SecProbe.io

CORRESP
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filename1.htm

90-92 Main Street, P.O. Box 58, Wellsboro,
PA 16901

June 2, 2015

John A. Spitz

Staff Accountant

Securities and Exchange Commission

Washington, DC 20549-0306

Re: Citizens & Northern Corporation

Form 10-K for the Fiscal Year Ended December
31, 2014

Filed February 26, 2015

Definitive Proxy Statement Filed March 13,
2015

File No. 000-16084

Dear Mr. Spitz:

This letter serves as the response of Citizens
& Northern Corporation ("C&N") to your letter dated May 20, 2015.

Your comments and our responses to your
comments follow:

Form 10-K for the Fiscal Year ended December 31, 2014

Note 6. Fair Value Measurements and Fair Values of Financial
Instruments, page 52

1.            We note disclosure of the unobservable
data for servicing rights which are measured at fair value using level 3 inputs on a recurring basis on page 54. Please revise
future filings to provide similar disclosures for your impaired loans and foreclosed assets in accordance with ASC 820-10-50-2(bbb).

We hereby undertake to revise future filings to provide
disclosure of the unobservable data for our impaired loans and foreclosed assets in accordance with ASC 820-10-50-2(bbb).

Note 8. Loans, page 60

2.            Please revise your future filings
to provide all of the disclosures required by ASC 310-10-50. Specifically, please revise future filings to disclose the following:

 · The recorded investment and unpaid principal balance of impaired loans, disaggregated by class of financing receivable as
required by ASC 310-10-50-15(a)(3) and (4); and

 · The average recorded investment and related amount of interest recognized on impaired loans, disaggregated by class of financing
receivable as required by ASC 310-10-50-15(c)(1), (2) and (3).

    1

We hereby undertake to revise future filings to provide
all of the disclosures required by ASC 310-10-50. Specifically, we hereby undertake to revise future filings to disclose the following:

 · The recorded investment and unpaid principal balance of impaired loans, disaggregated by class of financing receivable as required
by ASC 310-10-50-15(a)(3) and (4); and

 · The average recorded investment and related amount of interest recognized on impaired loans, disaggregated by class of financing
receivable as required by ASC 310-10-50-15(c)(1), (2) and (3).

Item 15. Exhibits and Financial Statement Schedules

Exhibits 31.1 and 31.2

3.            We note that the identification
of the certifying individual at the beginning of each of the certifications required by Exchange Act Rule 13a-14(a) also includes
the title of the certifying individual. In future filings, please remove each individual's title from the beginning of the certification.
Please refer to SEC Release 33-8124.

We hereby undertake in future filings to remove the
title of the certifying 	individual at the beginning of each of the certifications required by Exchange Act Rule 13a-14(a).

Part II. Signature page

4.            In future filings, please ensure
that the annual report on Form 10-K is also signed on behalf of the company. In this regard, we note that the executive officers
have signed the report in their individual capacities only. For guidance please refer to General Instructions D(2)(a) of Form 10-K.

We hereby undertake in future filings to ensure that
the annual report on Form 10-	K is also signed on behalf of C&N.

Definitive Proxy Statement

Competitive Benchmarking, page 15

5.            We note your "Base Salary"
discussion on page 15 where you state that base salary is established after taking into consideration the median level of industry
practice within the Peer Group. With a view towards future disclosure, please tell us whether you benchmark each individual component
of executive compensation, and where in the range each component falls. To the extent you benchmark total compensation, please
disclose this fact in future filings, identifying also the benchmark. For guidance please refer to Item 402(b)(2)(xiv) of Regulation
S-K.

In future filings, we will add disclosure specifically
addressing the extent of our benchmarking of individual components of executive compensation as well as total compensation, and
where each component falls in relation to Peer Group levels. The following table details the benchmarking of individual components
of compensation, and total compensation, that was evaluated in the fourth quarter 2013 for 2014 executive compensation planning
purposes:

    2

2012 Data Used in Benchmarking for 2014 Executive Compensation
Planning

(Amounts in Thousands)

    Total

    Annual
    Other
    Non-equity

    Base
    Cash
    Annual
    Incentive
    Equity
    Total

    Salary
    Comp. (1)
    Comp. (2)
    Plan (3)
    Awards (4)
    Comp. (5)

    Chairman, President and Chief Executive Officer:

    Peer Group Median
    $ 409.0
    $ 418.8
    $ 26.4
    $ 19.1
    $ 73.7
    $ 647.2

    Citizens & Northern Corp. Actual
    $ 331.9
    $ 531.1
    $ 90.2
    $ 0.0
    $ 117.1
    $ 738.4

    Chief Financial Officer:

    Peer Group Median
    $ 210.5
    $ 238.9
    $ 22.8
    $ 0.0
    $ 20.1
    $ 301.8

    Citizens & Northern Corp. Actual
    $ 214.0
    $ 309.9
    $ 33.1
    $ 0.0
    $ 72.0
    $ 415.0

    Executive Vice President and Director of Trust Department:

