10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2017

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)

570-724-3411

(Registrant’s telephone number including area code)

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

Title of Each Class	Name of Exchange Where Registered
Common Stock Par Value $1.00	The NASDAQ Stock Market LLC

Securities registered pursuant to section 12(g) of the Act: None

Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨  No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨  No x

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 ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x  No ¨

Indicate by check mark if 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 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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

(Check one):    Large accelerated filer ¨    Accelerated filer x    Non-accelerated filer ¨    Smaller reporting company ¨    Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨  No x

The aggregate market value of the registrant’s common stock held by non-affiliates at June 30, 2017, the registrant’s most recently completed second fiscal quarter, was $274,571,344.

The number of shares of common stock outstanding at February 8, 2018 was 12,246,834.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s proxy statement for the annual meeting of its shareholders to be held April 19, 2018 are incorporated by reference into Parts III and IV of this report.

TABLE OF CONTENTS

	Page(s)
Part I:
Item 1. Business	3-4
Item 1A. Risk Factors	4-7
Item 1B. Unresolved Staff Comments	7
Item 2. Properties	7
Item 3. Legal Proceedings	8
Item 4. Mine Safety Disclosure	8
Part II.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	8-10
Item 6. Selected Financial Data	11-12
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations	13-38
Item 7A. Quantitative and Qualitative Disclosures About Market   Risk	38-40
Item 8. Financial Statements and Supplementary Data	41-87
Item 9. Changes in and Disagreements with Accountants on   Accounting and Financial Disclosure	88
Item 9A. Controls and Procedures	88
Item 9B. Other Information	89
Part III:
Item 10. Directors, Executive Officers and Corporate Governance	89
Item 11. Executive Compensation	89
Item 12. Security Ownership of Certain Beneficial Owners and   Management and Related Stockholder Matters	89
Item 13. Certain Relationships and Related Transactions, and   Director Independence	89
Item 14. Principal Accountant Fees and Services	89
Part IV:
Item 15. Exhibits and Financial Statement Schedules	90-93
Signatures	94

2

PART I

ITEM 1. BUSINESS

Citizens & Northern Corporation (“Corporation”) is a holding company whose principal activity is community banking. The Corporation’s principal office is located in Wellsboro, Pennsylvania. The largest subsidiary is Citizens & Northern Bank (“C&N Bank” or the “Bank”). The Corporation’s other wholly-owned subsidiaries are Citizens & Northern Investment Corporation and Bucktail Life Insurance Company (“Bucktail”). Citizens & Northern Investment Corporation was formed in 1999 to engage in investment activities. Bucktail reinsures credit and mortgage life and accident and health insurance on behalf of C&N Bank.

C&N Bank is a Pennsylvania banking institution that was formed by the consolidation of Northern National Bank of Wellsboro and Citizens National Bank of Towanda on October 1, 1971. Subsequent mergers included: First National Bank of Ralston in May 1972; Sullivan County National Bank in October 1977; Farmers National Bank of Athens in January 1984; and First National Bank of East Smithfield in May 1990. In 2005, the Corporation acquired Canisteo Valley Corporation and its subsidiary, First State Bank, a New York State chartered commercial bank with offices in Canisteo and South Hornell, NY. In 2010, the First State Bank operations were merged into C&N Bank and Canisteo Valley Corporation was merged into the Corporation. On May 1, 2007, the Corporation acquired Citizens Bancorp, Inc. (“Citizens”), with banking offices in Coudersport, Emporium and Port Allegany, Pennsylvania. Citizens Trust Company, the banking subsidiary of Citizens, was merged with and into C&N Bank as part of the transaction. C&N Bank has held its current name since May 6, 1975, at which time C&N Bank changed its charter from a national bank to a Pennsylvania bank.

C&N Bank provides an extensive range of banking services, including deposit and loan products for personal and commercial customers. The Bank also maintains a trust division that provides a wide range of financial services, such as 401(k) plans, retirement planning, estate planning, estate settlements and asset management. In January 2000, C&N Bank formed a subsidiary, C&N Financial Services Corporation (“C&NFSC”). C&NFSC is a licensed insurance agency that provides insurance products to individuals and businesses. In 2001, C&NFSC added a broker-dealer division, which offers mutual funds, annuities, educational savings accounts and other investment products through registered agents. C&NFSC’s operations are not significant in relation to the total operations of the Corporation.

In December 2017, C&N Bank established a new entity, Northern Tier Holding LLC, for the purpose of acquiring, holding and disposing of real property acquired by the Bank. C&N Bank is the sole member of Northern Tier Holding LLC, which had no transactions in 2017.

All phases of the Bank’s business are competitive. The Bank primarily competes in Tioga, Bradford, Sullivan, Lycoming, Potter, Cameron and McKean counties in Pennsylvania, and Steuben and Chemung counties in New York. The Bank competes with local commercial banks headquartered in our market area as well as other commercial banks with branches in our market area. Some of the banks that have branches in our market area are larger in overall size. With respect to lending activities and attracting deposits, the Bank also competes with savings banks, savings and loan associations, insurance companies, regulated small loan companies and credit unions. Also, the Bank competes with mutual funds for deposits. C&N Bank competes with insurance companies, investment counseling firms, mutual funds and other business firms and individuals for trust, investment management, brokerage and insurance services. The Bank is generally competitive with all financial institutions in our service area with respect to interest rates paid on time and savings deposits, service charges on deposit accounts and interest rates charged on loans. The Bank serves a diverse customer base, and is not economically dependent on any small group of customers or on any individual industry.

Major initiatives within the last 5 years included the following:

· in 2013, worked with consultants on projects which resulted in ongoing increases in revenues from service charges on deposit accounts, starting primarily in the fourth quarter 2013, and ongoing reductions in electronic funds processing expenses;

· in 2014, approved a treasury stock repurchase program for repurchase of up to 622,500 shares of the Corporation’s common stock, or approximately 5% of the Corporation’s outstanding shares at July 16, 2014. In total, 622,500 shares were repurchased for a total cost of $12,140,000, at an average price of $19.50 per share;

· in 2015, began an organization-wide effort to enhance customer relationships, growth and profitability, including working with consultants on enhanced employee engagement and customer service training, and hiring additional lending personnel to provide more access to commercial and mortgage lending opportunities;

3

· in 2016, approved a new treasury stock repurchase program authorizing repurchase of up to 600,000 shares of the Corporation’s common stock. Through December 31, 2017, there have been no repurchases of shares under this program; and

· in March 2017, opened a loan production office in Elmira, New York.

Virtually all of the Corporation’s banking offices are located in the “Marcellus Shale,” an area extending across portions of New York State, Pennsylvania, Ohio, Maryland, West Virginia and Virginia. In recent years, most of the Pennsylvania counties in which the Corporation operates were significantly affected by an upsurge in natural gas exploration, as technological developments made exploration of the Marcellus Shale commercially feasible. After a surge of activity in 2009 through most of 2011, the market price of natural gas declined, causing Marcellus Shale natural gas exploration activity to slow, though some activity has continued to occur throughout the Corporation’s market area. Through December 31, 2017, the Corporation has not experienced significant credit issues as a result of the expansion and subsequent reduction in Marcellus Shale-related activity.

At December 31, 2017, C&N Bank had total assets of $1,262,642,000, total deposits of $1,016,035,000, net loans outstanding of $806,857,000 and 296 full-time equivalent employees.

Most activities of the Corporation and its subsidiaries are regulated by federal or state agencies. The primary regulatory relationships are described as follows:

· The Corporation is a 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 and must comply with the reporting requirements of the Federal Bank Holding Company Act.

· C&N Bank is a state-chartered, nonmember bank, supervised by the Federal Deposit Insurance Corporation and the Pennsylvania Department of Banking and Securities.

· C&NFSC is a Pennsylvania corporation. The Pennsylvania Department of Insurance regulates C&NFSC’s insurance activities. Brokerage products are offered through third party networking agreements.

· Bucktail is incorporated in the state of Arizona and supervised by the Arizona Department of Insurance.

A copy of the Corporation’s annual report on Form 10-K, quarterly reports on Form 10-Q, current events reports on Form 8-K, and amendments to these reports, will be furnished without charge upon written request to the Corporation’s Treasurer at P.O. Box 58, Wellsboro, PA 16901. Copies of these reports will be furnished as soon as reasonably possible, after they are filed electronically with the Securities and Exchange Commission. The information is also available through the Corporation’s web site at www.cnbankpa.com.

ITEM 1A. RISK FACTORS

The Corporation is subject to the many risks and uncertainties applicable to all banking companies, as well as risks specific to the Corporation’s geographic locations. Although the Corporation seeks to effectively manage risks, and maintains a level of equity that exceeds the banking regulatory agencies’ thresholds for being considered “well capitalized” (see Note 18 to the consolidated financial statements), management cannot predict the future and cannot eliminate the possibility of credit, operational or other losses. Accordingly, actual results may differ materially from management’s expectations. Some of the Corporation’s significant risks and uncertainties are discussed below.

Credit Risk from Lending Activities – A significant source of risk is the possibility that losses will be sustained because borrowers, guarantors and related parties may fail to perform in accordance with the terms of their loan agreements. Most of the Corporation’s loans are secured, but some loans are unsecured. With respect to secured loans, the collateral securing the repayment of these loans may be insufficient to cover the obligations owed under such loans. Collateral values may be adversely affected by changes in economic, environmental and other conditions, including declines in the value of real estate, changes in interest rates, changes in monetary and fiscal policies of the federal government, wide-spread disease, terrorist activity, environmental contamination and other external events. In addition, collateral appraisals that are out of date or that do not meet industry recognized standards may create the impression that a loan is adequately collateralized when it is not. The Corporation has adopted underwriting and credit monitoring procedures and policies, including regular reviews of appraisals and borrower financial statements, that management believes are appropriate to mitigate the risk of loss. Also, as discussed further in the “Provision and Allowance for Loan Losses” section of Management’s Discussion and Analysis, the Corporation attempts to estimate the amount of losses that may be inherent in the portfolio through a quarterly evaluation process that includes several members of management and that addresses specifically identified problem loans, as well as other quantitative data and qualitative factors. Such risk management and accounting policies and procedures, however, may not prevent unexpected losses that could have a material adverse effect on the Corporation’s financial condition, results of operations or liquidity.

4

Interest Rate Risk – Business risk arising from changes in interest rates is an inherent factor in operating a banking organization. The Corporation’s assets are predominantly long-term, fixed-rate loans and debt securities. Funding for these assets comes principally from shorter-term deposits and borrowed funds. Accordingly, there is an inherent risk of lower future earnings or decline in fair value of the Corporation’s financial instruments when interest rates change. Significant fluctuations in interest rates could have a material adverse effect on the Corporation’s financial condition, results of operations or liquidity. For additional information regarding interest rate risk, see Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk.”

Breach of Information Security and Technology Dependence – The Corporation relies on software, communication, and information exchange on a variety of computing platforms and networks and over the Internet. Despite numerous safeguards, the Corporation cannot be certain that all of its systems are entirely free from vulnerability to attack or other technological difficulties or failures. The Corporation relies on the services of a variety of vendors to meet its data processing and communication needs. If information security is breached or other technology difficulties or failures occur, information may be lost or misappropriated, services and operations may be interrupted and the Corporation could be exposed to claims from customers. Any of these results could have a material adverse effect on the Corporation’s financial condition, results of operations or liquidity.

Limited Geographic Diversification – The Corporation grants commercial, residential and personal loans to customers primarily in the Pennsylvania counties of Tioga, Bradford, Sullivan, Lycoming, Potter, Cameron and McKean, and in Steuben and Chemung Counties in New York State. 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. Deterioration in economic conditions could adversely affect the quality of the Corporation’s loan portfolio and the demand for its products and services, and accordingly, could have a material adverse effect on the Corporation’s financial condition, results of operations or liquidity.

Competition – All phases of the Corporation’s business are competitive. Some competitors are much larger in total assets and capitalization than the Corporation, have greater access to capital markets and can offer a broader array of financial services. There can be no assurance that the Corporation will be able to compete effectively in its markets. Furthermore, developments increasing the nature or level of competition could have a material adverse effect on the Corporation’s financial condition, results of operations or liquidity.

Government Regulation and Monetary Policy – The Corporation and the banking industry are subject to extensive regulation and supervision under federal and state laws and regulations. The requirements and limitations imposed by such laws and regulations limit the manner in which the Corporation conducts its business, undertakes new investments and activities and obtains financing. These regulations are designed primarily for the protection of the deposit insurance funds and consumers and not to benefit the Corporation’s shareholders. Financial institution regulation has been the subject of significant legislation in recent years and may be the subject of further significant legislation in the future, none of which is in the control of the Corporation. Significant new laws or changes in, or repeals of, existing laws could have a material adverse effect on the Corporation’s financial condition, results of operations or liquidity. Further, federal monetary policy, particularly as implemented through the Federal Reserve System, significantly affects short-term interest rates and credit conditions, and any unfavorable change in these conditions could have a material adverse effect on the Corporation’s financial condition, results of operations or liquidity.

Mortgage Banking – Since 2009, the Corporation has originated and sold residential mortgage loans to the secondary market through the MPF Xtra program. Since 2014, the Corporation has also originated and sold residential mortgage loans to the secondary market through the MPF Original program. Both of these programs are administered by the Federal Home Loan Banks of Pittsburgh and Chicago. At December 31, 2017, the total outstanding balance of residential mortgages sold and serviced through the two programs amounted to $169,725,000. The Corporation must strictly adhere to the MPF Xtra and MPF Original program guidelines for origination, underwriting and servicing loans, and failure to do so may result in the Corporation being forced to repurchase loans or being dropped from the program. As of December 31, 2017, the total outstanding balance of residential mortgage loans the Corporation has repurchased as a result of identified instances of noncompliance amounted to $1,805,000. If the volume of such forced repurchases of loans were to increase significantly, or if the Corporation were to be dropped from the programs, it could have a material adverse effect on the Corporation’s financial condition, results of operations or liquidity.

5

Securities Markets – The fair value of the Corporation’s available-for-sale securities, as well as the revenues the Corporation earns from its Trust and Financial Management and brokerage services, are sensitive to price fluctuations and market events.

Declines in the values of the Corporation’s securities holdings, combined with adverse changes in the expected cash flows from these investments, could result in other-than-temporary impairment charges.

For additional information regarding debt securities, see the “Securities” section of Management’s Discussion and Analysis and Note 7 to the consolidated financial statements.

The Corporation’s Trust and Financial Management revenue is determined, in part, from the value of the underlying investment portfolios. Accordingly, if the values of those investment portfolios decrease, whether due to factors influencing U.S. or international securities markets, in general, or otherwise, the Corporation’s revenue could be negatively impacted. In addition, the Corporation’s ability to sell its brokerage services is dependent, in part, upon consumers’ level of confidence in securities markets.

The Federal Home Loan Bank of Pittsburgh – Through its subsidiary (C&N Bank), the Corporation is a member of the Federal Home Loan Bank of Pittsburgh (FHLB-Pittsburgh), which is one of 11 regional Federal Home Loan Banks. The Corporation has a line of credit with the FHLB-Pittsburgh that is secured by a blanket lien on its loan portfolio. Access to this line of credit is critical if a funding need arises. However, there can be no assurance that the FHLB-Pittsburgh will be able to provide funding when needed, nor can there be assurance that the FHLB-Pittsburgh will provide funds specifically to the Corporation should its financial condition deteriorate and/or regulators prevent that access. The inability to access this source of funds could have a materially adverse effect on the Corporation’s financial flexibility if alternate financing is not available at acceptable interest rates. The failure of the FHLB-Pittsburgh or the FHLB system in general, may materially impair the Corporation’s ability to meet short- and long-term liquidity needs or to meet growth plans.

The Corporation owns common stock of the FHLB-Pittsburgh in order to qualify for membership in the FHLB system and access services from the FHLB-Pittsburgh. The FHLB-Pittsburgh faces a variety of risks in its operations including interest rate risk, counterparty credit risk, and adverse changes in its regulatory framework. In addition, the 11 Federal Home Loan Banks are jointly liable for the consolidated obligations of the FHLB system. To the extent that one FHLB cannot meet its obligations, other FHLBs can be called upon to make required payments. Such risks affecting the FHLB-Pittsburgh could adversely impact the value of the Corporation’s investment in the common stock of the FHLB-Pittsburgh and/or affect its access to credit.

Soundness of Other Financial Institutions – In addition to the FHLB-Pittsburgh, the Corporation maintains other credit facilities that provide it with additional liquidity. These facilities include secured and unsecured borrowings from the Federal Reserve Bank and third-party commercial banks. The Corporation believes that it maintains a strong liquidity position and that it is well positioned to withstand foreseeable market conditions. However, legal agreements with counterparties typically include provisions allowing them to restrict or terminate the Corporation’s access to these credit facilities with or without advance notice and at their sole discretion.

Financial institutions are interconnected as a result of trading, clearing, counterparty, and other relationships. Financial market conditions have been negatively impacted in the past and such disruptions or adverse changes in the Corporation’s results of operations or financial condition could, in the future, have a negative impact on available sources of liquidity. Such a situation may arise due to circumstances that are outside the Corporation’s control, such as general market disruptions or operational problems affecting the Corporation or third parties. The Corporation’s efforts to monitor and manage liquidity risk may not be successful or sufficient to deal with dramatic or unanticipated reductions in available liquidity. In such events, the Corporation’s cost of funds may increase, thereby reducing net interest income, or the Corporation may need to sell a portion of its securities and/or loan portfolio, which, depending upon market conditions, could necessitate realizing a loss.

FDIC Insurance Assessments – In 2008 and 2009, higher levels of bank failures dramatically increased the resolution costs of the Federal Deposit Insurance Corporation, or the FDIC, and depleted the deposit insurance fund. In addition, the FDIC and the U.S. Congress increased federal deposit insurance coverage, placing additional stress on the deposit insurance fund. In order to maintain a strong funding position and restore reserve ratios of the deposit insurance fund, in 2009 the FDIC increased assessment rates. As a result of lowering assessment levels for the Corporation and other US banks, the Corporation’s 2017 FDIC assessment expense decreased to $376,000 from $488,000 in 2016 and from $603,000 in 2015. Although the Corporation’s total expenses from FDIC assessments have steadily decreased from $2,092,000 in 2009, the Corporation is generally unable to control the cost of the premiums. If a significant number of bank or financial institution failures occur, the Corporation may be required to pay higher FDIC premiums. Future increases in FDIC insurance premiums or additional special assessments may materially adversely affect the Corporation’s results of operations.

6

Bank Secrecy Act and Related Laws and Regulations – These laws and regulations have significant implications for all financial institutions. In recent years, they have increased due diligence requirements and reporting obligations for financial institutions, created new crimes and penalties, and required the federal banking agencies, in reviewing merger and other acquisition transactions, to consider the effectiveness of the parties to such transactions in combating money laundering activities. Even innocent noncompliance and inconsequential failure to follow the regulations could result in significant fines or other penalties, which could have a material adverse impact on the Corporation’s financial condition, results of operations or liquidity.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2. PROPERTIES

The Bank owns each of its properties, except for the branch facilities located at 130 Court Street, Williamsport, PA, and at 2 East Mountain Avenue, South Williamsport, PA, which are leased. All of the properties are in good condition. None of the owned properties are subject to encumbrance.

A listing of properties is as follows:

Main administrative offices:

90-92 Main Street	or	10 Nichols Street
Wellsboro, PA  16901		Wellsboro, PA  16901

Branch offices – Citizens & Northern Bank: 

428 S. Main Street	514 Main Street	2 East Mountain Avenue **
Athens, PA  18810	Laporte, PA  18626	South Williamsport, PA  17702
10 North Main Street	4534 Williamson Trail	41 Main Street
Coudersport, PA  16915	Liberty, PA  16930	Tioga, PA  16946
111 W. Main Street	1085 S. Main Street	428 Main Street
Dushore, PA  18614	Mansfield, PA  16933	Towanda, PA  18848
563 Main Street	612 James Monroe Avenue	64 Elmira Street
East Smithfield, PA  18817	Monroeton, PA  18832	Troy, PA  16947
104 W. Main Street	3461 Route 405 Highway	90-92 Main Street
Elkland, PA  16920	Muncy, PA  17756	Wellsboro, PA  16901
135 East Fourth Street	100 Maple Street	1510 Dewey Avenue
Emporium, PA  15834	Port Allegany, PA  16743	Williamsport, PA  17701
230 Railroad Street	24 Thompson Street	130 Court Street **
Jersey Shore, PA  17740	Ralston, PA  17763	Williamsport, PA  17701
102 E. Main Street	1827 Elmira Street	1467 Golden Mile Road
Knoxville, PA  16928	Sayre, PA  18840	Wysox, PA  18854
3 Main Street	6250 County Rte 64
Canisteo, NY  14823	Hornell, NY  14843

Loan production office of Citizens & Northern Bank:

250 East Water Street

Elmira, NY 14901

Facilities management office:

13 Water Street

Wellsboro, PA 16901

** designates leased branch facility

7

ITEM 3. LEGAL PROCEEDINGS

The Corporation and the Bank are involved in various legal proceedings incidental to their business. Management believes the aggregate liability, if any, resulting from such pending and threatened legal proceedings will not have a material adverse effect on the Corporation’s financial condition or results of operations.

ITEM 4. MINE SAFETY DISCLOSURE

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

QUARTERLY SHARE DATA

Trades of the Corporation’s stock are executed through various brokers who maintain a market in the Corporation’s stock. The Corporation’s stock is listed on the NASDAQ Capital Market with the trading symbol CZNC. As of December 31, 2017, there were 2,206 shareholders of record of the Corporation’s common stock.

The following table sets forth the high and low sales prices of the common stock during 2017 and 2016.

			2017						2016
					Dividend						Dividend
					Declared						Declared
					per						per
	High		Low		Quarter		High		Low		Quarter
First quarter	$	26.50	$	22.31	$	0.26	$	20.99	$	19.26	$	0.26
Second quarter		24.40		22.00		0.26		21.00		19.40		0.26
Third quarter		25.42		22.01		0.26		22.67		20.00		0.26
Fourth quarter		26.75		23.02		0.26		26.57		20.54		0.26

Future dividend payments will depend upon maintenance of a strong financial condition, future earnings and capital and regulatory requirements. Also, the Corporation and C&N Bank are subject to restrictions on the amount of dividends that may be paid without approval of banking regulatory authorities. These restrictions are described in Note 18 to the consolidated financial statements.

Effective April 21, 2016, the Corporation’s Board of Directors approved a treasury stock repurchase program. Under this program, the Corporation is authorized to repurchase up to 600,000 shares of the Corporation’s common stock or slightly less than 5% of the Corporation’s issued and outstanding shares at April 19, 2016. The Board of Directors’ April 21, 2016 authorization provides that: (1) the new treasury stock repurchase program shall be effective when publicly announced and shall continue thereafter until suspended or terminated by the Board of Directors, in its sole discretion; and (2) all shares of common stock repurchased pursuant to the new program shall be held as treasury shares and be available for use and reissuance for purposes as and when determined by the Board of Directors including, without limitation, pursuant to the Corporation’s Dividend Reinvestment and Stock Purchase Plan and its equity compensation program. To date, no purchases have been made under this repurchase program.

8

The following table sets forth a summary of purchases by the Corporation, in the open market, of its equity securities during the fourth quarter 2017:

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs
October 1 - 31, 2017		0	$	-		0		600,000
November 1 - 30, 2017		0	$	-		0		600,000
December 1 - 31, 2017		0	$	-		0		600,000

PERFORMANCE GRAPH

Set forth below is a chart comparing the Corporation’s cumulative return to stockholders against the cumulative return of the Russell 2000 and a Peer Group Index of similar banking organizations selected by the Corporation for the five-year period commencing December 31, 2012 and ended December 31, 2017. The index values are market-weighted dividend-reinvestment numbers, which measure the total return for investing $100.00 five years ago. This meets Securities & Exchange Commission requirements for showing dividend reinvestment share performance over a five-year period and measures the return to an investor for placing $100.00 into a group of bank stocks and reinvesting any and all dividends into the purchase of more of the same stock for which dividends were paid.

 

9

	Period Ending
Index	12/31/12		12/31/13		12/31/14		12/31/15		12/31/16		12/31/17
Citizens & Northern Corporation		100.00		114.68		121.20		129.69		170.12		162.63
Russell 2000 Index		100.00		138.82		145.62		139.19		168.85		193.58
Peer Group		100.00		125.12		137.72		145.57		199.56		229.49

Peer Group includes all publicly traded SEC filing Commercial Banks & Thrifts within NJ, NY, OH and PA with assets between $750M and $3.5B as of 9/30/2017

Source: S&P Global Market Intelligence © 2017

EQUITY COMPENSATION PLAN INFORMATION

The following table sets forth information concerning the Stock Incentive Plan and Independent Directors Stock Incentive Plan, both of which have been approved by the Corporation’s shareholders. The figures shown in the table below are as of December 31, 2017.

					Number of
	Number of		Weighted-		Securities
	Securities to be		average		Remaining
	Issued Upon		Exercise		for Future
	Exercise of		Price of		Issuance Under
	Outstanding		Outstanding		Equity Compen-
	Options		Options		sation Plans
Equity compensation plans approved by shareholders		165,660	$	18.49	287,575
Equity compensation plans not approved by shareholders		0		N/A	0

More details related to the Corporation’s equity compensation plans are provided in Notes 1 and 13 to the consolidated financial statements.

10

ITEM 6. SELECTED FINANCIAL DATA

	As of or for the Year Ended December 31,
INCOME STATEMENT (In Thousands)	2017		2016		2015		2014		2013
Interest and fee income	$	45,863	$	44,098	$	44,519	$	46,009	$	48,914
Interest expense		3,915		3,693		4,602		5,122		5,765
Net interest income		41,948		40,405		39,917		40,887		43,149
Provision for loan losses		801		1,221		845		476		2,047
Net interest income after provision for loan losses		41,147		39,184		39,072		40,411		41,102
Noninterest income excluding securities gains		16,153		15,511		15,478		15,420		16,451
Realized gains on available-for-sale securities, net		257		1,158		2,861		1,104		1,718
Loss on prepayment of debt		0		0		2,573		0		1,023
Noninterest expense excluding loss on prepayment of debt		36,967		34,744		33,030		34,157		33,471
Income before income tax provision		20,590		21,109		21,808		22,778		24,777
Income tax provision		7,156		5,347		5,337		5,692		6,183
Net income	$	13,434	$	15,762	$	16,471	$	17,086	$	18,594
Net income attributable to common shares	$	13,365	$	15,677	$	16,387	$	17,009	$	18,490
PER COMMON SHARE:
Basic earnings per share	$	1.10	$	1.30	$	1.35	$	1.38	$	1.51
Diluted earnings per share	$	1.10	$	1.30	$	1.35	$	1.38	$	1.50
Cash dividends declared per share	$	1.04	$	1.04	$	1.04	$	1.04	$	1.00
Book value per common share at period-end	$	15.43	$	15.36	$	15.39	$	15.34	$	14.49
Tangible book value per common share at period-end	$	14.45	$	14.37	$	14.41	$	14.36	$	13.51
Weighted average common shares outstanding - basic		12,115,840		12,032,820		12,149,252		12,333,933		12,283,426
Weighted average common shares outstanding - diluted		12,155,136		12,063,055		12,171,084		12,355,916		12,313,833
END OF PERIOD BALANCES (Dollars In Thousands)
Available-for-sale securities	$	356,908	$	395,077	$	420,290	$	516,807	$	482,658
Gross loans		815,713		751,835		704,880		630,545		644,303
Allowance for loan losses		8,856		8,473		7,889		7,336		8,663
Total assets		1,276,959		1,242,292		1,223,417		1,241,963		1,237,695
Deposits		1,008,449		983,843		935,615		967,989		954,516
Borrowings		70,955		64,629		92,263		78,597		96,723
Stockholders’ equity		188,443		186,008		187,487		188,362		179,472
Common shares outstanding		12,214,525		12,113,228		12,180,623		12,279,980		12,390,063
AVERAGE BALANCES (In Thousands)
Total assets		1,247,759		1,229,866		1,243,209		1,239,897		1,237,096
Earning assets		1,169,569		1,147,549		1,159,298		1,155,401		1,145,340
Gross loans		780,640		723,076		657,727		627,753		656,495
Deposits		990,917		970,447		968,201		965,418		964,031
Stockholders’ equity		188,958		188,373		188,905		185,469		181,412

11

ITEM 6. SELECTED FINANCIAL DATA (Continued)

	As of or for the Year Ended December 31,
	2017			2016			2015			2014			2013
KEY RATIOS
Return on average assets		1.08	%		1.28	%		1.32	%		1.38	%		1.50	%
Return on average equity		7.11	%		8.37	%		8.72	%		9.21	%		10.25	%
Average equity to average assets		15.14	%		15.32	%		15.19	%		14.96	%		14.66	%
Net interest margin (1)		3.82	%		3.76	%		3.69	%		3.80	%		4.05	%
Efficiency (2)		60.74	%		59.22	%		56.66	%		57.59	%		53.27	%
Cash dividends as a % of diluted earnings per share		94.55	%		80.00	%		77.04	%		75.36	%		66.67	%
Tier 1 leverage		14.23	%		14.27	%		14.31	%		13.89	%		13.78	%
Tier 1 risk-based capital		21.95	%		22.48	%		23.29	%		26.26	%		25.15	%
Total risk-based capital		23.07	%		23.60	%		24.40	%		27.60	%		26.60	%
Tangible common equity/tangible assets		13.95	%		14.15	%		14.49	%		14.34	%		13.66	%
Nonperforming assets/total assets		1.47	%		1.43	%		1.31	%		1.34	%		1.53	%
Nonperforming loans/total loans		2.10	%		2.07	%		2.09	%		2.45	%		2.80	%
Allowance for loan losses/total loans		1.09	%		1.13	%		1.12	%		1.16	%		1.34	%
Net charge-offs/average loans		0.05	%		0.09	%		0.04	%		0.29	%		0.04	%

(1) Rates of return on tax-exempt securities and loans are calculated on a fully-taxable equivalent basis.

(2) The efficiency ratio is calculated by dividing: (a) total noninterest expense excluding losses from prepayment of debt, by (b) the sum of net interest income (including income from tax-exempt securities and loans on a fully-taxable equivalent basis) and noninterest income excluding securities gains or losses.

12

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Certain statements in this section and elsewhere in this Annual Report on Form 10-K are forward-looking statements. Citizens & Northern Corporation and its wholly-owned subsidiaries (collectively, the Corporation) intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Reform Act of 1995. Forward-looking statements, which are not historical facts, are based on certain assumptions and describe future plans, business objectives and expectations, and are generally identifiable by the use of words such as, “should”, “likely”, “expect”, “plan”, “anticipate”, “target”, “forecast”, and “goal”. These forward-looking statements are subject to risks and uncertainties that are difficult to predict, may be beyond management’s control and could cause results to differ materially from those expressed or implied by such forward-looking statements. Factors which could have a material, adverse impact on the operations and future prospects of the Corporation include, but are not limited to, 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 accounting principles, or the application of generally accepted accounting principles.

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.

EARNINGS OVERVIEW

In 2017, net income totaled $13,434,000, or $1.10 per common share - basic and diluted, as compared to $1.30 per share – basic and diluted in 2016 and $1.35 per share – basic and diluted in 2015. The results for 2017 represented a return on average assets of 1.08% and a return on average equity of 7.11%. As described below, 2017 earnings were reduced for a tax charge in 2017 attributable to the recent reduction in the marginal corporate income tax rate.

2017 vs. 2016

In December 2017, the federal corporate income tax rate was lowered to 21% effective January 1, 2018, from the 35% marginal rate in effect throughout 2017 and 2016. As a result of the reduction in the income tax rate, the 2017 results include an additional income tax provision (expense) of $2,159,000 ($0.18 per share) related to a reduction in the carrying value of the net deferred tax asset. Management expects the Corporation’s income tax provision will be significantly lower in 2018 and on an ongoing basis as a result of the lower tax rate.

Deferred tax assets and liabilities are recognized based on temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities, and are valued using currently enacted tax rates. The reduction in the deferred tax asset in 2017 reflects the reduced expected future net benefit from these differences, and was recognized upon the new tax bill being signed into law in December 2017.

The table below provides a reconciliation of the Corporation’s annual earnings results under U.S. generally accepted accounting principles (U.S. GAAP) to the comparative results excluding the additional tax charge referred to above. Management believes disclosure of 2017 earnings results, adjusted to exclude the additional income tax provision resulting from the change in the tax rate, provides useful information to investors for purposes of comparison with 2016 results.

13

RECONCILIATION OF NON-U.S. GAAP MEASURE

(Dollars in Thousands, Except Per Share Data)

	Year Ended Dec. 31, 2017				Year Ended Dec. 31, 2016
			Diluted				Diluted
			Earnings per				Earnings per
	Earnings		Share		Earnings		Share
Net Income	$	13,434	$	1.10	$	15,762	$	1.30
Additional Income Tax Provision Resulting from Change in Tax Rate		2,159				0
Net Income, Excluding Effect of Change in Tax Rate	$	15,593	$	1.28	$	15,762	$	1.30

The effective tax rate (income tax provision as a percentage of income before tax) for the year ended December 31, 2017 was 34.75% as compared to 25.33% for 2016. The higher effective tax rate for 2017 resulted mainly from the additional tax provision related to the change in the tax rate. Management estimates the effective tax rate for 2018 to be approximately 15%, reflecting the benefit of a lower corporate rate.

In addition to the income tax provision fluctuation discussed above, significant highlights related to earnings in 2017 as compared to 2016 are as follows:

· Net interest income was $1,543,000 (3.8%) higher in 2017 as compared to 2016. The net interest margin was 3.82% for 2017, up from 3.76% for 2016. Average total loans outstanding were up $57.6 million (8.0%) in 2017 as compared to 2016, while average total available-for-sale securities were lower by $33.2 million. Average total deposits were $20.5 million (2.1%) higher in 2017 as compared to 2016.

· The provision for loan losses was $801,000 in 2017, which was $420,000 lower than the amount in 2016. In 2017, the provision included $1,023,000 related to the change in total specific allowances on impaired loans, as adjusted for net charge-offs during the period and a $101,000 increase in the unallocated portion of the allowance, with a reduction in the provision of $323,000 related to the reduction in the collectively determined allowance for loan losses. The reduction in the collectively determined allowance included the effects of an improvement in the Corporation’s aggregate net charge-off experience and a reduction in the qualitative factors used to estimate the allowance as of December 31, 2017, partially offset by the effects of loan growth. The net increase in specific allowances in 2017 included an increase in the allowance related to one real estate secured commercial loan of $391,000 to $919,000 at December 31, 2017 as compared to $528,000 at December 31, 2016. The increase in the specific allowance for this loan was based on an updated appraisal. In comparison, the provision of $1,221,000 for 2016 included $491,000 related to the change in total specific allowances on impaired loans, as adjusted for net charge-offs during the period, a $29,000 decrease in the unallocated portion of the allowance and an increase in the provision of $759,000 related to an increase in the collectively determined allowance for loan losses. The increase in the collectively determined portion of the allowance at December 31, 2016 as compared to the end of the preceding year resulted from loan growth and slight increases in the net charge-off and qualitative factors used to estimate the allowance.

· Noninterest revenue increased $642,000 (4.1%) in 2017 as compared to 2016. Trust and financial management revenue increased $639,000 (13.4%), reflecting growth in assets under management resulting from market appreciation and new business, as well as a recent increase in fee levels and an estimated $215,000 of additional revenue from changing the frequency of billings to monthly for certain services. Interchange revenue from debit card transactions increased $278,000 (14.3%), reflecting improvements in card-related volumes and processing. Loan servicing fees, net, increased $141,000, as the fair value of mortgage servicing rights decreased by $168,000 in 2017 as compared to a reduction of $282,000 in 2016. Net gains from sales of loans decreased $211,000 (20.5%) due to a lower volume of sales. Service charges on deposit accounts decreased $207,000 (4.4%), as revenue from consumer overdrafts declined due to lower volume.

14

· Net gains on available-for-sale securities totaled $257,000 in 2017, a reduction of $901,000 from $1,158,000 in 2016. In 2016, gains from sales of bank stocks totaled $1,125,000, as the Corporation completed its program of bank stock sales that had begun in 2015. The Corporation had no remaining investments in bank stocks throughout 2017.

· Total noninterest expenses increased $2,223,000 (6.4%) in 2017 as compared to 2016. Other operating expense increased $808,000. Within other operating expense, the largest variances included increases of $208,000 in loan collection expenses, $149,000 in accounting and auditing expense stemming from increased internal audit outsourcing and $130,000 in attorney fees (mainly related to a commercial loan workout situation). Employee benefits expense increased $657,000, including an increase of $594,000 from higher health care expenses on the Corporation’s partially self-insured plan. Salaries and wages expense increased $395,000 (2.6%), reflecting the net effects of annual merit-based salary increases, an increase to an average of 292 FTEs in 2017 from 287 in 2016 and a net decrease in officers’ incentive compensation from corporate plans of $166,000.

2016 vs. 2015

Net income per share – diluted for 2016 was 3.7% lower than in 2015. Some of the more significant highlights related to annual earnings in 2016 as compared to 2015 are as follows:

· Net interest income was $488,000 (1.2%) higher than the comparable total for 2015. The net interest margin was 3.76%, which was 0.07% higher than the margin for 2015, reflecting the benefits of a lower cost of borrowed funds and a more favorable mix of earning assets. The average balance of total borrowed funds was $62,516,000 at an average interest rate of 2.57% in 2016, down from average borrowings of $77,642,000 at an average interest rate of 3.45% in 2015. Average total loans outstanding were higher by $65.3 million (9.9%) in 2016 as compared to 2015, while average total available-for-sale securities were lower by $74.2 million. Average total deposits increased $2.2 million (0.2%).

· The provision for loan losses was $1,221,000 in 2016, an increase of $376,000 over 2015. In 2016, the provision included the impact of increasing the allowance for loan losses for the effects of loan growth and slight increases in net charge-off experience and qualitative factors used in determining the collectively evaluated portion of the allowance. In comparison, in 2015 the provision also reflected the effects of loan growth, but the qualitative factors used in determining a portion of the collectively determined allowance decreased slightly during the period. Also in 2016, the provision included an increase of $148,000 as compared to 2015 from changes in specific allowances on loans individually identified as impaired, adjusted for the impact of net charge-offs.

· Total noninterest revenue for 2016 increased $33,000 (0.2%) over 2015. Net gains from sales of loans increased $294,000 (40.0%), reflecting higher volume of sales, and Trust and Financial Management revenue increased $134,000 (2.9%). Other operating income increased $28,000 (2.2%), including an increase of $148,000 from redemptions of tax credits and increases in lending-related fees of $80,000, while this category included a gain of $212,000 from a split-dollar life insurance policy in 2015. Service charges on deposit accounts decreased $169,000 (3.5%) in 2016, reflecting a reduction in consumer overdraft volume. Loan servicing fees, net, decreased $113,000 in 2016 as compared to 2015, including a decrease in the fair value of mortgage servicing rights of $282,000 in 2016, which was a larger decrease by $120,000 as compared to 2015. Brokerage revenue decreased $83,000 (9.9%), as the volume of sales of annuities declined.

· In 2016, realized gains from securities totaled $1,158,000, including gains from sales of bank stocks of $1,125,000. In 2015, the Corporation generated gains from sales of securities totaling $2,861,000, including gains from sales of bank stocks of $2,220,000, and also incurred losses of $2,573,000 from prepayments of a borrowing in the second and fourth quarters totaling $34 million. In the fourth quarter 2016, the Corporation completed its program of bank stock sales that had begun in 2015, and had no remaining investments in bank stocks at December 31, 2016.

· Noninterest expenses, excluding losses on prepayment of borrowings, in 2016 exceeded the amount for 2015 by $1,714,000 (5.2%). Salaries and wages expense increased $729,000 (5.0%). Several new positions were established in the latter portion of 2015 and early 2016, including new positions established for lending, lending support, information technology, training, human resources and marketing functions. Professional fees expense increased $488,000, including increases related to employee sales and service training, information technology and marketing. Other operating expense increased $399,000 (7.8%), including increases in other real estate expenses of $123,000, donations and public relations-related expenses of $94,000 and education and training-related expenses of $60,000. Also, other operating expense was reduced in 2015 by $69,000 as a result of a recovery of sales tax previously paid.

15

· The provision for income tax totaled $5,347,000 in 2016, or an effective tax rate of 25.3% of pre-tax income. In comparison, the provision for income tax of $5,337,000 in 2015 represented a 24.5% effective rate. The higher effective tax rate in 2016 included the impact of a $300,000 reduction in tax-exempt interest income and an increase in the provision for state income tax of $64,000 that resulted mainly from a catch-up adjustment to increase New York State taxes for the effect of changes in the tax methodology that first became effective in 2015.

More detailed information concerning fluctuations in the Corporation’s earnings results are provided in other sections of Management’s Discussion and Analysis.

CRITICAL ACCOUNTING POLICIES

The presentation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect many of the reported amounts and disclosures. Actual results could differ from these estimates.

A material estimate that is particularly susceptible to significant change is the determination of the allowance for loan losses. The Corporation maintains an allowance for loan losses that represents management’s estimate of the losses inherent in the loan portfolio as of the balance sheet date and recorded as a reduction of the investment in loans. Management believes the allowance for loan losses is adequate and reasonable. Notes 1 and 8 to the consolidated financial statements provide an overview of the process management uses for evaluating and determining the allowance for loan losses, and additional discussion of the allowance for loan losses is provided in a separate section later in Management’s Discussion and Analysis. Given the very subjective nature of identifying and valuing loan losses, it is likely that well-informed individuals could make materially different assumptions, and could, therefore calculate a materially different allowance value. While management uses available information to recognize losses on loans, changes in economic conditions may necessitate revisions in future years. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Corporation’s allowance for loan losses. Such agencies may require the Corporation to recognize adjustments to the allowance based on their judgments of information available to them at the time of their examination.

Another material estimate is the calculation of fair values of the Corporation’s debt securities. For most of the Corporation’s debt securities, the Corporation receives estimated fair values of debt securities from an independent valuation service, or from brokers. In developing fair values, the valuation service and the brokers use estimates of cash flows, based on historical performance of similar instruments in similar interest rate environments. Based on experience, management is aware that estimated fair values of debt securities tend to vary among brokers and other valuation services.

As described in Note 7 to the consolidated financial statements, management evaluates securities for other-than-temporary impairment (“OTTI”). In making that evaluation, consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) whether the Corporation intends to sell the security or more likely than not will be required to sell the security before its anticipated recovery. Management’s assessments of the likelihood and potential for recovery in value of securities are subjective and based on sensitive assumptions.

NET INTEREST INCOME

The Corporation’s primary source of operating income is net interest income, which is equal to the difference between the amounts of interest income and interest expense. Tables I, II and III include information regarding the Corporation’s net interest income in 2017, 2016, and 2015. In each of these tables, the amounts of interest income earned on tax-exempt securities and loans have been adjusted to a fully taxable-equivalent basis. Accordingly, the net interest income amounts reflected in these tables exceed the amounts presented in the consolidated financial statements. The discussion that follows is based on amounts in the tables.

The calculations of fully taxable-equivalent yields on tax-exempt loans and securities in Tables I, II and III reflect inherent tax benefit based on the Corporation’s marginal federal income tax rate of 35% for all periods presented. In 2018, the tax benefit from tax-exempt loans and securities will be reduced as a result of the change to a 21% federal income tax rate. The overall yield on tax-exempt assets, however, in 2018 and future periods will depend on market conditions for new assets originated or purchased and the pace of principal repayments on assets held as of December 31, 2017.

16

2017 vs. 2016

Fully taxable equivalent net interest income was $44,708,000 in 2017, $1,551,000 (3.6%) higher than in 2016. Interest income was $1,773,000 higher in 2017 as compared to 2016; interest expense was also higher by $222,000 in comparing the same periods. As presented in Table II, the Net Interest Margin was 3.82% in 2017 as compared to 3.76% in 2016, and the “Interest Rate Spread” (excess of average rate of return on earning assets over average cost of funds on interest-bearing liabilities) increased to 3.68% in 2017 from 3.63% in 2016.

INTEREST INCOME AND EARNING ASSETS

Interest income totaled $48,623,000 in 2017, an increase of 3.8% from 2016. Although the average yield on loans fell, the overall yield on earning assets increased to 4.16% in 2017 from 4.08% in 2016 due to a change in mix of earning assets, as loans increased while available-for-sale securities decreased. Interest and fees on loans receivable increased $2,466,000, or 6.9%, while interest on available-for-sale securities decreased $765,000, or 6.9%. The average balance of gross loans receivable increased 8.0% to $780,640,000 in 2017 from $723,076,000 in 2016. The Corporation experienced significant growth in both residential mortgages and commercial loans. The Corporation’s average rate of return on loans receivable declined to 4.87% in 2017 from 4.92% in 2016 as average interest rates on new loans have been lower than the average rates on loans that have been fully or partially paid off.

As indicated in Table II, average available-for-sale securities (at amortized cost) totaled $371,825,000 in 2017, a decrease of $33,154,000 (8.2%) from 2016. Funds generated from the net decrease in the Corporation’s available-for-sale securities portfolio were used, in part, to fund the loan growth described above. The average rate of return on available-for-sale securities was 2.79% in 2017, up from 2.75% in 2016.

The average balance of interest-bearing due from banks decreased to $16,634,000 in 2017 from $19,022,000 in 2016, while the average yield increased to 1.14% in 2017 from 0.61% in 2016. This category has consisted primarily of balances held by the Federal Reserve and also includes other overnight deposits and FDIC-insured certificates of deposit issued by other financial institutions.

INTEREST EXPENSE AND INTEREST-BEARING LIABILITIES

Interest expense rose $222,000, or 6.0%, to $3,915,000 in 2017 from $3,693,000 in 2016. Table II shows that the overall cost of funds on interest-bearing liabilities increased to 0.48% in 2017 from 0.45% in 2016.

Total average deposits (interest-bearing and noninterest-bearing) increased 2.1% to $990,917,000 in 2017 from $970,447,000 in 2016. Increases in the average balances of noninterest-bearing demand deposits, savings and interest checking were partially offset by decreases in average balances of money market and Individual Retirement Accounts. The average rate paid on interest-bearing deposits increased to 0.32% in 2017 from 0.28% in 2016. The increase in average rate is mainly due to increases in rates paid on certificates of deposits and interest checking accounts.

Total average borrowed funds decreased $3,097,000 to $59,419,000 in 2017 from $62,516,000 in 2016. The average rate on borrowed funds was 2.54% in 2017, down slightly from 2.57% in 2016. Interest expense on short-term borrowings increased $58,000 in 2017 as compared to 2016, reflecting an increase in average rate to 0.90% in 2017 from 0.65% in 2016. Interest expense on long-term borrowings decreased $154,000, as the overall reduction in average balance of $2,952,000 included the impact of repayments of two higher-cost borrowings that had been originated in 2007. These borrowings included a $10 million FHLB advance with an interest rate of 3.81% that matured in September 2017 and repurchase agreements with a broker dealer totaling $27 million with an interest rate of 3.595% that matured in December 2017.

2016 vs. 2015

Fully taxable equivalent net interest income was $43,157,000 in 2016, $338,000 (0.8%) higher than in 2015. Interest income was $571,000 lower in 2016 as compared to 2015; interest expense was also lower by $909,000 in comparing the same periods. As presented in Table II, the Net Interest Margin was 3.76% in 2016 as compared to 3.69% in 2015, and the “Interest Rate Spread” (excess of average rate of return on earning assets over average cost of funds on interest-bearing liabilities) increased to 3.63% in 2016 from 3.54% in 2015.

17

INTEREST INCOME AND EARNING ASSETS

Interest income totaled $46,850,000 in 2016, a decrease of 1.2% from 2015. Although yields on securities and loans fell, overall yield on earning assets dropped only 0.01% due to a change in mix of earning assets to increase loans and decrease securities. Interest and fees on loans receivable increased $1,695,000, or 5.0%, while interest on available-for-sale securities decreased $2,300,000, or 17.1%. The average balance of gross loans receivable increased 9.9% to $723,076,000 in 2016 from $657,727,000 in 2015. The Corporation experienced significant growth in both residential and commercial loans. The Corporation’s average rate of return on loans receivable declined to 4.92% in 2016 from 5.15% in 2015.

As indicated in Table II, average available-for-sale securities (at amortized cost) totaled $404,979,000 in 2016, a decrease of $74,169,000 (15.5%) from 2015. Funds generated from the net decrease in the Corporation’s available-for-sale securities portfolio were used, in part, to fund the loan growth described above. The Corporation’s yield on securities was lower in 2016 than in 2015, primarily due to higher-yielding securities maturing as the portfolio size was reduced. The average rate of return on available-for-sale securities was 2.75% in 2016 and 2.81% in 2015.

INTEREST EXPENSE AND INTEREST-BEARING LIABILITIES

Interest expense fell $909,000, or 19.8%, to $3,693,000 in 2016 from $4,602,000 in 2015. Table II shows that the overall cost of funds on interest-bearing liabilities fell to 0.45% in 2016 from 0.55% in 2015.

Total average deposits (interest-bearing and noninterest-bearing) increased slightly (0.2%) to $970,447,000 in 2016 from $968,201,000 in 2015. Decreases in the average balances of certificates of deposit and Individual Retirement Accounts were offset by increases in average balances of interest checking, money market accounts, savings accounts and noninterest-bearing demand deposits. The average rate paid on interest-bearing deposits increased slightly to 0.28% in 2016 from 0.26% in 2015.

Total average borrowed funds decreased $15,126,000 to $62,516,000 in 2016 from $77,642,000 in 2015. The average rate on borrowed funds was 2.57% in 2016 compared to 3.45% in 2015, reflecting a $27,604,000 reduction in the average balance of higher-rate, long-term borrowings resulting from prepayment in the second and fourth quarters of 2015 of a long-term repurchase agreement borrowing with an interest rate of 4.265%. The average balance of short-term borrowings increased $12,478,000 in 2016 over 2015, as average overnight borrowings were higher in 2016 and the Corporation funded the pay-off of the long-term repurchase agreement with a series of short-term advances from the FHLB-Pittsburgh that matured over the course of 2016.

18

TABLE I - ANALYSIS OF INTEREST INCOME AND EXPENSE

	Years Ended December 31,						Increase/(Decrease)
(In Thousands)	2017		2016		2015		2017/2016			2016/2015
INTEREST INCOME
Available-for-sale securities:
Taxable	$	5,499	$	5,916	$	7,587	$	(417	)	$	(1,671	)
Tax-exempt		4,892		5,240		5,869		(348	)		(629	)
Total available-for-sale securities		10,391		11,156		13,456		(765	)		(2,300	)
Interest-bearing due from banks		190		116		93		74			23
Loans held for sale		25		27		16		(2	)		11
Loans receivable:
Taxable		34,907		32,827		31,311		2,080			1,516
Tax-exempt		3,110		2,724		2,545		386			179
Total loans receivable		38,017		35,551		33,856		2,466			1,695
Total Interest Income		48,623		46,850		47,421		1,773			(571	)
INTEREST EXPENSE
Interest-bearing deposits:
Interest checking		474		293		214		181			79
Money market		355		342		299		13			43
Savings		143		133		128		10			5
Certificates of deposit		996		882		831		114			51
Individual Retirement Accounts		434		434		451		0			(17	)
Other time deposits		1		1		1		0			0
Total interest-bearing deposits		2,403		2,085		1,924		318			161
Borrowed funds:
Short-term		213		155		32		58			123
Long-term		1,299		1,453		2,646		(154	)		(1,193	)
Total borrowed funds		1,512		1,608		2,678		(96	)		(1,070	)
Total Interest Expense		3,915		3,693		4,602		222			(909	)
Net Interest Income	$	44,708	$	43,157	$	42,819	$	1,551		$	338

(1) Interest income from tax-exempt securities and loans has been adjusted to a fully taxable-equivalent basis, using the Corporation’s marginal federal income tax rate of 35%.

(2) Fees on loans are included with interest on loans and amounted to $883,000 in 2017, $1,000,000 in 2016, and $1,004,000 in 2015.

19

TABLE II - ANALYSIS OF AVERAGE DAILY BALANCES AND RATES

(Dollars in Thousands)
	Year						Year						Year
	Ended			Rate of			Ended			Rate of			Ended			Rate of
	12/31/2017			Return/			12/31/2016			Return/			12/31/2015			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	$	259,079			2.12	%	$	293,636			2.01	%	$	366,448			2.07	%
Tax-exempt		112,746			4.34	%		111,343			4.71	%		112,700			5.21	%
Total available-for-sale securities		371,825			2.79	%		404,979			2.75	%		479,148			2.81	%
Interest-bearing due from banks		16,634			1.14	%		19,022			0.61	%		22,201			0.42	%
Loans held for sale		470			5.32	%		472			5.72	%		222			7.21	%
Loans receivable:
Taxable		711,901			4.90	%		662,769			4.95	%		603,771			5.19	%
Tax-exempt		68,739			4.52	%		60,307			4.52	%		53,956			4.72	%
Total loans receivable		780,640			4.87	%		723,076			4.92	%		657,727			5.15	%
Total Earning Assets		1,169,569			4.16	%		1,147,549			4.08	%		1,159,298			4.09	%
Cash		17,322						16,570						16,639
Unrealized gain/loss on securities		88						7,166						8,871
Allowance for loan losses		(8,820	)					(8,082	)					(7,380	)
Bank premises and equipment		15,541						15,413						15,911
Intangible Assets		11,957						11,966						11,983
Other assets		42,102						39,284						37,887
Total Assets	$	1,247,759					$	1,229,866					$	1,243,209
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
Interest checking	$	209,893			0.23	%	$	201,357			0.15	%	$	195,940			0.11	%
Money market		191,356			0.19	%		199,405			0.17	%		196,585			0.15	%
Savings		143,575			0.10	%		132,679			0.10	%		128,355			0.10	%
Certificates of deposit		117,366			0.85	%		117,130			0.75	%		121,803			0.68	%
Individual Retirement Accounts		97,519			0.45	%		103,467			0.42	%		110,659			0.41	%
Other time deposits		1,014			0.10	%		1,036			0.10	%		1,031			0.10	%
Total interest-bearing deposits		760,723			0.32	%		755,074			0.28	%		754,373			0.26	%
Borrowed funds:
Short-term		23,761			0.90	%		23,906			0.65	%		11,428			0.28	%
Long-term		35,658			3.64	%		38,610			3.76	%		66,214			4.00	%
Total borrowed funds		59,419			2.54	%		62,516			2.57	%		77,642			3.45	%
Total Interest-bearing Liabilities		820,142			0.48	%		817,590			0.45	%		832,015			0.55	%
Demand deposits		230,194						215,373						213,828
Other liabilities		8,465						8,530						8,461
Total Liabilities		1,058,801						1,041,493						1,054,304
Stockholders’ equity, excluding other comprehensive income/loss		188,756						183,671						183,125
Other comprehensive income/loss		202						4,702						5,780
Total Stockholders’ Equity		188,958						188,373						188,905
Total Liabilities and Stockholders’ Equity	$	1,247,759					$	1,229,866					$	1,243,209
Interest Rate Spread					3.68	%					3.63	%					3.54	%
Net Interest Income/Earning Assets					3.82	%					3.76	%					3.69	%
Total Deposits (Interest-bearing and Demand)	$	990,917					$	970,447					$	968,201

(1) 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.

20

TABLE III - ANALYSIS OF VOLUME AND RATE CHANGES

(In Thousands)	Year Ended 12/31/17 vs. 12/31/16									Year Ended 12/31/16 vs. 12/31/15
	Change in			Change in			Total			Change in			Change in			Total
	Volume			Rate			Change			Volume			Rate			Change
EARNING ASSETS
Available-for-sale securities:
Taxable	$	(721	)	$	304		$	(417	)	$	(1,472	)	$	(199	)	$	(1,671	)
Tax-exempt		65			(413	)		(348	)		(70	)		(559	)		(629	)
Total available-for-sale securities		(656	)		(109	)		(765	)		(1,542	)		(758	)		(2,300	)
Interest-bearing due from banks		(17	)		91			74			(14	)		37			23
Loans held for sale		0			(2	)		(2	)		15			(4	)		11
Loans receivable:
Taxable		2,412			(332	)		2,080			2,965			(1,449	)		1,516
Tax-exempt		381			5			386			290			(111	)		179
Total loans receivable		2,793			(327	)		2,466			3,255			(1,560	)		1,695
Total Interest Income		2,120			(347	)		1,773			1,714			(2,285	)		(571	)
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
Interest checking		12			169			181			6			73			79
Money market		(14	)		27			13			4			39			43
Savings		11			(1	)		10			4			1			5
Certificates of deposit		2			112			114			(33	)		84			51
Individual Retirement Accounts		(25	)		25			0			(30	)		13			(17	)
Other time deposits		0			0			0			0			0			0
Total interest-bearing deposits		(14	)		332			318			(49	)		210			161
Borrowed funds:
Short-term		(1	)		59			58			56			67			123
Long-term		(109	)		(45	)		(154	)		(1,047	)		(146	)		(1,193	)
Total borrowed funds		(110	)		14			(96	)		(991	)		(79	)		(1,070	)
Total Interest Expense		(124	)		346			222			(1,040	)		131			(909	)
Net Interest Income	$	2,244		$	(693	)	$	1,551		$	2,754		$	(2,416	)	$	338

(1) Changes in income 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) 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 amounts of the change in each.

21

NONINTEREST INCOME

Years Ended December 31, 2017, 2016 and 2015

The table below presents a comparison of noninterest income and excludes realized gains on available-for-sale securities, which are discussed in the “Earnings Overview” section of Management’s Discussion and Analysis.

TABLE IV - COMPARISON OF NONINTEREST INCOME

(Dollars In Thousands)

	Years Ended
	December 31,				$			%
	2017		2016		Change			Change
Service charges on deposit accounts	$	4,488	$	4,695	$	(207	)		(4.4	)
Service charges and fees		417		439		(22	)		(5.0	)
Trust and financial management revenue		5,399		4,760		639			13.4
Brokerage revenue		797		756		41			5.4
Insurance commissions, fees and premiums		115		102		13			12.7
Interchange revenue from debit card transactions		2,221		1,943		278			14.3
Net gains from sales of loans		818		1,029		(211	)		(20.5	)
Loan servicing fees, net		244		103		141			136.9
Increase in cash surrender value of life insurance		379		382		(3	)		(0.8	)
Other operating income		1,275		1,302		(27	)		(2.1	)
Total noninterest income before realized gains on available-for-sale securities, net	$	16,153	$	15,511	$	642			4.1

	Years Ended
	December 31,				$			%
	2016		2015		Change			Change
Service charges on deposit accounts	$	4,695	$	4,864	$	(169	)		(3.5	)
Service charges and fees		439		494		(55	)		(11.1	)
Trust and financial management revenue		4,760		4,626		134			2.9
Brokerage revenue		756		839		(83	)		(9.9	)
Insurance commissions, fees and premiums		102		109		(7	)		(6.4	)
Interchange revenue from debit card transactions		1,943		1,935		8			0.4
Net gains from sales of loans		1,029		735		294			40.0
Loan servicing fees, net		103		216		(113	)		(52.3	)
Increase in cash surrender value of life insurance		382		386		(4	)		(1.0	)
Other operating income		1,302		1,274		28			2.2
Total noninterest income before realized gains on available-for-sale securities, net	$	15,511	$	15,478	$	33			0.2

Total noninterest income, excluding realized gains on available-for-sale securities, increased $642,000 in 2017 compared to 2016. In 2016, total noninterest income increased $33,000 from 2015. Changes of significance are discussed in the narrative that follows.

2017 vs. 2016

Trust and financial management revenue increased $639,000 (13.4%), reflecting growth in assets under management resulting from market appreciation and new business, as well as an increase in fee levels and an estimated $215,000 of additional revenue from changing the frequency of billings to monthly for certain services.

Interchange revenue from debit card transactions increased $278,000 (14.3%), reflecting improvements in card-related volumes and processing.

Loan servicing fees, net, increased $141,000. This category includes fees received from servicing residential mortgage loans that have been originated and sold, adjusted for the change in the fair value of servicing rights. The fair value of mortgage servicing rights decreased by $168,000 in 2017 as compared to a reduction of $282,000 in 2016.

22

Net gains from sales of loans decreased $211,000 (20.5%) due to a lower volume of residential mortgage sales.

Service charges on deposit accounts decreased $207,000 (4.4%). Revenue from consumer overdrafts declined $133,000 due to lower volume. Also, fees on noninterest-bearing, business-related checking accounts decreased $53,000 as the earnings crediting rate used to offset the cost of services increased over the year, consistent with increases in the Fed Funds rate.

2016 vs. 2015

Net gains from sales of loans increased $294,000 (40.0%), reflecting higher volume of sales. The increase in volume in 2016 included the impact of employing one additional mortgage lender in a dedicated, full-time capacity throughout most of 2016 as compared to 2015.

Trust and Financial Management revenue increased $134,000 (2.9%). The increase in Trust revenue in 2016 reflected, in part, the effect of higher value of U.S. equity markets in the latter portion of the year.

Service charges on deposit accounts decreased $169,000 (3.5%) in 2016, including a $131,000 reduction in consumer overdraft fees due to a lower volume of overdrafts.

Loan servicing fees, net, decreased $113,000 in 2016. The fair value of mortgage servicing rights decreased $282,000 in 2016, as their valuation was negatively impacted by a reduction in demand by banks for purchasing servicing rights resulting from regulatory changes that have generally increased their risk-based capital weighting. In comparison, the fair value of mortgage servicing rights decreased $162,000 in 2015.

Brokerage revenue decreased $83,000 (9.9%), as the volume of sales of annuities declined.

NONINTEREST EXPENSE

Years Ended December 31, 2017, 2016 and 2015

Total noninterest expenses increased $2,223,000 (6.4%) in 2017 as compared to 2016. Total noninterest expense decreased $859,000, or 2.4%, in 2016 as compared to 2015; however, excluding losses from prepayment of borrowings in 2015, noninterest expense was $1,714,000 (5.2%) higher in 2016 as compared to 2015. In 2015, the Corporation incurred losses totaling $2,573,000 from prepayment of borrowings (repurchase agreements). There were no losses from prepayment of borrowings incurred in 2017 or 2016. Changes of significance (other than the previously discussed losses on prepayment of debt) are discussed in the narrative that follows.

TABLE V - COMPARISON OF NONINTEREST EXPENSE

(Dollars In Thousands)

	Years Ended
	December 31,				$			%
	2017		2016		Change			Change
Salaries and wages	$	15,806	$	15,411	$	395			2.6
Pensions and other employee benefits		5,374		4,717		657			13.9
Occupancy expense, net		2,340		2,340		0			0.0
Furniture and equipment expense		1,834		1,730		104			6.0
FDIC Assessments		376		488		(112	)		(23.0	)
Pennsylvania shares tax		1,329		1,274		55			4.3
Professional fees		1,086		1,126		(40	)		(3.6	)
Automated teller machine and interchange expense		1,284		1,137		147			12.9
Software subscriptions		1,190		981		209			21.3
Other operating expense		6,348		5,540		808			14.6
Total Other Expense	$	36,967	$	34,744	$	2,223			6.4

23

	Years Ended
	December 31,				$			%
	2016		2015		Change			Change
Salaries and wages	$	15,411	$	14,682	$	729			5.0
Pensions and other employee benefits		4,717		4,420		297			6.7
Occupancy expense, net		2,340		2,574		(234	)		(9.1	)
Furniture and equipment expense		1,730		1,860		(130	)		(7.0	)
FDIC Assessments		488		603		(115	)		(19.1	)
Pennsylvania shares tax		1,274		1,248		26			2.1
Professional fees		1,126		638		488			76.5
Automated teller machine and interchange expense		1,137		988		149			15.1
Software subscriptions		981		876		105			12.0
Loss on prepayment of borrowings		0		2,573		(2,573	)		(100.0	)
Other operating expense		5,540		5,141		399			7.8
Total Other Expense	$	34,744	$	35,603	$	(859	)		(2.4	)

2017 vs 2016

Other operating expense increased $808,000. Within other operating expense, the largest variances included increases of $208,000 in loan collection expenses, $149,000 in accounting and auditing expense stemming from increased internal audit outsourcing and $130,000 in attorney fees (mainly related to a commercial loan workout situation). The increased loan collection expenses in 2017 included payments of delinquent property taxes associated with mortgage loans on properties located in New York State and $32,000 for the Corporation’s share of collection expenses on a Multi-family residential participation loan that has been classified as impaired at December 31, 2017 and 2016.

Employee benefits expense increased $657,000, including an increase of $594,000 from higher health care expenses from the Corporation’s partially self-insured plan. The Corporation is self-insured for health insurance, up to a cap for catastrophic levels of losses, which are insured by a third party.

Salaries and wages expense increased $395,000 (2.6%), reflecting the net effects of annual merit-based salary increases, an increase to an average of 292 FTEs in 2017 from 287 in 2016 and a net decrease in officers’ incentive compensation from corporate plans of $166,000.

Software subscriptions increased $209,000, including costs associated with new applications as well as annual licensing increases.

Automated teller machine and interchange expense increased $147,000, including increases in volume-related costs and fraud monitoring costs.

Furniture and equipment expenses in 2017 increased $104,000 primarily as a result of higher depreciation and repair costs.

FDIC insurance decreased $112,000 in 2017 reflecting lower assessment levels beginning in the third quarter of 2016.

2016 vs 2015

Salaries and wages expense increased $729,000 (5.0%), reflecting an increase in number of employees. The average number of full-time equivalent employees was 287 in 2016, up from 281 in 2015, including new positions established for lending, lending support, information technology, training and marketing functions.

Pension and other employee benefits expense increased $297,000 (6.7%). The increase resulted mainly from an increase of $214,000 in healthcare expense as a result of increased healthcare claims. Payroll taxes and other expenses within this category increased in 2016, as well, due to the increase in number of employees described above.

Professional fees expense increased $488,000, including increases related to employee sales and service training, information technology and marketing.

24

Automated teller machine and interchange expense increased $149,000, including the costs of purchasing new debit cards with EMV functionality.

Software subscriptions increased $105,000 as a result of enhancements and new applications initiated in 2015 and continuing into 2016 including costs associated with the network operating system, automated document signatures and marketing-related functionality.

Other operating expense increased $399,000 (7.8%), including increases in other real estate expenses of $123,000, donations and public relations-related expenses of $94,000 and education and training-related expenses of $60,000. Also, other operating expense was reduced in 2015 by $69,000 as a result of a recovery of sales tax previously paid.

Occupancy expenses in 2016 were $234,000 under 2015 primarily as a result of lower depreciation costs as well as lower winter-related expenses such as snow removal and fuel costs.

Furniture and equipment expenses in 2016 were $130,000 under 2015 primarily as a result lower depreciation costs.

FDIC insurance decreased $115,000 in 2016 reflecting lower assessment levels beginning in the third quarter of 2016.

INCOME TAXES

The effective income tax rate was 34.8% of pre-tax income in 2017, up from 25.3% in 2016 and 24.5% in 2015. The Corporation’s effective tax rates differed from the statutory rate of 35% in 2016 and 2015 principally because of the effects of tax-exempt interest income. In 2017, the Corporation realized an increase in the income tax provision (expense) due to the write-down of the net deferred tax asset as a result of the recently enacted Tax Cuts and Jobs Act of 2017 that, among other things, lowered the federal corporate income tax rate to 21% effective January 1, 2018, from the 35% marginal tax rate in effect for prior periods. Excluding the effect of the write-down of the deferred tax asset resulting from the change in the federal corporate income tax rate, the effective income tax rate for the year ended December 31, 2017 would have been 24.3%. Further, management estimates that had the recently enacted 21% federal tax rate been in effect throughout 2017 and 2016, the effective federal tax rate would have been 14.5% in 2017 and 15% in 2016. Management estimates the effective tax rate for 2018 will be approximately 15%. In developing these estimates, no adjustments have been made to 2017 and 2016 historical data for reinvestment of additional funds or for any changes to the composition of the Corporation’s assets and liabilities.

The Corporation recognizes deferred tax assets and liabilities based on differences between the financial statement carrying amounts and the tax basis of assets and liabilities. At December 31, 2017, the net deferred tax asset was $3,289,000, a decrease from the balance at December 31, 2016 of $5,117,000. The primary reason for the decrease was the write-down of the deferred tax asset based on the decrease in the federal tax rate as described above. The total amount of the write-down of the net deferred tax asset was $2,159,000, including $325,000 associated with items included in Accumulated Other Comprehensive Loss in the consolidated balance sheet.

The Corporation regularly reviews deferred tax assets for recoverability based on history of earnings, expectations for future earnings and expected timing of reversals of temporary differences. Realization of deferred tax assets ultimately depends on the existence of sufficient taxable income, including taxable income in prior carryback years, as well as future taxable income. Further, the value of the benefit from realization of deferred tax assets would be impacted if income tax rates were changed from currently enacted levels.

Management believes the recorded net deferred tax asset at December 31, 2017 is fully realizable; however, if management determines the Corporation will be unable to realize all or part of the net deferred tax asset, the Corporation would adjust the deferred tax asset, which would negatively impact earnings.

Additional information related to income taxes is presented in Note 14 to the consolidated financial statements.

SECURITIES

Table VI shows the composition of the investment portfolio at December 31, 2017, 2016 and 2015. Comparison of the amortized cost totals of available-for-sale securities at each year-end presented reflects a decrease of $19,917,000 to $396,538,000 at December 31, 2016 from December 31, 2015. This change was followed by a decrease of $37,221,000 to $359,317,000 at December 31, 2017. The continued decrease in securities in 2017 reflects the use of cash generated from the investment portfolio to help fund the increase in loans outstanding. The Corporation’s holdings of mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies have decreased to $221,187,000 at December 31, 2017 from $237,654,000 at December 31, 2016 and $266,372,000 at December 31, 2015. Within that overall category, in 2017, the Corporation had some commercial mortgage-backed securities for which the underlying collateral consists of multi-family properties. The total amortized cost of commercial mortgage-backed securities held at December 31, 2017 was $33,881,000.

25

As reflected in Table VI, the fair value of available-for-sale securities as of December 31, 2017 was $2,409,000, or 0.67%, less than the total amortized cost basis. In comparison, the aggregate unrealized loss position at December 31, 2016 was $1,461,000, or 0.37% of the total amortized cost basis. .. Modest increases in intermediate-term and long-term interest rates over the course of 2016 and 2017, as well as market expectations of further rate increases, have contributed to the decrease in fair values of debt securities. Also, the fair values of tax-exempt municipal bonds have been negatively impacted by the reduced benefit of their tax-exempt nature as a result of the reduction in the federal corporate income tax rate. At December 31, 2015, the aggregate unrealized gain position was $3,835,000, or 0.92% of total amortized cost, including an unrealized gain of $706,000 on marketable equity securities (bank stocks). The Corporation liquidated its investments in bank stocks in 2015 and 2016, and held no investments in bank stocks in 2017. The Corporation reported net realized gains from sales of available-for-sale securities of $257,000 in 2017. In comparison, net realized gains from sales of available-for-sale securities totaled $1,158,000 in 2016 and $2,861,000 in 2015, including realized gains from sales of bank stocks of $1,125,000 in 2016 and $2,220,000 in 2015.

Management has reviewed the Corporation’s holdings as of December 31, 2017 and concluded that unrealized losses on all of the securities in an unrealized loss position are considered temporary. Notes 6 and 7 to the consolidated financial statements provide more detail concerning the Corporation’s processes for evaluating securities for other-than-temporary impairment. Management will continue to closely monitor the status of impaired securities in 2018.

TABLE VI - INVESTMENT SECURITIES

					As of December 31,
	2017				2016				2015
	Amortized		Fair		Amortized		Fair		Amortized		Fair
(In Thousands)	Cost		Value		Cost		Value		Cost		Value
AVAILABLE-FOR-SALE SECURITIES:
Obligations of U.S. Government agencies	$	8,026	$	7,873	$	9,671	$	9,541	$	10,663	$	10,483
Obligations of states and political subdivisions:
Tax-exempt		103,673		105,111		118,140		119,037		103,414		107,757
Taxable		25,431		25,573		30,073		30,297		34,317		34,597
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		52,992		52,347		58,922		58,404		73,227		73,343
Residential collateralized mortgage obligations		134,314		131,814		147,915		146,608		193,145		191,715
Commercial mortgage-backed securities		33,881		33,219		30,817		30,219		0		0
Other collateralized debt obligations		0		0		0		0		9		9
Total debt securities		358,317		355,937		395,538		394,106		414,775		417,904
Marketable equity securities		1,000		971		1,000		971		1,680		2,386
Total	$	359,317	$	356,908	$	396,538	$	395,077	$	416,455	$	420,290

26

The following table presents the contractual maturities and the weighted-average yields (calculated based on amortized cost) of investment securities as of December 31, 2017. Yields on tax-exempt securities are presented on a nominal basis, that is, the yields are not presented on a fully taxable-equivalent basis. Actual maturities may differ from contractual maturities because counterparties may have the right to call or prepay obligations with or without call or prepayment penalties.

(In Thousands, Except for Percentages)	Within					One-					Five-					After
	One					Five					Ten					Ten
	Year		Yield			Years		Yield			Years		Yield			Years		Yield			Total		Yield
AVAILABLE-FOR-SALE SECURITIES:
Obligations of U.S. Government agencies	$	0		0.00	%	$	8,026		1.42	%	$	0		0.00	%	$	0		0.00	%	$	8,026		1.42	%
Obligations of states and political subdivisions:
Tax-exempt		6,247		1.55	%		45,184		3.00	%		32,822		2.21	%		19,420		3.60	%		103,673		2.78	%
Taxable		5,103		1.97	%		16,064		2.51	%		4,264		3.12	%		0		0.00	%		25,431		2.51	%
Sub-total	$	11,350		1.74	%	$	69,274		2.71	%	$	37,086		2.32	%	$	19,420		3.60	%		137,130		2.65	%
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities																						52,992		2.24	%
Residential collateralized mortgage obligations																						134,314		2.12	%
Commercial mortgage-backed securities																						33,881		2.39	%
Total																					$	358,317		2.36	%

The Corporation’s mortgage-backed securities and collateralized mortgage obligations have stated maturities that may differ from actual maturities due to borrowers’ ability to prepay obligations. Cash flows from such investments are dependent upon the performance of the underlying mortgage loans and are generally influenced by the level of interest rates. As rates increase, cash flows generally decrease as prepayments on the underlying mortgage loans decrease. As rates decrease, cash flows generally increase as prepayments increase due to increased refinance activity and other factors. In the table above, the entire balances and weighted-average rates for mortgage-backed securities and collateralized mortgage obligations are shown in one period.

FINANCIAL CONDITION

Gross loans outstanding (excluding mortgage loans held for sale) were $815,713,000 at December 31, 2017, up 8.5% from $751,835,000 at December 31, 2016. The total outstanding balances of residential mortgage segment loans at December 31, 2017 increased $26,513,000 (6.3%) as compared to December 31, 2016, and the total outstanding balances of commercial segment loans at December 31, 2017 increased $36,148,000 (11.4%) as compared to December 31, 2016. The 2017 loan growth followed growth in loans outstanding in 2016 of 6.7% from December 31, 2015. Total outstanding commercial loans were higher by $9,206,000 (3.0%), and residential mortgage segment loans were up $34,683,000 (9.0%), at December 31, 2016 as compared to December 31, 2015.

The increases in loans outstanding in 2016 and 2017 included increases in commercial participation loans. Participation loans represent portions of larger commercial transactions for which other institutions are the “lead banks”. Although not the lead bank, the Corporation conducts detailed underwriting and monitoring of participation loan opportunities. Participation loans are included in the “Commercial and industrial,” “Commercial loans secured by real estate” and “Political subdivisions” classes in the loan tables presented in this Form 10-K. Total participation loans outstanding amounted to $61,245,000 at December 31, 2017, up from $47,508,000 at December 31, 2016. At December 31, 2017, the balance of participation loans outstanding includes a total of $53,756,000 to businesses located outside of the Corporation’s market area, including $10,063,000 from participations in loans originated through the Corporation’s membership in a network that originates loans throughout the U.S. The Corporation’s participation loans originated through the network consist of loans to businesses that are larger than the Corporation’s typical commercial customer base. The loans originated through the network are considered “leveraged loans,” meaning the businesses typically have minimal tangible book equity and the extent of collateral available is limited, though at the time of origination the businesses have demonstrated strong cash flow performance in their recent histories. At December 31, 2017, total leveraged participation loans, including loans originated through the network and four loans to two borrowers originated through another lead institution, totaled $15,328,000, up slightly from $15,207,000 at December 31, 2016. At December 31, 2017, there was a leveraged loan with an outstanding balance of $324,000 classified as impaired with a specific allowance for loan losses of $96,000. With the exception of the loan identified in the preceding sentence, there were no loans classified as impaired at December 31, 2017 and 2016, and all of the leveraged loans (including the loan classified as impaired) were current as to payments of principal and interest as of December 31, 2017 and 2016.

27

Table VIII presents loan maturity data as of December 31, 2017. The interest rate simulation model used to prepare Table VIII classifies certain loans under different categories from the categories that appear in Table VII. Fixed-rate loans are shown in Table VIII based on their contractually scheduled principal repayments, and variable-rate loans are shown based on the date of the next change in rate. Table VIII shows that fixed-rate loans are approximately 38% of the loan portfolio. Of the 62% of the portfolio made up of variable-rate loans, a significant portion (42%) will re-price after more than one year. Variable-rate loans re-pricing after more than one year include residential and commercial real estate secured loans. The Corporation’s substantial investment in long-term, fixed-rate loans and variable-rate loans with extended periods until re-pricing is one of the concerns management attempts to address through interest rate risk management practices. See Part II, Item 7A for a more detailed discussion of the Corporation’s interest rate risk.

Short-term borrowings totaled $61,766,000 at December 31, 2017, up from $26,175,000 at December 31, 2016. Within this category, overnight borrowing from FHLB-Pittsburgh of $29,000,000 was up from $21,000,000 at December 31, 2016. Also at December 31, 2017, the balance of short-term borrowings included a series of advances from FHLB-Pittsburgh totaling $29,000,000, including advances maturing monthly from January through October 2018 with a weighted average interest rate of 1.69% and rates ranging from 1.23% to 1.89%.

Long-term borrowings of $9,189,000 at December 31, 2017 were down from the balance at December 31, 2016 of $38,454,000. In 2017, the Corporation paid off two higher-cost borrowings totaling $37,000,000, including an advance from FHLB-Pittsburgh of $10,000,000 with a rate of 3.81% in October and repurchase agreements totaling $27,000,000 with a rate of 3.595% in December. Repayment of these borrowings was funded by advances from FHLB-Pittsburgh, including the short-term advances described above and an additional $8,000,000 of advances included in long-term borrowings at December 31, 2017. The advances included in long-term borrowings at December 31, 2017 had initial maturities of greater than one year, with varying maturities through February 2019 and interest rates ranging from 1.35% to 1.83%.

Other significant changes in the average balances of the Corporation’s earning assets and interest-bearing liabilities are described in the “Net Interest Income” section of Management’s Discussion and Analysis. Other significant balance sheet items, including securities, the allowance for loan losses and stockholders’ equity, are discussed in separate sections of Management’s Discussion and Analysis.

Total purchases of bank premises and equipment in 2018 are estimated at approximately $3.0 million. Management does not expect the amount of purchases of bank premises and equipment to have a material, detrimental effect on the Corporation’s financial condition in 2018.

Since 2009, the Corporation has originated and sold residential mortgage loans to the secondary market through the MPF Xtra program administered by the Federal Home Loan Banks of Pittsburgh and Chicago. Residential mortgages originated and sold through the MPF Xtra program consist primarily of conforming, prime loans sold to the Federal National Mortgage Association (Fannie Mae), a quasi-government entity. In 2014, the Corporation began to originate and sell residential mortgage loans to the secondary market through the MPF Original program, which is also administered by the Federal Home Loan Banks of Pittsburgh and Chicago. Residential mortgages originated and sold through the MPF Original program consist primarily of conforming, prime loans sold to the Federal Home Loan Bank of Pittsburgh.

For loan sales originated under the MPF Xtra and Original programs, the Corporation provides customary representations and warranties to investors that specify, among other things, that the loans have been underwritten to the standards established by the investor. The Corporation may be required to repurchase a loan and reimburse a portion of fees received, or reimburse the investor for a credit loss incurred on a loan, if it is determined that the representations and warranties have not been met. Such repurchases or reimbursements generally result from an underwriting or documentation deficiency. At December 31, 2017, the total outstanding balance of loans the Corporation has repurchased as a result of identified instances of noncompliance amounted to $1,805,000, and the corresponding total outstanding balance repurchased at December 31, 2016 was $1,852,000.

At December 31, 2017, outstanding balances of loans sold and serviced through the two programs totaled $169,725,000, including loans sold through the MPF Xtra program of $107,117,000 and loans sold through the Original program of $62,608,000. At December 31, 2016, outstanding balances of loans sold and serviced through the two programs totaled $163,296,000, including loans sold through the MPF Xtra program of $116,978,000 and loans sold through the Original Program of $46,318,000. Based on the fairly limited volume of required repurchases to date, no allowance has been established for representation and warranty exposures as of December 31, 2017 and December 31, 2016.

28

For loans sold under the Original program, the Corporation provides a credit enhancement whereby the Corporation would assume credit losses in excess of a defined First Loss Account (“FLA”) balance, up to specified amounts. The FLA is funded by the Federal Home Loan Bank of Pittsburgh based on a percentage of the outstanding balance of loans sold. At December 31, 2017, the Corporation’s maximum credit enhancement obligation under the MPF Original Program was $5,742,000, and the Corporation has recorded a related allowance for credit losses in the amount of $260,000 which is included in “Accrued interest and other liabilities” in the accompanying consolidated balance sheets. At December 31, 2016, the Corporation’s maximum credit enhancement obligation under the MPF Original Program was $4,664,000, and the related allowance for credit losses was $196,000. The Corporation does not provide a credit enhancement for loans sold through the Xtra program.

TABLE VII - Five-year Summary of Loans by Type

(Dollars In Thousands)

	2017			%		2016			%		2015			%		2014			%		2013			%
Residential mortgage:
Residential mortgage loans - first liens	$	359,987			44.1	$	334,102			44.4	$	304,783			43.2	$	291,882			46.3	$	299,831			46.5
Residential mortgage loans - junior liens		25,325			3.1		23,706			3.2		21,146			3.0		21,166			3.4		23,040			3.6
Home equity lines of credit		35,758			4.4		38,057			5.1		39,040			5.5		36,629			5.8		34,530			5.4
1-4 Family residential construction		26,216			3.2		24,908			3.3		21,121			3.0		16,739			2.7		13,909			2.2
Total residential mortgage		447,286			54.8		420,773			56.0		386,090			54.8		366,416			58.1		371,310			57.6
Commercial:
Commercial loans secured by real estate		159,266			19.5		150,468			20.0		154,779			22.0		145,878			23.1		147,215			22.8
Commercial and industrial		88,276			10.8		83,854			11.2		75,196			10.7		50,157			8.0		42,387			6.6
Political subdivisions		59,287			7.3		38,068			5.1		40,007			5.7		17,534			2.8		16,291			2.5
Commercial construction		14,527			1.8		14,287			1.9		5,122			0.7		6,938			1.1		17,003			2.6
Loans secured by farmland		7,255			0.9		7,294			1.0		7,019			1.0		7,916			1.3		10,468			1.6
Multi-family (5 or more) residential		7,713			0.9		7,896			1.1		9,188			1.3		8,917			1.4		10,985			1.7
Agricultural loans		6,178			0.8		3,998			0.5		4,671			0.7		3,221			0.5		3,251			0.5
Other commercial loans		10,986			1.3		11,475			1.5		12,152			1.7		13,334			2.1		14,631			2.3
Total commercial		353,488			43.3		317,340			42.2		308,134			43.7		253,895			40.3		262,231			40.7
Consumer		14,939			1.8		13,722			1.8		10,656			1.5		10,234			1.6		10,762			1.7
Total		815,713			100.0		751,835			100.0		704,880			100.0		630,545			100.0		644,303			100.0
Less: allowance for loan losses		(8,856	)				(8,473	)				(7,889	)				(7,336	)				(8,663	)
Loans, net	$	806,857				$	743,362				$	696,991				$	623,209				$	635,640

TABLE VIII – LOAN MATURITY DISTRIBUTION

(In Thousands)	As of December 31, 2017
	Fixed-Rate Loans								Variable- or Adjustable-Rate Loans
	1 Year		1-5		>5				1 Year		1-5		>5
	or Less		Years		Years		Total		or Less		Years		Years		Total
Real Estate	$	6,076	$	25,336	$	174,902	$	206,314	$	122,028	$	172,436	$	123,684	$	418,148
Commercial		12,724		34,971		40,389		88,084		55,832		29,152		3,511		88,495
Consumer		1,842		9,589		3,188		14,619		45		0		8		53
Total	$	20,642	$	69,896	$	218,479	$	309,017	$	177,905	$	201,588	$	127,203	$	506,696

PROVISION AND ALLOWANCE FOR LOAN LOSSES

The Corporation maintains an allowance for loan losses that represents management’s estimate of the losses inherent in the loan portfolio as of the balance sheet date and recorded as a reduction of the investment in loans. Notes 1 and 8 to the consolidated financial statements provide an overview of the process management uses for evaluating and determining the allowance for loan losses.

29

While management uses available information to recognize losses on loans, changes in economic conditions may necessitate revisions in future years. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Corporation’s allowance for loan losses. Such agencies may require the Corporation to recognize adjustments to the allowance based on their judgments of information available to them at the time of their examination.

The allowance for loan losses was $8,856,000 at December 31, 2017, up from $8,473,000 at December 31, 2016. Table X shows total specific allowances on impaired loans increased $605,000 to $1,279,000 at December 31, 2017 from $674,000 at December 31, 2016. The net increase in specific allowances in 2017 included an increase of $391,000 in the allowance related to one real estate secured commercial loan. The increase in the specific allowance for this loan was based on an updated appraisal received in 2017 as well as principal reductions from scheduled payments. At December 31, 2017, the outstanding balance of this loan was $2,641,000, and the related allowance was $919,000.

Table X also shows that the collectively determined portion of the allowance related to commercial loans decreased $295,000, to $3,078,000 at December 31, 2017 from $3,373,000 at December 31, 2016. The decrease in the collectively determined allowance on commercial loans resulted from an aggregate improvement (reduction) in the net charge-off experience and qualitative factors used to value the allowance on commercial loans, partially offset by the impact of an increase in outstanding loans. The aggregate net charge-off experience factor used in the allowance calculation on commercial loans was 0.09% lower at December 31, 2017 as compared to December 31, 2016. The Corporation’s aggregate net charge-off rate on commercial loans has been improving over the past several quarters, as the effects on the overall rate of a large ($1,486,000) charge-off in 2014 on a commercial loan secured by real estate has gradually diminished. The qualitative factors used in the allowance calculation for commercial loans were 0.07% lower at December 31, 2017 as compared to December 31, 2016, reflecting a pattern of overall improvement in loan delinquency levels and a reduction in the unemployment rate throughout most of the Corporation’s market area over the previous 12-18 months.

Throughout 2016 and at March 31, 2017, a rolling three-year average net charge-off rate was used for all loan classes. Beginning with the quarter ending June 30, 2017, a five-year average net charge-off rate was used for commercial loans secured by real estate and for multi-family residential loans, while a three-year average net charge-off rate was used for all other loan classes. The change in time period for these two loan classes was based on management’s evaluation of an appropriate time period that captures an historical loss experience relevant to the current portfolio.

The provision for loan losses by segment for 2017, 2016 and 2015 is as follows:

(In Thousands)
	2017		2016			2015
Residential mortgage	$	251	$	542		$	(19	)
Commercial		316		687			816
Consumer		133		21			16
Unallocated		101		(29	)		32
Total	$	801	$	1,221		$	845

30

The provision for loan losses for the two largest lending segments, Residential mortgage and Commercial, is further detailed as follows:

Residential mortgage segment
(In thousands)
	2017			2016			2015
Increase (decrease) in total specific allowance on impaired loans, adjusted for the effect of net charge-offs	$	300		$	69		$	(141	)
Increase (decrease) in collectively determined portion of the allowance attributable to:
Loan growth		233			325			196
Changes in historical loss experience factors		(53	)		(6	)		(111	)
Changes in qualitative factors		(229	)		154			37
Total provision (credit) for loan losses - Residential mortgage segment	$	251		$	542		$	(19	)

Commercial segment
(In thousands)
	2017			2016		2015
Increase in total specific allowance on impaired loans, adjusted for the effect of net charge-offs	$	611		$	417	$	445
Increase (decrease) in collectively determined portion of the allowance attributable to:
Loan growth		183			114		437
Changes in historical loss experience factors		(268	)		75		(42	)
Changes in qualitative factors		(210	)		81		(24	)
Total provision for loan losses - Commercial segment	$	316		$	687	$	816

For each year shown in the table immediately above, the provision related to increases or decreases in specific allowances on impaired loans was affected by changes in the results of management’s assessment of the amount of probable or actual (charged-off) losses associated with a small number of larger, individual loans. This line item also includes net charge-offs or recoveries from smaller loans that had not been individually evaluated for impairment prior to charge-off.

