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C&N ANNUAL REPORTCREATING OUR FUTURE
TABLE OF CONTENTSYou&Us – Editor Introduction4Lead&Guide – C&N Leadership6President&CEO – Shareholder Letter8Dollars&Sense – C&N Financial Profile11Quarterly Share DataOperations ComparisonsEnd of Period BalancesConsolidated Financial DataC&N Wealth 222
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At C&N, we’ve long known the value of togetherness. It’s at the heartof what we do, from how we build relationships with every client to howwe become an integral part of the communities we call home. In 2020,while our physical togetherness was limited, the hardships of the yearonly served to reinforce our belief that the best way for everyone tosucceed is together. Business owners & lenders. Investors & planners.You&Us, always.Despite all of the challenges 2020 brought, we were able to accomplishsome amazing things. To keep clients abreast of seemingly everchanging information, we created timely communications.And to continue to build personal, one-on-one relationships evenwhen social distancing was necessary, we connected with all of you inunprecedented ways, including:o 17,778 calls answered in our Client Care Centero 606 online chat sessionso 433,921 email communications to customersTo implement the newly created Paycheck Protection Program (PPP)loans, we worked with local businesses to protect their companiesand employees. In all, we were able to fund over 168 Million inPPP Loans to over 1,500 local businesses, saving the paychecksof over 16,000 local workers. In addition, we celebrated otheraccomplishments in the face of adversity, such as:o Wysox remodel completed in June 2020o New Towanda office completed in July 2020o Closed on Covenant merger on July 1, 2020, transitioning thousandsof new customers to C&No Contactless Debit cards kicked off in September 2020o ClickSWITCH launch in October 2020That’s what you call making the best of a challenging year.That’s what’s possible when we all come together, and together we cancreate our future. That’s C&N.4
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LEAD GUIDEWe are grateful to our Board members for lending their expertise tofurther the mission of C&N and for providing us with valuable insightinto the communities we serve.EXECUTIVE TEAMMark A. Hughes, EVP and Director Financial DivisionDeborah E. Scott, EVP and Director Trust DivisionJanice Ward, EVP and Chief Wealth Management OfficerStan R. Dunsmore, EVP and Chief Credit OfficerTracy E. Watkins, EVP and Director of Human ResourcesJ. Bradley Scovill, President & CEOShelley L. D’Haene, EVP and Senior Operations OfficerHarold F. Hoose, III, EVP and Director of LendingJohn M. Reber, EVP and Director of Risk ManagementThomas L. Rudy, Jr., EVP and Director of Branch DeliveryBOARD OF DIRECTORSRobert G. Loughery, President, Nehemiah Development CompanyStephen M. Dorwart, CPA, Fischer Dorwart, P.C.Terry L. Lehman, CPA - Retired Certified Public AccountantLeonard Simpson, Attorney at Law & Sullivan County District AttorneyTimothy E. Schoener, VP & CIO, UPMC PinnacleFrank G. Pellegrino, Owner & Developer, Carlton Associates, LLCSusan E. Hartley, Attorney at LawBobbi J. Kilmer, President & CEO, Claverack Rural Electric CooperativeAaron K. Singer, President & CEO, Metalkraft Industries, Inc.Clark S. Frame, Retired Chairman of the Board, Monument BankLeo F. Lambert, Chairman, President/GM Fitzpatrick & Lambert, Inc.J. Bradley Scovill, President & CEO, C&NCORPOR ATE OFFICERSMark A. Hughes, TreasurerKimberly N. Battin, Corporate SecretaryJ. Bradley Scovill, President & CEO6
ADVISORY BOARDBradford & Sullivan CountiesEvan R. BarnesCasandra K. BlaneyJames A. BowenKrystle R. BristolLaura C. CiminoWarren J. CroftJohn M. EstepZachary R. GatesTaunya Knolles RosenbloomJ. Wesley KocsisDr. Stephen D. LaudermilchKimberly J. MastrantonioRyan D. MoralesJeffrey B. PaulDamian M. RossettieWilliam B. SaxeEric SchoonoverMark W. SmithAndrew R. WilcoxCameron, McKean &Potter CountiesJohn A. AbplanalpDavid Mark ErrickJoseph R. KightlingerLori J. ReedAndrea F. StreichEdwin W. Tompkins, IIILycoming CountyRobert T. BeiterThomas F. CharlesJohn M. ConferRoger D. JarrettDaniel K. MathersJeffrey M. PattersonJohn F. PerrottoTyler L. RhoneCamela A. RooneyDavid A. SchallMelissa M. YoungYork CountyThomas K. BaughmanMatthew R. DoranNicholas E. HauckRyan A. MyersAlex E. SnyderBucks & Chester CountiesGlenda R. ChildsCarolina Cabrera DiGorgioJoseph A. Fluehr, IVThomas HebelLinda J. KilroyDaniel Paul MarrazzoKaren J. MillerLouis QuattrocchiGary B. RubinMichael J. RushIrving N. SteinDavid E. ThompsonJames WattsTioga CountyBrian A. BickslerLawrence J. ConnollyMatthew S. DeCampCraig EccherMark R. HoweJohn C. KenyonDanielle M. LeeScott E. LewisAnthony L. MossoDavid C. MurdockMary C. OwlettWilliam W. RoosaRay E. WheelandJohn S. Johnston7
