UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant ☒
Filed
by a Party other than the Registrant ☐
Check the appropriate box:
☐ Preliminary
Proxy Statement
☐ CONFIDENTIAL,
FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE 14A-6(E) (2))
☒ Definitive Proxy Statement
☐ Definitive
Additional Materials
☐ Soliciting
Material Pursuant to § 240.14a-12
CITIZENS &
NORTHERN CORPORATION
(Name
of Registrant as Specified In Its Charter)
(Name
of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
☒ No fee required
☐ Fee paid previously
with preliminary materials.
☐ Fee computed
on table in exhibit required by Item 25(b) per Exchange Act Rules 14a6(i)(1) and 0-11
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90-92 Main Street
Wellsboro, Pennsylvania 16901
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD THURSDAY, APRIL
20, 2023
TO OUR SHAREHOLDERS:
Notice
is hereby given that the Annual Meeting of Shareholders of Citizens & Northern Corporation (the “Corporation”)
will be held in a virtual meeting format only with no physical location on Thursday, April 20, 2023 at 2:00 P.M., local time, for
the following purposes:
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1. |
To elect three (3) Class III directors to serve for a term of three (3) years; |
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2. |
To consider and approve the following advisory (non-binding) resolution: |
“Resolved, that the shareholders
approve the compensation paid to the Named Executive Officers of the Corporation pursuant to the policies and procedures employed by the
Corporation, as described in the Compensation Discussion and Analysis and tabular disclosure regarding Named Executive Officer compensation
(together with the accompanying narrative disclosure) in this Proxy Statement”;
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3. |
To consider and act upon an advisory (non-binding) vote on frequency of the advisory vote on the compensation of our Named Executive Officers; |
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4. |
To approve the Citizens & Northern Corporation 2023 Equity Incentive Plan; |
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5. |
To ratify the appointment of Baker Tilly US, LLP as the Corporation’s independent registered public
accounting firm for the year ending December 31, 2023; and |
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6. |
To transact such other business as may properly be brought before the meeting or any adjournments or postponements
thereof. |
The Board of Directors
recommends that you vote “FOR” the election of each of the nominees for director listed in the enclosed proxy statement; “FOR”
approval of the advisory, non-binding resolution approving the compensation of the Corporation’s Named Executive Officers; “FOR”
the approval in an advisory vote, that the shareholder advisory vote to approve the compensation of the Corporation’s Named Executive
Officers should occur “EVERY YEAR”; “FOR” approval of the Citizens & Northern Corporation 2023 Equity
Incentive Plan; and “FOR” ratification of the appointment of Baker Tilly US, LLP as the Corporation’s independent registered
public accounting firm for the year ending December 31, 2023.
We have elected to provide
access to our proxy materials over the Internet using the Securities and Exchange Commission’s “notice and access” rules.
Details regarding the business to be conducted are described in the Notice of Internet Availability of Proxy Materials (“Notice”)
you received in the mail and in this proxy statement. We have also made available a copy of our 2022 Annual Report on Form 10-K with
this proxy statement. We encourage you to read our Annual Report. It includes our audited financial statements and provides information
about our business.
The Annual Meeting will be
hosted in a virtual format only online via live webcast. You will not be able to attend the Annual Meeting in person. You will be able
to attend and participate in the Annual Meeting online, vote your shares electronically and submit your questions prior to and during
the meeting by visiting https://web.lumiagm.com/244346915, click on “I have a control number,” enter the control number found
on your proxy card, voting instruction form or notice that you received previously, and enter the password: citizens2023 (the password
is case sensitive).
If your shares are held in
“street name” through a broker, bank or other nominee, in order to participate in the virtual annual meeting, you must first
obtain a legal proxy from your broker, bank or other nominee reflecting the number of shares of Citizens & Northern Corporation
common stock you held as of the record date, your name and email address. You then must submit a request for registration to American
Stock Transfer & Trust Company, LLC: (1) by email to proxy@astfinancial.com;
(2) by fax to 718-765-8730 or (3) by mail to American Stock Transfer & Trust Company, LLC, Attn: Proxy Tabulation Department,
6201 15th Avenue, Brooklyn, NY 11219. Requests for registration must be labeled as “Legal Proxy” and be received by American
Stock Transfer & Trust Company, LLC no later than 5:00 p.m. Eastern time on April 10, 2023.
Your vote is important regardless
of the number of shares you own. You may vote during the Annual Meeting by following the instructions on the meeting website during the
meeting. Whether or not you plan to attend the Annual Meeting, the Board of Directors encourages you to vote your shares. You may vote
over the Internet, as well as by telephone, or, if you requested to receive printed proxy materials, by mailing a proxy or voting instruction
card. Please review the instructions described in this proxy statement, as well as in the Notice you received in the mail. This will not
prevent you from voting at the meeting but will assure that your vote is counted if you are unable to participate.
Only shareholders of record
at the close of business on February 3, 2023, the record date for the Annual Meeting, are entitled to notice of, and to vote at,
the Annual Meeting.
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By Order of the Board of Directors, |
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Wellsboro, Pennsylvania |
Skye L. Mahosky |
March 10, 2023 |
Corporate Secretary |
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90-92 Main Street
Wellsboro, Pennsylvania
16901
PROXY STATEMENT
Annual Meeting of Shareholders
– April 20, 2023
Annual Meeting Information
This proxy statement is furnished
in connection with the solicitation of proxies by the Board of Directors of Citizens & Northern Corporation (the “Corporation”)
to be used at the Annual Meeting of Shareholders of the Corporation to be held on Thursday, April 20, 2023, at 2:00 P.M., in a virtual
meeting format only with no physical location, and at any adjournments or postponements thereof. This proxy statement was first made available
to shareholders on March 10, 2023.
Who is entitled to vote?
Shareholders owning Corporation
common stock on February 3, 2023 are entitled to vote at the Annual Meeting or any adjournment or postponement of the meeting. Each
shareholder has one vote per share on all matters to be voted on. On February 3, 2023, there were 15,550,186 shares of Corporation
common stock outstanding.
On what am I voting?
You will be asked to vote
on the following matters:
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● |
Election of three (3) Class III directors for three-year terms expiring in 2026; |
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Approval of the advisory (non-binding) resolution on the compensation paid to the Named Executive Officers
of the Corporation; |
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An advisory vote for shareholders to recommend the frequency of the advisory vote to approve the compensation
of the Corporation’s Named Executive Officers; |
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● |
Approval of the Citizens & Northern Corporation 2023 Equity Incentive Plan; and |
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● |
Ratification of the appointment of Baker Tilly US, LLP as the Corporation’s independent registered public
accounting firm for the year ending December 31, 2023. |
The Board of Directors is
not aware of any other matters to be presented for action at the Annual Meeting. If any other matter requiring a vote of the shareholders
would be presented at the meeting, the proxies will vote according to the directions of the Corporation’s management.
How does the Board of
Directors recommend I vote on the proposals?
The Board of Directors recommends
that you vote “FOR” the election of each of the nominees for director listed in the enclosed proxy statement; “FOR”
approval of the advisory, non-binding resolution approving the compensation of the Corporation’s Named Executive Officers; That
the shareholder advisory vote to approve the compensation of the Corporation’s Named Executive Officers should occur “EVERY
YEAR”; “FOR” approval of the Citizens & Northern Corporation 2023 Equity Incentive Plan; and “FOR”
ratification of the appointment of Baker Tilly US, LLP as the Corporation’s independent registered public accounting firm for the
year ending December 31, 2023.
How are proxy materials
being disseminated?
In accordance with rules adopted
by the Securities and Exchange Commission (“SEC”), we have elected to furnish proxy materials, including this proxy statement
and our 2022 Annual Report on Form 10-K, to our shareholders by providing access to such documents on the Internet instead of mailing
printed copies. Most shareholders will not receive printed copies of the proxy materials unless they request them. Instead, the Notice,
which was mailed to most of our shareholders, provides instructions as to how you may access and review all of the proxy materials on
the Internet. The Notice also instructs you as to how you may submit your proxy via the Internet. If you would like to receive a paper
or email copy of our proxy materials, you should follow the instructions for requesting such materials in the Notice.
If you received more than
one Notice, it means that your shares are registered differently and are held in more than one account. To ensure that all shares are
voted, please either vote each account over the Internet or by telephone, or sign and return by mail all proxy cards or voting instruction
forms requested in paper format.
How do I vote?
As described in the Notice,
you may vote by any of the following methods:
Internet. Go to www.voteproxy.com
24 hours a day, seven days a week, and follow the instructions. You will need the control number that is included in the Notice, proxy
card or voting instructions form that is sent to you. The Internet voting system allows you to confirm that the system has properly recorded
your votes. This method of voting will be available until 11:59 p.m., Eastern Time, on April 19, 2023.
Telephone. Call toll-free
1-800-PROXIES 24 hours a day, seven days a week, and follow the instructions. You will need the control number that is included in the
Notice, proxy card or voting instructions form that is sent to you. As with Internet voting, you will be able to confirm that the system
has properly recorded your votes. This method of voting will be available until 11:59 p.m., Eastern Time, on April 19, 2023.
Mail. If you are a
shareholder of record and you elect to receive your proxy materials by mail, you can vote by marking, dating and signing your proxy card
exactly as your name appears on the card and returning it by mail in the postage-paid envelope that will be provided to you. If you hold
your shares in street name and you elect to receive your proxy materials by mail, you can vote by completing and mailing the voting instructions
form that will be provided by your bank, broker or other holder of record. You should mail the proxy card or voting instruction form in
plenty of time to allow delivery prior to the meeting. Do not mail the proxy card or voting instruction form if you are voting over the
Internet or by telephone.
At the Virtual Annual Meeting.
Unless your shares are held in “street name,” you may vote your shares at the virtual Annual Meeting. We encourage you to
vote via the Internet or by telephone prior to the meeting. It is fast and convenient, your vote is recorded immediately, and there is
no risk that postal delays will cause your vote to arrive late and therefore not be counted. If your shares are held in “street
name” through a broker, bank or other nominee, in order to participate in the virtual annual meeting, you must first obtain a legal
proxy from your broker, bank or other nominee reflecting the number of shares of Citizens & Northern Corporation, common stock
you held as of the record date, your name and email address. You then must submit a request for registration to American Stock Transfer &
Trust Company, LLC: (1) by email to proxy@astfinancial.com; (2) by fax to 718-765-8730
or (3) by mail to American Stock Transfer & Trust Company, LLC, Attn: Proxy Tabulation Department, 6201 15th Avenue, Brooklyn,
NY 11219. Requests for registration must be labeled as “Legal Proxy” and be received by American Stock Transfer &
Trust Company, LLC no later than 5:00 p.m. Eastern time on April 10, 2023.
How do I change my vote?
If you give the vote we are
soliciting, you may revoke it at any time before it is exercised:
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● |
by signing and returning a later-dated proxy; or |
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by giving written notice to Citizens & Northern Corporation, 90-92 Main Street, Wellsboro, PA 16901,
Attention: Corporate Secretary; or |
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by voting virtually at the Annual Meeting. |
A shareholder whose shares
are held in street name should follow the instructions of his or her broker regarding revocation of proxies. You should note that your
presence at the meeting without voting virtually will not revoke an otherwise valid proxy.
What is a quorum?
A “quorum” is
the presence at the meeting, virtually or by proxy, of the holders of a majority of the outstanding shares. There must be a quorum for
the meeting to be held. Abstentions are counted for purposes of determining the presence or absence of a quorum but are not considered
as a vote cast under Pennsylvania law. Brokers holding shares in “street name” for their customers generally are not entitled
to vote on certain matters unless they receive voting instructions from their customers. Such shares for which brokers have not received
voting instructions from their customers are called “broker non-votes.” Under Pennsylvania law, broker non-votes will be counted
to determine if a quorum is present with respect to any matter to be voted upon by shareholders at the meeting only if such shares have
been voted at the meeting on a matter other than a procedural motion.
What vote is required
to approve the proposals?
The election of directors
is subject to a majority vote requirement under which any director who does not receive a majority of the votes cast in an uncontested
election must tender his or her resignation to the Board. The three (3) nominees for election to the Board of Directors are subject
to the majority voting requirement. Notwithstanding the foregoing, in the event of a contested election of directors, directors shall
be elected by the vote of a plurality of the votes cast at any meeting for the election of directors at which a quorum is present. “Withhold”
votes will have the effect of a vote against a nominee. Abstentions and broker non-votes will have no effect on the election of directors.
Approval of the advisory (non-binding)
resolution on the compensation paid to Named Executive Officers, approval of the Citizens & Northern Corporation 2023 Equity
Incentive Compensation Plan and ratification of the appointment of Baker Tilly as the Corporation’s independent registered public
accounting firm for the year ending December 31, 2023 require the affirmative vote of a majority of the votes cast at the meeting,
virtually or by proxy. Abstentions and broker non-votes will have no effect in calculating the votes on these matters. The option receiving
the greatest number of votes cast, even if not a majority of the votes cast, will be considered the frequency recommended by the shareholders
for holding a non-binding vote to approve the compensation paid to the Named Executive Officers.
Who will count the vote?
The Judges of Election appointed
by the Board of Directors will count the votes cast virtually or by proxy at the meeting.
How are proxies being
solicited?
The Corporation will bear
its own cost of solicitation of proxies for the meeting. In addition to solicitation by mail, the company’s directors, officers
and employees may solicit proxies personally or by telephone, facsimile transmission or otherwise. These directors, officers and employees
will not be additionally compensated for their solicitation efforts but may be reimbursed for out-of-pocket expenses incurred in connection
with these efforts. The Corporation will reimburse brokerage firms, fiduciaries, nominees and others for their out-of-pocket expenses
incurred in forwarding proxy materials to beneficial owners of shares of common stock held in their names.
What is the deadline
for shareholder proposals for next year’s Annual Meeting?
Any shareholder who, in accordance
with and subject to the provisions of the proxy rules of the SEC, wishes to submit a proposal for inclusion in the Corporation’s
proxy statement for its 2024 Annual Meeting of Shareholders must deliver the proposal in writing to the Secretary of Citizens &
Northern Corporation at the Corporation’s principal executive offices at 90-92 Main Street, Wellsboro, Pennsylvania, no later than
November 3, 2023.
For any proposal that is not
submitted for inclusion in next year’s proxy statement (as described in the preceding paragraph) but is instead sought to be presented
directly at the next Annual Meeting, the Corporation’s Articles of Incorporation require shareholders to give advance notice of
such proposals. The required notice, which must include the information and documents set forth in the Articles of Incorporation, must
be given no more than 50 days and no less than 14 days prior to the Annual Meeting. If notice is not received by the Corporation within
this time frame, the Corporation will consider such notice untimely.
Under Rule 14a-4(c)(1) of
the Securities Exchange Act of 1934, as amended, if any shareholder proposal intended to be presented at the Annual Meeting without inclusion
in our proxy statement is received within the required time frame and is properly presented, then a proxy will have the ability to confer
discretionary authority to vote on the proposal.
Internet Availability of Proxy Materials
Important Notice About
the Availability of Proxy Materials for the Annual Meeting of Shareholders to be Held on April 20, 2023: This proxy statement, proxy
card and the Corporation’s annual report to shareholders are available at: http://www.astproxyportal.com/ast/11697/.
Cautionary Statement Regarding Forward-Looking
Statements
This proxy statement and the
documents that have been incorporated herein by reference may contain forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In some cases, these
statements can be identified by the use of words such as “anticipate,” “believe,” “can,” “could,”
“estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,”
“should,” “target,” “will,” “would” and similar expressions. Actual results and trends
could differ materially from those set forth in such statements due to various risks, uncertainties and other factors. Such risks, uncertainties
and other factors that could cause actual results and experience to differ from those projected 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 |
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changes in general economic conditions |
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the Corporation’s credit standards and its on-going credit assessment processes might not protect it
from significant credit losses |
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legislative or regulatory changes |
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downturn in demand for loan, deposit and other financial services in the Corporation’s market area |
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increased competition from other banks and non-bank providers of financial services |
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technological changes and increased technology-related costs |
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information security breach or other technology difficulties or failures |
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changes in accounting principles, or the application of generally accepted accounting principles |
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failure to achieve merger-related synergies and difficulties in integrating the business and operations of
acquired institutions |
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the effect of the novel coronavirus (COVID-19) and related events |
Although forward-looking statements
help provide additional information about us, investors should keep in mind that forward-looking statements are only predictions, at a
point in time, and are inherently less reliable than historical information. You are urged not to place undue reliance on these forward-looking
statements, which speak only as of the date of this proxy statement. We assume no obligation to update any forward-looking statement in
order to reflect any event or circumstance that may arise after the date of this proxy statement, other than as may be required by applicable
law or regulation.
PROPOSAL 1 -- ELECTION OF DIRECTORS
Board of Directors
Our Articles of Incorporation
provide that the Board of Directors shall consist of not less than five (5) nor more than twenty-five (25) directors and that within
these limits the number of directors shall be as established by the Board of Directors. The Articles further provide that the Board shall
be classified into three classes, as nearly equal in number as possible. One class of directors is elected annually, and the term for
each class is three (3) years. Any vacancy occurring on the Board of Directors, for any reason, may be filled by a majority of directors
then in office to serve until the expiration of the term of the vacancy. There are currently twelve (12) members of the Corporation’s
Board of Directors. However, Timothy E. Schoener, a Class III director, has advised the Board of Directors that he intends to resign
as a director, effective as of the 2023 Annual Meeting of Shareholders on April 20, 2023. Upon the effective date of Mr. Schoener’s
resignation, there will be eleven (11) members of the Corporation’s Board of Directors.
At the 2023 Annual Meeting,
three (3) Class III directors are to be elected to serve for a three-year term.
Nominees for Election
The Board of Directors proposes
the following three (3) nominees be elected as Class III directors for terms expiring at the 2026 Annual Meeting of Shareholders:
Stephen M. Dorwart, J. Bradley Scovill, and Aaron K. Singer. Each of the nominees currently serves as a director of the Corporation.
The election of directors
is subject to a majority vote requirement under which any director who does not receive a majority of the votes cast in an uncontested
election must tender his or her resignation as a director of the Corporation via the Chairperson of the Corporate Governance and Nominating
Committee. A director whose resignation is under consideration shall abstain from participating in any recommendation or decision regarding
that resignation. The Corporate Governance and Nominating Committee shall make a recommendation to the Board whether to accept, reject
or otherwise act with respect to the tendered resignation. Notwithstanding the foregoing, in the event of a contested election of directors,
directors shall be elected by the vote of a plurality of the votes cast at any meeting for the election of directors at which a quorum
is present.
Unless otherwise instructed,
proxies received from shareholders will be voted for the nominees named in this proxy statement. If a nominee should become unavailable
for any reason, proxies will be voted for a substitute nominee determined by the Board of Directors. The Board of Directors has no reason
to believe that the nominees will be unable to serve if elected.
Cumulative voting does not
exist in the election of directors. Each share of Corporation common stock is entitled to cast one vote for each nominee. For example,
if a shareholder owns ten shares of common stock, he or she may cast up to ten votes for each of the four nominees to be elected.
The Board of Directors
recommends a vote “FOR” the election of the nominees identified above, each of whom has consented to be named as a nominee
and to serve if elected.
Director Qualifications
We provide below information
as of the date of this proxy statement about each nominee and director of the Corporation. The information includes information each director
has given us about his/her age, all positions held, principal occupation and business experience for the past five years, and the names
of other publicly held companies of which he or she currently serves as a director or has served as a director during the past five years.
In addition to the information presented below regarding each nominee’s specific experience, qualifications, attributes and skills
that led the Board of Directors to conclude that he or she should serve as a director, we also believe that all of our directors and nominees
have demonstrated good judgment, strength of character, and an independent mind, as well as a reputation for integrity and the highest
personal and professional ethics.
The age shown below for each
director is as of April 20, 2023, which is the date of the annual shareholders meeting.
Nominees as
Class III Directors for a term expiring at the 2026 Annual Meeting
Stephen M.
Dorwart
Director since: 2020
Age: 53
Mr. Dorwart served on the Covenant Bank Board
of Directors from 2007 until July 2020. He served as Chair for both the Audit and Compensation Committees and was the Lead Outside
Director for 5 years. He received his Bachelor of Science degree in Business Administration from Bucknell University in 1991. Mr. Dorwart
is the managing partner of the public accounting firm Fischer Dorwart, PC with offices in Audubon, NJ and Harrisburg, PA. He is a CPA
licensed in Pennsylvania, New Jersey and Delaware. We believe Mr. Dorwart is qualified to serve as a director of the Corporation
because of his extensive experience in public accounting and as a director of Covenant Bank.
J. Bradley
Scovill
Director since: 2015
Age: 63
Mr. Scovill became employed as President
and Chief Executive Officer of the Corporation and Citizens & Northern Bank (the “Bank”) and was appointed to the
Board of Directors of the Corporation and the Bank, effective March 2, 2015. Prior to joining the Corporation and Bank, Mr. Scovill
most recently served as President and Chief Operating Officer of Kish Bancorp, Inc. and Kish Bank headquartered in Belleville, Pennsylvania,
where he was an executive for more than five (5) years. Prior to Kish, Mr. Scovill held various executive management positions
with both PNC Bank and Sterling Financial Corporation, headquartered in Lancaster, Pennsylvania. Mr. Scovill received a Bachelor
of Science degree in Finance from The Pennsylvania State University. We believe Mr. Scovill is qualified to serve as a director of
the Corporation because of his extensive experience working in financial and executive roles in the banking industry.
Aaron K. Singer
Director since:
2017
Age: 51
Mr. Singer has been the President &
Chief Executive Officer of MetalKraft Industries Inc., in Wellsboro, PA, since 2000. He received his Bachelor of Science degree from Shippensburg
University. Mr. Singer serves on the boards of various organizations within his local community. We believe Mr. Singer’s
qualifications to serve as a director of the Corporation include his business experience as well as his executive leadership experiences
at MetalKraft.
Continuing
as Class II Directors for a term expiring at the 2025 Annual Meeting
Susan E. Hartley
Director since:
1998
Age: 65
Ms. Hartley has been an attorney since 1984.
She received her Bachelor of Arts degree from Elmira College, Master of Arts degree from State University of New York at Buffalo, and
Doctorate of Jurisprudence from State University of New York at Buffalo School of Law. We believe Ms. Hartley’s qualifications
to serve as a director of the Corporation include her experience as an attorney and her over 20 years of experience as a director of the
Corporation.
Leo F. Lambert
Director since:
2001
Age: 69
Mr. Lambert served as the President and General
Manager of Fitzpatrick & Lambert, Inc., in Dushore, PA until retiring in 2022. Mr. Lambert received his Bachelor of
Science degree from St. Francis College Loretto. Mr. Lambert has served and continues to serve on many nonprofit boards within his
community. We believe Mr. Lambert’s qualifications to serve as a director of the Corporation include his over 40 years of experience
as a local business owner, entrepreneur and community leader, as well as over 20 years of experience as a director of the Corporation.
Helen S. Santiago
Director since:
2021
Age: 43
Ms. Santiago has served as a CPA for LaBarr &
LaBarr, LLC in Sayre, PA since 2009 where her focus is income tax preparation, tax planning and financial statements. Prior to returning
to Bradford County, she worked for KPMG in Philadelphia for seven years, earned her CPA license and served as an auditor before being
promoted to Manager. Ms. Santiago earned her Bachelor of Science degree in Accounting from Susquehanna University. Ms. Santiago
is involved in the community as Secretary of the Bradford/Sullivan Counties’ Outstanding Young Woman Program. She’s also active
in the Parent/Teacher Guild (PTG) of St. Agnes School in Towanda, PA.
Katherine
W. Shattuck
Director since:
2021
Age: 48
Ms. Shattuck is a Senior Client Partner at
Korn Ferry, the global leader in talent management and executive search, where she serves as a specialist in the Financial Markets sector
and also co-founded and co-leads the firm’s work in Impact and ESG Investing. Kate holds a Master’s degree in Business Administration
from Harvard Business School and a Master’s degree in Public Administration from Harvard University’s Kennedy School of Government.
She earned a Bachelor of Science degree from The United States Military Academy at West Point. Currently, Kate serves as a member of the
Women’s Advisory Council for the Girl Scouts of the National Capital Region. She also volunteers for the Forte Foundation, an organization
working to launch women into fulfilling, significant careers through access to business education.
Continuing as Class I Directors for a
term expiring at the 2024 Annual Meeting
Bobbi J. Kilmer
Director since:
2018
Age: 59
Ms. Kilmer served as the President &
Chief Executive Officer of Claverack Rural Electric Cooperative from 2006 until retiring in January 2021. She also served as the
Co-President & CEO of C&T Enterprises, Inc., which is the owner of Valley Energy in Sayre, PA, Wellsboro Electric Company
and Citizens Electric Company in Lewisburg. She previously served as the Executive Vice President & Chief Operating Officer of
Claverack. Ms. Kilmer serves on the boards of various organizations within her local and surrounding communities. She received her
Bachelor of Science degree from Mansfield University. We believe Ms. Kilmer’s qualifications to serve as a director of the
Corporation include her business experience, as well as her executive leadership roles at Claverack Rural Electric Cooperative and C&T
Enterprises, Inc.
Terry L. Lehman,
CPA, Chairman
Director since:
2016
Age: 65
Mr. Lehman is a retired certified public
accountant with over 35 years of experience in public accounting and private industry, including serving the roles of an Assurance Director
at BDO, LLP in Harrisburg, an Audit Partner at ParenteBeard, LLC, and Beard Miller Company, LLP both located in Harrisburg, Senior Manager
at Ernst & Young, and an Internal Auditor at Peoples National Bank of Lebanon. Mr. Lehman was a Board Member for both MidCoast
Community Bancorp, Inc. and MidCoast Community Bank from October 2015 until 2020. He also is active with various organizations
in his local communities and is a CPA licensed in Pennsylvania. He received his B.S.B.A. degree in Accounting from Shippensburg University.
We believe Mr. Lehman’s extensive experience in public accounting and private industry, much of which has been concentrated
in work for and on behalf of financial institutions and public companies, make him qualified to serve as a director of the Corporation.
Robert G.
Loughery
Director since:
2020
Age: 53
Mr. Loughery served on the Covenant Bank
Board of Directors for 5 years. As a real estate investor and developer, Mr. Loughery currently serves as the President of Nehemiah
Development Company, Inc. Mr. Loughery served as a County Commissioner in the County of Bucks from February 2011 until
January 2020. Mr. Loughery serves on numerous private boards and public authorities. Mr. Loughery has a B.A. degree in
Policy and Management Studies from Dickinson College in 1991. Following graduation, he was commissioned an officer in the US. Army Reserves.
We believe Mr. Loughery is qualified to serve as a director of the Corporation because of his over 20 years’ experience in
real estate development and finance and his leadership abilities.
Frank G. Pellegrino
Director since:
2016
Age: 59
Mr. Pellegrino is Owner/Developer with Carlton
Associates, LLC, in Lycoming County PA and is the former Executive Vice President of Sales and Marketing and a founder of Primus Technologies
Corp., Williamsport. He serves as CEO or Board Chairman on many of his businesses in Lycoming, Montour, Centre, and Union Counties. He
is a member of the Board of Directors, and Audit Committee Chairman, of Advance Technologies, Middletown, PA. We believe Mr. Pellegrino’s
advanced education, director experience, more than 25 years of executive leadership roles with Primus Technologies and leadership roles
through his more than 12 manufacturing and service companies and his extensive community board positions throughout Northcentral PA amply
qualify him to serve as a director.
EXECUTIVE OFFICERS
The following table provides
information regarding each of the executive officers of the Corporation and the Bank. The age shown below for each executive officer is
as of April 20, 2023, which is the date of the annual shareholders meeting.
J. Bradley Scovill
Age: 63
Mr. Scovill has served as President and Chief
Executive Officer of the Corporation and Citizens & Northern Bank (the “Bank”) since March 2, 2015. Prior to
joining the Corporation and Bank, Mr. Scovill most recently served as President and Chief Operating Officer of Kish Bancorp, Inc.
and Kish Bank headquartered in Belleville, Pennsylvania, where he was an executive for more than five (5) years. Prior to Kish, Mr. Scovill
held various executive management positions with both PNC Bank and Sterling Financial Corporation, headquartered in Lancaster, Pennsylvania.
Mr. Scovill received a Bachelor of Science degree in Finance from The Pennsylvania State University.
Alexander Balagour
Age: 46
Mr. Balagour has served as Executive Vice
President and Chief Information Officer of the Bank since May 2021. Prior to joining the Bank, Mr. Balagour most recently
served as the Chief Information Officer at Customers Bank in Reading, PA, where he led the organization through the transformation of
their sales and lending technology, data analytics and customer experience. Mr. Balagour received a Bachelor of Science degree in
Computer Science from Arcadia University, where he earned the Sigma Zeta Award in Computer Science, given to the top-graduating student
for academic excellence. He went on to receive his Executive Masters in Technology Management from Wharton School and School of Engineering
from the University of Pennsylvania.
Matthew L. Bower
Age: 55
Mr. Bower has served as Executive Vice President
and Chief Wealth Management Officer of the Bank since February 2022. Prior to joining the Bank, Mr. Bower served as a Managing
Director at PNC’s Wealth Management Group in Atlanta, GA, where he led the team in delivering industry-leading results in client
and employee satisfaction for 13 years. Mr. Bower received a Masters of Jurisprudence from Texas A&M University, School of Law
in Fort Worth, TX, completed the Stanford Graduate School of Business’s Executive Leadership Program and received a Bachelor of
Science degree in Political Science from Florida State University. Mr. Bower has several FINRA Licensures and has earned designations
as a Certified Trust and Financial Advisor (CTFA), Certified Securities Operations Professional (CSOP) and a Chartered Wealth Manager
(CWM).
Kelley A. Cwiklinski
Age: 59
Executive Vice President and Chief Commercial
Lending Officer since February 2023; formerly Senior Vice President and Director of Commercial Lending of the Bank since January of
2021. Prior to becoming the Director of Commercial Lending, Ms. Cwiklinski was a Regional Commercial Lending Executive for C&N
since July of 2020 through the acquisition of Covenant Bank. Prior to her employment with C&N, Ms. Cwiklinski was Executive
Vice President and Chief Lending Officer of Covenant Bank from January 2015 through June 2020. Ms. Cwiklinski began her
banking career in 1985 and had various commercial lending and credit-related positions prior to joining Covenant Bank. Ms. Cwiklinski
is a graduate of Mercer County Community College with an Associates Degree in Business Administration.
Stan R. Dunsmore
Age: 60
Mr. Dunsmore has served as Executive Vice
President and Chief Credit Officer of the Bank since January 2015. Previously, Mr. Dunsmore served as Vice President and
Commercial Loan Sales Officer of the Bank since May 2007. Prior to the May 2007 acquisition of Citizens Trust Company
by Citizens & Northern Bank, Mr. Dunsmore served as Vice President and Chief Lending Officer of Citizens Trust Company since
1995. Mr. Dunsmore received a Bachelor of Science degree in Management Science from Lock Haven University of Pennsylvania.
Harold F. Hoose, III
Age: 56
Mr. Hoose has served as Executive Vice President
and Chief Revenue Officer of the Bank since February 2021. Previously, Mr. Hoose served as Executive Vice President and Director
of Lending of the Bank since March of 2005. Prior to becoming the Director of Lending, Mr. Hoose was a regional commercial relationship
manager for C&N since August of 1997. Prior to that, Mr. Hoose began his banking career in 1990 as a management trainee
with Commonwealth Bank (Williamsport PA) and moved to the credit/lending area of the bank in April 1993. Mr. Hoose received
his Bachelor of Science degree from Mansfield University and completed the Graduate School of Banking at the University of Colorado.
Mark A. Hughes
Age: 62
Mr. Hughes serves as Treasurer of the Corporation
and Executive Vice President and Chief Financial Officer of the Bank. Mr. Hughes served as Interim President and Chief Executive
Officer of the Corporation and Bank from August 12, 2014 through March 1, 2015. Effective March 2, 2015, Mr. Hughes
resigned from the positions of Interim President and Chief Executive Officer of the Corporation and Bank and was appointed to the positions
he had formerly held as Treasurer of the Corporation since November 2000 and Executive Vice President and Chief Financial Officer
of the Bank since August 2000. Mr. Hughes is a CPA licensed in Pennsylvania. Mr. Hughes received a Bachelor of Arts degree
in Accounting from Lycoming College.
John M. Reber
Age: 56
Mr. Reber has served as Executive Vice President
and Chief Risk Management Officer of the Bank since February 2021. Previously, Mr. Reber served as Executive Vice President
and Director of Risk Management of the Bank since January 2011. Mr. Reber was Vice President and Director of Risk Management
of the Bank since June 2004. Prior to joining C&N, Mr. Reber held various staff and management positions in credit, lending
and risk management with SunBank, headquartered in Lewisburg, Pennsylvania. Mr. Reber received a Bachelor of Science degree in Finance
from Bloomsburg University of Pennsylvania.
Thomas L. Rudy, Jr.