In the table immediately above, the portion of the net change in the collectively determined allowance attributable to loan growth was determined by applying the historical loss experience and qualitative factors used in the allowance calculation at the end of the preceding year to the net increase in loans outstanding (excluding loans specifically evaluated for impairment) for the year. The table shows that the provision for both the Residential mortgage and Commercial segments included the effects of loan growth in 2017, 2016 and 2015.

The effect on the provision of changes in historical loss experience and qualitative factors, as shown in the table above, was determined by: (1) calculating the net change in each factor used in determining the allowance at the end of the year as compared to the preceding year, and (2) applying the net change in each factor to the outstanding balance of loans at the end of the preceding year (excluding loans specifically evaluated for impairment).

As discussed above, the Corporation’s overall net charge-off experience has improved in 2017, consistent with the reductions in the provision for both the Residential mortgage and Commercial segments. Table XII shows the average rate of net charge-offs as a percentage of loans was 0.05% in 2017, with an average over the five-year period ended December 31, 2017 of 0.10%, and annual average rates ranging from lows of 0.04% in 2013 and 2015 to a high of 0.29% in 2014.

31

The table above also shows the provision for both the Residential mortgage and Commercial segments in 2017 was reduced by the effect of a reduction in qualitative factors. As discussed above, the reduced qualitative factors is consistent with the overall pattern of improving loan delinquency and charge-off levels and an improved local economy as evidenced by a reduction in the unemployment rate throughout most of the Corporation’s market area. In 2016, the provision for both the Residential mortgage and Commercial segments included the effect of slight increases in qualitative factors.

Table XI presents information related to past due and impaired loans, and loans that have been modified under terms that are considered troubled debt restructurings (TDRs). Total nonperforming loans as a percentage of outstanding loans was 2.10% at December 31, 2017, up slightly from 2.07% at December 31, 2016. Nonperforming assets as a percentage of total assets was 1.47% at December 31, 2017, also up slightly from 1.43% at December 31, 2016. Table XI presents data at the end of each of the years ended December 31, 2013 through 2017. For the range of dates presented in Table XI, total nonperforming loans as a percentage of loans has ranged from a low of 2.07% at December 31, 2016 to a high of 2.80% at December 31, 2013, and total nonperforming assets as a percentage of assets has ranged from a low of 1.31% at December 31, 2015 to a high of 1.53% at December 31, 2013.

Total impaired loans of $9,511,000 at December 31, 2017, are down $1,349,000 from the corresponding amount at December 31, 2016 of $10,860,000. Table XI shows that over the period 2013-2017, the year-end total outstanding balance of impaired loans has ranged from a low of $9,511,000 in 2017 to a high of $16,321,000 in 2013.

Total nonperforming assets of $18,726,000 at December 31, 2017 are up $972,000 from the corresponding amount at December 31, 2016. The total amount of nonperforming assets exceeds the amount of total impaired loans because the nonperforming category includes, in addition to impaired loans, foreclosed assets held for sale and loans 90 days or more past due or in nonaccrual status with outstanding balances lower than the minimum amounts that are individually evaluated for impairment. A summary of changes in the components of nonperforming assets at December 31, 2017 as compared to December 31, 2016 is as follows:

· Nonaccrual loans totaled $13,404,000 at December 31, 2017, up from $8,736,000 at December 31, 2016. The net increase in nonaccrual loans included the effect of classifying a commercial loan with a recorded investment of $2,811,000 at December 31, 2017 as nonaccrual in 2017. The increase also included the effect of an increase in total residential mortgage loans in nonaccrual status to $5,417,000 at December 31, 2017 from $3,781,000 at December 31, 2016.

· Total loans past due 90 days or more and still accruing interest amounted to $3,724,000 at December 31, 2017, a decrease of $3,114,000 from $6,838,000 at December 31, 2016. The decrease in 2017 in the balance of loans past due 90 days or more and still accruing interest included the commercial loan described above moving to nonaccrual status. At December 31, 2017, total residential mortgage loans that were more than 90 days past due but deemed to be well secured and in the process of collection amounted to $2,648,000, down from $3,456,000 at December 31, 2016. The Corporation reviews the status of loans past due 90 days or more each quarter to determine if it is appropriate to continue to accrue interest, and has determined the loans included in this category are well secured and that ultimate collection of all principal and interest is probable.

· Foreclosed assets held for sale consisted of real estate, and totaled $1,598,000 at December 31, 2017, a decrease of $582,000 from $2,180,000 at December 31, 2016. At December 31, 2017, the Corporation held 16 such properties for sale, with total carrying values of $721,000 related to residential real estate, $632,000 of land and $245,000 related to commercial real estate. At December 31, 2016, the Corporation held 19 such properties for sale, with total carrying values of $1,102,000 related to residential real estate, $650,000 of land and $428,000 related to commercial real estate. The Corporation evaluates the carrying values of foreclosed assets each quarter based on the most recent market activity or appraisals for each property.

32

As shown in Table XI, loans classified as TDRs decreased to $3,663,000 at December 31, 2017 from $8,677,000 at December 31, 2016. The decrease resulted primarily from removing one commercial relationship from TDR status in 2017. At December 31, 2017, the outstanding contractual balances of loans to this borrower totaled $6,425,000, and the recorded investments totaled $4,593,000. In 2014, the Corporation entered into a forbearance agreement with this commercial borrower which was extended for two additional twelve-month periods, most recently in July 2016. The Corporation recorded a charge-off of $1,486,000 in 2014 as a result of these modifications, as the payment amounts based on the forbearance agreement were not sufficient to fully amortize the contractual amount of principal outstanding on the loans. In December 2016, the Corporation and the borrower entered into a modification agreement, terminating the forbearance agreement and establishing loan terms with essentially the same interest rate and monthly payment amounts as had been in effect under the forbearance agreement. The interest rates provided for in the modification agreement were equal to or greater than rates the Corporation would be willing to accept for loans with comparable terms to borrowers with a comparable risk profile at the time of modification. The borrower has made all required payments on the loans in accordance with the terms of the forbearance agreement, as extended, and the modification agreement. Accordingly, the loans were restored to full accrual status at December 31, 2016 and are no longer included in the amounts reported as TDRs at December 31, 2017. Table XI shows that over the period 2013-2017, the year-end total outstanding balance of TDRs has ranged from a low of $3,663,000 in 2017 to a high of $8,677,000 in 2016.

Over the period 2013-2017, each period includes a few large commercial relationships that have required significant monitoring and workout efforts. As a result, a limited number of relationships may significantly impact the total amount of allowance required on impaired loans, and may significantly impact the amount of total charge-offs reported in any one period.

Management believes it has been conservative in its decisions concerning identification of impaired loans, estimates of loss, and nonaccrual status; however, the actual losses realized from these relationships could vary materially from the allowances calculated as of December 31, 2017. Management continues to closely monitor its commercial loan relationships for possible credit losses, and will adjust its estimates of loss and decisions concerning nonaccrual status, if appropriate.

Tables IX through XII present historical data related to the allowance for loan losses.

TABLE IX - ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES

(Dollars In Thousands)				Years Ended December 31,
	2017			2016			2015			2014			2013
Balance, beginning of year	$	8,473		$	7,889		$	7,336		$	8,663		$	6,857
Charge-offs:
Residential mortgage		(197	)		(73	)		(217	)		(327	)		(95	)
Commercial		(132	)		(597	)		(251	)		(1,715	)		(459	)
Consumer		(150	)		(87	)		(94	)		(97	)		(117	)
Total charge-offs		(479	)		(757	)		(562	)		(2,139	)		(671	)
Recoveries:
Residential mortgage		19			3			1			25			24
Commercial		4			35			214			264			348
Consumer		38			82			55			47			58
Total recoveries		61			120			270			336			430
Net charge-offs		(418	)		(637	)		(292	)		(1,803	)		(241	)
Provision for loan losses		801			1,221			845			476			2,047
Balance, end of period	$	8,856		$	8,473		$	7,889		$	7,336		$	8,663
Net charge-offs as a % of average loans		0.05	%		0.09	%		0.04	%		0.29	%		0.04	%

33

TABLE X - COMPONENTS OF THE ALLOWANCE FOR LOAN LOSSES

(In Thousands)
	As of December 31,
	2017		2016		2015		2014		2013
ASC 310 - Impaired loans	$	1,279	$	674	$	820	$	769	$	2,333
ASC 450 - Collective segments:
Commercial		3,078		3,373		3,103		2,732		2,583
Residential mortgage		3,841		3,890		3,417		3,295		3,156
Consumer		159		138		122		145		193
Unallocated		499		398		427		395		398
Total Allowance	$	8,856	$	8,473	$	7,889	$	7,336	$	8,663

TABLE XI  - PAST DUE AND IMPAIRED LOANS, NONPERFORMING ASSETS
AND TROUBLED DEBT RESTRUCTURINGS (TDRs)
(Dollars In Thousands)
	As of December 31,
	2017			2016			2015			2014			2013
Impaired loans with a valuation allowance	$	4,100		$	3,372		$	1,933		$	3,241		$	9,889
Impaired loans without a valuation allowance		5,411			7,488			8,041			9,075			6,432
Total impaired loans	$	9,511		$	10,860		$	9,974		$	12,316		$	16,321
Total loans past due 30-89 days and still accruing	$	9,449		$	7,735		$	7,057		$	7,121		$	8,305
Nonperforming assets:
Total nonaccrual loans	$	13,404		$	8,736		$	11,517		$	12,610		$	14,934
Total loans past due 90 days or more and still accruing		3,724			6,838			3,229			2,843			3,131
Total nonperforming loans		17,128			15,574			14,746			15,453			18,065
Foreclosed assets held for sale (real estate)		1,598			2,180			1,260			1,189			892
Total nonperforming assets	$	18,726		$	17,754		$	16,006		$	16,642		$	18,957
Loans subject to troubled debt restructurings (TDRs):
Performing	$	636		$	5,803		$	1,186		$	1,807		$	3,267
Nonperforming		3,027			2,874			5,178			5,388			908
Total TDRs	$	3,663		$	8,677		$	6,364		$	7,195		$	4,175
Total nonperforming loans as a % of loans		2.10	%		2.07	%		2.09	%		2.45	%		2.80	%
Total nonperforming assets as a % of assets		1.47	%		1.43	%		1.31	%		1.34	%		1.53	%
Allowance for loan losses as a % of total loans		1.09	%		1.13	%		1.12	%		1.16	%		1.34	%
Allowance for loan losses as a % of nonperforming loans		51.70	%		54.40	%		53.50	%		47.47	%		47.95	%

34

TABLE XII - FIVE-YEAR HISTORY OF LOAN LOSSES
(Dollars In Thousands)
	2017			2016			2015			2014			2013			Average
Average gross loans	$	780,640		$	723,076		$	657,727		$	627,753		$	656,495		$	689,138
Year-end gross loans		815,713			751,835			704,880			630,545			644,303		$	709,455
Year-end allowance for loan losses		8,856			8,473			7,889			7,336			8,663		$	8,243
Year-end nonaccrual loans		13,404			8,736			11,517			12,610			14,934		$	12,240
Year-end loans 90 days or more past due and still accruing		3,724			6,838			3,229			2,843			3,131			3,953
Net charge-offs		418			637			292			1,803			241			678
Provision for loan losses		801			1,221			845			476			2,047			1,078
Earnings coverage of charge-offs		56	x		37	x		85	x		14	x		116	x		37	x
Allowance coverage of charge-offs		21	x		13	x		27	x		4	x		36	x		12	x
Net charge-offs as a % of provision for loan losses		52.18	%		52.17	%		34.56	%		378.78	%		11.77	%		62.89	%
Net charge-offs as a % of average gross loans		0.05	%		0.09	%		0.04	%		0.29	%		0.04	%		0.10	%
Income before income taxes on a fully taxable equivalent basis		23,350			23,861			24,710			25,784			28,012			25,143

CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS

Table XIII presents the Corporation’s significant fixed and determinable contractual obligations as of December 31, 2017 by payment date. The payment amounts represent the principal amounts of time deposits and borrowings and do not include interest.

TABLE XIII – CONTRACTUAL OBLIGATIONS

(In Thousands)

	1 Year		1-3		3-5		Over 5
	or Less		Years		Years		Years		Total
Time deposits	$	112,563	$	79,933	$	18,459	$	2,716	$	213,671
Short-term borrowings:
Federal Home Loan Bank of Pittsburgh		58,000		0		0		0		58,000
Customer repurchase agreements		3,766		0		0		0		3,766
Long-term borrowings:
Federal Home Loan Bank of Pittsburgh		6,000		2,463		0		726		9,189
Total	$	180,329	$	82,396	$	18,459	$	3,442	$	284,626

In addition to the amounts described in Table XIII, the Corporation has obligations related to deposits without a stated maturity with outstanding principal balances totaling $794,778,000 at December 31, 2017.

The Corporation’s operating lease and other commitments at December 31, 2017 are immaterial. The Corporation’s significant off-balance sheet arrangements include commitments to extend credit and standby letters of credit. Off-balance sheet arrangements are described in Note 16 to the consolidated financial statements.

As described in more detail in the “Financial Condition” section of Management’s Discussion and Analysis, the Corporation sells residential mortgage loans for which the Corporation provides customary representations and warranties to investors that specify, among other things, that the loans have been underwritten to the standards established by the investor. The Corporation may be required to repurchase a loan and reimburse a portion of fees received, or reimburse the investor for a credit loss incurred on a loan, if it is determined that the representations and warranties have not been met. At December 31, 2017, outstanding balances of such loans sold totaled $169,725,000.

Also, for loans sold under the MPF Original program, the Corporation provides a credit enhancement. At December 31, 2017, the Corporation’s maximum credit enhancement obligation under the MPF Original Program was $5,742,000, and the Corporation has recorded a related allowance for credit losses in the amount of $260,000 which is included in “Accrued interest and other liabilities” in the accompanying consolidated balance sheets.

35

LIQUIDITY

Liquidity is the ability to quickly raise cash at a reasonable cost. An adequate liquidity position permits the Corporation to pay creditors, compensate for unforeseen deposit fluctuations and fund unexpected loan demand. At December 31, 2017, the Corporation maintained overnight interest-bearing deposits with the Federal Reserve Bank of Philadelphia and other correspondent banks totaling $11,340,000.

The Corporation maintains overnight borrowing facilities with several correspondent banks that provide a source of day-to-day liquidity. Also, the Corporation maintains borrowing facilities with the Federal Home Loan Bank of Pittsburgh, secured by various mortgage loans.

The Corporation has a line of credit with the Federal Reserve Bank of Philadelphia’s Discount Window. Management intends to use this line of credit as a contingency funding source. As collateral for the line, the Corporation has pledged available-for-sale securities with a carrying value of $16,301,000 at December 31, 2017.

The Corporation’s outstanding, available, and total credit facilities at December 31, 2017 and 2016 are as follows:

	Outstanding				Available				Total Credit
(In Thousands)	Dec. 31,		Dec. 31,		Dec. 31,		Dec. 31,		Dec. 31,		Dec. 31,
	2017		2016		2017		2016		2017		2016
Federal Home Loan Bank of Pittsburgh	$	67,189	$	32,454	$	295,441	$	306,767	$	362,630	$	339,221
Federal Reserve Bank Discount Window		0		0		15,877		15,636		15,877		15,636
Other correspondent banks		0		0		45,000		45,000		45,000		45,000
Total credit facilities	$	67,189	$	32,454	$	356,318	$	367,403	$	423,507	$	399,857

At December 31, 2017, the Corporation’s outstanding credit facilities with the Federal Home Loan Bank of Pittsburgh consisted of overnight borrowings of $29,000,000, short-term borrowings of $29,000,000 and long-term borrowings with a total amount of $9,189,000. At December 31, 2016, the Corporation’s outstanding credit facilities with the Federal Home Loan Bank of Pittsburgh consisted of overnight borrowings of $21,000,000 and long-term borrowings with a total amount of $11,454,000. Additional information regarding borrowed funds is included in Note 12 to the consolidated financial statements.

Additionally, the Corporation uses repurchase agreements placed with brokers to borrow funds secured by investment assets and “RepoSweep” arrangements to borrow funds from commercial banking customers on an overnight basis. If required to raise cash in an emergency situation, the Corporation could sell available-for-sale securities to meet its obligations. At December 31, 2017, the carrying value of available-for-sale securities in excess of amounts required to meet pledging or repurchase agreement obligations was $196,810,000.

Management believes the Corporation is well-positioned to meet its short-term and long-term obligations.

STOCKHOLDERS’ EQUITY AND CAPITAL ADEQUACY

The Corporation and C&N Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Details concerning regulatory capital amounts and ratios are presented in Note 18 to the consolidated financial statements. As reflected in Note 18, at December 31, 2017 and 2016, the Corporation and C&N Bank meet all capital adequacy requirements to which they are subject and maintain capital conservation buffers that allow the Corporation and C&N Bank to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to certain executive officers.

In July 2013, the federal regulatory authorities issued a new capital rule based, in part, on revisions developed by the Basel Committee on Banking Supervision to the Basel capital framework (Basel III). The Corporation and C&N Bank were subject to the new rule on January 1, 2015. Generally, the new rule implements higher minimum capital requirements, revises the definition of regulatory capital components and related calculations, adds a new common equity tier 1 capital ratio, implements a new capital conservation buffer, increases the risk weighting for past due loans and provides a transition period for several aspects of the new rule.

36

The current (new) capital rule provides that, in order to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, a banking organization must hold a capital conservation buffer composed of common equity tier 1 capital above its minimum risk-based capital requirements. The buffer is measured relative to risk-weighted assets and is added to the minimum required risk-based capital ratios (as defined) for common equity tier 1 capital, tier 1 capital and total capital. The minimum capital conservation buffer needed in 2017 in order to fully avoid limitations on capital distributions, along with the remaining transition schedule, is as follows:

	As of January 1:
	2017			2018			2019
Common equity tier 1 capital conservation buffer		1.25	%		1.875	%		2.5	%

As fully phased in, a banking organization with a buffer greater than 2.5% would not be subject to additional limits on dividend payments or discretionary bonus payments; however, a banking organization with a buffer less than 2.5% would be subject to increasingly stringent limitations as the buffer approaches zero. The new rule also prohibits a banking organization from making dividend payments or discretionary bonus payments if its eligible retained income is negative in that quarter and its capital conservation buffer ratio was less than 2.5% as of the beginning of that quarter. Eligible net income is defined as net income for the four calendar quarters preceding the current calendar quarter, net of any distributions and associated tax effects not already reflected in net income. A summary of payout restrictions based on the capital conservation buffer is as follows:

Capital Conservation Buffer	Maximum Payout
(as a % of risk-weighted assets)	(as a % of eligible retained income)
Greater than 2.5%	No payout limitation applies
≤2.5% and >1.875%	60%
≤1.875% and >1.25%	40%
≤1.25% and >0.625%	20%
≤0.625%	0%

At December 31, 2017, the Corporation’s Capital Conservation Buffer, determined based on the minimum total capital ratio, was 15.07%. C&N Bank’s Capital Conservation Buffer (also determined based on the minimum total capital ratio) was 12.47%.

Future dividend payments will depend upon maintenance of a strong financial condition, future earnings and capital and regulatory requirements. In addition, the Corporation and C&N Bank are subject to restrictions on the amount of dividends that may be paid without approval of banking regulatory authorities. These restrictions are described in Note 18 to the consolidated financial statements.

Management expects the Corporation and C&N Bank to maintain capital levels that exceed the regulatory standards for well-capitalized institutions for the next 12 months and for the foreseeable future. Planned capital expenditures are not expected to have a significantly detrimental effect on capital ratios.

The Corporation’s total stockholders’ equity is affected by fluctuations in the fair values of available-for-sale securities. The difference between amortized cost and fair value of available-for-sale securities, net of deferred income tax, is included in Accumulated Other Comprehensive Income (Loss) within stockholders’ equity. The balance in Accumulated Other Comprehensive Income (Loss) related to unrealized gains (losses) on available-for-sale securities, net of deferred income tax, amounted to ($1,566,000) at December 31, 2017, ($949,000) at December 31, 2016 and $2,493,000 at December 31, 2015. Changes in accumulated other comprehensive income (loss) are excluded from earnings and directly increase or decrease stockholders’ equity. If available-for-sale securities are deemed to be other-than-temporarily impaired, unrealized losses are recorded as a charge against earnings, and amortized cost for the affected securities is reduced. Note 7 to the consolidated financial statements provides additional information concerning management’s evaluation of available-for-sale securities for other-than-temporary impairment at December 31, 2017.

Stockholders’ equity is also affected by the underfunded or overfunded status of defined benefit pension and postretirement plans. The balance in Accumulated Other Comprehensive Income (Loss) related to defined benefit plans, net of deferred income tax, was $59,000 at December 31, 2017, $51,000 at December 31, 2016 and $35,000 at December 31, 2015.

37

COMPREHENSIVE INCOME

Comprehensive Income is the total of (1) net income, and (2) all other changes in equity from non-stockholder sources, which are referred to as Other Comprehensive Income. Changes in the components of Accumulated Other Comprehensive Income (Loss) are included in Other Comprehensive Income, and for the Corporation, consist of changes in unrealized gains or losses on available-for-sale securities and changes in underfunded or overfunded defined benefit plans.

Comprehensive Income totaled $12,825,000 in 2017 as compared to $12,336,000 in 2016 and $13,639,000 in 2015. In 2017, Comprehensive Income included: (1) Net Income of $13,434,000, which was $2,328,000 lower than in 2016 and $3,037,000 lower than in 2015; (2) Other Comprehensive Loss from unrealized losses on available-for-sale securities, net of deferred income tax, of ($617,000) as compared to Other Comprehensive Loss of ($3,442,000) in 2016 and Other Comprehensive Loss of ($2,788,000) in 2015; and (3) Other Comprehensive Income from defined benefit plans of $8,000 in 2017 as compared to Other Comprehensive Income of $16,000 in 2016 and Other Comprehensive Loss of ($44,000) in 2015. Fluctuations in interest rates significantly affected fair values of available-for-sale securities in 2015 through 2017, and accordingly had an effect on Other Comprehensive Income (Loss) in each year.

INFLATION

The Corporation is significantly affected by the Federal Reserve Board’s efforts to control inflation through changes in short-term interest rates. Since September 2007, the Federal Reserve has maintained the fed funds target rate at extremely low levels by historical standards. Further, throughout the period of low interest rates, the Federal Reserve has injected massive amounts of liquidity into the nation’s monetary system through a variety of programs. Since late 2015, the Federal Reserve has begun to move its fed funds target rate higher, in an effort to re-establish a more normalized level by historical standards, with 0.25% increases in December 2015 and 2016, March 2017, June 2017 and December 2017, resulting in the current range of 1.25% to 1.50%. Inflation has remained subdued, measured for most of 2016 and through 2017 at levels below the Federal Open Market Committee’s 2% longer run objective, though there have been some reports of wage pressure as the U.S. employment picture has gradually improved over the past several years.

Although management cannot predict future changes in the rates of inflation, management monitors the impact of economic trends, including any indicators of inflationary pressures, in managing interest rate and other financial risks.

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 2 to the consolidated financial statements for a description of recent accounting pronouncements and their recent or potential future effects on the Corporation’s financial statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET RISK

Market risk is the risk of loss arising from adverse changes in market rates and prices of the Corporation’s financial instruments. In addition to the effects of interest rates, the market prices of the Corporation’s debt securities within the available-for-sale securities portfolio are affected by fluctuations in the risk premiums (amounts of spread over risk-free rates) demanded by investors. Management attempts to limit the risk that economic conditions would force the Corporation to sell securities for realized losses by maintaining a strong capital position (discussed in the “Stockholders’ Equity and Capital Adequacy” section of Management’s Discussion and Analysis) and ample sources of liquidity (discussed in the “Liquidity” section of Management’s Discussion and Analysis).

The Corporation’s major category of market risk, interest rate risk, is discussed in the following section.

INTEREST RATE RISK

Business risk arising from changes in interest rates is an inherent factor in operating a bank. A significant portion of the Corporation’s assets are long-term, fixed-rate loans and debt securities. Funding for these assets comes principally from shorter-term deposits and borrowed funds. Accordingly, there is an inherent risk of lower future earnings or decline in fair value of the Corporation’s financial instruments when interest rates change.

38

The Corporation uses a simulation model to calculate the potential effects of interest rate fluctuations on net interest income and the market value of portfolio equity. For purposes of these calculations, the market value of portfolio equity includes the fair values of financial instruments, such as securities, loans, deposits and borrowed funds, and the book values of nonfinancial assets and liabilities, such as premises and equipment and accrued expenses. The model measures and projects potential changes in net interest income, and calculates the discounted present value of anticipated cash flows of financial instruments, assuming an immediate increase or decrease in interest rates. Management ordinarily runs a variety of scenarios within a range of plus or minus 100-400 basis points of current rates.

The model 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 calculations of projected changes in net interest income 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.

The Corporation’s Board of Directors has established policy guidelines for acceptable levels of interest rate risk, based on an immediate increase or decrease in interest rates. The policy limits acceptable fluctuations in net interest income from the baseline (flat rates) one-year scenario and variances in the market value of portfolio equity from the baseline values based on current rates.

Table XIV, which follows this discussion, is based on the results of calculations performed using the simulation model as of December 31, 2017 and 2016. Table XIV reflects two significant changes to the analysis using December 31, 2017 data as compared to the analysis based on December 31, 2016 data, as follows:

· Management lowered assumptions of sensitivity of market interest rate changes on some types of the Corporation’s deposits. This change resulted in a reduction in the amount of increase in interest expense in the rising rate scenarios presented in Table XIV. The reduction in estimated sensitivity was based on data showing the Corporation’s prior sensitivity assumptions were higher than may be expected based on industry norms.

· The policy limits for present value of equity volatility were lowered based on a determination that the prior levels were so high they would be unlikely to be approached, thereby limiting their effectiveness as a tool for timely identification of long-term interest rate risk.

Table XIV shows that as of the respective dates, the changes in net interest income and changes in market value were within the policy limits in all scenarios.

39

TABLE XIV - THE EFFECT OF HYPOTHETICAL CHANGES IN INTEREST RATES

December 31, 2017 Data
(Dollars In Thousands)	Period Ending December 31, 2018

Basis Point	Interest		Interest		Net Interest		NII			NII
Change in Rates	Income		Expense		Income (NII)		% Change			Risk Limit
+400	$	57,619	$	19,730	$	37,889		-10.8	%		25.0	%
+300		54,978		15,852		39,126		-7.9	%		20.0	%
+200		52,334		11,974		40,360		-5.0	%		15.0	%
+100		49,620		8,095		41,525		-2.2	%		10.0	%
0		46,717		4,243		42,474		0.0	%		0.0	%
-100		43,581		2,781		40,800		-3.9	%		10.0	%
-200		41,290		2,216		39,074		-8.0	%		15.0	%
-300		40,463		2,191		38,272		-9.9	%		20.0	%
-400		40,194		2,191		38,003		-10.5	%		25.0	%

Market Value of Portfolio Equity at December 31, 2017

	Present		Present			Present
Basis Point	Value		Value			Value
Change in Rates	Equity		% Change			Risk Limit
+400	$	195,385		-16.8	%		40.0	%
+300		203,648		-13.3	%		30.0	%
+200		213,689		-9.0	%		25.0	%
+100		224,389		-4.4	%		15.0	%
0		234,759		0.0	%		0.0	%
-100		236,030		0.5	%		15.0	%
-200		234,863		0.0	%		25.0	%
-300		252,464		7.5	%		30.0	%
-400		292,124		24.4	%		40.0	%

December 31, 2016 Data
(Dollars In Thousands)	Period Ending December 31, 2017

Basis Point	Interest		Interest		Net Interest		NII			NII
Change in Rates	Income		Expense		Income (NII)		% Change			Risk Limit
+400	$	53,712	$	22,315	$	31,397		-20.5	%		25.0	%
+300		51,128		17,545		33,583		-15.0	%		20.0	%
+200		48,500		12,809		35,691		-9.6	%		15.0	%
+100		45,845		8,102		37,743		-4.4	%		10.0	%
0		43,132		3,643		39,489		0.0	%		0.0	%
-100		40,581		2,978		37,603		-4.8	%		10.0	%
-200		38,881		2,949		35,932		-9.0	%		15.0	%
-300		38,269		2,936		35,333		-10.5	%		20.0	%
-400		38,104		2,936		35,168		-10.9	%		25.0	%

Market Value of Portfolio Equity at December 31, 2016

	Present		Present			Present
Basis Point	Value		Value			Value
Change in Rates	Equity		% Change			Risk Limit
+400	$	168,600		-24.6	%		50.0	%
+300		180,500		-19.3	%		45.0	%
+200		194,471		-13.1	%		35.0	%
+100		208,830		-6.7	%		25.0	%
0		223,744		0.0	%		0.0	%
-100		227,806		1.8	%		25.0	%
-200		229,602		2.6	%		35.0	%
-300		252,118		12.7	%		45.0	%
-400		290,792		30.0	%		50.0	%

40

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)	December 31,			December 31,
	2017			2016
ASSETS
Cash and due from banks:
Noninterest-bearing	$	25,664		$	17,551
Interest-bearing		14,580			14,558
Total cash and due from banks		40,244			32,109
Available-for-sale securities, at fair value		356,908			395,077
Loans held for sale		765			142
Loans receivable		815,713			751,835
Allowance for loan losses		(8,856	)		(8,473	)
Loans, net		806,857			743,362
Bank-owned life insurance		20,083			19,704
Accrued interest receivable		4,048			3,963
Bank premises and equipment, net		15,432			15,397
Foreclosed assets held for sale		1,598			2,180
Deferred tax asset, net		3,289			5,117
Intangible assets - Goodwill and core deposit intangibles		11,954			11,959
Other assets		15,781			13,282
TOTAL ASSETS	$	1,276,959		$	1,242,292
LIABILITIES
Deposits:
Noninterest-bearing	$	241,214		$	224,175
Interest-bearing		767,235			759,668
Total deposits		1,008,449			983,843
Short-term borrowings		61,766			26,175
Long-term borrowings		9,189			38,454
Accrued interest and other liabilities		9,112			7,812
TOTAL LIABILITIES		1,088,516			1,056,284
STOCKHOLDERS’ EQUITY
Preferred stock, $1,000 par value; authorized 30,000 shares; $1,000 liquidation preference per share; no shares issued		0			0
Common stock, par value $1.00 per share; authorized 20,000,000 shares; issued 12,655,171; outstanding 12,214,525 at December 31, 2017 and 12,113,228 December 31, 2016		12,655			12,655
Paid-in capital		72,035			71,730
Retained earnings		113,608			112,790
Treasury stock, at cost; 440,646 shares at December 31, 2017 and 541,943 shares at December 31, 2016		(8,348	)		(10,269	)
Accumulated other comprehensive loss		(1,507	)		(898	)
TOTAL STOCKHOLDERS’ EQUITY		188,443			186,008
TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY	$	1,276,959		$	1,242,292

The accompanying notes are an integral part of the consolidated financial statements.

41

Consolidated Statements of Income
(In Thousands Except Per Share Data)	Years Ended December 31,
	2017		2016		2015
INTEREST INCOME
Interest and fees on loans:
Taxable	$	34,907	$	32,827	$	31,311
Tax-exempt		2,037		1,783		1,668
Interest on mortgages held for sale		25		27		16
Interest on balances with depository institutions		190		116		93
Income from available-for-sale securities:
Taxable		5,478		5,846		7,303
Tax-exempt		3,205		3,429		3,844
Dividends		21		70		284
Total interest and dividend income		45,863		44,098		44,519
INTEREST EXPENSE
Interest on deposits		2,403		2,085		1,924
Interest on short-term borrowings		213		155		32
Interest on long-term borrowings		1,299		1,453		2,646
Total interest expense		3,915		3,693		4,602
Net interest income		41,948		40,405		39,917
Provision for loan losses		801		1,221		845
Net interest income after provision for loan losses		41,147		39,184		39,072
OTHER INCOME
Service charges on deposit accounts		4,488		4,695		4,864
Service charges and fees		417		439		494
Trust and financial management revenue		5,399		4,760		4,626
Brokerage revenue		797		756		839
Insurance commissions, fees and premiums		115		102		109
Interchange revenue from debit card transactions		2,221		1,943		1,935
Net gains from sale of loans		818		1,029		735
Loan servicing fees, net		244		103		216
Increase in cash surrender value of life insurance		379		382		386
Other operating income		1,275		1,302		1,274
Sub-total		16,153		15,511		15,478
Realized gains on available-for-sale securities, net		257		1,158		2,861
Total other income		16,410		16,669		18,339
OTHER EXPENSES
Salaries and wages		15,806		15,411		14,682
Pensions and other employee benefits		5,374		4,717		4,420
Occupancy expense, net		2,340		2,340		2,574
Furniture and equipment expense		1,834		1,730		1,860
FDIC Assessments		376		488		603
Pennsylvania shares tax		1,329		1,274		1,248
Professional fees		1,086		1,126		638
Automated teller machine and interchange expense		1,284		1,137		988
Software subscriptions		1,190		981		876
Loss on prepayment of debt		0		0		2,573
Other operating expense		6,348		5,540		5,141
Total other expenses		36,967		34,744		35,603
Income before income tax provision		20,590		21,109		21,808
Income tax provision		7,156		5,347		5,337
NET INCOME	$	13,434	$	15,762	$	16,471
EARNINGS PER COMMON SHARE - BASIC	$	1.10	$	1.30	$	1.35
EARNINGS PER COMMON SHARE - DILUTED	$	1.10	$	1.30	$	1.35

The accompanying notes are an integral part of the consolidated financial statements.

42

Consolidated Statements of Comprehensive Income
(In Thousands)	Years Ended December 31,
		2017			2016			2015
Net income		$	13,434		$	15,762		$	16,471
Unrealized losses on available-for-sale securities:
Unrealized holding losses on available-for-sale securities			(691	)		(4,138	)		(1,429	)
Reclassification adjustment for gains realized in income			(257	)		(1,158	)		(2,861	)
Other comprehensive loss on available-for-sale securities			(948	)		(5,296	)		(4,290	)
Unfunded pension and postretirement obligations:
Changes from plan amendments and actuarial gains and losses included in accumulated other comprehensive gain (loss)			36			46			(135	)
Amortization of net transition obligation, prior service cost, net actuarial (gain) loss and loss on settlement included in net periodic benefit cost			(24	)		(22	)		67
Other comprehensive gain (loss) on unfunded retirement obligations			12			24			(68	)
Other comprehensive loss before income tax			(936	)		(5,272	)		(4,358	)
Income tax related to other comprehensive loss			327			1,846			1,526
Net other comprehensive loss			(609	)		(3,426	)		(2,832	)
Comprehensive income		$	12,825		$	12,336		$	13,639

The accompanying notes are an integral part of the consolidated financial statements.

43

Consolidated Statements of Changes in Stockholders’ Equity

(In Thousands Except Share and Per Share Data)														Accumulated
														Other
														Comprehensive
	Common		Treasury			Common		Paid-in			Retained			Income			Treasury
	Shares		Shares			Stock		Capital			Earnings			(Loss)			Stock			Total
Balance, January 1, 2015		12,655,171		375,191		$	12,655	$	71,541		$	105,550		$	5,360		($	6,744	)	$	188,362
Net income												16,471									16,471
Other comprehensive loss, net															(2,832	)					(2,832	)
Cash dividends declared on common stock, $1.04 per share												(12,710	)								(12,710	)
Shares issued for dividend reinvestment plan				(73,810	)				86									1,379			1,465
Treasury stock purchased				226,900														(4,415	)		(4,415	)
Shares issued from treasury related to exercise of stock options				(22,435	)				(27	)								408			381
Restricted stock granted				(34,800	)				(627	)								627			0
Forfeiture of restricted stock				3,502					59									(59	)		0
Stock-based compensation expense									606												606
Tax benefit from compensation plans									16			143									159
Balance, December 31, 2015		12,655,171		474,548			12,655		71,654			109,454			2,528			(8,804	)		187,487
Net income												15,762									15,762
Other comprehensive loss, net															(3,426	)					(3,426	)
Cash dividends declared on common stock, $1.04 per share												(12,578	)								(12,578	)
Shares issued for dividend reinvestment plan				(68,571	)				170									1,296			1,466
Treasury stock purchased				187,300														(3,723	)		(3,723	)
Shares issued from treasury related to exercise of stock options				(19,113	)				(98	)								361			263
Restricted stock granted				(35,427	)				(658	)								658			0
Forfeiture of restricted stock				3,431					61									(61	)		0
Stock-based compensation expense									578												578
Other stock-based expense				(225	)													4			4
Tax benefit from compensation plans									23			152									175
Balance, December 31, 2016		12,655,171		541,943			12,655		71,730			112,790			(898	)		(10,269	)		186,008
Net income												13,434									13,434
Other comprehensive loss, net															(609	)					(609	)
Cash dividends declared on common stock, $1.04 per share												(12,616	)								(12,616	)
Shares issued for dividend reinvestment plan				(63,066	)				276									1,195			1,471
Shares issued from treasury related to exercise of stock options				(11,780	)				(100	)								227			127
Restricted stock granted				(30,782	)				(583	)								583			0
Forfeiture of restricted stock				4,406					85									(85	)		0
Stock-based compensation expense									627												627
Other stock-based expense				(75	)													1			1
Balance, December 31, 2017		12,655,171		440,646		$	12,655	$	72,035		$	113,608		$	(1,507	)	$	(8,348	)	$	188,443

The accompanying notes are an integral part of the consolidated financial statements.

44

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)	Years Ended December 31,
	2017			2016			2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	13,434		$	15,762		$	16,471
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		801			1,221			845
Realized gains on available-for-sale securities, net		(257	)		(1,158	)		(2,861	)
Loss on prepayment of debt		0			0			2,573
Depreciation expense		1,639			1,589			1,888
Accretion and amortization on securities, net		1,157			1,462			1,562
Increase in cash surrender value of life insurance		(379	)		(382	)		(386	)
Gain on life insurance benefits		0			0			(212	)
Stock-based compensation and other expense		628			582			606
Deferred income taxes		2,155			(156	)		79
Decrease in fair value of servicing rights		168			282			162
Gains on sales of loans, net		(818	)		(1,029	)		(735	)
Origination of loans for sale		(25,129	)		(29,296	)		(21,823	)
Proceeds from sales of loans		25,119			30,215			22,101
Increase in accrued interest receivable and other assets		(595	)		(410	)		(1,697	)
Increase (decrease) in accrued interest payable and other liabilities		1,312			(216	)		1,195
Other		139			44			(82	)
Net Cash Provided by Operating Activities		19,374			18,510			19,686
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of certificates of deposit		348			1,540			1,780
Purchase of certificates of deposit		(100	)		(2,280	)		(100	)
Proceeds from sales of available-for-sale securities		24,118			37,032			44,504
Proceeds from calls and maturities of available-for-sale securities		63,679			74,477			89,159
Purchase of available-for-sale securities		(51,476	)		(91,896	)		(40,363	)
Redemption of Federal Home Loan Bank of Pittsburgh stock		7,288			5,277			5,029
Purchase of Federal Home Loan Bank of Pittsburgh stock		(9,418	)		(5,046	)		(8,102	)
Net increase in loans		(65,225	)		(49,085	)		(77,129	)
Proceeds from bank owned life insurance		0			1,442			1,953
Purchase of premises and equipment		(1,697	)		(1,580	)		(1,039	)
Proceeds from sale of foreclosed assets		1,387			539			2,536
Other		191			181			181
Net Cash (Used in) Provided by Investing Activities		(30,905	)		(29,399	)		18,409
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits		24,606			48,228			(32,374	)
Net increase (decrease) in short-term borrowings		35,591			(27,321	)		47,959
Proceeds from long-term borrowings		8,000			0			0
Repayments of long-term borrowings		(37,265	)		(313	)		(36,866	)
Purchase of treasury stock		0			(3,723	)		(4,415	)
Sale of treasury stock		127			263			381
Tax benefit from compensation plans		0			175			159
Common dividends paid		(11,145	)		(11,112	)		(11,245	)
Net Cash Provided by (Used in) Financing Activities		19,914			6,197			(36,401	)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		8,383			(4,692	)		1,694
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR		28,621			33,313			31,619
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	37,004		$	28,621		$	33,313

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Assets acquired through foreclosure of real estate loans	$	940	$	1,508	$	2,523
Interest paid	$	3,934	$	3,698	$	4,636
Income taxes paid	$	4,913	$	5,129	$	4,827

The accompanying notes are an integral part of the consolidated financial statements.

45

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF CONSOLIDATION – The consolidated financial statements include the accounts of Citizens & Northern Corporation and its subsidiaries, Citizens & Northern Bank (“C&N Bank”), Bucktail Life Insurance Company and Citizens & Northern Investment Corporation (collectively, “Corporation”), as well as C&N Bank’s wholly-owned subsidiary, C&N Financial Services Corporation. In December 2017, C&N Bank established a new entity, Northern Tier Holding LLC, for the purpose of acquiring, holding and disposing of real property acquired by the Bank. C&N Bank is the sole member of Northern Tier Holding LLC, which had no transactions in 2017. All material intercompany balances and transactions have been eliminated in consolidation.

NATURE OF OPERATIONS – The Corporation is primarily engaged in providing a full range of banking and mortgage services to individual and corporate customers in North Central Pennsylvania and Southern New York State. Lending products include mortgage loans, commercial loans and consumer loans, as well as specialized instruments such as commercial letters-of-credit. Deposit products include various types of checking accounts, passbook and statement savings, money market accounts, interest checking accounts, Individual Retirement Accounts and certificates of deposit. The Corporation also offers non-insured “RepoSweep” accounts.

The Corporation provides Trust and Financial Management services, including administration of trusts and estates, retirement plans, and other employee benefit plans, and investment management services. The Corporation offers a variety of personal and commercial insurance products through C&N Financial Services Corporation. C&N Financial Services Corporation also offers mutual funds, annuities, educational savings accounts and other investment products through registered agents.

Management has determined that the Corporation has one reportable segment, “Community Banking.” All of the Corporation’s activities are interrelated, and each activity is dependent and assessed based on how each of the activities of the Corporation supports the others.

The Corporation is subject to competition from other financial institutions. It is also subject to regulation by certain federal and state agencies and undergoes periodic examination by those regulatory authorities. As a consequence, the Corporation’s business is particularly susceptible to being affected by future federal and state legislation and regulations.

USE OF ESTIMATES – The financial information is presented in accordance with generally accepted accounting principles and general practice for financial institutions in the United States of America (“U.S. GAAP”). In preparing financial statements, management is required to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements. In addition, these estimates and assumptions affect revenues and expenses in the financial statements and as such, actual results could differ from those estimates.

Material estimates that are particularly susceptible to change include: (1) the allowance for loan losses, (2) fair values of debt securities based on estimates from independent valuation services or from brokers, (3) assessment of impaired securities to determine whether or not the securities are other-than-temporarily impaired, (4) valuation of deferred tax assets and (5) valuation of obligations from defined benefit plans.

INVESTMENT SECURITIES – Investment securities are accounted for as follows:

Available-for-sale securities – includes debt securities not classified as held-to-maturity or trading, and unrestricted equity securities. Such securities are reported at fair value, with unrealized gains and losses excluded from earnings and reported separately through accumulated other comprehensive income (loss), net of tax. Amortization of premiums and accretion of discounts on available-for-sale securities are recorded using the level yield method over the remaining contractual life of the securities, adjusted for actual prepayments. Realized gains and losses on sales of available-for-sale securities are computed on the basis of specific identification of the adjusted cost of each security. Securities within the available-for-sale portfolio may be used as part of the Corporation’s asset and liability management strategy and may be sold in response to changes in interest rate risk, prepayment risk or other factors.

Other-than-temporary impairment – Credit-related declines in the fair value of available-for-sale securities that are deemed to be other-than-temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment (OTTI) losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) the intent and ability of the Corporation to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value, and (4) whether the Corporation intends to sell the security or if it is more likely than not that the Corporation will be required to sell the security before the recovery of its amortized cost basis. The credit-related impairment is recognized in earnings and is the difference between a security’s amortized cost basis and the present value of expected future cash flows discounted at the security’s effective interest rate. For debt securities classified as held-to-maturity, if any, the amount of noncredit-related impairment is recognized in other comprehensive income and accreted over the remaining life of the debt security as an increase in the carrying value of the security.

46

Restricted equity securities – Restricted equity securities consist primarily of Federal Home Loan Bank of Pittsburgh stock, and are carried at cost and evaluated for impairment. Holdings of restricted equity securities are included in Other Assets in the consolidated balance sheets, and dividends received on restricted securities are included in Other Income in the consolidated statements of income.

LOANS HELD FOR SALE – Mortgage loans held for sale are reported at the lower of cost or market, determined in the aggregate.

LOANS RECEIVABLE – Loans receivable which management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at unpaid principal balances, less the allowance for loan losses and net deferred loan fees. Interest income is accrued on the unpaid principal balance. Loan origination and commitment fees, as well as certain direct origination costs, are deferred and amortized as a yield adjustment over the lives of the related loans using the interest method.

The loans receivable portfolio is segmented into residential mortgage, commercial and consumer loans. The residential mortgage segment includes the following classes: first and junior lien residential mortgages, home equity lines of credit and residential construction loans. The most significant classes of commercial loans are commercial loans secured by real estate, non-real estate secured commercial and industrial loans, loans to political subdivisions, commercial construction, and loans secured by farmland.

Loans are placed on nonaccrual status for all classes of loans when, in the opinion of management, collection of interest is doubtful. Any unpaid interest previously accrued on those loans is reversed from income. Interest income is not recognized on specific impaired loans unless the likelihood of further loss is remote. Interest payments received on loans for which the risk of further loss is greater than remote are applied as a reduction of the loan principal balance. Interest income on other nonaccrual loans is recognized only to the extent of interest payments received. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time (generally six months) and the ultimate collectability of the total contractual principal and interest is no longer in doubt. The past due status of all classes of loans receivable is determined based on contractual due dates for loan payments. Also, the amortization of deferred loan fees is discontinued when a loan is placed on nonaccrual status.

ALLOWANCE FOR LOAN LOSSES – The allowance for loan losses represents management’s estimate of losses inherent in the loan portfolio as of the balance sheet date and is recorded as a reduction to loans. The allowance for loan losses is increased by the provision for loan losses, and decreased by charge-offs, net of recoveries. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance. All, or part, of the principal balance of loans receivable are charged off to the allowance as soon as it is determined that the collection of all, or part, of the principal balance is highly unlikely. Non-residential consumer loans are generally charged off no later than when they are 120 days past due on a contractual basis, or earlier in the event of bankruptcy or if there is an amount deemed uncollectible.

The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs a quarterly evaluation of the adequacy of the allowance. The allowance is based on the Corporation’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Corporation’s allowance for loan losses. Such agencies may require the Corporation to recognize adjustments to the allowance based on their judgments of information available to them at the time of their examination. In the process of evaluating the loan portfolio, management also considers the Corporation’s exposure to losses from unfunded loan commitments. As of December 31, 2017 and 2016, management determined that no allowance for credit losses related to unfunded loan commitments was required.

The allowance consists primarily of two major components – (1) a specific component based on a detailed assessment of certain larger loan relationships, mainly commercial purpose, determined on a loan-by-loan basis; and (2) a general component for the remainder of the portfolio based on a collective evaluation of pools of loans with similar risk characteristics. The general component is assigned to each pool of loans based on both historical net charge-off experience, and an evaluation of certain qualitative factors. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the above methodologies for estimating specific and general losses in the portfolio.

The specific component relates to loans that are classified as impaired based on a detailed assessment of certain larger loan relationships evaluated by a management committee referred to as the Watch List Committee. Specific loan relationships are identified for evaluation based on the related credit risk rating. For individual loans classified as impaired, an allowance is established when the collateral value less estimated selling costs, present value of discounted cash flows or observable market price of the impaired loan is lower than the carrying value of that loan.

47

The general component covers pools of loans by loan class including commercial loans not considered individually impaired, as well as smaller balance homogeneous classes of loans, such as residential real estate, home equity lines of credit and other consumer loans. Accordingly, the Corporation generally does not separately identify individual consumer and residential loans for impairment disclosures, unless such loans are subject to a restructuring agreement. The pools of loans for each loan segment are evaluated for loss exposure based upon average historical net charge-off rates, adjusted for qualitative factors. The time period used in determining the average historical net charge-off rate for each loan class is based on management’s evaluation of an appropriate time period that captures an historical loss experience relevant to the current portfolio. Qualitative risk factors (described in the following paragraph) are evaluated for the impact on each of the three distinct segments (residential mortgage, commercial and consumer) within the loan portfolio. Each qualitative factor is assigned a value to reflect improving, stable or declining conditions based on management’s judgment using relevant information available at the time of the evaluation. Any adjustments to the factors are supported by a narrative documentation of changes in conditions accompanying the allowance for loan losses calculation.

The qualitative factors used in the general component calculations are designed to address credit risk characteristics associated with each segment. The Corporation’s credit risk associated with all of the segments is significantly impacted by these factors, which include economic conditions within its market area, the Corporation’s lending policies, changes or trends in the portfolio, risk profile, competition, regulatory requirements and other factors. Further, the residential mortgage segment is significantly affected by the values of residential real estate that provide collateral for the loans. The majority of the Corporation’s commercial segment loans (approximately 53% at December 31, 2017) are secured by real estate, and accordingly, the Corporation’s risk for the commercial segment is significantly affected by commercial real estate values. The consumer segment includes a wide mix of loans for different purposes, primarily secured loans, including loans secured by motor vehicles, manufactured housing and other types of collateral.

Loans are classified as impaired when, based on current information and events, it is probable that the Corporation will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial loans by the fair value of the collateral (if the loan is collateral dependent), by future cash flows discounted at the loan’s effective rate or by the loan’s observable market price.

For commercial loans secured by real estate, estimated fair values are determined primarily through third-party appraisals. When a real estate secured loan becomes impaired, a decision is made regarding whether an updated certified appraisal of the real estate is necessary. This decision is based on various considerations, including the age of the most recent appraisal, the loan-to-value ratio based on the original appraisal and the condition of the property. Appraised values are discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property.

For commercial and industrial loans secured by non-real estate collateral, such as accounts receivable, inventory and equipment, estimated fair values are determined based on the borrower’s financial statements, inventory reports, accounts receivable aging data or equipment appraisals or invoices. Indications of value from these sources are generally discounted based on the age of the financial information or the quality of the assets.

Loans whose terms are modified are classified as troubled debt restructurings if the Corporation grants such borrowers concessions and it is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a troubled debt restructuring generally involve reductions in required payments, an extension of a loan’s stated maturity date or a temporary reduction in interest rate. Loans classified as troubled debt restructurings are designated as impaired. Non-accrual troubled debt restructurings may be restored to accrual status if the ultimately collectability of principal and interest payments under the modified terms is not in doubt, and there has been a period (generally, for at least six consecutive months) of satisfactory payment performance by the borrower either immediately before or after the restructuring.

BANK PREMISES AND EQUIPMENT – Bank premises and equipment are stated at cost less accumulated depreciation. Repair and maintenance expenditures which extend the useful lives of assets are capitalized, and other repair and maintenance expenditures are expensed as incurred. Depreciation expense is computed using the straight-line method.

48

IMPAIRMENT OF LONG-LIVED ASSETS – The Corporation reviews long-lived assets, such as premises and equipment and intangibles, for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. These changes in circumstances may include a significant decrease in the market value of an asset or the manner in which an asset is used. If there is an indication the carrying value of an asset may not be recoverable, future undiscounted cash flows expected to result from use of the asset are estimated. If the sum of the expected cash flows is less than the carrying value of the asset, a loss is recognized for the difference between the carrying value and fair market value of the asset.

FORECLOSED ASSETS HELD FOR SALE – Foreclosed assets held for sale consist of real estate acquired by foreclosure and are initially recorded at fair value, less estimated selling costs.

GOODWILL AND CORE DEPOSIT INTANGIBLE ASSETS – Goodwill represents the excess of the cost of acquisitions over the fair value of the net assets acquired. Goodwill is tested at least annually for impairment, or more often if events or circumstances indicate there may be impairment. Core deposit intangibles are being amortized over periods of time that represent the expected lives using a method of amortization that reflects the pattern of economic benefit. Core deposit intangibles are subject to impairment testing whenever events or changes in circumstances indicate their carrying amounts may not be recoverable.

SERVICING RIGHTS – The estimated fair value of servicing rights related to mortgage loans sold and serviced by the Corporation is recorded as an asset upon the sale of such loans. The valuation of servicing rights is adjusted quarterly, with changes in fair value included in Loan Servicing Fees, Net, in the consolidated statements of income. Significant inputs to the valuation include expected net servicing income to be received, the expected life of the underlying loans and the discount rate. The servicing rights asset is included in Other Assets in the consolidated balance sheets.

INCOME TAXES – Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases given the provisions of the enacted tax laws. Deferred tax assets are reduced, if necessary, by the amount of such benefits that are not expected to be realized based upon available evidence. Tax benefits from investments in limited partnerships that have qualified for federal low-income tax credits are recognized as a reduction in the provision for income tax over the term of the investment using the effective yield method. The Corporation includes income tax penalties in the provision for income tax. The Corporation has no accrued interest related to unrecognized tax benefits.

STOCK COMPENSATION PLANS – The Corporation’s stock-based compensation policy applies to all forms of stock-based compensation including stock options and restricted stock units. All stock-based compensation is accounted for under the fair value method as required by U.S. GAAP. The expense associated with stock-based compensation is recognized over the vesting period of each individual arrangement.

The fair value of each stock option is estimated on the date of grant using the Black-Scholes-Merton option valuation model. The fair value of restricted stock is based on the current market price on the date of grant.

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. Cash equivalents include federal funds sold and all cash and amounts due from depository institutions and interest-bearing deposits in other banks with original maturities of three months or less.

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 recorded on a cash basis, which is not materially different from the accrual basis.

2. RECENT ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board (“FASB”) issues Accounting Standards Updates (ASUs) to the FASB Accounting Standards Codification (ASC). This section provides a summary description of recent ASUs that have significant implications (elected or required) within the consolidated financial statements, or that management expects may have a significant impact on financial statements issued in the near future.

49

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which provides a principles-based framework for revenue recognition under U.S. GAAP. The core principle of the five-step revenue recognition framework is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Several additional ASUs have been issued subsequent to ASU 2014-09 to provide clarifying guidance related to various revenue recognition areas and to defer the effective date of the standard by a year, making it applicable for the Corporation in the first quarter 2018 and for the annual period ending December 31, 2018. More than 70% of the Corporation’s revenue comes from net interest income and is explicitly out of the scope of ASU 2014-09. The Corporation’s largest sources of noninterest revenue which are subject to the guidance include Trust and financial management revenue, service charges on deposit accounts and interchange revenue from debit card transactions. Management has evaluated the Corporation’s noninterest revenue streams and adoption of ASU 2014-09 using the modified retrospective method had no effect on the Corporation’s revenue recognition practices. Additionally, the ASU requires expanded disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue that is recognized. Management is in the process of reviewing the Corporation’s business processes, systems and controls to support the expanded disclosure requirements that will be effective in the first quarter 2018.

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Liabilities. This makes significant changes in U.S. GAAP related to certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The changes provided for in this Update that are applicable to the Corporation are as follows: (1) require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; however, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer; (2) for equity investments without readily determinable fair values, require a qualitative assessment to identify impairment, and if a qualitative assessment indicates that impairment exists, requiring an entity to measure the investment at fair value; (3) eliminate the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (4) require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (5) require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments (at December 31, 2017 and 2016, the Corporation has no liabilities for which the fair value measurement option has been elected); (6) require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (7) clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. The amendments in this Update will become effective for the Corporation for annual and interim periods beginning in the first quarter 2018. With limited exceptions, early adoption of the amendments in this Update is not permitted. Amendments are to be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values should be applied prospectively. The Corporation’s current exposure related to investments in marketable equity securities and other issues considered in ASU 2016-01 is limited, and accordingly, initial adoption of this ASU had no effect on the Corporation’s financial position. Management is in the process of reviewing the changes in disclosure requirements that will become effective in the first quarter 2018.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. Specifically, a lessee should recognize on the balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee would be permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and liabilities. Topic 842 would not significantly change the recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee from current U.S. GAAP; however, the principal change from current GAAP is that lease assets and liabilities arising from operating leases would be recognized on the balance sheet. Topic 842 provides several other changes or clarifications to existing GAAP, and will require qualitative disclosures, along with quantitative disclosures, so that financial statement users can understand more about the nature of an entity’s leasing activities. In transition, Topic 842 provides that lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach, including optional practical expedients. An entity that elects to apply the practical expedients will, in effect, continue to account for leases that commence before the effective date in accordance with previous GAAP unless the lease is modified, except that lessees will be required to recognize a right-of-use asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining minimum rental payments that were tracked and disclosed under previous GAAP. Topic 842 will become effective for the Corporation for annual and interim periods beginning in the first quarter 2019. The Corporation is in the early stages of evaluating the potential impact of adopting this amendment.

In March 2016, the FASB issued ASU No. 2016-07, Investments – Equity Method and Joint Ventures. This ASU eliminates the requirement that when an investment qualifies for the equity method as a result of an increase in the level of ownership interest or influence, an investor must adjust the investment, results of operations and retained earnings retroactively as if the equity method had been in effect during all previous periods the investment had been held. The ASU requires the equity method investor to add the cost of acquiring an additional interest in the investee to the basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for the equity method. The ASU further requires that an entity that has an available-for-sale equity security that becomes qualified for the equity method recognize through earnings the unrealized gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. The amendments in this Update were effective for the Corporation for annual and interim periods beginning in the first quarter 2017. Initial adoption of this ASU in 2017 did not have a significant impact on the Corporation.

50

In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation. This ASU changes several aspects of accounting for share-based payment transactions, and includes some changes that apply only to nonpublic companies. This Update includes amendments that currently apply, or may apply in the future, to the Corporation related to the following: (1) accounting for the difference between the deduction for tax purposes and the amount of compensation cost recognized for financial reporting purposes; (2) classification of excess tax benefits on the statement of cash flows; (3) accounting for forfeitures; (4) accounting for awards partially settled in cash in excess of the employer’s minimum statutory tax withholding requirements; and (5) classification of employee taxes paid on the statement of cash flows when an employer withholds shares for tax-withholding purposes. The amendments in this Update were effective for the Corporation for annual and interim periods beginning in the first quarter 2017. The ASU provides separate transition provisions for each of the amendments. Initial adoption of this ASU in 2017 did not have a significant impact on the Corporation.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326). This ASU will result in significant changes in the Corporation’s accounting for credit losses related to loans receivable and investment securities. A summary of significant provisions of this ASU is as follows:

· The ASU requires that a financial asset (or a group of financial assets) measured at amortized cost basis be presented, net of a valuation allowance for credit losses, at an amount expected to be collected on the financial asset(s), and that the income statement include the measurement of credit losses for newly recognized financial assets as well as changes in expected losses on previously recognized financial assets. The provisions of this ASU require measurement of expected credit losses based on relevant information including past events, historical experience, current conditions, and reasonable and supportive forecasts that affect the collectability of the asset. The provisions of this ASU differ from current U.S. GAAP in that current U.S. GAAP generally delays recognition of the full amount of credit losses until the loss is probable of occurring.

· The amendments in the Update retain many of the disclosure requirements related to credit quality in current U.S. GAAP, updated to reflect the change from an incurred loss methodology to an expected credit loss methodology.

· In addition, the Update requires that disclosure of credit quality indicators in relation to the amortized cost of financing receivables, a current requirement, be further disaggregated by year of origination.

· This ASU requires that credit losses on available-for-sale debt securities be presented as an allowance rather than as a write-down, and limits the amount of the allowance for credit losses to the amount by which the fair value is below amortized cost. For purchased available-for-sale securities with a more-than-insignificant amount of credit deterioration since origination, the ASU requires an allowance be determined in a manner similar to other available-for-sale debt securities; however, the initial allowance would be added to the purchase price, with only subsequent changes in the allowance recorded in credit loss expense, and interest income recognized at the effective rate excluding the discount embedded in the purchase price related to estimated credit losses at acquisition.

· This ASU will be effective for the Corporation for interim and annual periods beginning in the first quarter of 2020. Earlier adoption is permitted beginning in the first quarter of 2019. The Corporation will record the effect of implementing this ASU through a cumulative-effect adjustment through retained earnings as of the beginning of the reporting period in which Topic 326 is effective.

The Corporation is in the early stages of evaluating the potential impact of adopting this amendment.

In June 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) – Classification of Certain Cash Receipts and Cash Payments. This Update provides clarification regarding eight specific cash flow issues with the objective of reducing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. For the Corporation, the amendments in this Update are effective beginning in the first quarter 2018. The amendments in this Update should be applied using a retroactive transition method to each period presented. The Corporation anticipates there will be no adjustments to the Consolidated Statements of Cash Flows, as previously reported, as a result of the clarifications provided in the Update.

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350) to simplify the accounting for goodwill impairment. This guidance, among other things, removes step 2 of the goodwill impairment test thus eliminating the need to determine the fair value of individual assets and liabilities of the reporting unit. Upon adoption of this ASU, goodwill impairment will be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This may result in more or less impairment being recognized than under current guidance. This Update will become effective for the Corporation’s annual and interim goodwill impairment tests beginning in the first quarter of 2020.

51

In March 2017, the FASB issued ASU 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20). This Update will shorten the amortization period for certain callable debt securities held at a premium. Under current U.S. GAAP, entities generally amortize the premium over the contractual life of the instrument. This Update requires the premium be amortized to the earliest call date. Discounts will continue to be amortized to maturity. The Corporation expects to adopt the amendments in this Update through a cumulative-effect adjustment directly to retained earnings in 2018, and does not expect the amount of the adjustment to be significant.

3. COMPREHENSIVE INCOME

Comprehensive income is the total of (1) net income, and (2) all other changes in equity from non-stockholder sources, which are referred to as other comprehensive (loss) income. The components of other comprehensive (loss) income, and the related tax effects, are as follows:

(In Thousands)	Before-Tax			Income Tax			Net-of-Tax
	Amount			Effect			Amount
2017
Unrealized losses on available-for-sale securities:
Unrealized holding losses on available-for-sale securities	$	(691	)	$	242		$	449	)
Reclassification adjustment for (gains) realized in income		(257	)		89			(168	)
Other comprehensive loss on available-for-sale securities		(948	)		331			(617	)
Unfunded pension and postretirement obligations:
Changes from plan amendments and actuarial gains and losses included in other comprehensive income		36			(12	)		24
Amortization of net transition obligation, prior service cost and net actuarial gain included in net periodic benefit cost		(24	)		8			(16	)
Other comprehensive income on unfunded retirement obligations		12			(4	)		8
Total other comprehensive loss	$	(936	)	$	327		$	609	)

(In Thousands)	Before-Tax			Income Tax			Net-of-Tax
	Amount			Effect			Amount
2016
Unrealized losses on available-for-sale securities:
Unrealized holding losses on available-for-sale securities	$	(4,138	)	$	1,448		$	2,690	)
Reclassification adjustment for (gains) realized in income		(1,158	)		406			(752	)
Other comprehensive loss on available-for-sale securities		(5,296	)		1,854			(3,442	)
Unfunded pension and postretirement obligations:
Changes from plan amendments and actuarial gains and losses included in other comprehensive income		46			(16	)		30
Amortization of net transition obligation, prior service cost and net actuarial gain included in net periodic benefit cost		(22	)		8			(14	)
Other comprehensive income on unfunded retirement obligations		24			(8	)		16
Total other comprehensive loss	$	(5,272	)	$	1,846		$	(3,426	)

52

(In Thousands)	Before-Tax			Income Tax			Net-of-Tax
	Amount			Effect			Amount
2015
Unrealized losses on available-for-sale securities:
Unrealized holding losses on available-for-sale securities	$	(1,429	)	$	500		$	(929	)
Reclassification adjustment for (gains) realized in income		(2,861	)		1,002			(1,859	)
Other comprehensive loss on available-for-sale securities		(4,290	)		1,502			(2,788	)
Unfunded pension and postretirement obligations:
Changes from plan amendments and actuarial gains and losses included in other comprehensive loss		(135	)		47			(88	)
Amortization of net transition obligation, prior service cost, net actuarial loss and loss on settlement included in net period benefit cost		67			(23	)		44
Other comprehensive loss on unfunded retirement obligations		(68	)		24			(44	)
Total other comprehensive loss	$	(4,358	)	$	1,526		$	(2,832	)

Changes in the components of accumulated other comprehensive (loss) income, included in stockholders’ equity, are as follows:

(In Thousands)	Unrealized						Accumulated
	Holding (Losses)			Unfunded			Other
	Gains on			Retirement			Comprehensive
	Securities			Obligations			(Loss) Income
2017
Balance, beginning of period	$	(949	)	$	51		$	(898	)
Change during year ended December 31, 2017		(617	)		8			(609	)
Balance, end of period	$	(1,566	)	$	59		$	(1,507	)
2016
Balance, beginning of period	$	2,493		$	35		$	2,528
Change during year ended December 31, 2016		(3,442	)		16			(3,426	)
Balance, end of period	$	(949	)	$	51		$	(898	)
2015
Balance, beginning of period	$	5,281		$	79		$	5,360
Change during year ended December 31, 2015		(2,788	)		(44	)		(2,832	)
Balance, end of period	$	2,493		$	35		$	2,528

Items reclassified out of each component of accumulated other comprehensive (loss) income are as follows:

For the Year Ended December 31, 2017
(In Thousands)
	Reclassified from
Details about Accumulated Other	Accumulated Other			Affected Line Item in the Consolidated
Comprehensive Loss Components	Comprehensive Loss			Statements of Income
Unrealized gains and losses on available-for-sale securities	$	(257	)	Realized gains on available-for-sale securities, net
		89		Income tax provision
		(168	)	Net of tax
Amortization of defined benefit pension and postretirement items:
Prior service cost		(31	)	Pensions and other employee benefits
Actuarial loss		7		Pensions and other employee benefits
		(24	)	Total before tax
		8		Income tax provision
		(16	)	Net of tax
Total reclassifications for the period	$	(184	)

53

For the Year Ended December 31, 2016
(In Thousands)
	Reclassified from
Details about Accumulated Other	Accumulated Other			Affected Line Item in the Consolidated
Comprehensive Income Components	Comprehensive Income			Statements of Income
Unrealized gains and losses on available-for-sale  securities	$	(1,158	)	Realized gains on available-for-sale securities, net
		406		Income tax provision
		(752	)	Net of tax
Amortization of defined benefit pension and postretirement items:
Prior service cost		(31	)	Pensions and other employee benefits
Actuarial loss		9		Pensions and other employee benefits
		(22	)	Total before tax
		8		Income tax provision
		(14	)	Net of tax
Total reclassifications for the period	$	(766	)

For the Year Ended December 31, 2015
(In Thousands)
	Reclassified from
Details about Accumulated Other	Accumulated Other			Affected Line Item in the Consolidated
Comprehensive Income Components	Comprehensive Income			Statements of Income
Unrealized gains and losses on available-for-sale  securities	$	(2,861	)	Realized gains on available-for-sale securities, net
		1,002		Income tax provision
		(1,859	)	Net of tax
Amortization of defined benefit pension and postretirement items:
Prior service cost		(31	)	Pensions and other employee benefits
Actuarial loss		11		Pensions and other employee benefits
Loss on settlement		87		Pensions and other employee benefits
		67		Total before tax
		(23	)	Income tax provision
		44		Net of tax
Total reclassifications for the period	$	(1,815	)

4. PER SHARE DATA

Basic earnings per common share are calculated using the two-class method to determine income attributable to common shareholders. Unvested restricted stock awards that contain nonforfeitable rights to dividends are considered participating securities under the two-class method. Distributed dividends and an allocation of undistributed net income to participating securities reduce the amount of income attributable to common shareholders. Income attributable to common shareholders is then divided by weighted-average common shares outstanding for the period to determine basic earnings per common share.

Diluted earnings per common share are calculated under the more dilutive of either the treasury method or the two-class method. Diluted earnings per common share is computed using weighted-average common shares outstanding, plus weighted-average common shares available from the exercise of all dilutive stock options, less the number of shares that could be repurchased with the proceeds of stock option exercises based on the average share price of the Corporation’s common stock during the period.

54

	Years Ended
	Dec. 31,			Dec. 31,			Dec. 31,
	2017			2016			2015
Basic
Net income	$	13,434,000		$	15,762,000		$	16,471,000
Less: Dividends and undistributed earnings allocated to participating securities		(69,000	)		(85,000	)		(84,000	)
Net income attributable to common shares	$	13,365,000		$	15,677,000		$	16,387,000
Basic weighted-average common shares outstanding		12,115,840			12,032,820			12,149,252
Basic earnings per common share (a)	$	1.10		$	1.30		$	1.35
Diluted
Net income attributable to common shares	$	13,365,000		$	15,677,000		$	16,387,000
Basic weighted-average common shares outstanding		12,115,840			12,032,820			12,149,252
Dilutive effect of potential common stock arising from stock options		39,296			30,235			21,832
Diluted weighted-average common shares outstanding		12,155,136			12,063,055			12,171,084
Diluted earnings per common share (a)	$	1.10		$	1.30		$	1.35

(a) Basic and diluted earnings per share under the two-class method are determined on net income reported on the income statement less earnings allocated to nonvested restricted shares with nonforfeitable dividends (participating securities).

The weighted-average number of nonvested restricted shares outstanding was 62,329 shares in 2017, 65,309 shares in 2016 and 62,689 shares in 2015.

Stock options that were anti-dilutive were excluded from net income per share calculations. There were no anti-dilutive instruments in 2017. Weighted-average common shares available from anti-dilutive instruments totaled 31,153 shares in 2016 and 61,590 shares in 2015.

5. CASH AND DUE FROM BANKS

Cash and due from banks at December 31, 2017 and 2016 include the following:

(In thousands)	Dec. 31,		Dec. 31,
	2017		2016
Cash and cash equivalents	$	37,004	$	28,621
Certificates of deposit		3,240		3,488
Total cash and due from banks	$	40,244	$	32,109

Certificates of deposit are issues by U.S. banks with original maturities greater than three months. Each certificate of deposit is fully FDIC-insured. The Corporation maintains cash and cash equivalents with certain financial institutions in excess of the FDIC insurance limit.

The Corporation is required to maintain reserves against deposit liabilities in the form of cash and balances with the Federal Reserve Bank. The reserves are based on deposit levels, account activity, and other services provided by the Federal Reserve Bank. Required reserves were $17,178,000 at December 31, 2017 and $16,654,000 at December 31, 2016.

6. FAIR VALUE MEASUREMENTS AND FAIR VALUES OF FINANCIAL INSTRUMENTS

The Corporation measures certain assets at fair value. Fair value is defined as the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. FASB ASC topic 820, “Fair Value Measurements and Disclosures” establishes a framework for measuring fair value that includes a hierarchy used to classify the inputs used in measuring fair value. The hierarchy prioritizes the inputs used in determining valuations into three levels. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The levels of the fair value hierarchy are as follows:

Level 1 – Fair value is based on unadjusted quoted prices in active markets that are accessible to the Corporation for identical assets. These generally provide the most reliable evidence and are used to measure fair value whenever available.

55

Level 2 – Fair value is based on significant inputs, other than Level 1 inputs, that are observable either directly or indirectly for substantially the full term of the asset through corroboration with observable market data. Level 2 inputs include quoted market prices in active markets for similar assets, quoted market prices in markets that are not active for identical or similar assets and other observable inputs.

Level 3 – Fair value is based on significant unobservable inputs. Examples of valuation methodologies that would result in Level 3 classification include option pricing models, discounted cash flows and other similar techniques.

The Corporation monitors and evaluates available data relating to fair value measurements on an ongoing basis and recognizes transfers among the levels of the fair value hierarchy as of the date of an event or change in circumstances that affects the valuation method chosen. Examples of such changes may include the market for a particular asset becoming active or inactive, changes in the availability of quoted prices, or changes in the availability of other market data.

At December 31, 2017 and 2016, assets measured at fair value and the valuation methods used are as follows:

			December 31, 2017
	Quoted Prices		Other
	in Active		Observable		Unobservable			Total
	Markets		Inputs		Inputs			Fair
(In Thousands)	(Level 1)		(Level 2)		(Level 3)			Value
Recurring fair value measurements
AVAILABLE-FOR-SALE SECURITIES:
Obligations of U.S. Government agencies	$	0	$	7,873	$	0		$	7,873
Obligations of states and political subdivisions:
Tax-exempt		0		105,111		0			105,111
Taxable		0		25,573		0			25,573
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		0		52,347		0			52,347
Residential collateralized mortgage obligations		0		131,814		0			131,814
Commercial mortgage-backed securities		0		33,219		0			33,219
Total debt securities		0		355,937		0			355,937
Marketable equity securities		971		0		0			971
Total available-for-sale securities		971		355,937		0			356,908
Servicing rights		0		0		1,299			1,299
Total recurring fair value measurements	$	971	$	355,937	$	1,299		$	358,207
Nonrecurring fair value measurements
Impaired loans with a valuation allowance	$	0	$	0	$	3,776		$	3,776
Valuation allowance		0		0		(1,183	)		(1,183	)
Impaired loans, net		0		0		2,593			2,593
Foreclosed assets held for sale		0		0		1,598			1,598
Total nonrecurring fair value measurements	$	0	$	0	$	4,191		$	4,191

56

			December 31, 2016
	Quoted Prices		Other
	in Active		Observable		Unobservable			Total
	Markets		Inputs		Inputs			Fair
(In Thousands)	(Level 1)		(Level 2)		(Level 3)			Value
Recurring fair value measurements
AVAILABLE-FOR-SALE SECURITIES:
Obligations of U.S. Government agencies	$	0	$	9,541	$	0		$	9,541
Obligations of states and political subdivisions:
Tax-exempt		0		119,037		0			119,037
Taxable		0		30,297		0			30,297
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		0		58,404		0			58,404
Residential collateralized mortgage obligations		0		146,608		0			146,608
Commercial mortgage-backed securities		0		30,219		0			30,219
Total debt securities		0		394,106		0			394,106
Marketable equity securities		971		0		0			971
Total available-for-sale securities		971		394,106		0			395,077
Servicing rights		0		0		1,262			1,262
Total recurring fair value measurements	$	971	$	394,106	$	1,262		$	396,339
Nonrecurring fair value measurements
Impaired loans with a valuation allowance	$	0	$	0	$	3,372		$	3,372
Valuation allowance		0		0		(674	)		(674	)
Impaired loans, net		0		0		2,698			2,698
Foreclosed assets held for sale		0		0		2,180			2,180
Total nonrecurring fair value measurements	$	0	$	0	$	4,878		$	4,878

Management’s evaluation and selection of valuation techniques and the unobservable inputs used in determining the fair values of assets valued using Level 3 methodologies include sensitive assumptions. Other market participants might use substantially different assumptions, which could result in calculations of fair values that would be substantially different than the amount calculated by management. The following table shows quantitative information regarding significant techniques and inputs used at December 31, 2017 and 2016 for servicing rights assets measured using unobservable inputs (Level 3 methodologies) on a recurring basis:

	Fair Value at
	12/31/17		Valuation	Unobservable				Method or Value As of
Asset	(In Thousands)		Technique	Input(s)				12/31/17
Servicing rights	$	1,299	Discounted cash flow	Discount rate		13.00	%	Rate used through modeling period
				Loan prepayment speeds		140.00	%	Weighted-average PSA
				Servicing fees		0.25	%	of loan balances
						4.00	%	of payments are late
						5.00	%	late fees assessed
					$	1.94		Miscellaneous fees per account per month
				Servicing costs	$	6.00		Monthly servicing cost per account
					$	24.00		Additional monthly servicing cost per loan on loans more than 30 days delinquent
						1.50	%	of loans more than 30 days delinquent
						3.00	%	annual increase in servicing costs

57

	Fair Value at
	12/31/16		Valuation	Unobservable				Method or Value As of
Asset	(In Thousands)		Technique	Input(s)				12/31/16
Servicing rights	$	1,262	Discounted cash flow	Discount rate		13.00	%	Rate used through modeling period
				Loan prepayment speeds		138.00	%	Weighted-average PSA
				Servicing fees		0.25	%	of loan balances
						4.00	%	of payments are late
						5.00	%	late fees assessed
					$	1.94		Miscellaneous fees per account per month
				Servicing costs	$	6.00		Monthly servicing cost per account
					$	24.00		Additional monthly servicing cost per loan on loans more than 30 days delinquent
						1.50	%	of loans more than 30 days delinquent
						3.00	%	annual increase in servicing costs

The fair value of servicing rights is affected by expected future interest rates. Increases (decreases) in future expected interest rates tend to increase (decrease) the fair value of the Corporation’s servicing rights because of changes in expected prepayment behavior by the borrowers on the underlying loans.

Following is a reconciliation of activity for Level 3 assets (servicing rights) measured at fair value on a recurring basis:

(In Thousands)	Years Ended December 31,
	2017			2016			2015
Balance, beginning of period	$	1,262		$	1,296		$	1,281
Issuances of servicing rights		205			248			177
Unrealized losses included in earnings		(168	)		(282	)		(162	)
Balance, end of period	$	1,299		$	1,262		$	1,296

Loans are classified as impaired when, based on current information and events, it is probable that the Corporation will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Foreclosed assets held for sale consist of real estate acquired by foreclosure. For impaired commercial loans secured by real estate and foreclosed assets held for sale, estimated fair values are determined primarily using values from third-party appraisals. Appraised values are discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property.

At December 31, 2017 and 2016, quantitative information regarding significant techniques and inputs used for nonrecurring fair value measurements using unobservable inputs (Level 3 methodologies) are as follows:

(In Thousands, Except									Weighted-
Percentages)			Valuation						Average
	Balance at		Allowance at		Fair Value at		Valuation	Unobservable	Discount at
Asset	12/31/17		12/31/17		12/31/17		Technique	Inputs	12/31/17
Impaired loans:
Residential mortgage loans - first liens	$	515	$	122	$	393	Sales comparison	Discount to appraised value		26	%
Commercial:
Commercial loans secured by real estate		2,641		919		1,722	Sales comparison	Discount to appraised value		16	%
Commercial and industrial		126		92		34	Sales comparison	Discount to appraised value		72	%
Loans secured by farmland		494		50		444	Sales comparison	Discount to appraised value		53	%
Total impaired loans	$	3,776	$	1,183	$	2,593
Foreclosed assets held for sale - real estate:
Residential (1-4 family)	$	721	$	0	$	721	Sales comparison	Discount to appraised value		37	%
Land		632		0		632	Sales comparison	Discount to appraised value		35	%
Commercial real estate		245		0		245	Sales comparison	Discount to appraised value		71	%
Total foreclosed assets held for sale	$	1,598	$	0	$	1,598

58

(In Thousands, Except									Weighted-
Percentages)			Valuation						Average
	Balance at		Allowance at		Fair Value at		Valuation	Unobservable	Discount at
Asset	12/31/16		12/31/16		12/31/16		Technique	Inputs	12/31/16
Impaired loans:
Commercial:
Commercial loans secured by real estate	$	2,773	$	528	$	2,245	Sales comparison	Discount to appraised value		7	%
Commercial and industrial		95		95		0	Sales comparison	Discount to appraised value		100	%
Loans secured by farmland		504		51		453	Sales comparison	Discount to appraised value		55	%
Total impaired loans	$	3,372	$	674	$	2,698
Foreclosed assets held for sale - real estate:
Residential (1-4 family)	$	1,102	$	0	$	1,102	Sales comparison	Discount to appraised value		35	%
Land		650		0		650	Sales comparison	Discount to appraised value		33	%
Commercial real estate		428		0		428	Sales comparison	Discount to appraised value		50	%
Total foreclosed assets held for sale	$	2,180	$	0	$	2,180

Certain of the Corporation’s financial instruments are not measured at fair value in the consolidated financial statements. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. Certain financial instruments and all nonfinancial instruments are excluded from disclosure requirements. Therefore, the aggregate fair value amounts presented may not represent the underlying fair value of the Corporation.

The Corporation used the following methods and assumptions in estimating fair value disclosures for financial instruments:

CASH AND CASH EQUIVALENTS – The carrying amounts of cash and short-term instruments approximate fair values.

CERTIFICATES OF DEPOSIT – Fair values for certificates of deposit, included in cash and due from banks in the consolidated balance sheets, are based on quoted market prices for certificates of similar remaining maturities.

SECURITIES – Fair values for securities, excluding restricted equity securities, are based on quoted market prices or other methods as described above. The carrying value of restricted equity securities approximates fair value based on applicable redemption provisions.

LOANS HELD FOR SALE – Fair values of loans held for sale are determined based on applicable sale prices available under the Federal Home Loan Banks’ MPF Original or Xtra program.

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 and other consumer. Each loan category is further segmented into fixed-rate and adjustable-rate interest terms and by performing and nonperforming categories. The fair value of performing loans is calculated by discounting contractual cash flows, adjusted for estimated prepayments based on historical experience, using estimated market discount rates that reflect the credit and interest rate risk inherent in the loans. Fair value of nonperforming loans is based on recent appraisals or estimates prepared by the Corporation’s lending officers.

SERVICING RIGHTS – The fair value of servicing rights, included in other assets in the consolidated balance sheet, is determined through a discounted cash flow valuation. Significant inputs include expected net servicing income, the discount rate and the expected prepayment speeds of the underlying loans.

DEPOSITS – The fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits, savings, money market and interest checking accounts, is (by definition) equal to the amount payable at December 31, 2017 and 2016. The fair value of time deposits, such as certificates of deposit and Individual Retirement Accounts, 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. The fair value estimates of deposits 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 – The fair value of borrowings is estimated using discounted cash flow analyses based on rates currently available to the Corporation for similar types of borrowing arrangements.

ACCRUED INTEREST – The carrying amounts of accrued interest receivable and payable approximate fair values.

59

OFF-BALANCE SHEET COMMITMENTS – The Corporation has commitments to extend credit and has issued standby letters of credit. Standby letters of credit are conditional guarantees of performance by a customer to a third party. Estimates of the fair value of these off-balance sheet items were not made because of the short-term nature of these arrangements and the credit standing of the counterparties.

The estimated fair values, and related carrying amounts, of the Corporation’s financial instruments are as follows:

(In Thousands)	Valuation	December 31, 2017				December 31, 2016
	Method(s)	Carrying		Fair		Carrying		Fair
	Used	Amount		Value		Amount		Value
Financial assets:
Cash and cash equivalents	Level 1	$	37,004	$	37,004	$	28,621	$	28,621
Certificates of deposit	Level 2		3,240		3,234		3,488		3,481
Available-for-sale securities	See Above		356,908		356,908		395,077		395,077
Restricted equity securities (included in Other Assets)	Level 2		6,556		6,556		4,426		4,426
Loans held for sale	Level 2		765		765		142		142
Loans, net	Level 3		806,857		789,891		743,362		725,787
Accrued interest receivable	Level 2		4,048		4,048		3,963		3,963
Servicing rights	Level 3		1,299		1,299		1,262		1,262
Financial liabilities:
Deposits with no stated maturity	Level 2		794,778		794,778		771,625		771,625
Time deposits	Level 2		213,671		213,734		212,218		212,274
Short-term borrowings	Level 2		61,766		61,643		26,175		26,024
Long-term borrowings	Level 2		9,189		9,256		38,454		39,062
Accrued interest payable	Level 2		46		46		65		65

7. SECURITIES

Amortized cost and fair value of available-for-sale securities at December 31, 2017 and 2016 are summarized as follows:

			December 31, 2017
			Gross		Gross
			Unrealized		Unrealized
	Amortized		Holding		Holding			Fair
(In Thousands)	Cost		Gains		Losses			Value
Obligations of U.S. Government agencies	$	8,026	$	0	$	(153	)	$	7,873
Obligations of states and political subdivisions:
Tax-exempt		103,673		2,291		(853	)		105,111
Taxable		25,431		226		(84	)		25,573
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		52,992		79		(724	)		52,347
Residential collateralized mortgage obligations		134,314		110		(2,610	)		131,814
Commercial mortgage-backed securities		33,881		4		(666	)		33,219
Total debt securities		358,317		2,710		(5,090	)		355,937
Marketable equity securities		1,000		0		(29	)		971
Total	$	359,317	$	2,710	$	(5,119	)	$	356,908

60

			December 31, 2016
			Gross		Gross
			Unrealized		Unrealized
	Amortized		Holding		Holding			Fair
(In Thousands)	Cost		Gains		Losses			Value
Obligations of U.S. Government agencies	$	9,671	$	5	$	(135	)	$	9,541
Obligations of states and political subdivisions:
Tax-exempt		118,140		2,592		(1,695	)		119,037
Taxable		30,073		303		(79	)		30,297
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		58,922		306		(824	)		58,404
Residential collateralized mortgage obligations		147,915		408		(1,715	)		146,608
Commercial mortgage-backed securities		30,817		0		(598	)		30,219
Total debt securities		395,538		3,614		(5,046	)		394,106
Marketable equity securities		1,000		0		(29	)		971
Total	$	396,538	$	3,614	$	(5,075	)	$	395,077

The following table presents gross unrealized losses and fair value of available-for-sale securities with unrealized loss positions that are not deemed to be other-than-temporarily impaired, aggregated by length of time that individual securities have been in a continuous unrealized loss position at December 31, 2017 and 2016:

December 31, 2017	Less Than 12 Months					12 Months or More					Total
(In Thousands)	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
Obligations of U.S. Government agencies	$	0	$	0		$	7,873	$	(153	)	$	7,873	$	(153	)
Obligations of states and political subdivisions:
Tax-exempt		19,050		(135	)		24,391		(718	)		43,441		(853	)
Taxable		9,279		(45	)		2,116		(39	)		11,395		(84	)
Mortgage-backed securities issued or guaranteed  by U.S. Government agencies or sponsored  agencies:
Residential pass-through securities		25,255		(242	)		22,549		(482	)		47,804		(724	)
Residential collateralized mortgage obligations		50,812		(589	)		68,558		(2,021	)		119,370		(2,610	)
Commercial mortgage-backed securities		14,713		(173	)		14,569		(493	)		29,282		(666	)
Total debt securities		119,109		(1,184	)		140,056		(3,906	)		259,165		(5,090	)
Marketable equity securities		0		0			971		(29	)		971		(29	)
Total temporarily impaired available-for-sale securities	$	119,109	$	(1,184	)	$	141,027	$	(3,935	)	$	260,136	$	(5,119	)

December 31, 2016	Less Than 12 Months					12 Months or More					Total
(In Thousands)	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
Obligations of U.S. Government agencies	$	7,899	$	(135	)	$	0	$	0		$	7,899	$	(135	)
Obligations of states and political subdivisions:
Tax-exempt		54,479		(1,676	)		1,278		(19	)		55,757		(1,695	)
Taxable		9,594		(79	)		0		0			9,594		(79	)
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		48,674		(824	)		0		0			48,674		(824	)
Residential collateralized mortgage obligations		85,198		(1,124	)		16,073		(591	)		101,271		(1,715	)
Commercial mortgage-backed securities		30,219		(598	)		0		0			30,219		(598	)
Total debt securities		236,063		(4,436	)		17,351		(610	)		253,414		(5,046	)
Marketable equity securities		1,000		(29	)		0		0			1,000		(29	)
Total temporarily impaired available-for-sale securities	$	237,063	$	(4,465	)	$	17,351	$	(610	)	$	254,414	$	(5,075	)

61

Gross realized gains and losses from available-for-sale securities and the related income tax provision were as follows:

(In Thousands)
	2017			2016			2015
Gross realized gains from sales	$	315		$	1,392		$	2,972
Gross realized losses from sales		(58	)		(234	)		(111	)
Net realized gains	$	257		$	1,158		$	2,861
Income tax provision related to net realized gains	$	89		$	406		$	1,002

The amortized cost and fair value of available-for-sale debt securities by contractual maturity are shown in the following table as of December 31, 2017. Actual maturities may differ from contractual maturities because counterparties may have the right to call or prepay obligations with or without call or prepayment penalties.

