Item 9A. Controls and Procedures
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. This evaluation did not include an assessment of those disclosure controls and procedures that are involved in, and did not include an assessment of, internal control over financial reporting as it relates to Covenant Financial, Inc. 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.
Except as described in the following paragraph, there were no significant changes in the Corporation’s internal control over financial reporting that occurred during the period covered by this report that have materially affected, or that are reasonably likely to affect, our internal control over financial reporting.
The Covenant Financial, Inc. acquisition was completed July 1, 2020, and during the last six months of 2020 the Corporation has been engaged in integrating processes and internal control over financial reporting for the former Covenant locations into those of the Corporation. Through August 24, 2020, information related to former Covenant loans, deposits and other customer data was processed using Covenant’s legacy computer system. Effective August 24, 2020, the integration of Covenant’s core customer data system into the Corporation’s system was completed. Though completion of the Covenant core system conversion was a significant milestone, at December 31, 2020, the Corporation’s management had not yet completed changes to processes, information technology systems and other components of internal control over financial reporting as part of integration activities.
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, 2020, 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, 2020, the
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Corporation’s internal control over financial reporting is effective based on the criteria established in Internal Control – Integrated Framework (2013).
The Corporation acquired Covenant Financial, Inc. (“Covenant”) effective July 1, 2020. Management excluded from its assessment of the Corporation’s internal control over financial reporting, as of December 31, 2020, Covenant’s internal control over financial reporting associated with assets of approximately 22.7% of the Corporation’s consolidated total assets, and interest income and noninterest income of approximately 10.7% of the Corporation’s consolidated total interest income and noninterest income, as of and for the year ended December 31, 2020.
Baker Tilly US, 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, 2020. That report appears immediately prior to this report.
March 5, 2021
By:
/s/ J. Bradley Scovill
Date
President and Chief Executive Officer
March 5, 2021
By:
/s/ Mark A. Hughes
Date
Treasurer and Chief Financial Officer
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 2020 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 12, 2021 for the annual meeting of stockholders to be held on April 22, 2021.
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 12, 2021 for the annual meeting of stockholders to be held on April 22, 2021.
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 12, 2021 for the annual meeting of stockholders to be held on April 22, 2021.
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“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 12, 2021 for the annual meeting of stockholders to be held on April 22, 2021.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information concerning services provided by the Corporation’s independent auditor Baker Tilly US, 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 12, 2021 for the annual meeting of stockholders to be held on April 22, 2021.
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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
92-95
Financial Statements:
Consolidated Balance Sheets - December 31, 2020 and 2019
37
Consolidated Statements of Income - Years Ended December 31, 2020 and 2019
38
Consolidated Statements of Comprehensive Income - Years Ended December 31, 2020 and 2019
39
Consolidated Statements of Changes in Stockholders’ Equity - Years Ended December 31, 2020 and 2019
40
Consolidated Statements of Cash Flows - Years Ended December 31, 2020 and 2019
41
Notes to Consolidated Financial Statements
42-91
(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:
2.1 Agreement and Plan of Merger dated September 27, 2018, between the Corporation and Monument Bancorp, Inc.
Incorporated by reference to Exhibit 2.1 of the Corporation’s Form 8-K filed September 28, 2018
2.2 Agreement and Plan of Merger dated December 18, 2019, between the Corporation and Covenant Financial, Inc.
Incorporated by reference to Exhibit 2.1 of the Corporation’s Form 8-K filed December 18, 2019
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(ii) of the Corporation's Form S-4/A filed April 20, 2020
4. (i) through (v) Instruments defining the rights of securities holders, including indentures
Not applicable
4. (vi) Description of registrant’s securities
Incorporated by reference to Exhibit 4.(vi) of the Corporation’s Form 10-K filed February 20, 2020
9. Voting trust agreement
Not applicable
10. Material contracts:
10.1 Form of Time-Based Restricted Stock agreement dated January 29, 2021 between the Corporation and Executive Officers pursuant to the Citizens & Northern Corporation Stock Incentive Plan
Filed herewith
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10.2 Form of Performance-Based Restricted Stock Agreement dated January 29, 2021 between the Corporation and Executive Officers pursuant to the Citizens & Northern Corporation Stock Incentive Plan
Filed herewith
10.3 Form of Restricted Stock agreement dated January 29, 2021 between the Corporation and its independent directors pursuant to the Citizens & Northern Corporation Independent Directors Stock Incentive Plan
Filed herewith
10.4 2020 Annual Performance Incentive Award Plan, as Amended
Filed herewith