Age: 59
Mr. Rudy has served as Executive Vice President,
Chief Delivery Officer and Region President of the Bank since February 2021. Previously, Mr. Rudy served as Executive Vice President
and Director of Branch Delivery of the Bank since February 2004; President of C&N Financial Services Corporation since January 2000;
and President of Bucktail Life Insurance Company since May 2018. Mr. Rudy received a Bachelor of Science degree in Finance from
The Pennsylvania State University and is a graduate of the ABA Graduate School of Banking at the Wharton School, University of Pennsylvania.
Blair T. Rush
Age: 61
Mr. Rush has served as Executive Vice President
and Southeast Region President of the Bank since February 2021. Previously, Mr. Rush served as Southeast Region President of
the Bank since July 2020. Prior to his employment with C&N, Mr. Rush most recently served as President & Chief
Operating Officer of Covenant Bank since April 2016. Prior to this time, he was the Eastern Region President with National Penn Bank.
He joined National Penn through their acquisition of FirstService Bank in February 2003, where he was an Executive Vice President
and was one of four original officers of the de novo FirstService Bank. Prior to FirstService Bank, Blair was a Vice President with CoreStates
and Bucks County Bank where he started his forty-year banking career. Blair is a graduate of Delaware Valley College with a Bachelor of
Science degree in Business Administration and the Pennsylvania Bankers Association’s Central Atlantic Advanced School of Banking.
Tracy E. Watkins
Age: 58
Ms. Watkins has served as Executive Vice
President and Chief Human Resources Officer of the Bank since February 2021. Previously, Ms. Watkins served as Executive Vice
President and Director of Human Resources of the Bank since January 2018. Prior to that, she was Vice President and Director of Human
Resources of the Bank since 2010, and HRIS (Human Resources Information System) & Employee Relations Manager since 2005. She
joined the Bank in 2003. Ms. Watkins holds a B.S. in English/Secondary Education from Juniata College, a Certificate from The
Institute for Paralegal Training in Philadelphia, PA and is a Graduate of the PBA Advanced School of Banking and The Graduate School of
Banking Human Resource Management School as well as being a Certified Employee Benefit Specialist (CEBS – RPA, GBA) and Senior Professional
in Human Resources (SPHR).
HUMAN CAPITAL MANAGEMENT
Human Capital
The Corporation’s Board of Directors and
executive leadership team have established the following mission, vision and values:
Mission: Creating value
through lifelong relationships with our customers, teammates, shareholders and communities.
Vision: Every customer
says “C&N is the ONLY bank I need.”
Values: Teamwork, Respect,
Responsibility and Accountability, Excellence, Integrity, Client Focus, Have Fun.
We recognize that our ability to create value
on a consistent basis is highly dependent upon the effectiveness of our team.
The Corporation’s key
human capital management objectives are to attract and retain diverse talent that fits our values and culture. Our talent strategy focuses
on acquiring new employees through branding and outreach programs, developing employees though a robust onboarding program, ongoing training,
and performance management, and retaining employees through recognition, engagement, and a competitive total rewards package.
Diversity and Inclusion
At C&N Bank, we are committed
to creating value through relationships. At the heart of this mission is a promise of excellence in service to all people, as demonstrated
by our commitment to equity of opportunity, inclusion and our fostering of a spirit of belonging. We live our values of respect, integrity
and excellence by creating access and providing support to help our diverse constituents of customers, teammates, shareholders and communities
in achieving their financial goals. We embrace inclusion of all of our stakeholders as an important component of our vision to be the
ONLY bank our customers need.
Compensation and Benefits
The Corporation offers competitive
compensation to attract and retain talent. Our generous total rewards package includes market-competitive salary, bonuses or sales commissions,
short-term and long-term equity incentives, healthcare and retirement benefits, and paid time off. Employees have regular performance
reviews and merit salary adjustments commensurate with performance. Employees have access to a holistic suite of items within our employee
assistance program that caters to physical, emotional, and mental wellbeing for the employee and their family.
Training and Development
The Corporation provides a
robust training and development program that supports our culture, prepares employees for their immediate role, develops them for long
term success at the Bank and supports personal enrichment. We offer functional training, culture building exercises, personal development,
C&N Bank history, C&N Bank integration and ongoing technical training throughout each year. Employees also have access to additional
educational and development opportunities including tuition reimbursement and certification programs.
Communication and Engagement
At C&N, we believe in
the importance of employee communication and engagement. We utilize several methods to foster engagement, including activities such as
Employee Recognition programs, Service Anniversary Awards, Bank wide monthly calls, semi-annual Bank wide events, annual employee surveys,
focus groups, daily huddles, and the Giving Back, Giving Together community service program. We believe keeping our team well informed,
connected, and appreciated adds to the success of our organization.
Board Diversity
The following table summarizes
voluntary disclosure of diversity characteristics of the Corporation’s Board of Directors.
Board Diversity
Matrix as of February 3, 2023 |
Board
Size: |
Total
Number of Directors |
12 |
Gender: |
Male |
Female |
Non-Binary |
Gender
Undisclosed |
Number
of directors based on gender identity |
7 |
4 |
0 |
1 |
Number
of directors who identify in any of the categories below: |
African
American or Black |
0 |
0 |
0 |
0 |
Alaskan
Native or American Indian |
0 |
0 |
0 |
0 |
Asian |
0 |
0 |
0 |
0 |
Hispanic
or Latinx |
0 |
0 |
0 |
0 |
Native
Hawaiian or Pacific Islander |
0 |
0 |
0 |
0 |
White |
7 |
4 |
0 |
0 |
Two
or More Races or Ethnicities |
0 |
0 |
0 |
0 |
LGBTQ |
0 |
Undisclosed |
1 |
CORPORATE GOVERNANCE
Members of the Corporation’s
Board of Directors are elected by the shareholders. In selecting nominees for the shareholders’ consideration, the Board attempts
to identify individuals with appropriate business, financial, legal and other skills and knowledge that are essential to providing oversight
of the Corporation’s affairs, and who demonstrate a passion for promoting and enhancing the Corporation’s financial performance
and its service to the communities within our marketplace. In evaluating candidates, the Board considers diversity of gender, race, knowledge
and educational and business background and experiences, taking into account the experience “mix” of current directors, as
well as that of the candidates. The nominating process is described in more detail in the section titled “Governance and Nominating
Committee” below.
Director Independence
During 2022 and through the
date of this proxy statement, all directors and nominees are and were independent, except for J. Bradley Scovill, as determined in accordance
with the independence standards of the NASDAQ Stock Market. In determining the directors’ independence, in addition to matters disclosed
in the “Related Person Transactions and Policies” section of this proxy statement, the Board of Directors considered each
director’s beneficial ownership of Corporation common stock and loan transactions between the Bank and the directors, their family
members and businesses with whom they are associated, as well as any contributions made by the Bank to non-profit organizations with whom
such persons are associated. In each case, the Board determined that none of the transactions above impaired the independence of the director.
The Bank makes loans to Directors
and Executive Officers in the ordinary course of business on substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with other persons and do not involve more than normal risks of collectability.
Additional information concerning
loans and deposits with Directors and Executive Officers is incorporated herein by reference to disclosure provided in Note 15 to the
Consolidated Financial Statements, which is included in Part II, Item 8 of the Corporation’s Annual Report on Form 10-K
for the year ended December 31, 2022.
Leadership Structure of the Board
Terry L. Lehman serves as
Chairman of the Board of the Corporation and the Bank. The Board’s establishment of an independent chair reflects its desire to
maintain separation between the Board’s role of providing oversight of corporate activities and protecting shareholder interests
and the Chief Executive Officer’s role of managing the Corporation and Bank.
The Board attempts to ensure
that thorough, open and honest discussions take place at all Board and committee meetings, and that all of the directors are sufficiently
informed about each matter that arises so as to make informed decisions. Mr. Lehman presides over meetings of the Board and the Executive
Committee, as well as executive sessions and meetings of the independent directors. Further, the Chairman is responsible for communicating
the thoughts or concerns of the independent directors to the Chief Executive Officer.
Meetings and Committees of the Board of Directors
Board of Directors.
During 2022, the Board of Directors of the Corporation met thirteen (13) times, the Board of Directors of the Bank met thirteen
(13) times, and the independent directors met in executive session eight (8) times and held one (1) meeting of the independent
directors. All of the incumbent directors attended at least 75% or more of the meetings of the Board of Directors of the Corporation and
of the Board committees on which he or she served.
Although the Corporation does
not have a formal policy with respect to director attendance at the Annual Meeting of Shareholders, each director is encouraged to attend
the Annual Meeting.
Executive Committee
of the Corporation. The Executive Committee has been inactive since 2019. If there should be a need to activate the Committee,
it shall consist of the other Committee chairs, the Chief Executive Officer, and the Chairman of the Board. The Committee would act on
behalf of and with full authority of the Board of Directors in matters that may arise between regular monthly meetings of the Board, which
would require immediate Board level action and would provide advice and counsel to the Chief Executive Officer on various matters not
necessarily requiring Board consideration.
Audit Committee.
The primary function of the Audit Committee is to review the internal audit program as performed by the internal auditors; recommend
to the Board of Directors the engagement of the independent registered public accounting firm for the year; review the examinations and
reports from those persons; and review the annual financial statements of the Corporation. In 2022, the members of the Audit Committee
of the Corporation included: Stephen M. Dorwart, Clark S. Frame, Susan E. Hartley, Leo F. Lambert, Terry L. Lehman, Helen S. Santiago,
and Aaron K. Singer. Director Frame served on the committee from January until his retirement in March of 2022. During 2022,
Stephen M. Dorwart served as Chair of the Committee. The Audit Committee held six (6) meetings in 2022. All the members of the Audit
Committee are and were independent under the independence standards of the NASDAQ Stock Market.
Director Lehman meets the
definition of “audit committee financial expert” as defined in the rules adopted by the SEC. The Board of Directors has
determined that each of the members of the Audit Committee has sufficient knowledge and experience in financial matters to effectively
perform his or her duties as a member of the Audit Committee.
The Board of Directors of
the Corporation has adopted a written charter for the Audit Committee, a copy of which is available on our website at www.cnbankpa.com
by hovering on “ABOUT,” then clicking on “Corporate Governance Policies” under the Investor Relations heading,
then “Audit Committee Charter of C&N Corp.” The policies and procedures for pre-approval of engagements for non-audit
services are included in the Charter.
Compensation Committee
of the Corporation. The purpose of the Compensation Committee is to discharge the responsibilities of the Board of Directors
relating to compensation of the executive officers, provide oversight of the Bank’s compensation, benefit, perquisite and employee
equity incentive programs, and monitor and oversee the management succession plan and leadership development processes. The Committee
is also responsible for establishing and maintaining the CEO Succession Plan. In 2022, the members of the Compensation Committee included:
Bobbi J. Kilmer, Stephen M. Dorwart, Leo F. Lambert, Terry L. Lehman, Frank G. Pellegrino, and Katherine W. Shattuck. Bobbi J. Kilmer
currently serves as Chair of the Committee. The Compensation Committee held ten (10) meetings in 2022. All of the members of the
Compensation Committee are and were independent under the independence standards of the NASDAQ Stock Market.
The Board of Directors of
the Corporation has adopted a written charter for the Compensation Committee, which is available on our website at www.cnbankpa.com
by hovering on “ABOUT,” then clicking on “Corporate Governance Policies” under the Investor Relations heading,
then “Compensation Committee Charter of C&N Corp.”
Governance and Nominating
Committee. The main purpose of the Governance and Nominating Committee is to establish criteria for Board member selection and
retention; identify individuals qualified to become Board members; and recommend to the Board the individuals to be nominated and re-nominated
for election as directors. Further, the Committee recommends members and chairs of various committees of the Corporation and the Bank
to the Board of Directors. The Committee is also responsible for establishing and maintaining succession plans for the positions of Board
Chair and Committee Chairs and reviewing and reporting to the Board periodically on matters of corporate governance. In 2022, the members
of the Governance and Nominating Committee included: Susan E. Hartley, Bobbi J. Kilmer, Robert G. Loughery, Katherine W. Shattuck, and
Aaron K. Singer. Susan E. Hartley currently serves as Chair of the Committee. During 2022, the Governance and Nominating Committee held
five (5) meetings. All members of the Governance and Nominating Committee are and were independent under the independence standards
of the NASDAQ Stock Market.
The Board of Directors of
the Corporation has adopted a written charter for the Governance and Nominating Committee, which is available on our website at www.cnbankpa.com
by hovering on “ABOUT,” then clicking on “Corporate Governance Policies” under the Investor Relations heading,
then “Governance and Nominating Charter”.
Qualifications considered
by the Governance and Nominating Committee in assessing director candidates include, but are not limited to, the following:
|
● |
An understanding of the business and financial affairs and the complexities of a business organization. A
career in business is not essential, but the candidate should have a proven record of competence and accomplishments and should be willing
to commit the time and energy necessary to fulfill the role as an effective director; |
|
● |
A genuine interest in representing all of the Corporation’s stakeholders, including the long-term interests
of the shareholders; |
|
● |
A willingness to support the values, mission and vision of the Corporation; |
|
● |
An open-mindedness and resolve to independently analyze issues presented for consideration; |
|
● |
A reputation for honesty and integrity; |
|
● |
A candidate’s diversity of experience, gender, race, knowledge and perspective; |
|
● |
A high level of financial literacy (i.e., the ability to read financial statements and financial ratios, and
a working knowledge and familiarity with basic finance and accounting practices); |
|
● |
A mature confidence and ability to approach others with self-assurance, responsibly and supportively. Candidates
should value Board and team performance over individual performance and should be able to raise tough questions in a manner that encourages
open discussions. Additionally, a candidate should be inquisitive and curious and feel a duty to ask questions of management; |
|
● |
The ability, capacity, and willingness to serve as a conduit of business referrals to the organization; |
|
● |
Independence in accordance with the independence standards of the NASDAQ Stock Market; and |
|
● |
Experience with a business of size similar or larger than the Corporation. |
Other than the foregoing,
there are no stated minimum criteria for director nominees, although the Governance and Nominating Committee may also consider such other
factors as it may deem are in the best interests of the Corporation and its shareholders, and such factors may change from time to time.
The Governance and Nominating Committee does, however, require that a majority of the directors be independent under the independence
standards of the NASDAQ Stock Market and expects directors to meet the minimum stock ownership expectations described in the “Stock
Ownership Guidelines” section.
The Committee identifies nominees
by first evaluating the current directors who are willing to continue in service. If any member of the Board does not wish to continue
service or the Board determines not to re-nominate a current director for re-election, the Governance and Nominating Committee identifies
the desired skills and experience of a new nominee in light of the criteria above. The Committee evaluates each individual candidate in
the context of the Board as a whole, with the objective of recommending a group containing a broad array of diverse experience.
The Board does not have a
formal written policy for considering director candidates recommended by shareholders due to the infrequency of nominations, but its long-standing
informal policy is to give due consideration to any and all candidates. The evaluation procedure for candidates recommended by the shareholders
would be the same as is done for those recommended by the Board of Directors and management. The Committee recommends a director nominee
to the Board, and the Board makes the final determination as to the nominees who will stand for election.
Current members of the Board
of Directors are polled for suggestions as to prospective director candidates meeting the Governance and Nominating Committee’s
criteria. The Committee has the prerogative to employ and pay third party search firms, but to date has not done so.
Article Tenth of the
Corporation's Articles of Incorporation requires that shareholders give advance notice of any nominations for election to the Board of
Directors. The required notice, which must include the information set forth in the Articles of Incorporation, must be made in writing
and must be delivered or mailed to the President of the Corporation not less than 14 days nor more than 50 days prior to the Annual Meeting.
If notice is not received by the Corporation within this timeframe, the Corporation will consider such notice untimely.
Risk Management Committee
of the Corporation. The purpose of the Risk Management Committee is to provide an open and ongoing forum between management,
third parties, and the Board to discuss risks and risk management. In 2022, the members of the Risk Management Committee included: Terry
L. Lehman, Susan E. Hartley, Bobbi J. Kilmer, Stephen M. Dorwart, J. Bradley Scovill, Aaron K. Singer, and Frank G. Pellegrino. Terry
L. Lehman currently serves as the Chair of the Committee. The Risk Management Committee met four (4) times during 2022.
Asset Liability Committee
of the Corporation. The purpose of the Asset Liability Committee is to stabilize and improve profitability by balancing
the relationship between risk and return over an extended period of time, as well as to function as an investment committee. In 2022,
the members of the Asset Liability Committee included: Clark S. Frame, Susan E. Hartley, Terry L. Lehman, Timothy E. Schoener, J. Bradley
Scovill, Stephen Dorwart, and Helen Santiago. Director Frame served on the Committee from January until his retirement in March 2022.
J. Bradley Scovill currently serves as Chair of the Committee. The Asset Liability Committee met four (4) times during 2022.
Merger & Acquisition
(M&A) Committee of the Corporation. The purpose of the M&A Committee is to assist in the review of merger and acquisition
opportunities. In 2022, the members of the Merger & Acquisition Committee included: Clark S. Frame, Leo F. Lambert, Terry L.
Lehman, Frank G. Pellegrino, J. Bradley Scovill, and Bobbi Kilmer. Director Frame served on the Committee from January until his
retirement in March of 2022. Terry L. Lehman currently serves as Chair of the Committee. The M&A Committee met four (4) times
during 2022.
Executive Committee
of the Bank. The Executive Committee has been inactive since 2019. If there should be a need to activate the Committee,
it shall consist of the other Committee chairs, the Chief Executive Officer, and the Chairman of the Board. The Committee may act on behalf
of and with full authority of the Board of Directors in matters that arise between regular monthly meetings of the Board, which would
require immediate Board level action and would provide advice and counsel to the Chief Executive Officer on various matters not necessarily
requiring Board consideration.
Information Technology
Committee of the Bank. The purposes of the Information Technology (“IT”) Committee are to oversee significant
strategies, innovation, projects and technology architecture decisions; monitor IT programs to ensure they support business objectives
and strategies; confer with the Bank’s senior IT and Risk Management teams; and inform the Board of Directors on IT Risk Management-related
matters. Among its duties, the Information Technology Committee reviews, not less than annually, the Bank’s business continuity
plan, cyber security assessment tool and other technology reports and assesses their adequacy. In 2022, members of the Information Technology
Committee were: Terry L. Lehman, Robert G. Loughery, Timothy E. Schoener, and Aaron K. Singer. Aaron K. Singer currently serves as Chair
of the Committee. During 2022, the Information Technology Committee held four (4) meetings.
Wealth Management Committee
of the Bank. The Wealth Management Committee of the Bank determines the policy and investments of the Trust Department
and the acceptance and relinquishment of all fiduciary relationships. In 2022, members of the Wealth Management Committee included: Stephen
M. Dorwart, Clark S. Frame, Frank G. Pellegrino, Katherine Shattuck, Timothy Schoener, and Helen S. Santiago. Director Frame served on
the Committee from January until his retirement in March 2022. Frank G. Pellegrino currently serves as Chair of the Committee.
During 2021, the Wealth Management Committee held four (4) meetings.
Finance and Loan Committee
of the Bank. The primary purpose of the Finance and Loan Committee is to review larger watch list loans, review loan portfolio
statistics and trends, and review proposed changes to the loan policy and make recommendations to the Board of Directors and evaluate
and act on loan requests that exceed management’s lending authority. In 2022, members of the Finance and Loan Committee included:
Clark S. Frame, Leo F. Lambert, Robert G. Loughery, Frank G. Pellegrino, Katherine Shattuck, and J. Bradley Scovill. Director Frame served
on the Committee from January until his retirement in March 2022. J. Bradley Scovill currently serves as Chair of the Committee.
During 2022, the Finance and Loan Committee held fourteen (14) meetings.
Shareholder Communications
If you wish to communicate
with the Board, you may send correspondence to Corporate Secretary, Citizens & Northern Corporation, 90-92 Main Street, Wellsboro,
PA 16901. The Corporate Secretary will submit your correspondence to the Board or the appropriate committee, as applicable. You may also
communicate directly with the Chairman by writing to the Chairman, Citizens & Northern Corporation, 90-92 Main Street, Wellsboro,
PA 16901.
Related Person Transactions and Policies
Certain directors and officers
of the Corporation and Bank and their affiliates (including corporations of which such persons are officers or greater than 10% beneficial
owners) were customers of, and had transactions with, the Corporation and Bank in the ordinary course of business during the year ended
December 31, 2022. Similar transactions may be expected to take place in the future. Such transactions included the purchase of certificates
of deposit and extensions of credit in the ordinary course of business on substantially the same terms, including interest rates and collateral
requirements, as those prevailing at the time for comparable transactions with third parties and did not involve more than the normal
risks of collectability or present other unfavorable features. The Corporation expects that any other transactions with directors and
officers and their affiliates in the future will be conducted on the same basis.
The Corporation and the Bank
are subject to Federal Reserve Regulation O, which governs loans to certain insiders, including executive officers, directors or 10% controlling
shareholders of a bank or holding company, or an entity controlled by an executive officer, director or controlling shareholder (an “Insider”).
As required by Regulation O, the Bank’s Loan Policy prohibits loans to an Insider unless the loan (i) is made on substantially
the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans with persons not related
to the Insider; and (ii) does not involve more than the normal risk of repayment or present other unfavorable features.
The Corporation is required
to disclose transactions with certain “Related Persons” (as defined by SEC regulations) where the annual amount involved exceeds
the lesser of $120,000 or 1% of the Corporation’s total assets at year-end for the last two years. In 2022, the Corporation did
not have any related person transactions requiring disclosure.
Stock Ownership Requirements
Each independent director
shall be the beneficial owner of Corporation common stock having a minimum aggregate fair market value of six times the annual cash retainer
paid to independent directors, which annual retainer currently is $20,000. Each independent director shall have five (5) years from
the date of initial election or appointment to establish the minimum stock ownership and shall thereafter maintain such minimum stock
ownership throughout his or her term as a director. It is intended that directors will not sell shares of Corporation common stock received
from the Independent Directors Stock Incentive Plan prior to reaching the minimum level of ownership required under this policy.
The Chief Executive Officer
(CEO) shall be the beneficial owner of Corporation common stock having a minimum value equal to three (3) times the previous
year’s annual base salary, and each Executive Vice President (EVP) is required to own Corporation common stock having a minimum
value equal to one (1) time the previous year’s annual base salary. The CEO and each EVP shall have five (5) years
from initial election or appointment by the Board of Directors to comply with the minimum ownership requirement.
For purposes of determining
compliance with these minimum stock ownership requirements, the aggregate fair market value of common stock shall be measured annually
by reference to the average of the high and low sales price of the stock on June 30 of each year. Notwithstanding the foregoing stock
ownership requirements, the Board of Directors, in the exercise of its reasonable discretion, may approve exceptions to the stock ownership
requirements, on a case-by-case basis, to account for unusual volatility in the trading price of the common stock on or about the annual
valuation date of the stock on June 30 of each year.
Presently, all directors and
named executive officers meet the minimum stock ownership requirements or have been in their current positions for less than five years.
Anti-Hedging Policy
The Board of Directors has
adopted an anti-hedging policy that prohibits directors and officers of the Corporation and any subsidiary of the Corporation from purchasing
any financial instruments or engaging in any transactions that are designed to hedge or offset any decrease in the market value of equity
securities of the Corporation, including, without limitation, puts, calls, prepaid variable forward contracts, equity swaps, collars,
exchange funds and other derivative securities or transactions with economic consequences comparable to the foregoing financial instruments.
INFORMATION CONCERNING SECURITY OWNERSHIP
Beneficial ownership of shares
of the Corporation’s common stock is determined in accordance with SEC Rule 13d-3, which provides that a person should be credited
with the ownership of any stock held, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise,
in which the person has or shares:
|
● |
Voting power, which includes power to vote or to direct the voting of the stock; |
|
● |
Investment power, which includes the power to dispose or direct the disposition of the stock; or |
|
● |
The right to acquire beneficial ownership within 60 days after February 3, 2023. |
Beneficial Ownership of Principal Holders
The following table shows,
to the best of the Corporation’s knowledge, those persons or entities, who owned of record or beneficially, on December 31,
2022, more than 5% of the Corporation’s outstanding common stock.
Name & Address |
|
Amount & Nature of |
|
|
|
|
of Beneficial Owner |
|
Beneficial
Ownership |
|
|
Percent of Class |
|
BlackRock, Inc. |
|
|
1,095,741 |
(1) |
|
|
7.1 |
% |
55 East 52nd Street |
|
|
|
|
|
|
|
|
New York, NY 10055 |
|
|
|
|
|
|
|
|
(1) Based on an Amendment
No. 12 to Schedule 13G filed with the Securities and Exchange Commission on January 31, 2023, which reported beneficial ownership
as of December 31, 2022 by BlackRock, Inc.
Beneficial Ownership of Executive Officers
and Directors
The following table sets forth,
as of February 3, 2023, and from information supplied by the respective persons, the amount and the percentage, if over 1%, of the
common stock of the Corporation beneficially owned by each director, each nominee for director, each of the named executive officers and
all executive officers and directors of the Corporation as a group.
Name of Individual or Identity of Group |
|
Amount and Nature of
Beneficial Ownership (1) |
|
|
Percent of Class |
|
Stephen M. Dorwart |
|
|
16,749 |
(2) |
|
|
* |
|
Susan E. Hartley |
|
|
22,280 |
(2) |
|
|
* |
|
Bobbi J. Kilmer |
|
|
12,343 |
(2) |
|
|
* |
|
Leo F. Lambert |
|
|
39,352 |
(2) |
|
|
* |
|
Terry L. Lehman |
|
|
23,067 |
(2) |
|
|
* |
|
Robert G. Loughery |
|
|
6,691 |
(2) |
|
|
* |
|
Frank G. Pellegrino |
|
|
30,575 |
(2) |
|
|
* |
|
Helen S. Santiago |
|
|
6,553 |
(2) |
|
|
* |
|
Timothy E. Schoener |
|
|
5,633 |
(2) |
|
|
* |
|
Katherine W. Shattuck |
|
|
3,041 |
(2) |
|
|
* |
|
Aaron K. Singer |
|
|
10,842 |
(2) |
|
|
* |
|
J. Bradley Scovill |
|
|
91,584 |
(3) |
|
|
* |
|
Mark A. Hughes |
|
|
80,570 |
(4) |
|
|
* |
|
Harold F. Hoose, III |
|
|
52,222 |
(5) |
|
|
* |
|
Blair T Rush |
|
|
24,170 |
(6) |
|
|
* |
|
Stan R. Dunsmore |
|
|
26,427 |
(7) |
|
|
* |
|
Directors and Executive Officers as a Group (22 Persons) |
|
|
581,352 |
|
|
|
3.74 |
% |
|
* |
Indicates beneficial ownership of less than 1%. |
|
(1) |
Pursuant to the regulations of the SEC, the number of shares of common stock deemed outstanding includes shares
issuable pursuant to options held by the respective person or group that are currently exercisable or may be exercised within 60 days
of February 3, 2023, with an exercise price of less than $23.36, which is the closing price on February 3, 2023 (“presently
exercisable stock options”). Unless otherwise indicated, each individual holds sole voting and investment authority with respect
to the shares listed. |
|
(2) |
Includes 1,000 shares of restricted stock. |
|
(3) |
Includes 16,914 shares of restricted stock. |
|
(4) |
Includes 6,788 shares of restricted stock. |
|
(5) |
Includes 3,521 shares issuable pursuant to presently exercisable stock options and 7,445 shares of restricted
stock. |
|
(6) |
Includes 7,007 shares of restricted stock. |
|
(7) |
Includes 5,212 shares of restricted stock. |
Delinquent Section 16(a) Reports
Section 16 of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), requires the Corporation’s directors, executive officers and
persons who beneficially own more than ten percent of the Corporation’s issued and outstanding common stock to file initial reports
of ownership and reports of changes in beneficial ownership with the SEC. Such persons are also required to furnish the Corporation with
copies of all such reports they file.
Based solely upon a review
of the reports filed pursuant to Section 16 of the Exchange Act, the Corporation believes that its directors and executive officers
timely filed all reports required under Section 16, with the following exceptions all due to administrative oversight:
|
● |
8 executive officers made one late filing related to forfeitures of restricted stock. |
|
● |
4 executive officers made one late filing related to shares withheld for tax liability. |
|
● |
Directors Hartley and Schoener made one late filing related to shares withheld for tax liability. |
|
● |
Directors Lambert and Santiago made one late filing related to a purchase. |
|
● |
Former Director Frame made one late filing related to shares received via inheritance. |
COMPENSATION DISCUSSION AND ANALYSIS
The Compensation Discussion
and Analysis (CD&A) section of our Proxy Statement provides our shareholders with an explanation of our Named Executive Officer (NEO)
compensation philosophy, programs, policies and decisions, all within the context of our business environment and performance. Our goal
is to present a clear and concise overview of our executive compensation practices and describe key changes from last year.
The Corporation’s executive
compensation program is designed to provide participating executives with an industry-competitive level of total compensation when their
collective and individual performances meet or exceed the goals approved by the Board of Directors. We believe that the compensation program
for executives should directly support the achievement of specific annual, long-term and strategic goals of the business, and, thereby,
align the interests of executives with the interests of our shareholders. Accordingly, the program includes short and long-term incentive
opportunities, but only when performance targets are met on a consistent basis and subject to appropriate controls to ensure management
is not incented to take excessive risk.
2022 Performance Highlights
Highlights for 2022 included
the following:
|
● |
Net income per diluted share was $1.71 for the year ended December 31, 2022, down from $1.92 in 2021.
Significant variances between 2022 and 2021 included the following: |
|
⮚ |
Net interest income increased $5.2 million, or 6.7%. The net interest margin increased to 3.77% on a fully
taxable equivalent basis for 2022 from 3.69% in 2021. Growth in net interest income and the net interest margin reflected, in part, the
benefit of significant loan growth in 2022. Total loans outstanding were up $175.2 million, or 11.2%, at December 31, 2022 from December 31,
2021. |
|
⮚ |
Total noninterest expense was $5.5 million, or 8.8%, higher in 2022 as compared to 2021, including an increase
in salaries and employee benefits expense of $4.2 million reflecting merit-based salary increases and an increase in number of personnel
related to expansion of the Southcentral PA market with the opening of an office in Lancaster. Within salaries and wages expense, total
cash and stock-based incentive compensation expense was $822,000 lower in 2022 consistent with lower earnings performance as compared
to that of the defined peer group. |
|
⮚ |
The provision for loan losses was $3.6 million higher in 2022 as compared to 2021. Net charge-offs totaled
$4.2 million in 2022, up $2.7 million from the total in 2021. In 2022, the Corporation recorded charge-offs totaling $3.9 million related
to a commercial real estate secured participation loan to a borrower in the health care industry. |
|
⮚ |
Total noninterest income was $1.4 million, or 5.6%, lower in 2022 as compared to 2021. Net gains from sales
of loans decreased $2.7 million reflecting a reduction in volume of residential mortgage loans sold as higher interest rates led to a
slowdown in the residential mortgage market. |
|
● |
The return on average assets (ROAA) for the twelve months ended September 30, 2022 was 1.11%, and the
return on average equity (ROAE) was 9.34%. Excluding from earnings the after-tax impact of amortization of core deposit intangibles, a
gain on sale of land, net gains on securities and net loss on a marketable equity security, the adjusted annual Core ROAA for the twelve
months ended September 30, 2022 was 1.13% and the similarly adjusted Core ROAE was 9.49%. The Core ROAE of 9.49% was lower than the
25th percentile level for the comparator group of 9.63%. Accordingly, there was no corporate performance-based payout to the
NEOs for 2022. In comparison, the 2021 corporate performance-based payout was 65% of target for each NEO. |
2022 Key Compensation Decisions and Actions
The following is a summary
of key actions taken by the Compensation Committee on executive compensation for 2022:
|
● |
Base Salaries: The 2022 base salary for each NEO increased between 4.7% and 7.3% over the 2021 amount. |
|
● |
2022 Short-Term Incentive Awards: Payouts to NEOs for 2022 performance ranged from 7% to 12% of base
salary, significantly lower than target levels ranging from 25% to 35% of base salary. These awards included the following components:
(1) no corporate awards because, as noted above, the Corporation’s ROAE of 9.49% was lower than the 25th percentile
level for the comparator group of 9.63% for the 12 months ended September 30, 2022, (2) awards based on key performance indicators
ranging from 4.1% to 7.3% of base salary, and (3) awards based on individual performance ranging from 1.8% to 7.0% of base salary. |
|
● |
2022 Long-Term Incentive Awards: Equity awards to NEOs in 2022 had grant date fair values of 45% of
2021 base salary for Mr. Scovill, 37.5% of 2021 base salary for Mr. Hoose and 30% of 2021 base salary each for Mr. Hughes,
Mr. Rush and Mr. Dunsmore. The awards included a mix based on 50% time-based restricted stock awards (“RSA”) and
50% performance-based restricted stock awards (“PRSA”). The time-based RSAs and PRSAs vest over three years, with one-third
vesting on each anniversary date of the award. For PRSAs, awards only vest to the extent performance has been met for the prior year. |
|
● |
2022 Performance Outcome: Based on 2022 performance compared to performance of the approved comparator
group for the 12 months ended September 30, 2022, the potential shares for PRSA awards granted in 2020, 2021 and 2022 did not vest. |
Overview of the Executive Compensation Program
The Corporation’s executive
compensation program includes fixed and variable compensation and benefit components, typical of programs among comparable community banking
and financial services companies in our local and regional marketplace. The program is designed to provide participating executives with
an industry-competitive level of total compensation when their collective and individual performances meet or exceed the goals approved
by the Board of Directors.