	December 31, 2017
	Amortized		Fair
(In Thousands)	Cost		Value
Due in one year or less	$	11,350	$	11,347
Due from one year through five years		69,274		70,016
Due from five years through ten years		37,086		37,089
Due after ten years		19,420		20,105
Sub-total		137,130		138,557
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		52,992		52,347
Residential collateralized mortgage obligations		134,314		131,814
Commercial mortgage-backed securities		33,881		33,219
Total	$	358,317	$	355,937

The Corporation’s mortgage-backed securities and collateralized mortgage obligations have stated maturities that may differ from actual maturities due to borrowers’ ability to prepay obligations. Cash flows from such investments are dependent upon the performance of the underlying mortgage loans and are generally influenced by the level of interest rates. In the table above, mortgage-backed securities and collateralized mortgage obligations are shown in one period.

Investment securities carried at $217,925,000 at December 31, 2017 and $230,803,000 at December 31, 2016 were pledged as collateral for public deposits, trusts and certain other deposits as provided by law. See Note 12 for information concerning securities pledged to secure borrowing arrangements.

Management evaluates securities for OTTI at least on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) whether the Corporation intends to sell the security or more likely than not will be required to sell the security before its anticipated recovery.

The Corporation recognized no net impairment losses in earnings for the years ended December 31, 2017, 2016 and 2015.

A summary of information management considered in evaluating debt and equity securities for OTTI at December 31, 2017 and 2016 is provided below.

Debt Securities

At December 31, 2017 and 2016, management performed an assessment for possible OTTI of the Corporation’s debt securities on an issue-by-issue basis, relying on information obtained from various sources, including publicly available financial data, ratings by external agencies, brokers and other sources. The extent of individual analysis applied to each security depended on the size of the Corporation’s investment, as well as management’s perception of the credit risk associated with each security. Based on the results of the assessment, management believes impairment of these debt securities at December 31, 2017 and 2016 to be temporary.

62

Equity Securities

The Corporation’s marketable equity securities at December 31, 2017 and 2016 consisted exclusively of one mutual fund. The Corporation recognized no other-than-temporary impairment losses related to equities in 2017, 2016 or 2015. At December 31, 2017, the mutual fund held by the Corporation had an unrealized loss of $29,000 for which management determined an OTTI charge was not required.

There were no realized gains or losses on equity securities in 2017. Realized gains from sales of equity securities (bank stocks) totaled $1,125,000 in 2016 and $2,220,000 in 2015.

C&N Bank is a member of the Federal Home Loan Bank of Pittsburgh (FHLB-Pittsburgh), which is one of 11 regional Federal Home Loan Banks. As a member, C&N Bank is required to purchase and maintain stock in FHLB-Pittsburgh. There is no active market for FHLB-Pittsburgh stock, and it must ordinarily be redeemed by FHLB-Pittsburgh in order to be liquidated. C&N Bank’s investment in FHLB-Pittsburgh stock, included in Other Assets in the consolidated balance sheets, was $6,426,000 at December 31, 2017 and $4,296,000 at December 31, 2016. The Corporation evaluated its holding of FHLB-Pittsburgh stock for impairment and deemed the stock to not be impaired at December 31, 2017 and December 31, 2016. In making this determination, management concluded that recovery of total outstanding par value, which equals the carrying value, is expected. The decision was based on review of financial information that FHLB-Pittsburgh has made publicly available.

8. LOANS

Loans outstanding at December 31, 2017 and 2016 are summarized as follows:

Summary of Loans by Type
(In Thousands)	Dec. 31,			Dec. 31,
	2017			2016
Residential mortgage:
Residential mortgage loans - first liens	$	359,987		$	334,102
Residential mortgage loans - junior liens		25,325			23,706
Home equity lines of credit		35,758			38,057
1-4 Family residential construction		26,216			24,908
Total residential mortgage		447,286			420,773
Commercial:
Commercial loans secured by real estate		159,266			150,468
Commercial and industrial		88,276			83,854
Political subdivisions		59,287			38,068
Commercial construction and land		14,527			14,287
Loans secured by farmland		7,255			7,294
Multi-family (5 or more) residential		7,713			7,896
Agricultural loans		6,178			3,998
Other commercial loans		10,986			11,475
Total commercial		353,488			317,340
Consumer		14,939			13,722
Total		815,713			751,835
Less: allowance for loan losses		(8,856	)		(8,473	)
Loans, net	$	806,857		$	743,362

The Corporation grants loans to individuals as well as commercial and tax-exempt entities. Commercial, residential and personal loans are made to customers geographically concentrated in the Pennsylvania and New York counties that make up the market serviced by Citizens & Northern Bank. 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. There is no concentration of loans to borrowers engaged in similar businesses or activities that exceed 10% of total loans at December 31, 2017.

63

Transactions within the allowance for loan losses, summarized by segment and class, were as follows:

Year Ended December 31, 2017	Dec. 31,										Dec. 31,
	2016							Provision			2017
(In Thousands)	Balance		Charge-offs			Recoveries		(Credit)			Balance
Allowance for Loan Losses:
Residential mortgage:
Residential mortgage loans - first liens	$	3,033	$	(167	)	$	15	$	319		$	3,200
Residential mortgage loans - junior liens		258		(16	)		4		(22	)		224
Home equity lines of credit		350		(14	)		0		(40	)		296
1-4 Family residential construction		249		0			0		(6	)		243
Total residential mortgage		3,890		(197	)		19		251			3,963
Commercial:
Commercial loans secured by real estate		2,380		(96	)		0		300			2,584
Commercial and industrial		999		(36	)		4		98			1,065
Commercial construction and land		162		0			0		(12	)		150
Loans secured by farmland		110		0			0		(5	)		105
Multi-family (5 or more) residential		241		0			0		(69	)		172
Agricultural loans		40		0			0		17			57
Other commercial loans		115		0			0		(13	)		102
Total commercial		4,047		(132	)		4		316			4,235
Consumer		138		(150	)		38		133			159
Unallocated		398		0			0		101			499
Total Allowance for Loan Losses	$	8,473	$	(479	)	$	61	$	801		$	8,856

Year Ended December 31, 2016	Dec. 31										Dec. 31
	2015							Provision			2016
(In Thousands)	Balance		Charge-offs			Recoveries		(Credit)			Balance
Allowance for Loan Losses:
Residential mortgage:
Residential mortgage loans - first liens	$	2,645	$	(73	)	$	3	$	458		$	3,033
Residential mortgage loans - junior liens		219		0			0		39			258
Home equity lines of credit		347		0			0		3			350
1-4 Family residential construction		207		0			0		42			249
Total residential mortgage		3,418		(73	)		3		542			3,890
Commercial:
Commercial loans secured by real estate		1,939		0			2		439			2,380
Commercial and industrial		981		(2	)		3		17			999
Political subdivisions		0		0			0		0			0
Commercial construction and land		58		0			30		74			162
Loans secured by farmland		106		0			0		4			110
Multi-family (5 or more) residential		675		(595	)		0		161			241
Agricultural loans		45		0			0		(5	)		40
Other commercial loans		118		0			0		(3	)		115
Total commercial		3,922		(597	)		35		687			4,047
Consumer		122		(87	)		82		21			138
Unallocated		427		0			0		(29	)		398
Total Allowance for Loan Losses	$	7,889	$	(757	)	$	120	$	1,221		$	8,473

64

Year Ended December 31, 2015	Dec. 31,										Dec. 31,
	2014							Provision			2015
(In Thousands)	Balance		Charge-offs			Recoveries		(Credit)			Balance
Allowance for Loan Losses:
Residential mortgage:
Residential mortgage loans - first liens	$	2,941	$	(175	)	$	1	$	(122	)	$	2,645
Residential mortgage loans - junior liens		176		(42	)		0		85			219
Home equity lines of credit		322		0			0		25			347
1-4 Family residential construction		214		0			0		(7	)		207
Total residential mortgage		3,653		(217	)		1		(19	)		3,418
Commercial:
Commercial loans secured by real estate		1,758		(115	)		208		88			1,939
Commercial and industrial		688		(21	)		6		308			981
Political subdivisions		0		0			0		0			0
Commercial construction and land		283		(115	)		0		(110	)		58
Loans secured by farmland		165		0			0		(59	)		106
Multi-family (5 or more) residential		87		0			0		588			675
Agricultural loans		31		0			0		14			45
Other commercial loans		131		0			0		(13	)		118
Total commercial		3,143		(251	)		214		816			3,922
Consumer		145		(94	)		55		16			122
Unallocated		395		0			0		32			427
Total Allowance for Loan Losses	$	7,336	$	(562	)	$	270	$	845		$	7,889

In the evaluation of the loan portfolio, management determines two major components for the allowance for loan losses – (1) a specific component based on an assessment of certain larger relationships, mainly commercial purpose loans, on a loan-by-loan basis; and (2) a general component for the remainder of the portfolio based on a collective evaluation of pools of loans with similar risk characteristics.

In determining the larger loan relationships for detailed assessment under the specific allowance component, the Corporation uses an internal risk rating system. Under the risk rating system, the Corporation classifies problem or potential problem loans as “Special Mention,” “Substandard,” or “Doubtful” on the basis of currently existing facts, conditions and values. Substandard loans include those characterized by the distinct possibility that the Corporation will sustain some loss if the deficiencies are not corrected. Loans classified as Doubtful have all the weaknesses inherent in those classified as Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Loans that do not currently expose the Corporation to sufficient risk to warrant classification as Substandard or Doubtful, but possess weaknesses that deserve management’s close attention, are deemed to be Special Mention. Risk ratings are updated any time that conditions or the situation warrants. Loans not classified are included in the “Pass” column in the table below.

The following tables summarize the aggregate credit quality classification of outstanding loans by risk rating as of December 31, 2017 and 2016:

65

December 31, 2017
(In Thousands)			Special
	Pass		Mention		Substandard		Doubtful		Total
Residential Mortgage:
Residential mortgage loans - first liens	$	350,609	$	307	$	9,019	$	52	$	359,987
Residential mortgage loans - junior liens		24,795		104		426		0		25,325
Home equity lines of credit		35,233		61		464		0		35,758
1-4 Family residential construction		26,216		0		0		0		26,216
Total residential mortgage		436,853		472		9,909		52		447,286
Commercial:
Commercial loans secured by real estate		150,806		936		7,524		0		159,266
Commercial and Industrial		82,724		3,896		1,645		11		88,276
Political subdivisions		59,287		0		0		0		59,287
Commercial construction and land		14,449		0		78		0		14,527
Loans secured by farmland		5,283		581		1,379		12		7,255
Multi-family (5 or more) residential		7,130		0		583		0		7,713
Agricultural loans		5,203		270		705		0		6,178
Other commercial loans		10,913		0		73		0		10,986
Total commercial		335,795		5,683		11,987		23		353,488
Consumer		14,853		0		86		0		14,939
Totals	$	787,501	$	6,155	$	21,982	$	75	$	815,713

December 31, 2016
(In Thousands)			Special
	Pass		Mention		Substandard		Doubtful		Total
Residential Mortgage:
Residential mortgage loans - first liens	$	324,377	$	408	$	9,258	$	59	$	334,102
Residential mortgage loans - junior liens		23,274		132		300		0		23,706
Home equity lines of credit		37,360		123		574		0		38,057
1-4 Family residential construction		24,820		0		88		0		24,908
Total residential mortgage		409,831		663		10,220		59		420,773
Commercial:
Commercial loans secured by real estate		139,358		3,092		8,018		0		150,468
Commercial and Industrial		79,202		4,180		461		11		83,854
Political subdivisions		38,068		0		0		0		38,068
Commercial construction and land		14,136		70		81		0		14,287
Loans secured by farmland		5,745		129		1,404		16		7,294
Multi-family (5 or more) residential		7,277		0		619		0		7,896
Agricultural loans		3,208		0		790		0		3,998
Other commercial loans		11,401		0		74		0		11,475
Total commercial		298,395		7,471		11,447		27		317,340
Consumer		13,546		0		176		0		13,722
Totals	$	721,772	$	8,134	$	21,843	$	86	$	751,835

The scope of loans reviewed individually each quarter to determine if they are impaired include all commercial loan relationships greater than $200,000 for which there is at least one extension of credit graded Special Mention, Substandard or Doubtful. In the fourth quarter 2017, the scope was expanded to include any residential mortgage or consumer loans of $400,000 or more with a credit grade of Special Mention, Substandard or Doubtful. Loans that are individually reviewed, but which are determined to not be impaired, are combined with all remaining loans that are not reviewed on a specific basis, and such loans are included within larger pools of loans based on similar risk and loss characteristics for purposes of determining the general component of the allowance. The loans that have been individually reviewed, but which have been determined to not be impaired, are included in the “Collectively Evaluated” column in the table summarizing the allowance and associated loan balances as of December 31, 2017 and 2016. All loans classified as troubled debt restructurings (discussed in more detail below) and all commercial loan relationships less than $200,000 or other loan relationships less than $400,000 in the aggregate, but with an estimated loss of $100,000 or more, are individually evaluated for impairment.

66

The following tables present a summary of loan balances and the related allowance for loan losses summarized by portfolio segment and class for each impairment method used as of December 31, 2017 and 2016:

December 31, 2017	Loans:						Allowance for Loan Losses:
(In Thousands)
	Individually		Collectively				Individually		Collectively
	Evaluated		Evaluated		Totals		Evaluated		Evaluated		Totals
Residential mortgage:
Residential mortgage loans - first liens	$	984	$	359,003	$	359,987	$	0	$	3,200	$	3,200
Residential mortgage loans - junior liens		302		25,023		25,325		122		102		224
Home equity lines of credit		0		35,758		35,758		0		296		296
1-4 Family residential construction		0		26,216		26,216		0		243		243
Total residential mortgage		1,286		446,000		447,286		122		3,841		3,963
Commercial:
Commercial loans secured by real estate		5,873		153,393		159,266		919		1,665		2,584
Commercial and industrial		568		87,708		88,276		188		877		1,065
Political subdivisions		0		59,287		59,287		0		0		0
Commercial construction and land		0		14,527		14,527		0		150		150
Loans secured by farmland		1,365		5,890		7,255		50		55		105
Multi-family (5 or more) residential		392		7,321		7,713		0		172		172
Agricultural loans		7		6,171		6,178		0		57		57
Other commercial loans		0		10,986		10,986		0		102		102
Total commercial		8,205		345,283		353,488		1,157		3,078		4,235
Consumer		20		14,919		14,939		0		159		159
Unallocated												499
Total	$	9,511	$	806,202	$	815,713	$	1,279	$	7,078	$	8,856

67

December 31, 2016	Loans:						Allowance for Loan Losses:
(In Thousands)
	Individually		Collectively				Individually		Collectively
	Evaluated		Evaluated		Totals		Evaluated		Evaluated		Totals
Residential mortgage:
Residential mortgage loans - first liens	$	753	$	333,349	$	334,102	$	0	$	3,033	$	3,033
Residential mortgage loans - junior liens		68		23,638		23,706		0		258		258
Home equity lines of credit		0		38,057		38,057		0		350		350
1-4 Family residential construction		0		24,908		24,908		0		249		249
Total residential mortgage		821		419,952		420,773		0		3,890		3,890
Commercial:
Commercial loans secured by real estate		8,005		142,463		150,468		528		1,852		2,380
Commercial and industrial		212		83,642		83,854		95		904		999
Political subdivisions		0		38,068		38,068		0		0		0
Commercial construction and land		0		14,287		14,287		0		162		162
Loans secured by farmland		1,394		5,900		7,294		51		59		110
Multi-family (5 or more) residential		392		7,504		7,896		0		241		241
Agricultural loans		13		3,985		3,998		0		40		40
Other commercial loans		0		11,475		11,475		0		115		115
Total commercial		10,016		307,324		317,340		674		3,373		4,047
Consumer		23		13,699		13,722		0		138		138
Unallocated												398
Total	$	10,860	$	740,975	$	751,835	$	674	$	7,401	$	8,473

Summary information related to impaired loans as of December 31, 2017 and 2016 is as follows:

(In Thousands)	December 31, 2017						December 31, 2016
	Unpaid						Unpaid
	Principal		Recorded		Related		Principal		Recorded		Related
	Balance		Investment		Allowance		Balance		Investment		Allowance
With no related allowance recorded:
Residential mortgage loans - first liens	$	740	$	711	$	0	$	783	$	753	$	0
Residential mortgage loans - junior liens		60		60		0		68		68		0
Commercial loans secured by real estate		3,230		3,230		0		6,975		5,232		0
Commercial and industrial		119		119		0		117		117		0
Loans secured by farmland		871		871		0		890		890		0
Multi-family (5 or more) residential		987		392		0		987		392		0
Agricultural loans		8		8		0		13		13		0
Consumer		20		20		0		23		23		0
Total with no related allowance recorded		6,035		5,411		0		9,856		7,488		0
With a related allowance recorded:
Residential mortgage loans - first liens		273		273		0		0		0		0
Residential mortgage loans - junior liens		242		242		122		0		0		0
Commercial loans secured by real estate		2,641		2,641		919		2,773		2,773		528
Commercial and industrial		449		449		188		95		95		95
Loans secured by farmland		495		495		50		504		504		51
Total with a related allowance recorded		4,100		4,100		1,279		3,372		3,372		674
Total	$	10,135	$	9,511	$	1,279	$	13,228	$	10,860	$	674

In the table immediately above, two loans to one borrower are presented under the Residential mortgage loans – first liens and Residential mortgage loans – junior liens classes. These loans are collateralized by one property, and the allowance associated with these loans was determined based on an analysis of the total amounts of the Corporation’s exposure in comparison to the estimated net proceeds if the Corporation were to sell the property.

68

The average balance of impaired loans and interest income recognized on impaired loans is as follows:

							Interest Income Recognized on
	Average Investment in Impaired Loans						Impaired Loans on a Cash Basis
(In Thousands)	Year Ended December 31,						Year Ended December 31,
	2017		2016		2015		2017		2016		2015
Residential mortgage:
Residential mortgage loans - first lien	$	857	$	806	$	2,206	$	52	$	43	$	86
Residential mortgage loans - junior lien		112		71		64		15		3		4
Total residential mortgage		969		877		2,270		67		46		90
Commercial:
Commercial loans secured by real estate		6,272		6,806		6,357		173		495		380
Commercial and industrial		301		547		438		24		20		20
Commercial construction and land		0		0		40		0		0		0
Loans secured by farmland		1,379		1,409		1,459		45		94		103
Multi-family (5 or more) residential		392		511		790		0		0		0
Agricultural loans		10		14		21		1		1		3
Total commercial		8,354		9,287		9,105		243		610		506
Consumer		26		21		0		1		1		0
Total	$	9,349	$	10,185	$	11,375	$	311	$	657	$	596

The breakdown by portfolio segment and class of nonaccrual loans and loans past due ninety days or more and still accruing is as follows:

(In Thousands)	December 31, 2017				December 31, 2016
	Past Due				Past Due
	90+ Days and				90+ Days and
	Accruing		Nonaccrual		Accruing		Nonaccrual
Residential mortgage:
Residential mortgage loans - first liens	$	2,340	$	5,131	$	3,022	$	3,770
Residential mortgage loans - junior liens		105		242		114		0
Home equity lines of credit		203		44		320		11
Total residential mortgage		2,648		5,417		3,456		3,781
Commercial:
Commercial loans secured by real estate		175		5,645		2,774		3,080
Commercial and industrial		603		517		286		119
Commercial construction and land		26		52		0		0
Loans secured by farmland		271		1,308		219		1,331
Multi-family (5 or more) residential		0		392		0		392
Agricultural loans		0		7		0		13
Total commercial		1,075		7,921		3,279		4,935
Consumer		1		66		103		20
Totals	$	3,724	$	13,404	$	6,838	$	8,736

The amounts shown in the table immediately above include loans classified as troubled debt restructurings (described in more detail below), if such loans are considered past due ninety days or more, or nonaccrual.

69

The tables below present a summary of the contractual aging of loans as of December 31, 2017 and 2016:

	As of December 31, 2017								As of December 31, 2016
	Current &								Current &
(In Thousands)	Past Due		Past Due		Past Due				Past Due		Past Due		Past Due
	Less than		30-89		90+				Less than		30-89		90+
	30 Days		Days		Days		Total		30 Days		Days		Days		Total
Residential mortgage:
Residential mortgage loans - first liens	$	347,032	$	7,967	$	4,988	$	359,987	$	321,670	$	6,695	$	5,737	$	334,102
Residential mortgage loans - junior liens		25,133		87		105		25,325		23,268		324		114		23,706
Home equity lines of credit		34,789		732		237		35,758		37,603		134		320		38,057
1-4 Family residential construction		25,667		549		0		26,216		24,567		341		0		24,908
Total residential mortgage		432,621		9,335		5,330		447,286		407,108		7,494		6,171		420,773
Commercial:
Commercial loans secured by real estate		155,917		311		3,038		159,266		147,464		82		2,922		150,468
Commercial and industrial		87,306		303		667		88,276		83,364		185		305		83,854
Political subdivisions		59,287		0		0		59,287		38,068		0		0		38,068
Commercial construction and land		14,400		49		78		14,527		14,199		88		0		14,287
Loans secured by farmland		6,226		12		1,017		7,255		6,181		83		1,030		7,294
Multi-family (5 or more) residential		7,321		0		392		7,713		7,439		65		392		7,896
Agricultural loans		6,114		57		7		6,178		3,981		4		13		3,998
Other commercial loans		10,986		0		0		10,986		11,475		0		0		11,475
Total commercial		347,557		732		5,199		353,488		312,171		507		4,662		317,340
Consumer		14,760		123		56		14,939		13,446		153		123		13,722
Totals	$	794,938	$	10,190	$	10,585	$	815,713	$	732,725	$	8,154	$	10,956	$	751,835

Nonaccrual loans are included in the contractual aging immediately above. A summary of the contractual aging of nonaccrual loans at December 31, 2017 and 2016 is as follows:

	Current &
(In Thousands)	Past Due		Past Due		Past Due
	Less than		30-89		90+
	30 Days		Days		Days		Total
December 31, 2017 Nonaccrual Totals	$	5,802	$	741	$	6,861	$	13,404
December 31, 2016 Nonaccrual Totals	$	4,199	$	419	$	4,118	$	8,736

Loans whose terms are modified are classified as Troubled Debt Restructurings (TDRs) if the Corporation grants such borrowers concessions and it is deemed that those borrowers are experiencing financial difficulty. Loans classified as TDRs are designated as impaired and reviewed each quarter to determine if a specific allowance for loan losses is required. The outstanding balance of loans subject to TDRs, as well as the contractual aging information at December 31, 2017 and 2016 is as follows:

Troubled Debt Restructurings (TDRs):
	Current &
(In Thousands)	Past Due		Past Due		Past Due
	Less than		30-89		90+
	30 Days		Days		Days		Nonaccrual		Total
December 31, 2017 Totals	$	636	$	0	$	0	$	3,027	$	3,663
December 31, 2016 Totals	$	5,453	$	350	$	0	$	2,874	$	8,677

At December 31, 2017 and 2016, there were no commitments to loan additional funds to borrowers whose loans have been classified as TDRs.

70

There were no TDRs that occurred during 2017. A summary of TDRs that occurred during 2016 and 2015 is as follows:

(Balances in Thousands)
	2016				2015
			Post-				Post-
	Number		Modification		Number		Modification
	of		Recorded		of		Recorded
	Loans		Investment		Loans		Investment
Residential mortgage - first liens:
Extended maturity with interest rate reduction		1	$	71		1	$	56
Extended maturity with reduced monthly payments		1		26		0		0
Reduced monthly payments for a six-month period		0		0		1		242
Residential mortgage - junior liens,
Interest rate and monthly payment reduction		0		0		1		32
Commercial loans secured by real estate,
Interest only payments for a period of one year		1		2,773		0		0
Commercial and industrial,
Extended maturity		1		5		0		0
Consumer:
Interest rate and monthly payment reduction		0		0		1		30
New unsecured loan after short-fall from sale
of property		1		24		0		0
Total		5	$	2,899		4	$	360

There were no differences between the outstanding contractual amounts and the recorded investments in receivables resulting from TDRs that occurred in 2016 and 2015.

For 2017, there were no defaults on loans for which modifications considered to be TDRs were entered into within the previous 12 months. For 2016 and 2015, defaults on loans for which modifications considered to be TDRs were entered into within the previous 12 months are summarized as follows:

(Balances in Thousands)
	2016				2015
	Number				Number
	of		Recorded		of		Recorded
	Loans		Investment		Loans		Investment
Residential mortgage - first liens		2	$	294		1	$	32
Residential mortgage - junior liens		1		29		0		0
Commercial and industrial		1		5		0		0
Consumer		1		27		0		0
Total		5	$	355		1	$	32

The carrying amount of foreclosed residential real estate properties held as a result of obtaining physical possession (included in Foreclosed assets held for sale in the consolidated balance sheets) is as follows:

(In Thousands)	Dec. 31,		Dec. 31,
	2017		2016
Foreclosed residential real estate	$	721	$	1,102

The recorded investment of consumer mortgage loans secured by residential real properties for which formal foreclosure proceedings were in process is as follows:

(In Thousands)	Dec. 31,		Dec. 31,
	2017		2016
Residential real estate in process of foreclosure	$	1,789	$	2,738

71

9. BANK PREMISES AND EQUIPMENT

(In Thousands)	December 31,
	2017			2016
Land	$	2,818		$	2,818
Buildings and improvements		28,285			27,619
Furniture and equipment		15,578			18,741
Construction in progress		268			392
Total		46,949			49,570
Less: accumulated depreciation		(31,517	)		(34,173	)
Net	$	15,432		$	15,397

Depreciation expense included in occupancy expense and furniture and equipment expense was as follows:

(In Thousands)	2017		2016		2015
Occupancy expense	$	801	$	804	$	954
Furniture and equipment expense		838		785		934
Total	$	1,639	$	1,589	$	1,888

10. INTANGIBLE ASSETS

There were no changes in the carrying amount of goodwill in 2017 and 2016. The balance in goodwill was $11,942,000 at December 31, 2017 and 2016. The Corporation did not complete any acquisitions in 2017 or 2016.

In testing goodwill for impairment as of December 31, 2017, the Corporation assessed qualitative factors to determine whether it is more likely than not that the fair value of its only reporting unit, its community banking operation, is less than its carrying amount. The qualitative factors assessed included the Corporation’s recent financial performance, economic conditions in the Corporation’s market area, macroeconomic conditions and other factors. Based on the assessment of qualitative factors, the Corporation determined that it is not more likely than not that the fair value of the community banking operation has fallen below its carrying value, and therefore, the Corporation did not perform the more detailed, two-step goodwill impairment test described in Topic 350. Accordingly, there was no goodwill impairment as of December 31, 2017.

Information related to the core deposit intangibles is as follows:

	December 31,
(In Thousands)	2017			2016
Gross amount	$	2,034		$	2,034
Less: accumulated amortization		(2,022	)		(2,017	)
Net	$	12		$	17

Amortization expense was $5,000 in 2017, $13,000 in 2016 and $22,000 in 2015. The amount of amortization expense to be recognized each of the ensuing five years is not significant.

11. DEPOSITS

At December 31, 2017, the scheduled maturities of time deposits are as follows:

(In Thousands)
2018	$	112,563
2019		57,097
2020		22,836
2021		7,975
2022		10,484
Thereafter		2,716
Total	$	213,671

72

Time deposits of more than $250,000 totaled $12,653,000 at December 31, 2017 and $7,929,000 at December 31, 2016. As of December 31, 2017, the remaining maturities or time to next re-pricing of time deposits more than $250,000 was as follows:

(In Thousands)
Three months or less	$	4,833
Over 3 months through 12 months		5,375
Over 1 year through 3 years		1,148
Over 3 years		1,297
Total	$	12,653

12. BORROWED FUNDS

Short-term borrowings (initial maturity within one year) include the following:

(In Thousands)	Dec. 31,		Dec. 31,
	2017		2016
FHLB-Pittsburgh borrowings	$	58,000	$	21,000
Customer repurchase agreements		3,766		5,175
Total short-term borrowings	$	61,766	$	26,175

Short-term borrowings from FHLB-Pittsburgh are as follows:

(In Thousands)	Dec. 31,		Dec. 31
	2017		2016
Overnight borrowing	$	29,000	$	21,000
Other short-term advances		29,000		0
Total short-term FHLB-Pittsburgh borrowings	$	58,000	$	21,000

The weighted average interest rate on total short-term borrowings outstanding was 1.52% at December 31, 2017 and 0.61% at December 31, 2016. The maximum amount of total short-term borrowings outstanding at any month-end was $61,766,000 in 2017, $47,005,000 in 2016 and $53,496,000 in 2015.

The Corporation had available credit with other correspondent banks totaling $45,000,000 at December 31, 2017 and 2016. These lines of credit are primarily unsecured. No amounts were outstanding at December 31, 2017 or 2016.

The Corporation has a line of credit with the Federal Reserve Bank of Philadelphia’s Discount Window. At December 31, 2017, the Corporation had available credit in the amount of $15,877,000 on this line with no outstanding advances. At December 31, 2016, the Corporation had available credit in the amount of $15,636,000 on this line with no outstanding advances. As collateral for this line, the Corporation has pledged available-for-sale securities with a carrying value of $16,301,000 at December 31, 2017 and $17,690,000 at December 31, 2016.

The FHLB-Pittsburgh loan facility is collateralized by qualifying loans secured by real estate with a book value totaling $488,889,000 at December 31, 2017 and $471,454,000 at December 31, 2016. Also, the FHLB-Pittsburgh loan facility requires the Corporation to invest in established amounts of FHLB-Pittsburgh stock. The carrying values of the Corporation’s holdings of FHLB-Pittsburgh stock (included in Other Assets) were $6,426,000 at December 31, 2017 and $4,296,000 at December 31, 2016. The Corporation’s total credit facility with FHLB-Pittsburgh was $362,630,000 at December 31, 2017, including an unused (available) amount of $295,441,000. At December 31, 2016, the Corporation’s total credit facility with FHLB-Pittsburgh was $339,221,000, including an unused (available) amount of $306,767,000.

Overnight borrowings from FHLB-Pittsburgh had an interest rate of 1.54% at December 31, 2017 and 0.74% at December 31, 2016. At December 31, 2017, the other short-term advances included 9 advances of $3,000,000 and 1 advance of $2,000,000, each maturing monthly from January through October 2018, with a weighted average interest rate of 1.69% and rates ranging from 1.23% to 1.89%.

The Corporation engages in repurchase agreements with certain commercial customers. These agreements provide that the Corporation sells specified investment securities to the customers on an overnight basis and repurchases them on the following business day. The weighted average rate paid by the Corporation on customer repurchase agreements was 0.10% at December 31, 2017 and December 31, 2016. The carrying value of the underlying securities was $12,158,000 at December 31, 2017 and $15,019,000 at December 31, 2016.

73

LONG-TERM BORROWINGS

Long-term borrowings (initial maturity of greater than one year) are as follows:

(In Thousands)	Dec. 31,		Dec. 31,
	2017		2016
FHLB-Pittsburgh borrowings	$	9,189	$	11,454
Repurchase agreements		0		27,000
Total long-term borrowings	$	9,189	$	38,454

Long-term borrowings from FHLB - Pittsburgh are as follows:

(In Thousands)	Dec. 31,		Dec. 31,
	2017		2016
Loan matured in 2017 with a rate of 6.83%	$	0	$	4
Loan matured in 2017 with a rate of 3.81%		0		10,000
Loan maturing in 2018 with a rate of 1.63%		3,000		0
Loan maturing in 2018 with a rate of 1.35%		3,000		0
Loan maturing in 2019 with a rate of 1.83%		2,000		0
Loan maturing in 2020 with a rate of 4.79%		463		646
Loan maturing in 2025 with a rate of 4.91%		726		804
Total long-term FHLB-Pittsburgh borrowings	$	9,189	$	11,454

The repurchase agreement included in long-term borrowings had an interest rate of 3.595% and matured in December 2017.

Securities sold under repurchase agreements were delivered to the broker-dealer who was the counter-party to the transactions. The broker-dealer may have sold, loaned or otherwise disposed of such securities to other parties in the normal course of their operations, and resold to the Corporation substantially identical securities at the maturities of the agreements. The carrying value of the underlying securities sold under the repurchase agreements with the broker dealer was $0 at December 31, 2017 and $31,494,000 at December 31, 2016, as detailed in the following table:

(In Thousands)	Dec. 31,		Dec. 31,
	2017		2016
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities	$	0	$	18,181
Residential collateralized mortgage obligations		0		13,313
Total	$	0	$	31,494

Average daily repurchase agreement borrowings amounted to $26,112,000 in 2017, $27,000,000 in 2016 and $54,304,000 in 2015. The maximum amounts of outstanding borrowings under repurchase agreements with broker-dealers were $27,000,000 in 2017 and 2016, and $61,000,000 in 2015. The weighted average interest rate on repurchase agreements was 3.60% in 2017 and 2016, and 3.99% in 2015.

13. EMPLOYEE AND POSTRETIREMENT BENEFIT PLANS

DEFINED BENEFIT PLANS

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. Full-time employees no longer accrue service time toward the Corporation-subsidized portion of the medical benefits. The plan contains a cost-sharing feature which causes participants to pay for all future increases in costs related to benefit coverage. Accordingly, actuarial assumptions related to health care cost trend rates do not significantly affect the liability balance at December 31, 2017 and December 31, 2016, and are not expected to significantly affect the Corporation’s future expenses. The Corporation uses a December 31 measurement date for the postretirement plan.

74

In an acquisition in 2007, the Corporation assumed the Citizens Trust Company Retirement Plan, a defined benefit pension plan. This plan covers certain employees who were employed by Citizens Trust Company on December 31, 2002, when the plan was amended to discontinue admittance of any future participant and to freeze benefit accruals. Information related to the Citizens Trust Company Retirement Plan has been included in the tables that follow. The Corporation uses a December 31 measurement date for this plan.

The following table shows the funded status of the defined benefit plans:

(In Thousands)
	Pension						Postretirement
	2017			2016			2017			2016
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year	$	713		$	722		$	1,555		$	1,539
Service cost		0			0			36			37
Interest cost		24			26			57			62
Plan participants’ contributions		0			0			211			215
Actuarial loss (gain)		127			3			(103	)		(30	)
Benefits paid		(14	)		(38	)		(259	)		(268	)
Benefit obligation at end of year	$	850		$	713		$	1,497		$	1,555
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year	$	846		$	839		$	0		$	0
Actual return on plan assets		91			45			0			0
Employer contribution		0			0			48			53
Plan participants’ contributions		0			0			211			215
Benefits paid		(14	)		(38	)		(259	)		(268	)
Fair value of plan assets at end of year	$	923		$	846		$	0		$	0
Funded status at end of year	$	73		$	133		$	(1,497	)	$	(1,555	)

At December 31, 2017 and 2016, the following pension plan and postretirement plan asset and liability amounts were recognized in the consolidated balance sheets:

Assets and liabilities:
(In Thousands)	Pension				Postretirement
	2017		2016		2017		2016
Other assets	$	73	$	133
Accrued interest and other liabilities					$	1,497	$	1,555

At December 31, 2017 and 2016, the following items included in accumulated other comprehensive income had not been recognized as components of expense:

Items not yet recognized as a component
of net periodic benefit cost:
(In Thousands)	Pension				Postretirement
	2017		2016		2017			2016
Prior service cost	$	0	$	0	$	(309	)	$	(340	)
Net actuarial loss (gain)		221		161		(2	)		101
Total	$	221	$	161	$	(311	)	$	(239	)

For the defined benefit pension plan, amortization of the net actuarial loss is expected to be $13,000 in 2018. For the postretirement plan, the estimated amount of prior service cost that will be amortized from accumulated other comprehensive loss into net periodic benefit cost in 2018 is a reduction in expense of $31,000, and no net actuarial gain is expected to be amortized in 2018.

The accumulated benefit obligation for the defined benefit pension plan was $850,000 at December 31, 2017 and $713,000 at December 31, 2016.

75

The components of net periodic benefit costs from defined benefit plans are as follows:

(In Thousands)	Pension									Postretirement
	2017			2016			2015			2017			2016			2015
Service  cost	$	0		$	0		$	0		$	36		$	37		$	38
Interest cost		24			26			36			57			62			57
Expected return on plan assets		(31	)		(26	)		(45	)		0			0			0
Amortization of prior service cost		0			0			0			(31	)		(31	)		(31	)
Recognized net actuarial loss		7			9			11			0			0			0
Loss on settlement		0			0			87			0			0			0
Total net periodic benefit cost	$	0		$	9		$	89		$	62		$	68		$	64

In 2015, there was a distribution from the pension plan of $337,000, or 32% of the plan’s total accumulated benefit obligation prior to the distribution. The Corporation recognized a loss of $87,000 (included in net periodic benefit cost) in 2015 as a result of this settlement.

The weighted-average assumptions used to determine net periodic benefit cost are as follows:

	Pension									Postretirement
	2017			2016			2015			2017			2016			2015
Discount rate		4.05	%		4.30	%		3.75	%		3.75	%		4.25	%		4.00	%
Expected return on plan assets		6.00	%		5.00	%		5.31	%		N/A			N/A			N/A
Rate of compensation increase		N/A			N/A			N/A			N/A			N/A			N/A

The weighted-average assumptions used to determine benefit obligations as of December 31, 2017 and 2016 are as follows:

	Pension						Postretirement
	2017			2016			2017			2016
Discount rate		3.55	%		4.05	%		3.75	%		4.25	%
Rate of compensation increase		N/A			N/A			N/A			N/A

Estimated future benefit payments, including only estimated employer contributions for the postretirement plan, which reflect expected future service, are as follows:

(In Thousands)	Pension		Postretirement
2018	$	312	$	96
2019		41		96
2020		13		104
2021		12		101
2022		14		105
2023-2027		226		516

No estimated minimum contribution to the defined benefit pension plan is required in 2018, though the Corporation may make discretionary contributions.

The expected return on pension plan assets is a significant assumption used in the calculation of net periodic benefit cost. This assumption reflects the average long-term rate of earnings expected on the funds invested or to be invested to provide for the benefits included in the projected benefit obligation.

The fair values of pension plan assets at December 31, 2017 and 2016 are as follows:

	2017			2016
Mutual funds invested principally in:
Cash and cash equivalents		2	%		2	%
Debt securities		37	%		38	%
Equity securities		45	%		44	%
Alternative funds		16	%		16	%
Total		100	%		100	%

76

C&N Bank’s Trust and Financial Management Department manages the investment of the pension plan assets. The Plan’s securities include mutual funds invested principally in debt securities, a diversified mix of large, mid- and small-capitalization U.S. stocks, foreign stocks and alternative asset classes such as real estate, commodities, and inflation-protected securities. The fair values of plan assets are determined based on Level 1 inputs (as described in Note 6). At December 31, 2017, the targeted asset allocation of mutual funds for the pension plan was 45% equity securities, 37% debt securities, 16% alternative assets, and 2% cash. At December 31, 2016, the targeted asset allocation of mutual funds for the pension plan was 44% equity securities, 38% debt securities, 16% alternative assets and 2% cash. The pension plan’s assets do not include any shares of the Corporation’s common stock.

PROFIT SHARING AND DEFERRED COMPENSATION PLANS

The Corporation has a profit sharing plan that incorporates the 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 total basic and matching contributions were $681,000 in 2017, $646,000 in 2016 and $609,000 in 2015.

The Corporation has an Employee Stock Ownership Plan (ESOP). Contributions to the ESOP are discretionary, and the ESOP uses funds contributed to purchase Corporation stock for the accounts of ESOP participants. These purchases are made on the market (not directly from the Corporation), and employees are not permitted to purchase Corporation stock under the ESOP. The ESOP includes a diversification feature, which allows participants, upon reaching age 55 and 10 years of service (as defined), to sell up to 50% of their Corporation shares over a period of 6 years. As of December 31, 2017 and 2016, there were no shares allocated for repurchase by the ESOP.

Dividends paid on shares held by the ESOP are charged to retained earnings. All Corporation shares owned through the ESOP are included in the calculation of weighted-average shares outstanding for purposes of calculating earnings per share - basic and diluted. The ESOP held 419,067 shares of Corporation stock at December 31, 2017 and 417,753 shares at December 31, 2016, all of which had been allocated to Plan participants. The Corporation’s contributions to the ESOP totaled $588,000 in 2017, $549,000 in 2016 and $522,000 in 2015.

The Corporation has a nonqualified supplemental deferred compensation arrangement with its key officers. Charges to operating expense for officers’ supplemental deferred compensation were $200,000 in 2017, $184,000 in 2016 and $167,000 in 2015.

In December 2015, the Corporation established a nonqualified deferred compensation plan that allows selected officers, beginning in 2016, the option to defer receipt of cash compensation, including base salary and any cash bonuses or other cash incentives. This nonqualified deferred compensation plan does not provide for Corporation contributions.

STOCK-BASED COMPENSATION PLANS

The Corporation has a Stock Incentive Plan for a selected group of senior officers. A total of 850,000 shares of common stock may be issued under the Stock Incentive Plan. Awards may be made under the Stock Incentive Plan in the form of qualified options (“Incentive Stock Options,” as defined in the Internal Revenue Code), nonqualified options, stock appreciation rights or restricted stock. Historically through December 31, 2017, all awards made under this Plan have consisted of Incentive Stock Options or restricted stock. Incentive Stock Options have an exercise price equal to the market value of the stock at the date of grant, vest after 6 months and expire after 10 years. There are 270,179 shares available for issuance under the Stock Incentive Plan as of December 31, 2017.

Also, the Corporation has an Independent Directors Stock Incentive Plan. This plan permits awards of nonqualified stock options and/or restricted stock to non-employee directors. A total of 135,000 shares of common stock may be issued under the Independent Directors Stock Incentive Plan. The recipients’ rights to exercise stock options under this plan expire 10 years from the date of grant. The exercise prices of all stock options awarded under the Independent Directors Stock Incentive Plan are equal to market value as of the dates of grant. There are 17,396 shares available for issuance under the Independent Directors Stock Incentive Plan as of December 31, 2017.

Total stock-based compensation expense is as follows:

(In Thousands)	2017		2016		2015
Restricted stock	$	627	$	578	$	606
Stock options		0		0		0
Total	$	627	$	578	$	606

77

The following summarizes non-vested restricted stock activity for the year ended December 31, 2017:

				Weighted
				Average
	Number			Grant Date
	of Shares			Fair Value
Outstanding, December 31, 2016		63,362		$	20.35
Granted		30,782		$	25.97
Vested		(28,981	)	$	20.21
Forfeited		(4,406	)	$	21.74
Outstanding, December 31, 2017		60,757		$	23.17

Compensation cost related to restricted stock is recognized based on the market price of the stock at the grant date over the vesting period, adjusted for estimated and actual forfeitures. As of December 31, 2017, there was $671,000 total unrecognized compensation cost related to restricted stock, which is expected to be recognized over a weighted average period of 1.3 years.

In 2017 and 2016, the Corporation awarded shares of restricted stock under the Stock Incentive Plan, as follows:

	2017		2016
Executive Officers		14,897		17,289
Other employees		7,415		10,304
Total		22,312		27,593

Restricted stock awards in 2017 and 2016 to employees other than executive officers vest over a three-year term, subject to continued employment and satisfactory job performance, with no additional performance conditions (time vesting). Restricted stock awards in 2017 and 2016 to Executive Officers vest over a three-year term, with vesting for half of the shares based on time vesting and vesting for half of the shares based on time vesting and upon the Corporation meeting an annual return on average equity (“ROAE”) performance ratio, as defined. The minimum level for satisfying the performance condition defined in the 2017 and 2016 awards was an ROAE at the 50^th percentile of the defined Peer Group’s results. The Corporation did not meet the performance condition defined in the 2017 and 2016 awards, as the Corporation’s return on average equity ROAE was in the 37^th percentile of the Peer Group’s results for the 12-month period ended September 30, 2017 and in the 47^th percentile of the Peer Group’s results for the 12-month period ended September 30, 2016. For purposes of the 2017 and 2016 awards, the Peer Group included all publicly traded commercial banks and bank holding companies with headquarters in Pennsylvania, New York, New Jersey and Ohio, and total assets ranging between $750 million and $3.5 billion as of the beginning of the applicable period.

Most of the restricted stock awards issued under this Plan prior to 2016, for which a portion of the awards vested in 2017 and 2016, include a condition that the Corporation must meet an annual targeted ROAE performance ratio, as defined, in order for participants to vest. In 2017, 2016 and 2015, the Corporation met the ROAE target applicable to these awards, which is based on the Corporation’s ROAE for 12-month periods ended September 30 of each year as compared to the applicable peer group of bank holding companies based in Pennsylvania and one local competitor based in New York with total assets of $750 million to $2 billion as of the beginning of each applicable period.

In 2017, a total of 8,470 restricted shares were granted under the Independent Directors Stock Incentive Plan, subject to time vesting over a term of one year. In 2016, a total of 7,834 restricted shares were granted under the Independent Directors Stock Incentive Plan, also with time vesting over a term of one year.

78

There were no stock options granted in 2017, 2016 or 2015. A summary of stock option activity is presented below:

	2017					2016					2015
				Weighted					Weighted					Weighted
				Average					Average					Average
				Exercise					Exercise					Exercise
	Shares			Price		Shares			Price		Shares			Price
Outstanding, beginning of year		202,037		$	18.58		248,486		$	18.59		316,157		$	19.05
Granted		0					0					0
Exercised		(24,976	)	$	17.50		(35,880	)	$	18.86		(29,557	)	$	17.56
Forfeited		(635	)	$	19.88		(10,569	)	$	18.03		(20,211	)	$	19.76
Expired		(10,766	)	$	22.33		0					(17,903	)	$	27.00
Outstanding, end of year		165,660		$	18.49		202,037		$	18.58		248,486		$	18.59
Options exercisable at year-end		165,660		$	18.49		202,037		$	18.58		248,486		$	18.59
Weighted-average fair value of options forfeited				$	4.21				$	4.04				$	4.86

The weighted-average remaining contractual term of outstanding stock options at December 31, 2017 was 3.5 years. The aggregate intrinsic value of stock options outstanding was $913,000 at December 31, 2017. The total intrinsic value of options exercised was $164,000 in 2017, $183,000 in 2016 and $77,000 in 2015.

The Corporation has issued shares from treasury stock for almost all stock option exercises through December 31, 2017. Management does not anticipate that stock repurchases will be necessary to accommodate stock option exercises in 2018.

In January 2018, the Corporation awarded 25,416 shares of restricted stock under the Stock Incentive Plan and 9,086 shares of restricted stock under the Independent Directors Stock Incentive Plans. The 2018 restricted stock awards under the Stock Incentive Plan vest ratably over three years, and vesting for one-half of the 16,578 restricted shares awarded to Executive Officers depends on the Corporation meeting a ROAE target each year. The 2018 restricted stock issued under the Independent Directors Stock Incentive Plan vests over one year. Total estimated stock-based compensation for 2018 is $716,000. The restricted stock awards made in January 2018 are not included in the tables above.

14. INCOME TAXES

The net deferred tax asset at December 31, 2017 and 2016 represents the following temporary difference components:

	December 31,			December 31,
(In Thousands)	2017			2016
Deferred tax assets:
Unrealized holding losses on securities:
Included in accumulated other comprehensive loss	$	843		$	512
Included in retained earnings		(337	)		0
Allowance for loan losses		1,894			2,998
Other deferred tax assets		1,726			2,658
Total deferred tax assets		4,126			6,168
Deferred tax liabilities:
Defined benefit plans - ASC 835:
Included in accumulated other comprehensive loss		31			27
Included in retained earnings		(12	)		0
Bank premises and equipment		751			913
Core deposit intangibles		3			6
Other deferred tax liabilities		64			105
Total deferred tax liabilities		837			1,051
Deferred tax asset, net	$	3,289		$	5,117

79

The provision for income taxes includes the following:

(In thousands)	2017		2016			2015
Currently payable	$	4,938	$	5,328		$	5,097
Tax expense resulting from allocations of certain tax benefits to equity or as a reduction in other assets		63		175			161
Deferred		2,155		(156	)		79
Total provision	$	7,156	$	5,347		$	5,337

A reconciliation of income tax at the statutory rate to the Corporation’s effective rate is as follows (amounts in thousands):

(Amounts in thousands)	2017						2016						2015
	Amount			%			Amount			%			Amount			%
Expected provision	$	7,207			35.00		$	7,388			35.00		$	7,633			35.00
Tax-exempt interest income		(1,817	)		(8.82	)		(1,801	)		(8.53	)		(1,914	)		(8.78	)
Nondeductible interest expense		42			0.20			40			0.19			51			0.23
Dividends received deduction		(7	)		(0.03	)		(22	)		(0.10	)		(75	)		(0.34	)
Increase in cash surrender value of life insurance		(133	)		(0.65	)		(134	)		(0.63	)		(135	)		(0.62	)
Employee stock option compensation		8			0.04			0			0.00			0			0.00
ESOP Dividends		(154	)		(0.75	)		0			0.00			0			0.00
Tax benefit from limited partnership investment		(73	)		(0.35	)		(76	)		(0.36	)		(80	)		(0.37	)
Effect of tax rate change		2,159			10.49			0			0.00			0			0.00
Other, net		(76	)		(0.37	)		(48	)		(0.23	)		(143	)		(0.66	)
Effective income tax provision	$	7,156			34.75		$	5,347			25.33		$	5,337			24.47

In 2017, the Corporation recognized a reduction in the carrying value of the net deferred tax asset of $2,159,000 as a result of the December 2017 enactment of a reduction in the federal corporate income tax rate to 21% effective January 1, 2018, from the 35% marginal tax rate in effect throughout 2017, 2016 and 2015. Included in the total related provision was $325,000 associated with items included in Accumulated Other Comprehensive Loss in the consolidated balance sheets. Management believes the Corporation’s accounting for the effects of the reduction in the federal income tax rate is materially complete at December 31, 2017.

The Corporation has investments in three limited partnerships that manage affordable housing projects that have qualified for the federal low-income housing tax credit. The Corporation’s expected return from these investments is based on the receipt of tax credits and tax benefits from deductions of operating losses. The Corporation uses the effective yield method to account for these investments, with the benefits recognized as a reduction of the provision for income taxes. For two of the three limited partnership investments, the tax credits have been received in full in prior years, and the Corporation has fully realized the benefits of the credits and amortized its initial investments in the partnerships. The most recent affordable housing project was completed in 2013, and the Corporation received tax credits in 2013 through 2017 and expects to continue to receive tax credits annually through 2022. The carrying amount of the Corporation’s investment is $608,000 at December 31, 2017 and $713,000 at December 31, 2016 (included in Other Assets in the consolidated balance sheets). For 2017, the estimated amount of tax credits and other tax benefits to be received is $157,000 and the amount recognized as a reduction of the provision for income taxes is $73,000. In 2016, the Corporation received tax credits and other tax benefits totaling $158,000, and recognized a reduction of the provision for income tax of $76,000. In 2015, the Corporation received tax credits and other tax benefits totaling $160,000, and recognized a reduction of the provision for income tax of $80,000.

The Corporation has no unrecognized tax benefits, nor pending examination issues related to tax positions taken in preparation of its income tax returns. With limited exceptions, the Corporation is no longer subject to examination by the Internal Revenue Service for years prior to 2014.

15. RELATED PARTY TRANSACTIONS

Loans to executive officers, directors of the Corporation and its subsidiaries and any associates of the foregoing persons are as follows:

(In Thousands)	Beginning		New					Other			Ending
	Balance		Loans		Repayments			Changes			Balance
12 directors, 7 executive officers 2017	$	11,414	$	2,128	$	(2,061	)	$	2,931		$	14,412
12 directors, 7 executive officers 2016		10,246		307		(1,160	)		2,021			11,414
11 directors, 7 executive officers 2015		12,023		52		(808	)		(1,021	)		10,246

80

In the table above, other changes represent net changes in the balance of existing lines of credit and transfers in and out of the related party category.

Deposits from related parties held by the Corporation amounted to $7,171,000 at December 31, 2017 and $6,261,000 at December 31, 2016.

16. 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 financial 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 sheets. The contract amounts 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, 2017 and 2016 are as follows:

(In Thousands)	2017		2016
Commitments to extend credit	$	187,919	$	180,768
Standby letters of credit		7,445		9,025

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 creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Corporation, for extensions 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. Some of the standby letters of credit are collateralized by real estate or other assets, and others are unsecured. The extent to which proceeds from liquidation of collateral would be expected to cover the maximum potential amount of future payments related to standby letters of credit is not estimable. The Corporation has recorded no liability associated with standby letters of credit as of December 31, 2017 and 2016.

Standby letters of credit as of December 31, 2017 expire as follows:

Year of Expiration	(In Thousands)
2018	$	7,042
2019		355
2020		48
Total	$	7,445

17. CONTINGENCIES

In the normal course of business, the Corporation is subject to pending and threatened litigation in which claims for monetary damages are asserted. In management’s opinion, the Corporation’s financial position and results of operations would not be materially affected by the outcome of these legal proceedings.

18. REGULATORY MATTERS

The Corporation (on a consolidated basis) and C&N Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory - and possibly additional discretionary - actions by regulators that, if undertaken, could have a direct material effect on the Corporation’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation and C&N Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

81

Quantitative measures established by regulation to ensure capital adequacy require the Corporation and C&N Bank to maintain minimum amounts and ratios (set forth in the following table) of total capital, Tier I capital (as defined in the regulations) and Common equity Tier 1 capital (as defined) to risk-weighted assets (as defined) and of Tier I capital (as defined) to average assets (as defined). Management believes, as of December 31, 2017 and 2016, that the Corporation and C&N Bank meet all capital adequacy requirements (described in more detail below) to which they are subject and maintain capital conservation buffers that allow the Corporation and C&N Bank to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to certain executive officers.

To be categorized as well capitalized, an institution must maintain minimum total risk based, Tier I risk based, Common equity risk based and Tier I leverage ratios as set forth in the following table. The Corporation’s and C&N Bank’s actual capital amounts and ratios are also presented in the following table:

(Dollars in Thousands)														Minimum To Be Well
	Actual									Minimum To Maintain				Capitalized Under				Minimum To Meet
						Minimum				Capital Conservation				Prompt Corrective				the Corporation’s
	Actual					Capital Requirement				Buffer at Reporting Date				Action Provisions				Policy Thresholds
	Amount		Ratio			Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
December 31, 2017:
Total capital to risk-weighted assets:
Consolidated	$	187,097		23.07	%	$	64,872		³8%	$	75,008		³9.25%	$	81,090		³10%	$	85,144		³10.5%
C&N Bank		165,142		20.47	%		64,528		³8%		74,611		³9.25%		80,661		³10%		84,694		³10.5%
Tier 1 capital to risk-weighted assets:
Consolidated		177,981		21.95	%		48,654		³6%		58,790		³7.25%		64,872		³8%		68,926		³8.5%
C&N Bank		156,026		19.34	%		48,396		³6%		58,479		³7.25%		64,528		³8%		68,561		³8.5%
Common equity tier 1 capital to risk-weighted assets:
Consolidated		177,981		21.95	%		36,490		³4.5%		46,626		³5.75%		52,708		³6.5%		56,763		³7%
C&N Bank		156,026		19.34	%		36,297		³4.5%		46,380		³5.75%		52,429		³6.5%		56,462		³7%
Tier 1 capital to average assets:
Consolidated		177,981		14.23	%		50,023		³4%		N/A		N/A		62,529		³5%		62,529		³5%
C&N Bank		156,026		12.63	%		49,418		³4%		N/A		N/A		61,772		³5%		61,772		³5%
December 31, 2016:
Total capital to risk-weighted assets:
Consolidated	$	183,597		23.60	%	$	62,245		³8%	$	67,108		³8.625%	$	77,806		³10%	$	81,697		³10.5%
C&N Bank		162,705		21.03	%		61,894		³8%		66,730		³8.625%		77,368		³10%		81,236		³10.5%
Tier 1 capital to risk-weighted assets:
Consolidated		174,928		22.48	%		46,684		³6%		51,547		³6.625%		62,245		³8%		66,135		³8.5%
C&N Bank		154,036		19.91	%		46,421		³6%		51,256		³6.625%		61,894		³8%		65,762		³8.5%
Common equity tier 1 capital to risk-weighted assets:
Consolidated		174,928		22.48	%		35,013		³4.5%		39,876		³5.125%		50,574		³6.5%		54,464		³7%
C&N Bank		154,036		19.91	%		34,815		³4.5%		39,651		³5.125%		50,289		³6.5%		54,157		³7%
Tier 1 capital to average assets:
Consolidated		174,928		14.27	%		49,026		³4%		N/A		N/A		61,282		³5%		61,282		³5%
C&N Bank		154,036		12.73	%		48,404		³4%		N/A		N/A		60,506		³5%		60,506		³5%

In July 2013, the federal regulatory authorities issued a new capital rule based, in part, on revisions developed by the Basel Committee on Banking Supervision to the Basel capital framework (Basel III). The Corporation and C&N Bank became subject to the new rule effective January 1, 2015. Generally, the new rule implemented higher minimum capital requirements, revised the definition of regulatory capital components and related calculations, added a new common equity tier 1 capital ratio, implemented a new capital conservation buffer, increased the risk weighting for past due loans and provided a transition period for several aspects of the new rule.

82

The current (new) capital rule provides that, in order to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, a banking organization must hold a capital conservation buffer composed of common equity tier 1 capital above its minimum risk-based capital requirements. The buffer is measured relative to risk-weighted assets. The 2017 minimum required capital ratios and capital conservation buffer needed in order to fully avoid limitations on capital distributions, along with the remaining transition schedule for new ratios and the capital conservation buffer, is as follows:

	As of January 1:
	2017			2018			2019
Minimum common equity tier 1 capital ratio		4.5	%		4.5	%		4.5	%
Common equity tier 1 capital conservation buffer		1.25	%		1.875	%		2.5	%
Minimum common equity tier 1 capital ratio plus capital conservation buffer		5.75	%		6.375	%		7.0	%
Phase-in of most deductions from common equity tier 1 capital		80	%		100	%		100	%
Minimum tier 1 capital ratio		6.0	%		6.0	%		6.0	%
Minimum tier 1 capital ratio plus capital conservation buffer		7.25	%		7.875	%		8.5	%
Minimum total capital ratio		8.0	%		8.0	%		8.0	%
Minimum total capital ratio plus capital
conservation buffer		9.25	%		9.875	%		10.5	%

As fully phased in, a banking organization with a buffer greater than 2.5% would not be subject to additional limits on dividend payments or discretionary bonus payments; however, a banking organization with a buffer less than 2.5% would be subject to increasingly stringent limitations as the buffer approaches zero. The new rule also prohibits a banking organization from making dividend payments or discretionary bonus payments if its eligible retained income is negative in that quarter and its capital conservation buffer ratio was less than 2.5% as of the beginning of that quarter. Eligible net income is defined as net income for the four calendar quarters preceding the current calendar quarter, net of any distributions and associated tax effects not already reflected in net income. A summary of payout restrictions based on the capital conservation buffer is as follows:

Capital Conservation Buffer	Maximum Payout
(as a % of risk-weighted assets)	(as a % of eligible retained income)
Greater than 2.5%	No payout limitation applies
≤2.5% and >1.875%	60%
≤1.875% and >1.25%	40%
≤1.25% and >0.625%	20%
≤0.625%	0%

At December 31, 2017, the Corporation’s Capital Conservation Buffer, determined based on the minimum total capital ratio, was 15.07%. C&N Bank’s Capital Conservation Buffer (also determined based on the minimum total capital ratio) was 12.47%.

Banking regulators limit the amount of dividends that may be paid by C&N Bank to the Corporation. Retained earnings against which dividends may be paid without prior approval of the banking regulators amounted to approximately $88,980,000 at December 31, 2017, subject to the minimum capital ratio requirements noted above.

Restrictions imposed by federal law prohibit the Corporation from borrowing from C&N Bank unless the loans are secured in specific amounts. Such secured loans to the Corporation are generally limited to 10% of C&N Bank’s tangible stockholder’s equity (excluding accumulated other comprehensive loss) or $15,604,000 at December 31, 2017.

83

19. PARENT COMPANY ONLY

The following is condensed financial information for Citizens & Northern Corporation:

CONDENSED BALANCE SHEET	December 31,
(In Thousands)	2017		2016
ASSETS
Cash	$	6,790	$	6,033
Investment in subsidiaries:
Citizens & Northern Bank		166,576		165,397
Citizens & Northern Investment Corporation		11,588		11,168
Bucktail Life Insurance Company		3,488		3,419
Other assets		15		4
TOTAL ASSETS	$	188,457	$	186,021
LIABILITIES AND STOCKHOLDERS’ EQUITY
Other liabilities	$	14	$	13
Stockholders’ equity		188,443		186,008
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	188,457	$	186,021

CONDENSED INCOME STATEMENT
(In Thousands)	2017			2016			2015
Dividends from Citizens & Northern Bank	$	12,022		$	14,960		$	11,569
Expenses		(233	)		(367	)		(234	)
Income before equity in undistributed income of subsidiaries		11,789			14,593			11,335
Equity in undistributed income of subsidiaries		1,645			1,169			5,136
NET INCOME	$	13,434		$	15,762		$	16,471

CONDENSED STATEMENT OF CASH FLOWS
(In Thousands)
	2017			2016			2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	13,434		$	15,762		$	16,471
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in undistributed net income of subsidiaries		(1,645	)		(1,169	)		(5,136	)
(Increase) decrease in other assets		(11	)		20			12
Increase (decrease) in other liabilities		1			(6	)		12
Net Cash Provided by Operating Activities		11,779			14,607			11,359
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of treasury stock		128			263			381
Tax (cost) benefit from compensation plans, net		(5	)		151			143
Purchase of treasury stock		0			(3,723	)		(4,415	)
Dividends paid		(11,145	)		(11,112	)		(11,245	)
Net Cash Used in Financing Activities		(11,022	)		(14,421	)		(15,136	)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		757			186			(3,777	)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR		6,033			5,847			9,624
CASH AND CASH EQUIVALENTS, END OF YEAR	$	6,790		$	6,033		$	5,847

84

20. SUMMARY OF QUARTERLY CONSOLIDATED FINANCIAL DATA (Unaudited)

The following table presents summarized quarterly financial data for 2017 and 2016:

SUMMARY OF QUARTERLY CONSOLIDATED FINANCIAL DATA
(In Thousands Except Per Share Data) (Unaudited)
	2017 Quarter Ended
	Mar. 31,		June 30,		Sept. 30,		Dec. 31,
	2017		2017		2017		2017
Interest income	$	11,112	$	11,340	$	11,626	$	11,785
Interest expense		953		978		985		999
Net interest income		10,159		10,362		10,641		10,786
Provision for loan losses		452		4		322		23
Net interest income after provision for loan losses		9,707		10,358		10,319		10,763
Other income		3,864		4,106		4,066		4,117
Net gains on available-for-sale securities		145		107		5		0
Other expenses		9,298		9,076		9,192		9,401
Income before income tax provision		4,418		5,495		5,198		5,479
Income tax provision		984		1,374		1,262		3,536
Net income	$	3,434	$	4,121	$	3,936	$	1,943
Net income attributable to common shares	$	3,416	$	4,100	$	3,916	$	1,933
Net income per share – basic	$	0.28	$	0.34	$	0.32	$	0.16
Net income per share – diluted	$	0.28	$	0.34	$	0.32	$	0.16

	2016 Quarter Ended
	Mar. 31,		June 30,		Sept. 30,		Dec. 31,
	2016		2016		2016		2016
Interest income	$	10,937	$	10,924	$	11,131	$	11,106
Interest expense		904		925		944		920
Net interest income		10,033		9,999		10,187		10,186
Provision (credit) for loan losses		368		318		538		(3	)
Net interest income after provision (credit) for loan losses		9,665		9,681		9,649		10,189
Other income		3,690		3,906		3,884		4,031
Net gains on available-for-sale securities		383		122		584		69
Other expenses		9,072		8,535		8,579		8,558
Income before income tax provision		4,666		5,174		5,538		5,731
Income tax provision		1,093		1,303		1,451		1,500
Net income	$	3,573	$	3,871	$	4,087	$	4,231
Net income attributable to common shares	$	3,553	$	3,850	$	4,065	$	4,209
Net income per share – basic	$	0.29	$	0.32	$	0.34	$	0.35
Net income per share – diluted	$	0.29	$	0.32	$	0.34	$	0.35

85

Report of Independent Registered Public Accounting Firm

Stockholders and Board of Directors of

Citizens & Northern Corporation

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Citizens & Northern Corporation and subsidiaries (collectively, the “Corporation”) as of December 31, 2017 and 2016 and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2017, and the related notes (collectively referred to as the “consolidated financial statements”). We have also audited the Corporation’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Corporation as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework (2013) issued by COSO.

Basis for Opinion

The Corporation’s management is responsible for these consolidated financial statements, for maintaining effective control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Corporation’s consolidated financial statements and an opinion on the Corporation’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud and whether effective internal control over financial reporting was maintained. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.

86

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. We believe that our audits provide a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/  Baker Tilly Virchow Krause, LLP

Williamsport, Pennsylvania

We have served as the Corporation’s auditor since 1979.

February 15, 2018

87

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

ITEM 9A. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

The Corporation’s management, under the supervision of and with the participation of the Corporation’s Chief Executive Officer and Chief Financial Officer, has carried out an evaluation of the design and effectiveness of the Corporation’s disclosure controls and procedures as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Securities Exchange Act of 1934 as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Corporation’s disclosure controls and procedures are effective to ensure that all material information required to be disclosed in reports the Corporation files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.

There were no significant changes in the Corporation’s internal control over financial reporting that occurred during the period covered by this report that has materially affected, or that is reasonably likely to affect, our internal control over financial reporting.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The Corporation’s management is responsible for establishing and maintaining effective internal control over financial reporting, as that term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). The Corporation’s system of internal control over financial reporting has been designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. The Corporation’s internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Corporation’s assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Corporation are being made only in accordance with authorizations of the Corporation’s management and directors; and (3) provide reasonable assurance regarding prevention, or timely detection and correction of unauthorized acquisition, use or disposition of the Corporation’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect and correct misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

The Corporation’s management assessed the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2017, based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated Framework (2013). Based on that assessment, we concluded that, as of December 31, 2017, the Corporation’s internal control over financial reporting is effective based on the criteria established in Internal Control – Integrated Framework (2013).

Baker Tilly Virchow Krause, LLP, the independent registered public accounting firm that audited the Corporation’s consolidated financial statements, has issued an audit report on the Corporation’s internal control over financial reporting as of December 31, 2017. That report appears immediately prior to this report.

February 15, 2018	By:	/s/ J. Bradley Scovill
Date		President and Chief Executive Officer
February 15, 2018	By:	/s/ Mark A. Hughes
Date		Treasurer and Chief Financial Officer

88

ITEM 9B. OTHER INFORMATION

There was no information the Corporation was required to disclose in a report on Form 8-K during the fourth quarter 2017 that was not disclosed.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information concerning Directors and Executive Officers is incorporated herein by reference to disclosure under the captions “Proposal 1 - Election of Directors,” “Executive Officers,” “Information Concerning Security Ownership” and “Meetings and Committees of the Board of Directors” of the Corporation’s proxy statement dated March 9, 2018 for the annual meeting of stockholders to be held on April 19, 2018.

The Corporation’s Board of Directors has adopted a Code of Ethics, available on the Corporation’s web site at www.cnbankpa.com for the Corporation’s employees, officers and directors. (The provisions of the Code of Ethics are also included in the Corporation’s employee handbook.)

ITEM 11. EXECUTIVE COMPENSATION

Information concerning executive compensation is incorporated herein by reference to disclosure under the captions “Compensation Discussion and Analysis” and “Executive Compensation Tables” of the Corporation’s proxy statement dated March 9, 2018 for the annual meeting of stockholders to be held on April 19, 2018.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information concerning security ownership of certain beneficial owners and management is incorporated herein by reference to disclosure under the caption “Beneficial Ownership of Executive Officers and Directors” of the Corporation’s proxy statement dated March 9, 2018 for the annual meeting of stockholders to be held on April 19, 2018.

“Equity Compensation Plan Information” as required by Item 201(d) of Regulation S-K is incorporated by reference herein from Item 5 (Market for Registrant’s Common Equity and Related Stockholder Matters) of this Form 10-K.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Information concerning loans and deposit balances with Directors and Executive Officers is provided in Note 15 to the Consolidated Financial Statements, which is included in Part II, Item 8 of this Annual Report on Form 10-K. Additional information, including information concerning director independence, is incorporated herein by reference to disclosure appearing under the captions “Director Independence” and “Related Person Transaction and Policies” of the Corporation’s proxy statement dated March 9, 2018 for the annual meeting of stockholders to be held on April 19, 2018.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information concerning services provided by the Corporation’s independent auditor Baker Tilly Virchow Krause, LLP, the audit committee’s pre-approval policies and procedures for such services, and fees paid by the Corporation to that firm, is incorporated herein by reference to disclosure under the caption “Fees of Independent Public Accountants” of the Corporation’s proxy statement dated March 9, 2018 for the annual meeting of stockholders to be held on April 19, 2018.

89

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) (1). The following consolidated financial statements are set forth in Part II, Item 8:

	Page
Report of Independent Registered Public Accounting Firm	86-87
Financial Statements:
Consolidated Balance Sheets - December 31, 2017 and 2016	41
Consolidated Statements of Income - Years Ended December 31, 2017, 2016 and 2015	42
Consolidated Statements of Comprehensive Income - Years Ended December 31, 2017, 2016 and 2015	43
Consolidated Statements of Changes in Stockholders’ Equity - Years Ended December 31, 2017, 2016 and 2015	44
Consolidated Statements of Cash Flows - Years Ended December 31, 2017, 2016 and 2015	45
Notes to Consolidated Financial Statements	46-85

(a)(2) Financial statement schedules are not applicable or included in the financial statements or related notes.

2. Plan of acquisition, reorganization, arrangement, liquidation or succession	Not applicable
3. (i) Articles of Incorporation	Incorporated by reference to Exhibit 3.1 of the Corporation’s Form 8-K filed September 21, 2009
3. (ii) By-laws	Incorporated by reference to Exhibit 3.1 of the Corporation’s Form 8-K filed April 19, 2013
4. Instruments defining the rights of Security holders, including Indentures	Not applicable
9. Voting trust agreement	Not applicable
10. Material contracts:
10.1 Form of Restricted Stock agreement dated January 3, 2018 between the Corporation and Executive Officers pursuant to the Citizens & Northern Corporation Stock Incentive Plan	Filed herewith
10.2 Form of Restricted Stock agreement dated January 3, 2018 between the Corporation and certain non-executive officers pursuant to the Citizens & Northern Corporation Stock Incentive Plan	Filed herewith
10.3 Form of Restricted Stock agreement dated January 3, 2018 between the Corporation and its independent directors pursuant to the Citizens & Northern Corporation Independent Directors Stock Incentive Plan	Filed herewith
10.4 2018 Annual Performance Incentive Award Plan	Filed herewith
10.5 2018 Annual Performance Incentive Award Plan - Mortgage Lenders	Filed herewith

90

10.6 Form of Indemnification Agreement dated January 9, 2018 between the Corporation and Tracy E. Watkins	Filed herewith
10.7 Change in Control Agreement dated January 9, 2018 between the Corporation and Tracy E. Watkins	Filed herewith
10.8 Deferred Compensation Agreement dated December 17, 2015	Filed herewith
10.9 Employment agreement dated March 2, 2015 between the Corporation and J. Bradley Scovill	Incorporated by reference to Exhibit 10.1 filed with Corporation’s Form 8-K on February 9, 2015
10.10 Employment agreement dated September 19, 2013 between the Corporation and Mark A. Hughes	Incorporated by reference to Exhibit 10.2 filed with Corporation’s Form 8-K on September 19, 2013
10.11 Employment agreement dated September 19, 2013 between the Corporation and Harold F. Hoose, III	Incorporated by reference to Exhibit 10.3 filed with Corporation’s Form 8-K on September 19, 2013
10.12 Employment agreement dated September 19, 2013 between the Corporation and Deborah E. Scott	Incorporated by reference to Exhibit 10.4 filed with Corporation’s Form 8-K on September 19, 2013
10.13 Form of Indemnification Agreement dated February 11, 2015 between the Corporation and Stan R. Dunsmore	Incorporated by reference to Exhibit 10.9 filed with Corporation’s Form 10-K on February 26, 2015
10.14 Form of Indemnification Agreement dated January 2, 2013 between the Corporation and Shelley L. D’Haene	Incorporated by reference to Exhibit 10.5 filed with Corporation’s Form 10-K on February 21, 2013
10.15 Form of Indemnification Agreement dated January 19, 2011 between the Corporation and John M. Reber	Incorporated by reference to Exhibit 10.6 filed  with Corporation’s Form 10-K on Feb. 28, 2011
10.16 Form of Indemnification Agreements dated May 2004 between the Corporation and the Directors and certain officers	Incorporated by reference to Exhibit 10.1 filed with Corporation’s 10-K on March 14, 2005
10.17 Change in Control Agreement dated March 17, 2015 between the Corporation and Stan R. Dunsmore	Incorporated by reference to Exhibit 10.1 filed with Corporation’s Form 10-Q on May 8, 2015
10.18 Change in Control Agreement dated January 2, 2013 between the Corporation and Shelley L. D’Haene	Incorporated by reference to Exhibit 10.7 filed with Corporation’s Form 10-K on February 21, 2013
10.19  Change in Control Agreement dated January 20, 2005 between the Corporation and John M. Reber	Incorporated by reference to Exhibit 10.18 filed with Corporation’s Form 10-K on February 18, 2016
10.20 Change in Control Agreement dated December 31, 2003 between the Corporation and Thomas L. Rudy, Jr.	Incorporated by reference to Exhibit 10.2 filed with the Corporation’s Form 10-K on March 14, 2005
10.21 Executive Compensation Recoupment Policy dated September 19, 2013	Incorporated by reference to Exhibit 10.5 filed with Corporation’s Form 8-K on September 19, 2013
10.22 Fourth Amendment to Citizens & Northern Corporation Stock Incentive Plan and Annual Incentive Plan	Incorporated by reference to Exhibit 10.6 filed with Corporation’s Form 8-K on September 19, 2013
10.23 Third Amendment to Citizens & Northern Corporation Stock Incentive Plan	Incorporated by reference to Exhibit A to the Corporation’s proxy statement dated March 18, 2008 for the annual meeting of stockholders held on April 15, 2008
10.24 Second Amendment to Citizens & Northern Corporation Stock Incentive Plan	Incorporated by reference to Exhibit 10.5 filed with the Corporation’s Form 10-K on March 10, 2004

91

10.25 First Amendment to Citizens & Northern Corporation Stock Incentive Plan	Incorporated by reference to Exhibit 10.6 filed with the Corporation’s Form 10-K on March 10, 2004
10.26 Citizens & Northern Corporation Stock Incentive Plan	Incorporated by reference to Exhibit 10.7 filed with the Corporation’s Form 10-K on March 10, 2004
10.27 First Amendment to Citizens & Northern Corporation Independent Directors Stock Incentive Plan	Incorporated by reference to Exhibit B to the Corporation’s proxy statement dated March 18, 2008 for the annual meeting of stockholders held on April 15, 2008
10.28 Citizens & Northern Corporation Independent Directors Stock Incentive Plan	Incorporated by reference to Exhibit A to the Corporation’s proxy statement dated March 19, 2001 for the annual meeting of stockholders held on April 17, 2001.
10.29 Citizens & Northern Corporation Supplemental Executive Retirement Plan (as amended and restated)	Incorporated by reference to Exhibit 10.21 filed with the Corporation’s Form 10-K on March 6, 2009
11. Statement re: computation of per share earnings	Information concerning the computation of earnings per share is provided in Note 4 to the Consolidated Financial Statements, which is included in Part II, Item 8 of Form 10-K
12. Statements re: computation of ratios	Not applicable
13. Annual report to security holders, Form 10-Q or quarterly report to security holders	Not applicable
14. Code of ethics	The Code of Ethics is available through the Corporation’s website at www.cnbankpa.com. To access the Code of Ethics, click on “Investor Relations,” followed by “Pages within Investor Relations,” “Corporate Governance Policies,” and “Code of Ethics.”
16. Letter re: change in certifying accountant	Not applicable
18. Letter re: change in accounting principles	Not applicable
21. Subsidiaries of the registrant	Filed herewith
22. Published report regarding matters submitted to vote of security holders	Not applicable
23. Consent of Independent Registered Public Accounting Firm	Filed herewith
24. Power of attorney	Not applicable
31. Rule 13a-14(a)/15d-14(a) certifications:
31.1 Certification of Chief Executive Officer	Filed herewith
31.2 Certification of Chief Financial Officer	Filed herewith
32. Section 1350 certifications	Filed herewith

92

33. Report on assessment of compliance with servicing criteria for asset-backed securities	Not applicable
34. Attestation report on assessment of compliance with servicing criteria for asset-backed securities	Not applicable
35. Service compliance statement	Not applicable
99. Additional exhibits:
99.1 Additional information mailed or made available online to shareholders with proxy statement and Form 10-K on March 9, 2018	Filed herewith
100. XBRL-related documents	Not applicable
101. Interactive data file	Filed herewith

93

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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 indicated.

By: /s/ J. Bradley Scovill

President and Chief Executive Officer

Date: February 15, 2018

By: /s/ Mark A. Hughes

Treasurer and Principal Accounting Officer

Date: February 15, 2018

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.

BOARD OF DIRECTORS

/s/	Dennis F. Beardslee	/s/	Edward H. Owlett, III
	Dennis F. Beardslee		Edward H. Owlett, III
	Date: February 15, 2018		Date: February 15, 2018
/s/	Jan E. Fisher	/s/	J. Bradley Scovill
	Jan E. Fisher		J. Bradley Scovill
	Date: February 15, 2018		Date: February 15, 2018
/s/	R. Bruce Haner	/s/	Leonard Simpson
	R. Bruce Haner		Leonard Simpson
	Date: February 15, 2018		Date: February 15, 2018
/s/	Susan E. Hartley	/s/	James E. Towner
	Susan E. Hartley		James E. Towner
	Date: February 15, 2018		Date: February 15, 2018
/s/	Leo F. Lambert	/s/	Aaron K. Singer
	Leo F. Lambert		Aaron K. Singer
	Date: February 15, 2018		Date:  February 15, 2018
/s/	Terry L. Lehman	/s/	Frank G. Pellegrino
	Terry L. Lehman		Frank G. Pellegrino
	Date: February 15, 2018		Date: February 15, 2018

94

EX-10.1

Exhibit 10.1

 

CITIZENS & NORTHERN CORPORATION

1995 STOCK INCENTIVE PLAN (As Amended)

RESTRICTED STOCK AGREEMENT – EXECUTIVE OFFICER

RESTRICTED STOCK AGREEMENT dated as of the 3^rd day of January, 2018, by and between Citizens & Northern Corporation (the "Corporation") and_____________________ an employee of the Corporation or of a subsidiary (the "Recipient").

Pursuant to the Citizens & Northern Corporation 1995 Stock Incentive Plan (the "Plan"), as amended, the Compensation Committee of the Board of Directors (the "Committee") has determined that the Recipient is to be granted, on the terms and conditions set forth herein, _________ Restricted Shares of the Corporation's common stock and hereby grants such Restricted Shares.

1. Number of Shares and Price. Restricted Stock shall consist of shares of Stock that will be acquired by and issued to the Recipient at a designated time approved by the board of directors, for no purchase price, and under and subject to such transfer, forfeiture and other restrictions, conditions or terms as shall be determined by the Committee, including but not limited to prohibitions against transfer and substantial risks of forfeiture within the meaning of Section 83 of the Code.

2. Rights of Recipient. Except as otherwise provided in the Plan or the Restricted Stock Agreement, a Recipient of shares of Restricted Stock shall have all the rights as does a holder of Stock, including without limitation the right to vote such shares and receive dividends with respect thereto; however, during the time period of any restrictions, conditions or terms applicable to such Restricted Stock, the shares thereof and the right to vote the same and receive dividends thereon shall not be sold, assigned, transferred, exchanged, pledged, hypothecated, encumbered or otherwise disposed of except as permitted by the Plan or the Restricted Stock Agreement. Cash dividends shall be paid out and shall not participate in Dividend Reinvestment. Stock dividends resulting in whole shares shall be added to the shares held in the Restricted Account and shall be distributed to the Recipient with subsequent distributions of any Award for which they accrued. Partial shares that result from any stock dividend shall be paid to the Recipient in cash at the time of the payment of the stock dividend. If the Restricted Shares expire prior to the satisfaction of performance standards set forth in section 4 or due to forfeiture as set forth in section 5, all shares accrued by virtue of stock dividends shall be forfeited.

3. Holding of Restricted Shares. Each certificate for shares of Restricted Stock shall be deposited with the Secretary of the Corporation, or the office thereof, and shall bear a legend in substantially the following form and content:

This Certificate and the shares of Stock hereby represented are subject to the provisions of the Corporation’s Stock Incentive Plan and a certain agreement entered into between the owner and the Corporation pursuant to said Plan. The release of the Certificate and the shares of Stock hereby represented from such provision shall occur only as provided by said Plan and Agreement, a copy of which are on file in the office of the Secretary of the Corporation.

Upon the lapse or satisfaction of the restrictions, conditions and terms applicable to such Restricted Stock, a certificate for the shares of Stock without such legend shall be issued to the Recipient.

4. Release and Lapse of Restricted Shares. The release of restrictions or expiration of restricted shares awarded under this agreement shall occur over a period of three years. On each anniversary date of this award, one-sixth of the total shares will be distributed based on the Recipient’s satisfactory performance of his or her job. Additionally, on each anniversary date of this award, one-sixth of the total shares will be distributed based on the Recipient’s satisfactory performance of his or her job and the Corporation’s attainment of an earnings-based performance standard. The performance standard will be based on the Corporation achieving Return on Average Equity (ROAE) with a percent ranking of at least 50% of the ROAE achieved by a defined peer group of bank holding companies, herein defined, for the four consecutive calendar quarters ending with the third quarter of each calendar year following the Award Date. All Restricted Shares not distributed due to the Recipient’s unsatisfactory performance of his or her job or due to the Corporation failing to achieve an ROAE with a percent ranking of at least 50% of that of the defined peer group shall expire and revert back to the Corporation as of the anniversary date on which such determinations are made. No partial shares may be released, thus an amount equal to the next whole share amount will be released subject to the specified performance criteria at each anniversary. The shares released may be in certificate form, or may be directed to be held in a custodial account designated by the Recipient. The peer group consists of all publicly traded Commercial Banks and Thrifts headquartered in New Jersey, New York, Ohio and Pennsylvania with total assets of $750 million to $3.5 billion as of the end of the four consecutive calendar quarters ending with the third quarter of each calendar year following the Award Date.

The Committee reserves the right to change the composition of the peer group, as well as the method of evaluating the Corporation’s earnings performance as compared to the peer group, based on mergers or acquisitions involving members of the peer group, changes in size of the Corporation or members of the peer group, or other factors deemed appropriate by the Committee.

5. Terms of Forfeiture. If a Recipient’s employment with the Corporation, or a subsidiary, ceases for any reason prior to the lapse of the restrictions, conditions or terms applicable to his or her Restricted Stock, all of the Recipient’s Restricted Stock still subject to unexpired restrictions, conditions or terms shall be forfeited absolutely by the Recipient to the Corporation without payment or delivery of any consideration or other thing of value by the Corporation or its affiliates, and thereupon and thereafter neither the Recipient nor his or her heirs, personal or legal representatives, successors, assigns, beneficiaries, or any claimants under the Recipient’s Last Will or laws of descent and distribution, shall have any rights or claims to or interests in the forfeited Restricted Stock or any certificates representing shares thereof, or claims against the Corporation or its affiliates with respect thereto. Except in the case of disability, employment ceases with the Corporation, or its Subsidiary, on the day the Recipient’s employment is terminated with or without cause, or on their date of death. In the event of disability, the Recipient’s employment is considered terminated on the date for which the Recipient receives the final payment of the Corporation’s, or Subsidiary’s, short-term disability.

6. Non-Transferability of Restricted Stock. The Restricted Stock and this Restricted Stock Agreement shall not be transferable.

7. Change in Control. If any of the change in control events described in Section 11 of the Plan occur, all shares of Restricted Stock shall fully vest and all restrictions on the shares of Restricted Stock shall lapse as follows: In the case of an event specified in clause (a) of the second sentence of the third paragraph of Section 11, the lapse of all restrictions on the shares of Restricted Stock shall occur immediately prior to the consummation of the described transaction and, in the case of an event specified in clause (b) or (c) of said sentence, the full vesting and lapse of restrictions shall occur upon occurrence of the described event.

8. Notices. Any notice required or permitted under this Restricted Stock Agreement shall be deemed given when delivered personally, or when deposited in a United States Post Office, postage prepaid, addressed, as appropriate, to the Recipient either at his or her address herein above set forth or such other address as he or she may designate in writing to the Corporation.

9. Failure to Enforce Not a Waiver. The failure of the Corporation to enforce at any time any provision of this Restricted Stock Agreement shall in no way be construed to be a waiver of such provision or of any other provision hereof.

10. Governing Law. This Restricted Stock Agreement shall be governed by and construed according to the laws of the State of Pennsylvania.

11. Incorporation of Plan. The Plan is hereby incorporated by reference and made a part hereof, and the Restricted Stock and this Restricted Stock Agreement are subject to all terms and conditions of the Plan.

12. Amendments. This Restricted Stock Agreement may be amended or modified at any time by an instrument in writing signed by the parties hereto.

IN WITNESS WHEREOF, the parties have executed this Restricted Stock Agreement on the day and year first above written.

By	/s/ J. Bradley Scovill
	J. Bradley Scovill - President & CEO
The undersigned hereby accepts and agrees to all the terms and provisions of the foregoing Restricted Stock Agreement and to all the terms and provisions of the Citizens & Northern Corporation 1995 Stock Incentive Plan herein incorporated by reference.
	Recipient - _____________________

EX-10.2

Exhibit 10.2

 

CITIZENS & NORTHERN CORPORATION

1995 STOCK INCENTIVE PLAN (As Amended)

RESTRICTED STOCK AGREEMENT – NON-EXECUTIVE OFFICER

RESTRICTED STOCK AGREEMENT dated as of the 3^rd day of January, 2018, by and between Citizens & Northern Corporation (the "Corporation") and __________ an employee of the Corporation or of a subsidiary (the "Recipient").

Pursuant to the Citizens & Northern Corporation 1995 Stock Incentive Plan (the "Plan"), as amended, the Compensation Committee of the Board of Directors (the "Committee") has determined that the Recipient is to be granted, on the terms and conditions set forth herein, _________ Restricted Shares of the Corporation's common stock and hereby grants such Restricted Shares.

1. Number of Shares and Price. Restricted Stock shall consist of shares of Stock that will be acquired by and issued to the Recipient at a designated time approved by the board of directors, for no purchase price, and under and subject to such transfer, forfeiture and other restrictions, conditions or terms as shall be determined by the Committee, including but not limited to prohibitions against transfer and substantial risks of forfeiture within the meaning of Section 83 of the Code.

2. Rights of Recipient. Except as otherwise provided in the Plan or the Restricted Stock Agreement, a Recipient of shares of Restricted Stock shall have all the rights as does a holder of Stock, including without limitation the right to vote such shares and receive dividends with respect thereto; however, during the time period of any restrictions, conditions or terms applicable to such Restricted Stock, the shares thereof and the right to vote the same and receive dividends thereon shall not be sold, assigned, transferred, exchanged, pledged, hypothecated, encumbered or otherwise disposed of except as permitted by the Plan or the Restricted Stock Agreement. Cash dividends shall be paid out and shall not participate in Dividend Reinvestment. Stock dividends resulting in whole shares shall be added to the shares held in the Restricted Account and shall be distributed to the Recipient with subsequent distributions of any Award for which they accrued. Partial shares that result from any stock dividend shall be paid to the Recipient in cash at the time of the payment of the stock dividend. If the Restricted Shares expire prior to the satisfaction of performance standards set forth in section 4 or due to forfeiture as set forth in section 5, all shares accrued by virtue of stock dividends shall be forfeited.

3. Holding of Restricted Shares. Each certificate for shares of Restricted Stock shall be deposited with the Secretary of the Corporation, or the office thereof, and shall bear a legend in substantially the following form and content:

This Certificate and the shares of Stock hereby represented are subject to the provisions of the Corporation’s Stock Incentive Plan and a certain agreement entered into between the owner and the Corporation pursuant to said Plan. The release of the Certificate and the shares of Stock hereby represented from such provision shall occur only as provided by said Plan and Agreement, a copy of which are on file in the office of the Secretary of the Corporation.