PRESIDENT CEODear Shareholder,The COVID-19 pandemic rocked the world in 2020 and wasthe catalyst for changes that will impact life for many years.The World Health Organization (WHO) declared the pandemicon March 11, 2020 and the health emergency took over dailylife across the globe. In the U.S., federal and state authoritiesimplemented stay at home orders and passed a variety ofnew laws and regulations designed to protect the health ofAmericans. The potential financial consequences of theserestrictions were recognized and the Federal Reserve and U.S.government took unprecedented actions to support Americanhouseholds and businesses, as well as provide bankers with flexibility and tools to deliverassistance.While equity markets were hit hard late in the first quarter, certain sectors recoveredquickly and the major averages ended the year at record levels. The Federal Reservepumped liquidity into the system and reduced the fed funds rate target to 0% - .25%.Longer-term rates followed this lead, flattening the yield curve at historically low levels.Congress quickly passed the CARES Act making financial support and new lendingprograms available at a massive scale. These efforts stabilized the economy and assistedin substantially reducing the unemployment rate following the initial spike.As the pandemic’s impact continued to wreak havoc on everyday life for many peopleover the course of 2020, public uncertainty and frustration became serious issues. Thehealth and related economic issues were accompanied by election year political discordand social and racial unrest. At year-end, optimism resulting from the start of widespreadvaccine distribution was muted by the second wave of the virus.The C&N Team’s response to all these challenges has been quietly heroic. Our mission ofcreating value through lifelong relationships and the strength of our values-based culturepassed all tests in 2020. We focused on the health and welfare of our Team, customersand communities with a sense of calm, confidence, and persistence. Embedded in thisapproach is an energy and urgency to create value as we perform our essential role ofassisting customers with their financial health through this period of crisis. This energy isreflected in the origination of 515 million in loans during the year, including 166 millionof PPP loans closed with 1,500 customers and 250 million of residential mortgages.In Towanda, we relocated to a new,state-of-the-art facility and completedThe C&N Team’s response toa refresh of our branch in Wysox. Wecontinued to invest in our digital productsall these challenges has beento enhance the customer experience inquietly heroic. Our mission ofan increasingly mobile world. We heldcreating value through lifelongour Annual Shareholders, board andrelationships and the strength of committee, internal management, andadvisory board meetings, as well as allour values-based culture passed employee Celebration events, virtually.Our Giving Back, Giving Together focus onall tests in 2020.feeding the community by supporting local food8
banks hasprovided over 500,000 meals to our friendsand neighbors since last April and we adopted acorporate Diversity & Inclusion statement that willserve to guide our D&I efforts moving forward. Allof this was accomplished while coordinating withteammates in new, remote work locations.On July 1st, we closed the acquisition of CovenantBank and completed the systems conversion laterin the third quarter. When combined with the 2019addition of Monument Bank, we now enjoy a 900million franchise in C&N’s southeast region withresults that exceeded our projections. Importantly,the integration of our teams and culture has gonevery well and we are optimistic about the region’scontribution to franchise growth and future earnings.After adjusting for merger related expenses, gainson the sale of securities and losses on prepaymentof borrowings for both 2020 and 2019, earningsfor the year ending December 31, 2020, grew by17% and earnings per share by 5% compared to2019, reflecting the benefits of growth related to theCovenant and Monument acquisitions. Net interestincome for the year increased 24% due to the largerbalance sheet and despite a decline in the netinterest margin to 3.69% from 3.86% a year earlier.The provision for loan losses increased 3.1 millionas compared to 2019, including the impact in 2020of a 2.2 million charge-off on one commercial loan.Total noninterest income grew by 26% compared to2019 with gains on mortgage sales serving as theprimary driver, although a variety of other sourcescontributed, as well. Noninterest expenses, excludingmerger related costs and losses on prepaymentof borrowings, increased 22%. This growth wassubstantially due to the inclusion of the formerMonument for the full year in 2020 compared tonine months in 2019 and Covenant expenses for thesecond half of 2020. Increased data processing/ITcosts, professional fees and various other expensesalso contributed.As reflected in this report, C&N entered 2020 in aposition of strength, sustained a strong risk profilethrough the pandemic and executed on our businessmodel. This is especially evident in our capitalratios following the two recent acquisitions and theongoing challenges relating to the pandemic. Theyremain at levels that demonstrate the capacity toabsorb significant credit losses, if they arise, whilecontinuing to meet regulatory guidelines to remain “well9OURCOREVALUESTEAMWORKTogether weare stronger.RESPECTValue one another.RESPONSIBILITY& ACCOUNTABILITYWork like you own it.EXCELLENCEDo your best.Every day.Every time.INTEGRITYDo the right thingwhen no one is looking.CLIENT-FOCUSConsider yourcustomer ineverything you do.HAVE FUNWork hard!Play hard!WIN!
