
AVERAGE BALANCES
Average Assets	$	1,214,392		$	1,242,025			-2.22	%
Average Equity	$	188,007		$	188,841			-0.44	%

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

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QUARTERLY CONDENSED, CONSOLIDATED INCOME STATEMENT INFORMATION
(In Thousands) (Unaudited)	For the Three Months Ended:
	Mar. 31,		Dec. 31,		Sept. 30,		June 30,		Mar. 31,
	2016		2015		2015		2015		2015
Interest income	$	10,937	$	11,036	$	11,134	$	11,186	$	11,163
Interest expense		904		1,087		1,126		1,176		1,213
Net interest income		10,033		9,949		10,008		10,010		9,950
Provision for loan losses		368		319		302		221		3
Net interest income after provision
for loan losses		9,665		9,630		9,706		9,789		9,947
Other income		3,690		3,999		3,961		3,962		3,556
Net gains on available-for-sale securities		383		1,776		79		932		74
Loss on prepayment of borrowings		0		1,663		0		910		0
Other expenses		9,072		8,416		8,117		7,964		8,533
Income before income tax provision		4,666		5,326		5,629		5,809		5,044
Income tax provision		1,093		1,261		1,395		1,452		1,229
Net income	$	3,573	$	4,065	$	4,234	$	4,357	$	3,815
Net income per share – basic	$	0.29	$	0.33	$	0.35	$	0.36	$	0.31
Net income per share – diluted	$	0.29	$	0.33	$	0.35	$	0.36	$	0.31

QUARTERLY CONDENSED, CONSOLIDATED BALANCE SHEET INFORMATION
(In Thousands) (Unaudited)	As of:
	Mar. 31,		Dec. 31,		Mar. 31,
	2016		2015		2015
ASSETS
Cash & Due from Banks	$	41,173	$	36,061	$	36,430
Available-for-Sale Securities		413,606		420,290		527,814
Loans Held for Sale		526		280		214
Loans, Net		693,944		696,991		621,211
Intangible Assets		11,969		11,972		11,989
Other Assets		55,326		57,823		54,300
TOTAL ASSETS	$	1,216,544	$	1,223,417	$	1,251,958
LIABILITIES
Deposits	$	955,848	$	935,615	$	976,634
Repo Sweep Accounts		7,141		4,915		5,840
Total Deposits and Repo Sweeps		962,989		940,530		982,474
Borrowed Funds		57,503		87,348		72,988
Other Liabilities		7,742		8,052		7,393
TOTAL LIABILITIES		1,028,234		1,035,930		1,062,855
SHAREHOLDERS' EQUITY
Common Shareholders' Equity, Excluding
Accumulated Other Comprehensive Income/ Loss		182,914		184,959		181,437
Accumulated Other Comprehensive Income/ Loss:
Net Unrealized Gains/Losses on
Available-for-sale Securities		5,347		2,493		7,654
Defined Benefit Plans Adjustment, Net		49		35		12
TOTAL SHAREHOLDERS' EQUITY		188,310		187,487		189,103
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY	$	1,216,544	$	1,223,417	$	1,251,958

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AVAILABLE-FOR-SALE SECURITIES	March 31, 2016				December 31, 2015
(In Thousands)	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Obligations of U.S. Government agencies	$	10,661	$	10,707	$	10,663	$	10,483
Obligations of states and political subdivisions:
Tax-exempt		107,269		111,959		103,414		107,757
Taxable		34,249		35,094		34,317		34,597
Mortgage-backed securities		72,210		73,243		73,227		73,343
Collateralized mortgage obligations,
Issued by U.S. Government agencies		179,731		180,860		193,145		191,715
Other collateralized debt obligations		7		7		9		9
Total debt securities		404,127		411,870		414,775		417,904
Marketable equity securities		1,253		1,736		1,680		2,386
Total	$	405,380	$	413,606	$	416,455	$	420,290