Upon the lapse or satisfaction of the restrictions, conditions and terms applicable to such Restricted Stock, a certificate for the shares of Stock without such legend shall be issued to the Recipient.

4. Release and Lapse of Restricted Shares. The release of restrictions or expiration of restricted shares awarded under this agreement shall occur over a period of three years. On each anniversary date of this award, one-third of the total shares will be distributed on the anniversary date of this award based on the Recipient’s satisfactory performance of his or her job. All Restricted Shares not distributed due to the Recipient’s unsatisfactory performance of his or her job shall expire and revert back to the Corporation as of the anniversary date on which such determinations are made. No partial shares may be released, thus an amount equal to the next whole share amount will be released subject to the specified performance criteria at each anniversary. The shares released may be in certificate form, or may be directed to be held in a custodial account designated by the Recipient.

5. Terms of Forfeiture. If a Recipient’s employment with the Corporation, or a subsidiary, ceases for any reason prior to the lapse of the restrictions, conditions or terms applicable to his or her Restricted Stock, all of the Recipient’s Restricted Stock still subject to unexpired restrictions, conditions or terms shall be forfeited absolutely by the Recipient to the Corporation without payment or delivery of any consideration or other thing of value by the Corporation or its affiliates, and thereupon and thereafter neither the Recipient nor his or her heirs, personal or legal representatives, successors, assigns, beneficiaries, or any claimants under the Recipient’s Last Will or laws of descent and distribution, shall have any rights or claims to or interests in the forfeited Restricted Stock or any certificates representing shares thereof, or claims against the Corporation or its affiliates with respect thereto. Except in the case of disability, employment ceases with the Corporation, or its Subsidiary, on the day the Recipient’s employment is terminated with or without cause, or on their date of death. In the event of disability, the Recipient’s employment is considered terminated on the date for which the Recipient receives the final payment of the Corporation’s, or Subsidiary’s, short-term disability.

6. Non-Transferability of Restricted Stock. The Restricted Stock and this Restricted Stock Agreement shall not be transferable.

7. Change in Control. If any of the change in control events described in Section 11 of the Plan occur, all shares of Restricted Stock shall fully vest and all restrictions on the shares of Restricted Stock shall lapse as follows: In the case of an event specified in clause (a) of the second sentence of the third paragraph of Section 11, the lapse of all restrictions on the shares of Restricted Stock shall occur immediately prior to the consummation of the described transaction and, in the case of an event specified in clause (b) or (c) of said sentence, the full vesting and lapse of restrictions shall occur upon occurrence of the described event.

8. Notices. Any notice required or permitted under this Restricted Stock Agreement shall be deemed given when delivered personally, or when deposited in a United States Post Office, postage prepaid, addressed, as appropriate, to the Recipient either at his or her address herein above set forth or such other address as he or she may designate in writing to the Corporation.

9. Failure to Enforce Not a Waiver. The failure of the Corporation to enforce at any time any provision of this Restricted Stock Agreement shall in no way be construed to be a waiver of such provision or of any other provision hereof.

10. Governing Law. This Restricted Stock Agreement shall be governed by and construed according to the laws of the State of Pennsylvania.

11. Incorporation of Plan. The Plan is hereby incorporated by reference and made a part hereof, and the Restricted Stock and this Restricted Stock Agreement are subject to all terms and conditions of the Plan.

12. Amendments. This Restricted Stock Agreement may be amended or modified at any time by an instrument in writing signed by the parties hereto.

IN WITNESS WHEREOF, the parties have executed this Restricted Stock Agreement on the day and year first above written.

By	/s/ J. Bradley Scovill
J. Bradley Scovill – President & CEO
The undersigned hereby accepts and agrees to all the terms and provisions of the foregoing Restricted Stock Agreement and to all the terms and provisions of the Citizens & Northern Corporation 1995 Stock Incentive Plan herein incorporated by reference.

Recipient –

EX-10.3

Exhibit 10.3

CITIZENS & NORTHERN CORPORATION

INDEPENDENT DIRECTORS STOCK INCENTIVE PLAN

RESTRICTED STOCK AGREEMENT

A total of Eight Hundred Twenty Six (826) shares of RESTRICTED common STOCK, par value $1.00, of Citizens & Northern Corporation, a Pennsylvania business corporation (herein the “Corporation”) is hereby awarded as of January 3, 2018 to _____________________ (herein the “Director”), subject in all respects to the terms and provisions of the Citizens & Northern Corporation Independent Directors Stock Incentive Plan (herein the “Plan”), dated April 17, 2001 and amended April 15, 2008, which has been adopted by the Corporation’s shareholders and which is incorporated herein by reference.

These shares cannot be sold, exchanged, transferred, pledged or otherwise disposed of, except in accordance with the Plan. These transferability restrictions will lapse on January 3, 2019, except as provided for in the Plan or described in the following section of this Agreement titled “Change in Control.”

CHANGE IN CONTROL

All Awards of Restricted Stock issued under the Plan which have not fully vested (i.e., continue to have restrictions that have not lapsed) shall automatically fully vest (i.e., all restrictions shall lapse) upon a change in control event as follows: (a) If the Corporation or its stockholders execute an agreement to dispose of all or substantially all of the Corporation’s assets or capital stock by means of sale, merger, consolidation, reorganization, liquidation or otherwise, as a result of which the Corporation’s stockholders as of immediately before such transaction will not own at least fifty percent (50%) of the total combined voting power of all classes of voting capital stock of the surviving entity (be it the Corporation or otherwise), the full lapse of any restrictions on shares of Restricted Stock shall occur immediately prior to the consummation of such transaction; (b) if there is an actual, attempted or threatened change in the ownership of at least twenty-five percent (25%) of all classes of voting capital stock of the Corporation through the acquisition of, or an offer to acquire such percentage of the Corporation’s voting capital stock by any person or entity, or persons or entities acting in concert or as a group, and such acquisition or offer has not been duly approved by the Board; or (c) if during any period of two (2) consecutive years, the individuals who at the beginning of such period constituted the Board, cease for any reason to constitute at least a majority of the Board, unless the election of each director of the Board, who was not a director of the Board at the beginning of such period, was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period, thereupon (upon the occurrence of the events described in clause (b) or (c)), the full vesting and lapse of any restrictions on shares of Restricted Stock shall occur.

Dated:  January 3, 2018
	CITIZENS & NORTHERN CORPORATION
	BY	/s/ J. Bradley Scovill
		J. Bradley Scovill - President & CEO

ATTEST:

/s/ Kimberly N. Battin

Kimberly N. Battin, Corporate Secretary

The Director acknowledges receipt of a copy of the Plan, and represents that he or she is familiar with the terms and provisions thereof. The Director hereby accepts this Award subject to all the terms and provisions of the Plan.

Dated:
	,	Director

EX-10.4

Exhibit 10.4

 

2018 Annual Performance Incentive Award Plan (*)

Part I: Plan Administration

Section 1: Purpose of the Plan

The purpose of the Performance Incentive Award Plan ("the Plan") is to provide variable compensation to those employees in key positions who attain and sustain consistently high levels of performance by meeting and exceeding goals and expectations that contribute to the success, profitability, and return to the shareholders of Citizens & Northern Corporation and affiliated Employer(s). The Plan is designed to support operational objectives and financial goals as defined by the long-range and short-range strategic and financial Plans. Additionally, the Plan is designed to provide a component of the management compensation package essential to retaining and attracting quality employees to key positions that contribute significantly to the bank’s financial performance. A key position for the purpose of this plan is a job role that is typically, within the community banking and financial services industries, eligible for performance-based incentive compensation.

Section 2: General Description

There are three components of the Plan: (1) corporate performance; (2) unit/functional performance; and (3) individual performance. The corporate performance component will be subject to the Corporation’s attainment of financial goals relative to a defined peer group. To receive the corporate bonus payout, the company must achieve at least the threshold level. Further, the individual performance component will be subject to an evaluation of the participants’ overall contributions to the “team”. To earn the individual component, the participant must attain at least the threshold performance level.

The unit/functional component is based on the attainment of pre-established goals by the participant and often a team of participants in a given business unit, e.g., retail branch system, commercial lending team. Depending upon the participant’s function, Key Performance Indicators for the participant’s region, or the corporation as a whole, also may be evaluated to determine the unit/functional bonus. To receive the unit/functional bonus payout, the participant must achieve at least the threshold level. Even after attaining at least the Threshold performance, the plan permits the participant’s supervisor or the executive officer for the participant’s area to recommend no bonus payout, or a reduced amount (Corporate, Unit/Functional or Individual) if aspects of the participant’s performance are deemed unsatisfactory.

The Plan protects shareholders' interests by requiring that the goals established will enhance bottom line performance while not encouraging excessive risk-taking and that a minimum level of performance is achieved before any incentive award can be made. At the same time the Plan provides management with a means to retain and attract top performers who increase the organization’s financial performance by attaining their performance goals. The Plan requires that management perform an annual assessment and establishment of goals and provides a performance review and measurement system. The Plan requires management to consider non-financial goals designed to improve operational and risk management effectiveness, as well as financial goals, as appropriate for each participant’s position. The Plan permits future inclusion of additional positions during a Plan year, if the need arises.

(*) Employees who are actively engaged in interviewing residential real estate mortgage applicants, processing the applications and closing the loans are excluded from this plan. The Corporation has a separate incentive award plan for such employees.

The calculation of the bonus to be distributed to the Plan participants, and the incentive formulas, are constructed to provide awards consistent with strong corporate financial performance and the participant’s exceptional performance in his/her unit/functional area. The incentive formulas ensure a level of incentive award that is competitive with comparable positions and job levels in similar financial institutions, thus enabling Citizens & Northern to attract, retain, and motivate high-performing personnel and support continued growth and profitability. The determination of the bonus payable is described in Part II of this Plan.

The Plan is established to augment regular salary and benefit programs already in existence. The Incentive Plan is not meant to be a substitute for salary increases but supplemental to salary and as stated earlier, a reward for “exceptional" performance.

The Plan has been developed to recognize that the amount of incentive bonus award attainable by key executives should vary depending upon the executive’s position with the company and the competitive levels of incentive bonus for those positions within the banking and financial service industry. Thus threshold, target and maximum Incentive Opportunities are established for each position.

Section 3: Other Payment Conditions

Termination for Reasons Other Than Death, Permanent Disability or Retirement – In the event of termination of employment for reasons other than death, permanent disability or retirement, the participant, at the discretion of the committee, may forfeit all unpaid incentive awards.

The Compensation Committee of the Board, and management, reserve the right to deny or modify an award to any participant. Such action may be due to, but not limited to, the failure of the participant to properly perform during the Plan year. Economic or other circumstances and considerations may dictate that incentive bonuses be reduced or eliminated in any given year. Accordingly, the Board of Directors may amend, alter or terminate the Plan at any time.

In the event a participant becomes disabled for a period greater than two (2) weeks, any salary continuation as a result of the Corporation’s short and long-term disability programs will not be included in the base salary used for the incentive bonus calculation.

Section 4: Administration of the Plan

Throughout this Plan, reference to the actions and authority of the Compensation Committee of the Board of Directors ("the Committee") also presumes that the Committee will recommend, and the board of directors will approve or disapprove, final disposition of all matters pertaining to administration of the Plan. The Committee, with board approval, has the responsibility to interpret, administer, and amend the Plan as necessary. The recommendations of the Committee as approved by the board, affecting the construction, interpretation, and administration of the Plan shall be final and binding on all parties, including the Corporation, its subsidiaries and employees.

Page 2 of 6

At or before the beginning of each Plan year, the Committee will review and may revise the operating rules. Performance targets the Incentive Bonus Plan Performance Matrix, and the Incentive Opportunity levels for corporate, individual and unit/functional awards for attaining those targets may be changed in order to emphasize specific goals and objectives of the Plan and to maintain a competitive incentive program. However, it is expected that the Plan will require modification only when significant changes in the organization, goals, personnel, or performance occur. The Chief Executive Officer shall be the Plan czar with the power to control and oversee proper administration of the Plan, and may recommend to the Committee proposed changes to the operating rules. Additionally, the Committee may engage a third party expert to review and amend the plan.

An individual or individuals designated by the Chief Executive Officer will perform the computation of incentive awards. Maintenance of participant payment records shall be the responsibility of the Human Resource Director.

Finally, the committee, with board approval, may exclude extraordinary occurrences, which could affect the performance awards, either positively or negatively, but are by their nature outside the significant influence of Plan participants. The characteristics of such extraordinary occurrences are generally that they involve the senior management and the board of directors in:

· The original decision to take some action.

· Mission-driven strategic Initiatives that sacrifice short-term income for long-term gain.

· Issues most related to a restructuring of assets, or unusual expense or income realization.

Extraordinary occurrences may be excluded when calculating performance results to ensure that the best interests of the shareholders are protected and are not brought into conflict with the intent of the Plan. When and if extraordinary occurrences are excluded from the calculation of corporate performance measures, they should also be excluded in calculating the bonus.

Section 5: Plan Participants

Executive management shall select and recommend for participation in the Plan employees in those job positions that are responsible for directing, implementing and performing functions that have a significant influence on the profitability and operational performance of the bank (key employees). Those job positions which are selected for participation in the Plan will be in positions that normally include an incentive bonus component in the compensation package offered by similar financial institutions.

At or before the beginning of each Plan year, the Committee shall review the recommendations of management on the selection of those positions eligible for participation in the Plan for that year. Management shall recommend the Incentive Bonus Plan Performance Matrix for the year. Additionally, management shall recommend a threshold, target and maximum Incentive Opportunity percentage of base salary for each position. Participants shall be notified of their eligibility as soon as selection is completed and the board of directors has adopted the Plan. The Committee shall review and recommend the inclusion of participants to the full board for their approval.

Page 3 of 6

Positions and thus participants may be added during the Plan year at the discretion of management and the Committee, and the incentive award will be prorated from date of entry into the Plan.

Section 6: Payment of Individual Incentive Compensation Awards

Within 60 days following the end of the Plan year and as soon as the participant’s performance has been evaluated and the financial and operating results are known, participants will receive their incentive payment as determined by the Incentive Bonus Plan Performance Matrix.

Section 7: Incentive Compensation Plan Operating Rules

Before the beginning of each Plan year, the Committee may review and revise, if deemed appropriate, Part II: Operating Rules of the Plan for the year then beginning. The operating rules shall include the following:

a) Identification of positions selected for participation in the Plan

b) The method for determining the amount of the total bonus to be paid to Plan participants, including the Incentive Bonus Plan Performance Matrix.

c) Schedules and formulas for determining the amount of the incentive compensation awards to Plan participants for the Plan year then beginning, including threshold, target and maximum performance measures and the percentage of bonus award determined by corporate, functional/unit and individual performances. Participants will be informed at or before the Plan year of the manner in which performance will be evaluated.

d) Other administrative and procedural rules, which the committee considers appropriate.

After approval by the Committee and the board of directors, management shall, as soon as practical, inform each of the participants of the operating rules for the Plan year then beginning.

Page 4 of 6

Section 8: Performance Progress Reporting

Semi-annually the Plan czar will be responsible for communicating attainment of corporate goals during the course of the Plan year. Participants and their direct supervisors will meet periodically to review their performance relative to the established unit/functional and individual goals.

Section 9: Amendment or Termination of Plan

The committee, with concurrence of the board of directors, may terminate, amend, or modify this Plan at any time. The termination, amendment, or modification of the Plan may affect a participant's right to unpaid incentive compensation awards under this Plan.

Section 10: Other Considerations

Recoupment-  Amounts allocated or paid pursuant to this Plan shall be subject to recovery by the Corporation under any claw back, recovery, recoupment or similar policy hereafter adopted by the Corporation, whether in connection with Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, as amended from time to time, or otherwise, whether or not required by law.

Active Employment Contingency- Except in the case of a retirement, if a participant voluntarily terminates his or her employment with the Corporation or Bank prior to the date of bonus payout, the bonus will be forfeited.

Right of Assignment - No right or interest of any participant in the Plan shall be assignable or transferable, or subject to any lien, directly, by operation of law, or otherwise, including levy, garnishment, attachment, pledge, or bankruptcy.

Right of Employment - The participation in or the receipt of an award under this Plan shall not guarantee any employee any right to continued employment; the right to dismiss any employee is specifically reserved to the organization. The receipt of an award for any one year shall not guarantee an employee the right to receive an award for any subsequent year.

Change of Position – If a participant transfers to another position in the organization that is not included in the Incentive Compensation Plan, they will cease being a Plan participant. At the time of the position change a determination will be made as to whether the participant will be eligible for a bonus for the period during which they were a participant.

Withholding for Taxes - The organization shall have the right to deduct from all payments under this Plan any federal, state or local taxes required by law to be withheld with respect to such payments.

Salary - Salary is defined as base earnings for the year, which includes any increase in weekly rate of pay but not including any referral awards, brokerage or insurance commissions, golden nugget payments, taxable fringe benefits or prior bonus payments.

Board Prerogatives – It will be the right of the Board of Directors to amend, alter and/or terminate the plan in its sole discretion at any time.

Page 5 of 6

Part II: Operating Rules

Section l: General

The following Incentive Compensation Plan Operating Rules will be in effect for the 2018 plan year and until revised. These operating rules are subject to change by the Committee before the start of the Plan year, with the approval of the board of directors. It is anticipated that the rules for 2018 will be revised only if significant changes occur in organization, operations, industry compensation practices, or other pertinent factors.

Section 2: Corporate Performance Component - Incentive Bonus Plan Performance Matrix for 2018

The corporate performance component of the Incentive Bonus is calculated based on comparison of C&N’s Return on Average Equity (ROAE) to that of a Peer Group. The chart below will determine the Incentive Opportunity percentage of base salary from which the corporate performance component of a participant’s bonus would be paid:

C&N's	Corporate
Percent	Award as
ROAE Rank	% of
vs Peer	Target
25	33%
30	46.4%
35	59.8%
40	73.2%
45	86.6%
50	100%
55	110.0%
60	120.0%
65	130.0%
70	140.0%
75	150%
80	150%
85	150%
90	150%
95	150%
100	150%
>100	150%

****************************************************************

*The Peer Group shall include all publicly traded commercial banks and thrifts within NJ, NY, OH and PA with total assets between $750 million and $3.5 Billion.

Page 6 of 6

EX-10.5

Exhibit 10.5

 

2018 Annual Performance Incentive Award Plan – Mortgage Lenders

Section 1: Purpose of the Plan

The purpose of the Performance Incentive Award Plan ("the Plan") is to provide variable compensation to Citizens & Northern employees who are actively engaged in interviewing residential real estate applicants, processing the applications and closing the loans. The Plan is designed to reward mortgage lending employees who attain and sustain consistently high levels of performance by meeting and exceeding defined goals and to provide a component of the compensation package essential to retaining and attracting quality employees in mortgage lending positions. Incentive awards are not directly tied to Company/mortgage business profits nor the terms of the closed-end mortgage transaction or a proxy for a transaction term. The expense of the plan is incorporated into the Company’s operating budget. The objective is to align the interests of these employees with the interests of the Company in obtaining superior performance results while being in compliance with the SAFE Act and 12 CFR Part 1026.36 (Regulation Z).

Section 2: General Description

There are two components of the Plan: (1) unit/functional performance; and (2) individual performance. The individual performance component will be subject to an evaluation of the participants’ overall contributions to the “team”. To earn the individual component, the participant must attain at least the threshold performance level.The unit/functional component is based on the attainment of pre-established goals by the applicable branch or mortgage lending business unit,. To receive the unit/functional bonus payout, the participant must achieve at least the threshold level.

In addition to goals based on production, the Plan requires management to consider non-financial goals designed to improve operational and risk management effectiveness, as appropriate for each participant’s position. The Plan permits future inclusion of additional positions during a Plan year, if the need arises.

The incentive formulas ensure a level of incentive award that is competitive with comparable positions and job levels in similar financial institutions, thus enabling Citizens & Northern to attract, retain, and motivate high-performing mortgage lending employees.

The Plan is established to augment regular salary and benefit programs already in existence. The Incentive Plan is not meant to be a substitute for salary increases but supplemental to salary and as stated earlier, a reward for “exceptional" performance.

The Plan has been developed to recognize that the amount of incentive bonus award attainable by key mortgage lending employees should vary depending upon the employee’s position with the company and the competitive levels of incentive bonus for those positions within the banking and financial service industry. Thus threshold, target and maximum Incentive Opportunities are established for each position.

Section 3: Other Payment Conditions

Termination for Reasons Other Than Death, Permanent Disability or Retirement – In the event of termination of employment for reasons other than death, permanent disability or retirement, the participant, at the discretion of the committee, may forfeit all unpaid incentive awards.

In the event a participant becomes disabled for a period greater than two (2) weeks, any salary continuation as a result of the Corporation’s short and long-term disability programs will not be included in the base salary used for the incentive bonus calculation.

Section 4: Administration of the Plan

Throughout this Plan, reference to the actions and authority of the Compensation Committee of the Board of Directors ("the Committee") presumes that the Committee will recommend, and the board of directors will approve or disapprove, final disposition of all matters pertaining to administration of the Plan. The Committee, with board approval, has the responsibility to interpret, administer, and amend the Plan as necessary. The recommendations of the Committee as approved by the board, affecting the construction, interpretation, and administration of the Plan shall be final and binding on all parties, including the Corporation, its subsidiaries and employees.

At or before the beginning of each Plan year, the Committee will review and may revise the operating rules. The Incentive Opportunity levels for individual and unit/functional awards for attaining those targets may be changed in order to maintain a competitive incentive program. However, it is expected that the Plan will require modification only when significant changes in the organization, goals, personnel, or performance occur. The Chief Executive Officer shall be the Plan czar with the power to control and oversee proper administration of the Plan, and may recommend to the Committee proposed changes to the operating rules. Additionally, the Committee may engage a third party expert to review and amend the plan.

An individual or individuals designated by the Chief Executive Officer will perform the computation of incentive awards. Maintenance of participant payment records shall be the responsibility of the Human Resource Director.

Section 5: Plan Participants

Executive management shall select and recommend for participation in the Plan employees in those job positions that are responsible for mortgage lending functions. Those job positions which are selected for participation in the Plan will be in positions that normally include an incentive bonus component in the compensation package offered by similar financial institutions.

At or before the beginning of each Plan year, the Committee shall review the recommendations of management on the selection of those positions eligible for participation in the Plan for that year.

Page 2 of 4

Additionally, management shall recommend a threshold, target and maximum Incentive Opportunity percentage of base salary for each position. Participants shall be notified of their eligibility as soon as selection is completed and the board of directors has adopted the Plan. The Committee shall review and recommend the inclusion of participants to the full board for their approval.

Positions and thus participants may be added during the Plan year at the discretion of management and the Committee, and the incentive award will be prorated from date of entry into the Plan.

Section 6: Payment of Individual Incentive Compensation Awards

Within 60 days following the end of the Plan year and as soon as the participant’s performance has been evaluated, participants will receive their incentive payment.

Section 7: Incentive Compensation Plan Operating Rules

Before the beginning of each Plan year, the Committee may review and revise, if deemed appropriate, the operating rules of the Plan for the year then beginning. The operating rules shall include the following:

a) Identification of positions selected for participation in the Plan

b) The method for determining the amount of the total bonus to be paid to Plan participants.

c) Schedules and formulas for determining the amount of the incentive compensation awards to Plan participants for the Plan year then beginning, including threshold, target and maximum performance measures and the percentage of bonus award determined by functional/unit and individual performances. Participants will be informed at or before the Plan year of the manner in which performance will be evaluated.

d) Other administrative and procedural rules, which the Committee considers appropriate.

After approval by the Committee and the board of directors, management shall, as soon as practical, inform each of the participants of the operating rules for the Plan year then beginning.

Section 8: Performance Progress Reporting

Participants and their direct supervisors will meet periodically to review their performance relative to the established unit/functional and individual goals.

Page 3 of 4

Section 9: Amendment or Termination of Plan

The Committee, with concurrence of the board of directors, may terminate, amend, or modify this Plan at any time. The termination, amendment, or modification of the Plan will not affect a participant's right to unpaid incentive compensation awards under this Plan.

Section 10: Other Considerations

Recoupment-  Amounts allocated or paid pursuant to this Plan shall be subject to recovery by the Corporation under any claw back, recovery, recoupment or similar policy hereafter adopted by the Corporation, whether in connection with Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, as amended from time to time, or otherwise, whether or not required by law.

Active Employment Contingency- Except in the case of a retirement, if a participant voluntarily is not actively employed by the Corporation prior to the date of bonus payout, the bonus will be forfeited.

Right of Assignment - No right or interest of any participant in the Plan shall be assignable or transferable, or subject to any lien, directly, by operation of law, or otherwise, including levy, garnishment, attachment, pledge, or bankruptcy.

Right of Employment - The participation in or the receipt of an award under this Plan shall not guarantee any employee any right to continued employment; the right to dismiss any employee is specifically reserved to the organization. The receipt of an award for any one year shall not guarantee an employee the right to receive an award for any subsequent year.

Change of Position – If a participant transfers to another position in the organization that is not included in the Incentive Compensation Plan, they will cease being a Plan participant. At the time of the position change a determination will be made as to whether the participant will be eligible for a bonus for the period during which they were a participant.

Withholding for Taxes - The organization shall have the right to deduct from all payments under this Plan any federal, state or local taxes required by law to be withheld with respect to such payments.

Salary - Salary is defined as base earnings for the year, which includes any increase in weekly rate of pay but not including any referral awards, brokerage or insurance commissions, golden nugget payments, taxable fringe benefits or prior bonus payments.

Board Prerogatives – It will be the right of the Board of Directors to amend, alter and/or terminate the plan in its sole discretion at any time. Any Incentive Bonus earned by the Participant at the time of amendment, alteration and/or termination shall remain due and payable as stated.

Page 4 of 4

EX-10.6

Exhibit 10.6

INDEMNIFICATION AGREEMENT

This Agreement made this 9th day of January, 2018, between Citizens & Northern Corporation, a bank holding company registered under the Bank Holding Company Act of 1956, as amended, and a Pennsylvania corporation (the “Company”) and Tracy E. Watkins, a director, officer or representative (as hereinafter defined) of the Company (the “Indemnitee”);

WHEREAS, the Company and the Indemnitee are each aware of the exposure to litigation of officers, directors and representatives of the Company as such persons exercise their duties to the Company;

WHEREAS, the Company and the Indemnitee are also aware of conditions in the insurance industry that have affected and may continue to affect the Company’s ability to obtain appropriate directors’ and officers’ liability insurance on an economically acceptable basis;

WHEREAS, the Company desires to continue to benefit from the services of highly qualified, experienced and competent persons such as the Indemnitee;

WHEREAS, the Indemnitee desires to serve or to continue to serve the Company as a director, officer or as a director, officer or trustee of another corporation, joint venture, trust or other enterprise in which the Company has a direct or indirect ownership interest, for so long as the Company continues to provide on an acceptable basis adequate and reliable indemnification against certain liabilities and expenses which may be incurred by the Indemnitee.

NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants herein contained, the parties hereto agree as follows:

1.       Indemnification. Subject to the terms of this Agreement, the Company shall indemnify the Indemnitee with respect to his or her activities as a director or officer of the Company and/or as a person who is serving or has served on behalf of the Company (“representative”) as a director, officer, or trustee of another corporation, joint venture, trust or other enterprise, domestic or foreign, in which the Company has a direct or indirect ownership interest (an “affiliated entity”) against expenses (including, without limitation, attorneys’ fees, judgments, fines, and amounts paid in settlement) actually and reasonably incurred by him or her (“Expenses”) in connection with any claim against Indemnitee which is the subject of any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, investigative or otherwise and whether formal or informal (a “Proceeding”), to which Indemnitee was, is, or is threatened to be made a party by reason of facts which include Indemnitee’s being or having been such a director, officer or representative, to the extent of the highest and most advantageous to the Indemnitee, as determined by the Indemnitee, of one or any combination of the following:

(a) The benefits provided by the Company’s Articles of Incorporation in effect on the date hereof;

(b) The benefits provided by the Articles of Incorporation or By-Laws or their equivalent of the Company in effect at the time Expenses are incurred by Indemnitee;

(c) The benefits allowable under Pennsylvania law in effect at the date hereof;

(d) The benefits allowable under the law of the jurisdiction under which the Company exists at the time Expenses are incurred by the Indemnitee;

(e) The benefits available under liability insurance obtained by the Company;

(f) The benefits available under the Company’s Directors and Officers Liability Insurance Policy in effect at the time of the claim; and

(g) Such other benefits as are or may be otherwise available to Indemnitee.

Combination of two or more of the benefits provided by (a) through (g) shall be available to the extent that the Applicable Document, as hereafter defined, does not require that the benefits provided therein be exclusive of other benefits. The document or law providing for the benefits listed in items (a) through (g) above is called the “Applicable Document” in this Agreement. Company hereby undertakes to use its best efforts to assist Indemnitee, in all proper legal ways, to obtain the benefits selected by Indemnitee under items (a) through (g) above.

For purposes of this Agreement, references to “other enterprises” shall include employee benefit plans for employees of the Company or of any affiliated entity without regard to ownership of such plans; references to “fines” shall include any excise taxes assessed on the Indemnitee with respect to any employee benefit plan; references to “serving on behalf of the company” shall include any services as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, the Indemnitee with respect to an employee benefits plan, its participants or beneficiaries; references to the singular shall include the plural and vice versa; and if the Indemnitee acted in good faith and in a manner he or she reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan Indemnitee shall be deemed to have acted in a manner consistent with the standards required for indemnification by the Company under the Applicable Documents.

2.       Insurance. The Company shall maintain directors’ and officers’ liability insurance for so long as Indemnitee’s services are covered hereunder, provided and only to the extent that such insurance is available in amounts and on terms and conditions determined by the Company to be acceptable. However, the Company agrees that the provisions hereof shall remain in effect regardless of whether liability or other insurance coverage is at any time obtained or retained by the Company; except that any payments in fact made to Indemnitee under an insurance policy obtained or retained by the Company shall reduce the obligation of the Company to make payments hereunder by the amount of the payments made under any such insurance policy.

3.       Payment of Expenses. At Indemnitee’s request, the Company shall pay the Expenses as and when incurred by Indemnitee, after receipt of written notice pursuant to Section 6 hereof and an undertaking in the form of Exhibit I attached hereto by or on behalf of Indemnitee (i) to repay such amounts so paid on Indemnitee’s behalf if it shall ultimately be determined under the Applicable Document or applicable law that Indemnitee is required to repay such amounts and (ii) to reasonably cooperate with the Company concerning such Proceeding. That portion of Expenses which represents attorneys’ fees and other costs incurred in defending any Proceeding shall be paid by the Company within thirty (30) days of its receipt of such request, together with reasonable documentation (consistent, in the case of attorneys’ fees, with Company practice in payment of legal fees for outside counsel generally) evidencing the amount and nature of such Expenses, subject to its also having received such notice and undertaking.

It is understood and agreed before the Company pays the Expenses incurred in a Proceeding brought by a banking agency in which a final order has not been entered, the following conditions must be met:

(a) The Board of Directors, in good faith, shall determine in writing after due investigation and consideration that the Indemnitee acted in a manner believed to be in the best interests of the Company;

(b) The Board of Directors, in good faith, shall determine after due investigation and consideration that the payment of such Expenses will not materially or adversely affect the Company’s safety and soundness.

-2- 

(c) The Indemnitee shall agree in writing to reimburse the Company for Expenses which subsequently are deemed “prohibited indemnification payments”, as defined in 12 C.F.R. § 359.1(1).

The Indemnitee shall not participate in any way in the Board’s discussion and approval of Expenses, provided however, that the Indemnitee may present his or her request to the Board and respond to any inquiries from the Board concerning his or her involvement in the circumstances giving rise to the banking agency Proceeding or civil action.

4.       Escrow. The Company may dedicate such amounts as the Board of Directors of the Company may from time to time authorize, as collateral security for the funding of its obligations hereunder (and under similar agreements with other directors, officers and representatives) by depositing assets or bank letters of credit in escrow or reserving lines of credit that may be drawn down by an escrow agent in the dedicated amount (the “Escrow Reserve”). The Company shall promptly provide Indemnitee with a true and complete copy of the agreement relating to the establishment and operation of the Escrow Reserve, together with such additional documentation or information with respect to the escrow as Indemnitee may from time to time reasonably request. The Company shall promptly deliver an executed copy of the Agreement to the escrow agent for the Escrow Reserve to evidence to that agent that Indemnitee is a beneficiary of that Escrow Reserve and shall deliver to Indemnitee the escrow agent’s signed receipt evidencing that delivery.

5.       Additional Rights. The indemnification provided in this Agreement shall not be exclusive of any other indemnification or right to which Indemnitee may be entitled and shall continue after Indemnitee has ceased to occupy a position as an officer, director or representative as described in Paragraph 1 above with respect to Proceedings relating to or arising out of Indemnitee’s acts or omissions during his or her service in such position.

6.       Notice to Company. Indemnitee shall provide to the Company prompt written notice of any Proceeding brought, threatened, asserted or commenced against Indemnitee with respect to which Indemnitee may assert a right to indemnification hereunder; provided that failure to provide such notice shall not in any way limit Indemnitee’s rights under this Agreement.

7.       Cooperation in Defense and Settlement. Indemnitee shall not make any admission or effect any settlement of any Proceeding without the Company’s written consent unless Indemnitee shall have determined to undertake his or her own defense in such matter and has waived the benefits of this Agreement. The Company shall not settle any Proceeding to which Indemnitee is a party in any manner which would impose any Expense on Indemnitee without his or her written consent. Neither Indemnitee nor the Company will unreasonably withhold consent to any proposed settlement. Indemnitee and the Company shall cooperate to the extent reasonably possible with each other and with the Company’s insurers, in attempts to defend and/or settle such Proceeding.

8.       Assumption of Defense. Except as otherwise provided below, to the extent that it may wish, the Company (jointly with any other indemnifying party similarly notified), will be entitled to assume Indemnitee’s defense in any Proceeding, with counsel mutually satisfactory to Indemnitee and the Company. Indemnitee shall have the right to employ counsel in such Proceeding, but the fees and expenses of such counsel incurred after notice from the Company of its assumption of the defense thereof shall be at Indemnitee’s expense unless:

(a) the employment of counsel by Indemnitee has been authorized by the Company;

(b) counsel employed by the Company initially is unacceptable or later becomes unacceptable to Indemnitee and such unacceptability is reasonable under then existing circumstances;

(c) Indemnitee shall have reasonably concluded that there may be a conflict of interest between Indemnitee and the Company in the conduct of the defense of such Proceeding; or

-3- 

(d) the Company shall not have employed counsel promptly to assume the defense of such Proceeding,

in each of which case fees and expenses of counsel shall be at the expense of the Company and subject to payment pursuant to this Agreement. The Company shall not be entitled to assume the defense of Indemnitee in any Proceeding brought on behalf of the Company or as to which Indemnitee shall have drawn either of the conclusions provided for in clauses (b) or (c) above.

9.       Enforcement. In the event that any dispute or controversy shall arise under this Agreement between Indemnitee and the Company with respect to whether the Indemnitee is entitled to indemnification in connection with any Proceeding or with respect to the amount of Expenses incurred, then with respect to each such dispute or controversy Indemnitee may seek to enforce the Agreement through legal action or, at Indemnitee’s sole option and written request, through arbitration. If arbitration is requested, such dispute or controversy shall be submitted by the parties to binding arbitration in the Borough of Wellsboro in the Commonwealth of Pennsylvania, before a single arbitrator agreeable to both parties. If the parties cannot agree on a designated arbitrator within fifteen (15) days after arbitration is requested in writing by Indemnitee, the arbitration shall proceed in the Borough of Wellsboro in the Commonwealth of Pennsylvania, before an arbitrator appointed by the American Arbitration Association. In either case, the arbitration proceeding shall commence promptly under the rules then in effect of that Association and the arbitrator agreed to by the parties or appointed by that Association shall be an attorney other than an attorney who has, or is associated with a firm having associated with it an attorney which has been retained by or performed services for the Company or Indemnitee at any time during the five years preceding the commencement of arbitration. The award shall be rendered in such form that judgment may be entered thereon in any court having jurisdiction thereof. The prevailing party shall be entitled to prompt reimbursement of any costs and expenses (including, without limitation, reasonable attorneys’ fees) incurred in connection with such legal action or arbitration; provided that Indemnitee shall not be obligated to reimburse the Company unless the arbitrator or court which resolves the dispute determines that Indemnitee acted in bad faith in bringing such action or arbitration.

10.       Exclusions. Notwithstanding the scope of indemnification which may be available to Indemnitee from time to time under any Applicable Document, no indemnification, reimbursement or payment shall be required of the Company hereunder with respect to:

(a) Any claim or any part thereof as to which Indemnitee shall have been determined by a court of competent jurisdiction from which no appeal is or can be taken, by clear and convincing evidence, to have acted or failed to act with deliberate intent to cause injury to the Company or with reckless disregard for the best interest of the Company;

(b) Any claim or any part thereof arising under Section 16(b) of the Securities Exchange Act of 1934 pursuant to which Indemnitee shall be obligated to pay any penalty, fine, settlement or judgment;

(c) Any civil money penalty or judgment resulting from any Proceeding instituted by any federal banking agency, or any other liability or legal expense with regard to any administrative proceeding or civil action by any banking agency that results in a final order or settlement pursuant to which Indemnitee:

(1) is assessed a civil money penalty;

(2) is removed from office or prohibited from participating in the conduct of the affairs of the Company or its affiliates;

(3) is required to cease and desist from taking any affirmative action described under the Federal Deposit Insurance Act or other applicable banking laws with respect to the Company and its affiliates;

-4- 

(d) Any obligation of Indemnitee based upon or attributable to the Indemnitee gaining in fact any personal gain, profit or advantage to which he or she was not entitled; or

(e) Any Proceeding initiated by Indemnitee without the consent or authorization of the Board of Directors of the Company, provided that this exclusion shall not apply with respect to any claims brought by Indemnitee (i) to enforce his or her rights under this Agreement or (ii) in any Proceeding initiated by another person or entity whether or not such claims were brought by Indemnitee against a person or entity who was otherwise a party to such Proceeding.

Nothing in this Section 10 shall eliminate or diminish Company’s obligations to advance that portion of Indemnitee’s Expenses which represent attorneys’ fees and other costs incurred in defending any Proceeding pursuant to Section 3 of this Agreement; subject however to the undertaking by Indemnitee in the form attached hereto as Exhibit 1 and incorporated by reference herein.

11.       Extraordinary Transactions. The Company covenants and agrees that, in the event of any merger, consolidation or reorganization in which the Company is not the surviving entity, any sale of all or substantially all of the assets of the Company or any liquidation of the Company (each such event is hereinafter referred to as an “extraordinary transaction”), the Company shall:

(a) have the obligations of the Company under this Agreement expressly assumed by the survivor, purchaser or successor, as the case may be, in such extraordinary transaction; or

(b) otherwise adequately provide for the satisfaction of the Company’s obligations under this Agreement in a manner acceptable to Indemnitee.

12.       No Personal Liability. Indemnitee agrees that neither the directors nor any officer, employee, representative or agent of the Company shall be personally liable for the satisfaction of the Company’s obligations under this Agreement, and Indemnitee shall look solely to the assets of the Company and the escrow the Company may establish, as referred to in Section 4 hereof, for satisfaction of any claims hereunder.

13.       Severability. If any provision, phrase, or other portion of this Agreement should be determined by any court of competent jurisdiction to be invalid, illegal or unenforceable, in whole or in part, and such determination should become final, such provision, phrase or other portion shall be deemed to be severed or limited, but only to the extent required to render the remaining provisions and portions of the Agreement enforceable, and the Agreement as thus amended shall be enforced to give effect to the intention of the parties insofar as that is possible.

14.       Subrogation. In the event of any payment under this Agreement, the Company shall be subrogated to the extent thereof to all rights to indemnification or reimbursement against any insurer or other entity or person vested in the Indemnitee, who shall execute all instruments and take all other actions as shall be reasonably necessary for the Company to enforce such rights.

15.       Governing Law. The parties hereto agree that this Agreement shall be construed and enforced in accordance with and governed by the laws of the Commonwealth of Pennsylvania.

16.       Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be considered to have been duly given if delivered by hand and receipted for by the party to whom the notice, request, demand or other communication shall have been directed, or mailed by certified mail, return receipt requested, with postage prepaid:

-5- 

(a) If to the Company, to:

Citizens & Northern Corporation

90-92 Main Street

P.O. Box 58

Wellsboro, PA 16901

(b) If to Indemnitee, to:

Tracy E. Watkins

1972 N. Williamson Road

Covington, PA 16917

or to such other or further address as shall be designated from time to time by the Indemnitee or the Company to the other.

17.       Termination. This Agreement may be terminated by either party upon not less than sixty (60) days prior written notice delivered to the other party, but such termination shall not in any way diminish the obligations of Company hereunder with respect to the Indemnitee’s activities prior to the effective date of termination.

18.       Amendments and Binding Effect. This Agreement and the Undertaking and the rights and duties of Indemnitee and the Company hereunder and thereunder may not be amended, modified or terminated except by written instrument signed and delivered by the parties hereto. This Agreement is and shall be binding upon and shall inure to the benefits of the parties thereto and their respective heirs, executors, administrator, successors and assigns.

In Witness Whereof, the undersigned have executed this Agreement in triplicate as of the date first above written.

INDEMNITEE		CITIZENS & NORTHERN CORPORATION
By:	/s/ Tracy E. Watkins	By:	/s/ J. Bradley Scovill
Title:	Executive Vice President and Director of Human Resources	Title:	President and Chief Executive Officer

-6- 

EXHIBIT - 1

FORM OF UNDERTAKING

THIS UNDERTAKING has been entered into by ___________________ (hereinafter “Indemnitee”) pursuant to an Indemnification Agreement dated ___________ ___, 20__ (the “Indemnification Agreement”), by and between Citizens & Northern Corporation, a bank holding company registered under the Bank Holding Company Act of 1956, as amended, and a Pennsylvania corporation (the “Company”), and Indemnitee.

WITNESSETH:

WHEREAS, pursuant to the Indemnification Agreement, Company agreed to pay Expenses (within the meaning of the Indemnification Agreement) as and when incurred by Indemnitee in connection with any claim against Indemnitee which is the subject of any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative or investigative, to which Indemnitee was, is, or is threatened to be made a party by reason of facts which include Indemnitee’s being or having been a director, officer or representative (within the meaning of the Indemnification Agreement) of the Company;

WHEREAS, such a claim has arisen against Indemnitee and Indemnitee has notified Company thereof in accordance with the terms of Section 6 of the Indemnification Agreement (hereinafter the “Proceeding”);

NOW, THEREFORE, Indemnitee hereby agrees that in consideration of Company’s advance payment of Indemnitee’s Expenses incurred prior to a final disposition of the Proceeding, Indemnitee hereby undertakes to reimburse Company for any and all Expenses paid by Company on behalf of Indemnitee prior to a final disposition of the Proceeding in the event that Indemnitee is determined under the Applicable Document (within the meaning of the Indemnification Agreement) or applicable law to be required to repay such amounts to the Company, provided that if Indemnitee is entitled under the Applicable Document or applicable law to indemnification for some or a portion of such Expenses, Indemnitee’s obligation to reimburse Company shall only be for those Expenses for which Indemnitee is determined to be required to so repay such amounts to the Company pursuant to the Indemnification Agreement or applicable law.

If the Indemnitee is involved in an administrative proceeding or action instituted by an appropriate banking agency and requests the Company to pay the Expenses incurred before a final order is entered, the Indemnitee shall reimburse the Company for all Expenses paid by the Company if a final order is entered (i) assessing civil money penalties; (ii) removing Indemnitee from office or prohibiting Indemnitee from participating in the conduct of the affairs of the Company or its affiliates; or (iii) requiring Indemnitee to cease and desist from taking any affirmative action described under the Federal Deposit Insurance Act or other applicable banking laws with respect to the Company and its affiliates. The Indemnitee hereby agrees to reimburse the Company for Expenses which subsequently are deemed “prohibited indemnification payments”, as defined in 12 C.F.R. § 359.1(1).

Further, the Indemnitee agrees to reasonably cooperate with the Company concerning such Proceeding.

In Witness Whereof, the undersigned has set his hand this _____ day of ______________, 20__.

INDEMNITEE

The Form Provided for Informational Purposes Only

(In the event this form is needed, a blank to be signed and returned will be provided upon request.)

-7- 

EX-10.7

Exhibit 10.7

CHANGE IN CONTROL AGREEMENT

THIS CHANGE IN CONTROL AGREEMENT (“Agreement”) is entered into as of the 9th day of January, 2018, by and among CITIZENS & NORTHERN CORPORATION, a Pennsylvania corporation (the “Corporation”), CITIZENS & NORTHERN BANK, a Pennsylvania bank (the “Bank”), and Tracy E. Watkins, an employee of the Corporation and/or the Bank and/or of a subsidiary of either (the “Employee”). The Corporation and the Bank are collectively referred to herein as the “Employer.”

WHEREAS, the Employer wishes to assure itself of the continuity of the Employee’s services in the event of any actual change in control of the Corporation; and

WHEREAS, the Employer and the Employee accordingly desire to enter into this Agreement on the terms and conditions set forth below;

NOW, THEREFORE, in consideration of the premises and mutual covenants set forth herein, it is hereby agreed by and between the parties as follows:

1.          Term of Agreement. The “Term” of this Agreement shall commence on the date hereof and shall continue through December 31, 2018; provided, however, that on such date and on each December 31 thereafter, the Term of this Agreement shall automatically be extended for one additional year unless, not later than the preceding January 1 either party shall have given written notice to the other that such party does not wish to extend the Term; and provided, however, that if a Change in Control (as defined in Section 3 below) shall have occurred during the original or any extended Term of this Agreement, the Term of this Agreement shall continue for a period of twenty-four (24) calendar months commencing with the calendar month in which such Change in Control occurs and shall end upon the expiration of such 24 month period.

2.          Employment After a Change in Control. If the Employee is in the employ of the Bank on the date of a Change in Control, the Bank hereby agrees to continue the Employee in its employ for the period commencing on the date of the Change in Control and ending on the last day of the Term of this Agreement (the “Employment Period”). During the Employment Period, the Employee shall hold such position with the Bank and exercise such authority and perform such employment duties as are commensurate with the Employee’s position, authority and duties immediately prior to the Change in Control. The Employee agrees that during the Employment Period the Employee shall devote full business time exclusively to the Employee’s duties and perform such duties faithfully and efficiently; provided, however, that nothing in this Agreement shall prevent either (i) the Employee from voluntarily resigning from employment upon at least sixty (60) days’ written notice to the Bank under circumstances which do not constitute a Termination (as defined below in Section 5), or (ii) the Bank terminating the Employee for “Cause” as defined in Section 5 hereof or for any other reason or no reason.

3.          Change in Control. For purposes of this Agreement, a “Change in Control” means the happening of any of the following: the merger of the Corporation into, or the consolidation of the Corporation with, another entity; the sale or other disposition of all or substantially all of the Corporation’s assets; or the liquidation of the Corporation; provided, however, that a Change in Control shall not be deemed to have occurred by reason of a transaction, or a substantially concurrent or otherwise related series of transactions, upon the completion of which 50 percent or more of the beneficial ownership of the voting power of the Corporation (or of the surviving corporation or corporation directly or indirectly controlling the Corporation) is held by (i) employee benefit plans of the Corporation ; or (ii) an “Affiliate” of the Corporation (as defined in the Securities Exchange Act of 1934, as amended).

4.          Compensation During the Employment Period. During the Employment Period, the Employee shall be compensated as follows:

a.           The Employee shall receive compensation which is not less than compensation paid by the Employer to the Employee immediately prior to the Employment Period; and

b.           The Employee shall be eligible to participate in the Employer employee benefit plans which are not materially less favorable to the Employee than the Employer employee benefit plans in which the Employee participated in immediately prior to the Employment Period.

5.          Termination. For purposes of this Agreement, the term “Termination” shall mean termination of the employment of the Employee during the Employment Period either (i) by the Employer, for any reason other than death, Disability (as defined below), or Cause (as described below), or (ii) by resignation of the Employee upon the occurrence of one or more of the following events:

a.           A significant change in the nature or scope of the Employee’s authorities or duties from those described in Section 2 above, a breach of any of the provisions of Section 4 above, or the breach by the Employer of any other provision of this Agreement;

b.           The relocation of the Employee’s office to a location more than 35 miles from the location of the Employee’s office immediately prior to the Employment Period;

c.           A reasonable determination by the Employee that, as a result of a Change in Control and a change in circumstances thereafter significantly affecting the nature and scope of Employee’s authorities and duties from those described in Section 2 above, the Employee is unable to exercise the authorities, powers, functions or duties associated with the Employee’s position as contemplated by Section 2 above; or

d.           The failure of the Corporation to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement as contemplated in Section 15 below.

The date of the Employee’s Termination under this Section 5 shall be the date specified by the Employee or the Employer, as the case may be, in a written notice to the other party complying with the requirements of Section 11 below. For purposes of this Agreement, the Employee shall be considered to have a “Disability” during the period in which the Employee is unable, by reason of a medically determinable physical or mental impairment, to engage in the material and substantial duties of the Employee’s regular occupation, which condition is expected to be permanent. For purposes of this Agreement, the term “Cause” means, in the reasonable judgment of the Board of Directors of the Employer, (i) the willful and continued failure by the Employee to substantially perform the Employee’s duties with the Employer after written notification by the Employer, or (ii) the willful engaging by the Employee in conduct which is demonstrably injurious to the Employer, monetarily or otherwise, or (iii) the engaging by the Employee in egregious misconduct involving moral turpitude. For purposes of this Agreement, no act, or failure to act, on the Employee’s part shall be deemed “willful” unless done, or omitted to be done, by the Employee not in good faith and without reasonable belief that such action was in the best interest of the Employer.

6.          Severance Payments. In the event of a Termination described in Section 5 above, in lieu of the amounts otherwise payable under Section 4 above, the Employee shall be entitled to receive (i) Employer-paid COBRA premiums (relating to the Employee’s group medical insurance continuation premiums) for a period of eighteen (18) months after the date of Termination, and (ii) a lump sum payment in cash no later than thirty (30) business days after the date of Termination equal to the sum of:

Page 2 of 6 

a.        the Employee’s unpaid salary, accrued vacation pay and unreimbursed business expenses through and including the date of Termination; and

b.        an amount equal to one times the Employee’s base salary in effect immediately prior to the date of Termination.

7.          Excess Parachute Payment Limitation. Notwithstanding any other provision of this Agreement, if the sum of the payments to the Employee described in this Agreement and in any other agreement, program, or plan between the Employee and the Employer (or an affiliate of the Employer) attributable to the same Change in Control constitute “excess parachute payments” (as defined in Section 280G(b)(1) of the Internal Revenue Code of 1986, as amended (“Code”)), the Employer shall reduce the amounts otherwise payable to the Employee under this Agreement so that the Employee’s total “parachute payment” (as defined in Code Section 280G(b)(2)(A)) under this Agreement and any other agreements, programs, or plans shall be One Thousand Dollars ($1,000) less than the amount that would be an “excess parachute payment.”

8.          Withholding. All payments to the Employee under this Agreement will be subject to all applicable withholding of state and federal taxes.

9.          Confidentiality and Non-Solicitation. The Employee agrees that:

a.           Except as may be required by the lawful order of a court or agency of competent jurisdiction, or except to the extent that the Employee has express authorization from the Employer, the Employee agrees to keep secret and confidential all non-public information concerning the Employer (or any entity controlled by the Employer) which was acquired by or disclosed to the Employee during the course of the Employee’s employment with the Employer (or any entity controlled by the Employer), and not to disclose the same, either directly or indirectly, to any other person, firm or business entity or to use it in any way.

b.           While the Employee is employed by the Employer (or any entity controlled by the Employer) and for a period of twelve (12) months after the date of the Employee’s Termination or other termination of employment with the Employer, the Employee covenants and agrees that Employee will not, whether for Employee or for any other person, business, partnership, association, firm, company or corporation, initiate contact with, solicit, divert or take away any of the customers (entities or individuals from which the Employer or any entity controlled by the Employer receives payment for services) of the Employer (or any entity controlled by the Employer) or employees of the Employer (or any entity controlled by the Employer) in existence from time to time during Employee’s employment with the Employer (or any entity controlled by the Employer) and at the time of such initiation, solicitation or diversion.

10.         Mitigation and Set-Off. The Employee shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise. The Employer shall not be entitled to set off against the amounts payable to the Employee under this Agreement any amounts earned by the Employee in other employment after termination of employment with the Employer, or any amounts which might have been earned by the Employee in other employment had he sought such other employment.

11.         Notices. Any notice of Termination of the Employee’s employment by the Employer or the Employee for any reason under Section 5 above shall be upon no less than fifteen (15) days’ and no greater than forty-five (45) days’ advance written notice to the other party. Any notices, requests, demand and other communications provided for by this Agreement shall be sufficient if in writing and if sent by registered or certified mail to the Employee at the last address the Employee has filed in writing with the Employer or, in the case of the Employer, to the attention of the Secretary of the Employer, at its principal executive offices.

Page 3 of 6 

12.         Non-Alienation. The Employee shall not have any right to pledge, hypothecate, anticipate or in any way create a lien upon any amounts provided under this Agreement; and no amounts payable hereunder shall be assignable in anticipation of payment either by voluntary or involuntary acts, or by operation of law. Nothing in this Section 12 shall limit the Employee’s rights or powers to dispose of the Employee’s property by Last Will and Testament or limit any rights or powers which the Employee’s executor or administrator would otherwise have. This Agreement shall inure to the benefit of and be enforceable by the Employee’s personal or legal representatives, executors, administrators, successors, heirs, designees, devisees, and legatees. If the Employee should die while any amount is still payable to the Employee hereunder had the Employee continued to live, all such amounts shall be paid in accordance with the terms of this Agreement to the Employee’s designees, devisees, or legatee, or if there are none, to the Employee’s estate.

13.         Governing Law. The provisions of this Agreement shall be construed in accordance with the laws of the State of Pennsylvania, without application of conflict of laws provisions thereunder.

14.         Amendment. This Agreement may be amended or canceled by mutual agreement of the parties in writing without the consent of any other person and, except as specifically provided in Section 15 hereto, so long as the Employee lives, no person, other than the parties hereto, shall have any rights under or interest in this Agreement or the subject matter hereof.

15.         Successors to the Employer. This Agreement shall be binding upon and inure to the benefit of the Employer and any successor of the Employer. The Employer shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Employer to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Employer would be required to perform it if no succession had taken place.

16.         Employment Status. Nothing herein contained shall be deemed to create an employment agreement between the Employer and the Employee, providing for the employment of the Employee by the Employer for any fixed period of time. The Employee’s employment with the Employer is terminable at will by the Employer or the Employee, and each shall have the right to terminate the Employee’s employment with the Employer at any time, with or without Cause, subject to (i) the notice provisions of this Agreement, and (ii) the Employer’s obligation to provide severance payments if and as required by Section 6. Upon a termination of the Employee’s employment prior to the date of a Change in Control, there shall be no rights of the Employee under this Agreement.

17.         409A SAFE HARBOR.

a.           General. It is intended that this Agreement shall comply with the provisions of section 409A of the Code and the Department of the Treasury (the "Department") Regulations relating thereto, or an exemption to section 409A of the Code. Any payments that qualify for the "short-term deferral" exception or another exception under section 409A of the Code shall be paid under the applicable exception. For purposes of the limitations on nonqualified deferred compensation under section 409A of the Code, each payment of compensation under this Agreement shall be treated as a separate payment of compensation for purposes of applying the section 409A of the Code deferral election rules and the exclusion under section 409A of the Code for certain short-term deferral amounts. All payments to be made upon a termination of employment under this Agreement may only be made upon a "separation from service" under section 409A of the Code. In no event may the Employee, directly or indirectly, designate the calendar year of any payment under this Agreement. Within the time period permitted by the applicable Department Regulations (or such later time as may be permitted under section 409A or any Internal Revenue Service or Department rules or other guidance issued thereunder), the Corporation may, in consultation with the Employee, modify the Agreement in order to cause the provisions of the Agreement to comply with the requirements of section 409A of the Code, so as to avoid the imposition of taxes and penalties on the Employee pursuant to section 409A of the Code.

Page 4 of 6 

b.           In-Kind Benefits and Reimbursements. Notwithstanding anything to the contrary in this Agreement, all reimbursements and in-kind benefits provided under this Agreement shall be made or provided in accordance with the requirements of section 409A of the Code including, where applicable, the requirement that (i) any reimbursement is for expenses incurred during the Employee’s lifetime (or during a shorter period of time specified in this Agreement); (ii) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during a calendar year may not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other calendar year; (iii) the reimbursement of an eligible expense will be made no later than the last day of the calendar year following the year in which the expense is incurred; and (iv) the right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.

c.           Delay of Payments. Notwithstanding any other provision of this Agreement to the contrary, if the Employee is considered a "specified employee" for purposes of section 409A of the Code (as determined in accordance with the methodology established by the Corporation and the Bank as in effect on the date of termination), (i) any payment that constitutes nonqualified deferred compensation within the meaning of section 409A of the Code that is otherwise due to the Employee under this Agreement during the six-month period following his separation from service (as determined in accordance with section 409A of the Code) shall be accumulated and paid to Employee on the first business day of the seventh month following her separation from service (the "Delayed Payment Date") and (ii) in the event any equity compensation awards held by the Employee that vest upon termination of the Employee’s employment constitute nonqualified deferred compensation within the meaning of section 409A of the Code, the delivery of shares of common stock (or cash) as applicable in settlement of such award shall be made on the earliest permissible payment date (including the Delayed Payment Date) or event under section 409A on which the shares (or cash) would otherwise be delivered or paid. The Employee shall be entitled to interest on any delayed cash payments from the date of termination to the Delayed Payment Date at a rate equal to the applicable federal short-term rate in effect under Code section 1274(d) for the month in which the Employee’s separation from service occurs. If the Employee dies during the postponement period, the amounts and entitlements delayed on account of section 409A of the Code shall be paid to the person designated by the Employee in writing for this purpose, or in the absence of any such designation, to (i) her spouse if he survives her, or (ii) to her estate if her spouse does not survive her, on the first to occur of the Delayed Payment Date or 30 days after the date of the Employee’s death. The foregoing shall apply only to those payments required hereunder, if any, that do not qualify as short term deferrals or an exempt pay arrangement under section 409A.

Page 5 of 6 

18.         Severability. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect.

19.         Survival. Notwithstanding any other provision of this Agreement to the contrary, Sections 9, 15 and 17 shall survive the termination of this Agreement and the termination of the Employee’s employment with the Employer.

20.         Counterparts. This Agreement may be executed in two or more counterparts, any one of which shall be deemed the original without reference to the others.

IN WITNESS WHEREOF, the Employee and the Employer have executed this Agreement as of the day and year first above written, but on the dates indicated below each.

EMPLOYEE:
Signature:	/s/ Tracy E. Watkins

Printed Name:	Tracy E. Watkins
Address:	1972 N. Williamson Road
	Covington, PA 16917
Date:	01/09/18

CORPORATION:
CITIZENS & NORTHERN CORPORATION
By:	/s/ J. Bradley Scovill
Title:	President & CEO
Date:	01/09/18
BANK:
CITIZENS & NORTHERN BANK
By:	/s/ J. Bradley Scovill
Title:	President & CEO
Date:	01/09/18

Page 6 of 6 

EX-10.8

Exhibit 10.8

CITIZENS & NORTHERN CORPORATION

DEFERRED COMPENSATION PLAN

CITIZENS & NORTHERN CORPORATION

DEFERRED COMPENSATION PLAN

ARTICLE I. PURPOSE:

This Plan adopted this 17th day of December, 2015 and effective January 1, 2016 by Citizens & Northern Corporation.

The Company hereby adopts the Plan to provide deferred compensation benefits for certain of its key management/highly compensated employees. The Plan is intended to be an unfunded plan maintained primarily for the purpose of providing deferred compensation supplemental retirement benefits for a select group of management or highly compensated employees under Sections 201(2), 301(a)(3) and 401(a)(l) of the Employee Retirement Income Security Act of 1974 ("ERISA"). The Plan is intended to be a nonqualified deferred compensation plan that complies with the provisions of Section 409A of the Internal Revenue Code (the "Code"). The Plan shall be interpreted, operated and administered in a manner consistent with these intentions.

ARTICLE II. DEFINITIONS:

2.1.       “Account” means, the account maintained with respect to each Participant which is credited with Deferred Contribution Credits and deemed investment gains or losses, minus payments to the Participant.

2.2.       “Beneficiary” means the person, persons, entity or entities designated by a Participant or determined pursuant to the provisions of Article V of the Plan.

2.3.       “Board” means the Board of Directors of the Company.

2.4.        “Committee” means the Compensation Committee of the Board of Directors or any other Committee of the Board of Directors so designated by the Board as authorized to administer the Plan.

2.5.       “Company” means Citizens & Northern Corporation.

2.6.       “Compensation” shall mean the Participant’s base salary plus incentive bonus compensation paid to the Participant for a Plan Year.

2.7.       “Deferred Contribution Credit” means the amount credited to the Participant’s Account as described in Section 4.1.

2.8.       “Disabled” means Disabled within the meaning of Section 409A of the Code and the regulations thereunder. Generally, this means that the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under an accident and health plan covering Employees of the Employer.

2.9.        “Effective Date” shall mean January 1, 2016.

2.10.       “Employee” means any individual who is actively employed by the Employer provided that the individual is a highly compensated or management employee of the Employer.

2.11.       “Employer” means separately and collectively Citizens & Northern Bank and Citizens & Northern Corporation.

2.12.        “Participant” means with respect to any Plan Year an Employee designated by the Committee as eligible to participate in the Plan.

2.13.       “Participation Agreement” means the written agreement entered into between a Participant and the Employer which sets forth applicable Deferred Contribution Credit percentages, election options and/or beneficiary designations of the Participant.

2.14.       “Plan” means the Citizens & Northern Deferred Compensation Plan, as amended from time to time and at all times operated and maintained consistent with Section 409A of the Code.

2.15.       “Plan Year” means the twelve-month period ending each December 31.

2.16.       “Qualifying Distribution Event” means (i) the Separation from Service of the Participant, (ii) the date the Participant becomes Disabled, or (iii) the death of the Participant.

2.17.       “Separation from Service” or “Separates from Service” shall mean “separation from service” as set forth under Code Section 409A.

2.18.       “Specified Employee” means any Participant who as of such Participant’s Separation from Service is a key employee. A Participant is a key employee if the Participant qualifies as a key employee under Section 416(i)(1)(A)(i), (ii) or (iii) of the Code (and regulations promulgated thereto) at any time during the twelve month period ending on December 31 of each year. If the Participant is a key employee as of December 31 of any year the Participant is treated as a key employee for the entire 12 month period beginning on the following April 1.

2.19.       “Spouse” or “Surviving Spouse” means, except as otherwise provided in the Plan, a person who is the legally married spouse or surviving spouse of a Participant.

ARTICLE III. PARTICIPATION:

The Committee, in its sole discretion, shall designate each Employee who is eligible to participate in the Plan. Provided however participation under the Plan is available only to Employees who constitute management and/or highly compensated Employees of the Employer.

2

ARTICLE IV. CONTRIBUTION CREDITS:

4.1.       Deferred Contribution Credits. Each Participant may elect, by entering into a Participation Agreement with the Employer, to defer the receipt of Compensation from the Employer by a dollar amount or percentage specified in the Participation Agreement. The amount of Compensation the Participant elects to defer shall be credited by the Employer to the Account of such Participant under the Plan. The following provisions shall apply with respect to the Deferred Contribution Credits of a Participant:

a. Deferred Contribution Credits shall be made to the Plan only pursuant to an executed Participation Agreement delivered by the Participant to the Committee. The Participant’s Account shall be credited by the Employer based on the amounts deferred by the Participant for the applicable period. Subject to the provisions applicable to new Participants below, the Participation Agreement shall become effective with respect to such Participant as of the first day of January following the date such Participation Agreement is received by the Committee. A Participation Agreement regarding Deferred Contribution Credits shall remain in effect for subsequent Plan Years unless modified by the Participant as permitted herein.

b. A Participant may modify his Participation Agreement by providing such written modification of his Participation Agreement to the Committee. The modification may terminate, decrease or increase his Deferred Contribution Credit election provided however, such modification may only be effective as of the first day of January following the date the executed modification is delivered to the Committee.

c. A newly eligible Participant may execute and deliver a Participation Agreement to the Committee within 30 days after the date the Participant first becomes eligible to participate in the Plan, such election shall be effective as of the first payroll period next following the date the Participation Agreement is executed and delivered to the Committee.

d. The Committee may from time to time establish policies or rules consistent with the requirements of Section 409A of the Code to govern the manner in which Participant Deferred Credits shall be made pursuant to policies and procedures established by the Committee which are not inconsistent with the rules under Section 409A of the Code.

4.2.       Account. All Deferred Contribution Credits shall be credited to the Account of the Participant as provided in this Article IV. The Employer reserves the right to make contributions to a rabbi trust in conjunction with this Plan, such trust and its assets will be subject to the claims of the Company's creditors.

3

ARTICLE V. VESTING/BENEFICIARY:

5.1.       Vesting. A Participant shall at all times be fully vested in his Account.

5.2.       Designated Beneficiary. The Participant may designate any person, persons, entity or entities as the beneficiary of the Participant’s Account under the Plan on forms provided by and filed with the Committee. If no beneficiary is designated by the Participant, the beneficiary shall be the Participant’s Surviving Spouse. If the Participant does not designate a beneficiary and has no Surviving Spouse and has not designated any beneficiary or all such beneficiaries have predeceased the Participant, the beneficiary shall be the Participant's estate. A beneficiary designation may be changed or revoked at any time by filing a new beneficiary designation form with the Committee. If the primary beneficiary is receiving or is entitled to receive payments under the Plan and dies prior to receiving or before receiving all of the payments due, the balance to which the beneficiary is entitled shall be paid to the contingent beneficiary, if any, named in the Participant's current beneficiary designation form. If no contingent beneficiary is designated, the contingent beneficiary shall be the Participant’s estate. Any beneficiary may disclaim all or any part of any benefit to which such beneficiary shall be entitled hereunder by filing a written disclaimer with the Committee.

ARTICLE VI. NO ACCOUNT INVESTMENTS:

6.1.       Deemed Investments for Account. The Account of a Participant shall be credited based on investment returns determined as if the Account was invested in one or more investment options made available under the Plan. The Participant may, as determined by the Committee, elect the investment funds in which his Account is deemed to be invested. The Participant’s investment election will remain in effect until the Participant changes the election. If no election is made by the Participant, the investment return to be credited to the Participant’s Account shall be determined by the Committee and such investment return shall be communicated to the Participant.

6.2.       Account Balance Adjustments. A Participant’s Account shall be credited with the total amount of any Deferred Contribution Credits since the last credit date and shall be credited or debited with the amount of the deemed investment gain or loss attributable thereto resulting from the performance of the deemed investment funds elected by the Participant. The amount of such deemed investment gain or loss shall be determined by the Committee and such determination shall be final.

ARTICLE VII. QUALIFYING DISTRIBUTION EVENTS:

7.1.       Separation from Service. If the Participant Separates from Service with the Employer the vested balance in the Participant’s Account shall be paid to the Participant as provided in Article VIII. However, no distribution from the Plan shall be made earlier than six months after the date of Separation from Service or, if earlier, the date of death, with respect to a Participant who is a Specified Employee of a corporation which is traded on an established securities market. If the Participant qualifies as a Specified Employee of a corporation specified above, all payments which would otherwise have been made during the first six months following the date of Separation from Service shall be paid on the first day of the seventh month following the date of Separation from Service in addition to any payment which may be due on the seventh month.

4

7.2.       Disability. If the Participant becomes Disabled prior to Separation from Service, the Participant’s Account shall be paid to the Participant by the Employer as provided in Article VIII.

7.3.       Death. If the Participant dies prior to Separation from Service, the Employer shall pay the Participant’s Account to the Participant's Beneficiary as provided in Article VIII.

ARTICLE VIII. DISTRIBUTION PROCEDURES:

8.1.       Timing of Payments. Subject to the provisions of this ARTICLE VIII, a Participant may elect under his Participation Agreement, in accordance with Section 409A of the Code, whether to have his benefit paid to him in monthly or annual installments over a period selected by the Participant or in a lump sum. The Participant may also elect different payment option forms for each Qualifying Distribution Event.

8.2.       Distribution Election Changes. With the prior consent of the Committee, a Participant may delay the payment of any separate equal monthly or annual installment or lump sum of his Account subject to the following:

(a)       The new payment election may not take effect until at least 12 months after the date on which the new election is made.

(b)       If the new election relates to a payment for a Qualifying Distribution Event other than the death of the Participant or the Participant becoming Disabled, the new election must commence not earlier than at least five years from the date such payment would otherwise have been made.

8.3.       Timing of Payments. Payment(s) shall be made in the form elected by the Participant and shall commence as soon as soon as administratively feasible following the Qualifying Distribution Event, but not in any event later than ninety (90) days following the Qualifying Distribution Event unless prohibited by Section 409A.

8.4.       Installment Payments. Payment of each monthly or annual installment shall be made on the anniversary of the date of the first installment payment, and the amount of the annual installment shall be adjusted on such anniversary for credits or debits to the Participant's Account pursuant to Article VI of the Plan.

8.5.       Acceleration of Payments. Except as may be permitted under Section 409A of the Code and regulations, notices or announcements pertaining to Section 409A of the Code, the acceleration of the time or schedule of any payment due under the Plan shall be prohibited.

5

ARTICLE IX. ADMINISTRATION:

9.1.       Membership of Committee. The Committee shall consist of not less than three (3) individuals appointed by the Board. Any member of the Committee may resign or be replaced by the Board, and his successor, if any, shall be appointed by the Board.

9.2.       Committee Responsibilities. The Committee shall be responsible for the operation and administration of the Plan and for carrying out its provisions. The Committee shall have the full authority and discretion to make, amend, interpret, and enforce all appropriate rules and regulations for the administration of this Plan. The Committee shall have the authority to designate employees eligible to participate in the Plan, to direct the Company as to the payment of benefits, to file such reports as requested from time to time, to administer the Plan’s claims procedure and to administer and interpret the Plan. Action of the Committee shall be final and conclusive as to any matter pertaining to the Plan. The Committee may rely upon information furnished by any representative of the Company or any actuary, accountant or legal counsel. The Committee may, from time to time, employ agents and delegate to such agents, including employees of the Employer, such administrative or other duties as it sees fit.

9.3.       Indemnification/Hold Harmless. The Employer shall indemnify and hold harmless each member of the Committee and its agents, against any and all liabilities or expenses, including all legal fees relating thereto, arising in connection with the exercise of their duties and responsibilities with respect to the Plan, excluding, however, gross negligence or willful misconduct of such Committee member or its agents.

ARTICLE X. COMPOSITION OF THE COMMITTEE/
AMENDMENT AND TERMINATION OF PLAN:

10.1.       The Board shall have the exclusive authority to appoint or remove members of the Committee at any time. The Board may amend any provision of the Plan or terminate the Plan at any time; provided, that in no event shall such amendment or termination reduce the balance in any Participant's Account as of the date of such amendment or termination, nor shall any such amendment affect the terms of the Plan relating to the payment of such Account. The Employer shall make sure that this Plan is maintained in compliance with Section 409A of the Code. Notwithstanding the foregoing, the Company may, in its discretion, terminate the Plan and distribute benefits to Participants subject to Section 409A of the Code and the following requirements:

(a)         No payments are made within 12 months of the termination date other than payments that would have normally been payable under the terms of the Plan if the termination had not occurred and all benefits under the Plan are paid within 24 months of the termination date.

(b)        The termination of the Plan is not occurring as a result of a downturn or expected downturn in the Company’s financial status.

6

(c)         All employer arrangements/plans that would be aggregated with this Plan under Section 409A regulations are terminated.

(d)         The Company does not adopt, within 3 years following the termination of the Plan, a new program that would be aggregated with the Plan under Section 409A of the Code.

ARTICLE XI. CLAIMS PROCEDURE:

11.1.       All claims under this Plan must be filed by a Participant or Beneficiary pursuant to this Article XI. If any Participant or Beneficiary (the "claimant") believes that he is entitled to benefits under the Plan which are not being paid to him or which are not being accrued for his benefit, the Participant must first file a written claim with the Committee pursuant to this Claims Procedure. A Participant may appoint a representative to act on his behalf pursuant to the presentation of the claim.

11.2.       Notice of Decision. Within 90 days after receipt of a claim by the Committee, the Committee shall notify the claimant of the decision with regard to the claim. If the claim is wholly or partially denied, the claimant shall be informed, in writing, of: (i) the specified reason or reasons for the denial; (ii) specific reference to pertinent provisions of the Plan on which the denial is based; (iii) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and (iv) an explanation of the procedure for review of the denial and the time limits applicable to such procedures, including a statement of the claimant's right to bring a civil action under ERISA following an adverse benefit determination on review.

11.3.       Review of Decision.

(a)         Within 60 days following receipt by the claimant of notice denying his claim, in whole or in part, or, if such notice shall not be given, within 60 days following the latest date on which such notice could have been timely given, the claimant may appeal denial of the claim by filing a written application for review with the Committee. Following such request for review, the Committee shall fully and fairly review the decision denying the claim. Prior to the decision of the Committee, the claimant shall be given an opportunity to review pertinent documents and to submit issues and comments in writing.

(b)         The decision on review of a claim denied in whole or in part by the Committee shall be made in the following manner:

(i)       Within 60 days following receipt by the Committee of the request for review, the Committee shall notify the claimant in writing of its decision with regard to the claim.

(ii)       With respect to a claim that is denied in whole or in part, the decision on review shall set forth specific reasons for the decision, shall be written in a manner calculated to be understood by the claimant, and shall set forth:

7

(A)       the specific reason or reasons for the adverse determination;

(B)       specific reference to pertinent Plan provisions on which the adverse determination is based;

(C)       a statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claimant's claim for benefits; and

(D)       a statement describing any voluntary appeal procedures offered by the Plan and the claimant's right to obtain the information about such procedures, as well as a statement of the claimant's right to bring an action under ERISA section 502(a).

(c) The decision of the Committee shall be final and conclusive.

ARTICLE XII. MISCELLANEOUS:

12.1.       Assignability Prohibition. No portion of any benefit credited or paid under the Plan with respect to any Participant shall be payable to any party other than the Participant or Beneficiary nor shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt so to anticipate, alienate, sell, transfer, assign, pledge, encumber or charge the same shall be void. Provided, however, if all or any portion of the benefit of a Participant is transferred by approved court order to the former Spouse of the Participant incident to a divorce, the Committee shall maintain such amount for the benefit of the former Spouse until distributed in the manner required by an order of any court having jurisdiction over the divorce, and the former Spouse shall be entitled to the same rights as the Participant with respect to such benefit.

12.2.       Payment Obligations. The Company shall be obligated to make all payments due the Participant under the Plan. This obligation shall merely constitute a contractual liability of the Company to a Participant with such payments being made from the general funds of the Company. The Company shall not be required to establish or maintain any special or separate fund, or otherwise to segregate assets to assure that such payments shall be made. A Participant shall never have any interest in any particular assets of the Company by reason of its obligations hereunder. To the extent that any Participant or Beneficiary acquires a right to receive payment from the Company, such right shall be no greater than the right of an unsecured creditor of the Company.

8

12.3.       Trust. The Company may establish a trust to assist it in meetings its obligations under the Plan. Any such trust would be treated as a grantor trust for purposes of the Code. No trust asset may be held outside the United States.

12.4.       Construction/Gender. The provisions of this Plan shall be governed under the laws of the Commonwealth of Pennsylvania, except to the extent that such laws are superseded by ERISA and the applicable requirements of the Code. As used in this Plan, references to one gender shall include the other.

12.5.       Notices. Each Participant who Separates from Service and each Beneficiary shall be responsible for furnishing the Committee or its designee with his current address for the mailing of notices and benefit payments. Any notice required or permitted to be given to such Participant or Beneficiary shall be deemed given if directed to such address and mailed by regular United States mail, first class, postage prepaid.

12.6.       Set off. Notwithstanding any other provision of this Plan, the Employer may reduce the amount of any payment otherwise payable to or on behalf of a Participant hereunder (net of any required withholdings) at the time payment is due by the amount of any loan, cash advance, extension of credit or other obligation of the Participant to the Employer that is then due and payable.

12.7.       Reliance on Information. The Employer and the Committee shall have the right to rely on any data provided by the Participant or by any Beneficiary and the Employer and the Committee shall have no obligation to inquire into the accuracy of any representation made at any time by a Participant or Beneficiary.

12.8.       Release. Except otherwise provided, any payment made from the Plan to or with respect to any Participant or Beneficiary, or pursuant to a disclaimer by a Beneficiary, shall, to the extent thereof, be in full satisfaction of all claims hereunder against the Plan and the Employer. The recipient of any payment from the Plan may be required by the Committee, as a condition precedent to such payment, to execute a receipt and release with respect thereto in such form as shall be acceptable to the Committee.

12.9.       Continuation of Employment. The establishment of the Plan shall not be construed as conferring any legal or other rights upon any Employee or any persons for continuation of employment, nor shall it interfere with the right of the Employer to discharge any Employee or to deal with him without regard to the effect thereof under the Plan.

12.10.      Headings. The headings and subheadings of the Plan have been inserted for convenience of reference and are to be ignored in any construction of the provisions hereof.

12.11.      Merger or Consolidation. No Employer shall consolidate or merge into or with another corporation or entity, or transfer all or substantially all of its assets to another corporation, partnership, trust or other entity (a "Successor Entity") unless such Successor Entity shall assume the rights, obligations and liabilities of the Employer under the Plan and upon such assumption, the Successor Entity shall become obligated to perform the terms and conditions of the Plan. Nothing herein shall prohibit the assumption of the obligations and liabilities of the Employer under the Plan by any Successor Entity.

9

12.12.      Withholding Taxes. The Employer or other payor may withhold a benefit payment under the Plan or a Participant's wages, or the Employer may reduce a Participant's Account balance, in order to meet any federal, state, or local tax withholding obligations with respect to Plan benefits, as permitted under Section 409A of the Code.

12.13.      Legal Action. If Participant determines in good faith that the Employer or any successor has failed to comply with its obligations under this Plan, or if the Employer or any successor or any other person takes any action to declare this Plan void or unenforceable, or institutes any legal action or arbitration proceeding with respect to the foregoing, and as a result thereof, Participant is compelled to retain legal counsel, the Participant shall be reimbursed for his legal fees and expenses by the Employer provided an arbitrator or court of competent jurisdiction should find in favor of Participant in enforcing his rights hereunder.

The Plan is hereby adopted, upon authority of the Company authorized officers, this 21st day of December, 2015.

CITIZENS & NORTHERN CORPORATION

By: /s/ Tracy E. Watkins, VP Director of HR

10

EX-21

Exhibit 21

	Jurisdiction or
Name	State of Incorporation
Citizens & Northern Bank (A)	Pennsylvania
Bucktail Life Insurance Company (A)	Arizona
Citizens & Northern Investment Corporation (A)	Delaware
C&N Financial Services Corporation (B)	Pennsylvania
Northern Tier Holding LLC (B)	Pennsylvania

(A) Wholly-owned subsidiary of Citizens & Northern Corporation

(B) Wholly-owned subsidiary of Citizens & Northern Bank

EX-23

Exhibit 23

Consent of Independent Registered Public Accounting Firm

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-162279 and 333-160682) and Form S-8 (No. 333-150517 and 333-138398) of Citizens & Northern Corporation and subsidiaries of our reports dated February 15, 2018, relating to the consolidated financial statements and the effectiveness of Citizens & Northern Corporation and subsidiaries’ internal control over financial reporting, which appears in this annual report on Form 10-K for the year ended December 31, 2017.