capitalized.” Further, these levels, combined with our historically strong currency relativeto peers, enable us to pursue growth opportunities that will enhance franchise valuemoving forward. While the stock pricewas down significantly during the year,.C&N entered 2020 in athe adjustment was consistent with theposition of strength, sustainedoverall banking sector. We were pleaseda strong risk profile through the to continue the regular quarterly dividendspandemic and executed on our of 0.27 per share throughout the year, thesame level as 2019.business model.During 2020, Dennis F. Beardslee retiredfrom the Board of Directors after servingfor 21 years. Dennis provided C&N with leadership, advice and good counsel throughouthis tenure. We thank him and wish him well. We also welcomed Stephen M. Dorwart andRobert G. Loughery to the Board as part of the Covenant acquisition. Stephen joined theCovenant board in 2007 as an original member and is a CPA with 30 years of experience.Rob is a real estate investor and developer and former Chair of the Bucks County Boardof Commissioners. Both gentlemen are active in the community and bring deep regionalknowledge and continuity to C&N.Deborah E. Scott retired from her position as Director of the Trust Department at theend of 2020, after 22 years as the leader of this important business line. Her uniqueability to build client relationships earned her respect across our markets as assetsunder management and administration increased from 300 million to over 1.3 billionduring her tenure. Prior to her departure, Debbie worked with our new Chief WealthManagement Officer, Janice E. Ward, to provide for a smooth transition. Jan is a CertifiedFinancial Planner, holds a law degree, and joined C&N in June from Berkshire Bank inLenox, Massachusetts where she served as SVP and Senior Fiduciary Officer for itsWealth Management Group. We wish Debbie good health and happiness as she beginsher retirement and look forward to Jan’s leadership moving forward.As we turn our attention to 2021, the Team at C&N is aligned and motivated to build onthe progress and lessons learned over the past year. This Team’s commitment to ourcustomers and communities, through their steadfast caring and support for one another,has been inspiring and reflects the culture and strength of our relationships. Theserelationships will remain important as we continue to follow through on integration effortsand navigate the challenges of COVIDtogether. Their demonstrated commitmentAs we turn our attention to 2021,to our mission, whether in the office or fromthe Team at C&N is alignedtheir homes, will continue to create longterm value by positively impacting the lives and motivated to build on theof everyone connected with C&N.Thank you to our shareholders for yourconfidence in this teamand support of your Company.progress and lessons learnedover the past year.J. Bradley ScovillPresident & CEO10
DOLLARS SENSETrades of the Corporation’s stock are executed through various brokerswho maintain a market in the Corporation’s stock. The Corporation’s stockis listed on NASDAQ Capital Market Securities with the trading symbolCZNC. The following tables show the approximate high and low salesprice of the common stock during 2020 and 2019.2020 QUARTERLYSHARE PRICE DATA 30.00 22.50HighLow 15.00 7.50 0.00First Quarter2020Second QuarterCashDividendsDeclared2019First quarterHighLow 29.06 15.69 0.27Second quarter22.8916.200.27Third quarter20.7614.920.27Fourth quarter20.8416.050.27First quarterThird QuarterFourth QuarterCashDividendsDeclaredHighLow 27.07 23.60 0.37Second quarter29.2525.020.27Third quarter27.0022.520.27Fourth quarter28.5824.230.2711
FIVE-YEAR SUMMARYOperations ComparisonCASH DIVIDENDS DECLAREDPER SHAREDILUTED EARNINGS PER SHARE(In Thousands) 1.80 1.20 1.50 1.00 1.20 0.80 0.90 0.60 0.60 0.40 0.30 0.20 0.00 0.002020201920182017INCOME STATEMENT (In Thousands)Interest and dividend incomeInterest expense2020201620202019201920182018 77,160 64,77120172017 50,32820162016 45,863 41,94840,4053,9138495848011,221Net interest income after provision for loan losses63,65253,63945,11941,14739,184Noninterest income excluding securities 158Loss on prepayment of borrowings1,6360000Merger-related expenses7,7084,09932800Noninterest expense excluding loss on prepayment of debt and merger-related