Summary of Loans by Type
(Excludes Loans Held for Sale)
(In Thousands)	March 31,			Dec. 31,			March 31,
	2016			2015			2015
Residential mortgage:
Residential mortgage loans - first liens	$	306,753		$	304,783		$	291,612
Residential mortgage loans - junior liens		21,622			21,146			20,896
Home equity lines of credit		38,627			39,040			37,049
1-4 Family residential construction		20,010			21,121			16,217
Total residential mortgage		387,012			386,090			365,774
Commercial:
Commercial loans secured by real estate		154,646			154,779			140,851
Commercial and industrial		71,628			75,196			51,563
Political subdivisions		38,364			40,007			19,479
Commercial construction and land		7,445			5,122			7,249
Loans secured by farmland		7,168			7,019			7,789
Multi-family (5 or more) residential		8,393			9,188			8,673
Agricultural loans		4,492			4,671			3,158
Other commercial loans		11,387			12,152			13,187
Total commercial		303,523			308,134			251,949
Consumer		11,070			10,656			10,622
Total		701,605			704,880			628,345
Less: allowance for loan losses		(7,661	)		(7,889	)		(7,134	)
Loans, net	$	693,944		$	696,991		$	621,211

Loans Held for Sale
(In Thousands)	March 31,			Dec. 31,			March 31,
	2016			2015			2015
Residential mortgage loans originated
and serviced - outstanding balance	$	154,304		$	152,728		$	151,486
Less: outstanding balance of loans sold		(153,778	)		(152,448	)		(151,272	)
Loans held for sale, net	$	526		$	280		$	214

3 

ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
(In Thousands)
	3 Months			3 Months			Year			3 Months
	Ended			Ended			Ended			Ended
	March 31,			Dec. 31,			Dec. 31,			March 31,
	2016			2015			2015			2015
Balance, beginning of period	$	7,889		$	7,416		$	7,336		$	7,336
Charge-offs		(613	)		(66	)		(562	)		(222	)
Recoveries		17			220			270			17
Net (charge-offs) recoveries		(596	)		154			(292	)		(205	)
Provision for loan losses		368			319			845			3
Balance, end of period	$	7,661		$	7,889		$	7,889		$	7,134

PAST DUE AND IMPAIRED LOANS, NONPERFORMING ASSETS
AND TROUBLED DEBT RESTRUCTURINGS (TDRs)
(In Thousands)
	March 31,			Dec. 31,			March 31,
	2016			2015			2015
Impaired loans with a valuation allowance	$	1,420		$	1,933		$	4,312
Impaired loans without a valuation allowance		8,210			8,041			8,851
Total impaired loans	$	9,630		$	9,974		$	13,163
Total loans past due 30-89 days and still accruing	$	11,373		$	7,057		$	5,722
Nonperforming assets:
Total nonaccrual loans	$	10,944		$	11,517		$	11,944
Total loans past due 90 days or more and still accruing		3,957			3,229			3,086
Total nonperforming loans		14,901			14,746			15,030
Foreclosed assets held for sale (real estate)		1,584			1,260			1,583
Total nonperforming assets	$	16,485		$	16,006		$	16,613
Loans subject to troubled debt restructurings (TDRs):
Performing	$	1,167		$	1,186		$	1,872
Nonperforming		5,146			5,178			5,252
Total TDRs	$	6,313		$	6,364		$	7,124
Total nonperforming loans as a % of loans		2.12	%		2.09	%		2.39	%
Total nonperforming assets as a % of assets		1.36	%		1.31	%		1.33	%
Allowance for loan losses as a % of total loans		1.09	%		1.12	%		1.14	%
Allowance for loan losses as a % of nonperforming loans		51.41	%		53.50	%		47.47	%