/s/ Baker Tilly Virchow Krause, LLP

Williamsport, Pennsylvania

February 15, 2018

EX-31.1

Exhibit 31.1

CERTIFICATION

I, J. Bradley Scovill, certify that:

1. I have reviewed this annual report on Form 10-K of Citizens & Northern Corporation;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

February 15, 2018	By: /s/ J. Bradley Scovill
Date	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Mark A. Hughes, certify that:

1. I have reviewed this annual report on Form 10-K of Citizens & Northern Corporation;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

February 15, 2018	By: /s/ Mark A. Hughes
Date	Treasurer and Chief Financial Officer

EX-32

Exhibit 32

SECTION 1350 CERTIFICATIONS

In connection with the Annual Report of Citizens & Northern Corporation (the “Corporation”) on Form 10-K for the year ended December 31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned hereby certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to each of the undersigned’s best knowledge and belief:

(a) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 as amended; and

(b) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

February 15, 2018	By: /s/ J. Bradley Scovill
Date	President and Chief Executive Officer
February 15, 2018	By: /s/ Mark A. Hughes
Date	Treasurer and Chief Financial Officer

EX-99.1

Exhibit 99.1

 

Today, Tomorrow and the Future2017 Annual Highlights

 

Today, Tomorrow and the Future As a market leader, C&N places high importance on continually improving our customer experience. Delivering an experience that correlates with customer banking preferences – presently and into the future – has compelled us to define and implement an effective, efficient omni-channel delivery model. By investingin infrastructure, technology and our employees, we are laying the foundation for a sustainable, profitable future for C&N and its stakeholders. National Trends in Consumer Banking Preferences Over the last decade, we’ve seen a shift in consumer banking preferences and the introduction of many new convenience technologies. Decreased 20-35% Increased 44-55% Increased 20-35% Branch Traditionalist The branch is the primary channel used to complete banking tasks. These users value personal relationships with branch staff. Trend 20-35% Multi-Channel User This user completes banking tasks through a mix of online and in branch channels. Trend 44-55% Online Only User Most banking transactions completed by this user are done digitally. Trend 20-35% Source: Merkle © January 2016 The Financial Brand Today, Tomorrow and the Future

 

Net Change in Number of Bank Branches in the US1 Evidence of this shift can be seen by the trend in the number of branch locations in recent years. (see graph below). Trends in C&N’s Customer Delivery Channels As we plan for how banking products and services will be delivered in the future – both worldwide and specifically in our market areas – technology and people are two vital components. Specifically, regarding technology, we have historically been early adopters in our market place and look to continue that position with patience and intention into the future. Table of Contents Editor Introduction 2 Letter from the CEO 6 Corporate Profile 10 Executive Team 10 Corporate Officers 11 Board of Directors 11 Advisory Boards 11 Stock Profile 12 Summary of Operations 13 Quarterly Financial Data 16 Trust & Financial Management 17 Giving Back, Giving Together 18 Employee Highlights 20 IMPACT Players 20 TOP Awards 20 Spotlight Awards 20 Service Awards 21 In Memory of Teri Mitchell 22 Retirements 22 Connect With Us 23 1Source: FDIC © March 2016 The Financial Brand Today, Tomorrow and the Future

 

80% of C&N team members have completed enhanced customer service training Developing our current teams and recruiting quality new employees will continue as a key priority. Because transactions are increasingly conducted via online and mobile channels, the traditional teller line and its activity is transforming. Branch employees must be more tech savvy, have above average interpersonal skills and strong multi-tasking and problem solving abilities. As stated by our Mission, we strive to “Create Value through Lifelong Relationships.” Crafting the optimal formula of brick & mortar plus technological effectiveness all reinforced by well-trained, skilled employees will help ensure that C&N achieves our desired financial targets and delivers a customer experience in which customers find value. New in 2017 March Sayre Branch Remodel In early 2017, we completed remodeling our Sayre branch to better serve our Bradford County customers. In addition to updating the layout of the lobby, a tech desk was implemented to ensure all customers had access to complete online and mobile banking activities. April Business Banking Upgrade In April, our online banking system was updated to provide our business customers the ability to originate same-day ACH credits. May 13 different notices were made available for electronic delivery, saving our customers time, paper and space. Today, Tomorrow and the Future

 

June Smartphone Pay To continue to offer our customers the latest in banking convenience and technology, C&N completed the process of enabling our debit cards to be compatible with Android, Apple and Samsung's mobile payment apps. Business Financing Center To meet the needs of our business clients, we implemented an online system to quickly and easily submit loan requests on their schedule, anytime, anywhere. July August Online CDs In August, we also made our CDs available electronically. Customers are now able to open a fixed-rate CD any time with just a few clicks! Ju$t for Kid$ Relaunch To better serve our youngest clients, we modernized our youth savings account program to be more interactive and to have an increased focus on financial education and fun. September October Phone/Data Conversion A new phone and data system was installed to provide our team members with the necessary tools to provide great customer service every day. Non-Profit Package We introduced a specialized product offering to meet the unique needs of local non-profit organizations that are so important to our communities. November December Overdraft Privilege Program At the end of 2017, an update to our Overdraft Privilege program provides customers with yet another tool to put their money to work for them. Today, Tomorrow and the Future

 

A Message from Our President & CEO J. BRADLEY SCOVILL C&N’s focus during the past three years has been on driving our Mission of “Creating Value through Lifelong Relationships”, strengthening our values based culture, and aligning our business model to deliver long-term value to our shareholders, customers, employees, and community. In support of these priorities, we have made significant investments in developing our Team and technology as we seek to grow relationships, revenue and earnings today, while positioning C&N to compete successfully tomorrow and into the future. Producing a consistent long-term return on investment to our shareholders while delivering products, service, and counsel that create value for our customers remains our ongoing journey. At the conc lusion of our 2016 Annual Highlights Report, we observed the potential for an improving business and banking environment that could result from policy initiatives advanced by the new Trump administration. 2017 was, in fact, an interesting year as the political discourse and news cycle were intense and unpredictable, and the Federal Reserve remained active throughout the year. International events were a significant part of our national dialogue, as were a number of domestic issues, some of which have a direct impact on the banking industry, including community banks like C&N. Today, Tomorrow and the Future

 

Economic activity gained strength as the year progressed, both domestically and internationally. GDP growth in the United States was greater than 2% and both the European and Japanese economies grew after extended periods of stagnation or decline, creating opportunities for domestic companies including many in our market area. There was a notable increase in energy related activity in our region and persistent strength in natural gas prices into early 2018. Optimism about the future was reflected in rising equity markets, particularly here in the U.S., where the major indices increased by more than 30% in 2017. The passage of tax reform legislation in December provided support to the stock market as corporate and small business earnings should be enhanced over time by lower tax rates. The Federal Reserve raised its target fed funds rate three times during the year to 1.25% - 1.50% reinforcing the change in monetary policy that began in late 2015. These actions indicate the Fed’s view of ongoing strength in the economy and concern for future inflation. The result has been flattening of the yield curve as longer-term rates have not moved in concert with the short end of the curve. As we have previously observed, a steeper yield curve would benefit our net interest margin, while the current flattening makes margin expansion more challenging. To date, increasing rates have not had a negative impact on economic activity, although after nearly a decade of the lowest rates in modern history, it is hard to judge the level at which economic expansion and lending activity will be affected. A final observation on the policy-making environment relates to banking regulation. Congress and the administration are considering legislation that would pause, and potentially roll back, some of the increasing cost and burden of post financial crisis rule making. The industry is working closely with lawmakers to address areas of recent overreach, while sustaining appropriate regulation and oversight. A number of current proposals would provide some relief to community banks over time. The results would be to reduce future compliance related expenses and to simplify and streamline the customer experience. We have been making substantial investments in technology to address current customer needs and to position C&N for tomorrow and into the future.” Pictured left: A Tech Desk located in our newly remodeled Sayre Branch More broadly, advancing technology continues to be a major theme for business in general and for the banking industry. Commercial and retail customer preferences for accessing financial services have been changing dramatically while their fundamental desire to receive value from their banking relationships remains. We have been making substantial investments in technology to address current customer needs and to position C&N for tomorrow and into the future. These efforts include expanding our resources dedicated to cyber security to protect our customers’ confidential information and privacy.Today, Tomorrow and the Future

 

Meet our Elmira Team -Sandra VanOrder -Tammy Pabis -Jenny Murphy As you review C&N’s 2017 performance you will note that we are gaining traction from recent investments in our business model. Revenue growth accelerated as both net interest income and noninterest income increased at a faster pace than in 2016. These results highlight continued loan growth, an improving balance sheet mix, a substantial increase in trust related income, and the impact of expanding customer relationships. We expect these trends to continue, supported by efforts to increase market share in the Lycoming County (PA) and Steuben County (NY) markets, and early success in our Elmira, NY (Chemung County) lending office. The increase in noninterest expense reflects our ongoing investment in people and technology to strengthen our capacity for future growth and expansion, as well as unusually large increases in collection related expenses and health care claims. 2017 results were also impacted by a $901,000 pre-tax reduction in securities gains as compared to 2016 (or $.05 per share after tax). Net income totaled $13.4 million during 2017 or $2.3 million less than 2016. 2017 earnings were reduced $2.2 million, or $.18 per share, for a tax charge resulting from reduction in the marginal corporate income tax rate included in the tax reform legislation enacted in December. Net income per share was $1.10 as compared to $1.30 in 2016. Return on average assets for the year was 1.08%, and return on average equity was 7.11%. As mentioned, C&N’s earnings were impacted by the recent reduction in the marginal federal corporate income tax rate to 21%, effective January 1, 2018, from the 35% tax rate in effect throughout 2017 and 2016. Excluding the impact of the additional income tax expense, net income for 2017 totaled $15.6 million or $169,000 less than 2016, and net income per share was $1.28. Return on average assets was 1.25% and return on average equity was 8.25%, including the same adjustment. Management expects C&N’s income tax provision (expense) will be significantly lower in 2018 and on an ongoing basis as a result of the lower tax rate. Net interest income reached $41.9 million, an increase of $1.5 million, or 3.8%, from $40.4 million in 2016. Growth in average loans outstanding of $57.6 million compared to 2016 is the primary driver of this increase. Average total deposits experienced solid year over year growth of $20.2 million, or 2.1%, including strong growth in demand deposits, and, in combination with reductions in higher cost borrowings, continued the improvement in our funding mix. The yield on earning assets was 4.16% during the 2017 compared to 4.08% in 2016 while the overall cost of funds increased by .03%, to .48%, during the year. As a result, the net interest margin increased .06%, to 3.82% in 2017 from 3.76% a year earlier. C&N’s overall credit quality remains strong and consistent as displayed by our past due and non-performing loan metrics at December 31, 2017 compared to a year earlier. The provision was $801,000 during 2017 compared to $1.221 million in 2016, reflecting reductions in reserves related to net charge-off experience and qualitative factors used in calculating the allowance for loan losses. Management maintains a robust process to determine the adequacy of the allowance that incorporates these and other factors. Today, Tomorrow and the Future

 

Noninterest income, including fees, service charges, and other revenues, totaled $16.2 million in 2017, an increase of $642,000 (4.1%) as compared to 2016. Trust and financial management revenues, interchange fees on debit card transactions, and mortgage loan servicing fees increased, while gains on sale of mortgage loans decreased due to lower volumes and service charges on deposit accounts declined, continuing a multi-year trend. Generating noninterest income is one of C&N’s strengths, is consistent with our relationship driven mission, and provides diversity to our revenue streams. Trust and investment related services, mortgage lending, and payment/interchange revenues remain ongoing priorities for future revenue growth. Noninterest expenses increased $2.2 million (6.4%) in 2017 compared to 2016 driven by employee related expenses. Salaries and wages were $395,000 (2.6%) higher due to increased staffing levels compared to a year earlier, while pensions and other employee benefits costs increased $657,000 resulting primarily from higher health care claims. In addition, ATM and interchange expenses, software subscriptions, collection, other real estate, legal, and internal audit outsourcing expenses contributed to the increase. Investments in technology and staff development will continue in 2018, although at a somewhat slower pace, as we complete a number of projects and work to deliver value to customers and improve productivity. Our investments in products, technology, and data management investments continue to mature and are scalable to support future growth and expansion.” C&N’s capital position remains very strong and stable by all measures, including book value and regulatory capital ratios. This strength provides the Company with the ability to pursue growth and expansion, absorb one time charges such as the charge required due to the recent change in tax law, while continuing to support shareholder value. Dividends paid on common stock totaled $12.6 million or $1.04 per share in 2017, producing a yield of 4.33% based on the December 31, 2017 market price of $24.00. On January 18, 2018, the Board of Directors took action to increase the quarterly dividend by 3.8% to $.27 per share, or an annualized rate of $1.08 per share. The Board announced a common stock repurchase program for the acquisition of up to 600,000 shares in April 2016, although there have been no repurchases of stock under this program to date. As we continue to seek opportunities to leverage our capital base through profitable growth and expansion, we will thoughtfully consider distributions of excess capital to support shareholder value. During 2017, Director Ann Tyler retired after fifteen years as a member of the C&N Board. We thank Ann for her advice and counsel, and wish her the best in her future endeavors. As Ann retired, we welcomed Aaron Singer to the Board. Aaron is the third new member of our Board in the past two years and brings with him family-owned business experience, regional knowledge and community involvement, and energy. We look forward to his insight and perspective as he contributes to C&N’s future success.As we look to 2018 and beyond, C&N will remain focused on continuously developing our Team and our values- based culture. Our investments in products, technology, and data management continue to mature and are scalable to support future growth and expansion. Although the pace of external events remains frenetic, current economic conditions, public policy, and regulatory relief all support our optimism regarding the future. Ultimately, our ability to create long term value will be determined by the persistent engagement of our 300 team members to make our C&N a great place to work and do business. I am confident in their ability to be successful and thank them for their ongoing commitment to this mission. Finally, thank you to all of our shareholders for your confidence and continued support. Today, Tomorrow and the Future

 

C&N’s Corporate Profile Citizens & Northern Corporation is a bank holding company with assets of approximately $1.3 billion and is headquartered in Wellsboro, PA. Banking services are provided by its subsidiary, Citizens & Northern Bank, from 26 banking offices in Bradford, Cameron, Lycoming, McKean, Potter, Sullivan and Tioga Counties in Pennsylvania and Steuben County in New York. Commercial, residential and consumer lending services are now being offered in Elmira, NY through our loan production office. Investment products are offered through C&N Investment Services and insurance products are offered by C&N Financial Services Corp. Trust services are offered by Citizens & Northern Bank through the C&N Trust and Financial Management Group. Citizens & Northern stock trades on the NASDAQ Capital Market Securities under the symbol CZNC. 2017 Executive Team Shelley L. D’Haene EVP and Senior Operations Officer Stan Dunsmore EVP and Chief Credit Officer Harold F. Hoose, III EVP and Director of Lending Mark A. Hughes EVP and Director Financial Division John M. Reber EVP and Director of Risk Management Thomas L. Rudy, Jr. EVP and Director of Branch Delivery Deborah E. Scott EVP and Trust Division Director J. Bradley Scovill President & CEO Today, Tomorrow and the Future

 

2017 Corporate Officers J. Bradley Scovill President & CEO Mark A. Hughes Treasurer Kimberly N. Battin Corporate Secretary 2017 Board of Directors Citizens & Northern Corporation and Citizens & Northern Bank Leo F. Lambert, Chairman President/GM, Fitzpatrick & Lambert, Inc. Dennis F. Beardslee Owner, Terrace Lanes Bowling Center Jan E. Fisher Executive Vice President/COO UPMC Susquehanna, Williamsport R. Bruce Haner Retired Auto Buyer for New Car Dealers Susan E. Hartley Attorney at Law Terry L. Lehman, CPA Retired Certified Public Accountant Edward H. Owlett, III President & CEO, Putnam Company Frank G. Pellegrino Owner & Developer, Carlton Associates, LLC J. Bradley Scovill President & CEO, Citizens & Northern Leonard Simpson Attorney at Law and Sullivan County District Attorney James E. Towner Retired General Manager, The Scranton Times Aaron K. Singer President & CEO, Metalkraft Industries, Inc. 2017 Advisory Boards We thank our Advisory Board members who give us valuable insight into the communities we serve. Cameron, McKean & Potter Counties John A. Abplanalp Edwin M. Schott David Mark Errick Edwin W. Tompkins, III Peter J. Fragale Patrice D. Levavasseur Bradford and Sullivan Counties James A. Bowen Ronald A. Gutosky Jeffrey B. Paul Eric Schoonover Heidi B. Wiles Evan R. Barnes J. Wesley Kocsis Taunya Knolles Rosenbloom Mark W. Smith Warren J. Croft Dr. Stephen D. Laudermilch Damian M. Rossettie L. Joseph Tomasso, Jr. Max P. Gannon, Jr. Kimberly J. Mastrantonio William B. Saxe Andrew R. Wilcox Tioga County Donald R. Abplanalp Brian A. Bicksler Lawrence J. Connolly Stephen L. Davis Craig Eccher Scott E. Lewis Ronald W. Roan Mark R. Howe Anthony L. Mosso William W. Roosa John C. Kenyon David C. Murdock James H. Route, Jr. Leisa L. LaVancher Mary C. Owlett Ray E. Wheeland Lycoming County Thomas F. Charles John M. Confer Roger D. Jarrett Daniel K. Mathers David A. Schall Jeffrey M. Patterson John F. Perrotto Today, Tomorrow and the Future

 

C&N’s Stock Profile Quarterly Share Data Trades of the Corporation’s stock are executed through various brokers who maintain a market in the Corporation’s stock. The Corporation’s stock is listed on NASDAQ Capital Market Securities with the trading symbol CZNC. The following tables show the approximate high and low sales price of the common stock during 2016 and 2017. 2016 High Dividends Low Declared 2017 High Low First quarter $20.99 $19.26 $0.26 First quarter $26.50 $22.31 Second quarter $21.00 $19.40 $0.26 Second quarter $24.40 $22.00 Third quarter $22.67 $20.00 $0.26 Third quarter $25.42 $22.01 Fourth quarter $26.57 $20.54 $0.26 Fourth quarter $26.75 $23.02 Today, Tomorrow and the Future

 

Five-Year Summary of Operations Comparison Diluted Earnings Per Share (In Thousands) Cash Dividends Declared Per Share INCOME STATEMENT (In Thousands) 2017 2016 2015 2014 2013 Interest and fee income $45,863 $44,098 $44,519 $46,009 $48,914 Interest expense 3,915 3,693 4,602 5,122 5,765 Net interest income 41,948 40,405 39,917 40,887 43,149 Provision for loan losses 801 1,221 845 476 2,047 Net interest income after provision for loan losses 41,147 39,184 39,072 40,411 41,102 Noninterest income excluding securities gains 16,153 15,511 15,478 15,420 16,451 Realized gains on available-for-sale securities, net 257 1,158 2,861 1,104 1,718 Loss on prepayment of debt 0 0 2,573 0 1,023 Noninterest expense excluding loss on prepayment of debt 36,967 34,744 33,030 34,157 33,471 Income before income tax provision 20,590 21,109 21,808 22,778 24,777 Income tax provision 7,156 5,347 5,337 5,692 6,183 Net income $13,434 $15,762 $16,471 $17,086 $18,594 Net income attributable to common shares $13,365 $15,677 $16,387 $17,009 $18,490 PER COMMON SHARE DATA 2017 2016 2015 2014 2013 Basic earnings per share $1.10 $1.30 $1.35 $1.38 $1.51 Diluted earnings per share $1.10 $1.30 $1.35 $1.38 $1.50 Cash dividends declared per share $1.04 $1.04 $1.04 $1.04 $1.00 Book value per common share at period-end $15.43 $15.36 $15.39 $15.34 $14.49 Tangible book value at period-end $14.45 $14.37 $14.41 $14.36 $13.51 Weighted average common shares outstanding - basic 12,115,840 12,032,820 12,149,252 12,333,933 12,283,426 Weighted average common shares outstanding - diluted 12,155,136 12,063,055 12,171,084 12,355,916 12,313,833 Today, Tomorrow and the Future

 

End of Period Balances Gross Loans (In Thousands) 2013 2017 2016 2015 2014 Total Assets (In Thousands) 2013 END OF PERIOD BALANCES (In Thousands) 2017 2016 2015 2014 2013 Available-for-sale securities $356,908 $395,077 $420,290 $516,807 $482,658 Gross loans 815,713 751,835 704,880 630,545 644,303 Allowance for loan losses 8,856 8,473 7,889 7,336 8,663 Total assets 1,276,959 1,242,292 1,223,417 1,241,963 1,237,695 Deposits 1,008,449 983,843 935,615 967,989 954,516 Borrowings 70,955 64,629 92,263 78,597 96,723 Stockholders' equity 188,443 186,008 187,487 188,362 179,472 Common shares outstanding 12,214,525 12,113,228 12,180,623 12,279,980 12,390,063 AVERAGE BALANCES (In Thousands) 2017 2016 2015 2014 2013 Total assets 1,247,759 $1,229,866 $1,243,209 $1,239,897 $1,237,096 Earning assets 1,169,569 1,147,549 1,159,298 1,155,401 1,145,340 Gross loans 780,640 723,076 657,727 627,753 656,495 Deposits 990,917 970,447 968,201 965,418 964,031 Stockholders' equity 188,958 188,373 188,905 185,469 181,412 Today, Tomorrow and the Future

 

End of Period Balances Deposits (In Thousands) 2013 2017 2016 2015 2014 Shareholders’ Equity (In Thousands) 2013 KEY RATIOS 2017 2016 2015 2014 2013 Return on average assets 1.08% 1.28% 1.32% 1.38% 1.50% Return on average equity 7.11% 8.37% 8.72% 9.21% 10.25% Average equity to average assets 15.14% 15.32% 15.19% 14.96% 14.66% Net interest margin (1) 3.82% 3.76% 3.69% 3.80% 4.05% Efficiency (2) 60.74% 59.22% 56.66% 57.59% 53.27% Cash dividends as a % of diluted earnings per share 94.55% 80.00% 77.04% 75.36% 66.67% Tier 1 leverage 14.23% 14.27% 14.31% 13.89% 13.78% Tier 1 risk-based capital 21.95% 22.48% 23.29% 26.26% 25.15% Total risk-based capital 23.07% 23.60% 24.40% 27.60% 26.60% Tangible common equity/tangible assets 13.95% 14.15% 14.49% 14.34% 13.66% Nonperforming assets/total assets 1.47% 1.43% 1.31% 1.34% 1.53% Nonperforming loans/total loans 2.10% 2.07% 2.09% 2.45% 2.80% Allowance for loan losses/total loans 1.09% 1.13% 1.12% 1.16% 1.34% Net charge-offs/average loans 0.05% 0.09% 0.04% 0.29% 0.04% (1) Rates of return on tax-exempt securities and loans are calculated on a fully-taxable equivalent basis. (2) The efficiency ratio is calculated by dividing: (a) total non-interest expense excluding losses from prepayment of debt, by (b) the sum of net interest income (including income from tax-exempt securities and loans on a fully-taxable equivalent basis) and non-interest income excluding securities gains or losses. Today, Tomorrow and the Future

 

Quarterly Financial Data The following table presents summarized financial data for 2016 & 2017. SUMMARY OF QUARTERLY CONSOLIDATED FINANCIAL DATA (In Thousands Except Per Share Data) (Unaudited) Mar. 31, 2017 June 30, 2017Sept. 30, 2017 Dec. 31, 2017 SUMMARY OF QUARTERLY CONSOLIDATED FINANCIAL DATA (In Thousands Except Per Share Data) (Unaudited) Mar. 31, 2016 June 30, 2016 Sept. 30, 2016 Dec. 31, 2016 Interest income $10,937 $10,924 $11,131 $11,106 Interest expense 904 925 944 920 Net interest income 10,033 9,999 10,187 10,186 Provision (credit) for loan losses 368 318 538 (3) Net interest income after provision (credit) for loan losses 9,665 9,681 9,649 10,189 Other income 3,690 3,906 3,884 4,031 Net gains on available-for-sale securities 383 122 584 69 Other expenses 9,072 8,535 8,579 8,558 Income before income tax provision 4,666 5,174 5,538 5,731 Income tax provision 1,093 1,303 1,451 1,500 Net income $3,573 $3,871 $4,087 $4,231 Net income attributable to common shares $3,553 $3,850 $4,065 $4,209 Net income per share – basic $0.29 $0.32 $0.34 $0.35 Net income per share – diluted $0.29 $0.32 $0.34 $0.35 Today, Tomorrow and the Future

 

Trust and Financial Management Group a division of Citizens & Northern Bank Trust and Financial Management (In Thousands) 2017 2016 2015 2014 2013 Assets $916,580 $879,844 $814,788 $825,918 $796,115 Revenue $5,399 $4,760 $4,626 $4,490 $4,087 INVESTMENTS (In Thousands) 2017 2016 2015 Mutual Funds $536,731 $507,473 $458,942 Stocks 194,099 179,345 167,098 Bonds 104,184 100,249 88,471 Savings and money market funds 69,659 80,860 90,038 Miscellaneous 6,069 6,864 7,216 Real Estate 5,681 4,876 2,827 Mortgages 157 177 196 Total $916,580 $879,844 $814,788 ACCOUNTS (In Thousands) 2017 2016 2015 Pension/profit sharing $374,499 $369,916 $339,953 Investment management 256,348 223,737 211,645 Trusts 185,300 177,860 166,433 Custody 93,598 98,844 92,451 Estates 4,397 7,367 1,874 Guardianships 2,438 2,120 2,432 Total $916,580 $879,844 $814,788 Some products are not FDIC insured or guaranteed, not a deposit or other obligation of the bank, not guaranteed by the bank and are subject to investment risk, including possible loss of the principal amount invested and are not insured by any other federal government agency. Today, Tomorrow and the Future

  

Since its inception in 2015, our Giving Back, Giving Together community fundraising campaign has exceeded our greatest expectations. For 2017, we raised the bar by setting a goal of $60,000, knowing the amount of work and commitment it would take to reach it. We are proud and humbled to announce that we surpassed our goal once again, raising over $72,000 for underprivileged children in our area! On top of the monetary donations, we also collected 7,781 food, clothing and hygiene items, and our team members donated their personal time by volunteering on 116 occasions. We began our 2017 annual GBGT campaign, as always, by asking employees to nominate causes that would make a meaningful impact in our communities. The entire bank then voted for the cause they considered the most deserving. After voting to help local children who may not receive the care or attention they deserve, local C&N teams reached out to organizations in the area that work to enrich the lives of children in need. Each team organized fundraisers and volunteer outings and collected donations for the cause. Fundraisers were primarily Giving Back, Giving Together Since 2015, C&N team members have been the driving force behind the success of this program. done during the event weeks at the end of each quarter. The success of GBGT is a direct reflection of the character of our employees and their commitment to their communities. Some of our most successful fundraisers and awareness campaigns to date came in 2017. For Child Abuse Prevention Month in April, the Tioga County Human Services Agency held an event on the Green in Wellsboro where C&N sponsored a bouncy house for the children and several employees volunteered their time to help raise awareness. In June, we held our C&N Charity Classic which raised over $20,000 for Giving Back, Giving Together. In November, we conducted a Facebook contest called “Thank a Local Volunteer Child Advocate.” David Gray, founder of St. Ann’s Academy in Hornell, NY, was the very deserving winner. 2017 was also the year we launched #GBGTImpactStories on social media. These short video clips feature members of the community as they share their personal stories about the importance of Giving Back, Giving Together in their communities. Look for more of these in the future! In 2018, we look forward to another year with another worthy cause that will make a positive and lasting impact in the community. In December, our employees voted to support Literacy & Education through Public Libraries. This year, we will raise funds and awareness for local libraries to help them provide services for those who rely on them. Public libraries strengthen our communities by providing unique opportunities for children and adults alike to learn, network and connect with one another. They are often under- funded and under-staffed. You can expect to see our team members out in the community again this year conducting fundraisers, book drives, volunteer readings, and much, much more. We hope that you will join us in helping our local libraries flourish. Look for communications in the near future on how you can be a part of something special again this year. Our C&N team members volunteering at the Central Pennsylvania Food Bank. Our team members in East Smithfield held a bake sale to support their fire and ambulance teams. C&N Team members helped run a bounce house during an event to raise awareness about Child Abuse. Linn Macensky & Sammy Saver sold hot dogs one afternoon in Wellsboro, PA to raise money for kids in need. Today, Tomorrow and the Future

 

done during the event weeks at the end of each quarter. The success of GBGT is a direct reflection of the character of our employees and their commitment to their communities. Some of our most successful fundraisers and awareness campaigns to date came in 2017. For Child Abuse Prevention Month in April, the Tioga County Human Services Agency held an event on the Green in Wellsboro where C&N sponsored a bouncy house for the children and several employees volunteered their time to help raise awareness. In June, we held our C&N Charity Classic which raised over $20,000 for Giving Back, Giving Together. In November, we conducted a Facebook contest called “Thank a Local Volunteer Child Advocate.” David Gray, founder of St. Ann’s Academy in Hornell, NY, was the very deserving winner. 2017 was also the year we launched #GBGTImpactStories on social media. These short video clips feature members of the community as they share their personal stories about the importance of Giving Back, Giving Together in their communities. Look for more of these in the future! In 2018, we look forward to another year with another worthy cause that will make a positive and lasting impact in the community. In December, our employees voted to support Literacy & Education through Public Libraries. This year, we will raise funds and awareness for local libraries to help them provide services for those who rely on them. Public libraries strengthen our communities by providing unique opportunities for children and adults alike to learn, network and connect with one another. They are often under- funded and under-staffed. You can expect to see our team members out in the community again this year conducting fundraisers, book drives, volunteer readings, and much, much more. We hope that you will join us in helping our local libraries flourish. Look for communications in the near future on how you can be a part of something special again this year. Our C&N team members volunteering at the Central Pennsylvania Food Bank. Our team members in East Smithfield held a bake sale to support their fire and ambulance teams. C&N Team members helped run a bounce house during an event to raise awareness about Child Abuse. Linn Macensky & Sammy Saver sold hot dogs one afternoon in Wellsboro, PA to raise money for kids in need. Today, Tomorrow and the Future

 

Employee Highlights Citizens & Northern appreciates the commitment our employees make every day to create value for our customers, which is one reason why we build a culture that supports our team members and celebrates their achievements IMPACT Players The IMPACT Players award recognizes six employees based not only performance but commitment. The recipients of this award not only made measurable progress, but uphold our C&N values in their interactions at every opportunity. Spring Recipients Fall Recipients Julie Lane, Security Officer/BSA Administrator Jay Over, Trust Investment Officer Patty Groover, AVP/Client Contact Center Team Leader Ellen Conboy, Troy Customer Service Representative Sue Evans, Credit Analyst Brandy Allen, AVP/Deposit Operations Coordinator Chrissi Copp, VP/Treasury Management Coordinator Mike Wetzel, VP/Senior Commercial Loan Offi er Jennifer Schultz, AVP/Trust Officer Kori Casselbury, Mortgage Underwriter Team Leader Linn Macensky, Wellsboro Community Offi e Manager Travis Marzo, Network Engineer Team Leader TOP Award Winners The TOP Award is presented semi-annually to celebrate the employee leading their area for the previous 6 months. TOP Commercial Lender, based on Loan Growth Spring Recipient Bruce Smithgall Fall Recipient Bruce Smithgall TOP Mortgage Lender, based on Loan Growth Kelly Fasse Kelly Fasse TOP Insurance/Brokerage Employee, based on New Business Matt Landis Matt Landis TOP Trust Employee, based on New Business Sam Lush Ben Howe TOP Branch Lender, based on Loan Growth Jill Pino Ginger Reap TOP Cross Sale/New Account Ratio Elizabeth Loman Lisa Milne Spotlight Award Winners The Spotlight Award recognizes a Customer Transaction Specialist and a Support employee that go above and beyond to ensure that C&N is the only bank their customers need. First Quarter Recipients Terry Turner, Customer Transaction Specialist & Kathleen Evert, Deposit Operations Team Leader Second Quarter Recipients Tammy Pennycoff, Customer Transaction Specialist & Janette Frey, Client Contact Specialist Third Quarter Recipients Anne-Marie Muldoon-Bastian, Customer Transaction Specialist & Adam Heitzenrater, Marketing Associate Today, Tomorrow and the Future

 

2017 Service Awards In 2017, 29 employees were recognized with a total of 410 years of service to the company. C&N is proud and appreciative of their dedication to the organization. 40 Years of Service Virginia Reap, Community Office Manager, Athens 30 Years of Service Justin Krellner, Trust Offi er, Coudersport Patricia Sullivan, Customer Service Representative, Laporte Debra Topf, Loan Servicing File Maintenance, Wellsboro 20 Years of Service Karen Bobb, Customer Service Representative, Laporte Hal Hoose, EVP/Director of Lending, Wellsboro 15 Years of Service Gabrielle Conway, Retail Resource Recovery Specialist, Muncy Melissa Dunn, Loan Support Specialist, Coudersport Linda Gordner, Mortgage Loan Sales Officer, Muncy Karen Hooks, Customer Transaction Specialist, Towanda Jodi Lovett, Trust Support Specialist, Wellsboro Charity Shaefer, Customer Service Representative, Tioga Jessica Sweet, Trust Support Specialist, Wellsboro 10 Years of Service Toni Bolt, Customer Transaction Specialist, Mansfield Mary D’Ottavio, Customer Transaction Specialist, Dushore Janice Graybill, Customer Service Representative, South Williamsport Billie Hilfiger, Trust Administrator, Coudersport Matthew Landis, Regional Financial Services Manager, Wellsboro Julie Lane, Security Officer/BSA Administrator, Wellsboro 5 Years of Service Cindy Bellows, Customer Service Representative, Sayre James Dowling, PC Technician, Wellsboro Adam Heitzenrater, Marketing Associate, Wellsboro Benjamin Howe, Regional Manager Financial Services, Coudersport Adam Mertes, Commercial Resource Recovery Officer, Wellsboro Linda Morse, Deposit Operations Specialist, Wellsboro Anthony Peluso, Controller, Wellsboro Michelle Rae, Mortgage Loan Sales Officer, Towanda Luke Slubowski, Network Administrator, Wellsboro Today, Tomorrow and the Future

 

In Memory of Teri Mitchell Patty Sullivan, Georgia Cary and Laura Losinger were recognized during their last corporate event before retiring In July 2017, one of C&N’s long-time team members passed unexpectedly. Teri Mitchell was with C&N for 37 years in a variety of roles. She started her career as a Bookkeeper, then worked as a teller in Wellsboro, and eventually moved to the Wire Transfer Department. As the technology and departments changed over the years, Teri remained in what became the Funds Management Department and later became the Funds Management Supervisor. In recent years, Teri worked in the Accounting Department and held the position of Treasury & Reconciliation Accountant. Teri continued her education by attending several conferences throughout her years with C&N including The Conference for Women and many technical conferences relating to her field of expertise. In celebration of her life and memory, her friends and co-workers donated to start the Teresa (Teri) L. Mitchell Memorial Scholarship providing Citizens & Northern employees the opportunity to attend The PA Bankers Association Women in Banking conference. 2017 Retirements 33 Years of Service Carla Packard, Loan Processor-Escrow Specialist, Troy 30 Years of Service Patricia Sullivan, Customer Service Representative, Laporte 23 Years of Service Linda Koeppel, Customer Service Representative, Wellsboro 20 Years of Service Karen Bobb, Customer Service Representative, Laporte 19 Years of Service Georgia Cary, Customer Service Representative, Coudersport 16 Years of Service Roberta Dieffenbach, Customer Transaction Specialist, Wellsboro 15 Years of Service Karen Hooks, Customer Transaction Specialist, Towanda 12 Years of Service Anna Phelps, Customer Service Representative, Liberty 8 Years of Service James Bockus, Courier/Maintenance, Wellsboro Today, Tomorrow and the Future

 

Connect With Us Branch Locations Athens ----------------------------- 428 S. Main Street Canisteo ------------------------------- 3 Main Street Coudersport -------------------- 10 N. Main Street Dushore ------------------------- 111 W. Main Street East Smithfield --------------- 563 Main Street Elkland -------------------------- 104 Main Street Emporium ----------------- 135 East Fourth Street Hornell ------------------ 6250 County Route 64 Jersey Shore ----------------- 230 Railroad Street Knoxville --------------------- 102 East Main Street Laporte ----------------------------- 514 Main Street Liberty ---------------------- 4534 Williamson Trail Mansfield ---------------------- 1085 Main Street Monroeton ----------- 612 James Monroe Avenue Muncy ---------------- 3461 Route 405 Highway Old Lycoming ---------------- 1510 Dewey Avenue Port Allegany ---------------- 100 Maple Street Ralston ----------------------- 24 Thompson Street Sayre ------------------------- 1827 Elmira Street South Williamsport ------ 2 East Mountain Avenue Tioga --------------------------- 41 N. Main Street Towanda ----------------------- 428 Main Street Troy ----------------------------- 64 Elmira Street Wellsboro --------------------- 90-92 Main Street Williamsport --------------------- 130 Court Street Wysox -------------------- 1467 Golden Mile Road Loan Production Office Elmira ------------------------- 250 E. Water Street Investor Information The annual meeting of shareholders will be held at the Deane Center, 104 Main Street in Wellsboro, PA at 2:00 p.m. Thursday, April 19, 2018. General shareholder inquiries should be sent to Citizens & Northern Corporation, 90-92 Main Street, P.O. Box 58, Wellsboro, PA 16901. Our Stock Transfer Agent is American Stock Transfer & Trust Company, 6201 15th Avenue, Brooklyn, NY 11219. Telephone: 800-278-4353. Our independent auditors are Baker Tilly Virchow Krause, LLP, 400 Market Street, Williamsport, PA 17701. Contact Information Client Contact Center ----------------------- 877-838-2517 Online Banking ------------------------------ 877-838-2517 Telephone Banking ------------------------- 877-622-5526 C&N Financial Services Wellsboro ------------------------- 866-ASK-CNFS Coudersport ------------------------- 814-274-1929 Trust and Financial Management Group Wellsboro --------------------------------- 800-487-8784 Sayre --------------------------------------- 888-760-8192 Towanda ---------------------------------- 888-987-8784 Williamsport ------------------------------- 866-732-7213 Canisteo ---------------------------------- 607-698-4295 Coudersport ------------------------------- 814-274-1929 Digital Connections Email ------------------------ ContactCN@cnbankpa.com On the Web -------------------------- www.cnbankpa.com Facebook ----- Facebook.com/citizensandnorthernbank Linkedin --- Linkedin.com/company/citizens-&-northern-bank Twitter ---------------------------------------------- @cnbankpa Stockholder Inquiries A copy of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2017, as required to be field with the Securities and Exchange Commission, will be furnished to any stockholder without charge upon written request to the Corporation’s treasurer at our principal office at P.O. Box 58, Wellsboro, PA 16901. The information is also available through the Citizens & Northern Bank website at www.cnbankpa.com and the website of the Securities and Exchange Commission at www.sec.gov.This statement has not been reviewed or confirmed for accuracy or relevance by the Federal Deposit Insurance Corporation. Today, Tomorrow and the Future

 

You’ll always be prepared for the next stage in life with C&N as your partner Will You be Ready? www.cnbankpa.com 1-877-838-2517 ContactCN@cnbankpa.com 1-800-487-8784 Trust@cnbankpa.com Today, Tomorrow and the Future

XML

Document And Entity Information - USD ($)	12 Months Ended
	Dec. 31, 2017	Feb. 09, 2018	Jun. 30, 2017
Document Information [Line Items]
Entity Registrant Name	CITIZENS & NORTHERN CORP
Entity Central Index Key	0000810958
Trading Symbol	cznc
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Common Stock, Shares Outstanding (in shares)		12,246,834
Entity Public Float			$ 274,571,344
Document Type	10-K
Document Period End Date	Dec. 31, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	FY
Amendment Flag	false

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
ASSETS
Noninterest-bearing	$ 25,664	$ 17,551
Interest-bearing	14,580	14,558
Total cash and due from banks	40,244	32,109
Available-for-sale securities, at fair value	356,908	395,077
Loans held for sale	765	142
Loans receivable	815,713	751,835
Allowance for loan losses	(8,856)	(8,473)
Loans, net	806,857	743,362
Bank-owned life insurance	20,083	19,704
Accrued interest receivable	4,048	3,963
Bank premises and equipment, net	15,432	15,397
Foreclosed assets held for sale	1,598	2,180
Deferred tax asset, net	3,289	5,117
Intangible assets - Goodwill and core deposit intangibles	11,954	11,959
Other assets	15,781	13,282
TOTAL ASSETS	1,276,959	1,242,292
LIABILITIES
Noninterest-bearing	241,214	224,175
Interest-bearing	767,235	759,668
Total deposits	1,008,449	983,843
Short-term borrowings	61,766	26,175
Long-term borrowings	9,189	38,454
Accrued interest and other liabilities	9,112	7,812
TOTAL LIABILITIES	1,088,516	1,056,284
STOCKHOLDERS' EQUITY
Preferred stock, $1,000 par value; authorized 30,000 shares; $1,000 liquidation preference per share; no shares issued	0	0
Common stock, par value $1.00 per share; authorized 20,000,000 shares; issued 12,655,171; outstanding 12,214,525 at December 31, 2017 and 12,113,228 December 31, 2016	12,655	12,655
Paid-in capital	72,035	71,730
Retained earnings	113,608	112,790
Treasury stock, at cost; 440,646 shares at December 31, 2017 and 541,943 shares at December 31, 2016	(8,348)	(10,269)
Accumulated other comprehensive loss	(1,507)	(898)
TOTAL STOCKHOLDERS' EQUITY	188,443	186,008
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY	$ 1,276,959	$ 1,242,292

XML

Consolidated Balance Sheets (Parentheticals) - $ / shares	Dec. 31, 2017	Dec. 31, 2016
Preferred stock, par value (in dollars per share)	$ 1,000	$ 1,000
Preferred stock, authorized shares (in shares)	30,000	30,000
Preferred stock, liquidation preference per share (in dollars per share)	$ 1,000	$ 1,000
Preferred stock, shares issued (in shares)	0	0
Common stock, par value (in dollars per share)	$ 1	$ 1
Common stock, shares authorized (in shares)	20,000,000	20,000,000
Common stock, shares issued (in shares)	12,655,171	12,655,171
Common stock, shares outstanding (in shares)	12,214,525	12,113,228
Treasury stock, shares (in shares)	440,646	541,943

XML

Consolidated Statements of Income - USD ($) $ in Thousands		12 Months Ended
		Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Interest and fees on loans:
Taxable		$ 34,907	$ 32,827	$ 31,311
Tax-exempt		2,037	1,783	1,668
Interest on mortgages held for sale		25	27	16
Interest on balances with depository institutions		190	116	93
Income from available-for-sale securities:
Taxable		5,478	5,846	7,303
Tax-exempt		3,205	3,429	3,844
Dividends		21	70	284
Total interest and dividend income		45,863	44,098	44,519
INTEREST EXPENSE
Interest on deposits		2,403	2,085	1,924
Interest on short-term borrowings		213	155	32
Interest on long-term borrowings		1,299	1,453	2,646
Total interest expense		3,915	3,693	4,602
Net interest income		41,948	40,405	39,917
Provision for loan losses		801	1,221	845
Net interest income after provision for loan losses		41,147	39,184	39,072
OTHER INCOME
Service charges on deposit accounts		4,488	4,695	4,864
Service charges and fees		417	439	494
Trust and financial management revenue		5,399	4,760	4,626
Brokerage revenue		797	756	839
Insurance commissions, fees and premiums		115	102	109
Interchange revenue from debit card transactions		2,221	1,943	1,935
Net gains from sale of loans		818	1,029	735
Loan servicing fees, net		244	103	216
Increase in cash surrender value of life insurance		379	382	386
Other operating income		1,275	1,302	1,274
Sub-total		16,153	15,511	15,478
Realized gains on available-for-sale securities, net		257	1,158	2,861
Total other income		16,410	16,669	18,339
OTHER EXPENSES
Salaries and wages		15,806	15,411	14,682
Pensions and other employee benefits		5,374	4,717	4,420
Occupancy expense, net		2,340	2,340	2,574
Furniture and equipment expense		1,834	1,730	1,860
FDIC Assessments		376	488	603
Pennsylvania shares tax		1,329	1,274	1,248
Professional fees		1,086	1,126	638
Automated teller machine and interchange expense		1,284	1,137	988
Software subscriptions		1,190	981	876
Loss on prepayment of debt		0	0	2,573
Other operating expense		6,348	5,540	5,141
Total other expenses		36,967	34,744	35,603
Income before income tax provision		20,590	21,109	21,808
Income tax provision		7,156	5,347	5,337
NET INCOME		$ 13,434	$ 15,762	$ 16,471
EARNINGS PER COMMON SHARE - BASIC (in dollars per share)	[1]	$ 1.10	$ 1.30	$ 1.35
EARNINGS PER COMMON SHARE - DILUTED (in dollars per share)	[1]	$ 1.10	$ 1.30	$ 1.35

[1] Basic and diluted earnings per share under the two-class method are determined on net income reported on the income statement less earnings allocated to nonvested restricted shares with nonforfeitable dividends (participating securities).

XML

Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Net income	$ 13,434	$ 15,762	$ 16,471
Unrealized losses on available-for-sale securities:
Unrealized holding losses on available-for-sale securities	(691)	(4,138)	(1,429)
Reclassification adjustment for gains realized in income	(257)	(1,158)	(2,861)
Other comprehensive loss on available-for-sale securities	(948)	(5,296)	(4,290)
Unfunded pension and postretirement obligations:
Changes from plan amendments and actuarial gains and losses included in accumulated other comprehensive gain (loss)	36	46	(135)
Amortization of net transition obligation, prior service cost, net actuarial (gain) loss and loss on settlement included in net periodic benefit cost	(24)	(22)	67
Other comprehensive gain (loss) on unfunded retirement obligations	12	24	(68)
Other comprehensive loss before income tax	(936)	(5,272)	(4,358)
Income tax related to other comprehensive loss	327	1,846	1,526
Net other comprehensive loss	(609)	(3,426)	(2,832)
Comprehensive income	$ 12,825	$ 12,336	$ 13,639

XML

Consolidated Statements of Changes in Stockholders' Equity - USD ($) $ in Thousands	Common Stock [Member]	Treasury Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	AOCI Attributable to Parent [Member]	Total
Balance (in shares) at Dec. 31, 2014	12,655,171	375,191
Balance at Dec. 31, 2014	$ 12,655	$ (6,744)	$ 71,541	$ 105,550	$ 5,360	$ 188,362
Net income				16,471		16,471
Other comprehensive loss, net					(2,832)	(2,832)
Cash dividends declared on common stock, $1.04 per share				(12,710)		(12,710)
Shares issued for dividend reinvestment plan (in shares)		(73,810)
Shares issued for dividend reinvestment plan		$ 1,379	86			1,465
Treasury stock purchased (in shares)		226,900
Treasury stock purchased		$ (4,415)				(4,415)
Shares issued from treasury related to exercise of stock options (in shares)		(22,435)
Shares issued from treasury related to exercise of stock options		$ 408	(27)			381
Restricted stock granted (in shares)		(34,800)
Restricted stock granted		$ 627	(627)			0
Forfeiture of restricted stock (in shares)		3,502
Forfeiture of restricted stock		$ (59)	59			0
Stock-based compensation expense			606			606
Tax benefit from compensation plans			16	143		159
Balance (in shares) at Dec. 31, 2015	12,655,171	474,548
Balance at Dec. 31, 2015	$ 12,655	$ (8,804)	71,654	109,454	2,528	187,487
Net income				15,762		15,762
Other comprehensive loss, net					(3,426)	(3,426)
Cash dividends declared on common stock, $1.04 per share				(12,578)		(12,578)
Shares issued for dividend reinvestment plan (in shares)		(68,571)
Shares issued for dividend reinvestment plan		$ 1,296	170			1,466
Treasury stock purchased (in shares)		187,300
Treasury stock purchased		$ (3,723)				(3,723)
Shares issued from treasury related to exercise of stock options (in shares)		(19,113)
Shares issued from treasury related to exercise of stock options		$ 361	(98)			263
Restricted stock granted (in shares)		(35,427)
Restricted stock granted		$ 658	(658)			0
Forfeiture of restricted stock (in shares)		3,431
Forfeiture of restricted stock		$ (61)	61			0
Stock-based compensation expense			578			578
Tax benefit from compensation plans			23	152		175
Other stock-based expense (in shares)		(225)
Other stock-based expense		$ 4				4
Balance (in shares) at Dec. 31, 2016	12,655,171	541,943
Balance at Dec. 31, 2016	$ 12,655	$ (10,269)	71,730	112,790	(898)	186,008
Net income				13,434		13,434
Other comprehensive loss, net					(609)	(609)
Cash dividends declared on common stock, $1.04 per share				(12,616)		(12,616)
Shares issued for dividend reinvestment plan (in shares)		(63,066)
Shares issued for dividend reinvestment plan		$ 1,195	276			1,471
Shares issued from treasury related to exercise of stock options (in shares)		(11,780)
Shares issued from treasury related to exercise of stock options		$ 227	(100)			127
Restricted stock granted (in shares)		(30,782)
Restricted stock granted		$ 583	(583)			0
Forfeiture of restricted stock (in shares)		4,406
Forfeiture of restricted stock		$ (85)	85			0
Stock-based compensation expense			627			627
Other stock-based expense (in shares)		(75)
Other stock-based expense		$ 1				1
Balance (in shares) at Dec. 31, 2017	12,655,171	440,646
Balance at Dec. 31, 2017	$ 12,655	$ (8,348)	$ 72,035	$ 113,608	$ (1,507)	$ 188,443

XML

Consolidated Statements of Changes in Stockholders' Equity (Parentheticals) - $ / shares	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Retained Earnings [Member]
Common stock, dividends, per share (in dollars per share)	$ 1.04	$ 1.04	$ 1.04

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 13,434	$ 15,762	$ 16,471
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	801	1,221	845
Realized gains on available-for-sale securities, net	(257)	(1,158)	(2,861)
Loss on prepayment of debt	0	0	2,573
Depreciation expense	1,639	1,589	1,888
Accretion and amortization on securities, net	1,157	1,462	1,562
Increase in cash surrender value of life insurance	(379)	(382)	(386)
Gain on life insurance benefits	0	0	(212)
Stock-based compensation and other expense	628	582	606
Deferred income taxes	2,155	(156)	79
Decrease in fair value of servicing rights	168	282	162
Gains on sales of loans, net	(818)	(1,029)	(735)
Origination of loans for sale	(25,129)	(29,296)	(21,823)
Proceeds from sales of loans	25,119	30,215	22,101
Increase in accrued interest receivable and other assets	(595)	(410)	(1,697)
Increase (decrease) in accrued interest payable and other liabilities	1,312	(216)	1,195
Other	139	44	(82)
Net Cash Provided by Operating Activities	19,374	18,510	19,686
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of certificates of deposit	348	1,540	1,780
Purchase of certificates of deposit	(100)	(2,280)	(100)
Proceeds from sales of available-for-sale securities	24,118	37,032	44,504
Proceeds from calls and maturities of available-for-sale securities	63,679	74,477	89,159
Purchase of available-for-sale securities	(51,476)	(91,896)	(40,363)
Redemption of Federal Home Loan Bank of Pittsburgh stock	7,288	5,277	5,029
Purchase of Federal Home Loan Bank of Pittsburgh stock	(9,418)	(5,046)	(8,102)
Net increase in loans	(65,225)	(49,085)	(77,129)
Proceeds from bank owned life insurance	0	1,442	1,953
Purchase of premises and equipment	(1,697)	(1,580)	(1,039)
Proceeds from sale of foreclosed assets	1,387	539	2,536
Other	191	181	181
Net Cash (Used in) Provided by Investing Activities	(30,905)	(29,399)	18,409
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits	24,606	48,228	(32,374)
Net increase (decrease) in short-term borrowings	35,591	(27,321)	47,959
Proceeds from long-term borrowings	8,000	0	0
Repayments of long-term borrowings	(37,265)	(313)	(36,866)
Purchase of treasury stock	0	(3,723)	(4,415)
Sale of treasury stock	127	263	381
Tax benefit from compensation plans	0	175	159
Common dividends paid	(11,145)	(11,112)	(11,245)
Net Cash Provided by (Used in) Financing Activities	19,914	6,197	(36,401)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	8,383	(4,692)	1,694
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR	28,621	33,313	31,619
CASH AND CASH EQUIVALENTS, END OF PERIOD	37,004	28,621	33,313
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Assets acquired through foreclosure of real estate loans	940	1,508	2,523
Interest paid	3,934	3,698	4,636
Income taxes paid	$ 4,913	$ 5,129	$ 4,827

XML

Note 1 - Nature of Operations and Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Significant Accounting Policies [Text Block]

1

.

NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF CONSOLIDATION -

The consolidated financial statements include the accounts of Citizens & Northern Corporation and its subsidiaries, Citizens & Northern Bank (“C&N Bank”), Bucktail Life Insurance Company and Citizens & Northern Investment Corporation (collectively, “Corporation”), as well as C&N Bank’s wholly-owned subsidiary, C&N Financial Services Corporation. In

December 2017,

C&N Bank established a new entity, Northern Tier Holding LLC, for the purpose of acquiring, holding and disposing of real property acquired by the Bank. C&N Bank is the sole member of Northern Tier Holding LLC, which had

no

transactions in

2017.

All material intercompany balances and transactions have been eliminated in consolidation.

NATURE OF OPERATIONS -

The Corporation is primarily engaged in providing a full range of banking and mortgage services to individual and corporate customers in North Central Pennsylvania and Southern New York State. Lending products include mortgage loans, commercial loans and consumer loans, as well as specialized instruments such as commercial letters-of-credit. Deposit products include various types of checking accounts, passbook and statement savings, money market accounts, interest checking accounts, Individual Retirement Accounts and certificates of deposit. The Corporation also offers non-insured “RepoSweep” accounts.

The Corporation provides Trust and Financial Management services, including administration of trusts and estates, retirement plans, and other employee benefit plans, and investment management services

. The Corporation offers a variety of personal and commercial insurance products through C&N Financial Services Corporation. C&N Financial Services Corporation also offers mutual funds, annuities, educational savings accounts and other investment products through registered agents.

Management has determined that the Corporation has

one

reportable segment, “Community Banking.” All of the Corporation

’s activities are interrelated, and each activity is dependent and assessed based on how each of the activities of the Corporation supports the others.

The Corporation is subject to competition from other financial institutions. It is also subject to regulation by certain federal and state agencies and undergoes periodic examination by those regulatory authorities

. As a consequence, the Corporation’s business is particularly susceptible to being affected by future federal and state legislation and regulations.

USE OF ESTIMATES -

The financial information is presented in accordance with generally accepted accounting principles and general practice for financial institutions in the United States of America (“U.S. GAAP”). In preparing financial statements, management is required to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements. In addition, these estimates and assumptions affect revenues and expenses in the financial statements and as such, actual results could differ from those estimates.

Material estimates that are particularly susceptible to change include: (

1

) the allowance for loan losses, (

2

) fair values of debt securities based on estimates from independent valuation services or from brokers,

(

3

) assessment of impaired securities to determine whether or

not

the securities are other-than-temporarily impaired, (

4

) valuation of deferred tax assets and (

5

) valuation of obligations from defined benefit plans.

INVESTMENT SECURITIES -

Investment securities are accounted for as follows:

Available-for-sale securities -

includes debt securities

not

classified as held-to-maturity or trading, and unrestricted equity securities. Such securities are reported at fair value, with unrealized gains and losses excluded from earnings and reported separately through accumulated other comprehensive income (loss), net of tax. Amortization of premiums and accretion of discounts on available-for-sale securities are recorded using the level yield method over the remaining contractual life of the securities, adjusted for actual prepayments. Realized gains and losses on sales of available-for-sale securities are computed on the basis of specific identification of the adjusted cost of each security. Securities within the available-for-sale portfolio

may

be used as part of the Corporation’s asset and liability management strategy and

may

be sold in response to changes in interest rate risk, prepayment risk or other factors.

Other-than-temporary impairment

- Credit related declines in the fair value of available-for-sale securities that are deemed to be other-than-temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment (OTTI) losses, management considers (

1

) the length of time and the extent to which the fair value has been less than cost, (

2

) the financial condition and near-term prospects of the issuer, (

3

) the intent and ability of the Corporation to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value, and (

4

) whether the Corporation intends to sell the security or if it is more likely than

not

that the Corporation will be required to sell the security before the recovery of its amortized cost basis. The credit-related impairment is recognized in earnings and is the difference between a security’s amortized cost basis and the present value of expected future cash flows discounted at the security’s effective interest rate. For debt securities classified as held-to-maturity, if any, the amount of noncredit-related impairment is recognized in other comprehensive income and accreted over the remaining life of the debt security as an increase in the carrying value of the security.

Restricted equity securities

- Restricted equity securities consist primarily of Federal Home Loan Bank of Pittsburgh stock, and are carried at cost and evaluated for impairment. Holdings of restricted equity securities are included in Other Assets in the consolidated balance sheets, and dividends received on restricted securities are included in Other Income in the consolidated statements of income.

LOANS HELD FOR SALE

-Mortgage loans held for sale are reported at the lower of cost or market, determined in the aggregate.

LOANS RECEIVABLE -

Loans receivable which management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at unpaid principal balances, less the allowance for loan losses and net deferred loan fees. Interest income is accrued on the unpaid principal balance. Loan origination and commitment fees, as well as certain direct origination costs, are deferred and amortized as a yield adjustment over the lives of the related loans using the interest method.

The loans receivable portfolio is segmented into

residential mortgage, commercial and consumer loans. The residential mortgage segment includes the following classes:

first

and junior lien residential mortgages, home equity lines of credit and residential construction loans. The most significant classes of commercial loans are commercial loans secured by real estate, non-real estate secured commercial and industrial loans, loans to political subdivisions, commercial construction, and loans secured by farmland.

Loans are placed on nonaccrual status

for all classes of loans when, in the opinion of management, collection of interest is doubtful. Any unpaid interest previously accrued on those loans is reversed from income. Interest income is

not

recognized on specific impaired loans unless the likelihood of further loss is remote. Interest payments received on loans for which the risk of further loss is greater than remote are applied as a reduction of the loan principal balance. Interest income on other nonaccrual loans is recognized only to the extent of interest payments received. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time (generally

six

months) and the ultimate collectability of the total contractual principal and interest is

no

longer in doubt. The past due status of all classes of loans receivable is determined based on contractual due dates for loan payments. Also, the amortization of deferred loan fees is discontinued when a loan is placed on nonaccrual status.

ALLOWANCE FOR LOAN LOSSES

-The allowance for loan losses represents management’s estimate of losses inherent in the loan portfolio as of the balance sheet date and is recorded as a reduction to loans. The allowance for loan losses is increased by the provision for loan losses, and decreased by charge-offs, net of recoveries. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance. All, or part, of the principal balance of loans receivable are charged off to the allowance as soon as it is determined that the collection of all, or part, of the principal balance is highly unlikely. Non-residential consumer loans are generally charged off

no

later than when they are

120

days past due on a contractual basis, or earlier in the event of bankruptcy or if there is an amount deemed uncollectible.

The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs a quarterly evaluation of the adequacy of the allowance

. The allowance is based on the Corporation’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that

may

affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires material estimates that

may

be susceptible to significant revision as more information becomes available. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Corporation’s allowance for loan losses. Such agencies

may

require the Corporation to recognize adjustments to the allowance based on their judgments of information available to them at the time of their examination. In the process of evaluating the loan portfolio, management also considers the Corporation’s exposure to losses from unfunded loan commitments. As of

December 31, 2017

and

2016,

management determined that

no

allowance for credit losses related to unfunded loan commitments was required.

The allowance consists primarily of

two

major components

– (

1

) a specific component based on a detailed assessment of certain larger loan relationships, mainly commercial purpose, determined on a loan-by-loan basis; and (

2

) a general component for the remainder of the portfolio based on a collective evaluation of pools of loans with similar risk characteristics. The general component is assigned to each pool of loans based on both historical net charge-off experience, and an evaluation of certain qualitative factors. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the above methodologies for estimating specific and general losses in the portfolio.

The specific component relates to loans that are classified as impaired based on a detailed assessment of certain larger loan relationships evaluated by a management committee referred to as the Watch List Committee

. Specific loan relationships are identified for evaluation based on the related credit risk rating. For individual loans classified as impaired, an allowance is established when the collateral value less estimated selling costs, present value of discounted cash flows or observable market price of the impaired loan is lower than the carrying value of that loan.

The general component covers pools of loans by loan class including commercial loans

not

considered

individually impaired, as well as smaller balance homogeneous classes of loans, such as residential real estate, home equity lines of credit and other consumer loans. Accordingly, the Corporation generally does

not

separately identify individual consumer and residential loans for impairment disclosures, unless such loans are subject to a restructuring agreement. The pools of loans for each loan segment are evaluated for loss exposure based upon average historical net charge-off rates, adjusted for qualitative factors. The time period used in determining the average historical net charge-off rate for each loan class is based on management’s evaluation of an appropriate time period that captures an historical loss experience relevant to the current portfolio. Qualitative risk factors (described in the following paragraph) are evaluated for the impact on each of the

three

distinct segments (residential mortgage, commercial and consumer) within the loan portfolio. Each qualitative factor is assigned a value to reflect improving, stable or declining conditions based on management’s judgment using relevant information available at the time of the evaluation. Any adjustments to the factors are supported by a narrative documentation of changes in conditions accompanying the allowance for loan losses calculation.

The qualitative factors used in the general component calculations are designed to address credit risk characteristics associated with each segment

. The Corporation’s credit risk associated with all of the segments is significantly impacted by these factors, which include economic conditions within its market area, the Corporation’s lending policies, changes or trends in the portfolio, risk profile, competition, regulatory requirements and other factors. Further, the residential mortgage segment is significantly affected by the values of residential real estate that provide collateral for the loans. The majority of the Corporation’s commercial segment loans (approximately

53%

at

December 31, 2017)

are secured by real estate, and accordingly, the Corporation’s risk for the commercial segment is significantly affected by commercial real estate values. The consumer segment includes a wide mix of loans for different purposes, primarily secured loans, including loans secured by motor vehicles, manufactured housing and other types of collateral.

Loans are classified as impaired when, based on current information and events, it is probable that the Corporation will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement

. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are

not

classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial loans by the fair value of the collateral (if the loan is collateral dependent), by future cash flows discounted at the loan’s effective rate or by the loan’s observable market price.

For commercial loans secured by real estate, estimated fair values are determined primarily through

third

-party appraisals. When a real estate secured loan becomes impaired, a decision is made regarding whether an updated certified appraisal of the real estate is necessary. This decision is based on various considerations, including the age of the most recent appraisal, the loan-to-value ratio based on the original appraisal and the condition of the property. Appraised values are discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property.

For commercial and industrial loans secured by non-real estate collateral, such as accounts receivable, inventory and equipment, estimated fair values are determined based on the borrower

’s financial statements, inventory reports, accounts receivable aging data or equipment appraisals or invoices. Indications of value from these sources are generally discounted based on the age of the financial information or the quality of the assets.

Loans whose terms are modified are classified as troubled debt restructurings if the

Corporation grants such borrowers concessions and it is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a troubled debt restructuring generally involve reductions in required payments, an extension of a loan’s stated maturity date or a temporary reduction in interest rate. Loans classified as troubled debt restructurings are designated as impaired. Non-accrual troubled debt restructurings

may

be restored to accrual status if the ultimately collectability of principal and interest payments under the modified terms is

not

in doubt, and there has been a period (generally, for at least

six

consecutive months) of satisfactory payment performance by the borrower either immediately before or after the restructuring.

BANK PREMISES AND EQUIPMENT

- Bank premises and equipment are stated at cost less accumulated depreciation. Repair and maintenance expenditures which extend the useful lives of assets are capitalized, and other repair and maintenance expenditures are expensed as incurred. Depreciation expense is computed using the straight-line method.

IMPAIRMENT OF LONG-LIVED ASSETS

- The Corporation reviews long-lived assets, such as premises and equipment and intangibles, for impairment whenever events or changes in circumstances indicate the carrying amount of an asset

may

not

be recoverable. These changes in circumstances

may

include a significant decrease in the market value of an asset or the manner in which an asset is used. If there is an indication the carrying value of an asset

may

not

be recoverable, future undiscounted cash flows expected to result from use of the asset are estimated. If the sum of the expected cash flows is less than the carrying value of the asset, a loss is recognized for the difference between the carrying value and fair market value of the asset.

FORECLOSED ASSETS HELD FOR SALE

- Foreclosed assets held for sale consist of real estate acquired by foreclosure and are initially recorded at fair value, less estimated selling costs.

GOODWILL AND CORE DEPOSIT INTANGIBLE ASSETS

-

Goodwill represents the excess of the cost of acquisitions over the fair value of the net assets acquired. Goodwill is tested at least annually for impairment, or more often if events or circumstances indicate there

may

be impairment. Core deposit intangibles are being amortized over periods of time that represent the expected lives using a method of amortization that reflects the pattern of economic benefit. Core deposit intangibles are subject to impairment testing whenever events or changes in circumstances indicate their carrying amounts

may

not

be recoverable

.

SERVICING RIGHTS

- The estimated fair value of servicing rights related to mortgage loans sold and serviced by the Corporation is recorded as an asset upon the sale of such loans. The valuation of servicing rights is adjusted quarterly, with changes in fair value included in Loan Servicing Fees, Net, in the consolidated statements of income. Significant inputs to the valuation include expected net servicing income to be received, the expected life of the underlying loans and the discount rate. The servicing rights asset is included in Other Assets in the consolidated balance sheets.

INCOME TAXES

- Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases given the provisions of the enacted tax laws. Deferred tax assets are reduced, if necessary, by the amount of such benefits that are

not

expected to be realized based upon available evidence.

Tax benefits from investments in limited partnerships that have qualified for federal low-income tax credits are recognized as a reduction in the provision for income tax over the term of the investment using the effective yield method. The Corporation includes income tax penalties in the provision for income tax. The Corporation has

no

accrued interest related to unrecognized tax benefits.

STOCK COMPENSATION PLANS

- The Corporation’s stock-based compensation policy applies to all forms of stock-based compensation including stock options and restricted stock units. All stock-based compensation is accounted for under the fair value method as required by U.S. GAAP. The expense associated with stock-based compensation is recognized over the vesting period of each individual arrangement.

The fair value of each stock option is estimated on the date of grant using the Black-Scholes-Merton option valuation model

. The fair value of restricted stock is based on the current market price on the date of grant.

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. Cash equivalents include federal funds sold and all cash and amounts due from depository institutions and interest-bearing deposits in other banks with original maturities of

three

months or less.

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 recorded on a cash basis, which is

not

materially different from the accrual basis.

XML

Note 2 - Recent Accounting Pronouncements

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

New Accounting Pronouncements and Changes in Accounting Principles [Text Block]

2

.

RECENT ACCOUNTING PRONOUNCEMENTS

The

Financial Accounting Standards Board (“FASB”) issues Accounting Standards Updates (ASUs) to the FASB Accounting Standards Codification (ASC). This section provides a summary description of recent ASUs that have significant implications (elected or required) within the consolidated financial statements, or that management expects

may

have a significant impact on financial statements issued in the near future.

In

May 2014,

the FASB issued ASU

2014

-

09,

Revenue from Contracts with Customers, which provides a principles-based framework for revenue recognition under U.S. GAAP. The core principle of the

five

-step revenue recognition framework is that an entity

should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Several additional ASUs have been issued subsequent to ASU

2014

-

09

to provide clarifying guidance related to various revenue recognition areas and to defer the effective date of the standard by a year, making it applicable for the Corporation in the

first

quarter

2018

and for the annual period ending

December 31, 2018.

More than

70%

of the Corporation’s revenue comes from net interest income and is explicitly out of the scope of ASU

2014

-

09.

The Corporation’s largest sources of noninterest revenue which are subject to the guidance include Trust and financial management revenue, service charges on deposit accounts and interchange revenue from debit card transactions. Management has evaluated the Corporation’s noninterest revenue streams and adoption of ASU

2014

-

09

using the modified retrospective method had

no

effect on the Corporation’s revenue recognition practices. Additionally, the ASU requires expanded disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue that is recognized. Management is in the process of reviewing the expanded disclosure requirements that will be effective in the

first

quarter

2018.

In

January 2016,

the FASB issued ASU

2016

-

01,

Recognition and Measurement of Financial Assets and Liabilities. This makes significant changes in U.S. GAAP related to certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The changes provided for in this Update that are applicable to the Corporation are as follows: (

1

) require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; however, an entity

may

choose to measure equity investments that do

not

have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer; (

2

) for equity investments without readily determinable fair values, require a qualitative assessment to identify impairment, and if a qualitative assessment indicates that impairment exists, requiring an entity to measure the investment at fair value; (

3

) eliminate the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (

4

) require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (

5

) require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments (at

December 31,

2017

and

2016,

the Corporation has

no

liabilities for which the fair value measurement option has been elected); (

6

) require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (

7

) clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. The amendments in this Update will become effective for the Corporation for annual and interim periods beginning in the

first

quarter

2018.

With limited exceptions, early adoption of the amendments in this Update is

not

permitted. Amendments are to be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values should be applied prospectively. The Corporation’s current exposure related to investments in marketable equity securities and other issues considered in ASU

2016

-

01

is limited, and accordingly, initial adoption of this ASU had

no

effect on the Corporation’s financial position. Management is in the process of reviewing the changes in disclosure requirements that will become effective in the

first

quarter

2018.

In

February 2016,

the FASB issued ASU

2016

-

02,

Leases (Topic

842

). The core principle of Topic

842

is that a lessee should recognize the assets and liabilities that arise from leases. Specifically, a lessee should recognize on the balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of

12

months or less, a lessee would be permitted to make an accounting policy election by class of underlying asset

not

to recognize lease assets and liabilities. Topic

842

would

not

significantly change the recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee from current U.S. GAAP; however, the principal change from current GAAP is that lease assets and liabilities arising from operating leases would be recognized on the balance sheet. Topic

842

provides several other changes or clarifications to existing GAAP, and will require qualitative disclosures, along with quantitative disclosures, so that financial statement users can understand more about the nature of an entity

’s leasing activities. In transition, Topic

842

provides that lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach, including optional practical expedients. An entity that elects to apply the practical expedients will, in effect, continue to account for leases that commence before the effective date in accordance with previous GAAP unless the lease is modified, except that lessees will be required to recognize a right-of-use asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining minimum rental payments that were tracked and disclosed under previous GAAP. Topic

842

will become effective for the Corporation for annual and interim periods beginning in the

first

quarter

2019.

The Corporation is in the early stages of evaluating the potential impact of adopting this amendment.

In

March 2016,

the FASB issued ASU

No.

2016

-

07,

Investments

– Equity Method and Joint Ventures. This ASU eliminates the requirement that when an investment qualifies for the equity method as a result of an increase in the level of ownership interest or influence, an investor must adjust the investment, results of operations and retained earnings retroactively as if the equity method had been in effect during all previous periods the investment had been held. The ASU requires the equity method investor to add the cost of acquiring an additional interest in the investee to the basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for the equity method. The ASU further requires that an entity that has an available-for-sale equity security that becomes qualified for the equity method recognize through earnings the unrealized gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. The amendments in this Update were effective for the Corporation for annual and interim periods beginning in the

first

quarter

2017.

Initial adoption of this ASU in

2017

did

not

have a significant impact on the Corporation.

In

March 2016,

the FASB issued ASU

No.

2016

-

09,

Compensation

– Stock Compensation. This ASU changes several aspects of accounting for share-based payment transactions, and includes some changes that apply only to nonpublic companies. This Update includes amendments that currently apply, or

may

apply in the future, to the Corporation related to the following: (

1

) accounting for the difference between the deduction for tax purposes and the amount of compensation cost recognized for financial reporting purposes; (

2

) classification of excess tax benefits on the statement of cash flows; (

3

) accounting for forfeitures; (

4

) accounting for awards partially settled in cash in excess of the employer’s minimum statutory tax withholding requirements; and (

5

) classification of employee taxes paid on the statement of cash flows when an employer withholds shares for tax-withholding purposes. The amendments in this Update were effective for the Corporation for annual and interim periods beginning in the

first

quarter

2017.

The ASU provides separate transition provisions for each of the amendments. Initial adoption of this ASU in

2017

did

not

have a significant impact on the Corporation.

In

June 2016,

the FASB issued ASU

2016

-

13,

Financial Instruments-Credit Losses (Topic

326

). This ASU will result in significant changes in the Corporation

’s accounting for credit losses related to loans receivable and investment securities. A summary of significant provisions of this ASU is as follows:

● The ASU requires that a financial asset (or a group of financial assets) measured at amortized cost basis be presented, net of a valuation allowance for credit losses, at an amount expected to be collected on the financial asset(s), and that the income statement include the measurement of credit losses for newly recognized financial assets as well as changes in expected losses on previously recognized financial assets. The provisions of this ASU require measurement of expected credit losses based on relevant information including past events, historical experience, current conditions, and reasonable and supportive forecasts that affect the collectability of the asset. The provisions of this ASU differ from current U.S. GAAP in that current U.S. GAAP generally delays recognition of the full amount of credit losses until the loss is probable of occurring.

● The amendments in the Update retain many of the disclosure requirements related to credit quality in current U.S. GAAP, updated to reflect the change from an incurred loss methodology to an expected credit loss methodology.

● In addition, the Update requires that disclosure of credit quality indicators in relation to the amortized cost of financing receivables, a current requirement, be further disaggregated by year of origination.

● This ASU requires that credit losses on available-for-sale debt securities be presented as an allowance rather than as a write-down, and limits the amount of the allowance for credit losses to the amount by which the fair value is below amortized cost. For purchased available-for-sale securities with a more-than-insignificant amount of credit deterioration since origination, the ASU requires an allowance be determined in a manner similar to other available-for-sale debt securities; however, the initial allowance would be added to the purchase price, with only subsequent changes in the allowance recorded in credit loss expense, and interest income recognized at the effective rate excluding the discount embedded in the purchase price related to estimated credit losses at acquisition.

● This ASU will be effective for the Corporation for interim and annual periods beginning in the first quarter of 2020. Earlier adoption is permitted beginning in the first quarter of 2019. The Corporation will record the effect of implementing this ASU through a cumulative-effect adjustment through retained earnings as of the beginning of the reporting period in which Topic 326 is effective.

The Corporation is in the early stages of evaluating the potential impact of adopting this amendment.

In

June 2016,

the FASB issued ASU

2016

-

15,

Statement of Cash Flows (Topic

230

)

– Classification of Certain Cash Receipts and Cash Payments. This Update provides clarification regarding

eight

specific cash flow issues with the objective of reducing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. For the Corporation, the amendments in this Update are effective beginning in the

first

quarter

2018.

The amendments in this Update should be applied using a retroactive transition method to each period presented. The Corporation anticipates there will be

no

adjustments to the Consolidated Statements of Cash Flows, as previously reported, as a result of the clarifications provided in the Update.

In

January 2017,

the FASB issued ASU

2017

-

04,

Intangibles

– Goodwill and Other (Topic

350

) to simplify the accounting for goodwill impairment. This guidance, among other things, removes step

2

of the goodwill impairment test thus eliminating the need to determine the fair value of individual assets and liabilities of the reporting unit. Upon adoption of this ASU, goodwill impairment will be the amount by which a reporting unit’s carrying value exceeds its fair value,

not

to exceed the carrying amount of goodwill. This

may

result in more or less impairment being recognized than under current guidance. This Update will become effective for the Corporation’s annual and interim goodwill impairment tests beginning in the

first

quarter of

2020.

In

March 2017,

the FASB issued ASU

2017

-

08,

Receivables

– Nonrefundable Fees and Other Costs (Subtopic

310

-

20

). This Update will shorten the amortization period for certain callable debt securities held at a premium. Under current U.S. GAAP, entities generally amortize the premium over the contractual life of the instrument. This Update requires the premium be amortized to the earliest call date. Discounts will continue to be amortized to maturity. The Corporation adopted the amendments in this Update through a cumulative-effect adjustment directly to retained earnings in

2018

, and the amount of the adjustment was

not

significant.

XML

Note 3 - Comprehensive Income

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Comprehensive Income (Loss) Note [Text Block]

3.

COMPREHENSIVE INCOME

Comprehensive

income is the total of (

1

) net income, and (

2

) all other changes in equity from non-stockholder sources, which are referred to as other comprehensive (loss) income. The components of other comprehensive (loss) income, and the related tax effects, are as follows:

(In Thousands)	Before-Tax			Income Tax			Net-of-Tax
	Amount			Effect			Amount
2017
Unrealized losses on available-for-sale securities:
Unrealized holding losses on available-for-sale securities	$	(691	)	$	242		$	(449	)
Reclassification adjustment for (gains) realized in income		(257	)		89			(168	)
Other comprehensive loss on available-for-sale securities		(948	)		331			(617	)
Unfunded pension and postretirement obligations:
Changes from plan amendments and actuarial gains and losses included in other comprehensive income		36			(12	)		24
Amortization of net transition obligation, prior service cost and net actuarial gain included in net periodic benefit cost		(24	)		8			(16	)
Other comprehensive income on unfunded retirement obligations		12			(4	)		8
Total other comprehensive loss	$	(936	)	$	327		$	(609	)

(In Thousands)	Before-Tax			Income Tax			Net-of-Tax
	Amount			Effect			Amount
2016
Unrealized losses on available-for-sale securities:
Unrealized holding losses on available-for-sale securities	$	(4,138	)	$	1,448		$	(2,690	)
Reclassification adjustment for (gains) realized in income		(1,158	)		406			(752	)
Other comprehensive loss on available-for-sale securities		(5,296	)		1,854			(3,442	)
Unfunded pension and postretirement obligations:
Changes from plan amendments and actuarial gains and losses included in other comprehensive income		46			(16	)		30
Amortization of net transition obligation, prior service cost and net actuarial gain included in net periodic benefit cost		(22	)		8			(14	)
Other comprehensive income on unfunded retirement obligations		24			(8	)		16
Total other comprehensive loss	$	(5,272	)	$	1,846		$	(3,426	)

(In Thousands)	Before-Tax			Income Tax			Net-of-Tax
	Amount			Effect			Amount
2015
Unrealized losses on available-for-sale securities:
Unrealized holding losses on available-for-sale securities	$	(1,429	)	$	500		$	(929	)
Reclassification adjustment for (gains) realized in income		(2,861	)		1,002			(1,859	)
Other comprehensive loss on available-for-sale securities		(4,290	)		1,502			(2,788	)
Unfunded pension and postretirement obligations:
Changes from plan amendments and actuarial gains and losses included in other comprehensive loss		(135	)		47			(88	)
Amortization of net transition obligation, prior service cost , net actuarial loss and loss on settlement included in net period benefit cost		67			(23	)		44
Other comprehensive loss on unfunded retirement obligations		(68	)		24			(44	)
Total other comprehensive loss	$	(4,358	)	$	1,526		$	(2,832	)

Changes in t

he components of accumulated other comprehensive (loss) income, included in stockholders’ equity, are as follows:

(In Thousands)	Unrealized						Accumulated
	Holding (Losses)			Unfunded			Other
	Gains on			Retirement			Comprehensive
	Securities			Obligations			(Loss) Income
2017
Balance, beginning of period	$	(949	)	$	51		$	(898	)
Change during year ended December 31, 2017		(617	)		8			(609	)
Balance, end of period	$	(1,566	)	$	59		$	(1,507	)
2016
Balance, beginning of period	$	2,493		$	35		$	2,528
Change during year ended December 31, 2016		(3,442	)		16			(3,426	)
Balance, end of period	$	(949	)	$	51		$	(898	)
2015
Balance, beginning of period	$	5,281		$	79		$	5,360
Change during year ended December 31, 2015		(2,788	)		(44	)		(2,832	)
Balance, end of period	$	2,493		$	35		$	2,528

Items reclassified out of each component of

accumulated other comprehensive (loss) income are as follows:

For the Year Ended December 31, 2017
(In Thousands)
	Reclassified from
Details about Accumulated Other	Accumulated Other			Affected Line Item in the Consolidated
Comprehensive Loss Components	Comprehensive Loss			Statements of Income
Unrealized gains and losses on available-for-sale securities	$	(257	)	Realized gains on available-for-sale securities, net
		89		Income tax provision
		(168	)	Net of tax
Amortization of defined benefit pension and postretirement items:
Prior service cost		(31	)	Pensions and other employee benefits
Actuarial loss		7		Pensions and other employee benefits
		(24	)	Total before tax
		8		Income tax provision
		(16	)	Net of tax
Total reclassifications for the period	$	(184	)

For the Year Ended December 31, 2016
(In Thousands)
	Reclassified from
Details about Accumulated Other	Accumulated Other			Affected Line Item in the Consolidated
Comprehensive Income Components	Comprehensive Income			Statements of Income
Unrealized gains and losses on available-for-sale securities	$	(1,158	)	Realized gains on available-for-sale securities, net
		406		Income tax provision
		(752	)	Net of tax
Amortization of defined benefit pension and postretirement items:
Prior service cost		(31	)	Pensions and other employee benefits
Actuarial loss		9		Pensions and other employee benefits
		(22	)	Total before tax
		8		Income tax provision
		(14	)	Net of tax
Total reclassifications for the period	$	(766	)

For the Year Ended December 31, 2015
(In Thousands)
	Reclassified from
Details about Accumulated Other	Accumulated Other			Affected Line Item in the Consolidated
Comprehensive Income Components	Comprehensive Income			Statements of Income
Unrealized gains and losses on available-for-sale securities	$	(2,861	)	Realized gains on available-for-sale securities, net
		1,002		Income tax provision
		(1,859	)	Net of tax
Amortization of defined benefit pension and postretirement items:
Prior service cost		(31	)	Pensions and other employee benefits
Actuarial loss		11		Pensions and other employee benefits
Loss on settlement		87		Pensions and other employee benefits
		67		Total before tax
		(23	)	Income tax provision
		44		Net of tax
Total reclassifications for the period	$	(1,815	)

XML

Note 4 - Per Share Data

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Earnings Per Share [Text Block]

4

. PER SHARE DATA

Basic earnings per common share are calculated using the

two

-class method to determine income attributable to common shareholders. Unvested restricted stock awards that contain nonforfeitable rights to dividends are considered participating securities under the

two

-class method. Distributed dividends and an allocation of undistributed net income to participating securities reduce the amount of income attributable to common shareholders. Income attributable to common shareholders is then divided by weighted-average common shares outstanding for the period to determine basic earnings per common share.

Diluted earnings per common share are calculated under the more dilutive of either the treasury method or the

two

-class method. Diluted earnings per common share is computed using weighted-average common shares outstanding, plus weighted-average common shares available from the exercise of all dilutive stock options, less the number of shares that could be repurchased with the proceeds of stock option exercises based on the average share price of the Corporation's common stock during the period.

	Years Ended
	Dec. 31,			Dec. 31,			Dec. 31,
	2017			2016			2015
Basic
Net income	$	13,434,000		$	15,762,000		$	16,471,000
Less: Dividends and undistributed earnings allocated to participating securities		(69,000	)		(85,000	)		(84,000	)
Net income attributable to common shares	$	13,365,000		$	15,677,000		$	16,387,000
Basic weighted-average common shares outstanding		12,115,840			12,032,820			12,149,252
Basic earnings per common share (a)	$	1.10		$	1.30		$	1.35
Diluted
Net income attributable to common shares	$	13,365,000		$	15,677,000		$	16,387,000
Basic weighted-average common shares outstanding		12,115,840			12,032,820			12,149,252
Dilutive effect of potential common stock arising from stock options		39,296			30,235			21,832
Diluted weighted-average common shares outstanding		12,155,136			12,063,055			12,171,084
Diluted earnings per common share (a)	$	1.10		$	1.30		$	1.35

(a) Basic and diluted earnings per share under the

two

-class method are determined on net income reported on the income statement less earnings allocated to nonvested restricted shares with nonforfeitable dividends (participating securities).

The weighted-average number of nonvested restricted shares outstanding was

62,

329

shares in

2017,

65,309

shares in

2016

and

62,689

shares in

2015.

Stock options that were anti-dilutive were excluded from net income per share calculations. There were

no

anti-dilutive instruments in

2017.

Weighted-average common shares available from anti-dilutive instruments totaled

31,153

shares in

2016

and

61,590

shares in

2015.

XML

Note 5 - Cash and Due From Banks

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Cash and Cash Equivalents Disclosure [Text Block]

5.

CASH AND DUE FROM BANKS

Cash and due from banks at

December 31, 2017

and

2016

include the following:

(In thousands)	Dec. 31,		Dec. 31,
	2017		2016
Cash and cash equivalents	$	37,004	$	28,621
Certificates of deposit		3,240		3,488
Total cash and due from banks	$	40,244	$	32,109

Certificates of deposit are issues by U.S. banks with original maturities greater than

three

months. Each certificate of deposit is fully FDIC-insured. The Corporation maintains cash and cash equivalents with certain financial institutions in excess of the FDIC insurance limit.

The Corporation is required to maintain reserves against deposit liabilities in the form of cash and balances with the Federal Reserve Bank. The reserves are based on deposit levels, account activity, and other services provided by the Federal Reserve Bank. Required reserves were $

17,178,000

at

December 31, 2017

and

$16,654,000

at

December 31, 2016.

XML

Note 6 - Fair Value Measurements and Fair Values of Financial Instruments

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Fair Value Disclosures [Text Block]

6.

FAIR VALUE MEASUREMENTS AND FAIR VALUES OF FINANCIAL INSTRUMENTS

The Corporation measures certain assets at fair value. Fair value is defined as the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. FASB ASC topic

820,

“Fair Value Measurements and Disclosures” establishes a framework for measuring fair value that includes a hierarchy used to classify the inputs used in measuring fair value. The hierarchy prioritizes the inputs used in determining valuations into

three

levels. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The levels of the fair value hierarchy are as follows:

Level

1

– Fair value is based on unadjusted quoted prices in active markets that are accessible to the Corporation for identical assets. These generally provide the most reliable evidence and are used to measure fair value whenever available.

Level

2

– Fair value is based on significant inputs, other than Level

1

inputs, that are observable either directly or indirectly for substantially the full term of the asset through corroboration with observable market data. Level

2

inputs include quoted market prices in active markets for similar assets, quoted market prices in markets that are

not

active for identical or similar assets and other observable inputs.

Level

3

– Fair value is based on significant unobservable inputs. Examples of valuation methodologies that would result in Level

3

classification include option pricing models, discounted cash flows and other similar techniques.

The Corporation monitors and evaluates available data relating to fair value measurements on an ongoing basis and recognizes transfers among the levels of the fair value hierarchy as of the date of an event or change in circumstances that affects the valuation method chosen. Examples of such changes

may

include the market for a particular asset becoming active or inactive, changes in the availability of quoted prices, or changes in the availability of other market data.

At

December 31,

201

7

and

2016,

assets measured at fair value and the valuation methods used are as follows:

			December 31, 2017
	Quoted Prices		Other
	in Active		Observable		Unobservable			Total
	Markets		Inputs		Inputs			Fair
(In Thousands)	(Level 1)		(Level 2)		(Level 3)			Value
Recurring fair value measurements
AVAILABLE-FOR-SALE SECURITIES:
Obligations of U.S. Government agencies	$	0	$	7,873	$	0		$	7,873
Obligations of states and political subdivisions:
Tax-exempt		0		105,111		0			105,111
Taxable		0		25,573		0			25,573
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		0		52,347		0			52,347
Residential collateralized mortgage obligations		0		131,814		0			131,814
Commercial mortgage-backed securities		0		33,219		0			33,219
Total debt securities		0		355,937		0			355,937
Marketable equity securities		971		0		0			971
Total available-for-sale securities		971		355,937		0			356,908
Servicing rights		0		0		1,299			1,299
Total recurring fair value measurements	$	971	$	355,937	$	1,299		$	358,207
Nonrecurring fair value measurements
Impaired loans with a valuation allowance	$	0	$	0	$	3,776		$	3,776
Valuation allowance		0		0		(1,183	)		(1,183	)
Impaired loans, net		0		0		2,593			2,593
Foreclosed assets held for sale		0		0		1,598			1,598
Total nonrecurring fair value measurements	$	0	$	0	$	4,191		$	4,191

			December 31, 2016
	Quoted Prices		Other
	in Active		Observable		Unobservable			Total
	Markets		Inputs		Inputs			Fair
(In Thousands)	(Level 1)		(Level 2)		(Level 3)			Value
Recurring fair value measurements
AVAILABLE-FOR-SALE SECURITIES:
Obligations of U.S. Government agencies	$	0	$	9,541	$	0		$	9,541
Obligations of states and political subdivisions:
Tax-exempt		0		119,037		0			119,037
Taxable		0		30,297		0			30,297
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		0		58,404		0			58,404
Residential collateralized mortgage obligations		0		146,608		0			146,608
Commercial mortgage-backed securities		0		30,219		0			30,219
Total debt securities		0		394,106		0			394,106
Marketable equity securities		971		0		0			971
Total available-for-sale securities		971		394,106		0			395,077
Servicing rights		0		0		1,262			1,262
Total recurring fair value measurements	$	971	$	394,106	$	1,262		$	396,339
Nonrecurring fair value measurements
Impaired loans with a valuation allowance	$	0	$	0	$	3,372		$	3,372
Valuation allowance		0		0		(674	)		(674	)
Impaired loans, net		0		0		2,698			2,698
Foreclosed assets held for sale		0		0		2,180			2,180
Total nonrecurring fair value measurements	$	0	$	0	$	4,878		$	4,878

Management

’s evaluation and selection of valuation techniques and the unobservable inputs used in determining the fair values of assets valued using Level

3

methodologies include sensitive assumptions. Other market participants might use substantially different assumptions, which could result in calculations of fair values that would be substantially different than the amount calculated by management. The following table shows quantitative information regarding significant techniques and inputs used at

December 31, 2017

and

2016

for servicing rights assets measured using unobservable inputs (Level

3

methodologies) on a recurring basis:

	Fair Value at
	12/31/1 7		Valuation	Unobservable				Method or Value As of
Asset	(In Thousands)		Technique	Input(s)				12/31/1 7
Servicing rights	$	1,299	Discounted cash flow	Discount rate		13.00	%	Rate used through modeling period
				Loan prepayment speeds		140.00	%	Weighted-average PSA
				Servicing fees		0.25	%	of loan balances
						4.00	%	of payments are late
						5.00	%	late fees assessed
					$	1.94		Miscellaneous fees per account per month
				Servicing costs	$	6.00		Monthly servicing cost per account
					$	24.00		Additional monthly servicing cost per loan on loans more than 30 days delinquent
						1.50	%	of loans more than 30 days delinquent
						3.00	%	annual increase in servicing costs

	Fair Value at
	12/31/1 6		Valuation	Unobservable				Method or Value As of
Asset	(In Thousands)		Technique	Input(s)				12/31/1 6
Servicing rights	$	1,262	Discounted cash flow	Discount rate		13.00	%	Rate used through modeling period
				Loan prepayment speeds		138.00	%	Weighted-average PSA
				Servicing fees		0.25	%	of loan balances
						4.00	%	of payments are late
						5.00	%	late fees assessed
					$	1.94		Miscellaneous fees per account per month
				Servicing costs	$	6.00		Monthly servicing cost per account
					$	24.00		Additional monthly servicing cost per loan on loans more than 30 days delinquent
						1.50	%	of loans more than 30 days delinquent
						3.00	%	annual increase in servicing costs

The fair value of servicing rights is affected by expected future interest rates. Increases (decreases) in future expected interest rates tend to increase (decrease) the fair value of the Corporation

’s servicing rights because of changes in expected prepayment behavior by the borrowers on the underlying loans.

Following is a reconciliation of activity for Level

3

assets

(servicing rights) measured at fair value on a recurring basis:

(In Thousands)	Years Ended December 31,
	2017			2016			2015
Balance, beginning of period	$	1,262		$	1,296		$	1,281
Issuances of servicing rights		205			248			177
Unrealized losses included in earnings		(168	)		(282	)		(162	)
Balance, end of period	$	1,299		$	1,262		$	1,296

Loans are classified as impaired when, based on current information and events, it is probable that the Corporation will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Foreclosed assets held for sale consist of real estate acquired by foreclosure. For impaired commercial loans secured by real estate and foreclosed assets held for sale, estimated fair values are determined primarily using values from

third

-party appraisals. Appraised values are discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property.

At

December 31,

201

7

and

2016,

quantitative information regarding significant techniques and inputs used for nonrecurring fair value measurements using unobservable inputs (Level

3

methodologies) are as follows:

(In Thousands, Except									Weighted-
Percentages)			Valuation						Average
	Balance at		Allowance at		Fair Value at		Valuation	Unobservable	Discount at
Asset	12/31/17		12/31/17		12/31/17		Technique	Inputs	12/31/17
Impaired loans:
Residential mortgage loans - first liens	$	515	$	122	$	393	Sales comparison	Discount to appraised value		26	%
Commercial:
Commercial loans secured by real estate		2,641		919		1,722	Sales comparison	Discount to appraised value		16	%
Commercial and industrial		126		92		34	Sales comparison	Discount to appraised value		72	%
Loans secured by farmland		494		50		444	Sales comparison	Discount to appraised value		53	%
Total impaired loans	$	3,776	$	1,183	$	2,593
Foreclosed assets held for sale - real estate:
Residential (1-4 family)	$	721	$	0	$	721	Sales comparison	Discount to appraised value		37	%
Land		632		0		632	Sales comparison	Discount to appraised value		35	%
Commercial real estate		245		0		245	Sales comparison	Discount to appraised value		71	%
Total foreclosed assets held for sale	$	1,598	$	0	$	1,598

(In Thousands, Except									Weighted-
Percentages)			Valuation						Average
	Balance at		Allowance at		Fair Value at		Valuation	Unobservable	Discount at
Asset	12/31/16		12/31/16		12/31/16		Technique	Inputs	12/31/1 6
Impaired loans:
Commercial:
Commercial loans secured by real estate	$	2,773	$	528	$	2,245	Sales comparison	Discount to appraised value		7	%
Commercial and industrial		95		95		0	Sales comparison	Discount to appraised value		100	%
Loans secured by farmland		504		51		453	Sales comparison	Discount to appraised value		55	%
Total impaired loans	$	3,372	$	674	$	2,698
Foreclosed assets held for sale - real estate:
Residential (1-4 family)	$	1,102	$	0	$	1,102	Sales comparison	Discount to appraised value		35	%
Land		650		0		650	Sales comparison	Discount to appraised value		33	%
Commercial real estate		428		0		428	Sales comparison	Discount to appraised value		50	%
Total foreclosed assets held for sale	$	2,180	$	0	$	2,180

Certain of the Corporation

’s financial instruments are

not

measured at fair value in the consolidated financial statements. In cases where quoted market prices are

not

available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates

may

not

be realized in an immediate settlement of the instrument. Certain financial instruments and all nonfinancial instruments are excluded from disclosure requirements. Therefore, the aggregate fair value amounts presented

may

not

represent the underlying fair value of the Corporation.

The Corporation used the following methods and assumptions in estimating fair value disclosures for financial instruments:

CASH AND CASH EQUIVALENTS -

The carrying amounts of cash and short-term instruments approximate fair values.

CERTIFICATES OF DEPOSIT -

Fair values for certificates of deposit, included in cash and due from banks in the consolidated balance sheets, are based on quoted market prices for certificates of similar remaining maturities.

SECURITIES -

Fair values for securities, excluding restricted equity securities, are based on quoted market prices or other methods as described above. The carrying value of restricted equity securities approximates fair value based on applicable redemption provisions.

LOANS HELD FOR SALE -

Fair values of loans held for sale are determined based on applicable sale prices available under the Federal Home Loan Banks’ MPF Original or Xtra program.

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 and other consumer. Each loan category is further segmented into fixed-rate and adjustable-rate interest terms and by performing and nonperforming categories. The fair value of performing loans is calculated by discounting contractual cash flows, adjusted for estimated prepayments based on historical experience, using estimated market discount rates that reflect the credit and interest rate risk inherent in the loans. Fair value of nonperforming loans is based on recent appraisals or estimates prepared by the Corporation’s lending officers.

SERVICING RIGHTS -

The fair value of servicing rights, included in other assets in the consolidated balance sheet, is determined through a discounted cash flow valuation. Significant inputs include expected net servicing income, the discount rate and the expected prepayment speeds of the underlying loans.

DEPOSITS -

The fair value of deposits with

no

stated maturity, such as noninterest-bearing demand deposits, savings, money market and interest checking accounts, is (by definition) equal to the amount payable at

December 31, 2017

and

2016.

The fair value of time deposits, such as certificates of deposit and Individual Retirement Accounts, 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. The fair value estimates of deposits 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 -

The fair value of borrowings is estimated using discounted cash flow analyses based on rates currently available to the Corporation for similar types of borrowing arrangements.

ACCRUED INTEREST -

The carrying amounts of accrued interest receivable and payable approximate fair values.

OFF-BALANCE SHEET COMMITMENTS -

The Corporation has commitments to extend credit and has issued standby letters of credit. Standby letters of credit are conditional guarantees of performance by a customer to a

third

party. Estimates of the fair value of these off-balance sheet items were

not

made because of the short-term nature of these arrangements and the credit standing of the counterparties.