Compensation Philosophy and Program Objectives
We believe that the compensation
program for executives should directly support the achievement of specific annual, long-term and strategic goals of the business, and,
thereby, align the interests of executives with the interests of our shareholders.
We believe the current program
provides sufficient levels of fixed pay elements, in the forms of base salary and health and welfare benefits, to attract high caliber
executive talent to the organization. It also provides annual and long-term incentive opportunities to encourage specific performance
and to reward the successful efforts of executives. The incentive opportunities are structured to produce a performance-leveraged program
format in which executives may derive a significant portion of their total compensation, depending on their role in the organization,
from short and long-term incentive opportunities, but only when performance targets are met on a consistent basis and subject to appropriate
controls to ensure management is not incented to take excessive risk.
We believe that the features
and composition of the current program provide a total compensation package for executive officers that is competitive in our marketplace
but weighted toward variable pay based on corporate and individual performance, and which contributes to the creation of shareholder value.
2022 Program Components
The following is a discussion of the primary purpose
of each element within our executive compensation program.
|
1. |
Base Salary. Base salaries are set to recognize the executive’s experience, responsibilities
associated with the position and expectations with respect to the individual’s contributions to the Corporation. In setting or adjusting
base salary levels for our NEOs, the Corporation considers the following factors: the executive’s position, individual performance,
contribution to the Corporation, market salaries for similar positions, experience in the position, industry merit increase budgets, and
the Corporation’s overall financial performance. Base salaries for the NEOs are reviewed and approved annually by the Compensation
Committee no later than the first quarter of the fiscal year so the Compensation Committee can take into account results from the prior
fiscal year-end performance. |
|
2. |
Short-Term (Annual) Incentives. The Corporation’s Annual Incentive Award Plan provides
participating executives with opportunities to earn additional cash compensation in a given year when corporate and business unit operating
results and individual performance contributions meet or exceed established thresholds of acceptable achievement. For 2022, corporate
performance was measured based on the Corporation’s ROAE, adjusted to exclude extraordinary occurrences as compared to ROAE goals
based on the comparator group’s ROAE for the 12 months ended September 30, 2022. Key performance indicators include core deposit
growth, total revenue growth, efficiency ratio, and growth in wealth management revenue. Each participant’s individual performance
contribution is evaluated by his or her supervisor, with the Chief Executive Officer’s individual performance contribution evaluated
by the Board of Directors. The Committee, in its discretion, may adjust or eliminate award payments under the Incentive Award Plan. All
awards under the Incentive Award Plan are paid in cash as soon as it is practical after the end of a plan year. |
|
3. |
Long-term Incentives (“LTI”). The Corporation’s 1995 Stock Incentive Plan
provides participating executives with the ability to receive equity awards (as determined by the Committee, as administrator of the plan),
and is intended to focus the recipient’s efforts on the strategic direction and goals of the business, incent ownership in the Corporation
and promote a vested interest in the Corporation’s long-term success. Awards may take the form of incentive stock options, nonqualified
options, stock appreciation rights or restricted stock. The Committee reviews and recommends approval of awards to executives based upon
its assessment of individual performance, a review of the executive’s existing long-term incentives, and retention considerations.
All awards granted under the plan have been incentive stock options or restricted stock. A total of 850,000 shares of common stock may
be issued under the plan. As of December 31, 2022, a balance of 52,128 shares remain available for issuance. |
In 2022, the Corporation made LTI grants
to its NEOs in the form of 50% RSAs and 50% PRSAs. RSAs granted to the Corporation’s and the Bank’s executive officers in
2022 vest equally over a three-year period. On each anniversary date of the 2022 RSAs, one-third of the total shares will be distributed
based on the recipient’s satisfactory performance of his or her job.
The Corporation’s PRSAs are structured
in a way where performance is assessed at the end of each year within the three-year performance period. On each anniversary date, up
to one-third of the total PRSA 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. For the 2022 LTI awards, 50% of the PRSAs are evaluated
based on ROAE performance while 50% are evaluated based on ROAA performance. Like the Annual Incentive Plan, 2022 ROAE and ROAA performance
is assessed by comparison of the Corporation’s level of performance to goals based on the comparator group’s performance for
the 12 months ended September 30, 2022. The threshold requirement for ROAE is based on the 35th percentile rank, while
the threshold requirement for ROAA is based on the 65th percentile rank as compared to the comparator group’s 12 months
ended September 30, 2022 results. 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 the minimum ROAE or ROAA threshold are forfeited by the executive and revert
back to the Corporation as of the anniversary date on which such determinations are made.
Stock options were not granted to executives
in 2022.
As further described in Proposal 4
of this proxy statement, the Committee recommended and the Board of Directors approved submission of a new plan for shareholder consideration,
the Citizens & Northern Corporation 2023 Equity Incentive Plan. Adoption of the new plan would permit the continued use of equity
incentives as a component of compensation for participating employees and independent directors and would assist executive officers and
independent directors in meeting the Board of Directors’ Stock Ownership requirements as described in the Corporate Governance section
of this proxy statement. As further described in Proposal 4, adoption of the new plan would also provide an opportunity to implement several
equity compensation plan best practices.
The Citizens & Northern Corporation
2023 Equity Incentive Plan, if approved by the shareholders, will govern new awards made subsequent to such shareholder approval. Outstanding
restricted stock and stock option awards that were granted under the existing equity incentive plans will be governed under the existing
plans.
|
4. |
Ownership Guidelines. In order to better align the interests of the NEOs with those of our shareholders,
the Corporation requires that they own a number of shares of the Corporation’s common stock with fair market value equal to a percentage
of his/her salary. At this time, the CEO is required to own a minimum amount of stock equal to three (3) times the previous year’s
base salary and all other Executive Vice Presidents are required to own one (1) times the previous year’s base salary. Each
executive officer has five (5) years from initial election or appointment by the Board of Directors to comply with the minimum ownership
requirements. Currently, all NEOs meet the minimum requirements. |
|
5. |
Health and Welfare Benefits. Executives participate in the Corporation’s qualified health
and welfare benefits programs on the same terms and conditions as other employees of the Corporation. |
|
6. |
Nonqualified Benefits and Perquisites. Nonqualified benefits and perquisites that may be offered
by the Corporation include participation in a supplemental retirement income plan (“SERP”), as well as, in many instances,
use of a company-provided automobile. In a few instances, the Corporation pays a portion of an executive’s membership dues for a
golf or social club, when such membership can facilitate the conduct of business with clients. |
SERP - The SERP is intended
to replace some of the benefits lost by executives under federally mandated restrictions on retirement income benefits to highly compensated
employees under qualified retirement income plans like pensions and 401(k) plans. The Corporation’s SERP provides a retirement
benefit to participants who retire after attaining age 55, with 5 years of Participation in the Plan. Participants vest earlier than age
55 in the event of disability, death or in the event of a change in control of the Corporation. Annual contributions to the SERP are at
the discretion of the Board of Directors, and the Board may terminate the SERP at any time.
Historically, the Corporation’s
annual contribution has been based on a formula designed to provide an annual benefit equal to 20% of the individual’s highest five-year
average compensation and assumes retirement at age 65. In determining the annual contribution amounts, the Corporation assumes interest
rates of 8% for preretirement and 6% for postretirement and utilizes a standard mortality table.
The annual contribution is deposited
into each participant’s account held in a trust account at the Bank. While the Bank’s Wealth Management Group manages the
trust assets, each participant may direct the investment of the funds credited to their account. All assets in the trust are subject to
the claims of the Bank’s creditors in the event of insolvency. The actual amount available to be distributed to a participant at
separation of service depends upon the return on the investment of the funds held in the account over time. The actual investment returns
do not impact the Corporation’s determination of the annual contribution. Investment returns are allocated to participant
accounts daily based on units held of each investment. Upon vesting, amounts credited to a participant’s account are payable, at
the election of the participant, in monthly or annual installments.
Deferred Compensation Plan -
The Corporation has a nonqualified Deferred Compensation Plan that allows selected officers the option to defer receipt of up to 100%
of base salary plus any non-equity incentive plan compensation. The Compensation Committee of the Board of Directors determines employees
eligible to participate (“Participants”). The Deferred Compensation Plan does not provide for Corporation contributions.
Participants are given an annual opportunity
to elect, by entering into a Participation Agreement with the Corporation, to defer the receipt of eligible compensation by a dollar amount
or percentage specified in the Participation Agreement. Participant contributions are deposited into each Participant’s account
held in a trust account at the Bank. While the Bank’s Wealth Management Group manages the trust assets, each Participant may direct
the investment of the funds credited to their account. All assets in the trust are subject to the claims of the Bank’s creditors
in the event of insolvency. The Board of Directors may amend or terminate the Plan at any time; provided, however, that no such amendment
or termination shall reduce the balance in any Participant’s account nor affect the terms of the Plan relating to the payment of
any account.
Participants are fully vested in their
accounts at all times. Upon separation from service, amounts credited to a participant’s account are payable, at the election of
the participant, in monthly or annual installments.
|
7. |
Employment, Change in Control and Severance Agreements. The Corporation has entered into Employment
Agreements with Mr. Scovill, Mr. Hughes, Mr. Hoose and Mr. Rush, and a Change in Control Agreement with Mr. Dunsmore.
The Employment Agreements and Change in Control Agreement are described in more detail on pages 39-41. |
None of the named executive officers
has a commitment from the Corporation for a tax gross-up payment in the event that their severance benefits exceed the deduction limitations
under Internal Revenue Code Section 4999.
How We Make Decisions Regarding Named Executive
Officer Compensation
The Compensation Committee,
with the support of its independent compensation consultant and management, determines executive compensation programs, practices, and
levels for full Board consideration and approval. Specific responsibilities are assigned in accordance with governance best practices.
In making its determinations, the Compensation Committee considers data and analyses regarding a peer group and other internal studies.
Below is an explanation of the key roles and responsibilities of each group, as well as how market data is integrated into the process.
Role of the Compensation
Committee. The Compensation Committee (“the Committee”) of the Board of Directors has primary responsibility for the
design and administration of the executive compensation program. It reviews the make-up and administration of the executive compensation
program throughout the year in light of changing organization needs and operating conditions and changing trends in industry practice.
The Compensation Committee determines and approves the salaries, cash and equity incentive bonuses, equity awards, benefits and employment
policies as they relate to the named executive officers, subject to full Board consideration and approval.
In making determinations regarding
executive compensation, the Compensation Committee weighs an individual’s personal performance, the performance of his or her area
of responsibility, and the overall performance of the Corporation. The performance of the Chief Executive Officer in each of these regards
is evaluated by the Compensation Committee. The performance of each of the named executive officers (other than the Chief Executive Officer)
is evaluated by the Chief Executive Officer and in the case of Mr. Rush by the Chief Revenue Officer. The Compensation Committee
reviews performance of the named executive officers on an annual basis and examines each named executive officer’s base salary,
cash and equity incentive bonus, and restricted stock award at such time.
The Compensation Committee
has the authority to retain or obtain the services of compensation consultants or other advisors to provide compensation and benefit consulting
services to the Committee. The independence of any such advisor is determined by the Compensation Committee prior to selecting or receiving
advice from the advisor.
Role of Executive Management.
Key members of the Corporation’s executive management attend Compensation Committee meetings at the Compensation Committee’s
request to provide information and their perspective about executive compensation policies and programs. Management’s participation
plays an important part in the development and continuation of benefit plans, and in determining appropriate levels of compensation. The
Compensation Committee holds discussions with management in attendance to ensure that the Compensation Committee makes fully informed
recommendations with respect to compensation matters that affect the Corporation’s operations and shareholder returns. Finally,
the Corporation’s Chief Executive Officer participates in deliberations of the Compensation Committee on an ex-officio, non-voting
basis, but does not participate during, or attend, deliberations concerning his own compensation. No member of management was present
during the portion of any Compensation Committee meeting at which the Compensation Committee made determinations regarding such named
executive officer’s compensation.
Role of the Compensation
Consultant. The Compensation Committee utilizes the support of outside compensation experts in establishing the policies, programs,
and levels of executive compensation. In 2022, the Compensation Committee engaged Pearl Meyer & Partners, LLC (Pearl Meyer) to:
|
● |
Review and provide feedback on Proxy Statement disclosures; |
|
● |
Review and update the compensation peer group, as appropriate, and provide updates on comparator group earnings
performance; |
|
● |
Assess the competitiveness of the executives’ total compensation opportunities |
In their role as the Corporation’s
outside advisor, Pearl Meyer also responds to questions from the Compensation Committee and attends meetings as requested. Pearl Meyer
reports directly to the Compensation Committee and, as directed by the Compensation Committee, works with management in support of the
Committee. Pearl Meyer performed no services outside of those related to executive and director compensation for the Corporation in 2022.
The Compensation Committee assessed the independence of Pearl Meyer and believes they are an independent advisor pursuant to the rules and
standards promulgated by the SEC and NASDAQ.
Role of Market Data/External
Comparison. Annually, the Committee asks its independent compensation consultant to review proxy disclosures and survey sources
on national and regional compensation practices within the Corporation’s industry group, focusing on pay levels and practices among
community banking institutions based in the Mid-Atlantic Region. For the 2022 program planning review conducted in 2021, the independent
compensation consultant applied the following filters in developing a recommended group of institutions to serve as the Corporation’s
peer group (the “2022 Peer Group”):
|
● |
included publicly traded commercial banks, and excluded thrifts, mutual holding companies and private banks;
all institutions selected are traded on NASDAQ, NYSE or NYSE American except for a few local competitors who are traded on the OTC Marketplace; |
|
● |
included banking institutions with asset size ranging from approximately 0.5 to 2.0 times the Corporation’s
asset size that were headquartered in Pennsylvania, New Jersey, New York, Maryland, West Virginia, and Ohio; and |
|
● |
excluded banking institutions with no Trust Assets Under Management, except for a few companies who had been
included in the prior year’s peer group. |
Based on these criteria, the following 21 institutions
were selected for inclusion in the 2022 Peer Group:
ACNB
Corporation |
CNB
Financial Corporation |
LCNB
Corp. |
Peoples
Bancorp Inc. |
AmeriServ
Financial, Inc. |
Codorus
Valley Bancorp, Inc. |
Mid
Penn Bancorp, Inc. |
Peoples
Financial Services Corp. |
Arrow
Financial Corporation |
Fidelity
D&D Bancorp, Inc. |
Norwood
Financial Corp. |
Riverview
Financial Corporation |
Chemung
Financial Corporation |
First
United Corporation |
Orrstown
Financial Services, Inc. |
Shore
Bancshares, Inc. |
Citizens
Financial Services, Inc. |
Franklin
Financial Services Corporation |
Penns
Wood Bancorp, Inc. |
Summit
Financial Group, Inc. |
Civista
Bancshares, Inc. |
|
In addition to the custom
peer group data, market data from various banking industry surveys is also utilized and reflects banks of similar asset size and region
to that of the Corporation.
Program Review and Pay
Decision Process. During the fourth quarter each year, the Committee (1) receives base salaries and annual and long-term
incentive information on current executive compensation levels in the industry and industry program practices provided by its independent
compensation consultant; (2) conducts a comprehensive review of the Corporation’s compensation program structure and provisions;
and (3) considers salary and benefit adjustments and incentive awards for executives. After examining the information provided by
its independent compensation consultant, the Committee determines whether (1) the content and structure of the Corporation’s
compensation program is still competitive; (2) the current provisions remain consistent with the Corporation’s overall pay
philosophy; and (3) the compensation program continues to support achievement of the Corporation’s business objectives.
After deciding on the program
structure for the coming calendar year, the Committee examines the current compensation and benefit levels of incumbent executives in
light of their continuing or changing roles in the business, the assessments of their individual performances by the Chief Executive Officer,
and industry trends. The performance of the Chief Executive Officer is reviewed and appraised by the Committee, with input from all members
of the Board of Directors. Based on the information gathered about each executive, the Committee formulates recommendations on possible
salary adjustments for executives during the coming year. It also determines annual incentive awards for executives based on results achieved
against goals and objectives defined at the beginning of the year and determines appropriate long-term incentive awards in the form of
stock-based compensation. These recommendations are then presented to the full Board of Directors for consideration and approval.
As incentive awards for the
current year are determined, the Committee also works with the Chief Executive Officer to construct executive performance plans for the
coming year. The Committee formulates their recommendations on performance goals and award opportunities for Board consideration and approval.
The Committee may also be
called upon to consider pay related decisions from time to time throughout the calendar year as executives are reassigned or new executives
join the organization. In these instances, the Committee will review all aspects of the executive’s compensation, including base
salary level, annual incentive opportunities, long-term incentive awards, participation in special benefit plans, and employment contract
provisions, if applicable.
2022 Executive Compensation Decisions
Base Salaries. For 2022, the Compensation
Committee approved annual increases in base salary ranging between 4.7% and 7.3% for each of the Named Executive Officers in recognition
of each executive’s contribution and performance.
Annual Incentive Awards. The table
below presents the performance criteria and the weighting of each criterion used in determining the annual incentive awards earned based
upon 2022 performance for the named executive officers:
|
|
Performance Criteria |
|
Target Performance
Result |
|
|
Actual Performance
Result |
|
|
Criterion Weighting |
|
|
Target % of Base
Salary |
|
|
Maximum % of Base
Salary |
|
|
Award % of Base Salary |
|
J. Bradley Scovill |
|
Corporate Earnings Performance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Award Matrix Result (1) |
|
|
100.00 |
% |
|
|
0.00 |
% |
|
|
50 |
% |
|
|
17.5 |
% |
|
|
26.3 |
% |
|
0.0 |
% |
|
|
Key Performance Indicators (2)Based on: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Growth in Annual Average Core Deposits (3) |
|
|
6.60 |
% |
|
|
4.04 |
% |
|
|
7.5 |
% |
|
|
2.6 |
% |
|
|
3.9 |
% |
|
0.0 |
% |
|
|
Total Revenue (4) |
|
|
$107.7 Million |
|
|
|
$108.8 Million |
|
|
|
7.5 |
% |
|
|
2.6 |
% |
|
|
3.9 |
% |
|
3.3 |
% |
|
|
Efficiency Ratio (5) |
|
|
61.50 |
% |
|
|
62.48 |
% |
|
|
7.5 |
% |
|
|
2.6 |
% |
|
|
3.9 |
% |
|
1.5 |
% |
|
|
Total Wealth Management Revenue (6) |
|
|
$9.9 Million |
|
|
|
$9.3 Million |
|
|
|
7.5 |
% |
|
|
2.6 |
% |
|
|
3.9 |
% |
|
0.0 |
% |
|
|
Individual Performance (7) |
|
|
|
|
|
|
|
|
|
|
20 |
% |
|
|
7.0 |
% |
|
|
10.5 |
% |
|
7.0 |
% |
|
|
Totals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35.0 |
% |
|
|
52.5 |
% |
|
11.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark A. Hughes |
|
Corporate Earnings Performance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Award Matrix Result (1) |
|
|
100.00 |
% |
|
|
0.00 |
% |
|
|
50 |
% |
|
|
15.0 |
% |
|
|
22.5 |
% |
|
0.0 |
% |
|
|
Key Performance Indicators (2)Based on: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Growth in Annual Average Core Deposits (3) |
|
|
6.60 |
% |
|
|
4.04 |
% |
|
|
7.5 |
% |
|
|
2.3 |
% |
|
|
3.4 |
% |
|
0.0 |
% |
|
|
Total Revenue (4) |
|
|
$107.7 Million |
|
|
|
$108.8 Million |
|
|
|
7.5 |
% |
|
|
2.3 |
% |
|
|
3.4 |
% |
|
2.8 |
% |
|
|
Efficiency Ratio (5) |
|
|
61.50 |
% |
|
|
62.48 |
% |
|
|
7.5 |
% |
|
|
2.3 |
% |
|
|
3.4 |
% |
|
1.3 |
% |
|
|
Total Wealth Management Revenue (6) |
|
|
$9.9 Million |
|
|
|
$9.3 Million |
|
|
|
7.5 |
% |
|
|
2.3 |
% |
|
|
3.4 |
% |
|
0.0 |
% |
|
|
Individual Performance (7) |
|
|
|
|
|
|
|
|
|
|
20 |
% |
|
|
6.0 |
% |
|
|
9.0 |
% |
|
6.4 |
% |
|
|
Totals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30.0 |
% |
|
|
45.0 |
% |
|
10.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harold F. Hoose, III |
|
Corporate Earnings Performance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Award Matrix Result (1) |
|
|
100.00 |
% |
|
|
0.00 |
% |
|
|
45 |
% |
|
|
13.5 |
% |
|
|
20.3 |
% |
|
0.0 |
% |
|
|
Key Performance Indicators (2)Based on: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Growth in Annual Average Core Deposits (3) |
|
|
6.60 |
% |
|
|
4.04 |
% |
|
|
10 |
% |
|
|
3.0 |
% |
|
|
4.5 |
% |
|
0.0 |
% |
|
|
Total Revenue (4) |
|
|
$107.7 Million |
|
|
|
$108.8 Million |
|
|
|
15 |
% |
|
|
4.5 |
% |
|
|
6.8 |
% |
|
5.6 |
% |
|
|
Efficiency Ratio (5) |
|
|
61.50 |
% |
|
|
62.48 |
% |
|
|
10 |
% |
|
|
3.0 |
% |
|
|
4.5 |
% |
|
1.7 |
% |
|
|
Total Wealth Management Revenue (6) |
|
|
$9.9 Million |
|
|
|
$9.3 Million |
|
|
|
10 |
% |
|
|
3.0 |
% |
|
|
4.5 |
% |
|
0.0 |
% |
|
|
Individual Performance (7) |
|
|
|
|
|
|
|
|
|
|
10 |
% |
|
|
3.0 |
% |
|
|
4.5 |
% |
|
3.2 |
% |
|
|
Totals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30.0 |
% |
|
|
45.0 |
% |
|
10.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Blair T. Rush |
|
Corporate Earnings Performance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Award Matrix Result (1) |
|
|
100.00 |
% |
|
|
0.00 |
% |
|
|
45 |
% |
|
|
11.3 |
% |
|
|
16.9 |
% |
|
0.0 |
% |
|
|
Key Performance Indicators (2)Based on: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Growth in Annual Average Core Deposits (3) |
|
|
6.60 |
% |
|
|
4.04 |
% |
|
|
11.25 |
% |
|
|
2.8 |
% |
|
|
4.2 |
% |
|
0.0 |
% |
|
|
Total Revenue (4) |
|
|
$107.7 Million |
|
|
|
$108.8 Million |
|
|
|
11.25 |
% |
|
|
2.8 |
% |
|
|
4.2 |
% |
|
3.5 |
% |
|
|
Efficiency Ratio (5) |
|
|
61.50 |
% |
|
|
62.48 |
% |
|
|
11.25 |
% |
|
|
2.8 |
% |
|
|
4.2 |
% |
|
1.6 |
% |
|
|
Total Wealth Management Revenue (6) |
|
|
$9.9 Million |
|
|
|
$9.3 Million |
|
|
|
11.25 |
% |
|
|
2.8 |
% |
|
|
4.2 |
% |
|
0.0 |
% |
|
|
Individual Performance (7) |
|
|
|
|
|
|
|
|
|
|
10 |
% |
|
|
2.5 |
% |
|
|
3.8 |
% |
|
1.8 |
% |
|
|
Totals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25.0 |
% |
|
|
37.5 |
% |
|
6.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stan R. Dunsmore |
|
Corporate Earnings Performance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Award Matrix Result (1) |
|
|
100.00 |
% |
|
|
0.00 |
% |
|
|
45 |
% |
|
|
11.3 |
% |
|
|
16.9 |
% |
|
0.0 |
% |
|
|
Key Performance Indicators (2)Based on: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Growth in Annual Average Core Deposits (3) |
|
|
6.60 |
% |
|
|
4.04 |
% |
|
|
10 |
% |
|
|
2.5 |
% |
|
|
3.8 |
% |
|
0.0 |
% |
|
|
Total Revenue (4) |
|
|
$107.7 Million |
|
|
|
$108.8 Million |
|
|
|
15 |
% |
|
|
3.8 |
% |
|
|
5.6 |
% |
|
4.7 |
% |
|
|
Efficiency Ratio (5) |
|
|
61.50 |
% |
|
|
62.48 |
% |
|
|
10 |
% |
|
|
2.5 |
% |
|
|
3.8 |
% |
|
1.4 |
% |
|
|
Total Wealth Management Revenue (6) |
|
|
$9.9 Million |
|
|
|
$9.3 Million |
|
|
|
10 |
% |
|
|
2.5 |
% |
|
|
3.8 |
% |
|
0.0 |
% |
|
|
Individual Performance (7) |
|
|
|
|
|
|
|
|
|
|
10 |
% |
|
|
2.5 |
% |
|
|
3.8 |
% |
|
2.5 |
% |
|
|
Totals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25.0 |
% |
|
|
37.5 |
% |
|
8.6 |
% |
|
(1) |
The Corporate Earnings Performance award was calculated based upon achievement of annual return on average
equity (Core ROAE) as a percent ranking compared to Comparator Group Performance. The Comparator Group included all publicly traded commercial
banks and thrifts within MD, NJ, NY, OH, PA and WV with total assets between 0.5 and 2.0 times the Corporation (“CZNC”) as
of September 30, 2022. The chart below was used to determine the incentive opportunity percentage of base salary from which a participant’s
cash incentive award would be paid: |
|
Threshold |
Target |
Maximum |
Actual |
Relative ROAE Rank vs. Peers |
25th percentile |
50th percentile |
75th percentile |
22nd percentile |
|
|
|
|
CZNC Core 2022 ROAE: 9.49% |
|
|
|
|
Comparator Group |
|
|
|
|
Average: 11.99% |
|
|
|
|
Median: 12.32%
25th percentile: 9.63% |
Corporate Payout |
33% |
100% |
150% |
0% |
The decision to use an ROAE rank against
Comparator Group of 25th percentile to establish the minimum performance standard for a payout, and an ROAE rank against Comparator
Group of 50th percentile to establish a payout at 100% of Target, recognized that the Corporation’s equity capital, as
a percentage of assets, is significantly higher than the peer average. An indicator of the Corporation’s higher-than-Peer average
equity capital is that although the Corporation’s twelve months ended September 30, 2022 Core ROAE rank was the 22nd percentile
compared to the twelve months ended September 30, 2022 Comparator Group results, the Corporation’s adjusted (Core) return on
average assets of 1.13% at the 44th percentile ranking compared to Comparator Group results.
For purposes of comparing the Corporation’s
Core ROAE and ROAA to comparator group results, the Corporation’s earnings as determined under U.S. Generally Accepted Accounting
Principles (U.S. GAAP) were adjusted to eliminate amounts the Committee determined to be based on “extraordinary occurrences,”
as described in the 2022 Annual Incentive Award Plan document. Reconciliation of the Corporation’s earnings for the twelve months
ended September 30, 2022 under U.S. GAAP to the non-GAAP earnings amount used in the incentive award calculation is as follows:
|
|
|
|
|
|
|
Annualized |
|
|
|
|
Annualized |
|
|
|
|
|
|
|
|
|
|
|
Return on |
|
|
|
|
|
|
Return on |
|
|
|
Net |
|
|
Average |
|
|
Average |
|
|
Average |
|
|
Average |
|
(Dollars in Thousands) |
|
Income |
|
|
Equity |
|
|
Equity |
|
|
Assets |
|
|
Assets |
|
Net Income |
|
$ |
26,147 |
|
|
$ |
279,969 |
|
|
|
9.34 |
% |
|
$ |
2,356,162 |
|
|
|
1.11 |
% |
Add: Amortization of Core Deposit Intangibles (a) |
|
|
367 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Gain on Sale of Land (b) |
|
|
(36 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net Gains on Available-for-sale Debt Securities (c) |
|
|
(16 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: Net Loss on Marketable Equity Security (d) |
|
|
98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals Used for Performance Evaluation |
|
$ |
26,560 |
|
|
$ |
279,969 |
|
|
|
9.49 |
% |
|
$ |
2,356,162 |
|
|
|
1.13 |
% |
|
(a) |
Pre-tax amortization of core deposit intangibles totaled $464,000. Income tax has been allocated at the Corporation’s
marginal tax rate of 21%. |
|
(b) |
Pre-tax gain on sale of land was $46,000. Income tax has been allocated at the Corporation’s marginal
tax rate of 21%. |
|
(c) |
Pre-tax realized gains on securities totaled $20,000. Income tax has been allocated to the net gains at the
Corporation’s marginal tax rate of 21%. |
|
(d) |
The pre-tax loss on marketable equity security totaled $124,000. Income tax has been allocated to the net
gain at the Corporation’s marginal tax rate of 21%. |
|
(2) |
Certain performance measurements were identified by the Corporation as 2022 Key Performance Indicators (“KPIs”).
In order for the NEOs to have the opportunity to earn the incentive award amounts indicated in the table for each KPI, the Corporation
had to first meet certain risk management requirements as measured by specific Key Risk Indicators (“KRIs”). The KRIs functioned
as a pass/fail mechanism. As of September 30, 2022, if the Corporation’s Total Summary KRI Value were to fall outside of the
middle range of possible values, or if the risk rating for any individual category were at an elevated level, the NEOs would have been
ineligible for an incentive award based on the KPIs. As of September 30, 2022, the Total KRI Summary Value and values for each risk
category were at acceptable levels. Accordingly, the NEOs were eligible for incentive awards based on the KPIs. |
|
(3) |
Core deposits were defined as the Corporation’s total deposits excluding time deposits and brokered
deposits. The target award criterion growth in annual average core deposits was a 6.60% growth rate over the 4th quarter 2021
average core deposits amount of $1.609 billion. Total average core deposits in 2022 was $1.675 billion, or 4.04% growth over the 4th
quarter 2021 average. |
|
(4) |
Total revenue was calculated based on the Corporation’s consolidated financial results for 2022, including
the sum of: (a) total net interest income (including income from tax-exempt securities and loans on a fully-taxable equivalent basis)
and (b) noninterest income excluding securities gains and losses. The target award criterion of $107.7 million was 2.6% higher than
the corresponding total revenue for 2021 and was based on 103% of the Corporation’s 2022 budgeted total. Actual revenue for 2022
totaled $108.8 million, or 101.0% of the target amount. |
|
(5) |
The Efficiency Ratio was calculated based on the Corporation’s consolidated financial results for 2022,
by dividing: (a) total noninterest expense 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 and losses. |
|
(6) |
Wealth Management Group revenue was based on comparison of total revenue from trust and brokerage services
and from insurance commissions received as a result of efforts by employees within that group. The target award criterion amount was 9.30%
higher than the corresponding total revenue for 2021 and was based on the Corporation’s 2022 budgeted total. The threshold award
criterion amount was established based on achieving at least 95% of the target amount. Actual revenue for 2022 totaled 93.41% of the target
amount. |
|
(7) |
The Individual Performance awards were based on each individual’s overall performance evaluation. |
Mr. Scovill recommended the Individual
Performance awards for the other NEOs, and after discussion of the performance criteria for each individual, the recommended awards were
approved by the Compensation Committee and ratified by the Board of Directors.
Mr. Scovill’s Individual
Performance award was determined by the Board of Directors, based on recommendation of the Compensation Committee, and based on assessment
of Mr. Scovill’s contributions to overall corporate performance.
Long-term Performance Incentives.
As a part of our annual compensation review process, we worked with our outside Compensation Consultant in 2021 to review pay opportunities
relative to market and used those results to make changes/pay decisions for 2022. As a result of this review, the Committee elected to
grant equity awards, including time-based and performance-based awards in January 2022. The awards are as follows:
Name |
|
Title |
|
2021 Base Salary |
|
|
LTI Award as
% of Base Salary |
|
|
Grant Date Fair
Value of LTI Awards |
|
|
Grant Date |
|
Grant Date
Share Price |
|
|
# of Shares
Granted (1) |
|
J. Bradley Scovill |
|
Chief Executive Officer |
|
$ |
498,750 |
|
|
|
45.0 |
% |
|
$ |
224,429 |
|
|
1/31/2022 |
|
$ |
25.02 |
|
|
|
8,970 |
|
Mark A. Hughes |
|
EVP and Chief Financial Officer |
|
$ |
300,000 |
|
|
|
30.0 |
% |
|
$ |
89,997 |
|
|
1/31/2022 |
|
$ |
25.02 |
|
|
|
3,597 |
|
Harold F. Hoose, III |
|
EVP and Chief Revenue Officer |
|
$ |
267,750 |
|
|
|
37.5 |
% |
|
$ |
100,405 |
|
|
1/31/2022 |
|
$ |
25.02 |
|
|
|
4,013 |
|
Blair T. Rush |
|
EVP and Region President |
|
$ |
275,000 |
|
|
|
30.0 |
% |
|
$ |
82,491 |
|
|
1/31/2022 |
|
$ |
25.02 |
|
|
|
3,297 |
|
Stan R. Dunsmore |
|
EVP and Chief Credit Officer |
|
$ |
232,000 |
|
|
|
30.0 |
% |
|
$ |
69,581 |
|
|
1/31/2022 |
|
$ |
25.02 |
|
|
|
2,781 |
|
(1) As described above, all of the awards
granted to NEOs in 2022 consisted of 50% RSAs and 50% PRSAs, vesting over a three-year period.