4 

Analysis of Average Daily Balances and Rates
(Dollars in Thousands)
	3 Months						3 Months						3 Months
	Ended			Rate of			Ended			Rate of			Ended			Rate of
	3/31/2016			Return/			12/31/2015			Return/			3/31/2015			Return/
	Average			Cost of			Average			Cost of			Average			Cost of
	Balance			Funds %			Balance			Funds %			Balance			Funds %
EARNING ASSETS
Available-for-sale securities,
at amortized cost:
Taxable	$	305,880			2.09	%	$	327,225			2.05	%	$	388,104			2.15	%
Tax-exempt		105,406			5.23	%		105,118			4.99	%		117,674			5.35	%
Total available-for-sale securities		411,286			2.89	%		432,343			2.76	%		505,778			2.90	%
Interest-bearing due from banks		20,348			0.47	%		20,168			0.39	%		26,994			0.39	%
Loans held for sale		452			5.34	%		406			5.86	%		89			9.11	%
Loans receivable:
Taxable		640,959			5.00	%		629,294			5.04	%		582,498			5.37	%
Tax-exempt		60,677			4.54	%		61,339			4.52	%		41,925			5.15	%
Total loans receivable		701,636			4.96	%		690,633			5.00	%		624,423			5.35	%
Total Earning Assets		1,133,722			4.13	%		1,143,550			4.07	%		1,157,284			4.16	%
Cash		15,588						16,390						16,127
Unrealized gain/loss on securities		7,055						7,637						10,626
Allowance for loan losses		(7,932	)					(7,525	)					(7,391	)
Bank premises and equipment		15,458						15,499						16,252
Intangible Asset - Core Deposit Intangible		29						32						50
Intangible Asset - Goodwill		11,942						11,942						11,942
Other assets		38,530						38,037						37,135
Total Assets	$	1,214,392					$	1,225,562					$	1,242,025
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
Interest checking	$	195,142			0.12	%	$	195,439			0.11	%	$	191,705			0.12	%
Money market		191,514			0.17	%		192,825			0.16	%		194,834			0.15	%
Savings		130,003			0.10	%		127,744			0.10	%		127,853			0.10	%
Certificates of deposit		113,411			0.72	%		116,699			0.68	%		122,007			0.71	%
Individual Retirement Accounts		105,562			0.41	%		107,484			0.41	%		113,806			0.40	%
Other time deposits		804			0.00	%		678			0.00	%		803			0.00	%
Total interest-bearing deposits		736,436			0.26	%		740,869			0.25	%		751,008			0.26	%
Borrowed funds:
Short-term		35,683			0.70	%		17,395			0.39	%		6,017			0.07	%
Long-term		38,725			3.77	%		59,929			3.96	%		73,020			4.03	%
Total borrowed funds		74,408			2.30	%		77,324			3.16	%		79,037			3.73	%
Total Interest-bearing Liabilities		810,844			0.45	%		818,193			0.53	%		830,045			0.59	%
Demand deposits		208,163						207,534						215,019
Other liabilities		7,378						9,149						8,120
Total Liabilities		1,026,385						1,034,876						1,053,184
Stockholders' equity, excluding
accumulated other comprehensive      income/loss		183,376						185,716						181,944
Accumulated other comprehensive income/loss		4,631						4,970						6,897
Total Stockholders' Equity		188,007						190,686						188,841
Total Liabilities and Stockholders' Equity	$	1,214,392					$	1,225,562					$	1,242,025
Interest Rate Spread					3.68	%					3.54	%					3.57	%
Net Interest Income/Earning Assets					3.81	%					3.69	%					3.74	%
Total Deposits (Interest-bearing
and Demand)	$	944,599					$	948,403					$	966,027

(1) Annualized rates of return on tax-exempt securities and loans are presented on a fully taxable-equivalent basis, using the Corporation’s marginal federal income tax rate of 35%.

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

(3) Rates of return on earning assets and costs of funds are presented on an annualized basis.

5 

COMPARISON OF NONINTEREST INCOME
(In Thousands)	Three Months Ended
	March 31,			Dec. 31,			March 31,
	2016			2015			2015
Service charges on deposit accounts	$	1,138		$	1,235		$	1,022
Service charges and fees		94			121			113
Trust and financial management revenue		1,144			1,148			1,114
Brokerage revenue		173			199			219
Insurance commissions, fees and premiums		21			22			40
Interchange revenue from debit card transactions		463			479			474
Net gains from sales of loans		168			162			147
Decrease in fair value of servicing rights		(71	)		(25	)		(117	)
Increase in cash surrender value of life insurance		96			92			97
Other operating income		464			566			447
Total other operating income, before realized
gains on available-for-sale securities, net	$	3,690		$	3,999		$	3,556

COMPARISON OF NONINTEREST EXPENSE
(In Thousands)	Three Months Ended
	March 31,		Dec. 31,		March 31,
	2016		2015		2015
Salaries and wages	$	3,887	$	3,848	$	3,487
Pensions and other employee benefits		1,437		1,084		1,385
Occupancy expense, net		609		589		722
Furniture and equipment expense		427		462		454
FDIC Assessments		142		149		151
Pennsylvania shares tax		322		302		318
Professional fees		289		175		156
Automated teller machine and interchange expense		249		253		246
Software subscriptions		241		259		197
Other operating expense		1,469		1,295		1,417
Total noninterest expense, before loss on
prepayment of borrowings		9,072		8,416		8,533
Loss on prepayment of borrowings		0		1,663		0
Total noninterest expense	$	9,072	$	10,079	$	8,533

6