The estimated fair values, and related carrying amounts, of the Corporation

’s financial instruments are as follows:

(In Thousands)	Valuation	December 31, 201 7				December 31, 201 6
	Method(s)	Carrying		Fair		Carrying		Fair
	Used	Amount		Value		Amount		Value
Financial assets:
Cash and cash equivalents	Level 1	$	37,004	$	37,004	$	28,621	$	28,621
Certificates of deposit	Level 2		3,240		3,234		3,488		3,481
Available-for-sale securities	See Above		356,908		356,908		395,077		395,077
Restricted equity securities (included in Other Assets)	Level 2		6,556		6,556		4,426		4,426
Loans held for sale	Level 2		765		765		142		142
Loans, net	Level 3		806,857		789,891		743,362		725,787
Accrued interest receivable	Level 2		4,048		4,048		3,963		3,963
Servicing rights	Level 3		1,299		1,299		1,262		1,262
Financial liabilities:
Deposits with no stated maturity	Level 2		794,778		794,778		771,625		771,625
Time deposits	Level 2		213,671		213,734		212,218		212,274
Short-term borrowings	Level 2		61,766		61,643		26,175		26,024
Long-term borrowings	Level 2		9,189		9,256		38,454		39,062
Accrued interest payable	Level 2		46		46		65		65

XML

Note 7 - Securities

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

7.

SECURITIES

Amortized cost and fair value of

available-for-sale securities at

December 31, 2017

and

2016

are summarized as follows:

			December 31, 2017
			Gross		Gross
			Unrealized		Unrealized
	Amortized		Holding		Holding			Fair
(In Thousands)	Cost		Gains		Losses			Value
Obligations of U.S. Government agencies	$	8,026	$	0	$	(153	)	$	7,873
Obligations of states and political subdivisions:
Tax-exempt		103,673		2,291		(853	)		105,111
Taxable		25,431		226		(84	)		25,573
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		52,992		79		(724	)		52,347
Residential collateralized mortgage obligations		134,314		110		(2,610	)		131,814
Commercial mortgage-backed securities		33,881		4		(666	)		33,219
Total debt securities		358,317		2,710		(5,090	)		355,937
Marketable equity securities		1,000		0		(29	)		971
Total	$	359,317	$	2,710	$	(5,119	)	$	356,908

			December 31, 2016
			Gross		Gross
			Unrealized		Unrealized
	Amortized		Holding		Holding			Fair
(In Thousands)	Cost		Gains		Losses			Value
Obligations of U.S. Government agencies	$	9,671	$	5	$	(135	)	$	9,541
Obligations of states and political subdivisions:
Tax-exempt		118,140		2,592		(1,695	)		119,037
Taxable		30,073		303		(79	)		30,297
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		58,922		306		(824	)		58,404
Residential collateralized mortgage obligations		147,915		408		(1,715	)		146,608
Commercial mortgage-backed securities		30,817		0		(598	)		30,219
Total debt securities		395,538		3,614		(5,046	)		394,106
Marketable equity securities		1,000		0		(29	)		971
Total	$	396,538	$	3,614	$	(5,075	)	$	395,077

The following table presents gross unrealized losses and fair value of

available-for-sale securities with unrealized loss positions that are

not

deemed to be other-than-temporarily impaired, aggregated by length of time that individual securities have been in a continuous unrealized loss position at

December 31, 2017

and

2016:

December 31, 2017	Less Than 12 Months					12 Months or More					Total
(In Thousands)	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
Obligations of U.S. Government agencies	$	0	$	0		$	7,873	$	(153	)	$	7,873	$	(153	)
Obligations of states and political subdivisions:
Tax-exempt		19,050		(135	)		24,391		(718	)		43,441		(853	)
Taxable		9,279		(45	)		2,116		(39	)		11,395		(84	)
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		25,255		(242	)		22,549		(482	)		47,804		(724	)
Residential collateralized mortgage obligations		50,812		(589	)		68,558		(2,021	)		119,370		(2,610	)
Commercial mortgage-backed securities		14,713		(173	)		14,569		(493	)		29,282		(666	)
Total debt securities		119,109		(1,184	)		140,056		(3,906	)		259,165		(5,090	)
Marketable equity securities		0		0			971		(29	)		971		(29	)
Total temporarily impaired available-for-sale securities	$	119,109	$	(1,184	)	$	141,027	$	(3,935	)	$	260,136	$	(5,119	)

December 31, 2016	Less Than 12 Months					12 Months or More					Total
(In Thousands)	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
Obligations of U.S. Government agencies	$	7,899	$	(135	)	$	0	$	0		$	7,899	$	(135	)
Obligations of states and political subdivisions:
Tax-exempt		54,479		(1,676	)		1,278		(19	)		55,757		(1,695	)
Taxable		9,594		(79	)		0		0			9,594		(79	)
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		48,674		(824	)		0		0			48,674		(824	)
Residential collateralized mortgage obligations		85,198		(1,124	)		16,073		(591	)		101,271		(1,715	)
Commercial mortgage-backed securities		30,219		(598	)		0		0			30,219		(598	)
Total debt securities		236,063		(4,436	)		17,351		(610	)		253,414		(5,046	)
Marketable equity securities		1,000		(29	)		0		0			1,000		(29	)
Total temporarily impaired available-for-sale securities	$	237,063	$	(4,465	)	$	17,351	$	(610	)	$	254,414	$	(5,075	)

Gross realized gains and losses from available-for-sale securities and the related income tax provision were as follows:

(In Thousands)
	2017			2016			2015
Gross realized gains from sales	$	315		$	1,392		$	2,972
Gross realized losses from sales		(58	)		(234	)		(111	)
Net realized gains	$	257		$	1,158		$	2,861
Income tax provision related to net realized gains	$	89		$	406		$	1,002

The amortized cost and fair value of

available-for-sale debt securities by contractual maturity are shown in the following table as of

December 31, 2017.

Actual maturities

may

differ from contractual maturities because counterparties

may

have the right to call or prepay obligations with or without call or prepayment penalties.

	December 31, 2017
	Amortized		Fair
(In Thousands)	Cost		Value
Due in one year or less	$	11,350	$	11,347
Due from one year through five years		69,274		70,016
Due from five years through ten years		37,086		37,089
Due after ten years		19,420		20,105
Sub -total		137,130		138,557
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		52,992		52,347
Residential collateralized mortgage obligations		134,314		131,814
Commercial mortgage-backed securities		33,881		33,219
Total	$	358,317	$	355,937

The Corporation

’s mortgage-backed securities and collateralized mortgage obligations have stated maturities that

may

differ from actual maturities due to borrowers’ ability to prepay obligations. Cash flows from such investments are dependent upon the performance of the underlying mortgage loans and are generally influenced by the level of interest rates. In the table above, mortgage-backed securities and collateralized mortgage obligations are shown in

one

period.

Investment securities carried at $

217,925,000

at

December 31, 2017

and

$230,803,000

at

December 31, 2016

were pledged as collateral for public deposits, trusts and certain other deposits as provided by law. See Note

12

for information concerning securities pledged to secure borrowing arrangements.

Management evaluates securities for OTTI at least on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. Consideration is given to (

1

) the length of time and the extent to which the fair value has been less than cost, (

2

) the financial condition and near-term prospects of the issuer, and (

3

) whether the Corporation intends to sell the security or more likely than

not

will be required to sell the security before its anticipated recovery.

The Corporation recognized

no

net impairment losses in earnings for the years ended

December 31, 2017,

2016

and

2015.

A summary of information management considered in evaluating debt and equity securities for OTTI at

December 31,

201

7

and

2016

is provided below.

Debt Securities

At

December 31,

201

7

and

2016,

management performed an assessment for possible OTTI of the Corporation’s debt securities on an issue-by-issue basis, relying on information obtained from various sources, including publicly available financial data, ratings by external agencies, brokers and other sources. The extent of individual analysis applied to each security depended on the size of the Corporation’s investment, as well as management’s perception of the credit risk associated with each security. Based on the results of the assessment, management believes impairment of these debt securities at

December 31, 2017

and

2016

to be temporary.

Equity Securities

The Corporation

’s marketable equity securities at

December 31, 2017

and

2016

consisted exclusively of

one

mutual fund. The Corporation recognized

no

other-than-temporary impairment losses related to equities in

2017,

2016

or

2015.

At

December 31, 2017,

the mutual fund held by the Corporation had an unrealized loss of

$29,000

for which management determined an OTTI charge was

not

required.

There were

no

realized gains or losses on equity securities in

2017.

Realized gains from sales of equity securities (bank stocks) totaled

$1,125,000

in

2016

and

$2,220,000

in

2015.

C&N Bank is a member of the Federal Home Loan Bank of Pittsburgh (FHLB-Pittsburgh), which is

one

of

1

1

regional Federal Home Loan Banks. As a member, C&N Bank is required to purchase and maintain stock in FHLB-Pittsburgh. There is

no

active market for FHLB-Pittsburgh stock, and it must ordinarily be redeemed by FHLB-Pittsburgh in order to be liquidated. C&N Bank’s investment in FHLB-Pittsburgh stock, included in Other Assets in the consolidated balance sheets, was

$6,426,000

at

December 31, 2017

and

$4,296,000

at

December 31, 2016.

The Corporation evaluated its holding of FHLB-Pittsburgh stock for impairment and deemed the stock to

not

be impaired at

December 31, 2017

and

December 31, 2016.

In making this determination, management concluded that recovery of total outstanding par value, which equals the carrying value, is expected. The decision was based on review of financial information that FHLB-Pittsburgh has made publicly available.

XML

Note 8 - Loans

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

8.

LOANS

Loans

outstanding at

December 31, 2017

and

2016

are summarized as follows:

Summary of Loans by Type
(In Thousands)	Dec. 31,			Dec. 31,
	2017			2016
Residential mortgage:
Residential mortgage loans - first liens	$	359,987		$	334,102
Residential mortgage loans - junior liens		25,325			23,706
Home equity lines of credit		35,758			38,057
1-4 Family residential construction		26,216			24,908
Total residential mortgage		447,286			420,773
Commercial:
Commercial loans secured by real estate		159,266			150,468
Commercial and industrial		88,276			83,854
Political subdivisions		59,287			38,068
Commercial construction and land		14,527			14,287
Loans secured by farmland		7,255			7,294
Multi-family (5 or more) residential		7,713			7,896
Agricultural loans		6,178			3,998
Other commercial loans		10,986			11,475
Total commercial		353,488			317,340
Consumer		14,939			13,722
Total		815,713			751,835
Less: allowance for loan losses		(8,856	)		(8,473	)
Loans, net	$	806,857		$	743,362

The Corporation grants loans to individuals as well as commercial and tax-exempt entities

. Commercial, residential and personal loans are made to customers geographically concentrated in the Pennsylvania and New York counties that make up the market serviced by Citizens & Northern Bank. 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. There is

no

concentration of loans to borrowers engaged in similar businesses or activities that exceed

10%

of total loans at

December 31, 2017.

Transactions within the allowance for loan losses, summarized by segment and class, were as follows:

Year Ended December 31, 2017	Dec. 31,										Dec. 31,
(In Thousands)	2016 Balance		Charge-offs			Recoveries		Provision (Credit)			2017 Balance
Allowance for Loan Losses:
Residential mortgage:
Residential mortgage loans - first liens	$	3,033	$	(167	)	$	15	$	319		$	3,200
Residential mortgage loans - junior liens		258		(16	)		4		(22	)		224
Home equity lines of credit		350		(14	)		0		(40	)		296
1-4 Family residential construction		249		0			0		(6	)		243
Total residential mortgage		3,890		(197	)		19		251			3,963
Commercial:
Commercial loans secured by real estate		2,380		(96	)		0		300			2,584
Commercial and industrial		999		(36	)		4		98			1,065
Commercial construction and land		162		0			0		(12	)		150
Loans secured by farmland		110		0			0		(5	)		105
Multi-family (5 or more) residential		241		0			0		(69	)		172
Agricultural loans		40		0			0		17			57
Other commercial loans		115		0			0		(13	)		102
Total commercial		4,047		(132	)		4		316			4,235
Consumer		138		(150	)		38		133			159
Unallocated		398		0			0		101			499
Total Allowance for Loan Losses	$	8,473	$	(479	)	$	61	$	801		$	8,856

Year Ended December 31, 2016	Dec. 31										Dec. 31
(In Thousands)	2015 Balance		Charge-offs			Recoveries		Provision (Credit)			2016 Balance
Allowance for Loan Losses:
Residential mortgage:
Residential mortgage loans - first liens	$	2,645	$	(73	)	$	3	$	458		$	3,033
Residential mortgage loans - junior liens		219		0			0		39			258
Home equity lines of credit		347		0			0		3			350
1-4 Family residential construction		207		0			0		42			249
Total residential mortgage		3,418		(73	)		3		542			3,890
Commercial:
Commercial loans secured by real estate		1,939		0			2		439			2,380
Commercial and industrial		981		(2	)		3		17			999
Political subdivisions		0		0			0		0			0
Commercial construction and land		58		0			30		74			162
Loans secured by farmland		106		0			0		4			110
Multi-family (5 or more) residential		675		(595	)		0		161			241
Agricultural loans		45		0			0		(5	)		40
Other commercial loans		118		0			0		(3	)		115
Total commercial		3,922		(597	)		35		687			4,047
Consumer		122		(87	)		82		21			138
Unallocated		427		0			0		(29	)		398
Total Allowance for Loan Losses	$	7,889	$	(757	)	$	120	$	1,221		$	8,473

Year Ended December 31, 2015	Dec. 31,										Dec. 31,
(In Thousands)	2014 Balance		Charge-offs			Recoveries		Provision (Credit)			2015 Balance
Allowance for Loan Losses:
Residential mortgage:
Residential mortgage loans - first liens	$	2,941	$	(175	)	$	1	$	(122	)	$	2,645
Residential mortgage loans - junior liens		176		(42	)		0		85			219
Home equity lines of credit		322		0			0		25			347
1-4 Family residential construction		214		0			0		(7	)		207
Total residential mortgage		3,653		(217	)		1		(19	)		3,418
Commercial:
Commercial loans secured by real estate		1,758		(115	)		208		88			1,939
Commercial and industrial		688		(21	)		6		308			981
Political subdivisions		0		0			0		0			0
Commercial construction and land		283		(115	)		0		(110	)		58
Loans secured by farmland		165		0			0		(59	)		106
Multi-family (5 or more) residential		87		0			0		588			675
Agricultural loans		31		0			0		14			45
Other commercial loans		131		0			0		(13	)		118
Total commercial		3,143		(251	)		214		816			3,922
Consumer		145		(94	)		55		16			122
Unallocated		395		0			0		32			427
Total Allowance for Loan Losses	$	7,336	$	(562	)	$	270	$	845		$	7,889

In the evaluation of the loan portfolio, management determines

two

major components for the allowance for loan losses

– (

1

) a specific component based on an assessment of certain larger relationships, mainly commercial purpose loans, on a loan-by-loan basis; and (

2

) a general component for the remainder of the portfolio based on a collective evaluation of pools of loans with similar risk characteristics.

In determining the larger loan relationships for detailed assessment under the specific allowance component, the Corporation uses an internal risk rating system

. Under the risk rating system, the Corporation classifies problem or potential problem loans as “Special Mention,” “Substandard,” or “Doubtful” on the basis of currently existing facts, conditions and values. Substandard loans include those characterized by the distinct possibility that the Corporation will sustain some loss if the deficiencies are

not

corrected. Loans classified as Doubtful have all the weaknesses inherent in those classified as Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Loans that do

not

currently expose the Corporation to sufficient risk to warrant classification as Substandard or Doubtful, but possess weaknesses that deserve management’s close attention, are deemed to be Special Mention. Risk ratings are updated any time that conditions or the situation warrants. Loans

not

classified are included in the “Pass” column in the table below.

The following table

s summarize the aggregate credit quality classification of outstanding loans by risk rating as of

December 31, 2017

and

2016:

December 31, 2017
(In Thousands)			Special
	Pass		Mention		Substandard		Doubtful		Total
Residential Mortgage:
Residential mortgage loans - first liens	$	350,609	$	307	$	9,019	$	52	$	359,987
Residential mortgage loans - junior liens		24,795		104		426		0		25,325
Home equity lines of credit		35,233		61		464		0		35,758
1-4 Family residential construction		26,216		0		0		0		26,216
Total residential mortgage		436,853		472		9,909		52		447,286
Commercial:
Commercial loans secured by real estate		150,806		936		7,524		0		159,266
Commercial and Industrial		82,724		3,896		1,645		11		88,276
Political subdivisions		59,287		0		0		0		59,287
Commercial construction and land		14,449		0		78		0		14,527
Loans secured by farmland		5,283		581		1,379		12		7,255
Multi-family (5 or more) residential		7,130		0		583		0		7,713
Agricultural loans		5,203		270		705		0		6,178
Other commercial loans		10,913		0		73		0		10,986
Total commercial		335,795		5,683		11,987		23		353,488
Consumer		14,853		0		86		0		14,939
Totals	$	787,501	$	6,155	$	21,982	$	75	$	815,713

December 31, 2016
(In Thousands)			Special
	Pass		Mention		Substandard		Doubtful		Total
Residential Mortgage:
Residential mortgage loans - first liens	$	324,377	$	408	$	9,258	$	59	$	334,102
Residential mortgage loans - junior liens		23,274		132		300		0		23,706
Home equity lines of credit		37,360		123		574		0		38,057
1-4 Family residential construction		24,820		0		88		0		24,908
Total residential mortgage		409,831		663		10,220		59		420,773
Commercial:
Commercial loans secured by real estate		139,358		3,092		8,018		0		150,468
Commercial and Industrial		79,202		4,180		461		11		83,854
Political subdivisions		38,068		0		0		0		38,068
Commercial construction and land		14,136		70		81		0		14,287
Loans secured by farmland		5,745		129		1,404		16		7,294
Multi-family (5 or more) residential		7,277		0		619		0		7,896
Agricultural loans		3,208		0		790		0		3,998
Other commercial loans		11,401		0		74		0		11,475
Total commercial		298,395		7,471		11,447		27		317,340
Consumer		13,546		0		176		0		13,722
Totals	$	721,772	$	8,134	$	21,843	$	86	$	751,835

The scope of loans

reviewed individually each quarter to determine if they are impaired include all commercial loan relationships greater than

$200,000

for which there is at least

one

extension of credit graded Special Mention, Substandard or Doubtful. In the

fourth

quarter

2017,

the scope was expanded to include any residential mortgage or consumer loans of

$400,000

or more with a credit grade of Special Mention, Substandard or Doubtful. Loans that are individually reviewed, but which are determined to

not

be impaired, are combined with all remaining loans that are

not

reviewed on a specific basis, and such loans are included within larger pools of loans based on similar risk and loss characteristics for purposes of determining the general component of the allowance. The loans that have been individually reviewed, but which have been determined to

not

be impaired, are included in the “Collectively Evaluated” column in the table summarizing the allowance and associated loan balances as of

December 31, 2017

and

2016.

All loans classified as troubled debt restructurings (discussed in more detail below) and all commercial loan relationships less than

$200,000

or other loan relationships less than

$400,000

in the aggregate, but with an estimated loss of

$100,000

or more, are individually evaluated for impairment.

The following table

s present a summary of loan balances and the related allowance for loan losses summarized by portfolio segment and class for each impairment method used as of

December 31, 2017

and

2016:

December 31, 2017	Loans:						Allowance for Loan Losses:
(In Thousands)
	Individually		Collectively				Individually		Collectively
	Evaluated		Evaluated		Totals		Evaluated		Evaluated		Totals
Residential mortgage:
Residential mortgage loans - first liens	$	984	$	359,003	$	359,987	$	0	$	3,200	$	3,200
Residential mortgage loans - junior liens		302		25,023		25,325		122		102		224
Home equity lines of credit		0		35,758		35,758		0		296		296
1-4 Family residential construction		0		26,216		26,216		0		243		243
Total residential mortgage		1,286		446,000		447,286		122		3,841		3,963
Commercial:
Commercial loans secured by real estate		5,873		153,393		159,266		919		1,665		2,584
Commercial and industrial		568		87,708		88,276		188		877		1,065
Political subdivisions		0		59,287		59,287		0		0		0
Commercial construction and land		0		14,527		14,527		0		150		150
Loans secured by farmland		1,365		5,890		7,255		50		55		105
Multi-family (5 or more) residential		392		7,321		7,713		0		172		172
Agricultural loans		7		6,171		6,178		0		57		57
Other commercial loans		0		10,986		10,986		0		102		102
Total commercial		8,205		345,283		353,488		1,157		3,078		4,235
Consumer		20		14,919		14,939		0		159		159
Unallocated												499
Total	$	9,511	$	806,202	$	815,713	$	1,279	$	7,078	$	8,856

December 31, 2016	Loans:						Allowance for Loan Losses:
(In Thousands)
	Individually		Collectively				Individually		Collectively
	Evaluated		Evaluated		Totals		Evaluated		Evaluated		Totals
Residential mortgage:
Residential mortgage loans - first liens	$	753	$	333,349	$	334,102	$	0	$	3,033	$	3,033
Residential mortgage loans - junior liens		68		23,638		23,706		0		258		258
Home equity lines of credit		0		38,057		38,057		0		350		350
1-4 Family residential construction		0		24,908		24,908		0		249		249
Total residential mortgage		821		419,952		420,773		0		3,890		3,890
Commercial:
Commercial loans secured by real estate		8,005		142,463		150,468		528		1,852		2,380
Commercial and industrial		212		83,642		83,854		95		904		999
Political subdivisions		0		38,068		38,068		0		0		0
Commercial construction and land		0		14,287		14,287		0		162		162
Loans secured by farmland		1,394		5,900		7,294		51		59		110
Multi-family (5 or more) residential		392		7,504		7,896		0		241		241
Agricultural loans		13		3,985		3,998		0		40		40
Other commercial loans		0		11,475		11,475		0		115		115
Total commercial		10,016		307,324		317,340		674		3,373		4,047
Consumer		23		13,699		13,722		0		138		138
Unallocated												398
Total	$	10,860	$	740,975	$	751,835	$	674	$	7,401	$	8,473

Summary information re

lated to impaired loans as of

December 31, 2017

and

2016

is as follows:

(In Thousands)	December 31, 2017						December 31, 2016
	Unpaid						Unpaid
	Principal		Recorded		Related		Principal		Recorded		Related
	Balance		Investment		Allowance		Balance		Investment		Allowance
With no related allowance recorded:
Residential mortgage loans - first liens	$	740	$	711	$	0	$	783	$	753	$	0
Residential mortgage loans - junior liens		60		60		0		68		68		0
Commercial loans secured by real estate		3,230		3,230		0		6,975		5,232		0
Commercial and industrial		119		119		0		117		117		0
Loans secured by farmland		871		871		0		890		890		0
Multi-family (5 or more) residential		987		392		0		987		392		0
Agricultural loans		8		8		0		13		13		0
Consumer		20		20		0		23		23		0
Total with no related allowance recorded		6,035		5,411		0		9,856		7,488		0
With a related allowance recorded:
Residential mortgage loans - first liens		273		273		0		0		0		0
Residential mortgage loans - junior liens		242		242		122		0		0		0
Commercial loans secured by real estate		2,641		2,641		919		2,773		2,773		528
Commercial and industrial		449		449		188		95		95		95
Loans secured by farmland		495		495		50		504		504		51
Total with a related allowance recorded		4,100		4,100		1,279		3,372		3,372		674
Total	$	10,135	$	9,511	$	1,279	$	13,228	$	10,860	$	674

In the table immediately above,

two

loans to

one

borrower are presented under the Residential mortgage loans

–

first

liens and Residential mortgage loans – junior liens classes. These loans are collateralized by

one

property, and the allowance associated with these loans was determined based on an analysis of the total amounts of the Corporation’s exposure in comparison to the estimated net proceeds if the Corporation were to sell the property

.

The average balance of impaired loans and interest income recognized on impaired loans is as follows:

							Interest Income Recognized on
	Average Investment in Impaired Loans						Impaired Loans on a Cash Basis
(In Thousands)	Year Ended December 31,						Year Ended December 31,
	2017		2016		2015		2017		2016		2015
Residential mortgage:
Residential mortgage loans - first lien	$	857	$	806	$	2,206	$	52	$	43	$	86
Residential mortgage loans - junior lien		112		71		64		15		3		4
Total residential mortgage		969		877		2,270		67		46		90
Commercial:
Commercial loans secured by real estate		6,272		6,806		6,357		173		495		380
Commercial and industrial		301		547		438		24		20		20
Commercial construction and land		0		0		40		0		0		0
Loans secured by farmland		1,379		1,409		1,459		45		94		103
Multi-family (5 or more) residential		392		511		790		0		0		0
Agricultural loans		10		14		21		1		1		3
Total commercial		8,354		9,287		9,105		243		610		506
Consumer		26		21		0		1		1		0
Total	$	9,349	$	10,185	$	11,375	$	311	$	657	$	596

T

he breakdown by portfolio segment and class of nonaccrual loans and loans past due

ninety

days or more and still accruing is as follows:

(In Thousands)	December 31, 2017				December 31, 2016
	Past Due				Past Due
	90+ Days and				90+ Days and
	Accruing		Nonaccrual		Accruing		Nonaccrual
Residential mortgage:
Residential mortgage loans - first liens	$	2,340	$	5,131	$	3,022	$	3,770
Residential mortgage loans - junior liens		105		242		114		0
Home equity lines of credit		203		44		320		11
Total residential mortgage		2,648		5,417		3,456		3,781
Commercial:
Commercial loans secured by real estate		175		5,645		2,774		3,080
Commercial and industrial		603		517		286		119
Commercial construction and land		26		52		0		0
Loans secured by farmland		271		1,308		219		1,331
Multi-family (5 or more) residential		0		392		0		392
Agricultural loans		0		7		0		13
Total commercial		1,075		7,921		3,279		4,935
Consumer		1		66		103		20
Totals	$	3,724	$	13,404	$	6,838	$	8,736

The amounts shown in the table immediately above include loans classified as troubled debt restructuring

s (described in more detail below), if such loans are considered past due

ninety

days or more, or nonaccrual.

The tables below present a summary of the contractual aging

of loans as of

December 31, 2017

and

2016:

	As of December 31, 2017								As of December 31, 2016
	Current &								Current &
(In Thousands)	Past Due		Past Due		Past Due				Past Due		Past Due		Past Due
	Less than		30-89		90+				Less than		30-89		90+
	30 Days		Days		Days		Total		30 Days		Days		Days		Total
Residential mortgage:
Residential mortgage loans - first liens	$	347,032	$	7,967	$	4,988	$	359,987	$	321,670	$	6,695	$	5,737	$	334,102
Residential mortgage loans - junior liens		25,133		87		105		25,325		23,268		324		114		23,706
Home equity lines of credit		34,789		732		237		35,758		37,603		134		320		38,057
1-4 Family residential construction		25,667		549		0		26,216		24,567		341		0		24,908
Total residential mortgage		432,621		9,335		5,330		447,286		407,108		7,494		6,171		420,773
Commercial:
Commercial loans secured by real estate		155,917		311		3,038		159,266		147,464		82		2,922		150,468
Commercial and industrial		87,306		303		667		88,276		83,364		185		305		83,854
Political subdivisions		59,287		0		0		59,287		38,068		0		0		38,068
Commercial construction and land		14,400		49		78		14,527		14,199		88		0		14,287
Loans secured by farmland		6,226		12		1,017		7,255		6,181		83		1,030		7,294
Multi-family (5 or more) residential		7,321		0		392		7,713		7,439		65		392		7,896
Agricultural loans		6,114		57		7		6,178		3,981		4		13		3,998
Other commercial loans		10,986		0		0		10,986		11,475		0		0		11,475
Total commercial		347,557		732		5,199		353,488		312,171		507		4,662		317,340
Consumer		14,760		123		56		14,939		13,446		153		123		13,722
Totals	$	794,938	$	10,190	$	10,585	$	815,713	$	732,725	$	8,154	$	10,956	$	751,835

Nonaccrual loans are included in the contractual aging immediately above

. A summary of the contractual aging of nonaccrual loans at

December 31, 2017

and

2016

is as follows:

	Current &
(In Thousands)	Past Due		Past Due		Past Due
	Less than		30-89		90+
	30 Days		Days		Days		Total
December 31, 2017 Nonaccrual Totals	$	5,802	$	741	$	6,861	$	13,404
December 31, 2016 Nonaccrual Totals	$	4,199	$	419	$	4,118	$	8,736

Loans whose terms are modified are classified as Troubled Debt Restructurings (TDRs) if the Corporation grants such borrowers concessions and it is deemed that those borrowers are experiencing financial difficulty. Loans classified as TDRs are designated as impaired

and reviewed each quarter to determine if a specific allowance for loan losses is required. The outstanding balance of loans subject to TDRs, as well as the contractual aging information at

December 31, 2017

and

2016

is as follows:

Troubled Debt Restructurings (TDRs):
	Current &
(In Thousands)	Past Due		Past Due		Past Due
	Less than		30-89		90+
	30 Days		Days		Days		Nonaccrual		Total
December 31, 2017 Totals	$	636	$	0	$	0	$	3,027	$	3,663
December 31, 2016 Totals	$	5,453	$	350	$	0	$	2,874	$	8,677

At

December 31, 2017

and

2016

, there were

no

commitments to loan additional funds to borrowers whose loans have been classified as TDRs.

There were

no

TDRs that occurred during

2017

. A summary of TDRs that occurred during

2016

and

2015

is as follows:

(Balances in Thousands)
	2016				2015
			Post-				Post-
	Number		Modification		Number		Modification
	of		Recorded		of		Recorded
	Loans		Investment		Loans		Investment
Residential mortgage - first liens:
Extended maturity with interest rate reduction		1	$	71		1	$	56
Extended maturity with reduced monthly payments		1		26		0		0
Reduced monthly payments for a six-month period		0		0		1		242
Residential mortgage - junior liens,
Interest rate and monthly payment reduction		0		0		1		32
Commercial loans secured by real estate,
Interest only payments for a period of one year		1		2,773		0		0
Commercial and industrial,
Extended maturity		1		5		0		0
Consumer:
Interest rate and monthly payment reduction		0		0		1		30
New unsecured loan after short-fall from sale of property		1		24		0		0
Total		5	$	2,899		4	$	360

T

here were

no

differences between the outstanding contractual amounts and the recorded investments in receivables resulting from TDRs that occurred in

2016

and

2015.

For

2017

, there were

no

defaults on loans for which modifications considered to be TDRs were entered into within the previous

12

months. For

2016

and

2015,

defaults on loans for which modifications considered to be TDRs were entered into within the previous

12

months are summarized as follows:

(Balances in Thousands)
	2016				2015
	Number				Number
	of		Recorded		of		Recorded
	Loans		Investment		Loans		Investment
Residential mortgage - first liens		2	$	294		1	$	32
Residential mortgage - junior liens		1		29		0		0
Commercial and industrial		1		5		0		0
Consumer		1		27		0		0
Total		5	$	355		1	$	32

The carrying amount of foreclosed residential real estate properties held as a result of obtaining physical possession (included in Foreclosed assets held for sale in the

consolidated balance sheets) is as follows:

(In Thousands)	Dec. 31,		Dec. 31,
	2017		2016
Foreclosed residential real estate	$	721	$	1,102

The recorded investment of consumer mortgage loans secured by residential real properties for which formal foreclosure proceedings were in process is as follows:

(In Thousands)	Dec. 31,		Dec. 31,
	2017		2016
Residential real estate in process of foreclosure	$	1,789	$	2,738

XML

Note 9 - Bank Premises and Equipment

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Property, Plant and Equipment Disclosure [Text Block]

9

. BANK PREMISES AND EQUIPMENT

(In Thousands)	December 31,
	2017			2016
Land	$	2,818		$	2,818
Buildings and improvements		28,285			27,619
Furniture and equipment		15,578			18,741
Construction in progress		268			392
Total		46,949			49,570
Less: accumulated depreciation		(31,517	)		(34,173	)
Net	$	15,432		$	15,397

Depreciation expense included in occupancy expense and furniture and equipment expense was as follows:

(In Thousands)	2017		2016		2015
Occupancy expense	$	801	$	804	$	954
Furniture and equipment expense		838		785		934
Total	$	1,639	$	1,589	$	1,888

XML

Note 10 - Intangible Assets

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Intangible Assets Disclosure [Text Block]

10.

INTANGIBLE ASSETS

There were

no

c

hanges in the carrying amount of goodwill in

2017

and

2016.

The balance in goodwill was

$11,942,000

at

December 31, 2017

and

2016.

The Corporation did

not

complete any acquisitions in

2017

or

2016.

In testing goodwill for impairment as of

December 31,

201

7,

the Corporation assessed qualitative factors to determine whether it is more likely than

not

that the fair value of its only reporting unit, its community banking operation, is less than its carrying amount. The qualitative factors assessed included the Corporation’s recent financial performance, economic conditions in the Corporation’s market area, macroeconomic conditions and other factors. Based on the assessment of qualitative factors, the Corporation determined that it is

not

more likely than

not

that the fair value of the community banking operation has fallen below its carrying value, and therefore, the Corporation did

not

perform the more detailed,

two

-step goodwill impairment test described in Topic

350.

Accordingly, there was

no

goodwill impairment as of

December 31, 2017.

Information related to the core deposit intangibles

is as follows:

	December 31,
(In Thousands)	2017			2016
Gross amount	$	2,034		$	2,034
Less: accumulated amortization		(2,022	)		(2,017	)
Net	$	12		$	17

Amortization expense was

$5,000

in

2017,

$13,000

in

2016

and

$22,000

in

2015.

The amount of amortization expense to be recognized each of the ensuing

five

years is

not

significant.

XML

Note 11 - Deposits

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Deposit Liabilities Disclosures [Text Block]

1

1

. DEPOSITS

At

December 31,

201

7,

the scheduled maturities of time deposits are as follows:

(In Thousands)
2018	$	112,563
2019		57,097
2020		22,836
2021		7,975
2022		10,484
Thereafter		2,716
Total	$	213,671

Time deposits of more than

$250,000

totaled

$12,653,000

at

December 31, 2017

and

$7,929,000

at

December 31, 2016.

As of

December 31, 2017,

the remaining maturities or time to next re-pricing of time deposits more than

$250,000

was as follows:

(In Thousands)
Three months or less	$	4,833
Over 3 months through 12 months		5,375
Over 1 year through 3 years		1,148
Over 3 years		1,297
Total	$	12,653

XML

Note 12 - Borrowed Funds

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Debt Disclosure [Text Block]

1

2

. BORROWED FUNDS

Short-term borrowings

(initial maturity within

one

year) include the following:

(In Thousands)	Dec. 31,		Dec. 31,
	2017		2016
FHLB-Pittsburgh borrowings	$	58,000	$	21,000
Customer repurchase agreements		3,766		5,175
Total short-term borrowings	$	61,766	$	26,175

Short-term borrowings from FHLB-Pittsburgh are as follows:

(In Thousands)	Dec. 31,		Dec. 31
	2017		2016
Overnight borrowing	$	29,000	$	21,000
Other short-term advances		29,000		0
Total short-term FHLB-Pittsburgh borrowings	$	58,000	$	21,000

The weighted average interest rate on total short-term

borrowings outstanding was

1.52%

at

December 31, 2017

and

0.61%

at

December 31, 2016.

The maximum amount of total short-term borrowings outstanding at any month-end was

$61,766,000

in

2017,

$47,005,000

in

2016

and

$53,496,000

in

2015.

The Corporation had available credit with other correspondent banks totaling

$45,000,000

at

December 31, 2017

and

2016.

These lines of credit are primarily unsecured.

No

amounts were outstanding at

December 31, 2017

or

2016.

The Corporation has a line of credit with the Federal Reserve Bank of Philadelphia

’s Discount Window. At

December 31, 2017,

the Corporation had available credit in the amount of

$15,877,000

on this line with

no

outstanding advances. At

December 31, 2016,

the Corporation had available credit in the amount of

$15,636,000

on this line with

no

outstanding advances. As collateral for this line, the Corporation has pledged available-for-sale securities with a carrying value of

$16,301,000

at

December 31, 2017

and

$17,690,000

at

December 31, 2016.

The FHLB-Pittsburgh loan facilit

y is collateralized by qualifying loans secured by real estate with a book value totaling

$471,454,000

at

December 31, 2017

and

$471,454,000

at

December 31, 2016.

Also, the FHLB-Pittsburgh loan facility requires the Corporation to invest in established amounts of FHLB-Pittsburgh stock. The carrying values of the Corporation’s holdings of FHLB-Pittsburgh stock (included in Other Assets) were

$6,426,000

at

December 31, 2017

and

$4,296,000

at

December 31, 2016.

The Corporation’s total credit facility with FHLB-Pittsburgh was

$362,630,000

at

December 31, 2017,

including an unused (available) amount of

$295,441,000.

At

December 31, 2016,

the Corporation’s total credit facility with FHLB-Pittsburgh was

$339,221,000,

including an unused (available) amount of

$306,767,000.

O

vernight borrowings from FHLB-Pittsburgh had an interest rate of

1.54%

at

December 31, 2017

and

0.74%

at

December 31, 2016.

At

December 31, 2017,

the other short-term advances included

9

advances of

$3,000,000

and

1

advance of

$2,000,000,

each maturing monthly from

January

through

October 2018,

with a weighted average interest rate of

1.69%

and rates ranging from

1.23%

to

1.89%.

The Corporation engages in repurchase agreements with certain commercial customers. These agreements provide that the Corporation sells specified investment securities to the customers on an overnight basis and repurchases them on the following business day. The weighted average rate paid by the Corporation on customer repurchase agreements was

0.10%

at Decembe

r

31,

2017

and

December 31, 2016.

The carrying value of the underlying securities was

$12,158,000

at

December 31, 2017

and

$15,019,000

at

December 31, 2016.

LONG-TERM BORROWINGS

Long-term borrowings

(initial maturity of greater than

one

year) are as follows:

(In Thousands)	Dec. 31,		Dec. 31,
	2017		2016
FHLB-Pittsburgh borrowings	$	9,189	$	11,454
Repurchase agreements		0		27,000
Total long-term borrowings	$	9,189	$	38,454

Long-term borrowings from FHLB - Pittsburgh are as follows:

(In Thousands)	Dec. 31,		Dec. 31,
	2017		2016
Loan matur ed in 2017 with a rate of 6.83%	$	0	$	4
Loan matur ed in 2017 with a rate of 3.81%		0		10,000
Loan maturing in 2018 with a rate of 1.63%		3,000		0
Loan maturing in 2018 with a rate of 1.35%		3,000		0
Loan maturing in 2019 with a rate of 1.83%		2,000		0
Loan maturing in 2020 with a rate of 4.79%		463		646
Loan maturing in 2025 with a rate of 4.91%		726		804
Total long-term FHLB-Pittsburgh borrowings	$	9,189	$	11,454

The repurchase agreement included in long-term borrowings had an interest rate of

3.595%

and matured in

December 2017.

Securities sold under repurchase agreements were delivered to the broker-dealer who

was the counter-party to the transactions. The broker-dealer

may

have sold, loaned or otherwise disposed of such securities to other parties in the normal course of their operations, and resold to the Corporation substantially identical securities at the maturities of the agreements. The carrying value of the underlying securities sold under the repurchase agreements with the broker dealer was

$0

at

December 31, 2017

and

$31,494,000

at

December 31, 2016,

as detailed in the following table:

(In Thousands)	Dec. 31,		Dec. 31,
	2017		2016
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities	$	0	$	18,181
Residential collateralized mortgage obligations		0		13,313
Total	$	0	$	31,494

Average daily repurchase agreement borrowings amounted to $

26,112,000

in

2017,

$27,000,000

in

2016

and

$54,304,000

in

2015.

The maximum amounts of outstanding borrowings under repurchase agreements with broker-dealers were

$27,000,000

in

2017

and

2016,

and

$61,000,000

in

2015.

The weighted average interest rate on repurchase agreements was

3.60%

in

2017

and

2016,

and

3.99%

in

2015.

   

XML

Note 13 - Employee and Postretirement Benefit Plans

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Pension and Other Postretirement Benefits Disclosure [Text Block]

1

3

. EMPLOYEE AND POSTRETIREMENT BENEFIT PLANS

DEFINED BENEFIT PLANS

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 requir

ements. Full-time employees

no

longer accrue service time toward the Corporation-subsidized portion of the medical benefits. The plan contains a cost-sharing feature which causes participants to pay for all future increases in costs related to benefit coverage. Accordingly, actuarial assumptions related to health care cost trend rates do

not

significantly affect the liability balance at

December 31, 2017

and

December 31, 2016,

and are

not

expected to significantly affect the Corporation's future expenses. The Corporation uses a

December 31

measurement date for the postretirement plan.

In an acquisition in

2007,

the Corporation assumed the Citizens Trust Company Retirement Plan, a defined benefit pension plan. This plan covers certain employees who were employed by Citizens Trust Company on

December 31, 2002,

when the plan was amended to discontinue admittance of any future participant and to freeze benefit accruals. Information related to the Citizens Trust Company Retirement Plan has been included in the tables that follow. The Corporation uses a

December 31

measurement date for this plan.

The

following table shows the funded status of the defined benefit plans:

(In Thousands)
	Pension						Postretirement
	2017			2016			2017			2016
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year	$	713		$	722		$	1,555		$	1,539
Service cost		0			0			36			37
Interest cost		24			26			57			62
Plan participants' contributions		0			0			211			215
Actuarial loss (gain)		127			3			(103	)		(30	)
Benefits paid		(14	)		(38	)		(259	)		(268	)
Benefit obligation at end of year	$	850		$	713		$	1,497		$	1,555
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year	$	846		$	839		$	0		$	0
Actual return on plan assets		91			45			0			0
Employer contribution		0			0			48			53
Plan participants' contributions		0			0			211			215
Benefits paid		(14	)		(38	)		(259	)		(268	)
Fair value of plan assets at end of year	$	923		$	846		$	0		$	0
Funded status at end of year	$	73		$	133		$	(1,497	)	$	(1,555	)

At

December 31,

20

17

and

2016,

the following pension plan and postretirement plan asset and liability amounts were recognized in the consolidated balance sheets:

Assets and liabilities:
(In Thousands)	Pension				Postretirement
	2017		2016		2017		2016
Other assets	$	73	$	133
Accrued interest and other liabilities					$	1,497	$	1,555

At

December 31,

20

17

and

2016,

the following items included in accumulated other comprehensive income had

not

been recognized as components of expense:

Items not yet recognized as a component
of net periodic benefit cost:
(In Thousands)	Pension				Postretirement
	2017		2016		2017			2016
Prior service cost	$	0	$	0	$	(309	)	$	(340	)
Net actuarial loss (gain)		221		161		(2	)		101
Total	$	221	$	161	$	(311	)	$	(239	)

For the defined benefit pension plan, amortization of the net actu

arial loss is expected to be

$13,000

in

2018.

For the postretirement plan, the estimated amount of prior service cost that will be amortized from accumulated other comprehensive loss into net periodic benefit cost in

2018

is a reduction in expense of

$31,000,

and

no

net actuarial gain is expected to be amortized in

2018.

The accumulated benefit obligation for the defined

benefit pension plan was

$850,000

at

December 31, 2017

and

$713,000

at

December 31, 2016.

The components of net periodic benefit costs from defined benefit plans are as follows:

(In Thousands)	Pension									Postretirement
	2017			2016			2015			2017			2016			2015
Service cost	$	0		$	0		$	0		$	36		$	37		$	38
Interest cost		24			26			36			57			62			57
Expected return on plan assets		(31	)		(26	)		(45	)		0			0			0
Amortization of prior service cost		0			0			0			(31	)		(31	)		(31	)
Recognized net actuarial loss		7			9			11			0			0			0
Loss on settlement		0			0			87			0			0			0
Total net periodic benefit cost	$	0		$	9		$	89		$	62		$	68		$	64

In

2015,

there was a distribution from the

pension plan of

$337,000,

or

32%

of the plan’s total accumulated benefit obligation prior to the distribution. The Corporation recognized a loss of

$87,000

(included in net periodic benefit cost) in

2015

as a result of this settlement.

The weighted-average assumptions used to determine net periodic benefit cost are as follows:

	Pension									Postretirement
	2017			2016			2015			2017			2016			2015
Discount rate		4.05	%		4.30	%		3.75	%		3.75	%		4.25	%		4.00	%
Expected return on plan assets		6.00	%		5.00	%		5.31	%		N/A			N/A			N/A
Rate of compensation increase		N/A			N/A			N/A			N/A			N/A			N/A

The weighted-average assumptions used to determine benefit obligations as of

December 31,

20

17

and

2016

are as follows:

	Pension						Postretirement
	2017			2016			2017			2016
Discount rate		3.55	%		4.05	%		3.75	%		4.25	%
Rate of compensation increase		N/A			N/A			N/A			N/A

Estimated future benefit payments, including only estimated employer contributions for the postretirement plan, which reflect expected future service, are as follows:

(In Thousands)	Pension		Postretirement
2018	$	312	$	96
20 1 9		41		96
2020		13		104
2021		12		101
2022		14		105
2023-2027		226		516

No

estimated minimum contribution to the defined benefit

pension plan is required in

2018,

though the Corporation

may

make discretionary contributions.

The expected

return on pension plan assets is a significant assumption used in the calculation of net periodic benefit cost. This assumption reflects the average long-term rate of earnings expected on the funds invested or to be invested to provide for the benefits included in the projected benefit obligation.

The

fair values of pension plan assets at

December 31, 2017

and

2016

are as follows:

	2017			2016
Mut ual funds invested principally in:
Cash and cash equivalents		2	%		2	%
Debt securities		37	%		38	%
Equity securities		45	%		44	%
Alternative funds		16	%		16	%
Total		100	%		100	%

C&N Bank

’s Trust and Financial Management Department manages the investment of the pension plan assets. The Plan’s securities include mutual funds invested principally in debt securities, a diversified mix of large, mid- and small-capitalization U.S. stocks, foreign stocks and alternative asset classes such as real estate, commodities, and inflation-protected securities. The fair values of plan assets are determined based on Level

1

inputs (as described in Note

6

). At

December 31, 2017,

the targeted asset allocation of mutual funds for the pension plan was

45%

equity securities,

37%

debt securities,

16%

alternative assets, and

2%

cash. At

December 31, 2016,

the targeted asset allocation of mutual funds for the pension plan was

44%

equity securities,

38%

debt securities,

16%

alternative assets and

2%

cash. The pension plan’s assets do

not

include any shares of the Corporation’s common stock.

PROFIT SHARING AND DEFERRED COMPENSATION PLANS

The Corporation has a profit sharing plan that incorporates the 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 total basic and matching contributions were

$681,000

in

2017,

$646,000

in

2016

and

$609,000

in

2015.

The Corporation has an Employee Stock Ownership Plan (ESOP)

. Contributions to the ESOP are discretionary, and the ESOP uses funds contributed to purchase Corporation stock for the accounts of ESOP participants. These purchases are made on the market (

not

directly from the Corporation), and employees are

not

permitted to purchase Corporation stock under the ESOP. The ESOP includes a diversification feature, which allows participants, upon reaching age

55

and

10

years of service (as defined), to sell up to

50%

of their Corporation shares over a period of

6

years. As of

December 31, 2017

and

2016,

there were

no

shares allocated for repurchase by the ESOP.

Dividends paid on shares held by the ESOP are charged to retained earnings

. All Corporation shares owned through the ESOP are included in the calculation of weighted-average shares outstanding for purposes of calculating earnings per share - basic and diluted. The ESOP held

419,067

shares of Corporation stock at

December 31, 2017

and

417,753

shares at

December 31, 2016,

all of which had been allocated to Plan participants. The Corporation’s contributions to the ESOP totaled

$588,000

in

2017,

$549,000

in

2016

and

$522,000

in

2015.

The Corporation has a nonqualified supplemental deferred compensation arrangement with its key officers. Charges to

operating expense for officers’ supplemental deferred compensation were

$200,000

in

2017,

$184,000

in

2016

and

$167,000

in

2015.

In

December 2015,

the Corpo

ration established a nonqualified deferred compensation plan that allows selected officers, beginning in

2016,

the option to defer receipt of cash compensation, including base salary and any cash bonuses or other cash incentives. This nonqualified deferred compensation plan does

not

provide for Corporation contributions.

STOCK-BASED COMPENSATION PLANS

The Corporation has a Stock Incentive Plan for a selected group of senior officers. A total of

850,000

shares of common stock

may

be issued under the Stock Incentive Plan

. Awards

may

be made under the Stock Incentive Plan in the form of qualified options (“Incentive Stock Options,” as defined in the Internal Revenue Code), nonqualified options, stock appreciation rights or restricted stock. Historically through

December 31, 2017,

all awards made under this Plan have consisted of Incentive Stock Options or restricted stock. Incentive Stock Options have an exercise price equal to the market value of the stock at the date of grant, vest after

6

months and expire after

10

years. There are

270,179

shares available for issuance under the Stock Incentive Plan as of

December 31, 2017.

Also, the Corporation has an Independent Directors Stock Incentive Plan. This plan permits awards of nonqualified stock options and/or restricted stock to non-employee directors. A total of

135,000

shares of common stock

may

be issued under the Independent Directors Stock Incentive Plan. The recipients

’ rights to exercise stock options under this plan expire

10

years from the date of grant. The exercise prices of all stock options awarded under the Independent Directors Stock Incentive Plan are equal to market value as of the dates of grant. There are

17,396

shares available for issuance under the Independent Directors Stock Incentive Plan as of

December 31, 2017.

Total stock-based compensation expense is as follows:

(In Thousands)	2017		2016		2015
Restricted stock	$	627	$	578	$	606
Stock options		0		0		0
Total	$	627	$	578	$	606

T

he following summarizes non-vested restricted stock activity for the year ended

December 31, 2017:

				Weighted
				Average
	Number			Grant Date
	of Shares			Fair Value
Outstanding, December 31, 2016		63,362		$	20.35
Granted		30,782		$	25.97
Vested		(28,981	)	$	20.21
Forfeited		(4,406	)	$	21.74
Outstanding, December 31, 2017		60,757		$	23.17

Compensation cost related to restricted stock is recognized based on the market price of the stock at the grant date over the vesting period

, adjusted for estimated and actual forfeitures. As of

December 31, 2017,

there was

$671,000

total unrecognized compensation cost related to restricted stock, which is expected to be recognized over a weighted average period of

1.3

years.

In

2017

and

2016,

the Corporation awarded shares of restricted stock under the Stock Incentive Plan, as follows:

	2017		2016
Executive Officers		14,897		17,289
Other employees		7,415		10,304
Total		22,312		27,593

Restricted stock awards in

2017

and

2016

to employees other than executive officers

vest over a

three

-year term, subject to continued employment and satisfactory job performance, with

no

additional performance conditions (time vesting). Restricted stock awards in

2017

and

2016

to Executive Officers vest over a

three

-year term, with vesting for half of the shares based on time vesting and vesting for half of the shares based on time vesting and upon the Corporation meeting an annual return on average equity (“ROAE”) performance ratio, as defined. The minimum level for satisfying the performance condition defined in the

2017

and

2016

awards was an ROAE at the

50

th

percentile of the defined Peer Group’s results. The Corporation did

not

meet the performance condition defined in the

2017

and

2016

awards, as the Corporation’s return on average equity ROAE was in the

37

th

percentile of the Peer Group’s results for the

12

-month period ended

September 30, 2017

and in the

47

th

percentile of the Peer Group’s results for the

12

-month period ended

September 30, 2016.

For purposes of the

2017

and

2016

awards, the Peer Group included all publicly traded commercial banks and bank holding companies with headquarters in Pennsylvania, New York, New Jersey and Ohio, and total assets ranging between

$750

million and

$3.5

billion as of the beginning of the applicable period.

Most of the restricted stock awards issued under this Plan

prior to

2016,

for which a portion of the awards vested in

2017

and

2016,

include a condition that the Corporation must meet an annual targeted ROAE performance ratio, as defined, in order for participants to vest. In

2017,

2016

and

2015,

the Corporation met the ROAE target applicable to these awards, which is based on the Corporation’s ROAE for

12

-month periods ended

September 30

of each year as compared to the applicable peer group of bank holding companies based in Pennsylvania and

one

local competitor based in New York with total assets of

$750

million to

$2

billion as of the beginning of each applicable period.

In

201

7,

a total of

8,470

restricted shares were granted under the Independent Directors Stock Incentive Plan, subject to time vesting over a term of

one

year. In

2016,

a total of

7,834

restricted shares were granted under the Independent Directors Stock Incentive Plan, also with time vesting over a term of

one

year.

There were

no

stock options granted in

2017,

2016

or

2015.

A summary of stock option activity is presented below:

	2017					2016					2015
				Weighted					Weighted					Weighted
				Average					Average					Average
				Exercise					Exercise					Exercise
	Shares			Price		Shares			Price		Shares			Price
Outstanding, beginning of year		202,037		$	18.58		248,486		$	18.59		316,157		$	19.05
Granted		0					0					0
Exercised		(24,976	)	$	17.50		(35,880	)	$	18.86		(29,557	)	$	17.56
Forfeited		(635	)	$	19.88		(10,569	)	$	18.03		(20,211	)	$	19.76
Expired		(10,766	)	$	22.33		0					(17,903	)	$	27.00
Outstanding, end of year		165,660		$	18.49		202,037		$	18.58		248,486		$	18.59
Options exercisable at year-end		165,660		$	18.49		202,037		$	18.58		248,486		$	18.59
Weighted-average fair value of options forfeited				$	4.21				$	4.04				$	4.86

The weighted-average remaining contractual term of outstanding stock options at

December 31,

20

17

was

3.5

years. The aggregate intrinsic value of stock options outstanding was

$913,000

at

December 31, 2017.

The total intrinsic value of options exercised was

$164,000

in

2017,

$183,000

in

2016

and

$77,000

in

2015.

The Corporation has issued shares from treasury stock for almost all stock option exercises through

December 31,

201

7.

Management does

not

anticipate that stock repurchases will be necessary to accommodate stock option exercises in

2018.

In

January 2018,

the Corporation awarded

25,416

shares of restricted stock under the Stock Incentive Plan and

9,086

shares of restricted stock under the Independent Directors Stock Incentive Plans. The

2018

restricted stock awards under the Stock Incentive Plan vest ratably over

three

years, and vesting for

one

-half of the

16,578

restricted shares awarded to Executive Officers depends on the Corporation meeting a ROAE target each year. The

2018

restricted stock issued under the Independent Directors Stock Incentive Plan vests over

one

year. Total estimated stock-based compensation for

2018

is

$716,000.

The restricted stock awards made in

January 2018

are

not

included in the tables above.

XML

Note 14 - Income Taxes

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Income Tax Disclosure [Text Block]

1

4

.

INCOME TAXES

The

net deferred tax asset at

December 31, 2017

and

2016

represents the following temporary difference components:

	December 31,			December 31,
(In Thousands)	2017			2016
Deferred tax assets:
Unrealized holding losses on securities:
Included in accumulated other comprehensive loss	$	843		$	512
Included in retained earnings		(337	)		0
Allowance for loan losses		1,894			2,998
Other deferred tax assets		1,726			2,658
Total deferred tax assets		4,126			6,168
Deferred tax liabilities:
Defined benefit plans - ASC 835:
Included in accumulated other comprehensive loss		31			27
Included in retained earnings		(12	)		0
Bank premises and equipment		751			913
Core deposit intangibles		3			6
Other deferred tax liabilities		64			105
Total deferred tax liabilities		837			1,051
Deferred tax asset, net	$	3,289		$	5,117

The provision for income taxes inclu

des the following:

(In thousands)	2017		2016			2015
Currently payable	$	4,938	$	5,328		$	5,097
Tax expense resulting from allocations of certain tax benefits to equity or as a reduction in other assets		63		175			161
Deferred		2,155		(156	)		79
Total provision	$	7,156	$	5,347		$	5,337

A reconciliation of income tax at the statutory rate to the Corporation

’s effective rate is as follows (amounts in thousands):

(Amounts in thousands)	2017						2016						2015
	Amount			%			Amount			%			Amount			%
Expected provision	$	7,207			35.00		$	7,388			35.00		$	7,633			35.00
Tax-exempt interest income		(1,817	)		(8.82	)		(1,801	)		(8.53	)		(1,914	)		(8.78	)
Nondeductible interest expense		42			0.20			40			0.19			51			0.23
Dividends received deduction		(7	)		(0.03	)		(22	)		(0.10	)		(75	)		(0.34	)
Increase in cash surrender value of life insurance		(133	)		(0.65	)		(134	)		(0.63	)		(135	)		(0.62	)
Employee stock option compensation		8			0.04			0			0.00			0			0.00
ESOP Dividends		(154	)		(0.75	)		0			0.00			0			0.00
Tax benefit from limited partnership investment		(73	)		(0.35	)		(76	)		(0.36	)		(80	)		(0.37	)
Effect of tax rate change		2,159			10.49			0			0.00			0			0.00
Other, net		(76	)		(0.37	)		(48	)		(0.23	)		(143	)		(0.66	)
Effective income tax provision	$	7,156			34.75		$	5,347			25.33		$	5,337			24.47

In

2017,

the Corporation recognized a reduction in the carrying value of the net deferred tax asset of

$2,159,000

as a result of the

December 2017

enactment of a reduction in the federal corporate income tax rate to

21%

effective

January 1, 2018,

from the

35%

marginal tax rate in effect throughout

2017,

2016

and

2015.

Included in the total related provision was

$325,000

associated with items included in Accumulated Other Comprehensive Loss in the consolidated balance sheets. Management believes the Corporation’s accounting for the effects of the reduction in the federal corporate income tax rate is materially complete at December

31,

2017.

The Corporation has investments in

three

limited partnerships that

manage affordable housing projects that have qualified for the federal low-income housing tax credit. The Corporation’s expected return from these investments is based on the receipt of tax credits and tax benefits from deductions of operating losses. The Corporation uses the effective yield method to account for these investments, with the benefits recognized as a reduction of the provision for income taxes. For

two

of the

three

limited partnership investments, the tax credits have been received in full in prior years, and the Corporation has fully realized the benefits of the credits and amortized its initial investments in the partnerships. The most recent affordable housing project was completed in

2013,

and the Corporation received tax credits in

2013

through

2017

and expects to continue to receive tax credits annually through

2022.

The carrying amount of the Corporation’s investment is

$608,000

at

December 31, 2017

and

$713,000

at

December 31, 2016 (

included in Other Assets in the consolidated balance sheets). For

2017,

the estimated amount of tax credits and other tax benefits to be received is

$157,000

and the amount recognized as a reduction of the provision for income taxes is

$73,000.

In

2016,

the Corporation received tax credits and other tax benefits totaling

$158,000,

and recognized a reduction of the provision for income tax of

$76,000.

In

2015,

the Corporation received tax credits and other tax benefits totaling

$160,000,

and recognized a reduction of the provision for income tax of

$80,000.

The Corporation has

no

unrecognized tax benefits, nor pending examination issues related to tax positions taken in preparation of its income tax returns

. With limited exceptions, the Corporation is

no

longer subject to examination by the Internal Revenue Service for years prior to

2014.

XML

Note 15 - Related Party Transactions

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Related Party Transactions Disclosure [Text Block]

1

5

.

RELATED PARTY TRANSACTIONS

Loans to executive officers, directors of the Corporation and its subsidiaries and any associates of the foregoing persons are as follows:

(In Thousands)	Beginning		New					Other			Ending
	Balance		Loans		Repayments			Changes			Balance
12 directors, 7 executive officers 2017	$	11,414	$	2,128	$	(2,061	)	$	2,931		$	14,412
12 directors, 7 executive officers 2016		10,246		307		(1,160	)		2,021			11,414
11 directors, 7 executive officers 2015		12,023		52		(808	)		(1,021	)		10,246

In the table above, o

ther changes represent net changes in the balance of existing lines of credit and transfers in and out of the related party category.

Deposits from related parties held by the Corporation amounted to

$7,171,000

at

December 31, 2017

and

$6,261,000

at

December 31, 2016.

XML

Note 16 - Off-balance Sheet Risk

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Supplemental Balance Sheet Disclosures [Text Block]

16

. 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 financial 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

s. The contract amounts 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,

2017

and

2016

are as follows:

(In Thousands)	2017		2016
Commitments to extend credit	$	187,919	$	180,768
Standby letters of credit		7,445		9,025

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 creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Corporation, for extensions 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

. Some of the standby letters of credit are collateralized by real estate or other assets, and others are unsecured. The extent to which proceeds from liquidation of collateral would be expected to cover the maximum potential amount of future payments related to standby letters of credit is

not

estimable. The Corporation has recorded

no

liability associated with standby letters of credit as of

December 31, 2017

and

2016.

Standby letters of credit as of

December 31,

2017

expire as follows:

Year of Expiration	(In Thousands)
2018	$	7,042
2019		355
2020		48
Total	$	7,445

XML

Note 17 - Contingencies

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

1

7

.

CONTINGENCIES

In the normal course of business, the Corporation is subject to pending and threatened litigation in which claims for monetary damages are asserted

. In management’s opinion, the Corporation’s financial position and results of operations would

not

be materially affected by the outcome of these legal proceedings.

XML

Note 18 - Regulatory Matters

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Regulatory Capital Requirements under Banking Regulations [Text Block]

1

8

.

REGULATORY MATTERS

The Corporation (on a consolidated basis) and

C&N Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory - and possibly additional discretionary - actions by regulators that, if undertaken, could have a direct material effect on the Corporation’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation and C&N Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Corporation and

C&N Bank to maintain minimum amounts and ratios (set forth in the following table) of total capital, Tier I capital (as defined in the regulations) and Common equity Tier

1

capital (as defined) to risk-weighted assets (as defined) and of Tier I capital (as defined) to average assets (as defined). Management believes, as of

December 31, 2017

and

2016,

that the Corporation and C&N Bank meet all capital adequacy requirements (described in more detail below) to which they are subject and maintain capital conservation buffers that allow the Corporation and C&N Bank to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to certain executive officers.

To be categorized as well capitalized, an institution must maintain minimum total risk based, Tier I risk based

, Common equity risk based and Tier I leverage ratios as set forth in the following table. The Corporation’s and C&N Bank’s actual capital amounts and ratios are also presented in the following table:

(Dollars in Thousands)													Minimum To Be Well
	Actual					Minimum			Minimum To Maintain				Capitalized Under			Minimum To Meet
						Capital			Capital Conservation				Prompt Corrective			the Corporation's
	Actual					Requirement			Buffer at Reporting Date				Action Provisions			Policy Thresholds
	Amount		Ratio			Amount		Ratio	Amount		Ratio		Amount		Ratio	Amount		Ratio
December 31, 2017:
Total capital to risk-weighted assets:
Consolidated	$	187,097		23.07	%	$	64,872	> 8%	$	75,008	> 9.25%		$	81,090	> 10%	$	85,144	> 10.5%
C&N Bank		165,142		20.47	%		64,528	> 8%		74,611	> 9.25%			80,661	> 10%		84,694	> 10.5%
Tier 1 capital to risk-weighted assets:
Consolidated		177,981		21.95	%		48,654	> 6%		58,790	> 7.25%			64,872	> 8%		68,926	> 8.5%
C&N Bank		156,026		19.34	%		48,396	> 6%		58,479	> 7.25%			64,528	> 8%		68,561	> 8.5%
Common equity tier 1 capital to risk-weighted assets:
Consolidated		177,981		21.95	%		36,490	> 4.5%		46,626	> 5.75%			52,708	> 6.5%		56,763	> 7%
C&N Bank		156,026		19.34	%		36,297	> 4.5%		46,380	> 5.75%			52,429	> 6.5%		56,462	> 7%
Tier 1 capital to average assets:
Consolidated		177,981		14.23	%		50,023	> 4%		N/A		N/A		62,529	> 5%		62,529	> 5%
C&N Bank		156,026		12.63	%		49,418	> 4%		N/A		N/A		61,772	> 5%		61,772	> 5%
December 31, 2016:
Total capital to risk-weighted assets:
Consolidated	$	183,597		23.60	%	$	62,245	> 8%	$	67,108	> 8.625%		$	77,806	> 10%	$	81,697	> 10.5%
C&N Bank		162,705		21.03	%		61,894	> 8%		66,730	> 8.625%			77,368	> 10%		81,236	> 10.5%
Tier 1 capital to risk-weighted assets:
Consolidated		174,928		22.48	%		46,684	> 6%		51,547	> 6.625%			62,245	> 8%		66,135	> 8.5%
C&N Bank		154,036		19.91	%		46,421	> 6%		51,256	> 6.625%			61,894	> 8%		65,762	> 8.5%
Common equity tier 1 capital to risk-weighted assets:
Consolidated		174,928		22.48	%		35,013	> 4.5%		39,876	> 5.125%			50,574	> 6.5%		54,464	> 7%
C&N Bank		154,036		19.91	%		34,815	> 4.5%		39,651	> 5.125%			50,289	> 6.5%		54,157	> 7%
Tier 1 capital to average assets:
Consolidated		174,928		14.27	%		49,026	> 4%		N/A		N/A		61,282	> 5%		61,282	> 5%
C&N Bank		154,036		12.73	%		48,404	> 4%		N/A		N/A		60,506	> 5%		60,506	> 5%

In

July 2013,

the federal regulatory authorities issued a new capital rule based, in part, on revisions developed by the Basel Committee on Banking Supervision to the Basel capital framework (Basel III). The Corporation and C&N Bank became subject to the new rule effective

January 1, 2015.

Generally, the new rule implement

ed higher minimum capital requirements, revised the definition of regulatory capital components and related calculations, added a new common equity tier

1

capital ratio, implemented a new capital conservation buffer, increased the risk weighting for past due loans and provided a transition period for several aspects of the new rule.

The current (new) capital rule provides that, in order to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, a banking organization must hold a capital

conservation buffer composed of common equity tier

1

capital above its minimum risk-based capital requirements. The buffer is measured relative to risk-weighted assets. The

2017

minimum required capital ratios and capital conservation buffer needed in order to fully avoid limitations on capital distributions, along with the remaining transition schedule for new ratios andthe capital conservation buffer, is as follows:

	As of January 1:
	2017			2018			2019
Minimum common equity tier 1 capital ratio		4.5	%		4.5	%		4.5	%
Common equity tier 1 capital conservation buffer		1.25	%		1.875	%		2.5	%
Minimum common equity tier 1 capital ratio plus capital conservation buffer		5.75	%		6.375	%		7.0	%
Phase-in of most deductions from common equity tier 1 capital		80	%		100	%		100	%
Minimum tier 1 capital ratio		6.0	%		6.0	%		6.0	%
Minimum tier 1 capital ratio plus capital conservation buffer		7.25	%		7.875	%		8.5	%
Minimum total capital ratio		8.0	%		8.0	%		8.0	%
Minimum total capital ratio plus capital conservation buffer		9.25	%		9.875	%		10.5	%

As fully phased in, a banking organization with a buffer greater than

2.5%

would

not

be subject to additional limits on dividend payments or discretionary bonus payments; however, a banking organization with a buffer less than

2.5%

would be subject to increasingly stringent limitations as the buffer approaches zero. The new rule also prohibits a banking organization from making dividend payments or discretionary bonus payments if its eligible retained income is negative in that quarter and its capital conservation buffer ratio was less than

2.5%

as of the beginning of that quarter. Eligible net income is defined as net income for the

four

calendar quarters preceding the current calendar quarter, net of any distributions and associated tax effects

not

already reflected in net income. A summary of payout restrictions based on the capital conservation buffer is as follows:

Capital Conservation Buffer	Maximum Payout
(as a % of risk-weighted assets)	(as a % of eligible retained income)
Greater than 2.5%	No payout limitation applies
≤2.5% and >1.875%		60	%
≤1.875% and >1.25%		40	%
≤1.25% and >0.625%		20	%
≤0.625%		0	%

At

December 31, 2017

, the Corporation’s Capital Conservation Buffer, determined based on the minimum total capital ratio, was

15.07%.

C&N Bank’s Capital Conservation Buffer (also determined based on the minimum total capital ratio) was

12.47%.

Banking regulators limit the amount of dividends that

may

be paid by

C&N Bank to the Corporation. Retained earnings against which dividends

may

be paid without prior approval of the banking regulators amounted to approximately

$88,980,000

at

December 31, 2017,

subject to the minimum capital ratio requirements noted above.

Restrictions imposed by federal law prohibit the Corporati

on from borrowing from C&N Bank unless the loans are secured in specific amounts. Such secured loans to the Corporation are generally limited to

10%

of C&N Bank’s tangible stockholder’s equity (excluding accumulated other comprehensive loss) or

$15,604,000

at

December 31, 2017.

XML

Note 19 - Parent Company Only

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Condensed Financial Information of Parent Company Only Disclosure [Text Block]

19

. PARENT COMPANY ONLY

The following is condensed financial information for Citizens & Northern Corporation:

CONDENSED BALANCE SHEET	December 31,
(In Thousands)	2017		2016
ASSETS
Cash	$	6,790	$	6,033
Investment in subsidiaries:
Citizens & Northern Bank		166,576		165,397
Citizens & Northern Investment Corporation		11,588		11,168
Bucktail Life Insurance Company		3,488		3,419
Other assets		15		4
TOTAL ASSETS	$	188,457	$	186,021
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities	$	14	$	13
Stockholders' equity		188,443		186,008
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	188,457	$	186,021

CONDENSED INCOME STATEMENT
(In Thousands)	2017			2016			2015
Dividends from Citizens & Northern Bank	$	12,022		$	14,960		$	11,569
Expenses		(233	)		(367	)		(234	)
Income before equity in undistributed income of subsidiaries		11,789			14,593			11,335
Equity in undistributed income of subsidiaries		1,645			1,169			5,136
NET INCOME	$	13,434		$	15,762		$	16,471

CONDENSED STATEMENT OF CASH FLOWS
(In Thousands)
	2017			2016			2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	13,434		$	15,762		$	16,471
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed net income of subsidiaries		(1,645	)		(1,169	)		(5,136	)
(Increase) decrease in other assets		(11	)		20			12
Increase (decrease) in other liabilities		1			(6	)		12
Net Cash Provided by Operating Activities		11,779			14,607			11,359
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of treasury stock		128			263			381
Tax (cost) benefit from compensation plans, net		(5	)		151			143
Purchase of treasury stock		0			(3,723	)		(4,415	)
Dividends paid		(11,145	)		(11,112	)		(11,245	)
Net Cash Used in Financing Activities		(11,022	)		(14,421	)		(15,136	)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		757			186			(3,777	)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR		6,033			5,847			9,624
CASH AND CASH EQUIVALENTS, END OF YEAR	$	6,790		$	6,033		$	5,847

XML

Note 20 - Summary of Quarterly Consolidated Financial Data (Unaudited)

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Quarterly Financial Information [Text Block]

20.

SUMMARY OF QUARTERLY CONSOLIDATED FINANCIAL DATA (Unaudited)

The following table presents summarized quarterly financial data for

201

7

and

2016:

SUMMARY OF QUARTERLY CONSOLIDATED FINANCIAL DATA

(In Thousands Except Per Share Data) (Unaudited)

	2017 Quarter Ended
	Mar. 31,		June 30,		Sept. 30,		Dec. 31,
	2017		2017		2017		2017
Interest income	$	11,112	$	11,340	$	11,626	$	11,785
Interest expense		953		978		985		999
Net interest income		10,159		10,362		10,641		10,786
Provision for loan losses		452		4		322		23
Net interest income after provision for loan losses		9,707		10,358		10,319		10,763
Other income		3,864		4,106		4,066		4,117
Net gains on available-for-sale securities		145		107		5		0
Other expenses		9,298		9,076		9,192		9,401
Income before income tax provision		4,418		5,495		5,198		5,479
Income tax provision		984		1,374		1,262		3,536
Net income	$	3,434	$	4,121	$	3,936	$	1,943
Net income attributable to common shares	$	3,416	$	4,100	$	3,916	$	1,933
Net income per share – basic	$	0.28	$	0.34	$	0.32	$	0.16
Net income per share – diluted	$	0.28	$	0.34	$	0.32	$	0.16

	2016 Quarter Ended
	Mar. 31,		June 30,		Sept. 30,		Dec. 31,
	2016		2016		2016		2016
Interest income	$	10,937	$	10,924	$	11,131	$	11,106
Interest expense		904		925		944		920
Net interest income		10,033		9,999		10,187		10,186
Provision (credit) for loan losses		368		318		538		(3	)
Net interest income after provision (credit) for loan losses		9,665		9,681		9,649		10,189
Other income		3,690		3,906		3,884		4,031
Net gains on available-for-sale securities		383		122		584		69
Other expenses		9,072		8,535		8,579		8,558
Income before income tax provision		4,666		5,174		5,538		5,731
Income tax provision		1,093		1,303		1,451		1,500
Net income	$	3,573	$	3,871	$	4,087	$	4,231
Net income attributable to common shares	$	3,553	$	3,850	$	4,065	$	4,209
Net income per share – basic	$	0.29	$	0.32	$	0.34	$	0.35
Net income per share – diluted	$	0.29	$	0.32	$	0.34	$	0.35

XML

Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2017

Accounting Policies [Abstract]

Consolidation, Policy [Policy Text Block]

BASIS OF CONSOLIDATION -

The consolidated financial statements include the accounts of Citizens & Northern Corporation and its subsidiaries, Citizens & Northern Bank (“C&N Bank”), Bucktail Life Insurance Company and Citizens & Northern Investment Corporation (collectively, “Corporation”), as well as C&N Bank’s wholly-owned subsidiary, C&N Financial Services Corporation. In

December 2017,

C&N Bank established a new entity, Northern Tier Holding LLC, for the purpose of acquiring, holding and disposing of real property acquired by the Bank. C&N Bank is the sole member of Northern Tier Holding LLC, which had

no

transactions in

2017.

All material intercompany balances and transactions have been eliminated in consolidation.

Nature of Operations, Policy [Policy Text Block]

NATURE OF OPERATIONS -

The Corporation is primarily engaged in providing a full range of banking and mortgage services to individual and corporate customers in North Central Pennsylvania and Southern New York State. Lending products include mortgage loans, commercial loans and consumer loans, as well as specialized instruments such as commercial letters-of-credit. Deposit products include various types of checking accounts, passbook and statement savings, money market accounts, interest checking accounts, Individual Retirement Accounts and certificates of deposit. The Corporation also offers non-insured “RepoSweep” accounts.

The Corporation provides Trust and Financial Management services, including administration of trusts and estates, retirement plans, and other employee benefit plans, and investment management services

. The Corporation offers a variety of personal and commercial insurance products through C&N Financial Services Corporation. C&N Financial Services Corporation also offers mutual funds, annuities, educational savings accounts and other investment products through registered agents.

Management has determined that the Corporation has

one

reportable segment, “Community Banking.” All of the Corporation

’s activities are interrelated, and each activity is dependent and assessed based on how each of the activities of the Corporation supports the others.

The Corporation is subject to competition from other financial institutions. It is also subject to regulation by certain federal and state agencies and undergoes periodic examination by those regulatory authorities

. As a consequence, the Corporation’s business is particularly susceptible to being affected by future federal and state legislation and regulations.

Use of Estimates, Policy [Policy Text Block]

USE OF ESTIMATES -

The financial information is presented in accordance with generally accepted accounting principles and general practice for financial institutions in the United States of America (“U.S. GAAP”). In preparing financial statements, management is required to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements. In addition, these estimates and assumptions affect revenues and expenses in the financial statements and as such, actual results could differ from those estimates.

Material estimates that are particularly susceptible to change include: (

1

) the allowance for loan losses, (

2

) fair values of debt securities based on estimates from independent valuation services or from brokers,

(

3

) assessment of impaired securities to determine whether or

not

the securities are other-than-temporarily impaired, (

4

) valuation of deferred tax assets and (

5

) valuation of obligations from defined benefit plans.

Marketable Securities, Policy [Policy Text Block]

INVESTMENT SECURITIES -

Investment securities are accounted for as follows:

Available-for-sale securities -

includes debt securities

not

classified as held-to-maturity or trading, and unrestricted equity securities. Such securities are reported at fair value, with unrealized gains and losses excluded from earnings and reported separately through accumulated other comprehensive income (loss), net of tax. Amortization of premiums and accretion of discounts on available-for-sale securities are recorded using the level yield method over the remaining contractual life of the securities, adjusted for actual prepayments. Realized gains and losses on sales of available-for-sale securities are computed on the basis of specific identification of the adjusted cost of each security. Securities within the available-for-sale portfolio

may

be used as part of the Corporation’s asset and liability management strategy and

may

be sold in response to changes in interest rate risk, prepayment risk or other factors.

Other-than-temporary impairment

- Credit related declines in the fair value of available-for-sale securities that are deemed to be other-than-temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment (OTTI) losses, management considers (

1

) the length of time and the extent to which the fair value has been less than cost, (

2

) the financial condition and near-term prospects of the issuer, (

3

) the intent and ability of the Corporation to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value, and (

4

) whether the Corporation intends to sell the security or if it is more likely than

not

that the Corporation will be required to sell the security before the recovery of its amortized cost basis. The credit-related impairment is recognized in earnings and is the difference between a security’s amortized cost basis and the present value of expected future cash flows discounted at the security’s effective interest rate. For debt securities classified as held-to-maturity, if any, the amount of noncredit-related impairment is recognized in other comprehensive income and accreted over the remaining life of the debt security as an increase in the carrying value of the security.

Restricted equity securities

- Restricted equity securities consist primarily of Federal Home Loan Bank of Pittsburgh stock, and are carried at cost and evaluated for impairment. Holdings of restricted equity securities are included in Other Assets in the consolidated balance sheets, and dividends received on restricted securities are included in Other Income in the consolidated statements of income.

Finance, Loan and Lease Receivables, Held-for-sale, Policy [Policy Text Block]

LOANS HELD FOR SALE

-Mortgage loans held for sale are reported at the lower of cost or market, determined in the aggregate.

Finance, Loans and Leases Receivable, Policy [Policy Text Block]

LOANS RECEIVABLE -

Loans receivable which management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at unpaid principal balances, less the allowance for loan losses and net deferred loan fees. Interest income is accrued on the unpaid principal balance. Loan origination and commitment fees, as well as certain direct origination costs, are deferred and amortized as a yield adjustment over the lives of the related loans using the interest method.

The loans receivable portfolio is segmented into

residential mortgage, commercial and consumer loans. The residential mortgage segment includes the following classes:

first

and junior lien residential mortgages, home equity lines of credit and residential construction loans. The most significant classes of commercial loans are commercial loans secured by real estate, non-real estate secured commercial and industrial loans, loans to political subdivisions, commercial construction, and loans secured by farmland.

Loans are placed on nonaccrual status

for all classes of loans when, in the opinion of management, collection of interest is doubtful. Any unpaid interest previously accrued on those loans is reversed from income. Interest income is

not

recognized on specific impaired loans unless the likelihood of further loss is remote. Interest payments received on loans for which the risk of further loss is greater than remote are applied as a reduction of the loan principal balance. Interest income on other nonaccrual loans is recognized only to the extent of interest payments received. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time (generally

six

months) and the ultimate collectability of the total contractual principal and interest is

no

longer in doubt. The past due status of all classes of loans receivable is determined based on contractual due dates for loan payments. Also, the amortization of deferred loan fees is discontinued when a loan is placed on nonaccrual status.

Loans and Leases Receivable, Allowance for Loan Losses Policy [Policy Text Block]

ALLOWANCE FOR LOAN LOSSES

-The allowance for loan losses represents management’s estimate of losses inherent in the loan portfolio as of the balance sheet date and is recorded as a reduction to loans. The allowance for loan losses is increased by the provision for loan losses, and decreased by charge-offs, net of recoveries. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance. All, or part, of the principal balance of loans receivable are charged off to the allowance as soon as it is determined that the collection of all, or part, of the principal balance is highly unlikely. Non-residential consumer loans are generally charged off

no

later than when they are

120

days past due on a contractual basis, or earlier in the event of bankruptcy or if there is an amount deemed uncollectible.

The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs a quarterly evaluation of the adequacy of the allowance

. The allowance is based on the Corporation’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that

may

affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires material estimates that

may

be susceptible to significant revision as more information becomes available. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Corporation’s allowance for loan losses. Such agencies

may

require the Corporation to recognize adjustments to the allowance based on their judgments of information available to them at the time of their examination. In the process of evaluating the loan portfolio, management also considers the Corporation’s exposure to losses from unfunded loan commitments. As of

December 31, 2017

and

2016,

management determined that

no

allowance for credit losses related to unfunded loan commitments was required.

The allowance consists primarily of

two

major components

– (

1

) a specific component based on a detailed assessment of certain larger loan relationships, mainly commercial purpose, determined on a loan-by-loan basis; and (

2

) a general component for the remainder of the portfolio based on a collective evaluation of pools of loans with similar risk characteristics. The general component is assigned to each pool of loans based on both historical net charge-off experience, and an evaluation of certain qualitative factors. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the above methodologies for estimating specific and general losses in the portfolio.

The specific component relates to loans that are classified as impaired based on a detailed assessment of certain larger loan relationships evaluated by a management committee referred to as the Watch List Committee

. Specific loan relationships are identified for evaluation based on the related credit risk rating. For individual loans classified as impaired, an allowance is established when the collateral value less estimated selling costs, present value of discounted cash flows or observable market price of the impaired loan is lower than the carrying value of that loan.

The general component covers pools of loans by loan class including commercial loans

not

considered

individually impaired, as well as smaller balance homogeneous classes of loans, such as residential real estate, home equity lines of credit and other consumer loans. Accordingly, the Corporation generally does

not

separately identify individual consumer and residential loans for impairment disclosures, unless such loans are subject to a restructuring agreement. The pools of loans for each loan segment are evaluated for loss exposure based upon average historical net charge-off rates, adjusted for qualitative factors. The time period used in determining the average historical net charge-off rate for each loan class is based on management’s evaluation of an appropriate time period that captures an historical loss experience relevant to the current portfolio. Qualitative risk factors (described in the following paragraph) are evaluated for the impact on each of the

three

distinct segments (residential mortgage, commercial and consumer) within the loan portfolio. Each qualitative factor is assigned a value to reflect improving, stable or declining conditions based on management’s judgment using relevant information available at the time of the evaluation. Any adjustments to the factors are supported by a narrative documentation of changes in conditions accompanying the allowance for loan losses calculation.

The qualitative factors used in the general component calculations are designed to address credit risk characteristics associated with each segment

. The Corporation’s credit risk associated with all of the segments is significantly impacted by these factors, which include economic conditions within its market area, the Corporation’s lending policies, changes or trends in the portfolio, risk profile, competition, regulatory requirements and other factors. Further, the residential mortgage segment is significantly affected by the values of residential real estate that provide collateral for the loans. The majority of the Corporation’s commercial segment loans (approximately

53%

at

December 31, 2017)

are secured by real estate, and accordingly, the Corporation’s risk for the commercial segment is significantly affected by commercial real estate values. The consumer segment includes a wide mix of loans for different purposes, primarily secured loans, including loans secured by motor vehicles, manufactured housing and other types of collateral.

Loans are classified as impaired when, based on current information and events, it is probable that the Corporation will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement

. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are

not

classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial loans by the fair value of the collateral (if the loan is collateral dependent), by future cash flows discounted at the loan’s effective rate or by the loan’s observable market price.

For commercial loans secured by real estate, estimated fair values are determined primarily through

third

-party appraisals. When a real estate secured loan becomes impaired, a decision is made regarding whether an updated certified appraisal of the real estate is necessary. This decision is based on various considerations, including the age of the most recent appraisal, the loan-to-value ratio based on the original appraisal and the condition of the property. Appraised values are discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property.

For commercial and industrial loans secured by non-real estate collateral, such as accounts receivable, inventory and equipment, estimated fair values are determined based on the borrower

’s financial statements, inventory reports, accounts receivable aging data or equipment appraisals or invoices. Indications of value from these sources are generally discounted based on the age of the financial information or the quality of the assets.

Loans whose terms are modified are classified as troubled debt restructurings if the

Corporation grants such borrowers concessions and it is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a troubled debt restructuring generally involve reductions in required payments, an extension of a loan’s stated maturity date or a temporary reduction in interest rate. Loans classified as troubled debt restructurings are designated as impaired. Non-accrual troubled debt restructurings

may

be restored to accrual status if the ultimately collectability of principal and interest payments under the modified terms is

not

in doubt, and there has been a period (generally, for at least

six

consecutive months) of satisfactory payment performance by the borrower either immediately before or after the restructuring.

Property, Plant and Equipment, Policy [Policy Text Block]

BANK PREMISES AND EQUIPMENT

- Bank premises and equipment are stated at cost less accumulated depreciation. Repair and maintenance expenditures which extend the useful lives of assets are capitalized, and other repair and maintenance expenditures are expensed as incurred. Depreciation expense is computed using the straight-line method.

Impairment or Disposal of Long-Lived Assets, Policy [Policy Text Block]

IMPAIRMENT OF LONG-LIVED ASSETS

- The Corporation reviews long-lived assets, such as premises and equipment and intangibles, for impairment whenever events or changes in circumstances indicate the carrying amount of an asset

may

not

be recoverable. These changes in circumstances

may

include a significant decrease in the market value of an asset or the manner in which an asset is used. If there is an indication the carrying value of an asset

may

not

be recoverable, future undiscounted cash flows expected to result from use of the asset are estimated. If the sum of the expected cash flows is less than the carrying value of the asset, a loss is recognized for the difference between the carrying value and fair market value of the asset.

Finance, Loan and Lease Receivables, Held for Investments, Foreclosed Assets Policy [Policy Text Block]

FORECLOSED ASSETS HELD FOR SALE

- Foreclosed assets held for sale consist of real estate acquired by foreclosure and are initially recorded at fair value, less estimated selling costs.

Goodwill and Intangible Assets, Policy [Policy Text Block]

GOODWILL AND CORE DEPOSIT INTANGIBLE ASSETS

-

Goodwill represents the excess of the cost of acquisitions over the fair value of the net assets acquired. Goodwill is tested at least annually for impairment, or more often if events or circumstances indicate there

may

be impairment. Core deposit intangibles are being amortized over periods of time that represent the expected lives using a method of amortization that reflects the pattern of economic benefit. Core deposit intangibles are subject to impairment testing whenever events or changes in circumstances indicate their carrying amounts

may

not

be recoverable

.

Transfers and Servicing of Financial Assets, Policy [Policy Text Block]

SERVICING RIGHTS

- The estimated fair value of servicing rights related to mortgage loans sold and serviced by the Corporation is recorded as an asset upon the sale of such loans. The valuation of servicing rights is adjusted quarterly, with changes in fair value included in Loan Servicing Fees, Net, in the consolidated statements of income. Significant inputs to the valuation include expected net servicing income to be received, the expected life of the underlying loans and the discount rate. The servicing rights asset is included in Other Assets in the consolidated balance sheets.

Income Tax, Policy [Policy Text Block]

INCOME TAXES

- Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases given the provisions of the enacted tax laws. Deferred tax assets are reduced, if necessary, by the amount of such benefits that are

not

expected to be realized based upon available evidence.

Tax benefits from investments in limited partnerships that have qualified for federal low-income tax credits are recognized as a reduction in the provision for income tax over the term of the investment using the effective yield method. The Corporation includes income tax penalties in the provision for income tax. The Corporation has

no

accrued interest related to unrecognized tax benefits.

Compensation Related Costs, Policy [Policy Text Block]

STOCK COMPENSATION PLANS

- The Corporation’s stock-based compensation policy applies to all forms of stock-based compensation including stock options and restricted stock units. All stock-based compensation is accounted for under the fair value method as required by U.S. GAAP. The expense associated with stock-based compensation is recognized over the vesting period of each individual arrangement.

The fair value of each stock option is estimated on the date of grant using the Black-Scholes-Merton option valuation model

. The fair value of restricted stock is based on the current market price on the date of grant.

Off-Balance-Sheet Credit Exposure, Policy [Policy Text Block]

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 and Cash Equivalents, Policy [Policy Text Block]

CASH FLOWS

- The Corporation utilizes the net reporting of cash receipts and cash payments for certain deposit and lending activities. Cash equivalents include federal funds sold and all cash and amounts due from depository institutions and interest-bearing deposits in other banks with original maturities of

three

months or less.

Trust Assets and Income, Policy [Policy Text Block]

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 recorded on a cash basis, which is

not

materially different from the accrual basis.