Consideration of Say-On-Pay Advisory Vote
At our 2022 annual meeting
of shareholders, approximately 95% of our shareholders who voted on the “say-on-pay” proposal (excluding broker non-votes
and abstentions) approved the compensation we pay to our named executive officers. The Compensation Committee believes that the shareholder
vote reflects fundamental support for our compensation philosophy. Accordingly, we have not modified our practices or philosophy as a
result of the 2022 advisory vote.
The Corporation’s current
practice is to conduct a say-on-pay advisory vote each year. The Compensation Committee values the opinions of shareholders and carefully
evaluates the say-on-pay advisory vote results when determining future compensation.
Risk Management
We do not believe that the
Corporation’s compensation programs and practices present any risks that are reasonably likely to have a material adverse effect
on the Corporation.
The Committee believes that
the direct compensation components of the executive compensation program—salary, annual incentive opportunities, equity grants—are
reasonable, competitive and approximate the median of prevailing industry practices. The Committee intends to maintain the current leveraged
approach to total compensation, directly tying a significant portion of an executive’s total earnings to achievements against goals
and objectives approved by the Board of Directors, while balancing the approach with appropriate controls to ensure that management is
not incented to take excessive risks.
Recoupment Policy
The Corporation has an executive
compensation recoupment policy pursuant to which annual cash bonuses, stock-based awards, performance-based compensation and other forms
of cash or equity compensation other than salary paid to executive officers are subject to a "clawback" pursuant to the recoupment policy
in the event the Corporation is required to restate its audited financial statements due to material non-compliance with financial reporting
requirements under the securities laws.
Executive Compensation Tables
The following tables set forth
for the fiscal years ended December 31, 2022, 2021 and 2020, the compensation which the Corporation and its subsidiaries paid to
its named executive officers.
Summary Compensation Table
The following table contains
information with respect to annual compensation for services in all capacities to the Corporation and the Bank for the fiscal year ended
December 31, 2022, with comparative information for 2021 and 2020, of those persons who were, (i) the Chief Executive Officer,
(ii) the Chief Financial Officer and (iii) the other three most highly compensated executive officers other than the Chief Executive
Officer and the Chief Financial Officer to the extent such person’s total compensation exceeded $100,000 (collectively, the “named
executive officers”):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity |
|
|
Nonqualified |
|
|
All |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock |
|
|
Option |
|
|
Incentive
Plan |
|
|
Deferred
Plan |
|
|
Other |
|
|
|
|
Name
and |
|
|
|
|
Salary |
|
|
Bonus(1) |
|
|
Awards(2) |
|
|
Awards(3) |
|
|
Compensation(4) |
|
|
Compensation(5) |
|
|
Compensation(6) |
|
|
Total |
|
Principal
Position |
|
Year |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
J.
BRADLEY SCOVILL |
|
|
2022 |
|
|
|
535,000 |
|
|
|
0 |
|
|
|
224,429 |
|
|
|
0 |
|
|
|
62,942 |
|
|
|
0 |
|
|
|
265,749 |
|
|
|
1,088,120 |
|
President
and |
|
|
2021 |
|
|
|
498,750 |
|
|
|
0 |
|
|
|
213,754 |
|
|
|
0 |
|
|
|
186,929 |
|
|
|
0 |
|
|
|
209,760 |
|
|
|
1,109,193 |
|
Chief
Executive Officer |
|
|
2020 |
|
|
|
475,000 |
|
|
|
0 |
|
|
|
196,638 |
|
|
|
0 |
|
|
|
208,727 |
|
|
|
0 |
|
|
|
165,546 |
|
|
|
1,045,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MARK
A. HUGHES |
|
|
2022 |
|
|
|
315,000 |
|
|
|
500 |
|
|
|
89,997 |
|
|
|
0 |
|
|
|
33,000 |
|
|
|
0 |
|
|
|
78,804 |
|
|
|
517,301 |
|
Executive
Vice President |
|
|
2021 |
|
|
|
300,000 |
|
|
|
500 |
|
|
|
87,007 |
|
|
|
0 |
|
|
|
91,877 |
|
|
|
0 |
|
|
|
68,691 |
|
|
|
548,075 |
|
and
Chief Financial Officer |
|
|
2020 |
|
|
|
290,000 |
|
|
|
500 |
|
|
|
82,633 |
|
|
|
0 |
|
|
|
109,230 |
|
|
|
0 |
|
|
|
64,688 |
|
|
|
547,051 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HAROLD
F. HOOSE, III |
|
|
2022 |
|
|
|
284,000 |
|
|
|
500 |
|
|
|
100,405 |
|
|
|
0 |
|
|
|
30,000 |
|
|
|
0 |
|
|
|
64,400 |
|
|
|
479,305 |
|
Executive
Vice President |
|
|
2021 |
|
|
|
267,750 |
|
|
|
500 |
|
|
|
91,872 |
|
|
|
0 |
|
|
|
89,027 |
|
|
|
0 |
|
|
|
59,829 |
|
|
|
508,978 |
|
and
Chief Revenue Officer |
|
|
2020 |
|
|
|
245,000 |
|
|
|
500 |
|
|
|
84,541 |
|
|
|
0 |
|
|
|
83,325 |
|
|
|
0 |
|
|
|
53,479 |
|
|
|
466,845 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BLAIR
RUSH |
|
|
2022 |
|
|
|
289,000 |
|
|
|
500 |
|
|
|
83,491 |
|
|
|
0 |
|
|
|
20,000 |
|
|
|
0 |
|
|
|
51,024 |
|
|
|
444,015 |
|
Executive
Vice President |
|
|
2021 |
|
|
|
275,000 |
|
|
|
500 |
|
|
|
15,475 |
|
|
|
0 |
|
|
|
72,931 |
|
|
|
0 |
|
|
|
49,185 |
|
|
|
413,091 |
|
and
Region President |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STAN
R. DUNSMORE |
|
|
2022 |
|
|
|
243,000 |
|
|
|
500 |
|
|
|
69,581 |
|
|
|
0 |
|
|
|
21,000 |
|
|
|
0 |
|
|
|
78,249 |
|
|
|
412,330 |
|
Executive
Vice President |
|
|
2021 |
|
|
|
232,000 |
|
|
|
500 |
|
|
|
66,907 |
|
|
|
0 |
|
|
|
62,833 |
|
|
|
0 |
|
|
|
69,746 |
|
|
|
431,986 |
|
and
Chief Credit Officer |
|
|
2020 |
|
|
|
223,000 |
|
|
|
500 |
|
|
|
60,899 |
|
|
|
0 |
|
|
|
63,203 |
|
|
|
43,605 |
|
|
|
61,538 |
|
|
|
452,745 |
|
(1) The bonus amounts were paid
pursuant to discretionary “holiday awards” that were paid in December of each year to essentially all employees except
the Chief Executive Officer.
(2) The grant date fair market
value of stock awards is computed in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(the “ASC”) topic 718, “Compensation—Stock Compensation,” excluding the effect
of estimated forfeitures. The value used for restricted stock awards is based on the market value of the stock at the grant date.
The amounts shown in the “Stock Awards” column equal the values of restricted stock awards determined based on the average
of the high and low stock price at each grant date. For 2022, the value as of the January 31, 2022 grant date was $25.02 per share.
In 2021, the value as of the grant date for the January 29, 2021 awards was $20.02 per share. The value of time-based awards granted
January 31, 2020 was $26.37 per share, and the value of performance based awards granted March 16, 2020 was $19.17 per share.
Restricted stock awards to NEOs under the Stock
Incentive Plan in 2022, 2021 and 2020 provided for vesting over a three-year term, with vesting for half of the shares dependent on satisfactory
performance (time vesting) and vesting for half of the shares based on time vesting and upon the Corporation meeting an ROAE (one-sixth
of the total shares awarded) and ROAA (one-sixth of the total shares awarded) performance ratio, as defined. In 2022, the Corporation
did not meet the performance conditions; accordingly, in the first quarter 2023, the following forfeitures occurred: Mr. Scovill
– 4,983 shares; Mr. Hughes – 2,041 shares; Mr. Hoose – 2,165 shares; Mr. Rush - 549 shares; and Mr. Dunsmore
– 1,549 shares. In 2021, the Corporation met the performance conditions except for the performance condition included in the 2019
awards based on ROAE. Accordingly, in the first quarter 2022, the following forfeitures of restricted stock occurred: Mr. Scovill
– 1,293 shares; Mr. Hughes - 559 shares; Mr. Hoose – 564 shares; and Mr. Dunsmore - shares. In 2020, the Corporation
met the performance conditions defined in the applicable awards.
(3) There were no options awarded in 2022, 2021 or
2020.
(4) The amounts shown in the
“Non-Equity Incentive Plan Compensation” column were paid pursuant to the Incentive Award Plan, which is described in the
“Program Components” section of Compensation Discussion and Analysis.
(5) The amounts shown in the
column headed “Change in Pension Value and Nonqualified Deferred Plan Compensation” are attributable to Mr. Dunsmore’s
participation in the Citizens Trust Company Pension 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 participants
and to freeze benefit accruals. The Corporation acquired Citizens Bancorp, Inc. and its wholly-owned subsidiary, Citizens Trust Company,
effective May 1, 2007. Mr. Dunsmore is the only Named Executive Officer who is a participant in this plan. In 2022 and 2021,
the present value of Mr. Dunsmore’s accumulated benefit decreased; therefore, a value of $0 is include in the Summary Compensation
Table for those years. The discount rate used to calculate the present value of accumulated plan benefit was 5.05% at December 31,
2022, 2.60% at December 31, 2021 and 2.30% at December 31, 2020.
(6) Amounts shown as “All
Other Compensation” include the following:
ALL OTHER COMPENSATION TABLE
|
|
|
|
|
Employer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions |
|
|
Employer |
|
|
Employer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
the |
|
|
Contributions |
|
|
Contributions
to |
|
|
Dollar
Value of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee |
|
|
to
the 401 (k) |
|
|
the
Supplemental |
|
|
Insurance
Premium |
|
|
Dividends |
|
|
Perquisites |
|
|
|
|
|
|
|
|
|
Stock |
|
|
Employee |
|
|
Executive |
|
|
paid
for Group- |
|
|
Paid
on |
|
|
and
Other |
|
|
|
|
|
|
|
|
|
Ownership |
|
|
Savings |
|
|
Retirement |
|
|
Term
Life and Long- |
|
|
Restricted |
|
|
Personal |
|
|
|
|
|
|
|
|
|
Plan |
|
|
Plan |
|
|
Plan
(SERP) |
|
|
Term
Disability |
|
|
Stock |
|
|
Benefits(1) |
|
|
Total |
|
Name |
|
|
Year |
|
|
|
($) |
|
|
|
($) |
|
|
|
($) |
|
|
|
($) |
|
|
|
($) |
|
|
|
($) |
|
|
|
($) |
|
J.
Bradley Scovill |
|
|
2022 |
|
|
|
12,200 |
|
|
|
15,250 |
|
|
|
186,799 |
|
|
|
2,748 |
|
|
|
20,636 |
|
|
|
28,116 |
|
|
|
265,749 |
|
|
|
|
2021 |
|
|
|
11,600 |
|
|
|
14,500 |
|
|
|
135,143 |
|
|
|
2,388 |
|
|
|
21,737 |
|
|
|
24,392 |
|
|
|
209,760 |
|
|
|
|
2020 |
|
|
|
11,400 |
|
|
|
14,250 |
|
|
|
112,706 |
|
|
|
2,388 |
|
|
|
14,581 |
|
|
|
10,221 |
|
|
|
165,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark
A. Hughes |
|
|
2022 |
|
|
|
12,200 |
|
|
|
15,250 |
|
|
|
39,598 |
|
|
|
2,748 |
|
|
|
8,408 |
|
|
|
600 |
|
|
|
78,804 |
|
|
|
|
2021 |
|
|
|
11,600 |
|
|
|
14,500 |
|
|
|
30,591 |
|
|
|
2,388 |
|
|
|
9,012 |
|
|
|
600 |
|
|
|
68,691 |
|
|
|
|
2020 |
|
|
|
11,400 |
|
|
|
14,250 |
|
|
|
30,469 |
|
|
|
1,751 |
|
|
|
6,218 |
|
|
|
600 |
|
|
|
64,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harold
F. Hoose, III |
|
|
2022 |
|
|
|
12,200 |
|
|
|
15,250 |
|
|
|
19,300 |
|
|
|
2,032 |
|
|
|
9,002 |
|
|
|
6,616 |
|
|
|
64,400 |
|
|
|
|
2021 |
|
|
|
11,600 |
|
|
|
14,500 |
|
|
|
16,499 |
|
|
|
1,197 |
|
|
|
9,362 |
|
|
|
6,672 |
|
|
|
59,830 |
|
|
|
|
2020 |
|
|
|
11,400 |
|
|
|
14,250 |
|
|
|
14,708 |
|
|
|
1,197 |
|
|
|
6,297 |
|
|
|
5,627 |
|
|
|
53,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Blair
T. Rush |
|
|
2022 |
|
|
|
12,200 |
|
|
|
15,250 |
|
|
|
- |
|
|
|
2,748 |
|
|
|
7,639 |
|
|
|
13,187 |
|
|
|
51,024 |
|
|
|
|
2021 |
|
|
|
11,600 |
|
|
|
14,500 |
|
|
|
- |
|
|
|
2,341 |
|
|
|
7,818 |
|
|
|
12,926 |
|
|
|
49,185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stan
R. Dunsmore |
|
|
2022 |
|
|
|
12,200 |
|
|
|
15,250 |
|
|
|
39,198 |
|
|
|
4,578 |
|
|
|
6,423 |
|
|
|
600 |
|
|
|
78,249 |
|
|
|
|
2021 |
|
|
|
11,600 |
|
|
|
14,500 |
|
|
|
32,810 |
|
|
|
3,448 |
|
|
|
6,788 |
|
|
|
600 |
|
|
|
69,746 |
|
|
|
|
2020 |
|
|
|
10,658 |
|
|
|
13,322 |
|
|
|
29,079 |
|
|
|
3,339 |
|
|
|
4,540 |
|
|
|
600 |
|
|
|
61,538 |
|
|
(1) |
Perquisites and other personal benefits include the estimated personal use portion of the cost of a company-supplied
automobile and personal reimbursement for cell phones and club memberships, which were used primarily, but not exclusively, for business
purposes. |
Grants of Plan-Based Awards
The following table sets forth
information concerning awards granted to the named executive officers for the year ended December 31, 2022 under the 1995 Stock Incentive
Plan.
Grants of Plan-Based
Awards
|
|
|
|
|
|
|
|
Estimated
Future Payouts Under Non-Equity Incentive Awards (a) |
|
|
Estimated
Future Payouts Under Equity Incentive Plan Awards (b) |
|
|
|
|
|
|
|
|
|
Board/ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant
Date |
|
|
|
|
|
|
Committee |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value of |
|
|
|
Grant |
|
|
Action |
|
|
Threshold |
|
|
Target |
|
|
Maximum |
|
|
Threshold |
|
|
Target |
|
|
Maximum |
|
|
Stock |
|
Name |
|
Date |
|
|
Date |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
# |
|
|
# |
|
|
# |
|
|
Awards
($) (b) |
|
J.
Bradley Scovill |
|
|
1/31/2022 |
|
|
|
1/20/2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,993 |
|
|
|
5,980 |
|
|
|
8,970 |
|
|
|
224,429 |
|
J.
Bradley Scovill |
|
|
|
|
|
|
|
|
|
|
62,435 |
|
|
|
187,250 |
|
|
|
280,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark
A. Hughes |
|
|
1/31/2022 |
|
|
|
1/20/2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
812 |
|
|
|
2,398 |
|
|
|
3,597 |
|
|
|
89,997 |
|
Mark
A. Hughes |
|
|
|
|
|
|
|
|
|
|
31,500 |
|
|
|
94,500 |
|
|
|
141,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harold
F. Hoose |
|
|
1/31/2022 |
|
|
|
1/20/2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
891 |
|
|
|
2,675 |
|
|
|
4,013 |
|
|
|
100,405 |
|
Harold
F. Hoose |
|
|
|
|
|
|
|
|
|
|
28,400 |
|
|
|
85,200 |
|
|
|
127,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Blair
T. Rush |
|
|
1/31/2022 |
|
|
|
1/20/2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
744 |
|
|
|
2,198 |
|
|
|
3,297 |
|
|
|
82,491 |
|
Blair
T. Rush |
|
|
|
|
|
|
|
|
|
|
24,074 |
|
|
|
72,250 |
|
|
|
108,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stan
R. Dunsmore |
|
|
1/31/2022 |
|
|
|
1/20/2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
628 |
|
|
|
1,855 |
|
|
|
2,781 |
|
|
|
69,581 |
|
Stan
R. Dunsmore |
|
|
|
|
|
|
|
|
|
|
20,242 |
|
|
|
60,750 |
|
|
|
91,125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Compensation opportunities under the Corporation’s Annual Incentive Award were established based on
a percentage of 2022 base salary as recommended by the Compensation Committee and approved by the Board of Directors on January 20,
2022. Additional information related to the Annual Incentive Award Plan, including the performance criteria and amounts awarded for 2022
(expressed as a percentage of 2022 base salary), are provided in the Compensation Discussion and Analysis section of this proxy statement. |
|
(b) |
The grant date fair market value of stock awards is computed in accordance with Financial Accounting Standards
Board (“FASB”) Accounting Standards Codification (the “ASC”) topic 718, “Compensation—Stock
Compensation.” The value used for restricted stock awards is based on the market value of the stock at the grant date, with
no assumed forfeitures. The market value per share of the January 31, 2022 awards is $25.02. |
Restricted stock awards to NEOs under
the Stock Incentive Plan in 2022 provide for vesting over a three-year term, with vesting for half of the shares dependent on satisfactory
performance (time vesting) and vesting for half of the shares based on time vesting and upon the Corporation’s attainment of earnings-based
performance-based standards, based on the following criteria:
|
● |
Release of 50% (one-sixth of the total shares awarded) each year based on the Corporation achieving a percent
ranking of at least 35% of the Core Return on Average Equity (ROAE) within a defined peer group of bank holding companies and thrifts
for the defined measurement period as determined by the Compensation Committee. |
|
● |
Release of 50% (one-sixth of the total shares awarded) each year based on the Corporation achieving a percent
ranking of at least 65% of the Core Return on Average Assets (ROAA) within a defined peer group of bank holding companies and thrifts
for the defined measurement period as determined by the Compensation Committee. |
In 2022, the Corporation did not meet
the performance conditions defined in the awards, as the Corporation’s Core ROAE was in the 22nd percentile, and Core ROAA was in
the 44th percentile, of the defined Peer Group’s results for the 12-month period ended September 30, 2022. Accordingly,
in the first quarter 2023, the following forfeitures of restricted stock awarded in 2022 occurred: Mr. Scovill – 1,495 shares;
Mr. Hughes - 599 shares; Mr. Hoose - 669 shares; Mr. Rush - 549 shares; and Mr. Dunsmore - 463 shares.
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth
information with respect to outstanding stock options and non-vested stock awards as of December 31, 2022 for the named executive
officers.
|
|
Option Awards |
|
|
|
|
|
Stock Awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market |
|
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Value of |
|
|
|
Securities |
|
|
|
|
|
|
|
|
|
|
|
Shares or |
|
|
Shares or |
|
|
|
Underlying |
|
|
|
|
|
|
|
|
|
|
|
Units of |
|
|
Units of |
|
|
|
Unexercised |
|
|
Option |
|
|
|
|
|
|
|
|
Stock |
|
|
Stock |
|
|
|
Options |
|
|
Exercise |
|
|
Option |
|
|
|
|
|
That Have |
|
|
That Have |
|
|
|
(#) |
|
|
Price |
|
|
Expiration |
|
|
|
|
|
Not Vested |
|
|
Not Vested |
|
Name |
|
Exercisable |
|
|
($) |
|
|
Date |
|
|
|
|
|
(#) |
|
|
($) |
|
J. Bradley Scovill |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total: |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
Total: |
|
|
|
19,040 |
|
|
$ |
435,254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark A. Hughes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total: |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
Total: |
|
|
|
7,734 |
|
|
$ |
176,799 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harold F. Hoose, III |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,521 |
|
|
$ |
20.45 |
|
|
|
1/3/2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,341 |
|
|
$ |
190,675 |
|
Total: |
|
|
3,521 |
|
|
|
|
|
|
|
|
|
|
|
Total: |
|
|
|
8,341 |
|
|
$ |
190,675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Blair T. Rush |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total: |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
Total: |
|
|
|
6,324 |
|
|
$ |
144,567 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stan R. Dunsmore |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total: |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
Total: |
|
|
|
5,923 |
|
|
$ |
135,400 |
|
Option Exercises and Stock Vested
The following table sets forth
information concerning the exercise of stock options granted, and the value realized on the vesting of restricted stock, under the 1995
Stock Incentive Plan during 2022 for each of the named executive officers.
|
|
Option Awards |
|
|
Stock Awards |
|
|
|
Number of |
|
|
|
|
|
Number of |
|
|
|
|
|
|
Shares Acquired |
|
|
Value Realized |
|
|
Shares Acquired |
|
|
Value Realized |
|
|
|
on Exercise |
|
|
on Exercise |
|
|
on Vesting |
|
|
On Vesting |
|
Name |
|
(#) |
|
|
($) |
|
|
(#) |
|
|
($) |
|
J. Bradley Scovill |
|
|
- |
|
|
|
- |
|
|
|
7,805 |
|
|
|
197,172 |
|
Mark A. Hughes |
|
|
7,024 |
|
|
|
43,500 |
|
|
|
3,248 |
|
|
|
82,088 |
|
Harold F. Hoose, III |
|
|
5,622 |
|
|
|
27,632 |
|
|
|
3,363 |
|
|
|
84,969 |
|
Blair T. Rush |
|
|
- |
|
|
|
- |
|
|
|
2,771 |
|
|
|
67,290 |
|
Stan R. Dunsmore |
|
|
- |
|
|
|
- |
|
|
|
2,436 |
|
|
|
61,547 |
|
Pension Benefits
The following table sets forth
information with respect to pension benefits for the fiscal year ended December 31, 2022 for each of the named executive officers.
|
|
|
|
|
|
|
|
|
|
|
Payments |
|
|
|
|
|
|
|
|
|
Present Value |
|
|
During |
|
|
|
|
|
|
Number of Years |
|
|
of Accumulated |
|
|
Last Fiscal |
|
|
|
|
|
|
Credited Service |
|
|
Benefit |
|
|
Year |
|
Name |
|
Plan Name |
|
|
(#) |
|
|
($)(2) |
|
|
($) |
|
Stan R. Dunsmore |
|
|
Citizens Trust Company Pension
Plan (1) |
|
|
|
25 |
|
|
$ |
197,466 |
|
|
$ |
0 |
|
|
(1) |
Mr. Dunsmore is a participant in the Citizens Trust Company Pension Plan, a tax-qualified defined benefit
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. The Corporation acquired Citizens Bancorp, Inc.
and its wholly-owned subsidiary, Citizens Trust Company, effective May 1, 2007. |
|
(2) |
The present value of accumulated benefit is presented as of December 31, 2022, which is the measurement
date the Corporation uses for financial reporting purposes. |
CEO Pay Ratio
The SEC requires disclosure
of the ratio of the median employee’s annual total compensation to the total compensation of the principal executive officer (“PEO”).
This ratio is commonly referred to as the “CEO Pay Ratio.” The Corporation’s PEO is Mr. Scovill, the President
and Chief Executive Officer (“CEO”).
For 2022, the annual total
compensation of our CEO was 20.4 times that of the Corporation’s median employee, based on annual total compensation of $1,088,120
for Mr. Scovill and $53,447 for the median employee, detailed as follows:
|
|
President |
|
|
Median |
|
|
|
and CEO |
|
|
Employee |
|
Salary |
|
$ |
535,000 |
|
|
$ |
48,017 |
|
Bonus |
|
|
- |
|
|
|
1,000 |
|
Stock Awards |
|
|
224,429 |
|
|
|
- |
|
Non-Equity Incentive Plan |
|
|
|
|
|
|
|
|
Compensation |
|
|
62,942 |
|
|
|
- |
|
All Other Compensation |
|
|
265,749 |
|
|
|
4,430 |
|
Total |
|
$ |
1,088,120 |
|
|
$ |
53,447 |
|
The median employee was identified
using a listing of all employees as of December 31, 2022 and calculating the median amount of total 2022 compensation as it would
be reported based on the IRS instructions for Box 5, Medicare wages and tips. Actual amounts reported on Box 5 for 2022 were used for
all employees who were employed throughout the entire year. We further annualized pay for those individuals not employed for a full year
in 2022. As applicable, compensation reported on Box 5 included the amount paid in 2022 for salary, bonus, dividends on restricted stock
and non-equity incentive plan (cash) awards, along with any amount deferred by the employee to the Savings & Retirement Plan
(a 401(k) plan) and the imputed value of the cost of group term life insurance and certain perquisites. Compensation reported on
Box 5 also included any amounts that vested in 2022 for SERP benefits and for stock awards (based on the market value of the stock on
the vesting date). Compensation deferred at the election of the Corporation’s officers, and the amount of employer contributions
to the ESOP and Savings & Retirement Plan, were excluded from Box 5.
This pay ratio is a reasonable
estimate calculated in a manner consistent with SEC rules based on our payroll and employment records and the methodology described
above. The SEC rules for identifying the median compensated employee and calculating the pay ratio based on that employee’s
annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates
and assumptions that reflect their compensation practices. As such, the pay ratio reported by other companies may not be comparable to
the pay ratio reported above, as other companies may have different employment and compensation practices and may utilize different methodologies,
exclusions, estimates and assumptions in calculating their own pay ratios.
Pay Versus Performance
The SEC has adopted rules requiring
disclosure of the relationship between executive compensation and financial performance. Consistent with these rules, the Corporation
(“CZNC”) is disclosing the information presented in this “Pay Versus Performance” section. The Corporation’s
process for evaluating executive compensation is described in the Compensation Discussion and Analysis section of this proxy statement.
The following table sets forth
summary information concerning executive compensation for each of the last three years.
Pay
Versus Performance |
For
the Years Ended December 31, 2022, 2021 and 2020 |
| | | | | | | | | | | | | | | Value of Initial Fixed $100 Investment on 12/31/2019 Based on: | | | | | | | |
Year | | | Summary Compensation Table Total for PEO ($) | | | Compensation Actually Paid to PEO ($) | | | Average Summary Compensation Table Total for Non-PEO Named Executive Officers ($) | | | Average Compensation Actually Paid to Non-PEO Named Executive Officers ($) | | | CZNC Total Shareholder Return ($) | | | Peer Group Total Shareholder Return ($) | | | Net Income ($) | | | Core Return on Average Equity | |
2022 | | | | 1,088,120 | | | | 915,313 | | | | 463,238 | | | | 404,421 | | | | 93.97 | | | | 110.67 | | | | 26,618,000 | | | | 10.20 | % |
2021 | | | | 1,109,193 | | | | 1,203,089 | | | | 475,533 | | | | 514,543 | | | | 102.47 | | | | 108.87 | | | | 30,554,000 | | | | 10.27 | % |
2020 | | | | 1,045,911 | | | | 952,598 | | | | 488,880 | | | | 437,791 | | | | 74.23 | | | | 79.19 | | | | 19,222,000 | | | | 9.85 | % |
Mr. Scovill,
the CEO, was the PEO in each of the three years presented in the table above. The non-PEO named executive officers included in table above
are the same individuals listed for each year in the Summary Compensation Table.
The index values shown in the table above and
described in the paragraph below are market-weighted dividend-reinvestment numbers, which measure the total return for investing $100.00
three years ago. The NASDAQ Bank Index has been selected to replace the Peer Group Index of similar-size banking organizations selected
by the Corporation in 2021 and 2020. Management believes the NASDAQ Bank Index is a more stable peer group that will not require changes
in composition from year-to-year as the Corporation’s size and complexity of operations changes.
In the table above, the 2022 Peer Group Total
Shareholder Return amount was determined based on the NASDAQ Bank Index. The 2021 and 2020 Peer Group Total Shareholder Return amounts
were determined by a Peer Group Index of similar-size banking organizations selected by the Corporation including all publicly traded
SEC filing Commercial Banks and Thrifts within NJ, NY, OH, PA, MD, and WV with assets between 0.5
times and 2.0
times CZNC as of September 30, 2021 and September 30, 2020.
The Total Shareholder Return for the NASDAQ Bank
Index for 2022, 2021 and 2020 was $110.67,
$132.19
and $92.50
respectively. The Total Shareholder Return for the 2022 Peer Group Index of similar banking organizations selected by the Corporation
for 2022 was $109.61.
The Total Shareholder Return for the 2021 Peer Group Index of similar banking organizations selected by the Corporation for 2022 and 2021
was $106.67
and $108.87
respectively. The Total Shareholder Return for the 2020 Peer Group Index of similar banking organizations selected by the Corporation
for 2022, 2021 and 2020 was $104.88,
$110.76
and $79.19
respectively.