10.5 2021 Annual Performance Incentive Award Plan
Filed herewith
10.6 2021 Annual Performance Incentive Award Plan - Mortgage Lenders
Filed herewith
10.7 Deferred Compensation Agreement dated December 17, 2015
Incorporated by reference to Exhibit 10.8 filed with Corporation’s Form 10-K on February 15, 2018
10.8 Second Amendment to Employment Agreement dated August 24, 2018 between the Corporation and J. Bradley Scovill
Incorporated by reference to Exhibit 10.1 filed with Corporation’s Form 8-K on August 24, 2018
10.9 First Amendment to Employment Agreement dated June 26, 2017 between the Corporation and J. Bradley Scovill
Incorporated by reference to Exhibit 10.1 filed with Corporation’s Form 8-K on June 27, 2017
10.10 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
10.11 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
10.12 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
10.13 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
10.14 Employment agreement dated May 18, 2020 between the Corporation and Janice E. Ward
Incorporated by reference to Exhibit 10.1 filed with Corporation's Form 10-Q on August 6, 2020
10.15 Employment agreement dated December 18, 2019 between the Corporation and Blair T. Rush
Filed herewith
10.16 Form of Indemnification Agreement dated June 27, 2020 between the Corporation and Janice E. Ward
Incorporated by reference to Exhibit 10.3 filed with Corporation's Form 10-Q on August 6, 2020
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10.17 Form of Indemnification Agreement dated September 20, 2018 between the Corporation and J. Bradley Scovill
Incorporated by reference to Exhibit 10.1 filed with Corporation’s Form 10-Q on November 1, 2018
10.18 Form of Indemnification Agreement dated January 9, 2018 between the Corporation and Tracy E. Watkins
Incorporated by reference to Exhibit 10.6 filed with Corporation’s Form 10-K on February 15, 2018
10.19 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
10.20 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
10.21 Form of Indemnification Agreement dated January 19, 2011 between the Corporation and John M. Reber
Incorporated by reference to Exhibit 10.8 filed with Corporation’s Form 10-K on March 1, 2011
10.22 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 Form 10-K on March 14, 2005
10.23 Form of Indemnification Agreement dated February 16, 2021 between the Corporation and Blair T. Rush
Filed herewith
10.24 Change in Control Agreement dated January 9, 2018 between the Corporation and Tracy E. Watkins
Incorporated by reference to Exhibit 10.7 filed with Corporation’s Form 10-K on February 15, 2018
10.25 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
10.26 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
10.27 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
10.28 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
10.39 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
10.30 Fifth Amendment to Citizens & Northern Corporation Stock Incentive Plan
Incorporated by reference to Exhibit 10.1 filed with Form 8-K on December 21, 2018
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10.31 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
10.32 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
10.33 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
10.34 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
10.35 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
10.36 Second Amendment to Citizens & Northern Independent Directors Stock incentive Plan
Incorporated by reference to Exhibit 10.2 filed with Form 8-K on December 21, 2018
10.37 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
10.38 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.
10.39 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
10.40 Form of Indemnification Agreements dated May 24, 2018 between the Corporation and Directors Bobbi J. Kilmer, Terry L. Lehman, Frank G. Pellegrino and Aaron K. Singer
Incorporated by reference to Exhibit 10.1 filed with the Corporation’s Form 10-Q filed August 6, 2018
10.41 Form of Indemnification Agreement dated July 16, 2020 between the Corporation and Stephen M. Dorwart
Incorporated by reference to Exhibit 10.4 filed with the Corporation's Form 10-Q on August 6, 2020
10.42 Form of Indemnification Agreement dated July 16, 2020 between the Corporation and Robert G. Loughery
Incorporated by reference to Exhibit 10.5 filed with the Corporation's Form 10-Q on August 6, 2020
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
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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 “About,” “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
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 12, 2021
Filed herewith
100. XBRL-related documents
Not applicable
101. Interactive data file
Filed herewith
104. Cover page interactive data file
Not applicable
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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: March 5, 2021
By:
/s/ Mark A. Hughes
Treasurer and Principal Accounting Officer
Date: March 5, 2021
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/
Stephen M. Dorwart
/s/
Robert G. Loughery
Stephen M. Dorwart
Robert G. Loughery
Date: March 5, 2021
Date: March 5, 2021
/s/
Clark S. Frame
/s/
Frank G. Pellegrino
Clark S. Frame
Frank G. Pellegrino
Date: March 5, 2021
Date: March 5, 2021
/s/
Susan E. Hartley
/s/
Timothy E. Schoener
Susan E. Hartley
Timothy E. Schoener
Date: March 5, 2021
Date: March 5, 2021
/s/
Bobbi J. Kilmer
/s/
J. Bradley Scovill
Bobbi J. Kilmer
J. Bradley Scovill
Date: March 5, 2021
Date: March 5, 2021
/s/
Leo F. Lambert
/s/
Leonard Simpson
Leo F. Lambert
Leonard Simpson
Date: March 5, 2021
Date: March 5, 2021
/s/
Terry L. Lehman
/s/
Aaron K. Singer
Terry L. Lehman
Aaron K. Singer
Date: March 5, 2021
Date: March 5, 2021
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