XML

Note 3 - Comprehensive Income (Tables)

12 Months Ended

Dec. 31, 2017

Notes Tables

Comprehensive Income (Loss) [Table Text Block]

(In Thousands)	Before-Tax			Income Tax			Net-of-Tax
	Amount			Effect			Amount
2017
Unrealized losses on available-for-sale securities:
Unrealized holding losses on available-for-sale securities	$	(691	)	$	242		$	(449	)
Reclassification adjustment for (gains) realized in income		(257	)		89			(168	)
Other comprehensive loss on available-for-sale securities		(948	)		331			(617	)
Unfunded pension and postretirement obligations:
Changes from plan amendments and actuarial gains and losses included in other comprehensive income		36			(12	)		24
Amortization of net transition obligation, prior service cost and net actuarial gain included in net periodic benefit cost		(24	)		8			(16	)
Other comprehensive income on unfunded retirement obligations		12			(4	)		8
Total other comprehensive loss	$	(936	)	$	327		$	(609	)

(In Thousands)	Before-Tax			Income Tax			Net-of-Tax
	Amount			Effect			Amount
2016
Unrealized losses on available-for-sale securities:
Unrealized holding losses on available-for-sale securities	$	(4,138	)	$	1,448		$	(2,690	)
Reclassification adjustment for (gains) realized in income		(1,158	)		406			(752	)
Other comprehensive loss on available-for-sale securities		(5,296	)		1,854			(3,442	)
Unfunded pension and postretirement obligations:
Changes from plan amendments and actuarial gains and losses included in other comprehensive income		46			(16	)		30
Amortization of net transition obligation, prior service cost and net actuarial gain included in net periodic benefit cost		(22	)		8			(14	)
Other comprehensive income on unfunded retirement obligations		24			(8	)		16
Total other comprehensive loss	$	(5,272	)	$	1,846		$	(3,426	)

(In Thousands)	Before-Tax			Income Tax			Net-of-Tax
	Amount			Effect			Amount
2015
Unrealized losses on available-for-sale securities:
Unrealized holding losses on available-for-sale securities	$	(1,429	)	$	500		$	(929	)
Reclassification adjustment for (gains) realized in income		(2,861	)		1,002			(1,859	)
Other comprehensive loss on available-for-sale securities		(4,290	)		1,502			(2,788	)
Unfunded pension and postretirement obligations:
Changes from plan amendments and actuarial gains and losses included in other comprehensive loss		(135	)		47			(88	)
Amortization of net transition obligation, prior service cost , net actuarial loss and loss on settlement included in net period benefit cost		67			(23	)		44
Other comprehensive loss on unfunded retirement obligations		(68	)		24			(44	)
Total other comprehensive loss	$	(4,358	)	$	1,526		$	(2,832	)

Schedule of Accumulated Other Comprehensive Income (Loss) [Table Text Block]

(In Thousands)	Unrealized						Accumulated
	Holding (Losses)			Unfunded			Other
	Gains on			Retirement			Comprehensive
	Securities			Obligations			(Loss) Income
2017
Balance, beginning of period	$	(949	)	$	51		$	(898	)
Change during year ended December 31, 2017		(617	)		8			(609	)
Balance, end of period	$	(1,566	)	$	59		$	(1,507	)
2016
Balance, beginning of period	$	2,493		$	35		$	2,528
Change during year ended December 31, 2016		(3,442	)		16			(3,426	)
Balance, end of period	$	(949	)	$	51		$	(898	)
2015
Balance, beginning of period	$	5,281		$	79		$	5,360
Change during year ended December 31, 2015		(2,788	)		(44	)		(2,832	)
Balance, end of period	$	2,493		$	35		$	2,528

Reclassification out of Accumulated Other Comprehensive Income [Table Text Block]

For the Year Ended December 31, 2017
(In Thousands)
	Reclassified from
Details about Accumulated Other	Accumulated Other			Affected Line Item in the Consolidated
Comprehensive Loss Components	Comprehensive Loss			Statements of Income
Unrealized gains and losses on available-for-sale securities	$	(257	)	Realized gains on available-for-sale securities, net
		89		Income tax provision
		(168	)	Net of tax
Amortization of defined benefit pension and postretirement items:
Prior service cost		(31	)	Pensions and other employee benefits
Actuarial loss		7		Pensions and other employee benefits
		(24	)	Total before tax
		8		Income tax provision
		(16	)	Net of tax
Total reclassifications for the period	$	(184	)

For the Year Ended December 31, 2016
(In Thousands)
	Reclassified from
Details about Accumulated Other	Accumulated Other			Affected Line Item in the Consolidated
Comprehensive Income Components	Comprehensive Income			Statements of Income
Unrealized gains and losses on available-for-sale securities	$	(1,158	)	Realized gains on available-for-sale securities, net
		406		Income tax provision
		(752	)	Net of tax
Amortization of defined benefit pension and postretirement items:
Prior service cost		(31	)	Pensions and other employee benefits
Actuarial loss		9		Pensions and other employee benefits
		(22	)	Total before tax
		8		Income tax provision
		(14	)	Net of tax
Total reclassifications for the period	$	(766	)

For the Year Ended December 31, 2015
(In Thousands)
	Reclassified from
Details about Accumulated Other	Accumulated Other			Affected Line Item in the Consolidated
Comprehensive Income Components	Comprehensive Income			Statements of Income
Unrealized gains and losses on available-for-sale securities	$	(2,861	)	Realized gains on available-for-sale securities, net
		1,002		Income tax provision
		(1,859	)	Net of tax
Amortization of defined benefit pension and postretirement items:
Prior service cost		(31	)	Pensions and other employee benefits
Actuarial loss		11		Pensions and other employee benefits
Loss on settlement		87		Pensions and other employee benefits
		67		Total before tax
		(23	)	Income tax provision
		44		Net of tax
Total reclassifications for the period	$	(1,815	)

XML

Note 4 - Per Share Data (Tables)

12 Months Ended

Dec. 31, 2017

Notes Tables

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Years Ended
	Dec. 31,			Dec. 31,			Dec. 31,
	2017			2016			2015
Basic
Net income	$	13,434,000		$	15,762,000		$	16,471,000
Less: Dividends and undistributed earnings allocated to participating securities		(69,000	)		(85,000	)		(84,000	)
Net income attributable to common shares	$	13,365,000		$	15,677,000		$	16,387,000
Basic weighted-average common shares outstanding		12,115,840			12,032,820			12,149,252
Basic earnings per common share (a)	$	1.10		$	1.30		$	1.35
Diluted
Net income attributable to common shares	$	13,365,000		$	15,677,000		$	16,387,000
Basic weighted-average common shares outstanding		12,115,840			12,032,820			12,149,252
Dilutive effect of potential common stock arising from stock options		39,296			30,235			21,832
Diluted weighted-average common shares outstanding		12,155,136			12,063,055			12,171,084
Diluted earnings per common share (a)	$	1.10		$	1.30		$	1.35

XML

Note 5 - Cash and Due From Banks (Tables)

12 Months Ended

Dec. 31, 2017

Notes Tables

Schedule of Cash and Cash Equivalents [Table Text Block]

(In thousands)	Dec. 31,		Dec. 31,
	2017		2016
Cash and cash equivalents	$	37,004	$	28,621
Certificates of deposit		3,240		3,488
Total cash and due from banks	$	40,244	$	32,109

XML

Note 6 - Fair Value Measurements and Fair Values of Financial Instruments (Tables)

12 Months Ended

Dec. 31, 2017

Notes Tables

Fair Value, by Balance Sheet Grouping [Table Text Block]

			December 31, 2017
	Quoted Prices		Other
	in Active		Observable		Unobservable			Total
	Markets		Inputs		Inputs			Fair
(In Thousands)	(Level 1)		(Level 2)		(Level 3)			Value
Recurring fair value measurements
AVAILABLE-FOR-SALE SECURITIES:
Obligations of U.S. Government agencies	$	0	$	7,873	$	0		$	7,873
Obligations of states and political subdivisions:
Tax-exempt		0		105,111		0			105,111
Taxable		0		25,573		0			25,573
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		0		52,347		0			52,347
Residential collateralized mortgage obligations		0		131,814		0			131,814
Commercial mortgage-backed securities		0		33,219		0			33,219
Total debt securities		0		355,937		0			355,937
Marketable equity securities		971		0		0			971
Total available-for-sale securities		971		355,937		0			356,908
Servicing rights		0		0		1,299			1,299
Total recurring fair value measurements	$	971	$	355,937	$	1,299		$	358,207
Nonrecurring fair value measurements
Impaired loans with a valuation allowance	$	0	$	0	$	3,776		$	3,776
Valuation allowance		0		0		(1,183	)		(1,183	)
Impaired loans, net		0		0		2,593			2,593
Foreclosed assets held for sale		0		0		1,598			1,598
Total nonrecurring fair value measurements	$	0	$	0	$	4,191		$	4,191

			December 31, 2016
	Quoted Prices		Other
	in Active		Observable		Unobservable			Total
	Markets		Inputs		Inputs			Fair
(In Thousands)	(Level 1)		(Level 2)		(Level 3)			Value
Recurring fair value measurements
AVAILABLE-FOR-SALE SECURITIES:
Obligations of U.S. Government agencies	$	0	$	9,541	$	0		$	9,541
Obligations of states and political subdivisions:
Tax-exempt		0		119,037		0			119,037
Taxable		0		30,297		0			30,297
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		0		58,404		0			58,404
Residential collateralized mortgage obligations		0		146,608		0			146,608
Commercial mortgage-backed securities		0		30,219		0			30,219
Total debt securities		0		394,106		0			394,106
Marketable equity securities		971		0		0			971
Total available-for-sale securities		971		394,106		0			395,077
Servicing rights		0		0		1,262			1,262
Total recurring fair value measurements	$	971	$	394,106	$	1,262		$	396,339
Nonrecurring fair value measurements
Impaired loans with a valuation allowance	$	0	$	0	$	3,372		$	3,372
Valuation allowance		0		0		(674	)		(674	)
Impaired loans, net		0		0		2,698			2,698
Foreclosed assets held for sale		0		0		2,180			2,180
Total nonrecurring fair value measurements	$	0	$	0	$	4,878		$	4,878

Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Table Text Block]

(In Thousands)	Years Ended December 31,
	2017			2016			2015
Balance, beginning of period	$	1,262		$	1,296		$	1,281
Issuances of servicing rights		205			248			177
Unrealized losses included in earnings		(168	)		(282	)		(162	)
Balance, end of period	$	1,299		$	1,262		$	1,296

Fair Value Measurements, Recurring and Nonrecurring [Table Text Block]

(In Thousands)	Valuation	December 31, 201 7				December 31, 201 6
	Method(s)	Carrying		Fair		Carrying		Fair
	Used	Amount		Value		Amount		Value
Financial assets:
Cash and cash equivalents	Level 1	$	37,004	$	37,004	$	28,621	$	28,621
Certificates of deposit	Level 2		3,240		3,234		3,488		3,481
Available-for-sale securities	See Above		356,908		356,908		395,077		395,077
Restricted equity securities (included in Other Assets)	Level 2		6,556		6,556		4,426		4,426
Loans held for sale	Level 2		765		765		142		142
Loans, net	Level 3		806,857		789,891		743,362		725,787
Accrued interest receivable	Level 2		4,048		4,048		3,963		3,963
Servicing rights	Level 3		1,299		1,299		1,262		1,262
Financial liabilities:
Deposits with no stated maturity	Level 2		794,778		794,778		771,625		771,625
Time deposits	Level 2		213,671		213,734		212,218		212,274
Short-term borrowings	Level 2		61,766		61,643		26,175		26,024
Long-term borrowings	Level 2		9,189		9,256		38,454		39,062
Accrued interest payable	Level 2		46		46		65		65

Fair Value, Measurements, Nonrecurring [Member]

Notes Tables

Fair Value Inputs, Assets, Quantitative Information [Table Text Block]

(In Thousands, Except									Weighted-
Percentages)			Valuation						Average
	Balance at		Allowance at		Fair Value at		Valuation	Unobservable	Discount at
Asset	12/31/17		12/31/17		12/31/17		Technique	Inputs	12/31/17
Impaired loans:
Residential mortgage loans - first liens	$	515	$	122	$	393	Sales comparison	Discount to appraised value		26	%
Commercial:
Commercial loans secured by real estate		2,641		919		1,722	Sales comparison	Discount to appraised value		16	%
Commercial and industrial		126		92		34	Sales comparison	Discount to appraised value		72	%
Loans secured by farmland		494		50		444	Sales comparison	Discount to appraised value		53	%
Total impaired loans	$	3,776	$	1,183	$	2,593
Foreclosed assets held for sale - real estate:
Residential (1-4 family)	$	721	$	0	$	721	Sales comparison	Discount to appraised value		37	%
Land		632		0		632	Sales comparison	Discount to appraised value		35	%
Commercial real estate		245		0		245	Sales comparison	Discount to appraised value		71	%
Total foreclosed assets held for sale	$	1,598	$	0	$	1,598

(In Thousands, Except									Weighted-
Percentages)			Valuation						Average
	Balance at		Allowance at		Fair Value at		Valuation	Unobservable	Discount at
Asset	12/31/16		12/31/16		12/31/16		Technique	Inputs	12/31/1 6
Impaired loans:
Commercial:
Commercial loans secured by real estate	$	2,773	$	528	$	2,245	Sales comparison	Discount to appraised value		7	%
Commercial and industrial		95		95		0	Sales comparison	Discount to appraised value		100	%
Loans secured by farmland		504		51		453	Sales comparison	Discount to appraised value		55	%
Total impaired loans	$	3,372	$	674	$	2,698
Foreclosed assets held for sale - real estate:
Residential (1-4 family)	$	1,102	$	0	$	1,102	Sales comparison	Discount to appraised value		35	%
Land		650		0		650	Sales comparison	Discount to appraised value		33	%
Commercial real estate		428		0		428	Sales comparison	Discount to appraised value		50	%
Total foreclosed assets held for sale	$	2,180	$	0	$	2,180

Fair Value, Measurements, Recurring [Member]

Notes Tables

Fair Value Inputs, Assets, Quantitative Information [Table Text Block]

	Fair Value at
	12/31/1 7		Valuation	Unobservable				Method or Value As of
Asset	(In Thousands)		Technique	Input(s)				12/31/1 7
Servicing rights	$	1,299	Discounted cash flow	Discount rate		13.00	%	Rate used through modeling period
				Loan prepayment speeds		140.00	%	Weighted-average PSA
				Servicing fees		0.25	%	of loan balances
						4.00	%	of payments are late
						5.00	%	late fees assessed
					$	1.94		Miscellaneous fees per account per month
				Servicing costs	$	6.00		Monthly servicing cost per account
					$	24.00		Additional monthly servicing cost per loan on loans more than 30 days delinquent
						1.50	%	of loans more than 30 days delinquent
						3.00	%	annual increase in servicing costs

	Fair Value at
	12/31/1 6		Valuation	Unobservable				Method or Value As of
Asset	(In Thousands)		Technique	Input(s)				12/31/1 6
Servicing rights	$	1,262	Discounted cash flow	Discount rate		13.00	%	Rate used through modeling period
				Loan prepayment speeds		138.00	%	Weighted-average PSA
				Servicing fees		0.25	%	of loan balances
						4.00	%	of payments are late
						5.00	%	late fees assessed
					$	1.94		Miscellaneous fees per account per month
				Servicing costs	$	6.00		Monthly servicing cost per account
					$	24.00		Additional monthly servicing cost per loan on loans more than 30 days delinquent
						1.50	%	of loans more than 30 days delinquent
						3.00	%	annual increase in servicing costs

XML

Note 7 - Securities (Tables)

12 Months Ended

Dec. 31, 2017

Notes Tables

Available-for-sale Securities [Table Text Block]

			December 31, 2017
			Gross		Gross
			Unrealized		Unrealized
	Amortized		Holding		Holding			Fair
(In Thousands)	Cost		Gains		Losses			Value
Obligations of U.S. Government agencies	$	8,026	$	0	$	(153	)	$	7,873
Obligations of states and political subdivisions:
Tax-exempt		103,673		2,291		(853	)		105,111
Taxable		25,431		226		(84	)		25,573
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		52,992		79		(724	)		52,347
Residential collateralized mortgage obligations		134,314		110		(2,610	)		131,814
Commercial mortgage-backed securities		33,881		4		(666	)		33,219
Total debt securities		358,317		2,710		(5,090	)		355,937
Marketable equity securities		1,000		0		(29	)		971
Total	$	359,317	$	2,710	$	(5,119	)	$	356,908

			December 31, 2016
			Gross		Gross
			Unrealized		Unrealized
	Amortized		Holding		Holding			Fair
(In Thousands)	Cost		Gains		Losses			Value
Obligations of U.S. Government agencies	$	9,671	$	5	$	(135	)	$	9,541
Obligations of states and political subdivisions:
Tax-exempt		118,140		2,592		(1,695	)		119,037
Taxable		30,073		303		(79	)		30,297
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		58,922		306		(824	)		58,404
Residential collateralized mortgage obligations		147,915		408		(1,715	)		146,608
Commercial mortgage-backed securities		30,817		0		(598	)		30,219
Total debt securities		395,538		3,614		(5,046	)		394,106
Marketable equity securities		1,000		0		(29	)		971
Total	$	396,538	$	3,614	$	(5,075	)	$	395,077

Schedule of Unrealized Loss on Investments [Table Text Block]

December 31, 2017	Less Than 12 Months					12 Months or More					Total
(In Thousands)	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
Obligations of U.S. Government agencies	$	0	$	0		$	7,873	$	(153	)	$	7,873	$	(153	)
Obligations of states and political subdivisions:
Tax-exempt		19,050		(135	)		24,391		(718	)		43,441		(853	)
Taxable		9,279		(45	)		2,116		(39	)		11,395		(84	)
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		25,255		(242	)		22,549		(482	)		47,804		(724	)
Residential collateralized mortgage obligations		50,812		(589	)		68,558		(2,021	)		119,370		(2,610	)
Commercial mortgage-backed securities		14,713		(173	)		14,569		(493	)		29,282		(666	)
Total debt securities		119,109		(1,184	)		140,056		(3,906	)		259,165		(5,090	)
Marketable equity securities		0		0			971		(29	)		971		(29	)
Total temporarily impaired available-for-sale securities	$	119,109	$	(1,184	)	$	141,027	$	(3,935	)	$	260,136	$	(5,119	)

December 31, 2016	Less Than 12 Months					12 Months or More					Total
(In Thousands)	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
Obligations of U.S. Government agencies	$	7,899	$	(135	)	$	0	$	0		$	7,899	$	(135	)
Obligations of states and political subdivisions:
Tax-exempt		54,479		(1,676	)		1,278		(19	)		55,757		(1,695	)
Taxable		9,594		(79	)		0		0			9,594		(79	)
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		48,674		(824	)		0		0			48,674		(824	)
Residential collateralized mortgage obligations		85,198		(1,124	)		16,073		(591	)		101,271		(1,715	)
Commercial mortgage-backed securities		30,219		(598	)		0		0			30,219		(598	)
Total debt securities		236,063		(4,436	)		17,351		(610	)		253,414		(5,046	)
Marketable equity securities		1,000		(29	)		0		0			1,000		(29	)
Total temporarily impaired available-for-sale securities	$	237,063	$	(4,465	)	$	17,351	$	(610	)	$	254,414	$	(5,075	)

Realized Gain (Loss) on Investments [Table Text Block]

(In Thousands)
	2017			2016			2015
Gross realized gains from sales	$	315		$	1,392		$	2,972
Gross realized losses from sales		(58	)		(234	)		(111	)
Net realized gains	$	257		$	1,158		$	2,861
Income tax provision related to net realized gains	$	89		$	406		$	1,002

Investments Classified by Contractual Maturity Date [Table Text Block]

	December 31, 2017
	Amortized		Fair
(In Thousands)	Cost		Value
Due in one year or less	$	11,350	$	11,347
Due from one year through five years		69,274		70,016
Due from five years through ten years		37,086		37,089
Due after ten years		19,420		20,105
Sub -total		137,130		138,557
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		52,992		52,347
Residential collateralized mortgage obligations		134,314		131,814
Commercial mortgage-backed securities		33,881		33,219
Total	$	358,317	$	355,937

XML

Note 8 - Loans (Tables)

12 Months Ended

Dec. 31, 2017

Notes Tables

Schedule of Accounts, Notes, Loans and Financing Receivable [Table Text Block]

Summary of Loans by Type
(In Thousands)	Dec. 31,			Dec. 31,
	2017			2016
Residential mortgage:
Residential mortgage loans - first liens	$	359,987		$	334,102
Residential mortgage loans - junior liens		25,325			23,706
Home equity lines of credit		35,758			38,057
1-4 Family residential construction		26,216			24,908
Total residential mortgage		447,286			420,773
Commercial:
Commercial loans secured by real estate		159,266			150,468
Commercial and industrial		88,276			83,854
Political subdivisions		59,287			38,068
Commercial construction and land		14,527			14,287
Loans secured by farmland		7,255			7,294
Multi-family (5 or more) residential		7,713			7,896
Agricultural loans		6,178			3,998
Other commercial loans		10,986			11,475
Total commercial		353,488			317,340
Consumer		14,939			13,722
Total		815,713			751,835
Less: allowance for loan losses		(8,856	)		(8,473	)
Loans, net	$	806,857		$	743,362

Allowance for Credit Losses on Financing Receivables [Table Text Block]

Year Ended December 31, 2017	Dec. 31,										Dec. 31,
(In Thousands)	2016 Balance		Charge-offs			Recoveries		Provision (Credit)			2017 Balance
Allowance for Loan Losses:
Residential mortgage:
Residential mortgage loans - first liens	$	3,033	$	(167	)	$	15	$	319		$	3,200
Residential mortgage loans - junior liens		258		(16	)		4		(22	)		224
Home equity lines of credit		350		(14	)		0		(40	)		296
1-4 Family residential construction		249		0			0		(6	)		243
Total residential mortgage		3,890		(197	)		19		251			3,963
Commercial:
Commercial loans secured by real estate		2,380		(96	)		0		300			2,584
Commercial and industrial		999		(36	)		4		98			1,065
Commercial construction and land		162		0			0		(12	)		150
Loans secured by farmland		110		0			0		(5	)		105
Multi-family (5 or more) residential		241		0			0		(69	)		172
Agricultural loans		40		0			0		17			57
Other commercial loans		115		0			0		(13	)		102
Total commercial		4,047		(132	)		4		316			4,235
Consumer		138		(150	)		38		133			159
Unallocated		398		0			0		101			499
Total Allowance for Loan Losses	$	8,473	$	(479	)	$	61	$	801		$	8,856

Year Ended December 31, 2016	Dec. 31										Dec. 31
(In Thousands)	2015 Balance		Charge-offs			Recoveries		Provision (Credit)			2016 Balance
Allowance for Loan Losses:
Residential mortgage:
Residential mortgage loans - first liens	$	2,645	$	(73	)	$	3	$	458		$	3,033
Residential mortgage loans - junior liens		219		0			0		39			258
Home equity lines of credit		347		0			0		3			350
1-4 Family residential construction		207		0			0		42			249
Total residential mortgage		3,418		(73	)		3		542			3,890
Commercial:
Commercial loans secured by real estate		1,939		0			2		439			2,380
Commercial and industrial		981		(2	)		3		17			999
Political subdivisions		0		0			0		0			0
Commercial construction and land		58		0			30		74			162
Loans secured by farmland		106		0			0		4			110
Multi-family (5 or more) residential		675		(595	)		0		161			241
Agricultural loans		45		0			0		(5	)		40
Other commercial loans		118		0			0		(3	)		115
Total commercial		3,922		(597	)		35		687			4,047
Consumer		122		(87	)		82		21			138
Unallocated		427		0			0		(29	)		398
Total Allowance for Loan Losses	$	7,889	$	(757	)	$	120	$	1,221		$	8,473

Year Ended December 31, 2015	Dec. 31,										Dec. 31,
(In Thousands)	2014 Balance		Charge-offs			Recoveries		Provision (Credit)			2015 Balance
Allowance for Loan Losses:
Residential mortgage:
Residential mortgage loans - first liens	$	2,941	$	(175	)	$	1	$	(122	)	$	2,645
Residential mortgage loans - junior liens		176		(42	)		0		85			219
Home equity lines of credit		322		0			0		25			347
1-4 Family residential construction		214		0			0		(7	)		207
Total residential mortgage		3,653		(217	)		1		(19	)		3,418
Commercial:
Commercial loans secured by real estate		1,758		(115	)		208		88			1,939
Commercial and industrial		688		(21	)		6		308			981
Political subdivisions		0		0			0		0			0
Commercial construction and land		283		(115	)		0		(110	)		58
Loans secured by farmland		165		0			0		(59	)		106
Multi-family (5 or more) residential		87		0			0		588			675
Agricultural loans		31		0			0		14			45
Other commercial loans		131		0			0		(13	)		118
Total commercial		3,143		(251	)		214		816			3,922
Consumer		145		(94	)		55		16			122
Unallocated		395		0			0		32			427
Total Allowance for Loan Losses	$	7,336	$	(562	)	$	270	$	845		$	7,889

Financing Receivable Credit Quality Indicators [Table Text Block]

December 31, 2017
(In Thousands)			Special
	Pass		Mention		Substandard		Doubtful		Total
Residential Mortgage:
Residential mortgage loans - first liens	$	350,609	$	307	$	9,019	$	52	$	359,987
Residential mortgage loans - junior liens		24,795		104		426		0		25,325
Home equity lines of credit		35,233		61		464		0		35,758
1-4 Family residential construction		26,216		0		0		0		26,216
Total residential mortgage		436,853		472		9,909		52		447,286
Commercial:
Commercial loans secured by real estate		150,806		936		7,524		0		159,266
Commercial and Industrial		82,724		3,896		1,645		11		88,276
Political subdivisions		59,287		0		0		0		59,287
Commercial construction and land		14,449		0		78		0		14,527
Loans secured by farmland		5,283		581		1,379		12		7,255
Multi-family (5 or more) residential		7,130		0		583		0		7,713
Agricultural loans		5,203		270		705		0		6,178
Other commercial loans		10,913		0		73		0		10,986
Total commercial		335,795		5,683		11,987		23		353,488
Consumer		14,853		0		86		0		14,939
Totals	$	787,501	$	6,155	$	21,982	$	75	$	815,713

December 31, 2016
(In Thousands)			Special
	Pass		Mention		Substandard		Doubtful		Total
Residential Mortgage:
Residential mortgage loans - first liens	$	324,377	$	408	$	9,258	$	59	$	334,102
Residential mortgage loans - junior liens		23,274		132		300		0		23,706
Home equity lines of credit		37,360		123		574		0		38,057
1-4 Family residential construction		24,820		0		88		0		24,908
Total residential mortgage		409,831		663		10,220		59		420,773
Commercial:
Commercial loans secured by real estate		139,358		3,092		8,018		0		150,468
Commercial and Industrial		79,202		4,180		461		11		83,854
Political subdivisions		38,068		0		0		0		38,068
Commercial construction and land		14,136		70		81		0		14,287
Loans secured by farmland		5,745		129		1,404		16		7,294
Multi-family (5 or more) residential		7,277		0		619		0		7,896
Agricultural loans		3,208		0		790		0		3,998
Other commercial loans		11,401		0		74		0		11,475
Total commercial		298,395		7,471		11,447		27		317,340
Consumer		13,546		0		176		0		13,722
Totals	$	721,772	$	8,134	$	21,843	$	86	$	751,835

Impaired Financing Receivable by Portfolio Segment [Table Text Block]

December 31, 2017	Loans:						Allowance for Loan Losses:
(In Thousands)
	Individually		Collectively				Individually		Collectively
	Evaluated		Evaluated		Totals		Evaluated		Evaluated		Totals
Residential mortgage:
Residential mortgage loans - first liens	$	984	$	359,003	$	359,987	$	0	$	3,200	$	3,200
Residential mortgage loans - junior liens		302		25,023		25,325		122		102		224
Home equity lines of credit		0		35,758		35,758		0		296		296
1-4 Family residential construction		0		26,216		26,216		0		243		243
Total residential mortgage		1,286		446,000		447,286		122		3,841		3,963
Commercial:
Commercial loans secured by real estate		5,873		153,393		159,266		919		1,665		2,584
Commercial and industrial		568		87,708		88,276		188		877		1,065
Political subdivisions		0		59,287		59,287		0		0		0
Commercial construction and land		0		14,527		14,527		0		150		150
Loans secured by farmland		1,365		5,890		7,255		50		55		105
Multi-family (5 or more) residential		392		7,321		7,713		0		172		172
Agricultural loans		7		6,171		6,178		0		57		57
Other commercial loans		0		10,986		10,986		0		102		102
Total commercial		8,205		345,283		353,488		1,157		3,078		4,235
Consumer		20		14,919		14,939		0		159		159
Unallocated												499
Total	$	9,511	$	806,202	$	815,713	$	1,279	$	7,078	$	8,856

December 31, 2016	Loans:						Allowance for Loan Losses:
(In Thousands)
	Individually		Collectively				Individually		Collectively
	Evaluated		Evaluated		Totals		Evaluated		Evaluated		Totals
Residential mortgage:
Residential mortgage loans - first liens	$	753	$	333,349	$	334,102	$	0	$	3,033	$	3,033
Residential mortgage loans - junior liens		68		23,638		23,706		0		258		258
Home equity lines of credit		0		38,057		38,057		0		350		350
1-4 Family residential construction		0		24,908		24,908		0		249		249
Total residential mortgage		821		419,952		420,773		0		3,890		3,890
Commercial:
Commercial loans secured by real estate		8,005		142,463		150,468		528		1,852		2,380
Commercial and industrial		212		83,642		83,854		95		904		999
Political subdivisions		0		38,068		38,068		0		0		0
Commercial construction and land		0		14,287		14,287		0		162		162
Loans secured by farmland		1,394		5,900		7,294		51		59		110
Multi-family (5 or more) residential		392		7,504		7,896		0		241		241
Agricultural loans		13		3,985		3,998		0		40		40
Other commercial loans		0		11,475		11,475		0		115		115
Total commercial		10,016		307,324		317,340		674		3,373		4,047
Consumer		23		13,699		13,722		0		138		138
Unallocated												398
Total	$	10,860	$	740,975	$	751,835	$	674	$	7,401	$	8,473

Impaired Financing Receivables [Table Text Block]

(In Thousands)	December 31, 2017						December 31, 2016
	Unpaid						Unpaid
	Principal		Recorded		Related		Principal		Recorded		Related
	Balance		Investment		Allowance		Balance		Investment		Allowance
With no related allowance recorded:
Residential mortgage loans - first liens	$	740	$	711	$	0	$	783	$	753	$	0
Residential mortgage loans - junior liens		60		60		0		68		68		0
Commercial loans secured by real estate		3,230		3,230		0		6,975		5,232		0
Commercial and industrial		119		119		0		117		117		0
Loans secured by farmland		871		871		0		890		890		0
Multi-family (5 or more) residential		987		392		0		987		392		0
Agricultural loans		8		8		0		13		13		0
Consumer		20		20		0		23		23		0
Total with no related allowance recorded		6,035		5,411		0		9,856		7,488		0
With a related allowance recorded:
Residential mortgage loans - first liens		273		273		0		0		0		0
Residential mortgage loans - junior liens		242		242		122		0		0		0
Commercial loans secured by real estate		2,641		2,641		919		2,773		2,773		528
Commercial and industrial		449		449		188		95		95		95
Loans secured by farmland		495		495		50		504		504		51
Total with a related allowance recorded		4,100		4,100		1,279		3,372		3,372		674
Total	$	10,135	$	9,511	$	1,279	$	13,228	$	10,860	$	674

Schedule Of Additional Information On Impaired Loans [Table Text Block]

							Interest Income Recognized on
	Average Investment in Impaired Loans						Impaired Loans on a Cash Basis
(In Thousands)	Year Ended December 31,						Year Ended December 31,
	2017		2016		2015		2017		2016		2015
Residential mortgage:
Residential mortgage loans - first lien	$	857	$	806	$	2,206	$	52	$	43	$	86
Residential mortgage loans - junior lien		112		71		64		15		3		4
Total residential mortgage		969		877		2,270		67		46		90
Commercial:
Commercial loans secured by real estate		6,272		6,806		6,357		173		495		380
Commercial and industrial		301		547		438		24		20		20
Commercial construction and land		0		0		40		0		0		0
Loans secured by farmland		1,379		1,409		1,459		45		94		103
Multi-family (5 or more) residential		392		511		790		0		0		0
Agricultural loans		10		14		21		1		1		3
Total commercial		8,354		9,287		9,105		243		610		506
Consumer		26		21		0		1		1		0
Total	$	9,349	$	10,185	$	11,375	$	311	$	657	$	596

Schedule of Financing Receivables, Non Accrual Status [Table Text Block]

(In Thousands)	December 31, 2017				December 31, 2016
	Past Due				Past Due
	90+ Days and				90+ Days and
	Accruing		Nonaccrual		Accruing		Nonaccrual
Residential mortgage:
Residential mortgage loans - first liens	$	2,340	$	5,131	$	3,022	$	3,770
Residential mortgage loans - junior liens		105		242		114		0
Home equity lines of credit		203		44		320		11
Total residential mortgage		2,648		5,417		3,456		3,781
Commercial:
Commercial loans secured by real estate		175		5,645		2,774		3,080
Commercial and industrial		603		517		286		119
Commercial construction and land		26		52		0		0
Loans secured by farmland		271		1,308		219		1,331
Multi-family (5 or more) residential		0		392		0		392
Agricultural loans		0		7		0		13
Total commercial		1,075		7,921		3,279		4,935
Consumer		1		66		103		20
Totals	$	3,724	$	13,404	$	6,838	$	8,736

Past Due Financing Receivables [Table Text Block]

	As of December 31, 2017								As of December 31, 2016
	Current &								Current &
(In Thousands)	Past Due		Past Due		Past Due				Past Due		Past Due		Past Due
	Less than		30-89		90+				Less than		30-89		90+
	30 Days		Days		Days		Total		30 Days		Days		Days		Total
Residential mortgage:
Residential mortgage loans - first liens	$	347,032	$	7,967	$	4,988	$	359,987	$	321,670	$	6,695	$	5,737	$	334,102
Residential mortgage loans - junior liens		25,133		87		105		25,325		23,268		324		114		23,706
Home equity lines of credit		34,789		732		237		35,758		37,603		134		320		38,057
1-4 Family residential construction		25,667		549		0		26,216		24,567		341		0		24,908
Total residential mortgage		432,621		9,335		5,330		447,286		407,108		7,494		6,171		420,773
Commercial:
Commercial loans secured by real estate		155,917		311		3,038		159,266		147,464		82		2,922		150,468
Commercial and industrial		87,306		303		667		88,276		83,364		185		305		83,854
Political subdivisions		59,287		0		0		59,287		38,068		0		0		38,068
Commercial construction and land		14,400		49		78		14,527		14,199		88		0		14,287
Loans secured by farmland		6,226		12		1,017		7,255		6,181		83		1,030		7,294
Multi-family (5 or more) residential		7,321		0		392		7,713		7,439		65		392		7,896
Agricultural loans		6,114		57		7		6,178		3,981		4		13		3,998
Other commercial loans		10,986		0		0		10,986		11,475		0		0		11,475
Total commercial		347,557		732		5,199		353,488		312,171		507		4,662		317,340
Consumer		14,760		123		56		14,939		13,446		153		123		13,722
Totals	$	794,938	$	10,190	$	10,585	$	815,713	$	732,725	$	8,154	$	10,956	$	751,835

Contractual Aging of Nonaccrual Loans [Table Text Block]

	Current &
(In Thousands)	Past Due		Past Due		Past Due
	Less than		30-89		90+
	30 Days		Days		Days		Total
December 31, 2017 Nonaccrual Totals	$	5,802	$	741	$	6,861	$	13,404
December 31, 2016 Nonaccrual Totals	$	4,199	$	419	$	4,118	$	8,736

Troubled Debt Restructurings on Financing Receivables [Table Text Block]

Troubled Debt Restructurings (TDRs):
	Current &
(In Thousands)	Past Due		Past Due		Past Due
	Less than		30-89		90+
	30 Days		Days		Days		Nonaccrual		Total
December 31, 2017 Totals	$	636	$	0	$	0	$	3,027	$	3,663
December 31, 2016 Totals	$	5,453	$	350	$	0	$	2,874	$	8,677

Schedule of Troubled Debt Restructurings With Subsequent Default [Table Text Block]

(Balances in Thousands)
	2016				2015
	Number				Number
	of		Recorded		of		Recorded
	Loans		Investment		Loans		Investment
Residential mortgage - first liens		2	$	294		1	$	32
Residential mortgage - junior liens		1		29		0		0
Commercial and industrial		1		5		0		0
Consumer		1		27		0		0
Total		5	$	355		1	$	32

Schedule of Real Estate Acquired Through Foreclosure [Table Text Block]

(In Thousands)	Dec. 31,		Dec. 31,
	2017		2016
Foreclosed residential real estate	$	721	$	1,102

Schedule of Mortgage Loans in Process of Foreclosure [Table Text Block]

(In Thousands)	Dec. 31,		Dec. 31,
	2017		2016
Residential real estate in process of foreclosure	$	1,789	$	2,738

Troubled Debt Restructuring [Member]

Notes Tables

Troubled Debt Restructurings on Financing Receivables [Table Text Block]

(Balances in Thousands)
	2016				2015
			Post-				Post-
	Number		Modification		Number		Modification
	of		Recorded		of		Recorded
	Loans		Investment		Loans		Investment
Residential mortgage - first liens:
Extended maturity with interest rate reduction		1	$	71		1	$	56
Extended maturity with reduced monthly payments		1		26		0		0
Reduced monthly payments for a six-month period		0		0		1		242
Residential mortgage - junior liens,
Interest rate and monthly payment reduction		0		0		1		32
Commercial loans secured by real estate,
Interest only payments for a period of one year		1		2,773		0		0
Commercial and industrial,
Extended maturity		1		5		0		0
Consumer:
Interest rate and monthly payment reduction		0		0		1		30
New unsecured loan after short-fall from sale of property		1		24		0		0
Total		5	$	2,899		4	$	360

XML

Note 9 - Bank Premises and Equipment (Tables)

12 Months Ended

Dec. 31, 2017

Notes Tables

Property, Plant and Equipment [Table Text Block]

(In Thousands)	December 31,
	2017			2016
Land	$	2,818		$	2,818
Buildings and improvements		28,285			27,619
Furniture and equipment		15,578			18,741
Construction in progress		268			392
Total		46,949			49,570
Less: accumulated depreciation		(31,517	)		(34,173	)
Net	$	15,432		$	15,397

Schedule of Depreciation Expense [Table Text Block]

(In Thousands)	2017		2016		2015
Occupancy expense	$	801	$	804	$	954
Furniture and equipment expense		838		785		934
Total	$	1,639	$	1,589	$	1,888

XML

Note 10 - Intangible Assets (Tables)

12 Months Ended

Dec. 31, 2017

Notes Tables

Schedule of Finite-Lived Intangible Assets [Table Text Block]

	December 31,
(In Thousands)	2017			2016
Gross amount	$	2,034		$	2,034
Less: accumulated amortization		(2,022	)		(2,017	)
Net	$	12		$	17

XML

Note 11 - Deposits (Tables)

12 Months Ended

Dec. 31, 2017

Notes Tables

Time Deposit Maturities [Table Text Block]

(In Thousands)
2018	$	112,563
2019		57,097
2020		22,836
2021		7,975
2022		10,484
Thereafter		2,716
Total	$	213,671

Schedule of Remaining Maturities of Time Deposits in Excess of 250000 [Table Text Block]

(In Thousands)
Three months or less	$	4,833
Over 3 months through 12 months		5,375
Over 1 year through 3 years		1,148
Over 3 years		1,297
Total	$	12,653

XML

Note 12 - Borrowed Funds (Tables)

12 Months Ended

Dec. 31, 2017

Notes Tables

Schedule of Short-term Debt [Table Text Block]

(In Thousands)	Dec. 31,		Dec. 31,
	2017		2016
FHLB-Pittsburgh borrowings	$	58,000	$	21,000
Customer repurchase agreements		3,766		5,175
Total short-term borrowings	$	61,766	$	26,175

(In Thousands)	Dec. 31,		Dec. 31
	2017		2016
Overnight borrowing	$	29,000	$	21,000
Other short-term advances		29,000		0
Total short-term FHLB-Pittsburgh borrowings	$	58,000	$	21,000

Schedule of Long-term Debt Instruments [Table Text Block]

(In Thousands)	Dec. 31,		Dec. 31,
	2017		2016
FHLB-Pittsburgh borrowings	$	9,189	$	11,454
Repurchase agreements		0		27,000
Total long-term borrowings	$	9,189	$	38,454

Schedule of Maturities of Long-term Debt [Table Text Block]

(In Thousands)	Dec. 31,		Dec. 31,
	2017		2016
Loan matur ed in 2017 with a rate of 6.83%	$	0	$	4
Loan matur ed in 2017 with a rate of 3.81%		0		10,000
Loan maturing in 2018 with a rate of 1.63%		3,000		0
Loan maturing in 2018 with a rate of 1.35%		3,000		0
Loan maturing in 2019 with a rate of 1.83%		2,000		0
Loan maturing in 2020 with a rate of 4.79%		463		646
Loan maturing in 2025 with a rate of 4.91%		726		804
Total long-term FHLB-Pittsburgh borrowings	$	9,189	$	11,454

Schedule of Underlying Assets of Repurchase Agreements [Table Text Block]

(In Thousands)	Dec. 31,		Dec. 31,
	2017		2016
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities	$	0	$	18,181
Residential collateralized mortgage obligations		0		13,313
Total	$	0	$	31,494

XML

Note 13 - Employee and Postretirement Benefit Plans (Tables)

12 Months Ended

Dec. 31, 2017

Notes Tables

Schedule of Net Funded Status [Table Text Block]

(In Thousands)
	Pension						Postretirement
	2017			2016			2017			2016
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year	$	713		$	722		$	1,555		$	1,539
Service cost		0			0			36			37
Interest cost		24			26			57			62
Plan participants' contributions		0			0			211			215
Actuarial loss (gain)		127			3			(103	)		(30	)
Benefits paid		(14	)		(38	)		(259	)		(268	)
Benefit obligation at end of year	$	850		$	713		$	1,497		$	1,555
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year	$	846		$	839		$	0		$	0
Actual return on plan assets		91			45			0			0
Employer contribution		0			0			48			53
Plan participants' contributions		0			0			211			215
Benefits paid		(14	)		(38	)		(259	)		(268	)
Fair value of plan assets at end of year	$	923		$	846		$	0		$	0
Funded status at end of year	$	73		$	133		$	(1,497	)	$	(1,555	)

Schedule of Amounts Recognized in Balance Sheet [Table Text Block]

Assets and liabilities:
(In Thousands)	Pension				Postretirement
	2017		2016		2017		2016
Other assets	$	73	$	133
Accrued interest and other liabilities					$	1,497	$	1,555

Schedule of Amounts Recognized in Other Comprehensive Income (Loss) [Table Text Block]

Items not yet recognized as a component
of net periodic benefit cost:
(In Thousands)	Pension				Postretirement
	2017		2016		2017			2016
Prior service cost	$	0	$	0	$	(309	)	$	(340	)
Net actuarial loss (gain)		221		161		(2	)		101
Total	$	221	$	161	$	(311	)	$	(239	)

Schedule of Defined Benefit Plans Disclosures [Table Text Block]

(In Thousands)	Pension									Postretirement
	2017			2016			2015			2017			2016			2015
Service cost	$	0		$	0		$	0		$	36		$	37		$	38
Interest cost		24			26			36			57			62			57
Expected return on plan assets		(31	)		(26	)		(45	)		0			0			0
Amortization of prior service cost		0			0			0			(31	)		(31	)		(31	)
Recognized net actuarial loss		7			9			11			0			0			0
Loss on settlement		0			0			87			0			0			0
Total net periodic benefit cost	$	0		$	9		$	89		$	62		$	68		$	64

Schedule of Assumptions Used [Table Text Block]

	Pension									Postretirement
	2017			2016			2015			2017			2016			2015
Discount rate		4.05	%		4.30	%		3.75	%		3.75	%		4.25	%		4.00	%
Expected return on plan assets		6.00	%		5.00	%		5.31	%		N/A			N/A			N/A
Rate of compensation increase		N/A			N/A			N/A			N/A			N/A			N/A

	Pension						Postretirement
	2017			2016			2017			2016
Discount rate		3.55	%		4.05	%		3.75	%		4.25	%
Rate of compensation increase		N/A			N/A			N/A			N/A

Schedule of Expected Benefit Payments [Table Text Block]

(In Thousands)	Pension		Postretirement
2018	$	312	$	96
20 1 9		41		96
2020		13		104
2021		12		101
2022		14		105
2023-2027		226		516

Schedule of Allocation of Plan Assets [Table Text Block]

	2017			2016
Mut ual funds invested principally in:
Cash and cash equivalents		2	%		2	%
Debt securities		37	%		38	%
Equity securities		45	%		44	%
Alternative funds		16	%		16	%
Total		100	%		100	%

Schedule of Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Table Text Block]

(In Thousands)	2017		2016		2015
Restricted stock	$	627	$	578	$	606
Stock options		0		0		0
Total	$	627	$	578	$	606

Schedule of Share-based Compensation, Restricted Stock and Restricted Stock Units Activity [Table Text Block]

				Weighted
				Average
	Number			Grant Date
	of Shares			Fair Value
Outstanding, December 31, 2016		63,362		$	20.35
Granted		30,782		$	25.97
Vested		(28,981	)	$	20.21
Forfeited		(4,406	)	$	21.74
Outstanding, December 31, 2017		60,757		$	23.17

Share-based Compensation, Stock Options, Activity [Table Text Block]

	2017					2016					2015
				Weighted					Weighted					Weighted
				Average					Average					Average
				Exercise					Exercise					Exercise
	Shares			Price		Shares			Price		Shares			Price
Outstanding, beginning of year		202,037		$	18.58		248,486		$	18.59		316,157		$	19.05
Granted		0					0					0
Exercised		(24,976	)	$	17.50		(35,880	)	$	18.86		(29,557	)	$	17.56
Forfeited		(635	)	$	19.88		(10,569	)	$	18.03		(20,211	)	$	19.76
Expired		(10,766	)	$	22.33		0					(17,903	)	$	27.00
Outstanding, end of year		165,660		$	18.49		202,037		$	18.58		248,486		$	18.59
Options exercisable at year-end		165,660		$	18.49		202,037		$	18.58		248,486		$	18.59
Weighted-average fair value of options forfeited				$	4.21				$	4.04				$	4.86

Restricted Stock [Member]

Notes Tables

Disclosure of Share-based Compensation Arrangements by Share-based Payment Award [Table Text Block]

	2017		2016
Executive Officers		14,897		17,289
Other employees		7,415		10,304
Total		22,312		27,593

XML

Note 14 - Income Taxes (Tables)

12 Months Ended

Dec. 31, 2017

Notes Tables

Schedule of Deferred Tax Assets and Liabilities [Table Text Block]

	December 31,			December 31,
(In Thousands)	2017			2016
Deferred tax assets:
Unrealized holding losses on securities:
Included in accumulated other comprehensive loss	$	843		$	512
Included in retained earnings		(337	)		0
Allowance for loan losses		1,894			2,998
Other deferred tax assets		1,726			2,658
Total deferred tax assets		4,126			6,168
Deferred tax liabilities:
Defined benefit plans - ASC 835:
Included in accumulated other comprehensive loss		31			27
Included in retained earnings		(12	)		0
Bank premises and equipment		751			913
Core deposit intangibles		3			6
Other deferred tax liabilities		64			105
Total deferred tax liabilities		837			1,051
Deferred tax asset, net	$	3,289		$	5,117

Schedule of Components of Income Tax Expense (Benefit) [Table Text Block]

(In thousands)	2017		2016			2015
Currently payable	$	4,938	$	5,328		$	5,097
Tax expense resulting from allocations of certain tax benefits to equity or as a reduction in other assets		63		175			161
Deferred		2,155		(156	)		79
Total provision	$	7,156	$	5,347		$	5,337

Schedule of Effective Income Tax Rate Reconciliation [Table Text Block]

(Amounts in thousands)	2017						2016						2015
	Amount			%			Amount			%			Amount			%
Expected provision	$	7,207			35.00		$	7,388			35.00		$	7,633			35.00
Tax-exempt interest income		(1,817	)		(8.82	)		(1,801	)		(8.53	)		(1,914	)		(8.78	)
Nondeductible interest expense		42			0.20			40			0.19			51			0.23
Dividends received deduction		(7	)		(0.03	)		(22	)		(0.10	)		(75	)		(0.34	)
Increase in cash surrender value of life insurance		(133	)		(0.65	)		(134	)		(0.63	)		(135	)		(0.62	)
Employee stock option compensation		8			0.04			0			0.00			0			0.00
ESOP Dividends		(154	)		(0.75	)		0			0.00			0			0.00
Tax benefit from limited partnership investment		(73	)		(0.35	)		(76	)		(0.36	)		(80	)		(0.37	)
Effect of tax rate change		2,159			10.49			0			0.00			0			0.00
Other, net		(76	)		(0.37	)		(48	)		(0.23	)		(143	)		(0.66	)
Effective income tax provision	$	7,156			34.75		$	5,347			25.33		$	5,337			24.47

XML

Note 15 - Related Party Transactions (Tables)

12 Months Ended

Dec. 31, 2017

Notes Tables

Schedule of Related Party Transactions [Table Text Block]

(In Thousands)	Beginning		New					Other			Ending
	Balance		Loans		Repayments			Changes			Balance
12 directors, 7 executive officers 2017	$	11,414	$	2,128	$	(2,061	)	$	2,931		$	14,412
12 directors, 7 executive officers 2016		10,246		307		(1,160	)		2,021			11,414
11 directors, 7 executive officers 2015		12,023		52		(808	)		(1,021	)		10,246

XML

Note 16 - Off-balance Sheet Risk (Tables)

12 Months Ended

Dec. 31, 2017

Notes Tables

Schedule of Fair Value, Off-balance Sheet Risks [Table Text Block]

(In Thousands)	2017		2016
Commitments to extend credit	$	187,919	$	180,768
Standby letters of credit		7,445		9,025

Schedule of Off-Balance Sheet Risks, Expirations [Table Text Block]

Year of Expiration	(In Thousands)
2018	$	7,042
2019		355
2020		48
Total	$	7,445

XML

Note 18 - Regulatory Matters (Tables)

12 Months Ended

Dec. 31, 2017

Notes Tables

Schedule of Compliance with Regulatory Capital Requirements under Banking Regulations [Table Text Block]

(Dollars in Thousands)													Minimum To Be Well
	Actual					Minimum			Minimum To Maintain				Capitalized Under			Minimum To Meet
						Capital			Capital Conservation				Prompt Corrective			the Corporation's
	Actual					Requirement			Buffer at Reporting Date				Action Provisions			Policy Thresholds
	Amount		Ratio			Amount		Ratio	Amount		Ratio		Amount		Ratio	Amount		Ratio
December 31, 2017:
Total capital to risk-weighted assets:
Consolidated	$	187,097		23.07	%	$	64,872	> 8%	$	75,008	> 9.25%		$	81,090	> 10%	$	85,144	> 10.5%
C&N Bank		165,142		20.47	%		64,528	> 8%		74,611	> 9.25%			80,661	> 10%		84,694	> 10.5%
Tier 1 capital to risk-weighted assets:
Consolidated		177,981		21.95	%		48,654	> 6%		58,790	> 7.25%			64,872	> 8%		68,926	> 8.5%
C&N Bank		156,026		19.34	%		48,396	> 6%		58,479	> 7.25%			64,528	> 8%		68,561	> 8.5%
Common equity tier 1 capital to risk-weighted assets:
Consolidated		177,981		21.95	%		36,490	> 4.5%		46,626	> 5.75%			52,708	> 6.5%		56,763	> 7%
C&N Bank		156,026		19.34	%		36,297	> 4.5%		46,380	> 5.75%			52,429	> 6.5%		56,462	> 7%
Tier 1 capital to average assets:
Consolidated		177,981		14.23	%		50,023	> 4%		N/A		N/A		62,529	> 5%		62,529	> 5%
C&N Bank		156,026		12.63	%		49,418	> 4%		N/A		N/A		61,772	> 5%		61,772	> 5%
December 31, 2016:
Total capital to risk-weighted assets:
Consolidated	$	183,597		23.60	%	$	62,245	> 8%	$	67,108	> 8.625%		$	77,806	> 10%	$	81,697	> 10.5%
C&N Bank		162,705		21.03	%		61,894	> 8%		66,730	> 8.625%			77,368	> 10%		81,236	> 10.5%
Tier 1 capital to risk-weighted assets:
Consolidated		174,928		22.48	%		46,684	> 6%		51,547	> 6.625%			62,245	> 8%		66,135	> 8.5%
C&N Bank		154,036		19.91	%		46,421	> 6%		51,256	> 6.625%			61,894	> 8%		65,762	> 8.5%
Common equity tier 1 capital to risk-weighted assets:
Consolidated		174,928		22.48	%		35,013	> 4.5%		39,876	> 5.125%			50,574	> 6.5%		54,464	> 7%
C&N Bank		154,036		19.91	%		34,815	> 4.5%		39,651	> 5.125%			50,289	> 6.5%		54,157	> 7%
Tier 1 capital to average assets:
Consolidated		174,928		14.27	%		49,026	> 4%		N/A		N/A		61,282	> 5%		61,282	> 5%
C&N Bank		154,036		12.73	%		48,404	> 4%		N/A		N/A		60,506	> 5%		60,506	> 5%

Regulatory Capital Requirements Under Banking Regulations Transition Schedule for New Ratios [Table Text Block]

	As of January 1:
	2017			2018			2019
Minimum common equity tier 1 capital ratio		4.5	%		4.5	%		4.5	%
Common equity tier 1 capital conservation buffer		1.25	%		1.875	%		2.5	%
Minimum common equity tier 1 capital ratio plus capital conservation buffer		5.75	%		6.375	%		7.0	%
Phase-in of most deductions from common equity tier 1 capital		80	%		100	%		100	%
Minimum tier 1 capital ratio		6.0	%		6.0	%		6.0	%
Minimum tier 1 capital ratio plus capital conservation buffer		7.25	%		7.875	%		8.5	%
Minimum total capital ratio		8.0	%		8.0	%		8.0	%
Minimum total capital ratio plus capital conservation buffer		9.25	%		9.875	%		10.5	%

Regulatory Capital Requirements Payout Restrictions Based on Capital Conservation Buffer [Table Text Block]

Capital Conservation Buffer	Maximum Payout
(as a % of risk-weighted assets)	(as a % of eligible retained income)
Greater than 2.5%	No payout limitation applies
≤2.5% and >1.875%		60	%
≤1.875% and >1.25%		40	%
≤1.25% and >0.625%		20	%
≤0.625%		0	%

XML

Note 19 - Parent Company Only (Tables)

12 Months Ended

Dec. 31, 2017

Notes Tables

Condensed Balance Sheet [Table Text Block]

CONDENSED BALANCE SHEET	December 31,
(In Thousands)	2017		2016
ASSETS
Cash	$	6,790	$	6,033
Investment in subsidiaries:
Citizens & Northern Bank		166,576		165,397
Citizens & Northern Investment Corporation		11,588		11,168
Bucktail Life Insurance Company		3,488		3,419
Other assets		15		4
TOTAL ASSETS	$	188,457	$	186,021
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities	$	14	$	13
Stockholders' equity		188,443		186,008
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	188,457	$	186,021

Condensed Income Statement [Table Text Block]

CONDENSED INCOME STATEMENT
(In Thousands)	2017			2016			2015
Dividends from Citizens & Northern Bank	$	12,022		$	14,960		$	11,569
Expenses		(233	)		(367	)		(234	)
Income before equity in undistributed income of subsidiaries		11,789			14,593			11,335
Equity in undistributed income of subsidiaries		1,645			1,169			5,136
NET INCOME	$	13,434		$	15,762		$	16,471

Condensed Cash Flow Statement [Table Text Block]

CONDENSED STATEMENT OF CASH FLOWS
(In Thousands)
	2017			2016			2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	13,434		$	15,762		$	16,471
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed net income of subsidiaries		(1,645	)		(1,169	)		(5,136	)
(Increase) decrease in other assets		(11	)		20			12
Increase (decrease) in other liabilities		1			(6	)		12
Net Cash Provided by Operating Activities		11,779			14,607			11,359
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of treasury stock		128			263			381
Tax (cost) benefit from compensation plans, net		(5	)		151			143
Purchase of treasury stock		0			(3,723	)		(4,415	)
Dividends paid		(11,145	)		(11,112	)		(11,245	)
Net Cash Used in Financing Activities		(11,022	)		(14,421	)		(15,136	)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		757			186			(3,777	)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR		6,033			5,847			9,624
CASH AND CASH EQUIVALENTS, END OF YEAR	$	6,790		$	6,033		$	5,847

XML

Note 20 - Summary of Quarterly Consolidated Financial Data (Unaudited) (Tables)

12 Months Ended

Dec. 31, 2017

Notes Tables

Quarterly Financial Information [Table Text Block]

	2017 Quarter Ended
	Mar. 31,		June 30,		Sept. 30,		Dec. 31,
	2017		2017		2017		2017
Interest income	$	11,112	$	11,340	$	11,626	$	11,785
Interest expense		953		978		985		999
Net interest income		10,159		10,362		10,641		10,786
Provision for loan losses		452		4		322		23
Net interest income after provision for loan losses		9,707		10,358		10,319		10,763
Other income		3,864		4,106		4,066		4,117
Net gains on available-for-sale securities		145		107		5		0
Other expenses		9,298		9,076		9,192		9,401
Income before income tax provision		4,418		5,495		5,198		5,479
Income tax provision		984		1,374		1,262		3,536
Net income	$	3,434	$	4,121	$	3,936	$	1,943
Net income attributable to common shares	$	3,416	$	4,100	$	3,916	$	1,933
Net income per share – basic	$	0.28	$	0.34	$	0.32	$	0.16
Net income per share – diluted	$	0.28	$	0.34	$	0.32	$	0.16

	2016 Quarter Ended
	Mar. 31,		June 30,		Sept. 30,		Dec. 31,
	2016		2016		2016		2016
Interest income	$	10,937	$	10,924	$	11,131	$	11,106
Interest expense		904		925		944		920
Net interest income		10,033		9,999		10,187		10,186
Provision (credit) for loan losses		368		318		538		(3	)
Net interest income after provision (credit) for loan losses		9,665		9,681		9,649		10,189
Other income		3,690		3,906		3,884		4,031
Net gains on available-for-sale securities		383		122		584		69
Other expenses		9,072		8,535		8,579		8,558
Income before income tax provision		4,666		5,174		5,538		5,731
Income tax provision		1,093		1,303		1,451		1,500
Net income	$	3,573	$	3,871	$	4,087	$	4,231
Net income attributable to common shares	$	3,553	$	3,850	$	4,065	$	4,209
Net income per share – basic	$	0.29	$	0.32	$	0.34	$	0.35
Net income per share – diluted	$	0.29	$	0.32	$	0.34	$	0.35

XML

Note 1 - Nature of Operations and Summary of Significant Accounting Policies (Details Textual) $ in Thousands	12 Months Ended
	Dec. 31, 2017 USD ($)	Dec. 31, 2016 USD ($)	Dec. 31, 2015 USD ($)	Dec. 31, 2014 USD ($)
Number of Reportable Segments	1
Financing Receivable, Allowance for Credit Losses	$ 8,856	$ 8,473	$ 7,889	$ 7,336
Loans Receivable Secured by Real Estate Percentage	53.00%
Unrecognized Tax Benefits, Interest on Income Taxes Accrued	$ 0
Unfunded Loan Commitment [Member]
Financing Receivable, Allowance for Credit Losses	$ 0	$ 0

XML

Note 3 - Comprehensive Income - Components of Other Comprehensive Income (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Unrealized holding losses on available-for-sale securities	$ (691)	$ (4,138)	$ (1,429)
Unrealized holding gains (losses) on available-for-sale securities, income tax effect	242	1,448	(500)
Unrealized holding (income) losses on available-for-sale securities, net of tax amount	(449)	(2,690)	(929)
Reclassification adjustment for (gains) realized in income, before tax amount	(257)	(1,158)	(2,861)
Reclassification adjustment for (gains) realized in income, income tax effect	89	406	(1,002)
Reclassification adjustment for (gains) realized in income, net of tax amount	(168)	(752)	(1,859)
Other comprehensive income (loss) on available-for-sale securities, before tax amount	(948)	(5,296)	(4,290)
Other comprehensive income (loss) on available-for-sale securities, income tax effect	331	1,854	(1,502)
Other comprehensive loss on available-for-sale securities, net of tax amount	(617)	(3,442)	(2,788)
Changes from plan amendments and actuarial gains and losses included in accumulated other comprehensive gain (loss)	36	46	(135)
Changes from plan amendments and actuarial gains and losses included in other comprehensive income, income tax effect	(12)	(16)	(47)
Changes from plan amendments and actuarial gains and losses included in other comprehensive income, net of tax amount	24	30	(88)
Amortization of net transition obligation, prior service cost and net actuarial gain included in net periodic benefit cost, before tax amount	(24)	(22)	67
Amortization of net transition obligation, prior service cost and net actuarial gain included in net periodic benefit cost, income tax effect	8	8	(23)
Amortization of net transition obligation, prior service cost and net actuarial gain included in net periodic benefit cost, net of tax amount	(16)	(14)	44
Other comprehensive (income) loss on unfunded retirement obligations, before tax amount	12	24	(68)
Other comprehensive income (loss) on unfunded retirement obligations, income tax effect	(4)	(8)	(24)
Other comprehensive income (loss) on unfunded retirement obligations, net of tax amount	8	16	(44)
Total other comprehensive loss	(936)	(5,272)	(4,358)
Total other comprehensive income (loss), income tax effect	327	1,846	(1,526)
Net other comprehensive loss	(609)	(3,426)	(2,832)
Other comprehensive income (loss) on available-for-sale securities, income tax effect	(331)	(1,854)	1,502
Unrealized holding gains on available-for-sale securities, income tax effect	(242)	(1,448)	500
Reclassification adjustment for (gains) realized in income, income tax effect	(89)	(406)	1,002
Changes from plan amendments and actuarial gains and losses included in other comprehensive income, income tax effect	12	16	47
Other comprehensive income (loss) on unfunded retirement obligations, income tax effect	4	8	24
Total other comprehensive income (loss), income tax effect	$ (327)	$ (1,846)	$ 1,526

XML

Note 3 - Comprehensive Income - Changes in the Components of Accumulated Other Comprehensive Income (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Balance, beginning of period	$ (898)
Balance, end of period	(1,507)	$ (898)
Accumulated Net Investment Gain (Loss) Attributable to Parent [Member]
Balance, beginning of period	(949)	2,493	$ 5,281
Change during the period	(617)	(3,442)	(2,788)
Balance, end of period	(1,566)	(949)	2,493
Accumulated Defined Benefit Plans Adjustment Attributable to Parent [Member]
Balance, beginning of period	51	35	79
Change during the period	8	16	(44)
Balance, end of period	59	51	35
AOCI Attributable to Parent [Member]
Balance, beginning of period	(898)	2,528	5,360
Change during the period	(609)	(3,426)	(2,832)
Balance, end of period	$ (1,507)	$ (898)	$ 2,528

XML

Note 3 - Comprehensive Income - Amounts Reclassified Out of Each Component of OCI (Details) - USD ($) $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Unrealized gains and losses on available-for-sale securities									$ (257)	$ (1,158)	$ (2,861)
Income tax provision									7,156	5,347	5,337
Net income	$ (1,943)	$ (3,936)	$ (4,121)	$ (3,434)	$ (4,231)	$ (4,087)	$ (3,871)	$ (3,573)	(13,434)	(15,762)	(16,471)
Total before tax	$ (5,479)	$ (5,198)	$ (5,495)	$ (4,418)	$ (5,731)	$ (5,538)	$ (5,174)	$ (4,666)	(20,590)	(21,109)	(21,808)
Reclassification out of Accumulated Other Comprehensive Income [Member]
Net income									(184)	(766)	(1,815)
Loss on settlement											(87)
Reclassification out of Accumulated Other Comprehensive Income [Member] | Accumulated Net Investment Gain (Loss) Attributable to Parent [Member]
Unrealized gains and losses on available-for-sale securities									(257)	(1,158)	(2,861)
Income tax provision									89	406	1,002
Net income									(168)	(752)	(1,859)
Reclassification out of Accumulated Other Comprehensive Income [Member] | Accumulated Defined Benefit Plans Adjustment Attributable to Parent [Member]
Income tax provision									8	8	(23)
Net income									(16)	(14)	44
Amortization of prior service cost									(31)	(31)	(31)
Actuarial loss									7	9	11
Total before tax									$ (24)	$ (22)	$ 67

XML

Note 4 - Per Share Data (Details Textual) - shares	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Weighted Average Number of Shares, Restricted Stock	62,329	65,309	62,689
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	0	31,153	61,590

XML

Note 4 - Per Share Data - Net Income Per Share (Details) - USD ($)	3 Months Ended								12 Months Ended
	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2017		Dec. 31, 2016		Dec. 31, 2015
Net income	$ 1,943,000	$ 3,936,000	$ 4,121,000	$ 3,434,000	$ 4,231,000	$ 4,087,000	$ 3,871,000	$ 3,573,000	$ 13,434,000		$ 15,762,000		$ 16,471,000
Less: Dividends and undistributed earnings allocated to participating securities									(69,000)		(85,000)		(84,000)
Net income attributable to common shares	$ 1,933,000	$ 3,916,000	$ 4,100,000	$ 3,416,000	$ 4,209,000	$ 4,065,000	$ 3,850,000	$ 3,553,000	$ 13,365,000		$ 15,677,000		$ 16,387,000
Basic weighted-average common shares outstanding (in shares)									12,115,840		12,032,820		12,149,252
Basic earnings per common share (a) (in dollars per share)	$ 0.16	$ 0.32	$ 0.34	$ 0.28	$ 0.35	$ 0.34	$ 0.32	$ 0.29	$ 1.10	[1]	$ 1.30	[1]	$ 1.35	[1]
Net income attributable to common shares									$ 13,365,000		$ 15,677,000		$ 16,387,000
Dilutive effect of potential common stock arising from stock options (in shares)									39,296		30,235		21,832
Diluted weighted-average common shares outstanding (in shares)									12,155,136		12,063,055		12,171,084
Diluted earnings per common share (a) (in dollars per share)	$ 0.16	$ 0.32	$ 0.34	$ 0.28	$ 0.35	$ 0.34	$ 0.32	$ 0.29	$ 1.10	[1]	$ 1.30	[1]	$ 1.35	[1]

[1] Basic and diluted earnings per share under the two-class method are determined on net income reported on the income statement less earnings allocated to nonvested restricted shares with nonforfeitable dividends (participating securities).

XML

Note 5 - Cash and Due From Banks (Details Textual) - USD ($)	Dec. 31, 2017	Dec. 31, 2016
Restricted Cash and Cash Equivalents, Current	$ 17,178,000	$ 16,654,000

XML

Note 5 - Cash and Due From Banks - Summary of Cash and Due From Banks (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Cash and cash equivalents	$ 37,004	$ 28,621
Certificates of deposit	3,240	3,488
Total cash and due from banks	$ 40,244	$ 32,109

XML

Note 6 - Fair Value Measurements and Fair Values of Financial Instruments - Assets Measured at Fair Value (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Available-for-sale securities, at fair value	$ 356,908	$ 395,077
Unpaid principal - with allowance	4,100	3,372
Valuation allowance	(1,279)	(674)
Impaired loans, net	4,100	3,372
US Government Agencies Debt Securities [Member]
Available-for-sale securities, at fair value	7,873	9,541
Obligations of States and Political Subdivisions Tax Exempt [Member]
Available-for-sale securities, at fair value	105,111	119,037
Obligations of States and Political Subdivisions Taxable [Member]
Available-for-sale securities, at fair value	25,573	30,297
Residential Pass-Through Securities [Member]
Available-for-sale securities, at fair value	52,347	58,404
Residential Collateralized Mortgage Obligations [Member]
Available-for-sale securities, at fair value	131,814	146,608
Commercial Mortgage Backed Securities [Member]
Available-for-sale securities, at fair value	33,219	30,219
Debt Securities [Member]
Available-for-sale securities, at fair value	355,937	394,106
Equity Securities [Member]
Available-for-sale securities, at fair value	971	971
Fair Value, Measurements, Recurring [Member]
Available-for-sale securities, at fair value	356,908	395,077
Servicing rights	1,299	1,262
Total asset fair value measurements	358,207	396,339
Fair Value, Measurements, Recurring [Member] | US Government Agencies Debt Securities [Member]
Available-for-sale securities, at fair value	7,873	9,541
Fair Value, Measurements, Recurring [Member] | Obligations of States and Political Subdivisions Tax Exempt [Member]
Available-for-sale securities, at fair value	105,111	119,037
Fair Value, Measurements, Recurring [Member] | Obligations of States and Political Subdivisions Taxable [Member]
Available-for-sale securities, at fair value	25,573	30,297
Fair Value, Measurements, Recurring [Member] | Residential Pass-Through Securities [Member]
Available-for-sale securities, at fair value	52,347	58,404
Fair Value, Measurements, Recurring [Member] | Residential Collateralized Mortgage Obligations [Member]
Available-for-sale securities, at fair value	131,814	146,608
Fair Value, Measurements, Recurring [Member] | Commercial Mortgage Backed Securities [Member]
Available-for-sale securities, at fair value	33,219	30,219
Fair Value, Measurements, Recurring [Member] | Debt Securities [Member]
Available-for-sale securities, at fair value	355,937	394,106
Fair Value, Measurements, Recurring [Member] | Equity Securities [Member]
Available-for-sale securities, at fair value	971	971
Fair Value, Measurements, Nonrecurring [Member]
Total asset fair value measurements	4,191	4,878
Unpaid principal - with allowance	3,776	3,372
Valuation allowance	(1,183)	(674)
Impaired loans, net	2,593	2,698
Foreclosed residential real estate	1,598	2,180
Fair Value, Inputs, Level 1 [Member] | Fair Value, Measurements, Recurring [Member]
Available-for-sale securities, at fair value	971	971
Servicing rights	0	0
Total asset fair value measurements	971	971
Fair Value, Inputs, Level 1 [Member] | Fair Value, Measurements, Recurring [Member] | US Government Agencies Debt Securities [Member]
Available-for-sale securities, at fair value	0	0
Fair Value, Inputs, Level 1 [Member] | Fair Value, Measurements, Recurring [Member] | Obligations of States and Political Subdivisions Tax Exempt [Member]
Available-for-sale securities, at fair value	0	0
Fair Value, Inputs, Level 1 [Member] | Fair Value, Measurements, Recurring [Member] | Obligations of States and Political Subdivisions Taxable [Member]
Available-for-sale securities, at fair value	0	0
Fair Value, Inputs, Level 1 [Member] | Fair Value, Measurements, Recurring [Member] | Residential Pass-Through Securities [Member]
Available-for-sale securities, at fair value	0	0
Fair Value, Inputs, Level 1 [Member] | Fair Value, Measurements, Recurring [Member] | Residential Collateralized Mortgage Obligations [Member]
Available-for-sale securities, at fair value	0	0
Fair Value, Inputs, Level 1 [Member] | Fair Value, Measurements, Recurring [Member] | Commercial Mortgage Backed Securities [Member]
Available-for-sale securities, at fair value	0	0
Fair Value, Inputs, Level 1 [Member] | Fair Value, Measurements, Recurring [Member] | Debt Securities [Member]
Available-for-sale securities, at fair value	0	0
Fair Value, Inputs, Level 1 [Member] | Fair Value, Measurements, Recurring [Member] | Equity Securities [Member]
Available-for-sale securities, at fair value	971	971
Fair Value, Inputs, Level 1 [Member] | Fair Value, Measurements, Nonrecurring [Member]
Total asset fair value measurements	0	0
Unpaid principal - with allowance	0	0
Valuation allowance	0	0
Impaired loans, net	0	0
Foreclosed residential real estate	0	0
Fair Value, Inputs, Level 2 [Member] | Fair Value, Measurements, Recurring [Member]
Available-for-sale securities, at fair value	355,937	394,106
Servicing rights	0	0
Total asset fair value measurements	355,937	394,106
Fair Value, Inputs, Level 2 [Member] | Fair Value, Measurements, Recurring [Member] | US Government Agencies Debt Securities [Member]
Available-for-sale securities, at fair value	7,873	9,541
Fair Value, Inputs, Level 2 [Member] | Fair Value, Measurements, Recurring [Member] | Obligations of States and Political Subdivisions Tax Exempt [Member]
Available-for-sale securities, at fair value	105,111	119,037
Fair Value, Inputs, Level 2 [Member] | Fair Value, Measurements, Recurring [Member] | Obligations of States and Political Subdivisions Taxable [Member]
Available-for-sale securities, at fair value	25,573	30,297
Fair Value, Inputs, Level 2 [Member] | Fair Value, Measurements, Recurring [Member] | Residential Pass-Through Securities [Member]
Available-for-sale securities, at fair value	52,347	58,404
Fair Value, Inputs, Level 2 [Member] | Fair Value, Measurements, Recurring [Member] | Residential Collateralized Mortgage Obligations [Member]
Available-for-sale securities, at fair value	131,814	146,608
Fair Value, Inputs, Level 2 [Member] | Fair Value, Measurements, Recurring [Member] | Commercial Mortgage Backed Securities [Member]
Available-for-sale securities, at fair value	33,219	30,219
Fair Value, Inputs, Level 2 [Member] | Fair Value, Measurements, Recurring [Member] | Debt Securities [Member]
Available-for-sale securities, at fair value	355,937	394,106
Fair Value, Inputs, Level 2 [Member] | Fair Value, Measurements, Recurring [Member] | Equity Securities [Member]
Available-for-sale securities, at fair value	0	0
Fair Value, Inputs, Level 2 [Member] | Fair Value, Measurements, Nonrecurring [Member]
Total asset fair value measurements	0	0
Unpaid principal - with allowance	0	0
Valuation allowance	0	0
Impaired loans, net	0	0
Foreclosed residential real estate	0	0
Fair Value, Inputs, Level 3 [Member] | Fair Value, Measurements, Recurring [Member]
Available-for-sale securities, at fair value	0	0
Servicing rights	1,299	1,262
Total asset fair value measurements	1,299	1,262
Fair Value, Inputs, Level 3 [Member] | Fair Value, Measurements, Recurring [Member] | US Government Agencies Debt Securities [Member]
Available-for-sale securities, at fair value	0	0
Fair Value, Inputs, Level 3 [Member] | Fair Value, Measurements, Recurring [Member] | Obligations of States and Political Subdivisions Tax Exempt [Member]
Available-for-sale securities, at fair value	0	0
Fair Value, Inputs, Level 3 [Member] | Fair Value, Measurements, Recurring [Member] | Obligations of States and Political Subdivisions Taxable [Member]
Available-for-sale securities, at fair value	0	0
Fair Value, Inputs, Level 3 [Member] | Fair Value, Measurements, Recurring [Member] | Residential Pass-Through Securities [Member]
Available-for-sale securities, at fair value	0	0
Fair Value, Inputs, Level 3 [Member] | Fair Value, Measurements, Recurring [Member] | Residential Collateralized Mortgage Obligations [Member]
Available-for-sale securities, at fair value	0	0
Fair Value, Inputs, Level 3 [Member] | Fair Value, Measurements, Recurring [Member] | Commercial Mortgage Backed Securities [Member]
Available-for-sale securities, at fair value	0	0
Fair Value, Inputs, Level 3 [Member] | Fair Value, Measurements, Recurring [Member] | Debt Securities [Member]
Available-for-sale securities, at fair value	0	0
Fair Value, Inputs, Level 3 [Member] | Fair Value, Measurements, Recurring [Member] | Equity Securities [Member]
Available-for-sale securities, at fair value	0	0
Fair Value, Inputs, Level 3 [Member] | Fair Value, Measurements, Nonrecurring [Member]
Total asset fair value measurements	4,191	4,878
Unpaid principal - with allowance	3,776	3,372
Valuation allowance	(1,183)	(674)
Impaired loans, net	2,593	2,698
Foreclosed residential real estate	$ 1,598	$ 2,180

XML

Note 6 - Fair Value Measurements and Fair Values of Financial Instruments - Valuation Techniques and the Unobservable Inputs Used in Determining Fair Value - Recurring Basis (Details) - Servicing Rights Assets [Member] - Income Approach Valuation Technique [Member] - USD ($)	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Fair value	$ 1,299,000	$ 1,262,000
Discount rate	13.00%	13.00%
Weighted-average PSA	140.00%	138.00%
Servicing fees of loan balances	0.25%	0.25%
Servicing fees of payments are late	4.00%	4.00%
Late fees assessed	5.00%	5.00%
Miscellaneous fees per account per month	$ 1.94	$ 1.94
Monthly servicing cost per account	6	6
Additional monthly servicing cost per loan on loans more than 30 days delinquent	$ 24	$ 24
Servicing costs of loans more than 30 days delinquent	1.50%	1.50%
Annual increase in servicing costs	3.00%	3.00%

XML

Note 6 - Fair Value Measurements and Fair Values of Financial Instruments - Reconciliation of Activity for Level 3 Assets Measured at Fair Value on a Recurring Basis (Details) - Servicing Rights Assets [Member] - Fair Value, Inputs, Level 3 [Member] - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Balance, beginning of period	$ 1,262	$ 1,296	$ 1,281
Issuances of servicing rights	205	248	177
Unrealized losses included in earnings	(168)	(282)	(162)
Balance, end of period	$ 1,299	$ 1,262	$ 1,296

XML

Note 6 - Fair Value Measurements and Fair Values of Financial Instruments - Valuation Techniques and the Unobservable Inputs Used in Determining Fair Value - Nonrecurring Basis (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Recorded investment - with allowance	$ 4,100	$ 3,372
Related allowance	1,279	674
Residential Portfolio Segment [Member]
Foreclosed assets held for sale	721	1,102
Foreclosed residential real estate	721	1,102
Commercial Portfolio Segment [Member] | Real Estate Loan [Member]
Recorded investment - with allowance	2,641	2,773
Related allowance	919	528
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Recorded investment - with allowance	449	95
Related allowance	188	95
Commercial Portfolio Segment [Member] | Loans Secured by Farmland [Member]
Recorded investment - with allowance	495	504
Related allowance	50	51
Impaired Loans [Member]
Recorded investment - with allowance	3,776	3,372
Related allowance	1,183	674
Fair value	$ 2,593	$ 2,698
Discount rate
Impaired Loans [Member] | Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Market Approach Valuation Technique [Member]
Recorded investment - with allowance	$ 515
Related allowance	122
Fair value	$ 393
Discount rate	26.00%
Impaired Loans [Member] | Commercial Portfolio Segment [Member] | Real Estate Loan [Member] | Market Approach Valuation Technique [Member]
Recorded investment - with allowance	$ 2,641	$ 2,773
Related allowance	919	528
Fair value	$ 1,722	$ 2,245
Impaired Loans [Member] | Commercial Portfolio Segment [Member] | Real Estate Loan [Member] | Market Approach Valuation Technique [Member] | Weighted Average [Member]
Discount rate	16.00%	7.00%
Impaired Loans [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member] | Market Approach Valuation Technique [Member]
Recorded investment - with allowance	$ 126	$ 95
Related allowance	92	95
Fair value	$ 34	$ 0
Impaired Loans [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member] | Market Approach Valuation Technique [Member] | Weighted Average [Member]
Discount rate	72.00%	100.00%
Impaired Loans [Member] | Commercial Portfolio Segment [Member] | Loans Secured by Farmland [Member] | Market Approach Valuation Technique [Member]
Recorded investment - with allowance	$ 494	$ 504
Related allowance	50	51
Fair value	$ 444	$ 453
Impaired Loans [Member] | Commercial Portfolio Segment [Member] | Loans Secured by Farmland [Member] | Market Approach Valuation Technique [Member] | Weighted Average [Member]
Discount rate	53.00%	55.00%
Foreclosed Assets Held For Sale [Member]
Fair value	$ 1,598	$ 2,180
Discount rate
Foreclosed assets held for sale	$ 1,598	2,180
Valuation allowance	0	0
Foreclosed residential real estate	1,598	2,180
Foreclosed Assets Held For Sale [Member] | Land Receivable [Member] | Market Approach Valuation Technique [Member]
Fair value	632	650
Foreclosed assets held for sale	632	650
Valuation allowance	0	0
Foreclosed residential real estate	$ 632	$ 650
Foreclosed Assets Held For Sale [Member] | Land Receivable [Member] | Market Approach Valuation Technique [Member] | Weighted Average [Member]
Discount rate	35.00%	33.00%
Foreclosed Assets Held For Sale [Member] | Commercial Real Estate Receivables [Member] | Market Approach Valuation Technique [Member]
Fair value	$ 245	$ 428
Foreclosed assets held for sale	245	428
Valuation allowance	0	0
Foreclosed residential real estate	$ 245	$ 428
Foreclosed Assets Held For Sale [Member] | Commercial Real Estate Receivables [Member] | Market Approach Valuation Technique [Member] | Weighted Average [Member]
Discount rate	71.00%	50.00%
Foreclosed Assets Held For Sale [Member] | Residential Portfolio Segment [Member] | Market Approach Valuation Technique [Member]
Fair value	$ 721	$ 1,102
Foreclosed assets held for sale	721	1,102
Valuation allowance	0	0
Foreclosed residential real estate	$ 721	$ 1,102
Foreclosed Assets Held For Sale [Member] | Residential Portfolio Segment [Member] | Market Approach Valuation Technique [Member] | Weighted Average [Member]
Discount rate	37.00%	35.00%

XML

Note 6 - Fair Value Measurements and Fair Values of Financial Instruments - Estimated Fair Values, and Related Carrying Amounts, of the Financial Instruments (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Available-for-sale securities, at fair value	$ 356,908	$ 395,077
Reported Value Measurement [Member]
Available-for-sale securities, at fair value	356,908	395,077
Reported Value Measurement [Member] | Fair Value, Inputs, Level 1 [Member]
Cash and cash equivalents	37,004	28,621
Loans held for sale	765	142
Reported Value Measurement [Member] | Fair Value, Inputs, Level 2 [Member]
Certificates of deposit	3,240	3,488
Restricted equity securities (included in Other Assets)	6,556	4,426
Accrued interest receivable	4,048	3,963
Short-term borrowings	61,766	26,175
Long-term borrowings	9,189	38,454
Accrued interest payable	46	65
Reported Value Measurement [Member] | Fair Value, Inputs, Level 2 [Member] | Deposits With No Stated Maturity [Member]
Deposits, fair value	794,778	771,625
Reported Value Measurement [Member] | Fair Value, Inputs, Level 2 [Member] | Time Deposits [Member]
Deposits, fair value	213,671	212,218
Reported Value Measurement [Member] | Fair Value, Inputs, Level 3 [Member]
Loans, net	806,857	743,362
Servicing rights	1,299	1,262
Estimate of Fair Value Measurement [Member]
Available-for-sale securities, at fair value	356,908	395,077
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 1 [Member]
Cash and cash equivalents	37,004	28,621
Loans held for sale	765	142
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 2 [Member]
Certificates of deposit	3,234	3,481
Restricted equity securities (included in Other Assets)	6,556	4,426
Accrued interest receivable	4,048	3,963
Deposits, fair value	61,643	26,024
Long-term borrowings	9,256	39,062
Accrued interest payable	46	65
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 2 [Member] | Deposits With No Stated Maturity [Member]
Deposits, fair value	794,778	771,625
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 2 [Member] | Time Deposits [Member]
Deposits, fair value	213,734	212,274
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 3 [Member]
Loans, net	789,891	725,787
Servicing rights	$ 1,299	$ 1,262

XML

Note 7 - Securities (Details Textual)	12 Months Ended
	Dec. 31, 2017 USD ($)	Dec. 31, 2016 USD ($)	Dec. 31, 2015 USD ($)
Available-for-sale Securities Pledged as Collateral	$ 217,925,000	$ 230,803,000
Other than Temporary Impairment Losses, Investments, Portion Recognized in Earnings, Net, Available-for-sale Securities	0	0	$ 0
Available-for-sale Securities, Gross Realized Gains	315,000	1,392,000	2,972,000
Other Assets [Member] | Federal Home Loan Bank of Pittsburgh [Member]
Federal Home Loan Bank Stock	$ 6,426,000	$ 4,296,000
Mutual Fund [Member]
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions	1	1
Other than Temporary Impairment Losses, Investments, Available-for-sale Securities	$ 0	$ 0	0
Available-for-sale Equity Securities, Gross Unrealized Loss	29,000
Bank Stocks [Member]
Available-for-sale Securities, Gross Realized Gains	0	1,125,000	$ 2,220,000
FHLB Stock [Member] | Federal Home Loan Bank of Pittsburgh [Member]
Other than Temporary Impairment Losses, Investments	$ 0	$ 0

XML

Note 7 - Securities - Available-for-sale Securities (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Available-for-sale securities, amortized cost	$ 359,317	$ 396,538
Available-for-sale securities, gross unrealized holding gains	2,710	3,614
Available-for-sale securities, gross unrealized holding losses	(5,119)	(5,075)
Available-for-sale securities, fair value	356,908	395,077
US Government Agencies Debt Securities [Member]
Available-for-sale securities, amortized cost	8,026	9,671
Available-for-sale securities, gross unrealized holding gains	0	5
Available-for-sale securities, gross unrealized holding losses	(153)	(135)
Available-for-sale securities, fair value	7,873	9,541
Obligations of States and Political Subdivisions Tax Exempt [Member]
Available-for-sale securities, amortized cost	103,673	118,140
Available-for-sale securities, gross unrealized holding gains	2,291	2,592
Available-for-sale securities, gross unrealized holding losses	(853)	(1,695)
Available-for-sale securities, fair value	105,111	119,037
Obligations of States and Political Subdivisions Taxable [Member]
Available-for-sale securities, amortized cost	25,431	30,073
Available-for-sale securities, gross unrealized holding gains	226	303
Available-for-sale securities, gross unrealized holding losses	(84)	(79)
Available-for-sale securities, fair value	25,573	30,297
Residential Pass-Through Securities [Member]
Available-for-sale securities, amortized cost	52,992	58,922
Available-for-sale securities, gross unrealized holding gains	79	306
Available-for-sale securities, gross unrealized holding losses	(724)	(824)
Available-for-sale securities, fair value	52,347	58,404
Residential Collateralized Mortgage Obligations [Member]
Available-for-sale securities, amortized cost	134,314	147,915
Available-for-sale securities, gross unrealized holding gains	110	408
Available-for-sale securities, gross unrealized holding losses	(2,610)	(1,715)
Available-for-sale securities, fair value	131,814	146,608
Commercial Mortgage Backed Securities [Member]
Available-for-sale securities, amortized cost	33,881	30,817
Available-for-sale securities, gross unrealized holding gains	4	0
Available-for-sale securities, gross unrealized holding losses	(666)	(598)
Available-for-sale securities, fair value	33,219	30,219
Debt Securities [Member]
Available-for-sale securities, amortized cost	358,317	395,538
Available-for-sale securities, gross unrealized holding gains	2,710	3,614
Available-for-sale securities, gross unrealized holding losses	(5,090)	(5,046)
Available-for-sale securities, fair value	355,937	394,106
Equity Securities [Member]
Available-for-sale securities, amortized cost	1,000	1,000
Available-for-sale securities, gross unrealized holding gains	0	0
Available-for-sale securities, gross unrealized holding losses	(29)	(29)
Available-for-sale securities, fair value	$ 971	$ 971