A reconciliation of Summary Compensation Table
Total amounts to amounts described as “Actually Paid” for each year in the Pay Versus Performance table above is presented
in the following table.
| | | | | | | | | | | | | | | | | Add: Change in | | | | | | Less: Fair Value | | | | |
| | | | | | | | | | | | | | Add: Fair Value | | | Fair Value of | | | | | | at End of Prior | | | | |
| | | | | | | | | | | Less: Stock | | | at Year-end of | | | Awards | | | Add: Change in | | | Year of any | | | | |
| | | | | | | | | | | Awards from | | | Stock Awards | | | Granted in | | | Fair Value of | | | Awards | | | | |
| | | | | | | | | | | Summary | | | Granted | | | any | | | Shares that | | | Granted | | | | |
| | | | | | | | | | | Compensation | | | During the | | | Prior Year | | | Vested as of | | | in a Prior Year | | | | |
| | | | | | | | | | | Table | | | Year that are | | | that are | | | the Vesting | | | that Failed to | | | | |
| | | | | Summary | | | Less: | | | Valued | | | Outstanding | | | Outstanding | | | Date as | | | Meet Vesting | | | Total | |
| | | | | Compensation | | | Change in | | | Based on | | | and Unvested | | | and Unvested | | | Compared | | | Conditions | | | Compensation | |
| | | | | Table | | | Pension | | | Fair Value at | | | at the End | | | at the End | | | to the End of | | | in the | | | Actually | |
| | Year | | | Total | | | Value | | | Grant Date | | | of the Year | | | of the Year | | | the Prior Year | | | Covered Year | | | Paid | |
PEO | | 2022 | | | | 1,088,120 | | | | - | | | | 224,429 | | | | 170,879 | | | | (21,457 | ) | | | (6,693 | ) | | | 91,107 | | | | 915,313 | |
| | 2021 | | | | 1,109,193 | | | | - | | | | 213,754 | | | | 278,883 | | | | 45,198 | | | | 9,222 | | | | 25,653 | | | | 1,203,089 | |
| | 2020 | | | | 1,045,911 | | | | - | | | | 196,638 | | | | 175,723 | | | | (52,243 | ) | | | (1,905 | ) | | | 18,250 | | | | 952,598 | |
AVERAGE OF | | 2022 | | | | 463,238 | | | | - | | | | 85,869 | | | | 65,197 | | | | (8,644 | ) | | | (3,198 | ) | | | 26,303 | | | | 404,421 | |
NON-PEO | | 2021 | | | | 475,533 | | | | - | | | | 65,315 | | | | 85,217 | | | | 21,041 | | | | 5,662 | | | | 7,594 | | | | 514,543 | |
NEOs | | 2020 | | | | 488,880 | | | | 14,535 | | | | 76,024 | | | | 67,939 | | | | (20,526 | ) | | | (738 | ) | | | 7,204 | | | | 437,791 | |
Notes:
|
1. |
There was no pension service cost or prior service cost in the years included in the table. |
|
2. |
There were no stock awards that were granted and vested in the same year. |
|
3. |
There were no modifications to stock-based awards during the years included in the table. |
|
4. |
The valuation assumptions used to calculate equity award fair values did not materially differ from those
used at the time of grant. |
|
5. |
There were no other earnings paid on stock or option awards in the covered fiscal years prior to the vesting
dates that were not otherwise included in total compensation. |
The Corporation has selected Core Return on Average
Equity (Core ROAE) as its “Company-Selected Measure,” meaning the most important measure the Corporation used in linking compensation
actually paid in 2022 to company performance. The Corporation’s calculations of Core ROAE reflect adjustments to earnings determined
based on U.S. GAAP to eliminate amounts identified as “extraordinary occurrences” as described in the 2022 Annual Incentive
Plan Award document. Reconciliation of the Corporation’s earnings under U.S. GAAP to the non-GAAP earnings amount included in Core
ROAE for each year included in the Pay Versus Performance table is presented in the following table. Income tax has been allocated based
on a marginal income tax rate of 21%,
adjusted for the nondeductible portion of merger expenses.
| | Year Ended December 31, 2022 | | | Year Ended December 31, 2021 | |
| | Income | | | | | | | | | Diluted | | | Income | | | | | | | | | Diluted | |
| | Before | | | | | | | | | Earnings | | | Before | | | | | | | | | Earnings | |
| | Income | | | Income | | | | | | per | | | Income | | | Income | | | | | | per | |
| | Tax | | | Tax | | | Net | | | Common | | | Tax | | | Tax | | | Net | | | Common | |
(Dollars In Thousands, Except Per Share Data) | | Provision | | | Provision | | | Income | | | Share | | | Provision | | | Provision | | | Income | | | Share | |
Earnings Under U.S. GAAP | | $ | 32,350 | | | $ | 5,732 | | | $ | 26,618 | | | $ | 1.71 | | | $ | 37,687 | | | $ | 7,133 | | | $ | 30,554 | | | $ | 1.92 | |
Add: Amortization of Core Deposit Intangibles | | | 439 | | | | 92 | | | | 347 | | | | | | | | 535 | | | | 112 | | | | 423 | | | | | |
Less: Gain on Sale of Land | | | 0 | | | | 0 | | | | 0 | | | | | | | | (46 | ) | | | (10 | ) | | | (36 | ) | | | | |
Net Gains on Available-for-Sale Debt Securities | | | (20 | ) | | | (4 | ) | | | (16 | ) | | | | | | | (24 | ) | | | (5 | ) | | | (19 | ) | | | | |
Net Loss on Marketable Equity Security | | | 112 | | | | 24 | | | | 88 | | | | | | | | 29 | | | | 6 | | | | 23 | | | | | |
Adjusted Earnings (Non-U.S. GAAP) | | $ | 32,881 | | | $ | 5,844 | | | $ | 27,037 | | | $ | 1.73 | | | $ | 38,181 | | | $ | 7,236 | | | $ | 30,945 | | | $ | 1.95 | |
Average Equity | | | | | | | | | | $ | 265,093 | | | | | | | | | | | | | | | $ | 301,226 | | | | | |
Core Return on Average Equity | | | | | | | | | | | 10.20 | % | | | | | | | | | | | | | | | 10.27 | % | | | | |
| | Year Ended December 31, 2020 | |
| | Income | | | | | | | | | Diluted | |
| | Before | | | | | | | | | Earnings | |
| | Income | | | Income | | | | | | Per | |
| | Tax | | | Tax | | | Net | | | Common | |
(Dollars In Thousands, Except Per Share Data) | | Provision | | | Provision | | | Income | | | Share | |
Earnings Under U.S. GAAP | | $ | 23,212 | | | $ | 3,990 | | | $ | 19,222 | | | $ | 1.30 | |
Add: Merger-Related Expenses | | | 7,708 | | | | 1,574 | | | | 6,134 | | | | | |
Add: Loss on Prepayment of Borrowings | | | 1,636 | | | | 344 | | | | 1,292 | | | | | |
Add: Amortization of Core Deposit Intangibles | | | 540 | | | | 113 | | | | 427 | | | | | |
Net Gains on Available-for-Sale Debt Securities | | | (169 | ) | | | (35 | ) | | | (134 | ) | | | | |
Net Gain on Marketable Equity Security | | | (21 | ) | | | (4 | ) | | | (17 | ) | | | | |
Adjusted Earnings (Non-U.S. GAAP) | | $ | 32,906 | | | $ | 5,982 | | | $ | 26,924 | | | $ | 1.81 | |
Average Equity | | | | | | | | | | $ | 273,351 | | | | | |
Core Return on Average Equity | | | | | | | | | | | 9.85 | % | | | | |
The following table presents
a description of the relationship between compensation amounts actually paid to the PEO and the average compensation amounts paid to the
non-PEO named executive officers to the Corporation’s Total Shareholder Return (“TSR”) and the Peer Group TSR. In the
table that follows, TSR measures return to an investor for a $100 investment in CZNC or the Peer Group at December 31, 2019 and reflects
reinvestment of all dividends. The Total Shareholder Return amounts in the graph below reflect the values described in the “Pay
Versus Performance” table on page 35.
![](https://content.edgar-online.com/edgar_conv_img/2023/03/10/0001104659-23-030995_tm232050d1_def14a-img007.jpg)
![](https://content.edgar-online.com/edgar_conv_img/2023/03/10/0001104659-23-030995_tm232050d1_def14a-img006.jpg)
The following table presents
a description of the relationship between compensation amounts actually paid to the PEO and the average compensation amounts paid to the
non-PEO named executive officers to the Corporation’s net income.
![](https://content.edgar-online.com/edgar_conv_img/2023/03/10/0001104659-23-030995_tm232050d1_def14aimg04.jpg)
The following table presents
a description of the relationship between compensation amounts actually paid to the PEO and the average compensation amounts paid to the
non-PEO named executive officers to Core ROAE, which is the Corporation’s Company-Selected Measure as described above.
![](https://content.edgar-online.com/edgar_conv_img/2023/03/10/0001104659-23-030995_tm232050d1_def14aimg05.jpg)
A tabular list of performance measures the Corporation
considers the most important inputs for linking executive compensation with financial performance is as follows:
| 1. | Core Return on Average Equity (as described above) |
| 2. | Core Return on Average Assets |
| 3. | Growth in Average Core Deposits |
| 4. | Total Revenue |
| 5. | Efficiency Ratio |
| 6. | Total Wealth Management Revenue |
Each of these performance measures is described
in detail in the Compensation Discussion and Analysis section.
Employment Agreements
The Corporation and the Bank
have entered into employment agreements with Mr. Scovill, Mr. Hughes, Mr. Hoose and Mr. Rush (collectively, the “Employment
Agreements”). The employment agreement with Mr. Scovill has an effective date of March 2, 2015, the employment agreements
with Mr. Hughes and Mr. Hoose were effective September 19, 2013 and the employment agreement with Mr. Rush was effective
July 1, 2020. The following summarizes the material terms of the Employment Agreements.
The employment agreement with
Mr. Scovill provided for an initial three (3) year term at an initial annual base salary of $380,000. In June 2017, the
Corporation and Bank, and Mr. Scovill, entered into an amendment to the employment agreement which extended the end date of the initial
term by one (1) year to March 1, 2019 and provided for automatic renewal for successive twelve (12) month terms, unless either
the Corporation or Mr. Scovill would give written notice of non-renewal at least ninety (90) days prior to the next renewal date.
The Corporation and Bank and Mr. Scovill entered into a second amendment to the employment agreement on August 24, 2018 which
modifies and extends the employment period to provide for automatic renewals for successive three (3) year terms unless either the
Corporation or Mr. Scovill gives written notice of non-renewal at least 90 days prior to the next renewal date. The second
amendment also amended the formula for determining the amount of cash payments to Mr. Scovill in the event of a termination of employment
by the Corporation without “cause” or by Mr. Scovill for “good reason,” as described below, to include the
value of stock-based incentives awarded to Mr. Scovill. Other features of the employment agreement with Mr. Scovill are included
in the summary of descriptions of the Employment Agreements that follow.
The initial term of the Employment
Agreement with Mr. Hughes expired September 19, 2016 and provides that the term of the agreement shall be automatically renewed
on each September 19th for successive three (3) year terms, unless either the Corporation or the executive gives written notice
of nonrenewal at least 90 days prior to the next renewal date in which case this Agreement will continue in effect for a term ending two
(2) years from the Annual Renewal Date immediately following such notice.
The Employment Agreement with
Mr. Hoose had an initial expiration date of September 30, 2015 and has been extended through September 30, 2023. The Employment
Agreement with Mr. Hoose provides that the term of the agreement shall be automatically extended an additional twelve (12) months,
unless written notice of nonrenewal is provided no later than July 19th of each successive calendar year.
The Employment Agreement with
Mr. Rush has an initial expiration date of June 30, 2023 and shall be automatically extended an additional twelve (12) months,
unless either the Corporation or the executive gives written notice of nonrenewal at least 90 days prior to the renewal date. Under this
agreement, Mr. Rush received a grant of Corporation restricted common stock equal in value at the time of grant to $150,000. The
shares of restricted stock vest ratably over a three (3) year period.
Under the Employment Agreements,
each executive is eligible to receive annual incentive payments and stock based incentives as determined by the Compensation Committee,
which may, but need not be, issued under any incentive plan maintained by the Company, and is eligible to participate in any retirement
plan, deferred compensation plan, welfare benefit plan or other benefit program in which full-time employees of the Bank are eligible
to participate.
The Employment Agreements
also provide each executive with reimbursement of business expenses and paid vacation in accordance with Corporation or Bank policies
and procedures and, with respect to Mr. Scovill, Mr. Hoose and Mr. Rush, an automobile allowance or use of a Bank owned
automobile and a country club membership.
Each Employment Agreement
contains customary nondisclosure and mutual non-disparagement provisions. Each Employment Agreement contains a non-competition and non-solicitation
covenant, applicable within thirty-five (35) miles of any office of the Corporation or the Bank, after voluntary or involuntary termination
of the executive’s employment with the Corporation and the Bank. The non-competition and non-solicitation covenant would apply after
termination of employment to Mr. Scovill and Mr. Hughes for twenty-four (24) months, to Mr. Hoose for eighteen (18) months
and to Mr. Rush for twelve (12) months.
Each Employment Agreement
also provides that the executive may terminate his employment for “good reason” (as defined in the agreement) after notice
to the Corporation or the Bank within thirty (30) days after the initial existence of the condition giving rise to the right to terminate
and the failure of the Corporation or Bank to cure the situation within thirty (30) days after receipt of such notice.
Additionally, each Employment
Agreement provides for a lump sum payment to the executive in the event of a termination of employment by the Corporation without “cause”
(as defined in the agreement) or by the executive for “good reason” (as defined in the agreement) following a “change
in control” (as defined in the agreement) or absent a change in control, such payment to be equal to the sum of the highest annual
base salary earned by the executive during the immediately preceding three (3) years, plus the highest cash bonus and other incentive
compensation earned with respect to one of the three preceding years, plus (for Mr. Scovill, Mr. Hughes and Mr. Hoose)
the highest value of stock options and other stock incentives awarded to the executive in one of the immediately preceding three years,
multiplied by a predetermined factor depending on the executive and whether the executive was terminated following a change in control.
Additionally, each of the Employment Agreements provides for the continuation of the executive’s participation in the Bank’s
life, disability, medical/health insurance and other welfare benefits in effect during the one (1) year period preceding the termination
of employment (or a cash payment representing the value of such benefits). The factor applicable to each of the executives for purposes
of determining the lump sum payment and the time period for which benefits are to be continued are set forth in the following table.
The employment agreements
in effect on December 31, 2022 do not provide for an excise tax gross-up pursuant to Section 280G of the Internal Revenue Code.
In the event any payments to our named executive officers would otherwise constitute a parachute payment under Section 280G of the
Internal Revenue Code, the payments will be limited to the greater of (i) the dollar amount which can be paid to such named executive
officer without triggering an excise tax under Section 4999 of the Internal Revenue Code or (ii) the greatest after-tax dollar
amount after taking into account any excise tax incurred under Section 4999 of the Internal Revenue Code with respect to such parachute
payments.
|
|
Multiplier Factor |
|
|
Benefits Continuation Period |
Executive |
|
Change in Control |
|
|
Absent a Change in Control |
|
|
Change in Control |
|
Absent a Change in Control |
J. Bradley Scovill |
|
|
2.99 |
X |
|
|
1.0 |
X |
|
3 Years |
|
1 Year |
Mark A. Hughes |
|
|
2.99 |
X |
|
|
1.0 |
X |
|
3 Years |
|
1 Year |
Harold F. Hoose, III |
|
|
1.5 |
X |
|
|
0.5 |
X |
|
18 Months |
|
6 Months |
Blair T. Rush |
|
|
1.5 |
X |
|
|
1.0 |
X |
|
1 Year |
|
1 Year |
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Control Agreement
The Corporation and Bank have
entered into a Change in Control Agreement (the “Agreement”) with Mr. Dunsmore. The Change in Control Agreements provides
for a lump sum severance benefit in the event that certain events take place after there is a “change in control”, as defined
in the Agreement, of the Corporation, or for a period of twenty-four (24) months thereafter. The Agreement does not provide for any payment
in the event that Mr. Dunsmore remains employed without material reduction in compensation or responsibilities for more than twenty-four
(24) months following the change in control.
Under the Agreement, the term
“termination” means the termination of Mr. Dunsmore’s employment either by the Corporation for any reason other
than death, disability, or “cause”, or by him upon the occurrence of one or more of the following events: a significant change
in authorities or duties; a reduction in annual salary or a material reduction in benefits; the relocation of his office to a location
more than 35 miles from the location of his office immediately prior to the employment period; his inability to exercise the authorities,
powers, functions or duties associated with his position; or the failure of the Corporation to obtain a satisfactory agreement from any
successor to assume and agree to perform the Agreement in the same manner and extent as if no succession had taken place.
In the event of a termination,
the Agreement provides severance benefits of (i) Employer-paid 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 Mr. Dunsmore’s unpaid salary, accrued vacation pay and unreimbursed business expenses
through and including the date of termination; and an amount equal to one times his base salary in effect immediately prior to the date
of termination. The Agreement contains customary non-disclosure provisions and a twelve (12) month non-solicitation covenant following
termination of employment.
The Agreement terminates each
December 31 but is automatically extended for additional one-year periods unless written notice is provided by the Corporation or
Employee that such party does not wish to extend the term. If a change in control occurs during the original or extended term of the Agreement,
the term shall continue for a period of twenty-four (24) months and end upon the expiration of such twenty-four (24) month period.
Potential Payments upon Termination or Change in Control
The table that follows provides
quantitative information regarding contracts, agreements, plans or arrangements that provide for payments to a named executive officer
upon termination of employment. The table does not include information with respect to contracts, agreements, plans or arrangements to
the extent they do not discriminate in scope, terms, or operation, in favor of executive officers or the Corporation and that are available
generally to all salaried employees.
As of December 31, 2022: |
|
|
|
|
Supplemental |
|
|
|
|
|
Value of |
|
|
Payment Under |
|
|
|
|
|
|
|
|
|
Executive |
|
|
Health |
|
|
Restricted |
|
|
Split Dollar |
|
|
Citizens Trust |
|
|
|
|
|
|
Retirement |
|
|
and |
|
|
Stock |
|
|
Bank Owned |
|
|
Company |
|
|
|
|
|
|
Plan |
|
|
Welfare |
|
|
Subject to |
|
|
Life Insurance |
|
|
Pension |
|
|
|
Cash |
|
|
Benefit |
|
|
Benefits |
|
|
Acceleration |
|
|
Programs (1) |
|
|
Plan (2) |
|
Name |
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
|
|
|
|
|
Termination Due to Retirement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J. Bradley Scovill |
|
|
- |
|
|
|
868,348 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Mark A. Hughes |
|
|
- |
|
|
|
457,592 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Harold F. Hoose, III |
|
|
- |
|
|
|
190,575 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Blair T. Rush |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
Stan R. Dunsmore |
|
|
- |
|
|
|
247,144 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
176,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination Due to Disability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J. Bradley Scovill |
|
|
- |
|
|
|
868,348 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Mark A. Hughes |
|
|
- |
|
|
|
457,592 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Harold F. Hoose, III |
|
|
- |
|
|
|
190,575 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Blair Rush |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
57,424 |
|
|
|
- |
|
|
|
|
|
Stan Dunsmore |
|
|
- |
|
|
|
247,144 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
176,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination Without Cause or for Good Reason - Before a Change
in Control |
|
|
J. Bradley Scovill |
|
|
968,156 |
|
|
|
868,348 |
|
|
|
12,919 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Mark A. Hughes |
|
|
514,727 |
|
|
|
457,592 |
|
|
|
13,164 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Harold F. Hoose, III |
|
|
236,966 |
|
|
|
190,575 |
|
|
|
8,535 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Blair Rush |
|
|
543,647 |
|
|
|
- |
|
|
|
14,988 |
|
|
|
57,424 |
|
|
|
- |
|
|
|
|
|
Stan Dunsmore |
|
|
- |
|
|
|
247,144 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
176,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination Due to Death |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J. Bradley Scovill |
|
|
- |
|
|
|
868,348 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Mark A. Hughes |
|
|
- |
|
|
|
457,592 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Harold F. Hoose, III |
|
|
- |
|
|
|
190,575 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Blair Rush |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
57,424 |
|
|
|
603,105 |
|
|
|
|
|
Stan Dunsmore |
|
|
- |
|
|
|
247,144 |
|
|
|
- |
|
|
|
- |
|
|
|
729,000 |
|
|
|
79,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination Without Cause or for Good Reason - Upon or After
a Change in Control |
|
|
|
|
|
|
|
|
|
|
J. Bradley Scovill |
|
|
2,894,786 |
|
|
|
868,348 |
|
|
|
38,757 |
|
|
|
435,254 |
|
|
|
- |
|
|
|
- |
|
Mark A. Hughes |
|
|
1,539,034 |
|
|
|
457,592 |
|
|
|
39,492 |
|
|
|
176,799 |
|
|
|
- |
|
|
|
- |
|
Harold F. Hoose, III |
|
|
710,898 |
|
|
|
190,575 |
|
|
|
25,605 |
|
|
|
190,675 |
|
|
|
- |
|
|
|
- |
|
Blair Rush |
|
|
362,431 |
|
|
|
- |
|
|
|
14,988 |
|
|
|
144,567 |
|
|
|
|
|
|
|
|
|
Stan Dunsmore |
|
|
243,000 |
|
|
|
247,144 |
|
|
|
19,746 |
|
|
|
135,400 |
|
|
|
- |
|
|
|
176,400 |
|
|
(1) |
The amounts represent death benefits payable under split-dollar life insurance policies acquired by the Corporation
pursuant to business combinations. |
|
(2) |
The amounts reflect the estimated lump sum value that would be paid by the Citizens Trust Company Pension
Plan. |
Indemnification Agreements
On April 20, 2004, the
shareholders of the Corporation authorized the Corporation to enter into indemnification agreements (the “Indemnification Agreements”)
with the directors of the Corporation and the Bank and certain officers of the Bank, as designated by the Board of Directors. The primary
purpose of the Indemnification Agreements is to ensure the ability of the Corporation and Bank to continue to attract and retain responsible,
competent and otherwise qualified directors and officers. Indemnification Agreements have been entered into with all Directors of the
Bank and the Corporation, as well as the Corporation’s and Bank’s Executive Officers as named on pages 9-13.
The Indemnification Agreements
provide to covered directors and officers the most advantageous of any combination of benefits under (i) the benefits provided by
the Bylaws of the Corporation in effect as of the date the agreements were entered into; (ii) the benefits provided by the Bylaws,
the Articles of Incorporation or their equivalent of the Corporation in effect at the time indemnification expenses are incurred by an
indemnitee; (iii) the benefits allowable under Pennsylvania law in effect on the date of the agreements; (iv) the benefits allowable
under the law of the jurisdiction under which the Corporation exists at the time indemnifiable expenses are incurred by an indemnitee;
(v) the benefits available under a liability insurance policy obtained by the Corporation and its subsidiaries in effect on the date
of the agreements; (vi) the benefits available under a liability insurance policy obtained by the Corporation and its subsidiaries,
in effect at the time the indemnifiable expenses are incurred by an indemnitee; and (vii) such other benefits as are or may otherwise
be available to the indemnitee.
The Corporation is not obligated
to, nor has it agreed to provide funding for its obligations under the agreements. The Corporation is obligated, however, to pay its obligations
under the agreements from general assets or insurance. The agreements do require the Corporation to continue to purchase D&O Coverage
for so long as it is available on a commercially reasonable basis.
The indemnification available
pursuant to the agreements is subject to a number of exclusions. No indemnification is required under the agreements with respect to any
claim as to which it is finally proven by clear and convincing evidence in a court of competent jurisdiction that the covered person acted
or failed to act with deliberate intent to cause injury to the Corporation or a subsidiary thereof or with reckless disregard for the
Corporation’s best interest. The Corporation is also not required to make any payment finally determined by a court to be unlawful
or any payment required under Section 16(b) of the Securities and Exchange Act of 1934, as amended. In addition, any claim (or
part thereof) against an indemnitee which falls within the prohibitions of 12 C.F.R. §7.5217 (i.e., a prohibition on indemnification
or insurance coverage for expenses, penalties or other payments incurred in connection with an action by a banking regulatory agency which
results in a final order assessing monetary penalties or requiring affirmative action in the form of payment to the bank) is excluded
from indemnification under the agreements.
Compensation of Directors
The following table summarizes
the compensation paid by the Corporation and Bank to directors for the fiscal year ended December 31, 2022, other than J. Bradley
Scovill who did not receive compensation as a director.
DIRECTOR COMPENSATION (1)(2)(3)
|
|
Fees |
|
|
|
|
|
|
|
|
|
Earned or |
|
|
|
|
|
|
|
|
|
Paid in |
|
|
Stock |
|
|
|
|
|
|
Cash (4) |
|
|
Awards (5) |
|
|
Total |
|
Name |
|
($) |
|
|
($) |
|
|
($) |
|
Stephen M. Dorwart |
|
|
56,762 |
|
|
|
19,991 |
|
|
|
76,753 |
|
Clark S. Frame |
|
|
22,500 |
|
|
|
19,991 |
|
|
|
42,491 |
|
Susan E. Hartley |
|
|
46,300 |
|
|
|
19,991 |
|
|
|
66,291 |
|
Bobbi J. Kilmer |
|
|
52,900 |
|
|
|
19,991 |
|
|
|
72,891 |
|
Leo F. Lambert |
|
|
50,200 |
|
|
|
19,991 |
|
|
|
70,191 |
|
Terry L. Lehman |
|
|
81,137 |
|
|
|
19,991 |
|
|
|
101,128 |
|
Robert G. Loughery |
|
|
40,000 |
|
|
|
19,991 |
|
|
|
59,991 |
|
Frank G. Pellegrino |
|
|
55,400 |
|
|
|
19,991 |
|
|
|
75,391 |
|
Helen S. Santiago |
|
|
40,800 |
|
|
|
19,991 |
|
|
|
60,791 |
|
Timothy E. Schoener |
|
|
40,400 |
|
|
|
19,991 |
|
|
|
60,391 |
|
Katherine W. Shattuck |
|
|
44,900 |
|
|
|
19,991 |
|
|
|
64,891 |
|
Aaron K. Singer |
|
|
50,200 |
|
|
|
19,991 |
|
|
|
70,191 |
|
(1) The columns disclosing option
awards, non-equity incentive plan compensation, changes in pension value and nonqualified deferred compensation earnings, and other forms
of compensation have been omitted from the table because no director earned any compensation during 2022 of a type required to be disclosed
in those columns.
(2) As of December 31, 2022,
each non-employee director owned 799 shares of common stock awarded pursuant to the Independent Directors Stock Incentive Plan (described
below) for which transfer restrictions had not yet lapsed. For the Directors, those shares had a value of $18,265 based on the closing
price of the Corporation’s common stock on December 31, 2022 (the last business day of the year).
(3) Effective January 31,
2023, the Corporation awarded 1,000 shares of restricted stock under the Independent Director Stock Incentive Plan to each director. The
value of the restricted stock was $23.35 per share, based on the average of the high and low sales price of the Corporation’s stock
on January 30, 2023, and vest over (1) one year. The awards made in January 2023 are not included in the table.
(4) Includes annual cash retainer,
Chairman or Committee chair retainer (if any) and attendance fees.
(5) The amount shown in the “Stock
Awards” column equals the value of restricted stock awards of 799 shares, determined based on the grant date fair market value of
$25.02 per share.
Director Fees. Compensation of the
Board of Directors is established by the Board upon recommendation of the Compensation Committee. In developing its recommendations for
2022, the Compensation Committee considered information provided by Pearl Meyer.
Non-employee directors receive
cash compensation for their service as directors in accordance with the following fee schedule. Employee directors are not entitled to
additional compensation for board or committee service.
Annual Fees: |
|
|
|
Cash Retainer (all Directors, including
Chairman) |
|
$ |
20,000 |
|
Chairman of the Board |
|
$ |
25,000 |
|
|
|
|
|
|
Committee Chairman: |
|
|
|
|
Audit Committee |
|
$ |
7,500 |
|
Compensation Committee |
|
$ |
5,000 |
|
All Other Committees |
|
$ |
4,000 |
|
|
|
|
|
|
Per-Meeting Attendance Fees: |
|
|
|
|
Board meetings (all Directors) |
|
$ |
1,000 |
|
|
|
|
|
|
Committee meetings |
|
|
|
|
Audit Committee |
|
$ |
700 |
|
Compensation Committee |
|
$ |
700 |
|
All Other Committees |
|
$ |
600 |
|
A director who, by invitation,
attends a meeting of a committee of which he or she is not a regular member will be paid the same attendance fee as is payable to members
of that committee. Attendance fees are not doubled in the event of joint meetings of the Corporation and Bank Boards.
Independent Directors Stock Incentive Plan.
In addition to cash fees, non-employee directors may also receive compensation in the form of Corporation common stock or stock options
under the Independent Directors Stock Incentive Plan. This plan permits awards of nonqualified stock options and/or restricted stock to
non-employee directors. A total of 235,000 shares of common stock may be issued under the Independent Directors Stock Incentive Plan.
The recipient’s right to exercise stock options under this plan vests immediately and expires 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 the fair market value on
the grant date. Restricted stock awards issued under the plan through December 31, 2022 vest ratably over one (1) year. As of
December 31, 2022, a balance of 87,520 shares remains available for issuance under the Independent Directors Stock Incentive Plan.
The Citizens & Northern Corporation 2023 Equity Incentive Plan, if approved by the shareholders, will govern new awards made
subsequent to such shareholder approval. Outstanding restricted stock and stock option awards that were granted under the existing plan
will be governed under the existing plan.
PROPOSAL 2 -- ADVISORY NON-BINDING VOTE ON EXECUTIVE
COMPENSATION
The Corporation is required
to provide its shareholders with a separate, non-binding advisory vote on the compensation paid to the Corporation’s named executive
officers pursuant to the policies and procedures employed by the Corporation, as described in the Compensation Discussion and Analysis
(CD&A) and tabular disclosure regarding named executive officer compensation (together with the accompanying narrative disclosure)
in this Proxy Statement.
For the reasons set forth
in this Proxy Statement, we believe that our compensation policies and procedures are centered on a pay-for-performance culture, are competitive
in our marketplace, are strongly aligned with the long-term interests of our shareholders, and that the compensation paid to our executives
is consistent with such policies and procedures.
This proposal, commonly known
as a “Say-on-Pay” proposal, gives you as a shareholder the opportunity to endorse or not endorse our executive pay program
and policies through the following resolution:
“Resolved, that the
shareholders approve the compensation paid to the Named Executive Officers of the Corporation pursuant to the policies and procedures
employed by the Corporation, as described in the Compensation Discussion and Analysis and tabular disclosure regarding Named Executive
Officer compensation (together with the accompanying narrative disclosure) in this Proxy Statement.”
Because your vote is advisory,
it will not be binding upon the Board. However, the Compensation Committee will consider the outcome of the vote when considering future
executive compensation arrangements.
The Board of Directors
recommends a vote “FOR” approval of the compensation paid to the Named Executive Officers of the Corporation pursuant to the
policies and procedures employed by the Corporation, as described in the Compensation Discussion and Analysis and tabular disclosure regarding
the Named Executive Officer compensation (together with the accompanying narrative disclosure) in this Proxy Statement.
PROPOSAL 3 -- NON-BINDING
ADVISORY VOTE ON THE FREQUENCY OF FUTURE ADVISORY VOTES ON THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS
The SEC requires that public
companies, such as Citizens & Northern Corporation, provide a mechanism whereby stockholders can, at least once every six years,
advise the company and its Board of Directors as to whether they would prefer to have an advisory “say on pay” vote every
year, every two years, or every three years.
This proposal on the frequency
of the advisory vote on the compensation of our Named Executive Officers is separate from the proposal on the advisory vote on the compensation
of our Named Executive Officers. This proposal deals with the issue of how often the advisory vote on the compensation of our Named Executive
Officers should be presented to our stockholders and, in this regard, we are soliciting your advice as to whether the advisory vote on
Named Executive Officers compensation should be held every one year, every two years, or every three years. You may abstain from making
a choice.
Our Board of Directors has
determined that stockholders should have an opportunity every year to vote on the compensation of our Named Executive Officers. Our Board
concluded that an annual, non-binding vote will allow stockholders to provide the Corporation regular and timely input on our compensation
principles, policies and practices.
The vote with respect to the
frequency of the advisory vote on the compensation of our Named Executive Officers is non-binding on the Corporation and our Board of
Directors. However, our Board will take the results of the vote into consideration when deciding when to call for the next advisory vote
on compensation of our Named Executive Officers. A frequency vote similar to this will occur at least once every six years. You have four
choices with respect to indicating such frequency: every year, every two years, every three years or you may abstain.
The Board of Directors
recommends a vote for an advisory vote on the compensation of our Named Executive Officers “EVERY YEAR.”
PROPOSAL 4 – CITIZENS &
NORTHERN CORPORATION 2023 EQUITY INCENTIVE PLAN
The Corporation’s Board
of Directors, at a meeting held January 19, 2023, unanimously approved recommending to the shareholders establishment of the Citizens &
Northern Corporation 2023 Equity Incentive Plan (the “2023 Equity Plan,” or the”Plan”).
The 2023 Equity Incentive
Plan, if approved by the shareholders, will govern new awards made subsequent to such shareholder approval. Outstanding restricted stock
and stock option awards that were granted under the existing equity incentive plans for employees (Citizens & Northern Corporation
Stock Incentive Plan, as amended) and independent directors (Citizens & Northern Corporation Independent Directors Stock Incentive
Plan) will be governed under the existing plans.
At February 3, 2023,
there were 99,666 shares available for issuance under the existing equity incentive plans, or 0.6% of the Corporation’s total outstanding
common shares, including 23,146 shares available under the Citizens & Northern Corporation Stock incentive Plan and 76,520 shares
available under the Citizens & Northern Corporation Independent Directors Stock Incentive Plan. Upon approval by the shareholders,
no new awards will be made under the existing plans. The 2023 Equity Plan provides for a maximum of 500,000 shares to be issued, or 3.2%
of the Corporation’s total outstanding common shares at February 3, 2023. The total number of shares granted under the existing
plans was 53,788 in January 2023 and 78,243 in the year ended December 31, 2022.
Reasons for the Proposed Adoption of the 2023
Equity Incentive Plan
The Board of Directors believes
that the issuance of equity compensation helps to attract and retain talented employees and independent directors and aligns the interests
of employees and independent directors with those of the shareholders. The Corporation has utilized equity compensation programs for participating
employees since 1995 and for independent directors since 2001. Adoption of the 2023 Equity Plan would permit the continued use of equity
incentives as a component of compensation for participating employees and independent directors and would assist executive officers and
independent directors in meeting the Board of Directors’ Stock Ownership requirements as described in the Corporate Governance section
of this proxy statement. Further, adoption of the 2023 Equity Incentive Plan provides an opportunity to implement several equity compensation
plan best practices.
Best Practices
The 2023 Equity Plan reflects the following
equity compensation plan best practices:
|
● |
The Plan provides for a minimum vesting requirement of one year for all equity-based awards, except that up
to 5% of the awards may be issued (or accelerated) pursuant to awards that do not meet this requirement and any award may provide for
accelerated vesting for death, disability, involuntary termination without cause or resignation for good reason following a change in
control; |
|
● |
Under the Plan, performance goals may be established by the Compensation Committee (the “Committee”)
in connection with the grant of any award. The Committee’s practice for the past several years has been to grant 50% of the restricted
stock awards to executive officers as performance-based awards and all other awards as time-based awards; |
|
● |
The Plan prohibits grants of stock options with a below-market exercise price; |
|
● |
The Plan prohibits repricing of stock options and cash buyout of underwater stock options without prior shareholder approval; |
|
● |
The Plan prohibits payment of dividends on restricted stock or dividend equivalent rights on restricted stock
units (sometimes referred to herein as “RSUs”) prior to the vesting date of the underlying award and does not permit the payment
of dividend equivalent rights on any stock option; |
|
● |
The Plan does not permit liberal share recycling. Shares withheld to satisfy tax withholding or to pay the
exercise price of a stock option will not be available for future grant; |
|
● |
The Plan does not contain a liberal change in control definition. The Plan requires “double trigger”
vesting of awards upon a change in control, requiring both a change in control plus an involuntary termination or a resignation for “good
reason,” except to the extent an acquiror fails or refuses to assume the awards or replace them with awards issued by the acquiror;
and |
|
● |
Awards under the Plan are subject to the Corporation’s clawback policies. |
Plan Summary
The following summary of the
material terms of the 2023 Equity Plan is qualified in its entirety by reference to the full text of the 2023 Equity Plan, which is attached
as Appendix A to this proxy statement. The 2023 Equity Plan is not a qualified deferred compensation plan under Section 401(a) of
the Code and is not intended to be an employee benefit plan within the meaning of ERISA.