expenses55,60945,43839,15836,96734,744Income before income tax ,2507,1565,347Net income 19,222 19,504 22,013 13,434 15,762Net income attributable to common shares 19,106 19,404 21,903 13,365 15,677Net interest incomeProvision for loan lossesNet gains on securitiesIncome tax provisionPER COMMON SHARE DATA20202019201820172016Basic earnings per share 1.30 1.46 1.79 1.10 1.30Diluted earnings per share 1.30 1.46 1.79 1.10 1.30Cash dividends declared per share 1.08 1.18 1.08 1.04 1.04 18.84 17.82 16.02 15.43 15.3615.30 15.66 15.05 14.45 14.37Weighted average common sharesoutstanding - 2,820Weighted average common sharesoutstanding - 063,055Book value per common share at period-endTangible book value per common shareat period-end12
FIVE-YEAR SUMMARYEnd of Period BalancesGROSS LOANSTOTAL ASSETS(In Thousands)(In Thousands) 1,700,000 2,400,000 1,500,000 2,000,000 1,300,000 1,600,000 1,100,000 1,200,000 900,000 800,000 700,000 400,000 0 500,000202020192018END OF PERIOD BALANCES2017(In 2016Available-for-sale debt securities 349,332 346,723 363,273 355,937 394,106Gross 9,8369,3098,8568,473Allowance for loan lossesTotal ,214,52512,113,228Borrowings and subordinated debtStockholders’ equityCommon shares outstandingAVERAGE BALANCES(In Thousands)20202019201820172016Total 6Earning 9Gross 229,446187,895188,958188,373Stockholders’ equity13
FIVE-YEAR SUMMARYEnd of Period BalancesDEPOSITSSTOCKHOLDERS’ EQUITY(In Thousands)(In Thousands) 1,800,000 300,000 1,500,000 250,000 1,200,000 200,000 900,000 150,000 600,000 100,000 300,000 50,0000 020202019201820172016KEY rn on average assets0.96%1.27%1.72%1.08%1.28%Return on average 15.14%15.32%3.69%3.86%3.90%3.82%3.76%Average equity to average assetsNet interest margin (1)Efficiency (2)59.87%60.73%59.69%60.74%59.22%Cash dividends as a % of diluted earnings per share83.08%80.82%60.34%94.55%80.00%Tier 1 leverage10.09%13.10%14.78%14.23%14.27%Tier 1 risk-based capital15.63%19.19%23.24%21.95%22.48%Total risk-based capital17.55%20.70%24.42%23.07%23.60%Tangible common equity/tangible assets11.15%13.22%14.50%13.95%14.15%Nonperforming assets/total assets1.10%0.80%1.37%1.47%1.43%Nonperforming loans/total loans1.42%0.88%1.94%2.10%2.07%Allowance for loan losses/total loans0.69%0.83%1.12%1.09%1.13%Credit adjustment on purchased non-impaired loans andallowance for loan losses as a % of total loans and thecredit adjustment1.05%0.93%1.12%1.09%1.13%Net charge-offs/average loans0.16%0.03%0.02%0.05%0.09%(1) Rates of return on tax-exempt securities and loans are calculated on a fully-taxable equivalent basis.(2) The efficiency ratio is calculated by dividing: (a) total noninterest expense excluding merger-related expenses and losses fromprepayment of debt, by (b) the sum of net interest income (including income from tax-exempt securities and loans on a fully-taxableequivalent basis) and noninterest income excluding securities gains or losses.14
QUARTERLY CONSOLIDATED FINANCIAL DATAThe following table presents summarized financial data for 2020 & 20192020 (In Thousands Except Per Share Data) (Unaudited)1st quarterMar. 312nd quarterJune 303rd quarterSept. 304th quarterDec. 31 17,037 16,513 21,751 286,9706,565Interest incomeInterest expenseNet interest incomeProvision (credit) for loan lossesNet interest income after provision (credit) for loan lossesOther incomeNet gains on available-for-sale debt securities0025144Loss on prepayment of 15,7754,9826,6933,2868,251Merger-related expensesOther expensesIncome before income tax provisionIncome tax provision8161,2554381,481Net income 4,166 5,438 2,848 6,770Net income attributable to common shares 4,146 5,405 2,830 6,727Net income per share – basic 0.30 0.39 0.18 0.43Net income per share – diluted 0.30 0.39 0.18 0.431st quarterMar. 312nd quarterJune 303rd quarterSept. 304th quarterDec. 31 13,065 17,139 17,139 17,2902019 (In Thousands Except Per Share Data) (Unaudited)Interest incomeInterest expenseNet interest income(Credit) provision for loan lossesNet interest income after (credit) provision for loan lossesOther incomeNet gains on available-for-
Deborah E. Scott, EVP and Director Trust Division. Janice Ward, EVP and Chief Wealth Management Officer. Stan R. Dunsmore, EVP and Chief Credit Officer. Tracy E. Watkins, EVP and Director of Human Resources. J. Bradley Scovill, President & CEO. Shelley L. D’Haene, EVP and Senior Operatio