XML

Note 7 - Securities - Available-for-sale Securities With Unrealized Loss Positions (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Available-for-sale securities with unrealized loss positions, less than 12 months, fair value	$ 119,109	$ 237,063
Available-for-sale securities with unrealized loss positions, less than 12 months, unrealized losses	(1,184)	(4,465)
Available-for-sale securities with unrealized loss positions, 12 months or more, fair value	141,027	17,351
Available-for-sale securities with unrealized loss positions, 12 months or more, unrealized losses	(3,935)	(610)
Available-for-sale securities with unrealized loss positions, fair value	260,136	254,414
Available-for-sale securities, with unrealized loss positions, unrealized losses	(5,119)	(5,075)
US Government Agencies Debt Securities [Member]
Available-for-sale securities with unrealized loss positions, less than 12 months, fair value	0	7,899
Available-for-sale securities with unrealized loss positions, less than 12 months, unrealized losses	0	(135)
Available-for-sale securities with unrealized loss positions, 12 months or more, fair value	7,873	0
Available-for-sale securities with unrealized loss positions, 12 months or more, unrealized losses	(153)	0
Available-for-sale securities with unrealized loss positions, fair value	7,873	7,899
Available-for-sale securities, with unrealized loss positions, unrealized losses	(153)	(135)
Obligations of States and Political Subdivisions Tax Exempt [Member]
Available-for-sale securities with unrealized loss positions, less than 12 months, fair value	19,050	54,479
Available-for-sale securities with unrealized loss positions, less than 12 months, unrealized losses	(135)	(1,676)
Available-for-sale securities with unrealized loss positions, 12 months or more, fair value	24,391	1,278
Available-for-sale securities with unrealized loss positions, 12 months or more, unrealized losses	(718)	(19)
Available-for-sale securities with unrealized loss positions, fair value	43,441	55,757
Available-for-sale securities, with unrealized loss positions, unrealized losses	(853)	(1,695)
Obligations of States and Political Subdivisions Taxable [Member]
Available-for-sale securities with unrealized loss positions, less than 12 months, fair value	9,279	9,594
Available-for-sale securities with unrealized loss positions, less than 12 months, unrealized losses	(45)	(79)
Available-for-sale securities with unrealized loss positions, 12 months or more, fair value	2,116	0
Available-for-sale securities with unrealized loss positions, 12 months or more, unrealized losses	(39)	0
Available-for-sale securities with unrealized loss positions, fair value	11,395	9,594
Available-for-sale securities, with unrealized loss positions, unrealized losses	(84)	(79)
Residential Pass-Through Securities [Member]
Available-for-sale securities with unrealized loss positions, less than 12 months, fair value	25,255	48,674
Available-for-sale securities with unrealized loss positions, less than 12 months, unrealized losses	(242)	(824)
Available-for-sale securities with unrealized loss positions, 12 months or more, fair value	22,549	0
Available-for-sale securities with unrealized loss positions, 12 months or more, unrealized losses	(482)	0
Available-for-sale securities with unrealized loss positions, fair value	47,804	48,674
Available-for-sale securities, with unrealized loss positions, unrealized losses	(724)	(824)
Residential Collateralized Mortgage Obligations [Member]
Available-for-sale securities with unrealized loss positions, less than 12 months, fair value	50,812	85,198
Available-for-sale securities with unrealized loss positions, less than 12 months, unrealized losses	(589)	(1,124)
Available-for-sale securities with unrealized loss positions, 12 months or more, fair value	68,558	16,073
Available-for-sale securities with unrealized loss positions, 12 months or more, unrealized losses	(2,021)	(591)
Available-for-sale securities with unrealized loss positions, fair value	119,370	101,271
Available-for-sale securities, with unrealized loss positions, unrealized losses	(2,610)	(1,715)
Commercial Mortgage Backed Securities [Member]
Available-for-sale securities with unrealized loss positions, less than 12 months, fair value	14,713	30,219
Available-for-sale securities with unrealized loss positions, less than 12 months, unrealized losses	(173)	(598)
Available-for-sale securities with unrealized loss positions, 12 months or more, fair value	14,569	0
Available-for-sale securities with unrealized loss positions, 12 months or more, unrealized losses	(493)	0
Available-for-sale securities with unrealized loss positions, fair value	29,282	30,219
Available-for-sale securities, with unrealized loss positions, unrealized losses	(666)	(598)
Debt Securities [Member]
Available-for-sale securities with unrealized loss positions, less than 12 months, fair value	119,109	236,063
Available-for-sale securities with unrealized loss positions, less than 12 months, unrealized losses	(1,184)	(4,436)
Available-for-sale securities with unrealized loss positions, 12 months or more, fair value	140,056	17,351
Available-for-sale securities with unrealized loss positions, 12 months or more, unrealized losses	(3,906)	(610)
Available-for-sale securities with unrealized loss positions, fair value	259,165	253,414
Available-for-sale securities, with unrealized loss positions, unrealized losses	(5,090)	(5,046)
Equity Securities [Member]
Available-for-sale securities with unrealized loss positions, less than 12 months, fair value	0	1,000
Available-for-sale securities with unrealized loss positions, less than 12 months, unrealized losses	0	(29)
Available-for-sale securities with unrealized loss positions, 12 months or more, fair value	971	0
Available-for-sale securities with unrealized loss positions, 12 months or more, unrealized losses	(29)	0
Available-for-sale securities with unrealized loss positions, fair value	971	1,000
Available-for-sale securities, with unrealized loss positions, unrealized losses	$ (29)	$ (29)

XML

Note 7 - Securities - Gross Realized Gains and Losses From Available-for-sale Securities (Details) - USD ($) $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Gross realized gains from sales									$ 315	$ 1,392	$ 2,972
Gross realized losses from sales									(58)	(234)	(111)
Net realized gains	$ 0	$ 5	$ 107	$ 145	$ 69	$ 584	$ 122	$ 383	257	1,158	2,861
Income tax provision related to net realized gains									$ 89	$ 406	$ 1,002

XML

Note 7 - Securities - Available-for-sale Debt Securities by Contractual Maturity (Details) $ in Thousands	Dec. 31, 2017 USD ($)
Due in one year or less, amortized cost	$ 11,350
Due in one year or less, fair value	11,347
Due from one year through five years. amortized cost	69,274
Due from one year through five years, fair value	70,016
Due from five years through ten years, amortized cost	37,086
Due from five years through ten years, fair value	37,089
Due after ten years, amortized cost	19,420
Due after ten years, fair value	20,105
Sub-total, amortized cost	137,130
Sub-total, fair value	138,557
Total, amortized cost	358,317
Total, fair value	355,937
Residential Pass-Through Securities [Member]
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies, amortized cost	52,992
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies, fair value	52,347
Residential Collateralized Mortgage Obligations [Member]
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies, amortized cost	134,314
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies, fair value	131,814
Commercial Mortgage-backed Securities [Member]
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies, amortized cost	33,881
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies, fair value	$ 33,219

XML

Note 8 - Loans (Details Textual)	12 Months Ended
	Dec. 31, 2017 USD ($)	Dec. 31, 2016 USD ($)	Dec. 31, 2015 USD ($)
Loans and Leases Receivable, Impaired, Commitment to Lend	$ 0	$ 0
Financing Receivable, Modifications, Number of Contracts	0	5	4
Financing Receivables, Impaired, Troubled Debt Restructuring, Write-down		$ 0	$ 0
Financing Receivable, Modifications, Subsequent Default, Number of Contracts	0	5	1
Consumer Portfolio Segment [Member]
Financing Receivable, Modifications, Subsequent Default, Number of Contracts		1	0
Maximum [Member] | Commercial Portfolio Segment [Member]
Financing Receivable Individually Evaluated for Impairment Threshold With Estimated Loss	$ 200,000
Maximum [Member] | Residential Portfolio Segment [Member]
Financing Receivable Individually Evaluated for Impairment Threshold With Estimated Loss	400,000
Maximum [Member] | Consumer Portfolio Segment [Member]
Financing Receivable Individually Evaluated for Impairment Threshold With Estimated Loss	400,000
Minimum [Member]
Financing Receivable Individually Evaluated for Impairment Estimated Loss Trigger	$ 100,000
Loans Receivable 1 [Member] | Credit Availability Concentration Risk [Member]
Concentration Risk, Percentage	0.00%

XML

Note 8 - Loans - Loans Receivable (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Loans receivable	$ 815,713	$ 751,835
Less: allowance for loan losses	(8,856)	(8,473)
Loans, net	806,857	743,362
Residential Portfolio Segment [Member]
Loans receivable	447,286	420,773
Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Senior Lien [Member]
Loans receivable	359,987	334,102
Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Junior Lien [Member]
Loans receivable	25,325	23,706
Residential Portfolio Segment [Member] | Home Equity Line of Credit 1 [Member]
Loans receivable	35,758	38,057
Residential Portfolio Segment [Member] | Construction Loans [Member]
Loans receivable	26,216	24,908
Commercial Portfolio Segment [Member]
Loans receivable	353,488	317,340
Commercial Portfolio Segment [Member] | Real Estate Loan [Member]
Loans receivable	159,266	150,468
Commercial Portfolio Segment [Member] | Construction Loans [Member]
Loans receivable	14,527	14,287
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans receivable	88,276	83,854
Commercial Portfolio Segment [Member] | Political Subdivisions [Member]
Loans receivable	59,287	38,068
Commercial Portfolio Segment [Member] | Loans Secured by Farmland [Member]
Loans receivable	7,255	7,294
Commercial Portfolio Segment [Member] | Multifamily 5 or More Residential [Member]
Loans receivable	7,713	7,896
Commercial Portfolio Segment [Member] | Agricultural Loans [Member]
Loans receivable	6,178	3,998
Commercial Portfolio Segment [Member] | Other Commercial Loans [Member]
Loans receivable	10,986	11,475
Consumer Portfolio Segment [Member]
Loans receivable	$ 14,939	$ 13,722

XML

Note 8 - Loans - Allowance for Loan Losses (Details) - USD ($) $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Allowance for loan losses				$ 8,473				$ 7,889	$ 8,473	$ 7,889	$ 7,336
Allowance for loan losses, charge-offs									(479)	(757)	(562)
Allowance for loan losses, recoveries									61	120	270
Allowance for loan losses, provision	$ 23	$ 322	$ 4	452	$ (3)	$ 538	$ 318	368	801	1,221	845
Allowance for loan losses	8,856				8,473				8,856	8,473	7,889
Residential Portfolio Segment [Member]
Allowance for loan losses				3,890				3,418	3,890	3,418	3,653
Allowance for loan losses, charge-offs									(197)	(73)	(217)
Allowance for loan losses, recoveries									19	3	1
Allowance for loan losses, provision									251	542	(19)
Allowance for loan losses	3,963				3,890				3,963	3,890	3,418
Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Senior Lien [Member]
Allowance for loan losses				3,033				2,645	3,033	2,645	2,941
Allowance for loan losses, charge-offs									(167)	(73)	(175)
Allowance for loan losses, recoveries									15	3	1
Allowance for loan losses, provision									319	458	(122)
Allowance for loan losses	3,200				3,033				3,200	3,033	2,645
Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Junior Lien [Member]
Allowance for loan losses				258				219	258	219	176
Allowance for loan losses, charge-offs									(16)	0	(42)
Allowance for loan losses, recoveries									4	0	0
Allowance for loan losses, provision									(22)	39	85
Allowance for loan losses	224				258				224	258	219
Residential Portfolio Segment [Member] | Home Equity Line of Credit 1 [Member]
Allowance for loan losses				350				347	350	347	322
Allowance for loan losses, charge-offs									(14)	0	0
Allowance for loan losses, recoveries									0	0	0
Allowance for loan losses, provision									(40)	3	25
Allowance for loan losses	296				350				296	350	347
Residential Portfolio Segment [Member] | Construction Loans [Member]
Allowance for loan losses				249				207	249	207	214
Allowance for loan losses, charge-offs									0	0	0
Allowance for loan losses, recoveries									0	0	0
Allowance for loan losses, provision									(6)	42	(7)
Allowance for loan losses	243				249				243	249	207
Commercial Portfolio Segment [Member]
Allowance for loan losses				4,047				3,922	4,047	3,922	3,143
Allowance for loan losses, charge-offs									(132)	(597)	(251)
Allowance for loan losses, recoveries									4	35	214
Allowance for loan losses, provision									316	687	816
Allowance for loan losses	4,235				4,047				4,235	4,047	3,922
Commercial Portfolio Segment [Member] | Real Estate Loan [Member]
Allowance for loan losses				2,380				1,939	2,380	1,939	1,758
Allowance for loan losses, charge-offs									(96)	0	(115)
Allowance for loan losses, recoveries									0	2	208
Allowance for loan losses, provision									300	439	88
Allowance for loan losses	2,584				2,380				2,584	2,380	1,939
Commercial Portfolio Segment [Member] | Construction Loans [Member]
Allowance for loan losses				162				58	162	58	283
Allowance for loan losses, charge-offs									0	0	(115)
Allowance for loan losses, recoveries									0	30	0
Allowance for loan losses, provision									(12)	74	(110)
Allowance for loan losses	150				162				150	162	58
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Allowance for loan losses				999				981	999	981	688
Allowance for loan losses, charge-offs									(36)	(2)	(21)
Allowance for loan losses, recoveries									4	3	6
Allowance for loan losses, provision									98	17	308
Allowance for loan losses	1,065				999				1,065	999	981
Commercial Portfolio Segment [Member] | Political Subdivisions [Member]
Allowance for loan losses				0				0	0	0	0
Allowance for loan losses, charge-offs										0	0
Allowance for loan losses, recoveries										0	0
Allowance for loan losses, provision										0	0
Allowance for loan losses	0				0				0	0	0
Commercial Portfolio Segment [Member] | Loans Secured by Farmland [Member]
Allowance for loan losses				110				106	110	106	165
Allowance for loan losses, charge-offs									0	0	0
Allowance for loan losses, recoveries									0	0	0
Allowance for loan losses, provision									(5)	4	(59)
Allowance for loan losses	105				110				105	110	106
Commercial Portfolio Segment [Member] | Multifamily 5 or More Residential [Member]
Allowance for loan losses				241				675	241	675	87
Allowance for loan losses, charge-offs									0	(595)	0
Allowance for loan losses, recoveries									0	0	0
Allowance for loan losses, provision									(69)	161	588
Allowance for loan losses	172				241				172	241	675
Commercial Portfolio Segment [Member] | Agricultural Loans [Member]
Allowance for loan losses				40				45	40	45	31
Allowance for loan losses, charge-offs									0	0	0
Allowance for loan losses, recoveries									0	0	0
Allowance for loan losses, provision									17	(5)	14
Allowance for loan losses	57				40				57	40	45
Commercial Portfolio Segment [Member] | Other Commercial Loans [Member]
Allowance for loan losses				115				118	115	118	131
Allowance for loan losses, charge-offs									0	0	0
Allowance for loan losses, recoveries									0	0	0
Allowance for loan losses, provision									(13)	(3)	(13)
Allowance for loan losses	102				115				102	115	118
Consumer Portfolio Segment [Member]
Allowance for loan losses				138				122	138	122	145
Allowance for loan losses, charge-offs									(150)	(87)	(94)
Allowance for loan losses, recoveries									38	82	55
Allowance for loan losses, provision									133	21	16
Allowance for loan losses	159				138				159	138	122
Unallocated Financing Receivables [Member]
Allowance for loan losses				$ 398				$ 427	398	427	395
Allowance for loan losses, charge-offs									0	0	0
Allowance for loan losses, recoveries									0	0	0
Allowance for loan losses, provision									101	(29)	32
Allowance for loan losses	$ 499				$ 398				$ 499	$ 398	$ 427

XML

Note 8 - Loans - Outstanding Loans by Risk Rating (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Loans receivable	$ 815,713	$ 751,835
Residential Portfolio Segment [Member]
Loans receivable	447,286	420,773
Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Senior Lien [Member]
Loans receivable	359,987	334,102
Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Junior Lien [Member]
Loans receivable	25,325	23,706
Residential Portfolio Segment [Member] | Home Equity Line of Credit 1 [Member]
Loans receivable	35,758	38,057
Residential Portfolio Segment [Member] | Construction Loans [Member]
Loans receivable	26,216	24,908
Commercial Portfolio Segment [Member]
Loans receivable	353,488	317,340
Commercial Portfolio Segment [Member] | Real Estate Loan [Member]
Loans receivable	159,266	150,468
Commercial Portfolio Segment [Member] | Construction Loans [Member]
Loans receivable	14,527	14,287
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans receivable	88,276	83,854
Commercial Portfolio Segment [Member] | Political Subdivisions [Member]
Loans receivable	59,287	38,068
Commercial Portfolio Segment [Member] | Loans Secured by Farmland [Member]
Loans receivable	7,255	7,294
Commercial Portfolio Segment [Member] | Multifamily 5 or More Residential [Member]
Loans receivable	7,713	7,896
Commercial Portfolio Segment [Member] | Agricultural Loans [Member]
Loans receivable	6,178	3,998
Commercial Portfolio Segment [Member] | Other Commercial Loans [Member]
Loans receivable	10,986	11,475
Consumer Portfolio Segment [Member]
Loans receivable	14,939	13,722
Pass [Member]
Loans receivable	787,501	721,772
Pass [Member] | Residential Portfolio Segment [Member]
Loans receivable	436,853	409,831
Pass [Member] | Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Senior Lien [Member]
Loans receivable	350,609	324,377
Pass [Member] | Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Junior Lien [Member]
Loans receivable	24,795	23,274
Pass [Member] | Residential Portfolio Segment [Member] | Home Equity Line of Credit 1 [Member]
Loans receivable	35,233	37,360
Pass [Member] | Residential Portfolio Segment [Member] | Construction Loans [Member]
Loans receivable	26,216	24,820
Pass [Member] | Commercial Portfolio Segment [Member]
Loans receivable	335,795	298,395
Pass [Member] | Commercial Portfolio Segment [Member] | Real Estate Loan [Member]
Loans receivable	150,806	139,358
Pass [Member] | Commercial Portfolio Segment [Member] | Construction Loans [Member]
Loans receivable	14,449	14,136
Pass [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans receivable	82,724	79,202
Pass [Member] | Commercial Portfolio Segment [Member] | Political Subdivisions [Member]
Loans receivable	59,287	38,068
Pass [Member] | Commercial Portfolio Segment [Member] | Loans Secured by Farmland [Member]
Loans receivable	5,283	5,745
Pass [Member] | Commercial Portfolio Segment [Member] | Multifamily 5 or More Residential [Member]
Loans receivable	7,130	7,277
Pass [Member] | Commercial Portfolio Segment [Member] | Agricultural Loans [Member]
Loans receivable	5,203	3,208
Pass [Member] | Commercial Portfolio Segment [Member] | Other Commercial Loans [Member]
Loans receivable	10,913	11,401
Pass [Member] | Consumer Portfolio Segment [Member]
Loans receivable	14,853	13,546
Special Mention [Member]
Loans receivable	6,155	8,134
Special Mention [Member] | Residential Portfolio Segment [Member]
Loans receivable	472	663
Special Mention [Member] | Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Senior Lien [Member]
Loans receivable	307	408
Special Mention [Member] | Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Junior Lien [Member]
Loans receivable	104	132
Special Mention [Member] | Residential Portfolio Segment [Member] | Home Equity Line of Credit 1 [Member]
Loans receivable	61	123
Special Mention [Member] | Residential Portfolio Segment [Member] | Construction Loans [Member]
Loans receivable	0	0
Special Mention [Member] | Commercial Portfolio Segment [Member]
Loans receivable	5,683	7,471
Special Mention [Member] | Commercial Portfolio Segment [Member] | Real Estate Loan [Member]
Loans receivable	936	3,092
Special Mention [Member] | Commercial Portfolio Segment [Member] | Construction Loans [Member]
Loans receivable	0	70
Special Mention [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans receivable	3,896	4,180
Special Mention [Member] | Commercial Portfolio Segment [Member] | Political Subdivisions [Member]
Loans receivable	0	0
Special Mention [Member] | Commercial Portfolio Segment [Member] | Loans Secured by Farmland [Member]
Loans receivable	581	129
Special Mention [Member] | Commercial Portfolio Segment [Member] | Multifamily 5 or More Residential [Member]
Loans receivable	0	0
Special Mention [Member] | Commercial Portfolio Segment [Member] | Agricultural Loans [Member]
Loans receivable	270	0
Special Mention [Member] | Commercial Portfolio Segment [Member] | Other Commercial Loans [Member]
Loans receivable	0	0
Special Mention [Member] | Consumer Portfolio Segment [Member]
Loans receivable	0	0
Substandard [Member]
Loans receivable	21,982	21,843
Substandard [Member] | Residential Portfolio Segment [Member]
Loans receivable	9,909	10,220
Substandard [Member] | Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Senior Lien [Member]
Loans receivable	9,019	9,258
Substandard [Member] | Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Junior Lien [Member]
Loans receivable	426	300
Substandard [Member] | Residential Portfolio Segment [Member] | Home Equity Line of Credit 1 [Member]
Loans receivable	464	574
Substandard [Member] | Residential Portfolio Segment [Member] | Construction Loans [Member]
Loans receivable	0	88
Substandard [Member] | Commercial Portfolio Segment [Member]
Loans receivable	11,987	11,447
Substandard [Member] | Commercial Portfolio Segment [Member] | Real Estate Loan [Member]
Loans receivable	7,524	8,018
Substandard [Member] | Commercial Portfolio Segment [Member] | Construction Loans [Member]
Loans receivable	78	81
Substandard [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans receivable	1,645	461
Substandard [Member] | Commercial Portfolio Segment [Member] | Political Subdivisions [Member]
Loans receivable	0	0
Substandard [Member] | Commercial Portfolio Segment [Member] | Loans Secured by Farmland [Member]
Loans receivable	1,379	1,404
Substandard [Member] | Commercial Portfolio Segment [Member] | Multifamily 5 or More Residential [Member]
Loans receivable	583	619
Substandard [Member] | Commercial Portfolio Segment [Member] | Agricultural Loans [Member]
Loans receivable	705	790
Substandard [Member] | Commercial Portfolio Segment [Member] | Other Commercial Loans [Member]
Loans receivable	73	74
Substandard [Member] | Consumer Portfolio Segment [Member]
Loans receivable	86	176
Doubtful [Member]
Loans receivable	75	86
Doubtful [Member] | Residential Portfolio Segment [Member]
Loans receivable	52	59
Doubtful [Member] | Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Senior Lien [Member]
Loans receivable	52	59
Doubtful [Member] | Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Junior Lien [Member]
Loans receivable	0	0
Doubtful [Member] | Residential Portfolio Segment [Member] | Home Equity Line of Credit 1 [Member]
Loans receivable	0	0
Doubtful [Member] | Residential Portfolio Segment [Member] | Construction Loans [Member]
Loans receivable	0	0
Doubtful [Member] | Commercial Portfolio Segment [Member]
Loans receivable	23	27
Doubtful [Member] | Commercial Portfolio Segment [Member] | Real Estate Loan [Member]
Loans receivable	0	0
Doubtful [Member] | Commercial Portfolio Segment [Member] | Construction Loans [Member]
Loans receivable	0	0
Doubtful [Member] | Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans receivable	11	11
Doubtful [Member] | Commercial Portfolio Segment [Member] | Political Subdivisions [Member]
Loans receivable	0	0
Doubtful [Member] | Commercial Portfolio Segment [Member] | Loans Secured by Farmland [Member]
Loans receivable	12	16
Doubtful [Member] | Commercial Portfolio Segment [Member] | Multifamily 5 or More Residential [Member]
Loans receivable	0	0
Doubtful [Member] | Commercial Portfolio Segment [Member] | Agricultural Loans [Member]
Loans receivable	0	0
Doubtful [Member] | Commercial Portfolio Segment [Member] | Other Commercial Loans [Member]
Loans receivable	0	0
Doubtful [Member] | Consumer Portfolio Segment [Member]
Loans receivable	$ 0	$ 0

XML

Note 8 - Loans - Loan Balances and Allowance for Loan Losses for Each Impairment Method (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Loans receivable: individually evaluated	$ 9,511	$ 10,860
Loans receivable: collectively evaluated	806,202	740,975
Loans receivable	815,713	751,835
Allowance for loan losses: individually evaluated	1,279	674
Allowance for loan losses: collectively evaluated	7,078	7,401
Allowance for loan losses	8,856	8,473	$ 7,889	$ 7,336
Residential Portfolio Segment [Member]
Loans receivable: individually evaluated	1,286	821
Loans receivable: collectively evaluated	446,000	419,952
Loans receivable	447,286	420,773
Allowance for loan losses: individually evaluated	122	0
Allowance for loan losses: collectively evaluated	3,841	3,890
Allowance for loan losses	3,963	3,890	3,418	3,653
Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Senior Lien [Member]
Loans receivable: individually evaluated	984	753
Loans receivable: collectively evaluated	359,003	333,349
Loans receivable	359,987	334,102
Allowance for loan losses: individually evaluated	0	0
Allowance for loan losses: collectively evaluated	3,200	3,033
Allowance for loan losses	3,200	3,033	2,645	2,941
Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Junior Lien [Member]
Loans receivable: individually evaluated	302	68
Loans receivable: collectively evaluated	25,023	23,638
Loans receivable	25,325	23,706
Allowance for loan losses: individually evaluated	122	0
Allowance for loan losses: collectively evaluated	102	258
Allowance for loan losses	224	258	219	176
Residential Portfolio Segment [Member] | Home Equity Line of Credit 1 [Member]
Loans receivable: individually evaluated	0	0
Loans receivable: collectively evaluated	35,758	38,057
Loans receivable	35,758	38,057
Allowance for loan losses: individually evaluated	0	0
Allowance for loan losses: collectively evaluated	296	350
Allowance for loan losses	296	350	347	322
Residential Portfolio Segment [Member] | Construction Loans [Member]
Loans receivable: individually evaluated	0	0
Loans receivable: collectively evaluated	26,216	24,908
Loans receivable	26,216	24,908
Allowance for loan losses: individually evaluated	0	0
Allowance for loan losses: collectively evaluated	243	249
Allowance for loan losses	243	249	207	214
Commercial Portfolio Segment [Member]
Loans receivable: individually evaluated	8,205	10,016
Loans receivable: collectively evaluated	345,283	307,324
Loans receivable	353,488	317,340
Allowance for loan losses: individually evaluated	1,157	674
Allowance for loan losses: collectively evaluated	3,078	3,373
Allowance for loan losses	4,235	4,047	3,922	3,143
Commercial Portfolio Segment [Member] | Real Estate Loan [Member]
Loans receivable: individually evaluated	5,873	8,005
Loans receivable: collectively evaluated	153,393	142,463
Loans receivable	159,266	150,468
Allowance for loan losses: individually evaluated	919	528
Allowance for loan losses: collectively evaluated	1,665	1,852
Allowance for loan losses	2,584	2,380	1,939	1,758
Commercial Portfolio Segment [Member] | Construction Loans [Member]
Loans receivable: individually evaluated	0	0
Loans receivable: collectively evaluated	14,527	14,287
Loans receivable	14,527	14,287
Allowance for loan losses: individually evaluated	0	0
Allowance for loan losses: collectively evaluated	150	162
Allowance for loan losses	150	162	58	283
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans receivable: individually evaluated	568	212
Loans receivable: collectively evaluated	87,708	83,642
Loans receivable	88,276	83,854
Allowance for loan losses: individually evaluated	188	95
Allowance for loan losses: collectively evaluated	877	904
Allowance for loan losses	1,065	999	981	688
Commercial Portfolio Segment [Member] | Political Subdivisions [Member]
Loans receivable: individually evaluated	0	0
Loans receivable: collectively evaluated	59,287	38,068
Loans receivable	59,287	38,068
Allowance for loan losses: individually evaluated	0	0
Allowance for loan losses: collectively evaluated	0	0
Allowance for loan losses	0	0	0	0
Commercial Portfolio Segment [Member] | Loans Secured by Farmland [Member]
Loans receivable: individually evaluated	1,365	1,394
Loans receivable: collectively evaluated	5,890	5,900
Loans receivable	7,255	7,294
Allowance for loan losses: individually evaluated	50	51
Allowance for loan losses: collectively evaluated	55	59
Allowance for loan losses	105	110	106	165
Commercial Portfolio Segment [Member] | Multifamily 5 or More Residential [Member]
Loans receivable: individually evaluated	392	392
Loans receivable: collectively evaluated	7,321	7,504
Loans receivable	7,713	7,896
Allowance for loan losses: individually evaluated	0	0
Allowance for loan losses: collectively evaluated	172	241
Allowance for loan losses	172	241	675	87
Commercial Portfolio Segment [Member] | Agricultural Loans [Member]
Loans receivable: individually evaluated	7	13
Loans receivable: collectively evaluated	6,171	3,985
Loans receivable	6,178	3,998
Allowance for loan losses: individually evaluated	0	0
Allowance for loan losses: collectively evaluated	57	40
Allowance for loan losses	57	40	45	31
Commercial Portfolio Segment [Member] | Other Commercial Loans [Member]
Loans receivable: individually evaluated	0	0
Loans receivable: collectively evaluated	10,986	11,475
Loans receivable	10,986	11,475
Allowance for loan losses: individually evaluated	0	0
Allowance for loan losses: collectively evaluated	102	115
Allowance for loan losses	102	115	118	131
Consumer Portfolio Segment [Member]
Loans receivable: individually evaluated	20	23
Loans receivable: collectively evaluated	14,919	13,699
Loans receivable	14,939	13,722
Allowance for loan losses: individually evaluated	0	0
Allowance for loan losses: collectively evaluated	159	138
Allowance for loan losses	159	138	122	145
Unallocated Financing Receivables [Member]
Allowance for loan losses	$ 499	$ 398	$ 427	$ 395

XML

Note 8 - Loans - Impaired Loans (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Unpaid principal - with no allowance	$ 6,035	$ 9,856
Recorded investment - with no allowance	5,411	7,488
Unpaid principal - with allowance	4,100	3,372
Recorded investment - with allowance	4,100	3,372
Related allowance	1,279	674
Unpaid principal	10,135	13,228
Recorded investment	9,511	10,860
Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Senior Lien [Member]
Unpaid principal - with no allowance	740	783
Recorded investment - with no allowance	711	753
Unpaid principal - with allowance	273	0
Recorded investment - with allowance	273	0
Related allowance	0	0
Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Junior Lien [Member]
Unpaid principal - with no allowance	60	68
Recorded investment - with no allowance	60	68
Unpaid principal - with allowance	242	0
Recorded investment - with allowance	242	0
Commercial Portfolio Segment [Member] | Real Estate Loan [Member]
Unpaid principal - with no allowance	3,230	6,975
Recorded investment - with no allowance	3,230	5,232
Unpaid principal - with allowance	2,641	2,773
Recorded investment - with allowance	2,641	2,773
Related allowance	919	528
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Unpaid principal - with no allowance	119	117
Recorded investment - with no allowance	119	117
Unpaid principal - with allowance	449	95
Recorded investment - with allowance	449	95
Related allowance	188	95
Commercial Portfolio Segment [Member] | Loans Secured by Farmland [Member]
Unpaid principal - with no allowance	871	890
Recorded investment - with no allowance	871	890
Unpaid principal - with allowance	495	504
Recorded investment - with allowance	495	504
Related allowance	50	51
Commercial Portfolio Segment [Member] | Multifamily 5 or More Residential [Member]
Unpaid principal - with no allowance	987	987
Recorded investment - with no allowance	392	392
Commercial Portfolio Segment [Member] | Agricultural Loans [Member]
Unpaid principal - with no allowance	8	13
Recorded investment - with no allowance	8	13
Consumer Portfolio Segment [Member]
Unpaid principal - with no allowance	20	23
Recorded investment - with no allowance	$ 20	$ 23

XML

Note 8 - Loans - Average Balance of Impaired Loans and Income Recognized on Impaired Loans (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Average investment in impaired loans	$ 9,349	$ 10,185	$ 11,375
Interest income recognized on impaired loans on a cash basis	311	657	596
Residential Portfolio Segment [Member]
Average investment in impaired loans	969	877	2,270
Interest income recognized on impaired loans on a cash basis	67	46	90
Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Senior Lien [Member]
Average investment in impaired loans	857	806	2,206
Interest income recognized on impaired loans on a cash basis	52	43	86
Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Junior Lien [Member]
Average investment in impaired loans	112	71	64
Interest income recognized on impaired loans on a cash basis	15	3	4
Commercial Portfolio Segment [Member]
Average investment in impaired loans	8,354	9,287	9,105
Interest income recognized on impaired loans on a cash basis	243	610	506
Commercial Portfolio Segment [Member] | Real Estate Loan [Member]
Average investment in impaired loans	6,272	6,806	6,357
Interest income recognized on impaired loans on a cash basis	173	495	380
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Average investment in impaired loans	301	547	438
Interest income recognized on impaired loans on a cash basis	24	20	20
Commercial Portfolio Segment [Member] | Construction Loans [Member]
Average investment in impaired loans	0	0	40
Interest income recognized on impaired loans on a cash basis	0	0	0
Commercial Portfolio Segment [Member] | Loans Secured by Farmland [Member]
Average investment in impaired loans	1,379	1,409	1,459
Interest income recognized on impaired loans on a cash basis	45	94	103
Commercial Portfolio Segment [Member] | Multifamily 5 or More Residential [Member]
Average investment in impaired loans	392	511	790
Interest income recognized on impaired loans on a cash basis	0	0	0
Commercial Portfolio Segment [Member] | Agricultural Loans [Member]
Average investment in impaired loans	10	14	21
Interest income recognized on impaired loans on a cash basis	1	1	3
Consumer Portfolio Segment [Member]
Average investment in impaired loans	26	21	0
Interest income recognized on impaired loans on a cash basis	$ 1	$ 1	$ 0

XML

Note 8 - Loans - Nonaccrual Loans and Loans Past Due Ninety Days or More and Still Accruing (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Loans past due 90+ days and accruing	$ 3,724	$ 6,838
Nonaccrual loans	13,404	8,736
Residential Portfolio Segment [Member]
Loans past due 90+ days and accruing	2,648	3,456
Nonaccrual loans	5,417	3,781
Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Senior Lien [Member]
Loans past due 90+ days and accruing	2,340	3,022
Nonaccrual loans	5,131	3,770
Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Junior Lien [Member]
Loans past due 90+ days and accruing	105	114
Nonaccrual loans	242	0
Residential Portfolio Segment [Member] | Home Equity Line of Credit 1 [Member]
Loans past due 90+ days and accruing	203	320
Nonaccrual loans	44	11
Commercial Portfolio Segment [Member]
Loans past due 90+ days and accruing	1,075	3,279
Nonaccrual loans	7,921	4,935
Commercial Portfolio Segment [Member] | Real Estate Loan [Member]
Loans past due 90+ days and accruing	175	2,774
Nonaccrual loans	5,645	3,080
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans past due 90+ days and accruing	603	286
Nonaccrual loans	517	119
Commercial Portfolio Segment [Member] | Construction Loans [Member]
Loans past due 90+ days and accruing	26	0
Nonaccrual loans	52	0
Commercial Portfolio Segment [Member] | Loans Secured by Farmland [Member]
Loans past due 90+ days and accruing	271	219
Nonaccrual loans	1,308	1,331
Commercial Portfolio Segment [Member] | Multifamily 5 or More Residential [Member]
Loans past due 90+ days and accruing	0	0
Nonaccrual loans	392	392
Commercial Portfolio Segment [Member] | Agricultural Loans [Member]
Loans past due 90+ days and accruing	0	0
Nonaccrual loans	7	13
Consumer Portfolio Segment [Member]
Loans past due 90+ days and accruing	1	103
Nonaccrual loans	$ 66	$ 20

XML

Note 8 - Loans - Contractual Aging of Loans (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Loans current and past due less than 30 days	$ 794,938	$ 732,725
Loans receivable	815,713	751,835
Financing Receivables 30 to 89 Days Past Due [Member]
Loans past due	10,190	8,154
Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Loans past due	10,585	10,956
Residential Portfolio Segment [Member]
Loans current and past due less than 30 days	432,621	407,108
Loans receivable	447,286	420,773
Residential Portfolio Segment [Member] | Financing Receivables 30 to 89 Days Past Due [Member]
Loans past due	9,335	7,494
Residential Portfolio Segment [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Loans past due	5,330	6,171
Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Senior Lien [Member]
Loans current and past due less than 30 days	347,032	321,670
Loans receivable	359,987	334,102
Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Senior Lien [Member] | Financing Receivables 30 to 89 Days Past Due [Member]
Loans past due	7,967	6,695
Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Senior Lien [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Loans past due	4,988	5,737
Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Junior Lien [Member]
Loans current and past due less than 30 days	25,133	23,268
Loans receivable	25,325	23,706
Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Junior Lien [Member] | Financing Receivables 30 to 89 Days Past Due [Member]
Loans past due	87	324
Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Junior Lien [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Loans past due	105	114
Residential Portfolio Segment [Member] | Home Equity Line of Credit 1 [Member]
Loans current and past due less than 30 days	34,789	37,603
Loans receivable	35,758	38,057
Residential Portfolio Segment [Member] | Home Equity Line of Credit 1 [Member] | Financing Receivables 30 to 89 Days Past Due [Member]
Loans past due	732	134
Residential Portfolio Segment [Member] | Home Equity Line of Credit 1 [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Loans past due	237	320
Residential Portfolio Segment [Member] | Construction Loans [Member]
Loans current and past due less than 30 days	25,667	24,567
Loans receivable	26,216	24,908
Residential Portfolio Segment [Member] | Construction Loans [Member] | Financing Receivables 30 to 89 Days Past Due [Member]
Loans past due	549	341
Residential Portfolio Segment [Member] | Construction Loans [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Loans past due	0	0
Commercial Portfolio Segment [Member]
Loans current and past due less than 30 days	347,557	312,171
Loans receivable	353,488	317,340
Commercial Portfolio Segment [Member] | Financing Receivables 30 to 89 Days Past Due [Member]
Loans past due	732	507
Commercial Portfolio Segment [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Loans past due	5,199	4,662
Commercial Portfolio Segment [Member] | Real Estate Loan [Member]
Loans current and past due less than 30 days	155,917	147,464
Loans receivable	159,266	150,468
Commercial Portfolio Segment [Member] | Real Estate Loan [Member] | Financing Receivables 30 to 89 Days Past Due [Member]
Loans past due	311	82
Commercial Portfolio Segment [Member] | Real Estate Loan [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Loans past due	3,038	2,922
Commercial Portfolio Segment [Member] | Construction Loans [Member]
Loans current and past due less than 30 days	14,400	14,199
Loans receivable	14,527	14,287
Commercial Portfolio Segment [Member] | Construction Loans [Member] | Financing Receivables 30 to 89 Days Past Due [Member]
Loans past due	49	88
Commercial Portfolio Segment [Member] | Construction Loans [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Loans past due	78	0
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Loans current and past due less than 30 days	87,306	83,364
Loans receivable	88,276	83,854
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member] | Financing Receivables 30 to 89 Days Past Due [Member]
Loans past due	303	185
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Loans past due	667	305
Commercial Portfolio Segment [Member] | Political Subdivisions [Member]
Loans current and past due less than 30 days	59,287	38,068
Loans receivable	59,287	38,068
Commercial Portfolio Segment [Member] | Political Subdivisions [Member] | Financing Receivables 30 to 89 Days Past Due [Member]
Loans past due	0	0
Commercial Portfolio Segment [Member] | Political Subdivisions [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Loans past due	0	0
Commercial Portfolio Segment [Member] | Loans Secured by Farmland [Member]
Loans current and past due less than 30 days	6,226	6,181
Loans receivable	7,255	7,294
Commercial Portfolio Segment [Member] | Loans Secured by Farmland [Member] | Financing Receivables 30 to 89 Days Past Due [Member]
Loans past due	12	83
Commercial Portfolio Segment [Member] | Loans Secured by Farmland [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Loans past due	1,017	1,030
Commercial Portfolio Segment [Member] | Multifamily 5 or More Residential [Member]
Loans current and past due less than 30 days	7,321	7,439
Loans receivable	7,713	7,896
Commercial Portfolio Segment [Member] | Multifamily 5 or More Residential [Member] | Financing Receivables 30 to 89 Days Past Due [Member]
Loans past due	0	65
Commercial Portfolio Segment [Member] | Multifamily 5 or More Residential [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Loans past due	392	392
Commercial Portfolio Segment [Member] | Agricultural Loans [Member]
Loans current and past due less than 30 days	6,114	3,981
Loans receivable	6,178	3,998
Commercial Portfolio Segment [Member] | Agricultural Loans [Member] | Financing Receivables 30 to 89 Days Past Due [Member]
Loans past due	57	4
Commercial Portfolio Segment [Member] | Agricultural Loans [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Loans past due	7	13
Commercial Portfolio Segment [Member] | Other Commercial Loans [Member]
Loans current and past due less than 30 days	10,986	11,475
Loans receivable	10,986	11,475
Commercial Portfolio Segment [Member] | Other Commercial Loans [Member] | Financing Receivables 30 to 89 Days Past Due [Member]
Loans past due	0	0
Commercial Portfolio Segment [Member] | Other Commercial Loans [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Loans past due	0	0
Consumer Portfolio Segment [Member]
Loans current and past due less than 30 days	14,760	13,446
Loans receivable	14,939	13,722
Consumer Portfolio Segment [Member] | Financing Receivables 30 to 89 Days Past Due [Member]
Loans past due	123	153
Consumer Portfolio Segment [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Loans past due	$ 56	$ 123

XML

Note 8 - Loans - Contractual Aging of Nonaccrual Loans (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Nonaccrual loans	$ 13,404	$ 8,736
Non accrual Loans [Member]
Loans current and past due, nonaccrual	5,802	4,199
Nonaccrual loans	13,404	8,736
Non accrual Loans [Member] | Financing Receivables 30 to 89 Days Past Due [Member]
Nonaccrual loans	741	419
Non accrual Loans [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Nonaccrual loans	$ 6,861	$ 4,118

XML

Note 8 - Loans - Aging of Troubled Debt Restructurings (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Loans current and past due less than 30 days	$ 794,938	$ 732,725
Nonaccrual loans	13,404	8,736
Financing Receivables 30 to 89 Days Past Due [Member]
Loans past due	10,190	8,154
Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Loans past due	10,585	10,956
Troubled Debt Restructuring [Member]
Loans current and past due less than 30 days	636	5,453
Nonaccrual loans	3,027	2,874
Troubled debt restructurings	3,663	8,677
Troubled Debt Restructuring [Member] | Financing Receivables 30 to 89 Days Past Due [Member]
Loans past due	0	350
Troubled Debt Restructuring [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Loans past due	$ 0	$ 0

XML

Note 8 - Loans - Troubled Debt Restructurings (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016 USD ($)	Dec. 31, 2015 USD ($)
Troubled debt restructurings, number of contracts	0	5	4
Troubled debt restructurings, post-modification recorded investment		$ 2,899	$ 360
Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Senior Lien [Member] | Extended Maturity and Contractual Interest Rate Reduction [Member]
Troubled debt restructurings, number of contracts		1	1
Troubled debt restructurings, post-modification recorded investment		$ 71	$ 56
Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Senior Lien [Member] | Extended Maturity with Reduced Monthly Payments [Member]
Troubled debt restructurings, number of contracts		1	0
Troubled debt restructurings, post-modification recorded investment		$ 26	$ 0
Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Senior Lien [Member] | Monthly Payment Reduction for 6 Months [Member]
Troubled debt restructurings, number of contracts		0	1
Troubled debt restructurings, post-modification recorded investment		$ 0	$ 242
Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Senior Lien [Member] | Interest Payments Only for 1 Year [Member]
Troubled debt restructurings, number of contracts		1	0
Troubled debt restructurings, post-modification recorded investment		$ 2,773	$ 0
Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Junior Lien [Member] | Interest Rate and Monthly Payment Reduction [Member]
Troubled debt restructurings, number of contracts		0	1
Troubled debt restructurings, post-modification recorded investment		$ 0	$ 32
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member] | Extended Maturity [Member]
Troubled debt restructurings, number of contracts		1	0
Troubled debt restructurings, post-modification recorded investment		$ 5	$ 0
Consumer Portfolio Segment [Member] | Interest Rate and Monthly Payment Reduction [Member]
Troubled debt restructurings, number of contracts		0	1
Troubled debt restructurings, post-modification recorded investment		$ 0	$ 30
Consumer Portfolio Segment [Member] | New Unsecured Loan after Short-fall from Sale of Property [Member]
Troubled debt restructurings, number of contracts		1	0
Troubled debt restructurings, post-modification recorded investment		$ 24	$ 0

XML

Note 8 - Loans - Defaults on Loans with Previous Modifications (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016 USD ($)	Dec. 31, 2015 USD ($)
Troubled debt restructuring defaults, number of contracts	0	5	1
Troubled debt restructuring defaults, recorded investment		$ 355	$ 32
Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Senior Lien [Member]
Troubled debt restructuring defaults, number of contracts		2	1
Troubled debt restructuring defaults, recorded investment		$ 294	$ 32
Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Junior Lien [Member]
Troubled debt restructuring defaults, number of contracts		1	0
Troubled debt restructuring defaults, recorded investment		$ 29	$ 0
Commercial Portfolio Segment [Member] | Commercial and Industrial [Member]
Troubled debt restructuring defaults, number of contracts		1	0
Troubled debt restructuring defaults, recorded investment		$ 5	$ 0
Consumer Portfolio Segment [Member]
Troubled debt restructuring defaults, number of contracts		1	0
Troubled debt restructuring defaults, recorded investment		$ 27	$ 0

XML

Note 8 - Loans - Foreclosed Residential Real Estate (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Residential Portfolio Segment [Member]
Foreclosed residential real estate	$ 721	$ 1,102

XML

Note 8 - Loans - Mortgage Loans in Process of Foreclosure (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Residential Portfolio Segment [Member]
Residential real estate in process of foreclosure	$ 1,789	$ 2,738

XML

Note 9 - Bank Premises and Equipment - Summary of Bank Premises and Equipment (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Property, plant and equipment	$ 46,949	$ 49,570
Less: accumulated depreciation	(31,517)	(34,173)
Net	15,432	15,397
Land [Member]
Property, plant and equipment	2,818	2,818
Building and Building Improvements [Member]
Property, plant and equipment	28,285	27,619
Furniture and Fixtures [Member]
Property, plant and equipment	15,578	18,741
Construction in Progress [Member]
Property, plant and equipment	$ 268	$ 392

XML

Note 9 - Bank Premises and Equipment - Depreciation Expense (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Depreciation expense	$ 1,639	$ 1,589	$ 1,888
Occupancy Expense [Member]
Depreciation expense	801	804	954
Furniture and Fixtures Expense [Member]
Depreciation expense	$ 838	$ 785	$ 934

XML

Note 10 - Intangible Assets (Details Textual) - USD ($)	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Goodwill, Period Increase (Decrease)	$ 0	$ 0
Goodwill	11,942,000	11,942,000
Goodwill, Acquired During Period	0	0
Goodwill, Impairment Loss	0
Amortization of Intangible Assets	$ 5,000	$ 13,000	$ 22,000

XML

Note 10 - Intangible Assets - Core Deposit Intangibles (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Gross amount	$ 2,034	$ 2,034
Less: accumulated amortization	(2,022)	(2,017)
Net	$ 12	$ 17

XML

Note 11 - Deposits (Details Textual) - USD ($)	Dec. 31, 2017	Dec. 31, 2016
Time Deposits, at or Above FDIC Insurance Limit	$ 12,653,000	$ 7,929,000

XML

Note 11 - Deposits - Scheduled Maturities of Time Deposits (Details) $ in Thousands	Dec. 31, 2017 USD ($)
2018	$ 112,563
2019	57,097
2020	22,836
2021	7,975
2022	10,484
Thereafter	2,716
Total	$ 213,671

XML

Note 11 - Deposits - Remaining Maturities of Time Deposits In Excess of $250,000 (Details) - USD ($)	Dec. 31, 2017	Dec. 31, 2016
Three months or less	$ 4,833,000
Over 3 months through 12 months	5,375,000
Over 1 year through 3 years	1,148,000
Over 3 years	1,297,000
Total	$ 12,653,000	$ 7,929,000

XML

Note 12 - Borrowed Funds (Details Textual)	12 Months Ended
	Dec. 31, 2017 USD ($)	Dec. 31, 2016 USD ($)	Dec. 31, 2015 USD ($)
Short-term Debt, Weighted Average Interest Rate, at Point in Time	1.52%	0.61%
Line of Credit Facility, Maximum Month-end Outstanding Amount	$ 61,766,000	$ 47,005,000	$ 53,496,000
Available-for-sale Securities Pledged as Collateral	217,925,000	230,803,000
Carrying Value of Securities Sold under Repurchase Agreements and Deposits Received for Securities Loaned	12,158,000	15,019,000
Securities Sold under Agreements to Repurchase, Asset	$ 0	$ 31,494,000
Repurchase Agreements [Member]
Debt, Weighted Average Interest Rate	3.60%	3.60%	3.99%
Short-term Debt, Average Outstanding Amount	$ 26,112,000	$ 27,000,000	$ 54,304,000
Repurchase Agreement Maturing in 2017 with a Rate of 3.595% [Member]
Debt Instrument, Interest Rate, Stated Percentage	3.595%
Maximum [Member]
Securities Sold under Agreements to Repurchase, Asset	$ 27,000,000	$ 27,000,000	$ 61,000,000
Securities Sold under Agreements to Repurchase [Member]
Debt, Weighted Average Interest Rate	0.10%	0.10%
Federal Home Loan Bank of Pittsburgh [Member]
Line of Credit Facility, Maximum Borrowing Capacity	$ 362,630,000	$ 339,221,000
Federal Home Loan Bank, Advances, General Debt Obligations, Disclosures, Collateral Pledged	471,454,000	471,454,000
Line of Credit Facility, Remaining Borrowing Capacity	$ 295,441,000	$ 306,767,000
Federal Home Loan Bank of Pittsburgh [Member] | Overnight Borrowing [Member]
Debt Instrument, Interest Rate, Stated Percentage	1.54%	0.74%
Federal Home Loan Bank of Pittsburgh [Member] | Federal Home Loan Bank Advances 1 [Member]
Number of Short-term Advances	9
Short-term Borrowing, Amount of Each Borrowing	$ 3,000,000
Federal Home Loan Bank of Pittsburgh [Member] | Federal Home Loan Bank Advances 2 [Member]
Number of Short-term Advances	1
Short-term Borrowing, Amount of Each Borrowing	$ 2,000,000
Federal Home Loan Bank of Pittsburgh [Member] | Federal Home Loan Bank Advances [Member]
Short-term Debt, Weighted Average Interest Rate, at Point in Time	1.69%
Federal Home Loan Bank of Pittsburgh [Member] | Federal Home Loan Bank Advances [Member] | Minimum [Member]
Debt Instrument, Interest Rate, Stated Percentage	1.23%
Federal Home Loan Bank of Pittsburgh [Member] | Federal Home Loan Bank Advances [Member] | Maximum [Member]
Debt Instrument, Interest Rate, Stated Percentage	1.89%
Federal Home Loan Bank of Pittsburgh [Member] | Other Assets [Member]
Federal Home Loan Bank Stock	$ 6,426,000	$ 4,296,000
Other Correspondent Banks [Member]
Line of Credit Facility, Maximum Borrowing Capacity	45,000,000	45,000,000
Long-term Line of Credit	0	0
Federal Reserve Bank of Philadelphia [Member]
Line of Credit Facility, Maximum Borrowing Capacity	15,877,000	15,636,000
Long-term Line of Credit	0	0
Available-for-sale Securities Pledged as Collateral	$ 16,301,000	$ 17,690,000

XML

Note 12 - Borrowed Funds - Short-term Borrowings (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Short-term borrowings	$ 61,766	$ 26,175
Securities Sold under Agreements to Repurchase [Member]
Short-term borrowings	3,766	5,175
Federal Home Loan Bank of Pittsburgh [Member]
Short-term borrowings	58,000	21,000
Federal Home Loan Bank of Pittsburgh [Member] | Federal Home Loan Bank Advances [Member]
Short-term borrowings	58,000	21,000
Federal Home Loan Bank of Pittsburgh [Member] | Overnight Borrowing [Member]
Short-term borrowings	29,000	21,000
Federal Home Loan Bank of Pittsburgh [Member] | Other Short-term Debt [Member]
Short-term borrowings	$ 29,000	$ 0

XML

Note 12 - Borrowed Funds - Long-term Borrowings (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Long-term borrowings	$ 9,189	$ 38,454
Repurchase Agreements [Member]
Long-term borrowings	0	27,000
Federal Home Loan Bank Advances [Member]
Long-term borrowings	$ 9,189	$ 11,454

XML

Note 12 - Borrowed Funds - Long-term Borrowing Maturities (Details) - Federal Home Loan Bank of Pittsburgh [Member] - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Long-term borrowings from FHLB - Pittsburgh	$ 9,189	$ 11,454
Federal Home Loan Bank Borrowings Loan Maturing in 2017 With Rate of 6.83% [Member]
Long-term borrowings from FHLB - Pittsburgh	0	4
Federal Home Loan Bank Borrowings Loan Maturing in 2017 with Rate of 3.81% [Member]
Long-term borrowings from FHLB - Pittsburgh	0	10,000
Federal Home Loan Bank Borrowings Loan Maturing in 2018 with Rate of 1.63% [Member]
Long-term borrowings from FHLB - Pittsburgh	3,000	0
Federal Home Loan Bank Borrowings Loan Maturing in 2018 with Rate of 1.35% [Member]
Long-term borrowings from FHLB - Pittsburgh	3,000	0
Federal Home Loan Bank Borrowings Loan Maturing in 2019 with Rate of 1.83% [Member]
Long-term borrowings from FHLB - Pittsburgh	2,000	0
Federal Home Loan Bank Borrowings Loan Maturing in 2020 with Rate of 4.79% [Member]
Long-term borrowings from FHLB - Pittsburgh	463	646
Federal Home Loan Bank Borrowings Loan Maturing in 2025 with Rate of 4.91% [Member]
Long-term borrowings from FHLB - Pittsburgh	$ 726	$ 804

XML

Note 12 - Borrowed Funds - Long-term Borrowing Maturities (Details) (Parentheticals)	Dec. 31, 2017 Rate	Dec. 31, 2016 Rate
Federal Home Loan Bank Borrowings Loan Maturing in 2020 with Rate of 4.79% [Member]
Rate	4.79%	4.79%
Federal Home Loan Bank Borrowings Loan Maturing in 2025 with Rate of 4.91% [Member]
Rate	4.91%	4.91%
Federal Home Loan Bank of Pittsburgh [Member] | Federal Home Loan Bank Borrowings Loan Maturing in 2017 With Rate of 6.83% [Member]
Rate	6.83%	6.83%
Federal Home Loan Bank of Pittsburgh [Member] | Federal Home Loan Bank Borrowings Loan Maturing in 2017 with Rate of 3.81% [Member]
Rate	3.81%	3.81%
Federal Home Loan Bank of Pittsburgh [Member] | Federal Home Loan Bank Borrowings Loan Maturing in 2018 with Rate of 1.63% [Member]
Rate	1.63%	1.63%
Federal Home Loan Bank of Pittsburgh [Member] | Federal Home Loan Bank Borrowings Loan Maturing in 2018 with Rate of 1.35% [Member]
Rate	1.35%	1.35%
Federal Home Loan Bank of Pittsburgh [Member] | Federal Home Loan Bank Borrowings Loan Maturing in 2019 with Rate of 1.83% [Member]
Rate	1.83%	1.83%

XML

Note 12 - Borrowed Funds - Underlying Securities (Details) - USD ($)	Dec. 31, 2017	Dec. 31, 2016
Underlying securities	$ 0	$ 31,494,000
Residential Pass-Through Securities [Member]
Underlying securities	0	18,181,000
Collateralized Mortgage Obligations [Member]
Underlying securities	$ 0	$ 13,313,000

XML

Note 13 - Employee and Postretirement Benefit Plans (Details Textual)	1 Months Ended	12 Months Ended
	Jan. 31, 2018 USD ($) shares	Dec. 31, 2017 USD ($) shares	Dec. 31, 2016 USD ($) shares	Dec. 31, 2015 USD ($) shares	Dec. 03, 2015 USD ($)
Estimated Minimum Contribution to Defined Benefit Pension Plan		$ 0
Payment for Pension Benefits		$ 681,000	$ 646,000	$ 609,000
Employee Stock Ownership Plan (ESOP), Diversification Feature, Age Requirement		55
Deferred Compensation Arrangement with Individual, Requisite Service Period		10 years
Employee Stock Ownership Plan (ESOP), Diversification Feature Percentage		50.00%
Employee Stock Ownership Plan (ESOP), Policy Diversification Feature Term		6 years
Employee Stock Ownership Plan (ESOP), Shares Repurchased | shares		0	0
Employee Stock Ownership Plan (ESOP), Shares in ESOP | shares		419,067	417,753
Employee Stock Ownership Plan (ESOP), Cash Contributions to ESOP		$ 588,000	$ 549,000	522,000
Pension and Other Postretirement Benefits Cost (Reversal of Cost)		$ 5,374,000	$ 4,717,000	$ 4,420,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross | shares		0	0	0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term		3 years 182 days
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Intrinsic Value		$ 913,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period, Intrinsic Value		164,000	$ 183,000	$ 77,000
Allocated Share-based Compensation Expense		627,000	578,000	606,000
Scenario, Forecast [Member]
Allocated Share-based Compensation Expense	$ 716,000
Minimum [Member]
Performance Conditions on Return on Average Equity, Peer Group, Total Assets		750,000,000			$ 750,000,000
Maximum [Member]
Performance Conditions on Return on Average Equity, Peer Group, Total Assets		3,500,000,000			$ 2,000,000,000
Employee Stock Option [Member]
Allocated Share-based Compensation Expense		0	0	0
Restricted Stock [Member]
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized		$ 671,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition		1 year 109 days
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period | shares		30,782
Allocated Share-based Compensation Expense		$ 627,000	$ 578,000	606,000
Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized | shares		850,000
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant | shares		270,179
Stock Incentive Plan [Member] | Employee Stock Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period		180 days
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period		10 years
Stock Incentive Plan [Member] | Restricted Stock [Member] | Subsequent Event [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	3 years
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period | shares	25,416
Stock Incentive Plan [Member] | Restricted Stock [Member] | Subsequent Event [Member] | Vesting Contingent upon Corporation Meeting ROAE Performance Ratio [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage	50.00%
Stock Incentive Plan [Member] | Restricted Stock [Member] | Other Employees [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period		3 years	3 years
Stock Incentive Plan [Member] | Restricted Stock [Member] | Executive Officer [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period		3 years	3 years
Stock Incentive Plan [Member] | Restricted Stock [Member] | Executive Officer [Member] | Subsequent Event [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period | shares	16,578
Independent Directors Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized | shares		135,000
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period		10 years
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant | shares		17,396
Independent Directors Stock Incentive Plan [Member] | Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period		1 year	1 year
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period | shares		8,470	7,834
Independent Directors Stock Incentive Plan [Member] | Restricted Stock [Member] | Subsequent Event [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	1 year
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period | shares	9,086
Equity Securities [Member]
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage		45.00%	44.00%
Debt Securities [Member]
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage		37.00%	38.00%
Alternative Funds [Member]
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage		16.00%	16.00%
Cash [Member]
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage		2.00%	2.00%
Pension Plan [Member]
Defined Benefit Plan, Expected Amortization of Gain (Loss), Next Fiscal Year		$ (13,000)
Defined Benefit Plan, Accumulated Benefit Obligation		850,000	$ 713,000
Defined Benefit Plan, Benefit Obligation, (Increase) Decrease for Settlement				$ 337,000
Defined Benefit Plan, Benefits Paid Percentage of Benefit Obligation				32.00%
Defined Benefit Plan, Net Periodic Benefit Cost (Credit), Gain (Loss) Due to Settlement		0	0	$ (87,000)
Other Postretirement Benefits Plan [Member]
Defined Benefit Plan, Expected Amortization of Gain (Loss), Next Fiscal Year		0
Defined Benefit Plan, Expected Amortization of Prior Service Cost (Credit), Next Fiscal Year		31,000
Defined Benefit Plan, Net Periodic Benefit Cost (Credit), Gain (Loss) Due to Settlement		0	0	0
Supplemental Employee Retirement Plan [Member]
Pension and Other Postretirement Benefits Cost (Reversal of Cost)		$ 200,000	$ 184,000	$ 167,000

XML

Note 13 - Employee and Postretirement Benefit Plans - Funded Status of Defined Benefit Plans (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Pension Plan [Member]
Benefit obligation at beginning of year	$ 713	$ 722
Service cost	0	0	$ 0
Interest cost	24	26	36
Plan participants' contributions	0	0
Actuarial loss (gain)	127	3
Benefits paid	(14)	(38)
Benefit obligation at end of year	850	713	722
Fair value of plan assets at beginning of year	846	839
Actual return on plan assets	91	45
Employer contribution	0	0
Plan participants' contributions	0	0
Benefits paid	(14)	(38)
Fair value of plan assets at end of year	923	846	839
Funded status at end of year	73	133
Other Postretirement Benefits Plan [Member]
Benefit obligation at beginning of year	1,555	1,539
Service cost	36	37	38
Interest cost	57	62	57
Plan participants' contributions	211	215
Actuarial loss (gain)	(103)	(30)
Benefits paid	(259)	(268)
Benefit obligation at end of year	1,497	1,555	1,539
Fair value of plan assets at beginning of year	0	0
Actual return on plan assets	0	0
Employer contribution	48	53
Plan participants' contributions	211	215
Benefits paid	(259)	(268)
Fair value of plan assets at end of year	0	0	$ 0
Funded status at end of year	$ (1,497)	$ (1,555)

XML

Note 13 - Employee and Postretirement Benefit Plans - Plan Assets and Liabilities (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Pension Plan [Member]
Other assets	$ 73	$ 133
Accrued interest and other liabilities
Other Postretirement Benefits Plan [Member]
Other assets
Accrued interest and other liabilities	$ 1,497	$ 1,555

XML

Note 13 - Employee and Postretirement Benefit Plans - Items Included in Accumulated Other Comprehensive Income (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Pension Plan [Member]
Prior service cost	$ 0	$ 0
Net actuarial loss (gain)	221	161
Total	221	161
Other Postretirement Benefits Plan [Member]
Prior service cost	(309)	(340)
Net actuarial loss (gain)	(2)	101
Total	$ (311)	$ (239)

XML

Note 13 - Employee and Postretirement Benefit Plans - Net Periodic Benefit Costs (Details) - USD ($)	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Pension Plan [Member]
Service cost	$ 0	$ 0	$ 0
Interest cost	24,000	26,000	36,000
Expected return on plan assets	(31,000)	(26,000)	(45,000)
Amortization of prior service cost	0	0	0
Recognized net actuarial loss	7,000	9,000	11,000
Loss on settlement	0	0	87,000
Total net periodic benefit cost	0	9,000	89,000
Other Postretirement Benefits Plan [Member]
Service cost	36,000	37,000	38,000
Interest cost	57,000	62,000	57,000
Expected return on plan assets	0	0	0
Amortization of prior service cost	(31,000)	(31,000)	(31,000)
Recognized net actuarial loss	0	0	0
Loss on settlement	0	0	0
Total net periodic benefit cost	$ 62,000	$ 68,000	$ 64,000

XML

Note 13 - Employee and Postretirement Benefit Plans - Assumptions Used to Determine Net Periodic Benefit Cost (Details)	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Pension Plan [Member]
Discount rate	4.05%	4.30%	3.75%
Expected return on plan assets	6.00%	5.00%	5.31%
Discount rate	3.55%	4.05%
Other Postretirement Benefits Plan [Member]
Discount rate	3.75%	4.25%	4.00%
Discount rate	3.75%	4.25%

XML

Note 13 - Employee and Postretirement Benefit Plans - Estimated Future Benefit Payments (Details) $ in Thousands	Dec. 31, 2017 USD ($)
Pension Plan [Member]
2018	$ 312
2019	41
2020	13
2021	12
2022	14
2023-2027	226
Other Postretirement Benefits Plan [Member]
2018	96
2019	96
2020	104
2021	101
2022	105
2023-2027	$ 516

XML

Note 13 - Employee and Postretirement Benefit Plans - Fair Values of Pension Plan Assets (Details)	Dec. 31, 2017	Dec. 31, 2016
Fair value of plan assets	100.00%	100.00%
Cash and Cash Equivalents [Member]
Fair value of plan assets	2.00%	2.00%
Debt Securities [Member]
Fair value of plan assets	37.00%	38.00%
Equity Securities [Member]
Fair value of plan assets	45.00%	44.00%
Alternative Funds [Member]
Fair value of plan assets	16.00%	16.00%

XML

Note 13 - Employee and Postretirement Benefit Plans - Stock-based Compensation Expense (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Allocated Share-based Compensation Expense	$ 627	$ 578	$ 606
Restricted Stock [Member]
Allocated Share-based Compensation Expense	627	578	606
Employee Stock Option [Member]
Allocated Share-based Compensation Expense	$ 0	$ 0	$ 0

XML

Note 13 - Employee and Postretirement Benefit Plans - Non-vested Stock Options and Restricted Stock Activity (Details) - Restricted Stock [Member]	12 Months Ended
	Dec. 31, 2017 $ / shares shares
Outstanding, restricted shares, beginning of year (in shares) | shares	63,362
Outstanding, weighted average grant date fair value (in dollars per share) | $ / shares	$ 20.35
Granted, restricted shares (in shares) | shares	30,782
Granted, weighted average grant date fair value (in dollars per share) | $ / shares	$ 25.97
Vested, restricted shares (in shares) | shares	(28,981)
Vested, weighted average grant date fair value (in dollars per share) | $ / shares	$ 20.21
Forfeited, restricted shares (in shares) | shares	(4,406)
Forfeited, weighted average grant date fair value (in dollars per share) | $ / shares	$ 21.74
Outstanding, restricted shares, end of year (in shares) | shares	60,757
Outstanding, weighted average grant date fair value (in dollars per share) | $ / shares	$ 23.17

XML

Note 13 - Employee and Postretirement Benefit Plans - Awarded Shares of Restricted Stock Under Stock Incentive Plan (Details) - Restricted Stock [Member] - Stock Incentive Plan [Member] - shares	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Shares awarded (in shares)	22,312	27,593
Executive Officer [Member]
Shares awarded (in shares)	14,897	17,289
Other Employees [Member]
Shares awarded (in shares)	7,415	10,304

XML

Note 13 - Employee and Postretirement Benefit Plans - Stock Option Activity (Details) - $ / shares	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Outstanding, beginning of year (in shares)	202,037	248,486	316,157
Outstanding, beginning of year (in dollars per share)	$ 18.58	$ 18.59	$ 19.05
Granted (in shares)	0	0	0
Granted (in dollars per share)
Exercised (in shares)	(24,976)	(35,880)	(29,557)
Exercised (in dollars per share)	$ 17.50	$ 18.86	$ 17.56
Forfeited (in shares)	(635)	(10,569)	(20,211)
Forfeited (in dollars per share)	$ 19.88	$ 18.03	$ 19.76
Expired (in shares)	(10,766)	0	(17,903)
Expired (in dollars per share)	$ 22.33		$ 27
Outstanding, end of year (in shares)	165,660	202,037	248,486
Outstanding, end of year (in dollars per share)	$ 18.49	$ 18.58	$ 18.59
Options exercisable at year-end (in shares)	165,660	202,037	248,486
Options exercisable at year-end (in dollars per share)	$ 18.49	$ 18.58	$ 18.59
Weighted-average fair value of options forfeited (in dollars per share)	$ 4.21	$ 4.04	$ 4.86

XML

Note 14 - Income Taxes (Details Textual) - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Income Tax Expense (Benefit), Continuing Operations, Adjustment of Deferred Tax (Asset) Liability		$ 2,159,000
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent		35.00%	35.00%	35.00%
Income Tax Expense (Benefit), Included in AOCI		$ 325,000
Income Tax Credits and Adjustments		157,000	$ 158,000	$ 160,000
Increase (Decrease) in Income Taxes		(73,000)	(76,000)	$ (80,000)
Unrecognized Tax Benefits		0
Other Assets [Member]
Amortization Method Qualified Affordable Housing Project Investments		$ 608,000	$ 713,000
Scenario, Forecast [Member]
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent	21.00%

XML

Note 14 - Income Taxes - Net Deferred Tax Assets (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Deferred tax assets:
Allowance for loan losses	$ 1,894	$ 2,998
Other deferred tax assets	1,726	2,658
Total deferred tax assets	4,126	6,168
Deferred tax liabilities:
Bank premises and equipment	751	913
Core deposit intangibles	3	6
Other deferred tax liabilities	64	105
Total deferred tax liabilities	837	1,051
Deferred tax asset, net	3,289	5,117
AOCI Attributable to Parent [Member]
Deferred tax assets:
Unrealized holding losses on securities	843	512
Deferred tax liabilities:
Defined benefit plans - ASC 835	31	27
Retained Earnings [Member]
Deferred tax assets:
Unrealized holding losses on securities	(337)	0
Deferred tax liabilities:
Defined benefit plans - ASC 835	$ (12)	$ 0

XML

Note 14 - Income Taxes - Provision for Income Taxes (Details) - USD ($) $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Currently payable	$ 3,536	$ 1,262	$ 1,374	$ 984	$ 1,500	$ 1,451	$ 1,303	$ 1,093	$ 4,938	$ 5,328	$ 5,097
Tax expense resulting from allocations of certain tax benefits to equity or as a reduction in other assets									63	175	161
Deferred									2,155	(156)	79
Total provision									$ 7,156	$ 5,347	$ 5,337

XML

Note 14 - Income Taxes - Reconciliation of Income Tax (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Expected provision	$ 7,207	$ 7,388	$ 7,633
Expected provision, percentage	35.00%	35.00%	35.00%
Tax-exempt interest income	$ (1,817)	$ (1,801)	$ (1,914)
Tax-exempt interest income, percentage	(8.82%)	(8.53%)	(8.78%)
Nondeductible interest expense	$ 42	$ 40	$ 51
Nondeductible interest expense, percentage	0.20%	0.19%	0.23%
Dividends received deduction	$ (7)	$ (22)	$ (75)
Dividends received deduction, percentage	(0.03%)	(0.10%)	(0.34%)
Increase in cash surrender value of life insurance	$ (133)	$ (134)	$ (135)
Increase in cash surrender value of life insurance, percentage	(0.65%)	(0.63%)	(0.62%)
Employee stock option compensation	$ 8	$ 0	$ 0
Employee stock option compensation, percentage	0.04%	0.00%	0.00%
ESOP Dividends	$ (154)	$ 0	$ 0
ESOP Dividends, percentage	(0.75%)	0.00%	0.00%
Tax benefit from limited partnership investment	$ (73)	$ (76)	$ (80)
Tax benefit from limited partnership investment, percentage	(0.35%)	(0.36%)	(0.37%)
Effect of tax rate change	$ 2,159	$ 0	$ 0
Effect of tax rate change, percentage	10.49%	0.00%	0.00%
Other, net	$ (76)	$ (48)	$ (143)
Other, net, percentage	(0.37%)	(0.23%)	(0.66%)
Total provision	$ 7,156	$ 5,347	$ 5,337
Effective income tax provision, percentage	34.75%	25.33%	24.47%

XML

Note 15 - Related Party Transactions (Details Textual) - USD ($)	Dec. 31, 2017	Dec. 31, 2016
Related Party Deposit Liabilities	$ 7,171,000	$ 6,261,000

XML

Note 15 - Related Party Transactions - Related Party Loans (Details) - Management [Member] - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Beginning Balance	$ 11,414	$ 10,246	$ 12,023
New Loans	2,128	307	52
Repayments	(2,061)	(1,160)	(808)
Other Changes	2,931	2,021	(1,021)
Ending Balance	$ 14,412	$ 11,414	$ 10,246

XML

Note 16 - Off-balance Sheet Risk (Details Textual) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Letters of Credit Outstanding, Amount	$ 0	$ 0

XML

Note 16 - Off-balance Sheet Risk - Financial Instruments Whose Contract Amounts Represent Credit Risk (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Commitments to Extend Credit [Member]
Credit risk financial instrument	$ 187,919	$ 180,768
Standby Letters of Credit [Member]
Credit risk financial instrument	$ 7,445	$ 9,025

XML

Note 16 - Off-balance Sheet Risk - Standby Letters of Credit Expirations (Details) - Standby Letters of Credit [Member] - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
2018	$ 7,042
2019	355
2020	48
Total	$ 7,445	$ 9,025

XML

Note 18 - Regulatory Matters (Details Textual) - USD ($)	Dec. 31, 2019	Dec. 31, 2017
Capital Conservation Buffer		15.07%
Retained Earnings, Unappropriated		$ 88,980,000
Tangible Capital to Tangible Assets		10.00%
Tangible Capital		$ 15,604,000
Citizens and Northern Bank [Member]
Capital Conservation Buffer		12.47%
Scenario, Forecast [Member]
Common Equity Tier One Capital Conservation Buffer Required for Capital Adequacy to Risk Weighted Assets	2.50%

XML

Note 18 - Regulatory Matters - Capital Amounts and Ratios (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Total capital to risk-weighted assets - actual amount	$ 187,097	$ 183,597
Total capital to risk-weighted assets - actual ratio	23.07%	23.60%
Total capital to risk-weighted assets - minimum capital requirement amount	$ 64,872	$ 62,245
Minimum total capital ratio	8.00%	8.00%
Total capital to risk-weighted assets - minimum capital requirement with conservation buffer amount	$ 75,008	$ 67,108
Total capital to risk-weighted assets - minimum capital requirement with conservation buffer ratio	9.25%	8.625%
Total capital to risk-weighted assets - minimum to be well capitalized under prompt corrective action provisions amount	$ 81,090	$ 77,806
Total capital to risk-weighted assets - minimum to be well capitalized under prompt corrective action provisions ratio	10.00%	10.00%
Total capital to risk-weighted assets - minimum to meet the corporation's policy thresholds amount	$ 85,144	$ 81,697
Total capital to risk-weighted assets - minimum to meet the corporation's policy thresholds ratio	10.50%	10.50%
Tier 1 capital to risk-weighted assets - actual amount	$ 177,981	$ 174,928
Tier 1 capital to risk-weighted assets - actual ratio	21.95%	22.48%
Tier 1 capital to risk-weighted assets - minimum capital requirement amount	$ 48,654	$ 46,684
Minimum tier 1 capital ratio	6.00%	6.00%
Tier 1 capital to risk-weighted assets - minimum capital requirement with conservation buffer amount	$ 58,790	$ 51,547
Tier 1 capital to risk-weighted assets - minimum capital requirement with conservation buffer ratio	7.25%	6.625%
Tier 1 capital to risk-weighted assets - minimum to be well capitalized under prompt corrective action provisions amount	$ 64,872	$ 62,245
Tier 1 capital to risk-weighted assets - minimum to be well capitalized under prompt corrective action provisions ratio	8.00%	8.00%
Tier 1 capital to risk-weighted assets - minimum to meet the corporation's policy thresholds amount	$ 68,926	$ 66,135
Tier 1 capital to risk-weighted assets - minimum to meet the corporation's policy thresholds ratio	8.50%	8.50%
Common equity Tier 1 - amount	$ 177,981	$ 174,928
Common equity Tier 1 - ratio	21.95%	22.48%
Common equity Tier 1 - minimum capital requirement amount	$ 36,490	$ 35,013
Minimum common equity tier 1 capital ratio	4.50%	4.50%
Common equity Tier 1 - capital conservation buffer amount	$ 46,626	$ 39,876
Common equity Tier 1 - capital conservation buffer ratio	5.75%	5.125%
Common equity Tier 1 - minimum to be well capitalized under prompt corrective action provisions amount	$ 52,708	$ 50,574
Common equity Tier 1 - minimum to be well capitalized under prompt corrective action provisions ratio	6.50%	6.50%
Common equity Tier 1 - minimum to meet the corporation's policy thresholds amount	$ 56,763	$ 54,464
Common equity Tier 1 - minimum to meet the corporation's policy thresholds ratio	7.00%	7.00%
Tier 1 capital average - amount	$ 177,981	$ 174,928
Tier 1 capital average - ratio	14.23%	14.27%
Tier 1 capital average - minimum capital amount	$ 50,023	$ 49,026
Tier 1 capital average - minimum capital ratio	4.00%	4.00%
Tier 1 capital average - minimum to be well capitalized amount	$ 62,529	$ 61,282
Tier 1 capital average - minimum to be well capitalized ratio	5.00%	5.00%
Tier 1 capital average - minimum to meet the corporation's policy threshold amount	$ 62,529	$ 61,282
Tier 1 capital average - minimum to meet the corporation's policy threshold ratio	5.00%	5.00%
Citizens and Northern Bank [Member]
Total capital to risk-weighted assets - actual amount	$ 165,142	$ 162,705
Total capital to risk-weighted assets - actual ratio	20.47%	21.03%
Total capital to risk-weighted assets - minimum capital requirement amount	$ 64,528	$ 61,894
Minimum total capital ratio	8.00%	8.00%
Total capital to risk-weighted assets - minimum capital requirement with conservation buffer amount	$ 74,611	$ 66,730
Total capital to risk-weighted assets - minimum capital requirement with conservation buffer ratio	9.25%	8.625%
Total capital to risk-weighted assets - minimum to be well capitalized under prompt corrective action provisions amount	$ 80,661	$ 77,368
Total capital to risk-weighted assets - minimum to be well capitalized under prompt corrective action provisions ratio	10.00%	10.00%
Total capital to risk-weighted assets - minimum to meet the corporation's policy thresholds amount	$ 84,694	$ 81,236
Total capital to risk-weighted assets - minimum to meet the corporation's policy thresholds ratio	10.50%	10.50%
Tier 1 capital to risk-weighted assets - actual amount	$ 156,026	$ 154,036
Tier 1 capital to risk-weighted assets - actual ratio	19.34%	19.91%
Tier 1 capital to risk-weighted assets - minimum capital requirement amount	$ 48,396	$ 46,421
Minimum tier 1 capital ratio	6.00%	6.00%
Tier 1 capital to risk-weighted assets - minimum capital requirement with conservation buffer amount	$ 58,479	$ 51,256
Tier 1 capital to risk-weighted assets - minimum capital requirement with conservation buffer ratio	7.25%	6.625%
Tier 1 capital to risk-weighted assets - minimum to be well capitalized under prompt corrective action provisions amount	$ 64,528	$ 61,894
Tier 1 capital to risk-weighted assets - minimum to be well capitalized under prompt corrective action provisions ratio	8.00%	8.00%
Tier 1 capital to risk-weighted assets - minimum to meet the corporation's policy thresholds amount	$ 68,561	$ 65,762
Tier 1 capital to risk-weighted assets - minimum to meet the corporation's policy thresholds ratio	8.50%	8.50%
Common equity Tier 1 - amount	$ 156,026	$ 154,036
Common equity Tier 1 - ratio	19.34%	19.91%
Common equity Tier 1 - minimum capital requirement amount	$ 36,297	$ 34,815
Minimum common equity tier 1 capital ratio	4.50%	4.50%
Common equity Tier 1 - capital conservation buffer amount	$ 46,380	$ 39,651
Common equity Tier 1 - capital conservation buffer ratio	5.75%	5.125%
Common equity Tier 1 - minimum to be well capitalized under prompt corrective action provisions amount	$ 52,429	$ 50,289
Common equity Tier 1 - minimum to be well capitalized under prompt corrective action provisions ratio	6.50%	6.50%
Common equity Tier 1 - minimum to meet the corporation's policy thresholds amount	$ 56,462	$ 54,157
Common equity Tier 1 - minimum to meet the corporation's policy thresholds ratio	7.00%	7.00%
Tier 1 capital average - amount	$ 156,026	$ 154,036
Tier 1 capital average - ratio	12.63%	12.73%
Tier 1 capital average - minimum capital amount	$ 49,418	$ 48,404
Tier 1 capital average - minimum capital ratio	4.00%	4.00%
Tier 1 capital average - minimum to be well capitalized amount	$ 61,772	$ 60,506
Tier 1 capital average - minimum to be well capitalized ratio	5.00%	5.00%
Tier 1 capital average - minimum to meet the corporation's policy threshold amount	$ 61,772	$ 60,506
Tier 1 capital average - minimum to meet the corporation's policy threshold ratio	5.00%	5.00%

XML

Note 18 - Regulatory Matters - Transition Schedule for New Ratios, Including the Capital Conservation Buffer (Details)	Dec. 31, 2017	Dec. 31, 2016
Minimum common equity tier 1 capital ratio	4.50%	4.50%
Minimum tier 1 capital ratio	6.00%	6.00%
Minimum total capital ratio	8.00%	8.00%
Phased in Beginning 2017 [Member]
Minimum common equity tier 1 capital ratio	4.50%
Common equity tier 1 capital conservation buffer	1.25%
Minimum common equity tier 1 capital ratio plus capital conservation buffer	5.75%
Phase-in of most deductions from common equity tier 1 capital	80.00%
Minimum tier 1 capital ratio	6.00%
Minimum tier 1 capital ratio plus capital conservation buffer	7.25%
Minimum total capital ratio	8.00%
Minimum total capital ratio plus capital conservation buffer	9.25%
Phased in Beginning 2018 [Member]
Minimum common equity tier 1 capital ratio	4.50%
Common equity tier 1 capital conservation buffer	1.875%
Minimum common equity tier 1 capital ratio plus capital conservation buffer	6.375%
Phase-in of most deductions from common equity tier 1 capital	100.00%
Minimum tier 1 capital ratio	6.00%
Minimum tier 1 capital ratio plus capital conservation buffer	7.875%
Minimum total capital ratio	8.00%
Minimum total capital ratio plus capital conservation buffer	9.875%
Phased in Beginning 2019 [Member]
Minimum common equity tier 1 capital ratio	4.50%
Common equity tier 1 capital conservation buffer	2.50%
Minimum common equity tier 1 capital ratio plus capital conservation buffer	7.00%
Phase-in of most deductions from common equity tier 1 capital	100.00%
Minimum tier 1 capital ratio	6.00%
Minimum tier 1 capital ratio plus capital conservation buffer	8.50%
Minimum total capital ratio	8.00%
Minimum total capital ratio plus capital conservation buffer	10.50%

XML

Note 18 - Regulatory Matters - Payout Restrictions Based on the Capital Conservation Buffer (Details)	Dec. 31, 2017
Range One [Member]
Maximum Payout	60.00%
Range Two [Member]
Maximum Payout	40.00%
Range Three [Member]
Maximum Payout	20.00%
Range Four [Member]
Maximum Payout	0.00%

XML

Note 18 - Regulatory Matters - Payout Restrictions Based on the Capital Conservation Buffer (Details) (Parentheticals)	Dec. 31, 2017
Range One [Member]
Capital conservation buffer, high	2.50%
Capital conservation buffer, low	1.875%
Range Two [Member]
Capital conservation buffer, high	1.875%
Capital conservation buffer, low	1.25%
Range Three [Member]
Capital conservation buffer, high	1.25%
Capital conservation buffer, low	0.625%
Range Four [Member]
Capital conservation buffer, high	0.625%
Capital conservation buffer, low	0.00%

XML

Note 19 - Parent Company Only - Condensed Balance Sheet (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
ASSETS
Other assets	$ 15,781	$ 13,282
TOTAL ASSETS	1,276,959	1,242,292
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities	9,112	7,812
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	1,276,959	1,242,292
Parent Company [Member]
ASSETS
Cash	6,790	6,033
Other assets	15	4
TOTAL ASSETS	188,457	186,021
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities	14	13
Stockholders' equity	188,443	186,008
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	188,457	186,021
Parent Company [Member] | Citizens and Northern Bank [Member]
ASSETS
Equity method investment	166,576	165,397
Parent Company [Member] | Citizens and Northern Investment Corporation [Member]
ASSETS
Equity method investment	11,588	11,168
Parent Company [Member] | Bucktail Life Insurance Company [Member]
ASSETS
Equity method investment	$ 3,488	$ 3,419

XML

Note 19 - Parent Company Only - Condensed Income Statement (Details) - USD ($) $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Dividends from Citizens & Northern Bank									$ 21	$ 70	$ 284
Income before equity in undistributed income of subsidiaries	$ 5,479	$ 5,198	$ 5,495	$ 4,418	$ 5,731	$ 5,538	$ 5,174	$ 4,666	20,590	21,109	21,808
NET INCOME	$ 1,943	$ 3,936	$ 4,121	$ 3,434	$ 4,231	$ 4,087	$ 3,871	$ 3,573	13,434	15,762	16,471
Parent Company [Member]
Dividends from Citizens & Northern Bank									12,022	14,960	11,569
Expenses									(233)	(367)	(234)
Income before equity in undistributed income of subsidiaries									11,789	14,593	11,335
Equity in undistributed income of subsidiaries									1,645	1,169	5,136
NET INCOME									$ 13,434	$ 15,762	$ 16,471

XML

Note 19 - Parent Company Only - Condensed Statement of Cash Flows (Details) - USD ($) $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 1,943	$ 3,936	$ 4,121	$ 3,434	$ 4,231	$ 4,087	$ 3,871	$ 3,573	$ 13,434	$ 15,762	$ 16,471
Adjustments to reconcile net income to net cash provided by operating activities:
Increase in accrued interest receivable and other assets									(595)	(410)	(1,697)
Increase (decrease) in accrued interest payable and other liabilities									1,312	(216)	1,195
Net Cash Provided by Operating Activities									19,374	18,510	19,686
CASH FLOWS FROM FINANCING ACTIVITIES:
Tax (cost) benefit from compensation plans, net									0	175	159
Purchase of treasury stock									0	(3,723)	(4,415)
Common dividends paid									(11,145)	(11,112)	(11,245)
Net Cash Used in Financing Activities									19,914	6,197	(36,401)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS									8,383	(4,692)	1,694
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR				28,621				33,313	28,621	33,313	31,619
CASH AND CASH EQUIVALENTS, END OF PERIOD	37,004				28,621				37,004	28,621	33,313
Parent Company [Member]
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income									13,434	15,762	16,471
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed net income of subsidiaries									(1,645)	(1,169)	(5,136)
Increase in accrued interest receivable and other assets									(11)	20	12
Increase (decrease) in accrued interest payable and other liabilities									1	(6)	12
Net Cash Provided by Operating Activities									11,779	14,607	11,359
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of treasury stock									128	263	381
Tax (cost) benefit from compensation plans, net									(5)	151	143
Purchase of treasury stock									0	(3,723)	(4,415)
Common dividends paid									(11,145)	(11,112)	(11,245)
Net Cash Used in Financing Activities									(11,022)	(14,421)	(15,136)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS									757	186	(3,777)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR				$ 6,033				$ 5,847	6,033	5,847	9,624
CASH AND CASH EQUIVALENTS, END OF PERIOD	$ 6,790				$ 6,033				$ 6,790	$ 6,033	$ 5,847

XML

Note 20 - Summary of Quarterly Consolidated Financial Data (Unaudited) - Quarterly Financial Data (Details) - USD ($)	3 Months Ended								12 Months Ended
	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2017		Dec. 31, 2016		Dec. 31, 2015
Interest income	$ 11,785,000	$ 11,626,000	$ 11,340,000	$ 11,112,000	$ 11,106,000	$ 11,131,000	$ 10,924,000	$ 10,937,000	$ 45,863,000		$ 44,098,000		$ 44,519,000
Interest expense	999,000	985,000	978,000	953,000	920,000	944,000	925,000	904,000	3,915,000		3,693,000		4,602,000
Net interest income	10,786,000	10,641,000	10,362,000	10,159,000	10,186,000	10,187,000	9,999,000	10,033,000	41,948,000		40,405,000		39,917,000
Provision for loan losses	23,000	322,000	4,000	452,000	(3,000)	538,000	318,000	368,000	801,000		1,221,000		845,000
Net interest income after provision for loan losses	10,763,000	10,319,000	10,358,000	9,707,000	10,189,000	9,649,000	9,681,000	9,665,000	41,147,000		39,184,000		39,072,000
Other income	4,117,000	4,066,000	4,106,000	3,864,000	4,031,000	3,884,000	3,906,000	3,690,000
Net gains on available-for-sale securities	0	5,000	107,000	145,000	69,000	584,000	122,000	383,000	257,000		1,158,000		2,861,000
Other expenses	9,401,000	9,192,000	9,076,000	9,298,000	8,558,000	8,579,000	8,535,000	9,072,000	6,348,000		5,540,000		5,141,000
Income before equity in undistributed income of subsidiaries	5,479,000	5,198,000	5,495,000	4,418,000	5,731,000	5,538,000	5,174,000	4,666,000	20,590,000		21,109,000		21,808,000
Income tax provision	3,536,000	1,262,000	1,374,000	984,000	1,500,000	1,451,000	1,303,000	1,093,000	4,938,000		5,328,000		5,097,000
NET INCOME	1,943,000	3,936,000	4,121,000	3,434,000	4,231,000	4,087,000	3,871,000	3,573,000	13,434,000		15,762,000		16,471,000
Net income attributable to common shares	$ 1,933,000	$ 3,916,000	$ 4,100,000	$ 3,416,000	$ 4,209,000	$ 4,065,000	$ 3,850,000	$ 3,553,000	$ 13,365,000		$ 15,677,000		$ 16,387,000
Net income per share – basic (in dollars per share)	$ 0.16	$ 0.32	$ 0.34	$ 0.28	$ 0.35	$ 0.34	$ 0.32	$ 0.29	$ 1.10	[1]	$ 1.30	[1]	$ 1.35	[1]
Net income per share – diluted (in dollars per share)	$ 0.16	$ 0.32	$ 0.34	$ 0.28	$ 0.35	$ 0.34	$ 0.32	$ 0.29	$ 1.10	[1]	$ 1.30	[1]	$ 1.35	[1]

[1] Basic and diluted earnings per share under the two-class method are determined on net income reported on the income statement less earnings allocated to nonvested restricted shares with nonforfeitable dividends (participating securities).