Purpose of the 2023 Equity Plan
The purpose of the 2023 Equity
Plan is to promote the Corporation’s long-term financial success by providing a means to attract, retain and reward individuals
who contribute to that success and to further align their interests with those of the Corporation’s shareholders through the ownership
of shares of common stock of the Corporation and/or through compensation tied to the value of the Corporation’s common stock.
Administration of the 2023 Equity Plan
The 2023 Equity Plan will
be administered by the Committee or such other committee consisting of at least two “Disinterested Board Members” defined
as directors who are not, with respect to the Corporation or any subsidiary: (i) current employees; (ii) former employees who
continue to receive compensation (other than through a tax- qualified plan); (iii) officers at any time in the past three years;
(iv) do not receive compensation for which disclosure would be required pursuant to Item 404 of Regulation S- K in accordance with
the proxy solicitation rules of the Securities and Exchange Commission; and (v) do not possess an interest in any other transaction
and or engaged in a business relationship for which disclosure would be required under Item 404(a) of Regulation S-K.
Eligible Participants
Employees of, service providers
to and non-employee members of the Boards of Directors of the Corporation and its subsidiaries, including Citizens & Northern
Bank, will be eligible for selection by the Committee for the grant of awards under the 2023 Equity Plan.
Types of Awards
The 2023 Equity Plan provides
for the grant of restricted stock, RSUs, non-qualified stock options (also referred to as “NQSOs”), and incentive stock options
(also referred to as “ISOs”), any or all of which can be granted with performance-based vesting conditions. ISOs may be granted
only to employees.
Restricted Stock and Restricted Stock Units.
A restricted stock award is
a grant of common stock to a participant for no consideration, or such minimum consideration as may be required by applicable law. Restricted
stock awards under the 2023 Equity Plan will be granted only in whole shares of common stock and will be subject to vesting conditions
and other restrictions established by the Committee consistent with the 2023 Equity Plan. Prior to the awards vesting, unless otherwise
determined by the Committee, the recipient of a restricted stock award may exercise voting rights with respect to the common stock subject
to the award. Cash dividends declared on unvested restricted stock awards will be withheld by the Corporation and distributed to a participant
at the same time that the underlying restricted stock vests to the participant. Stock dividends on shares of restricted stock will be
subject to the same vesting conditions as those applicable to the restricted stock on which such dividends were paid.
Restricted stock units are
similar to restricted stock awards in that the value of an RSU is denominated in shares of common stock. However, unlike a restricted
stock award, no shares of stock are transferred to the participant until certain requirements or conditions associated with the award
are satisfied. A participant who receives an RSU award will not possess voting rights and will accrue dividend equivalent rights only
on such units to the extent provided in the award agreement evidencing the award. If dividend equivalent rights are granted with respect
to an RSU award, the dividend equivalent rights will be withheld by the Corporation and will not be distributed before the underlying
RSU vests. At the time of settlement, restricted stock units can be settled in Corporation common stock or in cash, in the discretion
of the Committee.
The Committee will specify
the terms applicable to a restricted stock award or an RSU award in the award agreement including the number of shares of restricted stock
or number of RSUs, as well as any restrictions applicable to the restricted stock or RSU such as continued service or achievement of performance
goals, the length of the restriction period and the circumstances under which the vesting of such award will accelerate.
Stock Options.
A stock option gives the recipient
the right to purchase shares of common stock at a specified price (referred to as the “exercise price”) for a specified period
of time. The exercise price may not be less than the fair market value of the common stock on the date of grant. “Fair Market Value”
on any date, means: (i) if the Corporation’s common stock is listed on an Exchange, national market system or automated quotation
system, the average of the highest and lowest reported sales price on that Exchange or over such system on that date or, in the absence
of reported sales on that date, the average of the highest and lowest reported sales price on the immediately preceding date on which
sales were reported; or (ii) if the Corporation’s common stock is not listed on an Exchange, “Fair Market Value”
shall mean a price determined by the Committee in good faith on the basis of objective criteria consistent with the requirements of Code
Section 422 and applicable provisions of Code Section 409A.
Under the Plan, no stock option
can be exercised more than 10 years after the date of grant and the exercise price of a stock option must be at least equal to the fair
market value of a share on the date of grant of the option. However, with respect to an ISO granted to an employee who is a shareholder
holding more than 10% of the Company’s total voting stock, the ISO cannot be exercisable more than five years after the date of
grant and the exercise price must be at least equal to 110% of the fair market value of a share on the date of grant. Stock option awards
will be subject to vesting conditions and restrictions as determined by the Committee and set forth in the applicable award agreement.
Grants of stock options under
the 2023 Equity Plan will be either ISOs or NQSOs. ISOs have certain tax advantages and must comply with the requirements of Code Section 422.
Only employees will be eligible to receive ISOs. One of the requirements to receive favorable tax treatment available to ISOs under the
Code is that the 2023 Equity Plan must specify, and the Corporation’s shareholders must approve, the number of shares available
to be issued as ISOs. As a result, in order to provide flexibility to the Committee, the 2023 Equity Plan provides that all of the stock
options may be issued as ISOs. Dividend equivalents rights will not be paid with respect to awards of stock options.
Shares of common stock purchased
upon the exercise of a stock option must be paid for in full at the time of exercise: (1) either in cash or, as permitted by the
Committee, with stock valued at fair market value as of the day of exercise; (2) by a “cashless exercise” through a third
party; (3) by a net settlement of the stock option using a portion of the shares obtained on exercise in payment of the exercise
price; (4) by personal, certified or cashiers’ check; (5) by other property deemed acceptable by the Committee; or (6) by
a combination of the foregoing.
Performance Awards
The Committee will specify
the terms of any performance awards issued under the 2023 Equity Plan in the accompanying award agreements. Any award granted under the
plan, including stock options, restricted stock (referred to herein as a “performance share”) and restricted stock units (referred
to herein as a “performance share unit”) may be granted subject to the satisfaction of performance conditions determined by
the Committee. A performance share or performance share unit will have an initial value equal to the fair market value of a share on the
date of grant. In addition to any non-performance terms applicable to the performance share or performance share unit, the Committee will
set one or more performance goals which, depending on the extent to which they are met, will generally determine the number of performance
shares or performance share units that will vest for the participant (unless subject to further time-based vesting conditions). The Committee
may provide for payment of earned performance share units in cash, shares of the Corporation’s common stock, or a combination thereof.
The Committee will also specify any restrictions applicable to the performance share or performance share unit award such as continued
service, the length of the restriction period (subject to the one-year minimum described above) and whether any circumstances, such as
death, disability, or involuntary termination in connection with or following a change in control, shorten or terminate the restriction
period.
Performance Measures
A performance objective may
be described in terms of company-wide objectives or objectives that are related to a specific subsidiary or business unit of the Corporation,
and may be measured relative to a peer group, an index or business plan and based on absolute measures or changes in measures. An award
may provide that partial achievement of performance measures result in partial payment or vesting of an award. Achievement of the performance
measures may be measured over more than one period or fiscal year. In establishing performance measures applicable to a performance-based
award, the Committee may provide for the exclusion of the effects of certain items, including but not limited to: (i) extraordinary,
unusual, and/or nonrecurring items of gain or loss; (ii) gains or losses on the disposition of a business; (iii) dividends declared
on the Corporation’s stock; (iv) changes in tax or accounting principles, regulations or laws; or (v) expenses incurred
in connection with a merger, branch acquisition or similar transaction. Moreover, if the Committee determines that a change in the business,
operations, corporate structure or capital structure of the Corporation or the manner in which the Corporation or its Subsidiaries conducts
its business or other events or circumstances render current performance measures to be unsuitable, the Committee may modify the performance
measures, in whole or in part, as the Committee deems appropriate.
The Committee will specify
the period over which the performance goals for a particular award will be measured and will determine whether the applicable performance
goals have been met with respect to a particular award following the end of the applicable performance period. Notwithstanding anything
to the contrary in the Plan, performance measures relating to any award granted under the Plan will be modified, to the extent applicable,
to reflect a change in the outstanding shares of stock of the Corporation by reason of any stock dividend or stock split, or a corporate
transaction, such as a merger of the Corporation into another corporation, any separation of a corporation or any partial or complete
liquidation by the Corporation or a subsidiary.
Certain Restrictions with Respect to Awards
The minimum vesting period
for each award granted under the 2023 Equity Plan must be at least one year, provided that up to 5% of the shares authorized for issuance
under the 2023 Equity Plan may be issued pursuant to awards with minimum vesting periods of less than one year or may be accelerated by
the Committee and paid in the first year in the appropriate case. In addition, the minimum vesting requirement does not apply to accelerated
vesting on account of death, disability, involuntary termination without cause, mandatory retirement or resignation for good reason as
otherwise permitted by the 2023 Equity Plan.
Adjustments
The Committee shall make equitable
adjustments in the number and class of securities available for issuance under the 2023 Equity Plan (including under any awards then outstanding),
the number and type of securities subject to the individual limits set forth in the 2023 Equity Plan, and the terms of any outstanding
award, as it determines are necessary and appropriate, to reflect any merger, reorganization, consolidation, recapitalization, reclassification,
stock split, reverse stock split, spin-off combination, exchange of shares, distribution to shareholders (other than an ordinary cash
dividend), or similar corporate transaction or event.
Termination of Service
Subject to certain exceptions,
generally, if a participant ceases to perform services for the Corporation and its subsidiaries for any reason: (i) all of the participant’s
restricted stock, RSUs, performance shares, and performance share units that were not vested on the date of such cessation shall be forfeited
immediately upon such cessation; (ii) all of the participant’s stock options that were exercisable on the date of such cessation
shall remain exercisable for, and shall otherwise terminate at the end of, a period of 90 days after the date of such cessation, but in
no event after the expiration date of the stock options; and (iii) all of the participant’s stock options that were not exercisable
on the date of such cessation shall be forfeited immediately upon such cessation. In the event of a participant’s termination of
service due to death, disability (as defined in the plan), retirement after age 65 or involuntary termination at or following a change
in control, the participant or the participant’s beneficiary, as applicable, has up to one year to exercise outstanding stock options,
provided that such period does not exceed the stock option award’s original term. Unless the Committee specifies otherwise in the
award agreement, the 2023 Equity Plan provides that a participant shall be eligible for a full or prorated award upon a cessation of the
participant’s service relationship due to death, disability, involuntary termination without cause, or resignation for “good
reason” (as defined in the 2023 Equity Plan) at or following a change in control.
Change in Control
Unless the Committee provides
otherwise in the award agreement, any time-based vesting requirement applicable to an award shall be deemed satisfied in full in the event
that (i) both a change in control occurs and a participant has an involuntary termination of service (including a resignation for
good reason) with the Corporation or (ii) the surviving entity in such change in control does not assume or replace the award with
a comparable award issued by the surviving entity. With respect to an award that is subject to one or more performance objectives, unless
the Committee specifies otherwise in the award agreement, in the event of a change in control and involuntary termination of service (including
a resignation for good reason) or in the event that the surviving entity fails to assume or replace the award with a comparable award
issued by the surviving entity, achievement of such performance objective shall be deemed achieved at the greater of target or the actual
level of performance measured as of the most recent completed fiscal quarter.
Transferability
Generally, awards granted
under the 2023 Equity Plan are not transferable prior to death, except in limited circumstances with respect to stock options.
Amendment and Termination
The Corporation’s Board
of Directors may at any time amend or terminate the 2023 Equity Plan, and the Board of Directors or the Committee may amend any award
agreement for any lawful purpose, but no such action shall materially adversely affect any rights or obligations with respect to any awards
previously granted under the 2023 Equity Plan, except to the extent set forth herein. The Board of Directors or Committee may also amend
the 2023 Equity Plan or an outstanding award agreement to conform the plan or award agreement to applicable law (including but not limited
to Code Section 409A) or to avoid an accounting treatment resulting from an accounting pronouncement or interpretation issued by
the SEC or Financial Accounting Standards Board after adoption of the plan or the grant of the award, which may materially and adversely
affect the financial condition or operations of the Corporation. Neither the Board of Directors nor the Committee can reprice a stock
option without prior shareholder approval, except in accordance with the adjustment provisions of the 2023 Equity Plan (as described above).
Notwithstanding the foregoing any amendment that would materially (i) increase the benefits available under the Plan, (ii) increase
the aggregate number of securities under the Plan, or (iii) materially modify the requirements for participation in the Plan must
be approved by the Corporation’s shareholders.
Certain
Federal Income Tax Consequences
The following is intended
only as a brief summary of the federal income tax rules relevant to the primary types of awards available for issuance under the
2023 Equity Plan and is based on the terms of the Code as currently in effect. The applicable statutory provisions are subject to change
in the future (possibly with retroactive effect), as are their interpretations and applications. Because federal income tax consequences
may vary as a result of individual circumstances, participants are encouraged to consult their personal tax advisors with respect to their
tax consequences. The following summary is limited only to United States federal income tax treatment. It does not address state, local,
gift, estate, social security or foreign tax consequences, which may be substantially different.
Restricted Stock Awards
A participant generally will
recognize taxable ordinary income upon the receipt of shares as a stock award or restricted stock award if the shares are not subject
to a “substantial risk of forfeiture,” which is generally considered to require the performance of substantial future services.
If the shares are subject to a substantial risk of forfeiture, the participant generally will recognize taxable ordinary income when the
substantial risk of forfeiture lapses. If the substantial risk of forfeiture lapses in installments over several years, the participant
will recognize income in each year in which the substantial risk of forfeiture lapses as to that installment. If the participant cannot
sell the shares without being subject to suit under Section 16(b) of the Exchange Act, also known as the short swing profits
rule, the shares will be treated as subject to a substantial risk of forfeiture. The income recognized upon lapse of a substantial risk
of forfeiture will be equal to the fair market value of the shares determined as of the time that the substantial risk of forfeiture lapses
less any purchase price paid for the shares. The Corporation generally will be entitled to a deduction in an amount equal to the amount
of ordinary income recognized by the participant, subject to the requirements of Section 162(m) of the Code (“Section 162(m)”),
as applicable.
Alternatively, unless prohibited
by the Committee, a participant may make a timely election under Section 83(b) of the Code (referred to in this proxy statement
as Section 83(b)) to recognize ordinary income for the taxable year in which the participant received the shares underlying an award
in an amount equal to the fair market value of the shares at that time. That income will be taxable at ordinary income tax rates. If a
participant makes a timely Section 83(b) election, the participant will not recognize income at the time the substantial risk
of forfeiture lapses with respect to the shares. At the time of disposition of the shares, a participant who has made a timely Section 83(b) election
will recognize capital gain or loss in an amount equal to the difference between the amount realized upon sale and the ordinary income
recognized upon receipt of the share (increased by the amount paid for the shares, if any). If the participant forfeits the shares after
making a Section 83(b) election, the participant will not be entitled to a deduction with respect to the income recognized as
a result of the election but will be entitled to a capital loss limited to the actually amount paid for the shares (if any). To be timely,
the Section 83(b) election must be made within 30 days after the participant receives the shares.
The Corporation will generally
be entitled to a deduction in an amount equal to the amount of ordinary income recognized by the participant at the time of the election.
Restricted Stock Units
A participant generally is
not taxed upon the grant of an RSU. Generally, if an RSU is designed to be settled on or shortly after the RSU is no longer subject to
a substantial risk of forfeiture, then at the time of settlement in stock or cash the participant will recognize ordinary income equal
to the amount of cash and/or the fair market value of the shares received by the participant (subject to the short swing profits rule)
and the Corporation will be entitled to an income tax deduction for the same amount, subject to the requirements of Section 162(m),
as applicable. However, if an RSU is not designed to be settled on or shortly after the RSU is no longer subject to a substantial risk
of forfeiture, the RSU may be deemed a nonqualified deferred compensation plan under Section 409A. In that case, if the RSU is designed
to meet the requirements of Section 409A, then at the time of settlement the participant will recognize ordinary income equal to
the amount of cash and/or the fair market value of the shares received by the participant, and the Company will be entitled to an income
tax deduction for the same amount. However, if the RSU is not designed to satisfy the requirements of Section 409A, the participant
may be subject to income taxes and penalties under Section 409A in the event of a violation of Section 409A.
Nonqualified Stock Options
A participant generally is
not taxed upon the grant of a NQSO. However, the participant must recognize ordinary income upon exercise of the NQSO in an amount equal
to the difference between the NQSO exercise price and the fair market value of the shares acquired on the date of exercise (subject to
the short swing profits rule). The Corporation generally will have a deduction in an amount equal to the amount of ordinary income recognized
by the participant in the Corporation’s tax year during which the participant recognizes ordinary income, subject to the requirements
of Section 162(m).
Upon the sale of shares acquired
pursuant to the exercise of an NQSO, the participant will recognize capital gain or loss to the extent that the amount realized from the
sale is different than the fair market value of the shares on the date of exercise. This gain or loss will be long-term capital gain or
loss if the shares have been held for more than one year after exercise.
Incentive Stock Options
A participant is not taxed
on the grant or exercise of an ISO. The difference between the exercise price and the fair market value of the shares covered by the ISO
on the exercise date will, however, be a preference item for purposes of the alternative minimum tax. If a participant holds the shares
acquired upon exercise of an ISO for at least two years following the ISO grant date and at least one year following exercise, the participant’s
gain or loss, if any, upon a subsequent disposition of the shares is long-term capital gain or loss. The amount of the gain or loss is
the difference between the proceeds received on disposition and the participant’s basis in the shares (which generally equals the
ISO exercise price). If a participant disposes of shares acquired pursuant to exercise of an ISO before satisfying these holding periods
and realizes an amount in excess of the exercise price, the amount realized will be taxed to the participant as ordinary income up to
the fair market value of the shares on the exercise date and any additional amount realized will be taxable to the participant as capital
gain in the year of disposition; however, if the exercise price exceeds the amount realized on sale, the difference will be taxed to the
participant as a capital loss. The Corporation is not entitled to a federal income tax deduction on the grant or exercise of an ISO or
on the participant’s disposition of the shares after satisfying the holding period requirement described above. If the holding periods
are not satisfied, the Corporation will be entitled to a deduction in the year the participant disposes of the shares in an amount equal
to any ordinary income recognized by the participant, subject to the requirements of Section 162(m).
In order for an option to
qualify as an ISO for federal income tax purposes, the grant of the stock option must satisfy various other conditions specified in the
Code. In the event a stock option is intended to be an ISO but fails to qualify as an ISO, it will be taxed as an NQSO as described above.
Performance Awards
A participant generally is
not taxed upon the grant of restricted stock or restricted stock units granted subject to the satisfaction of performance conditions (such
restricted stock or restricted stock units will be referred to herein as “performance shares” or “performance share
units”). The participant will recognize taxable income at the time of settlement of the performance share/unit in an amount equal
to the amount of cash and the fair market value of the shares received upon settlement. The income recognized will be taxable at ordinary
income tax rates. The Corporation generally will be entitled to a deduction in an amount equal to the amount of ordinary income recognized
by the participant, subject to the requirements of Code Section 162(m). Any gain or loss recognized upon the disposition of the shares
acquired pursuant to settlement of a performance share/unit will qualify as long-term capital gain or loss if the shares have been held
for more than one year after settlement.
Golden Parachute Payments
The terms of the award agreement
evidencing an award under the 2023 Equity Plan may provide for accelerated vesting or accelerated payout of the award in connection with
a change in ownership or control of the Corporation. In such event, certain amounts with respect to the award may be characterized as
“parachute payments” under the golden parachute provisions of the Code. Under Section 280G of the Code, no federal income
tax deduction is allowed to the Corporation for “excess parachute payments” made to “disqualified individuals,”
and receipt of such payments subjects the recipient to a 20% excise tax under Section 4999 of the Code. For this purpose, “disqualified
individuals” are generally officers, shareholders or highly compensated individuals performing services for the Corporation, and
the term “excess parachute payments” includes payments in the nature of compensation which are contingent on a change in ownership
or effective control of the Corporation, to the extent that such payments (in present value) equal or exceed three times the recipient’s
average annual taxable compensation from the Corporation for the previous five years. Certain payments for reasonable compensation for
services rendered after a change of control and payments from tax-qualified plans are generally not included in determining “excess
parachute payments.” If payments or accelerations may occur with respect to awards granted under the 2023 Equity Plan, certain amounts
in connection with such awards may constitute “parachute payments” and be subject to these “golden parachute”
tax provisions.
Code Section 162(m)
Code Section 162(m) prohibits
publicly held corporation from deducting more than $1 million per year paid to each of certain “covered employees,” as defined.
New Plan Benefits
There have been no grants
made under the 2023 Equity Plan. Because benefits under the 2023 Equity Plan will depend on the actions of the Board and employee participation,
as well as the value of the Corporation's common stock, it is not possible to determine the benefits that will be received if approved
by the shareholders. The closing price for the Corporation's common stock as of February 3, 2023 was $23.36.
Vote Required for Approval
The affirmative vote of a
majority of the votes cast is required to approve the Citizens & Northern Corporation 2023 Equity Incentive Plan.
Recommendation of the Board of Directors
The Board of Directors recommends
a vote FOR approval of the Citizens & Northern Corporation 2023 Equity Incentive Plan.
PROPOSAL 5 -- RATIFICATION OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Baker Tilly was selected by
the Board as the independent registered public accounting firm for the Corporation for the fiscal year ending December 31, 2023.
Baker Tilly, including predecessor firms, has been the independent registered public accounting firm for the Corporation since 1979. No
member of the firm or any of its associates has a material financial interest in the Corporation. A representative of Baker Tilly is expected
to be present at the Annual Meeting to answer appropriate questions from shareholders and will be afforded an opportunity to make any
statement that the firm desires.
At its meeting on March 9,
2023, the Audit Committee selected Baker Tilly to be the Corporation’s independent registered public accounting firm for the year
ending December 31, 2023.
The affirmative vote of a
majority of the votes cast at the meeting, in person or by proxy, is required to ratify the appointment of Baker Tilly as the Corporation’s
independent registered public accounting firm. Abstentions and broker non-votes will have no effect in calculating the votes on this matter.
The Board of Directors
recommends a vote “FOR” ratification of the appointment of Baker Tilly US, LLP as the Corporation’s independent registered
public accounting firm for the fiscal year ending December 31, 2023.
Fees of Independent Registered Public Accounting
Firm
The following table sets forth
information concerning fees paid to independent public accountants for the years ended December 31, 2022 and 2021. All services provided
by Baker Tilly in 2022 and 2021 were pre-approved by the Audit Committee, consistent with the limits provided for in the Audit Committee
Charter.
|
|
Fiscal Years Ended |
|
|
|
December 31, |
|
|
|
2022 |
|
|
2021 |
|
Audit Fees |
|
|
|
|
|
|
|
|
Audit of Annual financial statements and audit of internal control over financial
reporting and reviews of Quarterly financial statements |
|
$ |
320,340 |
|
|
$ |
281,280 |
|
Audit-Related Fees |
|
|
|
|
|
|
|
|
Audits of employee benefit plans |
|
|
20,895 |
|
|
|
20,881 |
|
Tax Fees |
|
|
|
|
|
|
|
|
Preparation of Corporation tax returns |
|
|
27,585 |
|
|
|
30,205 |
|
Aggregate of all fees billed to the Corporation |
|
$ |
368,820 |
|
|
$ |
332,366 |
|
Audit Committee Report
On March 9, 2023, the
Audit Committee of the Board of Directors reviewed and discussed with management the audited financial statements dated December 31,
2022. The Audit Committee also discussed with Baker Tilly, the independent registered public accounting firm of the Corporation, the matters
required to be discussed with those charged with governance pursuant to the Public Company Accounting Oversight Board Auditing Standard
AS 1301(Communications with Audit Committees).
The Audit Committee has received
from Baker Tilly, the written disclosure and the letter required by PCAOB Rule 3526 (Communication with Audit Committees Concerning
Independence) and has discussed Baker Tilly’s independence with its representatives. These items relate to that firm’s independence
from the Corporation.
Based on its review and discussions
referred to above, the Committee has recommended to the Board of Directors that the audited financial statements be included in the Corporation’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2022 for filing with the Securities and Exchange Commission.
Audit Committee
Stephen M. Dorwart, Chairman |
Leo F. Lambert |
Helen S. Santiago |
Susan E. Hartley |
Terry L. Lehman |
Aaron K. Singer |
ANNUAL REPORT ON FORM 10-K
A copy of the Corporation’s
Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC, was made available to shareholders with
this proxy statement. The Annual Report on Form 10-K is also available at www.cnbankpa.com.
A paper copy of the Annual
Report on Form 10-K will be furnished to shareholders free of charge upon written request. Such requests should be directed to the
Treasurer of Citizens & Northern Corporation at 90-92 Main Street, Wellsboro, PA, 16901, or by phone at 570-724-3411.
OTHER MATTERS
The management of the Corporation
does not intend to bring any other matters before the Annual Meeting and is not presently informed of any other business which others
may bring before such meeting. However, if any other matters should properly come before such meeting or any adjournment thereof, it is
the intention of the persons named in the accompanying proxy to vote on such matters as they, in their discretion, determine.
APPENDIX A
CITIZENS &
NORTHERN CORPORATION
2023 EQUITY INCENTIVE
PLAN
ARTICLE
1 — GENERAL
Section 1.1. Purpose,
Effective Date and Term. The purpose of the Citizens & Northern Corporation 2023 Equity Incentive Plan (the “Plan”)
is to promote the long-term financial success of Citizens & Northern Corporation (the “Company”),
and its Subsidiaries, including Citizens & Northern Bank (the “Bank”),
by providing a means to attract, retain and reward individuals who contribute to that success and to further align their interests with
those of the Company’s shareholders through the ownership of additional shares of common stock of the Company and/or through compensation
tied to the value of the Company’s common stock. The “Effective Date”
of the Plan shall be the date on which the Plan satisfies the applicable shareholder approval requirements. The Plan shall remain in effect
as long as any Awards are outstanding; provided, however, that no Awards may be granted under the Plan after the day
immediately before the ten-year anniversary date of the Effective Date.
Section 1.2. Administration.
The Plan shall be administered by the Compensation Committee of the Board of Directors (the “Committee”)
in accordance with Section 5.1.
Section 1.3. Participation.
Each individual who is granted or holds an Award in accordance with the terms of the Plan shall be a Participant in the Plan (a “Participant”).
The grant of Awards shall be limited to Employees, Directors and Service Providers of the Company or any Subsidiary.
Section 1.4. Definitions.
Capitalized terms used in this Plan are defined in Article 8 and elsewhere in this Plan.
ARTICLE
2 — AWARDS
Section 2.1. General.
Any Award under the Plan may be granted singularly or in combination with another Award or other Awards. Each Award under the Plan shall
be subject to the terms and conditions of the Plan and any additional terms, conditions, limitations and restrictions as the Committee
shall provide with respect to the Award and as evidenced in an Award Agreement. In the event of a conflict between the terms of an Award
Agreement and the Plan, the terms of the Plan will control. Subject to the provisions of Section 2.2(d), an Award may be granted as an
alternative to or replacement of an existing Award under the Plan or any other plan of the Company or any Subsidiary or as the form of
payment for grants or rights earned or due under any other compensation plan or arrangement of the Company or any Subsidiary, including
without limitation the plan of any entity acquired by the Company or any Subsidiary. The types of Awards that may be granted under the
Plan include Stock Options, Restricted Stock and Restricted Stock Units, and any Award may be granted as a Performance Award.
Section 2.2. Stock
Options. A Stock Option is a grant that represents the right to purchase shares of Stock at an established Exercise Price.
(a) Grant
of Stock Options. Each Stock Option shall be evidenced by an Award Agreement that specifies: (i) the number of shares of Stock
covered by the Stock Option; (ii) the date of grant of the Stock Option and the Exercise Price; (iii) the vesting period or conditions
to vesting or exercisability (whether time- and/or performance-based); and (iv) any other terms and conditions not inconsistent with the
Plan, including the effect of termination of a Participant’s employment or Service, as the Committee may, in its discretion, prescribe.
Any Stock Option may be either an Incentive Stock Option that is intended to satisfy the requirements applicable to an “Incentive
Stock Option” (or “ISO”) described in Code Section 422(b), or a Non-Qualified Option that is not intended to be an ISO; provided,
however, that no ISOs may be granted: (i) after the day immediately prior to the ten-year anniversary of the Effective Date or the
date on which the Plan is approved by the Board of Directors, whichever is earlier; or (ii) to a non-Employee. Unless otherwise specifically
provided by its terms, any Stock Option granted to an Employee under this Plan shall be an ISO to the maximum extent permitted. Any ISO
granted under this Plan that does not qualify as an ISO for any reason (whether at the time of grant or as the result of a subsequent
event) shall be deemed to be a Non-Qualified Option. In addition, any ISO granted under this Plan may be unilaterally modified by the
Committee to disqualify it from ISO treatment, so that it becomes a Non-Qualified Option; provided, however, that any such
modification shall be ineffective if it causes the Option to be subject to Code Section 409A (unless, as modified, the Option complies
with Code Section 409A). The maximum number of Shares that can be issued as ISOs under the Plan is set forth in Section 3.2 hereof.
(b) Other
Terms and Conditions. A Stock Option shall be exercisable in accordance with its terms and conditions and during the periods
established by the Committee. In no event, however, shall a Stock Option expire later than ten (10) years after the date of its grant
(or five (5) years with respect to ISOs granted to a 10% Shareholder). The Exercise Price of each Stock Option shall not be less than
100% of the Fair Market Value of a share of Stock on the date of grant (or, if greater, the par value of a share of Stock); provided,
however, that the Exercise Price of an ISO shall not be less than 110% of Fair Market Value of a share of Stock on the date of
grant if granted to a 10% Shareholder; provided further, that the Exercise Price may be higher or lower in the case of
Stock Options granted or exchanged in replacement of existing Awards held by an employee or director of an acquired entity. The payment
of the Exercise Price shall be by cash or, subject to limitations imposed by applicable law, by any other means as the Committee may from
time to time permit, including: (i) by tendering, either actually or constructively by attestation, shares of Stock valued at Fair Market
Value as of the day of exercise; (ii) by irrevocably authorizing a third party, acceptable to the Committee, to sell shares of Stock (or
a sufficient portion of the shares) acquired upon exercise of the Stock Option and to remit to the Company a sufficient portion of the
sale proceeds to pay the entire Exercise Price and any tax withholding resulting from the exercise; (iii) by a net settlement of the Stock
Option, using a portion of the shares of Stock obtained on exercise in payment of the Exercise Price (and if applicable, any tax withholding);
(iv) by personal, certified or cashier’s check; (v) by other property deemed acceptable by the Committee; or (vi) by any combination
thereof. The total number of shares of Stock that may be acquired upon the exercise of a Stock Option shall be rounded down to the nearest
whole share, with cash-in-lieu paid by the Company, at its discretion, for the value of any fractional share.
(c) Prohibition
of Cash Buy-Outs of Underwater Stock Options. Under no circumstances will any Stock Option with an Exercise Price as of an applicable
date that is greater than the Fair Market Value of a share of Stock as of the same date that was granted under the Plan be bought back
by the Company without shareholder approval.
(d) Prohibition
Against Repricing. Except for adjustments pursuant to Section 3.4, and reductions of the Exercise Price approved by the Company’s
shareholders, neither the Committee nor the Board of Directors shall have the right or authority to make any adjustment or amendment that
reduces or would have the effect of reducing the Exercise Price of a Stock Option previously granted under the Plan, whether through amendment,
cancellation (including cancellation in exchange for a cash payment in excess of the Award’s in-the-money value or in exchange for
Options or other Awards), replacement grants, or other means.
Section 2.3 Restricted
Stock.
(a) Grant
of Restricted Stock. A Restricted Stock Award is a grant of a share or shares of Stock for no consideration or such minimum consideration
as may be required by applicable law, subject to a time-based vesting schedule or the satisfaction of market conditions or performance
conditions. Each Restricted Stock Award shall be evidenced by an Award Agreement that specifies (i) the number of shares of Stock covered
by the Restricted Stock Award; (ii) the date of grant of the Restricted Stock Award; (iii) the vesting period (whether time- and/or performance-based);
and (iv) any other terms and conditions not inconsistent with the Plan, including the effect of termination of a Participant’s employment
or Service. All Restricted Stock Awards shall be in the form of issued and outstanding shares of Stock. Restricted Stock granted under
the Plan may be evidenced in such manner as the Committee shall determine, including electronically and/or solely on the books and records
maintained by the transfer agent. If certificates representing Restricted Stock are registered in the name of the Participant, the Committee
may require that such certificates bear an appropriate legend referring to the terms, conditions and restrictions applicable to such Restricted
Stock (including that the Restricted Stock may not be sold, encumbered, hypothecated or otherwise transferred except in accordance with
the terms of the Plan and Award Agreement) and/or that the Company retain physical possession of the certificates, and that the Participant
deliver a stock power to the Company, endorsed in blank, relating to the Restricted Stock.
(b) Terms
and Conditions. Each Restricted Stock Award shall be subject to the following terms and conditions:
(i) Rights and Restrictions. Restricted
Stock Awards shall be subject to such restrictions on transferability, risk of forfeiture and other restrictions, if any, as the Committee
may impose, or as otherwise provided in the Plan. The restrictions may lapse separately or in combination at such times, under such circumstances
(including based on achievement of performance goals and/or future service requirements), in such installments or otherwise, as the Committee
may determine at the date of grant or thereafter. A Participant granted Restricted Stock shall have all of the rights of a shareholder,
including the right to vote the Restricted Stock and the right to receive dividends thereon provided, however,
that dividends payable with respect to Restricted Stock Awards (whether paid in cash or shares of Stock) shall be subject to the same
vesting conditions applicable to the Restricted Stock and shall, if vested, be delivered or paid at the same time as the restrictions
on the Restricted Stock to which they relate lapse.
(ii) Tender Offers
and Merger Elections. Each Participant to whom a Restricted Stock Award is granted shall have the right to
respond, or to direct the response, with respect to the related shares of Restricted Stock, to any tender offer, exchange offer, cash/stock
merger consideration election or other offer made to, or elections made by, the holders of shares of Stock. The direction for any of the
shares of Restricted Stock shall be given by proxy or ballot if the Participant is the beneficial owner of the shares of Restricted Stock
for voting purposes or, if the Participant is not the beneficial owner for voting purposes, by completing and filing, with the inspector
of elections, the trustee or such other person who shall be independent of the Company, as the Committee shall designate in the direction,
a written direction in the form and manner prescribed by the Committee. If no direction is given, then the shares of Restricted Stock
shall not be tendered.
Section 2.4. Restricted
Stock Units.
(a) Grant
of Restricted Stock Unit Awards. A Restricted Stock Unit is an Award, the value of which is denominated in shares of Stock that
will be paid in Stock, including Restricted Stock, cash (measured based upon the value of a share of Stock) or a combination thereof,
at the end of a specified period. A Restricted Stock Unit is subject to a vesting schedule or the satisfaction of market conditions or
performance conditions. Each Restricted Stock Unit shall be evidenced by an Award Agreement that specifies: (i) the number of Restricted
Stock Units covered by the Award; (ii) the date of grant of the Restricted Stock Units; (iii) the Restriction Period and the vesting period
(whether time- and/or performance-based); and (iv) any other terms and conditions not inconsistent with the Plan, including the effect
of termination of a Participant’s employment or Service.
(b) Other
Terms and Conditions. Each Restricted Stock Unit Award shall be subject to the following terms and conditions:
(i) The
Committee shall impose any other conditions and/or restrictions on any Restricted Stock Unit Award as it may deem advisable, including,
without limitation, time-based restrictions and vesting following the attainment of performance measures, restrictions under applicable
laws or under the requirements of any Exchange or market upon which shares of Stock may be listed, or holding requirements or sale restrictions
placed by the Company upon vesting of Restricted Stock Units.
(ii) The
conditions for grant or vesting and the other provisions of Restricted Stock Units (including without limitation any applicable performance
measures) need not be the same with respect to each recipient. An Award of Restricted Stock Units shall be settled as and when the Restricted
Stock Units vest or, in the case of Restricted Stock Units subject to performance measures, after the Committee has determined that the
performance goals have been satisfied.
(iii) Subject
to the provisions of the Plan and the applicable Award Agreement, during the period, if any, set by the Committee, commencing on the date
of grant of the Restricted Stock Unit for which the Participant’s continued Service is required (the “Restriction Period”),
and until the later of (A) the expiration of the Restriction Period and (B) the date the applicable performance measures (if any) are
satisfied, the Participant shall not be permitted to sell, assign, transfer, pledge or otherwise encumber Restricted Stock Units.
(iv) A
Participant shall have no voting rights with respect to any Restricted Stock Units. No dividends shall be paid on Restricted Stock Units.
In the sole discretion of the Committee, exercised at the time of grant, Dividend Equivalent Rights may be assigned to Restricted Stock
Units. A Dividend Equivalent Right, if any, shall be paid at the same time as the shares of Stock or cash subject to the Restricted Stock
Unit are distributed to the Participant and is otherwise subject to the same rights and restrictions as the underlying Restricted Stock
Unit.
Section 2.5. Vesting
of Awards. The Committee shall specify the vesting schedule or market or performance conditions of each Award at the time of
grant. Notwithstanding anything to the contrary herein, at least ninety-five percent (95%) of the Awards available under the Plan shall
vest no earlier than one (1) year after the date of grant, unless accelerated due to death, Disability, or an Involuntary Termination
at or following a Change in Control.
Section 2.6. Deferred
Compensation. Subject to approval by the Committee before an election is made, an Award of Restricted Stock Units may be deferred
pursuant to a valid deferral election made by a Participant. If a deferral election is made by a Participant, the Award Agreement shall
specify the terms of the deferral and shall constitute the deferral plan pursuant to the requirements of Code Section 409A. If any Award
would be considered “deferred compensation” as defined under Code Section 409A (“Deferred
Compensation”), the Committee reserves the absolute right (including the right to delegate such right) to unilaterally amend
the Plan or the Award Agreement, without the consent of the Participant, to maintain exemption from, or to comply with, Code Section 409A.
Any amendment by the Committee to the Plan or an Award Agreement pursuant to this Section 2.6 shall maintain, to the extent practicable,
the original intent of the applicable provision without violating Code Section 409A. A Participant’s acceptance of any Award under
the Plan constitutes acknowledgement and consent to the rights of the Committee, without further consideration or action. Any discretionary
authority retained by the Committee pursuant to the terms of this Plan or pursuant to an Award Agreement shall not apply to an Award that
is determined to constitute Deferred Compensation, if the discretionary authority would contravene Code Section 409A.
Section 2.7. Effect
of Termination of Service on Awards. The Committee shall establish the effect of a Termination of Service on the continuation
of rights and benefits available under an Award and, in so doing, may make distinctions based upon, among other things, the reason(s)
for the Termination of Service and type of Award. Unless otherwise specified by the Committee and set forth in an Award Agreement or as
set forth in an employment or severance agreement entered into by and between the Company and/or a Subsidiary and the Participant, the
following provisions shall apply to each Award granted under this Plan:
(a) Upon
a Participant’s Termination of Service for any reason other than due to Disability, death, Mandatory Retirement, Retirement or for
Cause, Stock Options shall be exercisable only as to the portion of the Award that was immediately exercisable by the Participant at the
date of termination, and the Stock Options may be exercised only for a period of three (3) months following termination and any Restricted
Stock Award or Restricted Stock Unit that has not vested as of the date of Termination of Service shall expire and be forfeited.
(b) In
the event of a Termination of Service for Cause, all Stock Options granted to a Participant that have not been exercised (whether or not
vested) and all Restricted Stock Awards and Restricted Stock Units granted to a Participant that have not vested shall expire and be forfeited.
(c) Upon
Termination of Service for reason of Disability or death, any Service-based Stock Options shall be fully exercisable, whether or not then
exercisable, and all Service-based Restricted Stock Awards and Restricted Stock Units shall vest as to all shares subject to an outstanding
Award, whether or not otherwise immediately vested, at the date of Termination of Service. Upon Termination of Service for reason of Disability
or death, any Awards that vest based on the achievement of performance targets shall vest, pro-rata, by multiplying (i) the number of
Awards that would be obtained based on achievement at target (or if actual achievement of the performance measures is greater than the
target level, at the actual achievement level) as of the date of Disability or death, by (ii) a fraction, the numerator of which is the
number of whole months the Participant was in Service during the performance period and the denominator of which is the number of months
in the performance period. Stock Options may be exercised for a period of one (1) year following a Termination of Service due to death
or Disability; provided, however, that in order to obtain ISO treatment for Stock Options exercised by heirs or devisees of
an optionee, the optionee’s death must have occurred while employed or within three (3) months following Termination of Service.
(d) In
the event of Termination of Service due to Mandatory Retirement, a Participant’s vested Stock Options shall be exercisable for one
(1) year following Termination of Service. No Stock Option shall be eligible for treatment as an ISO if the Stock Option is exercised
more than three (3) months following Termination of Service due to Mandatory Retirement. Any Stock Option, Restricted Stock Award or Restricted
Stock Unit that has not vested as of the date of Termination of Service shall vest, pro rata, by multiplying the number of outstanding,
unvested Awards by a fraction, the numerator of which is the number of days the Participant was in Service since the date the unvested
Awards were granted and the denominator of which is (i) for Awards granted within one year of Termination of Service, 365, or (ii) for
Awards granted more than one year prior to Termination of Service, 365 times the number of full or partial years since the date the Awards
were granted.
(e) In
the event of Termination of Service due to Retirement, a Participant’s vested Stock Options shall be exercisable for one (1) year
following Termination of Service. No Stock Option shall be eligible for treatment as an ISO if the Stock Option is exercised more than
three (3) months following Termination of Service due to Retirement. Any Stock Option, Restricted Stock Award or Restricted Stock Unit
that has not vested as of the date of Termination of Service shall expire and be forfeited.
(f) Notwithstanding
anything herein to the contrary, no Stock Option shall be exercisable beyond the last day of the original term of the Stock Option.
(g) Notwithstanding
the provisions of this Section 2.7, the effect of a Change in Control on the vesting/exercisability of Stock Options, Restricted Stock
Awards and Restricted Stock Units is set forth in Article 4.
Section 2.8. Holding
Period for Vested Awards. As a condition of receipt of an Award, the Award Agreement may require a Participant to agree to
hold a vested Award or shares of Stock received upon exercise of a Stock Option for a period of time specified in the Award Agreement
(“Holding Period”). In connection with the foregoing, a Participant may be required to retain direct ownership of Covered
Shares until the earlier of (i) the expiration of the Holding Period following the date of vesting or (ii) such person’s termination
of employment with the Company and any Subsidiary. The foregoing limitation, if applicable, shall not apply to the extent that an Award
vests due to death, Disability or an Involuntary Termination at or following a Change in Control, or to the extent that (x) a Participant
directs the Company to withhold or the Company elects to withhold shares of Stock with respect to the vesting or exercise, or, in lieu
thereof, to retain, or to sell without notice, a sufficient number of shares of Stock to cover the amount required to be withheld or (y)
a Participant exercises a Stock Option by a net settlement, and in the case of (x) and (y) herein, only to the extent of the shares are
withheld for tax purposes or for purposes of the net settlement.
ARTICLE
3 — SHARES SUBJECT TO PLAN
Section 3.1. Available
Shares. The shares of Stock with respect to which Awards may be made under the Plan shall be shares currently authorized but
unissued, currently held or, to the extent permitted by applicable law, subsequently acquired by the Company, including shares purchased
in the open market or in private transactions.
Section 3.2. Share
Limitations.
(a) Share
Reserve. A maximum of 500,000 shares of Stock may be delivered to Participants and their beneficiaries under the Plan. The aggregate
number of shares available for grant under this Plan and the number of shares of Stock subject to outstanding awards shall be subject
to adjustment as provided in Section 3.4.
(b) Computation
of Shares Available. For purposes of this Section 3.2 and in connection with the granting of a Stock Option, Restricted Stock
or Restricted Stock Unit, the number of shares of Stock available for the grant shall be reduced by the number of shares previously granted,
subject to the following. To the extent any shares of Stock covered by an Award (including Restricted Stock Awards and Restricted Stock
Units) under the Plan are not delivered to a Participant or beneficiary for any reason, including because the Award is forfeited or canceled
or because a Stock Option is not exercised, then the shares shall not be deemed to have been delivered for purposes of determining the
maximum number of shares of Stock available for delivery under the Plan. To the extent that: (i) a Stock Option is exercised by using
an actual or constructive exchange of shares of Stock to pay the Exercise Price; (ii) shares of Stock are withheld to satisfy tax withholding
upon exercise or vesting of an Award granted hereunder; or (iii) shares are withheld to satisfy the Exercise Price of Stock Options in
a net settlement of Stock Options, then the number of shares of Stock available shall be reduced by the gross number of Stock Options
exercised or Stock returned to satisfy tax withholding, rather than by the net number of shares of Stock issued.
Section 3.3. Not Used.
Section 3.4. Corporate
Transactions.
(a) General. In
the event any recapitalization, reclassification, forward or reverse stock split, reorganization, merger, consolidation, spin-off, combination,
or exchange of shares of Stock or other securities, stock dividend or other special and nonrecurring dividend or distribution (whether
in the form of cash, securities or other property), liquidation, dissolution, or increase or decrease in the number of shares of Stock
without consideration, or similar corporate transaction or event, affects the shares of Stock such that an adjustment is appropriate in
order to prevent dilution or enlargement of the rights of Participants under the Plan and/or under any Award granted under the Plan, then
the Committee shall, in an equitable manner, adjust any or all of: (i) the number and kind of securities deemed to be available thereafter
for grants of Stock Options, Restricted Stock Awards and Restricted Stock Units in the aggregate to all Participants and individually
to any one Participant; (ii) the number and kind of securities that may be delivered or deliverable in respect of outstanding Stock Options,
Restricted Stock Awards and Restricted Stock Units; and (iii) the Exercise Price of Stock Options. In addition, the Committee is authorized
to adjust the terms and conditions of, and the criteria included in, Stock Options, Restricted Stock Awards and Restricted Stock Units
(including, without limitation, cancellation of any such Awards in exchange for the in-the-money value, if any, of the vested portion
thereof, or substitution or exchange of any such Awards for similar awards denominated in stock of a successor or other entity) in recognition
of unusual or nonrecurring events (including, without limitation, acquisitions and dispositions of businesses or assets) affecting the
Company or any parent or Subsidiary or the financial statements of the Company or any parent or Subsidiary, or in response to changes
in applicable laws, regulations, or accounting principles.
(b) Merger
in Which Company is Not Surviving Entity. In the event of any merger, consolidation, or other business reorganization (including,
but not limited to, a Change in Control) in which the Company is not the surviving entity, any Stock Options granted under the Plan which
remain outstanding shall be converted into Stock Options to purchase voting common equity securities of the business entity which survives
the merger, consolidation or other business reorganization having substantially the same terms and conditions as the outstanding Stock
Options under this Plan and reflecting the same economic benefit (as measured by the difference between the aggregate Exercise Price and
the value exchanged for outstanding shares of Stock in the merger, consolidation or other business reorganization), all as determined
by the Committee before the consummation of the merger, consolidation or other business reorganization. Similarly, any Restricted Stock
or Restricted Stock Units which remain outstanding shall be assumed by and become Restricted Stock and/or Restricted Stock Units of the
business entity which survives the merger, consolidation or other business reorganization. If the acquiring entity fails or refuses to
assume the Company’s outstanding Awards, any Service-based Awards shall vest immediately at or immediately before the effective
time of the merger, consolidation or other business reorganization. Any Awards subject to performance-based vesting conditions shall vest
in the same manner as required under Section 4.1(c) hereof at the time of the merger, consolidation or other business reorganization,
as if the holder thereof incurred an Involuntary Termination of Service on that date. Unless another treatment is specified in the documents
governing the merger, consolidation or other business organization, in the case of vested Restricted Stock or Restricted Stock Units,
holders thereof shall receive on the effective date of the transaction, the same value as received by a holder of a share of Stock, multiplied
by the number of Restricted Stock or Restricted Stock Units held, and in the case of a holder of Stock Options, the holder shall receive
the difference, in cash, between the aggregate Exercise Price of the holder’s outstanding Stock Options and the value exchanged
for outstanding shares of Stock in the merger, consolidation or other business reorganization.
Section 3.5. Delivery
of Shares. Delivery of shares of Stock or other amounts under the Plan shall be subject to the following:
(a) Compliance
with Applicable Laws. Notwithstanding any other provision of the Plan, the Company shall have no obligation to deliver any shares
of Stock or make any other distribution of benefits under the Plan unless the delivery or distribution complies with all applicable laws
(including, the requirements of the Securities Act), and the applicable requirements of any Exchange or similar entity.
(b) Certificates. To
the extent that the Plan provides for the issuance of shares of Stock, the issuance may be effected on a non-certificated basis, to the
extent not prohibited by applicable law or the applicable rules of any Exchange.
ARTICLE
4 — CHANGE IN CONTROL
Section 4.1. Consequence
of a Change in Control. Subject to the provisions of Section 2.5 (relating to vesting and acceleration) and Section 3.4 (relating
to the adjustment of shares), and except as otherwise provided in the Plan or determined by the Committee and set forth in an Award Agreement:
(a) At
the time of an Involuntary Termination at or following a Change in Control, all service-based Stock Options then held by the Participant
shall become fully earned and exercisable (subject to the expiration provisions otherwise applicable to the Stock Option). All Stock Options
may be exercised for a period of one (1) year following the Participant’s Involuntary Termination, provided, however,
that no Stock Option shall be eligible for treatment as an ISO if the Stock Option is exercised more than three (3) months following a
termination of employment.
(b) At
the time of an Involuntary Termination at or following a Change in Control, all Service-based Awards of Restricted Stock and Restricted
Stock Units shall become fully vested immediately.
(c)
In the event of an Involuntary Termination at or following a Change in Control, unless otherwise specified in the Award Agreement, any
Performance Award will vest based on the greater of the target level of performance or actual annualized performance measured as of the
most recent completed fiscal quarter.
Section 4.2. Definition
of Change in Control. For purposes of this Plan, the term “Change in Control”
shall mean the following:
|
(a) |
the consummation of (A) a merger, consolidation, division or other fundamental
transaction involving the Company or the Bank, (B) a sale, exchange, transfer or other disposition of substantially all of the assets
of the Company or the Bank to any entity which is not a direct or indirect subsidiary of the Company, or (C) a purchase by the Company
or the Bank of substantially all of the assets of another entity; unless (Y) such merger,
consolidation, division, sale, exchange, transfer, purchase, disposition or other transaction is approved in advance by eighty percent
(80%) or more of the members of the Board of Directors of the Company who are not interested in the transaction and (Z) a majority of
the members of the Board of Directors of the legal entity resulting from or existing after any such transaction and a majority of the
Board of Directors of such entity’s parent corporation, if any, are former members of the Board of Directors of the Company; or |
|
(b) |
any “person” (as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934 (the “Exchange Act”)), other than the Company, a direct or indirect subsidiary of the
Company, or a person who is the beneficial owner of more than twenty-five percent (25%) of the Company’s outstanding securities
on the date of this Agreement becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing twenty-five percent (25%) or more of the combined voting power of Company’s
then outstanding securities; or |
|
(c) |
during any period of two (2) consecutive years, individuals who at the beginning
of such period constitute the Board of Directors of the Company cease for any reason to constitute at least a majority thereof, unless
the election of each director who was not a director at the beginning of such period has been approved in advance by directors representing
at least two-thirds of the directors then in office who were directors at the beginning of the period; or |
|
(d) |
any other change in control of the Company or the Bank similar in effect to any
of the foregoing. |
ARTICLE
5 — COMMITTEE
Section 5.1. Administration.
The Plan shall be administered by the Committee, which shall be composed of at least two Disinterested Board Members. Any members of the
Committee who do not qualify as Disinterested Board Members shall abstain from participating in any discussion or decision to make or
administer Awards that are made to Participants who at the time of consideration for such Award are persons subject to the short-swing
profit rules of Section 16 of the Exchange Act. The Board of Directors (or if necessary to maintain compliance with the applicable listing
standards, those members of the Board of Directors who are “independent directors” under the corporate governance statutes
or rules of any national Exchange on which the Company lists, has listed or seeks to list its securities) may, in their discretion, take
any action and exercise any power, privilege or discretion conferred on the Committee under the Plan with the same force and effect under
the Plan as if done or exercised by the Committee.
Section 5.2. Powers
of Committee. The administration of the Plan by the Committee shall be subject to the following:
(a) The
Committee shall have the authority and discretion to select those persons who shall receive Awards, to determine the time or times of
receipt, to determine the types of Awards and the number of shares of Stock covered by the Awards, to establish the terms, conditions,
features (including automatic exercise in accordance with Section 7.18), performance criteria, restrictions (including without limitation,
provisions relating to non-competition, non-solicitation and confidentiality), and other provisions of such Awards (subject to the restrictions
imposed by Article 6), to cancel or suspend Awards and to reduce, eliminate or accelerate any restrictions or vesting requirements applicable
to an Award at any time after the grant of the Award; provided, however, that the Committee shall not exercise its discretion
to accelerate an Award within the first year following the date of grant if the exercise of such discretion would result in more than
five percent (5%) of the aggregate awards under the Plan vesting in less than one year from the date of grant as provided for in Section
2.5, or to extend the time period to exercise a Stock Option, unless the extension is consistent with Code Section 409A.
(b) The
Committee shall have the authority and discretion to interpret the Plan, to establish, amend and rescind any rules and regulations relating
to the Plan, and to make all other determinations that may be necessary or advisable for the administration of the Plan.
(c)
The Committee shall have the authority to define terms not otherwise defined herein.
(d) In
controlling and managing the operation and administration of the Plan, the Committee shall take action in a manner that conforms to the
articles of incorporation and by-laws of the Company and applicable corporate law.
(e) The
Committee shall have the authority to: (i) suspend a Participant’s right to exercise a Stock Option during a blackout period (or
similar restricted period) (a “Blackout Period”) or to exercise in a particular manner (i.e., such as a “cashless exercise”
or “broker-assisted exercise”) to the extent that the Committee deems it necessary or in the best interests of the Company
in order to comply with the securities laws and regulations issued by the SEC; and (ii) to extend the period to exercise a Stock Option
by a period of time equal to the Blackout Period, provided that the extension does not violate Section 409A of the Code, the Incentive
Stock Option requirements or applicable laws and regulations.
Section 5.3. Not Used.
Section 5.4. Information
to be Furnished to Committee. As may be permitted by applicable law, the Company and its Subsidiaries shall furnish the Committee
with data and information it determines may be required for it to discharge its duties. The records of the Company and its Subsidiaries
as to a Participant’s employment, termination of employment, leave of absence, reemployment and compensation shall be conclusive
on all persons unless determined by the Committee to be manifestly incorrect. Subject to applicable law, Participants and other persons
entitled to benefits under the Plan must furnish the Committee any evidence, data or information as the Committee considers desirable
to carry out the terms of the Plan.
Section 5.5. Committee
Action. The Committee shall hold meetings, and may make administrative rules and regulations, as it may deem proper. A majority
of the members of the Committee shall constitute a quorum, and the action of a majority of the members of the Committee present at a meeting
at which a quorum is present, as well as actions taken pursuant to the unanimous written consent of all of the members of the Committee
without holding a meeting, shall be deemed to be actions of the Committee. Subject to Section 5.1, all actions of the Committee, including
interpretations of provisions of the Plan, shall be final and conclusive and shall be binding upon the Company, Participants and all other
interested parties. Any person dealing with the Committee shall be fully protected in relying upon any written notice, instruction, direction
or other communication signed by a member of the Committee or by a representative of the Committee authorized to sign the same in its
behalf.
ARTICLE
6 — AMENDMENT AND TERMINATION
Section 6.1. General.
The Board of Directors may, as permitted by law, at any time, amend or terminate the Plan, and the Board of Directors or the Committee
may amend any Award Agreement, provided, however, that no amendment or termination (except as provided in Sections 2.6, 3.4
and 6.2) may cause the Award to violate Code Section 409A, may cause the repricing of a Stock Option, or, in the absence of written consent
to the change by the affected Participant (or, if the Participant is not then living, the affected beneficiary), adversely impair the
rights of any Participant or beneficiary under any Award before the date the amendment is adopted by the Board of Directors; provided,
however, that, no amendment may (a) materially increase the benefits accruing to Participants under the Plan, (b) materially increase
the aggregate number of securities which may be issued under the Plan, other than pursuant to Section 3.4, or (c) materially modify the
requirements for participation in the Plan, unless the amendment is approved by the Company’s shareholders.
Section 6.2. Amendment
to Conform to Law and Accounting Changes. Notwithstanding any provision in this Plan or any Award Agreement to the contrary,
the Committee may amend the Plan or any Award Agreement, to take effect retroactively or otherwise, as deemed necessary or advisable for
the purpose of: (i) conforming the Plan or the Award Agreement to any present or future law relating to plans of this or similar nature
(including, but not limited to, Code Section 409A); or (ii) avoiding an accounting treatment resulting from an accounting pronouncement
or interpretation thereof issued by the SEC or by the Financial Accounting Standards Board (the “FASB”)
after the adoption of the Plan or the making of the Award affected thereby, which, in the sole discretion of the Committee, may materially
and adversely affect the financial condition or results of operations of the Company. By accepting an Award under this Plan, each Participant
agrees and consents to any amendment made pursuant to this Section 6.2 to any Award granted under the Plan without further consideration
or action.
ARTICLE
7 — GENERAL TERMS
Section 7.1. No Implied
Rights.
(a) No
Rights to Specific Assets. Neither a Participant nor any other person shall by reason of participation in the Plan acquire any
right in or title to any assets, funds or property of the Company or any Subsidiary whatsoever, including any specific funds, assets,
or other property which the Company or any Subsidiary, in its sole discretion, may set aside in anticipation of a liability under the
Plan. A Participant shall have only a contractual right, evidenced by an Award Agreement, to the shares of Stock or amounts, if any, payable
or distributable under the Plan, unsecured by any assets of the Company or any Subsidiary, and nothing contained in the Plan shall constitute
a guarantee that the assets of the Company or any Subsidiary shall be sufficient to pay any benefits to any person.
(b) No
Contractual Right to Employment or Future Awards. The Plan does not constitute a contract of employment, and selection as a Participant
will not give any participating Employee the right to be retained in the employ of the Company or any Subsidiary or any right or claim
to any benefit under the Plan, unless the right or claim has specifically accrued under the terms of the Plan. No individual shall have
the right to be selected to receive an Award under the Plan, or, having been so selected, to receive a future Award under the Plan.
(c) No
Rights as a Shareholder. Except as otherwise provided in the Plan or in an Award Agreement, no Award shall confer upon the holder
thereof any rights as a shareholder of the Company before the date on which the individual fulfills all conditions for receipt of such
rights.
Section 7.2. Transferability.
Except as otherwise so provided by the Committee, Stock Options under the Plan are not transferable except: (i) as designated by the Participant
by will or by the laws of descent and distribution; or (ii) to a trust established by the Participant, if under Code Section 671 and applicable
state law, the Participant is considered the sole beneficial owner of the Stock Option while held in trust. The Committee shall have the
discretion to permit the transfer of vested Stock Options (other than ISOs) under the Plan; provided, however, that such
transfers shall be limited to Immediate Family Members of Participants, trusts and partnerships established for the primary benefit of
Immediate Family Members or to charitable organizations, and; provided, further, that the transfers are not made for
consideration to the Participant.
Awards of Restricted Stock shall not be transferable,
except in the event of death, before the time that the Awards vest in the Participant. A Restricted Stock Unit Award is not transferable,
except in the event of death, before the time that the Restricted Stock Unit Award vests in the Participant and the property in which
the Restricted Stock Unit is denominated is distributed to the Participant or the Participant’s Beneficiary.
A Beneficiary, transferee, or other person claiming
any rights under the Plan from or through any Participant shall be subject to all terms and conditions of the Plan and any Award Agreement
applicable to such Participant, except as otherwise determined by the Committee, and to any additional terms and conditions deemed necessary
or appropriate by the Committee.
Section 7.3. Designation
of Beneficiaries. A Participant may file with the Company a written designation of a beneficiary or beneficiaries under this
Plan and may from time to time revoke or amend any such designation. Any designation of beneficiary under this Plan shall be controlling
over any other disposition, testamentary or otherwise (unless the disposition is pursuant to a domestic relations order); provided,
however, that if the Committee is in doubt as to the entitlement of any beneficiary to any Award, the Committee may determine
to recognize only the legal representative of the Participant, in which case the Company, the Committee and the members thereof shall
not be under any further liability to anyone.
Section 7.4. Non-Exclusivity.
Neither the adoption of this Plan by the Board of Directors nor the submission of the Plan to the shareholders of the Company for approval
(and any subsequent approval by the shareholders of the Company) shall be construed as creating any limitations on the power of the Board
of Directors or the Committee to adopt other incentive arrangements as may deemed desirable, including, without limitation, the granting
of Restricted Stock Awards, Restricted Stock Units and/or Stock Options and such arrangements may be either generally applicable or applicable
only in specific cases.
Section 7.5. Eligibility
for Form and Time of Elections/Notification Under Code Section 83(b). Unless otherwise specified herein, each election required
or permitted to be made by any Participant or other person entitled to benefits under the Plan, and any permitted modification or revocation
thereof, shall be filed with the Company at such times, in such form, and subject to such restrictions and limitations, not inconsistent
with the terms of the Plan, as the Committee shall require. Notwithstanding anything herein to the contrary, the Committee may, on the
date of grant or at a later date, as applicable, prohibit an individual from making an election under Code Section 83(b). If the Committee
has not prohibited an individual from making this election, an individual who makes this election shall notify the Committee of the election
within ten (10) days of filing notice of the election with the Internal Revenue Service or as otherwise required by the Committee. This
requirement is in addition to any filing and notification required under the regulations issued under the authority of Code Section 83(b).
Section 7.6. Evidence.
Evidence required of anyone under the Plan may be by certificate, affidavit, document or other written information upon which the person
is acting considers pertinent and reliable, and signed, made or presented by the proper party or parties.
Section 7.7. Tax Withholding.
(a) Payment
by Participant. Each Participant shall, no later than the date as of which the value of an Award or of any Stock or other amounts
received thereunder first becomes includable in the gross income of the Participant for Federal income tax purposes, pay to the Company,
or make arrangements satisfactory to the Committee regarding payment of, any Federal, state, or local taxes of any kind required by law
to be withheld by the Company with respect to such income. The Company and its Subsidiaries shall, to the extent permitted by law, have
the right to deduct any such taxes from any payment of any kind otherwise due to the Participant. The Company's obligation to deliver
evidence of book entry (or stock certificates) to any Participant is subject to and conditioned on tax withholding obligations being satisfied
by the Participant.
(b) Payment
in Stock. The Committee may require the Company's tax withholding obligation to be satisfied, in whole or in part, by the Company
withholding from shares of Stock to be issued pursuant to any Award a number of shares with an aggregate Fair Market Value (as of the
date the withholding is effected) that would satisfy the withholding amount due; provided, however, that the amount withheld
does not exceed the maximum statutory tax rate or such lesser amount as is necessary to avoid liability accounting treatment. For purposes
of share withholding, the Fair Market Value of withheld shares shall be determined in the same manner as the value of Stock includible
in income of the Participants.
Section 7.8. Action
by Company or Subsidiary. Any action required or permitted to be taken by the Company or any Subsidiary shall be by resolution
or unanimous written consent of its board of directors, or by action of one or more members of the board of directors (including a committee
of the board of directors) who are duly authorized to act for the board of directors, or (except to the extent prohibited by applicable
law or applicable rules of the Exchange on which the Company lists its securities) by a duly authorized officer of the Company or Subsidiary.
Section 7.9. Successors.
All obligations of the Company under the Plan shall be binding upon and inure to the benefit of any successor to the Company, whether
the existence of the successor is the result of a direct or indirect purchase, merger, consolidation or otherwise, of all or substantially
all of the business, stock, and/or assets of the Company.
Section 7.10. Indemnification.
To the fullest extent permitted by law and the Company’s governing documents, each person who is or shall have been a member of
the Committee, or of the Board of Directors, or an officer of the Company to whom authority was delegated in accordance with Section 5.3,
shall be indemnified and held harmless by the Company against and from any loss (including amounts paid in settlement), cost, liability
or expense (including reasonable attorneys’ fees) that may be imposed upon or reasonably incurred by him or her in connection with
or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason
of any action taken or failure to act under the Plan and against and from any and all amounts paid by him or her in settlement thereof,
with the Company’s approval, or paid by him or her in satisfaction of any judgment in any such action, suit, or proceeding against
him or her, provided he or she shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she
undertakes to handle and defend it on his or her own behalf, unless such loss, cost, liability, or expense is a result of his or her own
willful misconduct or except as expressly provided by statute or regulation. The foregoing right of indemnification shall not be exclusive
of any other rights of indemnification to which such persons may be entitled under the Company’s charter or bylaws, as a matter
of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless. The foregoing right to indemnification
shall include the right to be paid by the Company the expenses incurred in defending any such proceeding in advance of its final disposition, provided,
however, that, if required by applicable law, an advancement of expenses shall be made only upon delivery to the Company of an
undertaking, by or on behalf of such persons to repay all amounts so advanced if it shall ultimately be determined by final judicial decision
from which there is no further right to appeal that such person is not entitled to be indemnified for such expenses.
Section 7.11. No
Fractional Shares. Unless otherwise permitted by the Committee, no fractional shares of Stock shall be issued or delivered
pursuant to the Plan or any Award Agreement. The Committee shall determine whether cash or other property shall be issued or paid in lieu
of fractional shares or whether the fractional shares or any rights thereto shall be forfeited or otherwise eliminated by rounding down.
Section 7.12. Governing
Law. The Plan, all Awards granted hereunder, and all actions taken in connection herewith shall be governed by and construed
in accordance with the laws of the Commonwealth of Pennsylvania without reference to principles of conflict of laws, except as superseded
by applicable federal law. The federal and state courts located in the Commonwealth of Massachusetts shall have exclusive jurisdiction
over any claim, action, complaint or lawsuit brought under the terms of the Plan. By accepting any Award, each Participant and any other
person claiming any rights under the Plan agrees to submit himself or herself and any legal action that brought with respect to the Plan,
to the sole jurisdiction of such courts for the adjudication and resolution of any such disputes.
Section 7.13. Benefits
Under Other Plans. Except as otherwise provided by the Committee or as set forth in a Qualified Retirement Plan, non-qualified
plan or other benefit plan, Awards to a Participant (including the grant and the receipt of benefits) under the Plan shall be disregarded
for purposes of determining the Participant’s benefits under, or contributions to, any Qualified Retirement Plan, non-qualified
plan and any other benefit plans maintained by the Participant’s employer. The term “Qualified
Retirement Plan” means any plan of the Company or a Subsidiary that is intended to be qualified under Code Section 401(a).
Section 7.14. Validity.
If any provision of this Plan is determined to be illegal or invalid for any reason, said illegality or invalidity shall not affect the
remaining parts of the Plan, but this Plan shall be construed and enforced as if the illegal or invalid provision has never been included
herein.
Section 7.15. Notice.
Unless otherwise provided in an Award Agreement, all written notices and all other written communications to the Company provided for
in the Plan or in any Award Agreement, shall be delivered personally or sent by registered or certified mail, return receipt requested,
postage prepaid (provided that international mail shall be sent via overnight or two-day delivery), or sent by facsimile, email or prepaid
overnight courier to the Company at its principal executive office. Notices, demands, claims and other communications shall be deemed
given: (a) in the case of delivery by overnight service with guaranteed next day delivery, the next day or the day designated for delivery;
(b) in the case of certified or registered U.S. mail, five (5) days after deposit in the U.S. mail; or (c) in the case of facsimile or
email, the date upon which the transmitting party received confirmation of receipt; provided, however, that in no event
shall any such communications be deemed to be given later than the date they are actually received, provided they are actually received.
If a communication is not received, it shall only
be deemed received upon the showing of an original of the applicable receipt, registration or confirmation from the applicable delivery
service. Communications that are to be delivered by U.S. mail or by overnight service to the Company shall be directed to the attention
of the Company’s Corporate Secretary, unless otherwise provided in the Award Agreement.
Section 7.16. Forfeiture
Events. The Committee may specify in an Award Agreement that the Participant’s rights, payments, and benefits with respect
to an Award shall be subject to reduction, cancellation, forfeiture or recoupment upon the occurrence of certain specified events, in
addition to any otherwise applicable vesting or performance conditions of an Award. These events include, but are not limited to, termination
of employment for Cause, termination of the Participant’s provision of Services to the Company or any Subsidiary, violation of material
Company or Subsidiary policies, breach of noncompetition, confidentiality, or other restrictive covenants that may apply to the Participant,
or other conduct of the Participant that is detrimental to the business or reputation of the Company or any Subsidiary.
Section 7.17. Awards
Subject to Company Policies and Restrictions.
(a) Clawback
Policies. Awards granted hereunder are subject to any Clawback Policy maintained by the Company, whether pursuant to the provisions
of Section 954 of the Dodd-Frank Act, implementing regulations thereunder, or otherwise. If the Company is required to prepare an accounting
restatement due to the material noncompliance of the Company, as a result of misconduct, with any financial reporting requirement under
the federal securities laws, and the automatic forfeiture provisions under Section 304 of the Sarbanes-Oxley Act of 2002 apply as a result,
any Participant who was an executive officer of the Company at the time of grant or at the time of restatement shall be subject to “clawback”
as if the person were subject to Section 304 of the Sarbanes-Oxley Act of 2002.
(b) Trading
Policy Restrictions. Option exercises and other Awards under the Plan shall be subject to the Company’s insider trading policies
and procedures, as in effect from time to time.
(c) Hedging/Pledging
Policy Restrictions. Awards under the Plan shall be subject to the Company’s policies relating to hedging and pledging as such
may be in effect from time to time.
Section 7.18. Automatic
Exercise. In the sole discretion of the Committee exercised in accordance with Section 5.2(a), any Stock Options that are exercisable
but unexercised as of the day immediately before the tenth anniversary of the date of grant (or other expiration date) may be automatically
exercised, in accordance with procedures established for this purpose by the Committee, but only if the Exercise Price is less than the
Fair Market Value of a share of Stock on that date and the automatic exercise will result in the issuance of at least one (1) whole share
of Stock to the Participant after payment of the Exercise Price and any applicable tax withholding requirements. Payment of the Exercise
Price of a Stock Option and any applicable tax withholding requirements with respect to Stock Options shall be made by a net settlement
of the Stock Option whereby the number of shares of Stock to be issued upon exercise are reduced by a number of shares having a Fair Market
Value on the date of exercise equal to the Exercise Price and any applicable tax withholding.
Section 7.19. Regulatory
Requirements. The grant and settlement of Awards shall be conditioned upon and subject to compliance with Section 18(k) of
the Federal Deposit Insurance Act, 12 U.S.C. 1828(k), and the rules and regulations promulgated thereunder.
ARTICLE
8 — DEFINED TERMS
In addition to the other definitions
contained herein, unless otherwise specifically provided in an Award Agreement, the following definitions shall apply:
“10%
Shareholder” means an individual who, at the time of grant, owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company.
“Award”
means any Stock Option, Restricted Stock Award or Restricted Stock Unit or any other right or interest relating to Stock or cash, granted
to a Participant under the Plan.
“Award
Agreement” means the document (in whatever medium prescribed by the Committee and whether or not a signature is required
or provided by a Participant) that evidences the terms and conditions of an Award. A copy of the Award Agreement shall be provided (or
made available electronically) to each Participant.
“Board
of Directors” means the Board of Directors of the Company.
“Cause”
shall, with respect to any Participant, have the same meaning as “cause” or “for cause” (or any similar term)
set forth in any employment, change in control, consulting, or other agreement for the performance of services or severance between the
Participant and the Company or a Subsidiary or, in the absence of any such agreement or any such definition in such agreement, such term
shall mean (i) a material act of willful misconduct by the Participant in connection with the performance of his/her duties, including,
without limitation, misappropriation of funds or property of the Company or a Subsidiary; (ii) the conviction of the Participant for,
or plea of nolo contendere by the Participant to, any felony or a misdemeanor involving deceit, dishonesty, or fraud; (iii) the commission
by the Participant of any misconduct, whether or not related to the Company or any of its affiliates, that has caused, or would reasonably
be expected to cause, material detriment or damage to the Company’s or any of its affiliates’ reputation, business operation
or relation with its employees, customers, vendors, suppliers or regulators; (iv) continued, willful and deliberate non-performance by
the Participant of his/her duties (other than by reason of the Participant’s physical or mental illness, incapacity or disability)
that has continued for more than thirty (30) days following written notice providing the details of such non-performance from the Chief
Executive Officer of the Company or any Subsidiary, or his designee, as the case may be; (v) willful failure to cooperate with a bona
fide internal investigation or an investigation by regulatory or law enforcement authorities, after being instructed by the Company
or a Subsidiary to cooperate, or the deliberate destruction of or deliberate failure to preserve documents or other materials that the
Participant should reasonably know to be relevant to such investigation, after being instructed by the Company or a Subsidiary to preserve
such documents, or the willful inducement of others to fail to cooperate or to fail to produce documents or other materials; or (vi) removal
or prohibition of the Participant from participating in the conduct of the Company’s or a Subsidiary’s affairs by order issued
under applicable law and regulations by a federal or state banking agency having authority over the Company or a Subsidiary. The good
faith determination by the Committee of whether the Participant’s Service was terminated by the Company or a Subsidiary for “Cause”
shall be final and binding for all purposes hereunder.
“Change
in Control” has the meaning ascribed to it in Section 4.2.
“Code”
means the Internal Revenue Code of 1986, as amended, and any rules, regulations and guidance promulgated thereunder, as modified from
time to time.
“Covered
Shares” means any shares acquired by a Participant pursuant to an Award granted under this Plan, net of taxes and transaction
costs. For these purposes, “taxes and transaction costs” include, without limitation: (i) shares retained by the Company to
satisfy tax withholding requirements attributable to such Awards, and (ii) any taxes payable by the Participant related to Awards which
are in excess of the amounts withheld in accordance with clause “(i).”
“Director”
means a member of the Board of Directors or of a board of directors of a Subsidiary.
If the Participant is a party
to a written employment agreement (or other similar written agreement) with the Company or a Subsidiary that provides a definition of
“Disability” or “Disabled,”
then, for purposes of this Plan, the terms “Disability” or “Disabled” shall have meaning set forth in that agreement.
In the absence of such a definition, “Disability” shall be defined in accordance with the Bank’s long-term disability
plan. In the absence of a long-term disability plan or to the extent that an Award is subject to Code Section 409A, “Disability”
or “Disabled” shall mean that a Participant has been determined to be disabled by the Social Security Administration. Except
to the extent prohibited under Code Section 409A, if applicable, the Committee shall have discretion to determine if a Disability has
occurred.
“Disinterested
Board Member” means a member of the Board of Directors who: (i) is not a current Employee of the Company or a Subsidiary;
(ii) is not a former employee of the Company or a Subsidiary who receives compensation for prior Services (other than benefits under a
tax-qualified retirement plan) during the taxable year; (iii) has not been an officer of the Company or a Subsidiary for the past three
(3) years; (iv) does not receive compensation from the Company or a Subsidiary, either directly or indirectly, for services as a consultant
or in any capacity other than as a Director except in an amount for which disclosure would not be required pursuant to Item 404 of SEC
Regulation S-K in accordance with the proxy solicitation rules of the SEC, as amended or any successor provision thereto; and (v) does
not possess an interest in any other transaction, and is not engaged in a business relationship for which disclosure would be required
pursuant to Item 404(a) of SEC Regulation S-K under the proxy solicitation rules of the SEC, as amended or any successor provision thereto.
The term Disinterested Board Member shall be interpreted in a manner as shall be necessary to conform to the requirements of Rule 16b-3
promulgated under the Exchange Act and the corporate governance standards imposed on compensation committees under the listing requirements
imposed by any Exchange on which the Company lists or seeks to list its securities.
“Dividend
Equivalent Right” means the right, associated with a Restricted Stock Unit, to receive a payment, in cash or shares of Stock,
as applicable, equal to the amount of dividends paid on a share of Stock, as specified in the Award Agreement.
“Employee”
means any person employed by the Company or a Subsidiary, including Directors who are employed by the Company or a Subsidiary.
“Exchange”
means any national securities exchange on which the Stock may from time to time be listed or traded.
“Exchange
Act” means the Securities Exchange Act of 1934, as amended and the rules, regulations and guidance promulgated thereunder,
as modified from time to time.
“Exercise
Price” means the price established with respect to a Stock Option pursuant to Section 2.2.
“Fair
Market Value” on any date, means: (i) if the Stock is listed on an Exchange, national market system or automated quotation
system, the average of the highest and lowest reported sales price on that Exchange or over such system on that date or, in the absence
of reported sales on that date, the average of the highest and lowest reported sales price on the immediately preceding date on which
sales were reported; or (ii) if the Stock is not listed on an Exchange, “Fair Market Value” shall mean a price determined
by the Committee in good faith on the basis of objective criteria consistent with the requirements of Code Section 422 and applicable
provisions of Code Section 409A.
A termination of employment
by an Employee Participant shall be deemed a termination of employment for “Good Reason”
as a result of the Participant’s resignation from the employ of the Company or any Subsidiary upon the occurrence of any of the
following events:
(i) a material diminution,
not consented to by the Participant, in the Participant’s responsibilities, authorities or duties, from the responsibilities, authorities
or duties exercised by the Participant as of immediately prior to a Change in Control;
(ii) a material reduction
in the Participant’s annual compensation or benefits, as in effect immediately prior to a Change in Control or as the same may be
increased from time to time thereafter, except for across-the-board reductions similarly affecting all or substantially all of the Company’s
executive officers;
(iii) the relocation of the
Company’s office(s) at which the Participant is principally employed as of the date of a Change in Control (the “Current
Offices”) to any other location more than 50 miles from the Current Offices, or the requirement by the Company or any affiliate
for whom the Participant primarily works for the Participant to be based at a location more than 50 miles from the Current Offices, except
for required travel on business to an extent substantially consistent with the Participant’s business travel obligations during
the twelve (12)-month period immediately preceding the Change in Control.
Notwithstanding the foregoing,
in the event an Award is subject to Code Section 409A, then “Good Reason” shall be defined in accordance with Code Section
409A, including the requirement that a Participant gives 60 days’ notice to the Company or the Subsidiary for whom the Participant
is employed of the Good Reason condition and the Company or Subsidiary, as applicable, shall have 30 days to cure the Good Reason condition.
Any distribution of an Award subject to Code Section 409A shall be subject to the distribution timing rules of Code Section 409A, including
any delay in the distribution of such Award, which rules shall be set forth in the Award Agreement.
“Holding
Period” has the meaning ascribed to it in Section 2.8.
“Immediate
Family Member” means with respect to any Participant: (i) any of the Participant’s children, stepchildren, grandchildren,
parents, stepparents, grandparents, spouses, former spouses, siblings, nieces, nephews, mothers-in-law, fathers-in-law, sons-in-law, daughters-in-law,
brothers-in-law or sisters-in-law, including relationships created by adoption; (ii) any natural person sharing the Participant’s
household (other than as a tenant or employee, directly or indirectly, of the Participant); (iii) a trust in which any combination of
the Participant and persons described in section (i) or (ii) above own more than fifty percent (50%) of the beneficial interests; (iv)
a foundation in which any combination of the Participant and persons described in sections (i) or (ii) above control management of the
assets; or (v) any other corporation, partnership, limited liability company or other entity in which any combination of the Participant
and persons described in sections (i) or (ii) above control more than fifty percent (50%) of the voting interests.
“Involuntary
Termination” means the Termination of Service of a Participant by the Company or Subsidiary (other than termination for Cause)
or termination of employment by an Employee Participant for Good Reason.
“Incentive
Stock Option” or “ISO” has the meaning ascribed to it in Section
2.2.
“Mandatory
Retirement” means retirement from employment or service because of attaining an age greater than or equal to a Company-imposed
maximum age.
“Non-Qualified
Option” means the right to purchase shares of Stock that is either: (i) designated as a Non-Qualified Option; (ii) granted
to a Participant who is not an Employee; or (iii) granted to an Employee but does not satisfy the requirements of Code Section 422.
“Performance
Award” means an Award that vests in whole or in part upon the achievement of one or more specified performance measures,
as determined by the Committee. The conditions for grant or vesting and the other provisions of a Performance Award (including without
limitation any applicable performance measures) need not be the same with respect to each recipient. A Performance Award shall vest, or
as to Restricted Stock Units be settled, after the Committee has determined that the performance goals have been satisfied. Performance
measures may be based on the performance of the Company as a whole or on any one or more Subsidiaries or business units of the Company
or a Subsidiary and may be measured relative to a peer group, an index or a business plan and may be considered as absolute measures or
changes in measures. The terms of an Award may provide that partial achievement of performance measures may result in partial payment
or vesting of the award or that the achievement of the performance measures may be measured over more than one period or fiscal year.
In establishing any performance measures, the Committee may provide for the exclusion of the effects of the certain items, including but
not limited to the following: (i) extraordinary, unusual, and/or nonrecurring items of gain or loss; (ii) gains or losses on the disposition
of a business; (iii) dividends declared on the Company’s stock; (iv) changes in tax or accounting principles, regulations or laws;
or (v) expenses incurred in connection with a merger, branch acquisition or similar transaction. Subject to the preceding sentence, if
the Committee determines that a change in the business, operations, corporate structure or capital structure of the Company or the manner
in which the Company or its Subsidiaries conducts its business or other events or circumstances render current performance measures to
be unsuitable, the Committee may modify the performance measures, in whole or in part, as the Committee deems appropriate. Notwithstanding
anything to the contrary herein, performance measures relating to any Award hereunder will be modified, to the extent applicable, to reflect
a change in the outstanding shares of Stock of the Company by reason of any stock dividend or stock split, or a corporate transaction,
such as a merger of the Company into another corporation, any separation of a corporation or any partial or complete liquidation by the
Company or a Subsidiary. If a Participant is promoted, demoted or transferred to a different business unit during a performance period,
the Committee may determine that the selected performance measures or applicable performance period are no longer appropriate, in which
case, the Committee, in its sole discretion, may: (i) adjust, change or eliminate the performance measures or change the applicable performance
period; or (ii) cause to be made a cash payment to the Participant in an amount determined by the Committee
“Restricted
Stock” or “Restricted Stock Award” has the meaning ascribed to
it in Section 2.3(a).
“Restricted
Stock Unit” has the meaning ascribed to it in Section 2.4(a).
“Restriction
Period” has the meaning set forth in Section 2.4(b)(iii).
“Retirement”
or “Retired” means, unless otherwise specified in an Award Agreement, retirement
from employment or service on or after attainment of age 65. Notwithstanding anything herein to the contrary, if an Employee or Director
has not had a Termination of Service as defined in this Plan, the Employee or Director shall not be deemed to have Retired for purposes
of forfeiture of non-vested Awards, vesting in Awards or reducing the exercise period of Options issued hereunder.
“SEC”
means the United States Securities and Exchange Commission.
“Securities
Act” means the Securities Act of 1933, as amended and the rules, regulations and guidance promulgated thereunder and modified
from time to time.
“Service”
means the uninterrupted provision of services as an Employee or Director of, or a Service Provider to, the Company or a Subsidiary, as
the case may be, and shall include service as a director emeritus or advisory director. Service shall not be deemed interrupted in the
case of (i) any approved leave of absence for military service or sickness, or for any other purpose approved by the Company or a Subsidiary,
if the employee’s right to re-employment is guaranteed either by a statute or by contract or under the policy pursuant to which
the leave of absence was granted or if the Committee otherwise so provides in writing, (ii) transfers among the Company, any Subsidiary,
or any successor entities, in any capacity of Employee, Director or Service Provider, or (iii) any change in status as long as the individual
remains in the service of the Company or a Subsidiary in any capacity of Employee, Director or Service Provider (except as otherwise provided
in the Award Agreement).
“Service
Provider” means any natural person (other than an Director, solely with respect to rendering services in such person’s
capacity as a Director) who is engaged by the Company or any Subsidiary to render consulting or advisory services to the Company or the
Subsidiary and the services are not in connection with the offer or sale of securities in a capital-raising transaction and do not directly
or indirectly promote or maintain a market for the Company’s securities.
“Stock”
means the common stock of the Company, $1.00 par value per share.
“Stock
Option” has the meaning ascribed to it in Section 2.2.
“Subsidiary(ies)”
means any corporation, affiliate, bank or other entity which would be a subsidiary corporation with respect to the Company as defined
in Code Section 424(f) and, other than with respect to an ISO, shall also mean any partnership or joint venture in which the Company and/or
other Subsidiary owns more than 50% of the capital or profits interests.
“Termination
of Service” means the first day occurring on or after a grant date on which the Participant ceases to be an Employee or Director
of, or Service Provider to, the Company or any Subsidiary, regardless of the reason for such cessation, subject to the following:
(i) The Participant’s
cessation of Service as an Employee shall not be deemed to occur by reason of the transfer of the Participant between the Company and
a Subsidiary or between two Subsidiaries. Unless the Committee determines otherwise, an Employee Participant shall not be deemed to have
a Termination of Service if such Participant remains in the Service of the Company or a Subsidiary as a Service Provider.
(ii) The Participant’s
cessation as an Employee shall not be deemed to occur by reason of the Participant’s being on a bona fide leave of absence from
the Company or a Subsidiary approved by the Company or Subsidiary otherwise receiving the Participant’s Services, provided the leave
of absence does not exceed six (6) months, or if longer, so long as the Employee retains a right to reemployment with the Company or Subsidiary
under an applicable statute or by contract. For these purposes, a leave of absence constitutes a bona fide leave of absence only if there
is a reasonable expectation that the Employee will return to perform Services for the Company or Subsidiary. If the period of leave exceeds
six (6) months and the Employee does not retain a right to reemployment under an applicable statute or by contract, the employment relationship
is deemed to terminate on the first day immediately following the six-month period. For purposes of this sub-section, to the extent applicable,
an Employee’s leave of absence shall be interpreted by the Committee in a manner consistent with Treasury Regulation Section 1.409A-1(h)(1).
(iii) If, as a result of a
sale or other transaction, the Subsidiary for whom Participant is employed (or to whom the Participant is providing Services) ceases to
be a Subsidiary, and the Participant is not, following the transaction, an Employee of the Company or an entity that is then a Subsidiary,
then the occurrence of the transaction shall be treated as the Participant’s Termination of Service caused by the Participant being
discharged by the entity by which the Participant is employed or to which the Participant is providing Services.
(iv) Except to the extent
Code Section 409A may be applicable to an Award, and subject to the foregoing paragraphs of this sub-section, the Committee shall have
discretion to determine if a Termination of Service has occurred and the date on which it occurred. If any Award under the Plan constitutes
Deferred Compensation (as defined in Section 2.6), the term Termination of Service shall be interpreted by the Committee in a manner consistent
with the definition of “Separation from Service” as defined under Code Section 409A and under Treasury Regulation Section
1.409A-1(h)(ii). For purposes of this Plan, a “Separation from Service” shall have occurred if the employer and Participant
reasonably anticipate that no further Services will be performed by the Participant after the date of the Termination of Service (whether
as an employee or as an independent contractor) or the level of further Services performed will be less than 50% of the average level
of bona fide Services in the thirty-six (36) months immediately preceding the Termination of Service. If a Participant is a “Specified
Employee,” as defined in Code Section 409A and any payment to be made hereunder shall be determined to be subject to Code Section
409A, then if required by Code Section 409A, the payment or a portion of the payment (to the minimum extent possible) shall be delayed
and shall be paid on the first day of the seventh month following Participant’s Separation from Service.
(v) With respect to a Participant
who is both an Employee and a Director, termination of employment as an Employee shall not constitute a Termination of Service for purposes
of the Plan so long as the Participant continues to provide Service as a Director.
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Important notice of availability of Proxy materials for the Shareholder meeting of
CitiZenS & northern CorPoration
to Be held on:
april 20, 2023 at 2:00 p.m. Local time
virtually at https://web.lumiagm.com/244346915 Password: citizens2023 (case sensitive)
ComPanY nUmBer
aCCoUnt nUmBer
ControL nUmBer
encourage you to access and review all of the important information contained in the proxy materials before voting.
if you want to receive a paper or e-mail copy of the proxy materials you must request one. there is no charge to you for requesting a
copy. to facilitate timely delivery please make the request as instructed below before 4/10/2023.
Please visit http://www.astproxyportal.com/ast/11697/, where the following materials are available for view:
- Annual Highlights
- Notice of Annual Meeting of Stockholders
- Proxy Statement
- Form of Electronic Proxy Card
- Annual Report on Form 10-K
to reqUeSt materiaL: teLePhone: 888-Proxy-na (888-776-9962) and 718-921-8562 (for international callers)
e-maiL: info@astfinancial.com
weBSite: https://us.astfinancial.com/onlineProxyVoting/ProxyVoting/requestmaterials
to Vote: onLine: To access your online proxy card, please visit www.voteproxy.com and follow the on-screen
instructions or scan the QR code with your smartphone. You may enter your voting instructions at
www.voteproxy.com up until 11:59 PM Eastern Time on April 20, 2023.
VirtUaLLY at the meetinG: The company will be hosting the meeting virtually this year. To attend the
meeting virtually, please visit https://web.lumiagm.com/244346915 Password: citizens2023
(case sensitive) and be sure to have your control number available.
teLePhone: To vote by telephone, please visit www.voteproxy.com to view the materials and to obtain
the toll free number to call.
maiL: You may request a card by following the instructions above.
1. ELECTION OF CLASS III DIRECTORS. nomineeS:
Stephen M. Dorwart
J. Bradley Scovill
Aaron K. Singer
2. TO APPROVE, IN AN ADVISORY (NON-BINDING) VOTE, THE COMPENSATION OF
THE COMPANY'S NAMED EXECUTIVE OFFICERS AS DISCLOSED IN THE PROXY
STATEMENT.
3. TO CONSIDER AND ACT UPON AN ADVISORY (NON-BINDING) VOTE ON
FREQUENCY OF THE ADVISORY VOTE ON THE COMPENSATION OF OUR NAMED
EXECUTIVE OFFICERS.
4. TO APPROVE CITIZENS & NORTHERN CORPORATION 2023 EQUITY INCENTIVE
PLAN.
5. RATIFICATION OF THE APPOINTMENT OF BAKER TILLY US, LLP AS THE
CORPORATION'S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR
THE YEAR ENDING DECEMBER 31, 2023.
6. OTHER MATTERS. In their discretion, to vote with respect to any other matters that may
properly come before the Meeting or any adjournments thereof.
Please note that you cannot use this notice to vote by mail.
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ANNUAL MEETING OF STOCKHOLDERS OF
CITIZENS & NORTHERN CORPORATION
April 20, 2023
PROXY VOTING INSTRUCTIONS
INTERNET - Access "www.voteproxy.com" and follow the on-screen
instructions or scan the QR code with your smartphone. Have your proxy
card available when you access the web page.
TELEPHONE - Call toll-free 1-800-PROXIES (1-800-776-9437) in the
United States or 1-718-921-8500 from foreign countries and follow the
instructions. Have your proxy card available when you call.
Vote online/phone until 11:59 PM EST on April 20, 2023.
MAIL - Sign, date and mail your proxy card in the envelope provided as
soon as possible.
VIRTUALLY AT THE MEETING - The company will be hosting the meeting
virtually this year. To attend the meeting virtually, please visit
https://web.lumiagm.com/244346915 Password: citizens2023 (case
sensitive) and be sure to have your control number available.
GO GREEN - e-Consent makes it easy to go paperless. With e-Consent,
you can quickly access your proxy materials, statements and other eligible
documents online, while reducing costs, clutter and paper waste. Enroll
today via www.astfinancial.com to enjoy online access.
COMPANY NUMBER
ACCOUNT NUMBER
NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIAL:
The Notice of Meeting, proxy statement and proxy card
are available at http://www.astproxyportal.com/ast/11697/
Please detach along perforated line and mail in the envelope provided IF you are not voting via telephone or the Internet.
20330403030000000000 9 042023
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE x
1. ELECTION OF CLASS III DIRECTORS.
NOMINEES:
O Stephen M. Dorwart
O J. Bradley Scovill
O Aaron K. Singer
FOR ALL NOMINEES
WITHHOLD AUTHORITY
FOR ALL NOMINEES
FOR ALL EXCEPT
(See instructions below)
INSTRUCTIONS: To withhold authority to vote for any individual nominee(s), mark "FOR ALL EXCEPT"
and fill in the circle next to each nominee you wish to withhold, as shown here:
2. TO APPROVE, IN AN ADVISORY (NON-BINDING) VOTE, THE
COMPENSATION OF THE COMPANY'S NAMED EXECUTIVE
OFFICERS AS DISCLOSED IN THE PROXY STATEMENT
FOR AGAINST ABSTAIN
3. TO CONSIDER AND ACT UPON AN ADVISORY
(NON-BINDING) VOTE ON FREQUENCY OF THE ADVISORY
VOTE ON THE COMPENSATION OF OUR NAMED
EXECUTIVE OFFICERS.
EVERY 1 YEAR EVERY 2 YEARS EVERY 3 YEARS ABSTAIN
4. TO APPROVE CITIZENS & NORTHERN CORPORATION 2023
EQUITY INCENTIVE PLAN.
FOR AGAINST ABSTAIN
5. RATIFICATION OF THE APPOINTMENT OF BAKER TILLY US, LLP
AS THE CORPORATION'S INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM FOR THE YEAR ENDING DECEMBER 31,
2023.
FOR AGAINST ABSTAIN
6. OTHER MATTERS. In their discretion, to vote with respect to any other matters that may
properly come before the Meeting or any adjournments thereof.
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED AS DIRECTED HEREIN BY
THE STOCKHOLDER. UNLESS OTHERWISE INDICATED, THIS PROXY WILL BE VOTED
FOR THE ELECTION AS DIRECTORS OF THE NOMINEES LISTED IN PROPOSAL 1, FOR
PROPOSALS 2, 4, AND 5 AND FOR A FREQUENCY OF EVERY 1 YEAR FOR PROPOSAL 3.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED POSTAGE-PAID ENVELOPE.
To change the address on your account, please check the box at right and
indicate your new address in the address space above. Please note that
changes to the registered name(s) on the account may not be submitted via
this method.
Signature of Stockholder Date: Signature of Stockholder Date:
Note: Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full
title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person.
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ANNUAL MEETING OF STOCKHOLDERS OF
CITIZENS & NORTHERN CORPORATION
April 20, 2023
GO GREEN
e-Consent makes it easy to go paperless. With e-Consent, you can quickly access your proxy
material, statements and other eligible documents online, while reducing costs, clutter and
paper waste. Enroll today via www.astfinancial.com to enjoy online access.
NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIAL:
The Notice of Meeting, proxy statement and proxy card
are available at http://www.astproxyportal.com/ast/11697/
Please sign, date and mail
your proxy card in the
envelope provided as soon
as possible.
Please detach along perforated line and mail in the e n v e l o p e p r o v i d e d .
20330403030000000000 9 042023
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE x
1. ELECTION OF CLASS III DIRECTORS.
NOMINEES:
O Stephen M. Dorwart
O J. Bradley Scovill
O Aaron K. Singer
FOR ALL NOMINEES
WITHHOLD AUTHORITY
FOR ALL NOMINEES
FOR ALL EXCEPT
(See instructions below)
INSTRUCTIONS: To withhold authority to vote for any individual nominee(s), mark "FOR ALL EXCEPT"
and fill in the circle next to each nominee you wish to withhold, as shown here:
2. TO APPROVE, IN AN ADVISORY (NON-BINDING) VOTE, THE
COMPENSATION OF THE COMPANY'S NAMED EXECUTIVE
OFFICERS AS DISCLOSED IN THE PROXY STATEMENT
FOR AGAINST ABSTAIN
3. TO CONSIDER AND ACT UPON AN ADVISORY
(NON-BINDING) VOTE ON FREQUENCY OF THE ADVISORY
VOTE ON THE COMPENSATION OF OUR NAMED
EXECUTIVE OFFICERS.
EVERY 1 YEAR EVERY 2 YEARS EVERY 3 YEARS ABSTAIN
4. TO APPROVE CITIZENS & NORTHERN CORPORATION 2023
EQUITY INCENTIVE PLAN.
FOR AGAINST ABSTAIN
5. RATIFICATION OF THE APPOINTMENT OF BAKER TILLY US, LLP
AS THE CORPORATION'S INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM FOR THE YEAR ENDING DECEMBER 31,
2023.
FOR AGAINST ABSTAIN
6. OTHER MATTERS. In their discretion, to vote with respect to any other matters that may
properly come before the Meeting or any adjournments thereof.
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED AS DIRECTED HEREIN BY
THE STOCKHOLDER. UNLESS OTHERWISE INDICATED, THIS PROXY WILL BE VOTED
FOR THE ELECTION AS DIRECTORS OF THE NOMINEES LISTED IN PROPOSAL 1, FOR
PROPOSALS 2, 4, AND 5 AND FOR A FREQUENCY OF EVERY 1 YEAR FOR PROPOSAL 3.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED POSTAGE-PAID ENVELOPE.
To change the address on your account, please check the box at right and
indicate your new address in the address space above. Please note that
changes to the registered name(s) on the account may not be submitted via
this method.
Signature of Stockholder Date: Signature of Stockholder Date:
Note: Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full
title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person.
![](https://content.edgar-online.com/edgar_conv_img/2023/03/10/0001104659-23-030995_tm232050d1_def14a-img011.jpg)
CITIZENS & NORTHERN CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD APRIL 20, 2023
The undersigned hereby appoints Aaron K. Singer and Bobbi J. Kilmer, and each
or either of them, as the attorneys and proxies of the undersigned, with full power of
substitution in each, to vote all shares of the common stock of Citizens & Northern
Corporation which the undersigned would be entitled to vote at the Annual Meeting of
Stockholders to be held on Thursday, April 20, 2023, at 2:00 P.M. (local time), in a virtual
meeting format only with no physical location, at https://web.lumiagm.com/244346915
password: citizens2023 (case sensitive), and at any adjournments thereof, and to vote as
follows:
(Continued and to be signed on the reverse side)
1.1 14475
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