    Peer Group Median
    $ 200.1
    $ 200.4
    $ 19.1
    $ 0.0
    $ 22.5
    $ 242.0

    Citizens & Northern Corp. Actual
    $ 167.5
    $ 231.6
    $ 32.7
    $ 0.0
    $ 48.2
    $ 312.5

    Executive Vice President and Director of Lending:

    Peer Group Median
    $ 160.3
    $ 178.5
    $ 11.4
    $ 12.5
    $ 8.5
    $ 230.0

    Citizens & Northern Corp. Actual
    $ 162.0
    $ 204.0
    $ 25.7
    $ 0.0
    $ 45.0
    $ 274.7

    Executive Vice President and Chief Credit Officer:

    Peer Group Median
    $ 183.7
    $ 213.8
    $ 23.7
    $ 0.0
    $ 26.0
    $ 290.8

    Citizens & Northern Corp. Actual
    $ 150.2
    $ 188.2
    $ 43.8
    $ 0.0
    $ 42.2
    $ 274.2

(1) Total Annual Cash Compensation includes annualized base
salary plus annual bonus under the Incentive Award Plan.

(2) Other includes the items reported as “All Other Compensation”
in the Summary Compensation Table, which are described in note (8) to that table.

(3) Awards under the Incentive Award Plan were reported as Bonuses
in 2012, but as described in our response to comment (8), will be included in amounts reported under “Non-Equity Incentive
Compensation Plan” in future filings.

(4) Equity awards include the grant date fair value of equity
compensation awards, including stock options and restricted stock.

(5) Total compensation used for benchmarking excludes amounts
reported in the Summary Compensation Table under “Change in Pension Value and Nonqualified Deferred Plan Compensation.”

    3

Program Components, page 15

Annual Performance Incentives, page 15

6.            Please tell us and in future filings
quantify the performance targets, as well as the level of target achievement in determining the size of the additional cash compensation.
In this regard, we note your disclosure stating that for 2014, corporate performance "was measured on return on average equity
as compared to peer performance and the Corporation's return on equity to budgeted return on equity." For guidance, please
refer to Item 402(b)(2)(v) of Regulation S-K.

In future filings, we will quantify the performance
targets, as well as the level of target achievement in determining the size of additional cash compensation. The following table
provides details regarding the performance targets established for 2014, along with the levels of achievement associated with each
target:

    Performance
    Criteria
    Target

    Performance
 Result
    Actual

    Performance
 Result
    Criterion

    Weighting
    Target

    % of
 Base
 Salary
    Maximum

    % of Base
 Salary
    Award

    % of
 Base
 Salary

    Mark A. Hughes (3)
    Corporate Performance:

    Award Matrix Result (1)
      100.00 %
      106.23 %
      71 %
      24.75 %
      37.13 %
    27.64%

    Unit/Functional Goals Based on:

    Bank Net Interest Margin
      60th percentile
      68th percentile
      10 %
      2.81 %
      4.22 %
    3.72%

    Securities Portfolio - Total Return
      51st percentile
      54th percentile
      6 %
      1.88 %
      2.81 %
    1.91%

    Accounting Department Results as
    Compared to Pre-established Goals
      12 of 18 points
      12 of 18 points
      3 %
      0.94 %
      1.41 %
    0.89%

    Individual Performance (2)

      10 %
      3.37 %
      5.06 %
    3.45%

    Totals

      33.75 %
      50.63 %
    37.61%

    Anthony J. Peluso (4)
    Corporate Performance:

    Award Matrix Result (1)
      100.00 %
      106.23 %
      30 %
      5.25 %
      7.80 %
    6.47%

    Unit/Functional Goals Based on:

    Branch and departmental financial review

      20 %
      3.50 %
      5.20 %
    5.62%

    Tax and information reporting review

      20 %
      3.50 %
      5.20 %
    0.00%

    Update internal controls
    analysis for new COSO standard

      20 %
      3.50 %
      5.20 %
    5.62%

    Individual Performance (2)

      10 %
      1.75 %
      2.60 %
    2.82%

    Totals

      17.50 %
      26.00 %
    20.53%

    4

    Performance
    Criteria
    Target

    Performance
 Result
    Actual

    Performance
 Result
    Criterion

    Weighting
    Target

    % of
 Base
 Salary
    Maximum

    % of Base
 Salary
    Award

    % of
 Base
 Salary

    Deborah E. Scott (5)
    Corporate Performance:

    Award Matrix Result (1)
      100.00 %
      106.23 %
      45 %
      11.25 %
      17.10 %
    11.95%

    Unit/Functional Goals Based on:

    Trust and Financial Management Pre-tax
    Earnings Contribution
      39.00 %
      40.46 %
      30 %
      7.50 %
      11.40 %
    8.48%

    Growth in Trust Assets Under Management
      5.00 %
      8.98 %
      15 %
      3.75 %
      5.70 %
    5.70%

    Individual Performance (2)

      10 %
      2.50 %
      3.80 %
    3.43%

    Totals

      25.00 %
      38.00 %
    29.56%

    Harold F. Hoose, III (6)
    Corporate Performance:

    Award Matrix Result (1)
      100.00 %
      106.23 %
      45 %
      13.50 %
      20.25 %
    14.34%

    Unit/Functional Goals Based on:

    Growth in Outstanding Loans
      3.00 %
      -1.96 %
      30 %
      9.00 %
      13.50 %
    0.00%

    Asset Quality - Loan Delinquency Data:

    Past due 30-59 days
      1.35%
                                         or less
      0.94 %
      3 %
      0.90 %
      1.35 %
    1.35%

    Past due 60-89 days
      0.30%
                                         or less
      0.19 %
      4.50 %
      1.35 %
      2.03 %
    2.03%

    Past due 90 days or more and nonperforming
      0.20%
                                         or less
      2.45 %
      7.50 %
      2.25 %
      3.37 %
    0.00%

    Individual Performance (2)

      10 %
      3.00 %
      4.50 %
    3.26%

    Totals

      30.00 %
      45.00 %
    20.98%

    Dawn A. Besse (7)
    Corporate Performance:

    Award Matrix Result (1)
      100.00 %
      106.23 %
      45 %
      11.25 %
      17.10 %
    11.95%

    Unit/Functional Goals Based on:

    Asset Quality - Loan
    Delinquency Data:

    Past due 30-59 days
      1.35%
                                         or less
      0.94 %
      5 %
      1.25 %
      1.90 %
    1.90%

    Past due 60-89 days
      0.30%
                                         or less
      0.19 %
      7.50 %
      1.88 %
      2.85 %
    2.85%

    Past due 90 days or more and nonperforming
      0.20%
                                         or less
      2.45 %
      12.50 %
      3.12 %
      4.75 %
    0.00%

    Asset Quality - Net     Charge-offs as % of Average
    Loans
      0.11 %
      0.05 %
      15 %
      3.75 %
      5.70 %
    5.70%

    Efficiency Based on Number of Employees
      32.5
                                         FTE or less
      28.4
                                         FTE
      5 %
      1.25 %
      1.90 %
    1.90%

    Individual Performance (2)

      10 %
      2.50 %
      3.80 %
    2.81%

    Totals

      25.00 %
      38.00 %
    27.11%

    5

 (1) The Corporate Performance award was calculated based upon achievement of annual return on average equity (ROE) as a percentage
of Peer Group* Performance, and also includes a comparison of C&N’s ROE to targeted ROE** for 2014. The chart below was
used to determine the Incentive Opportunity percentage of base salary from which a participant’s bonus would be paid:

    % Incentive Award as % of

    Annual ROE Achieved:
    BUDGET

    As a Percentage of Peer
    Threshold
    Target
    Outstanding

    Group Performance
    8.50% ROE
    10.00% ROE**
    12.50% ROE

      <66%
      0 %
      0 %
      0 %

      66%
      50 %
      70 %
      100 %

      72%
      55 %
      75 %
      105 %

      79%
      60 %
      85 %
      115 %

      86%
      70 %
      100 %
      125 %

      89%
      80 %
      105 %
      135 %

      92% and above
      90 %
      115 %
      150 %

Achievement of a Corporate Award of 106.23% of target
was determined by interpolating the following results within the table above:

 · C&N ROE of 91.72% of the Peer Group average for the four quarters ended September 30, 2014, and

 · C&N ROE** of 9.53% for the year ended December 31, 2014.

Use of an ROE target of 66% for purposes of establishing
a minimum payout recognizes that C&N’s equity capital, as a percentage of assets, is higher than the peer average. For
the four quarters ended September 30, 2014, C&N’s equity capital to assets ratio of 14.92% was 151.73% of the peer group
average.

*The Peer Group included all Pennsylvania-based bank
holding companies with total assets ranging between $700 million and $2.0 billion as of September 30, 2013. The Peer Group also
included Chemung Financial Corporation, a similar-sized bank holding company headquartered in Elmira, NY.

**Excludes incentive compensation expense, securities
gains and other adjustments for nonrecurring items, net of tax, as provided for in the Plan.

***Use of 66% for purposes of establishing a minimum
payout recognizes that C&N’s equity capital, as a percentage of assets, is higher than the peer average. The ROE target
levels used in the award calculations are updated each quarter based on C&N’s equity capital to asset ratio, as compared
to the peer group average.

 (2) The Individual Performance awards were based on each individual’s overall performance evaluation.

For Ms. Scott, Mr. Hoose and Ms. Besse, the individual
performance evaluations reflected a scale of overall ratings comparing performance to Expectations, including: Fails to Meet, Does
Not Consistently Meet, Meets, Exceeds and Greatly Exceeds. In determining these ratings, results were evaluated in comparison to
specific goals, including the goals described in the Unit/Functional Goals section of the table above. Also, significant weight
was given to inherently subjective evaluations of each person’s performance with regard to identified Core Competencies,
including: Strategic Leadership, Decision Making, Adaptability, Customer Focus, Teamwork/Partnering, Accountability and Drive for
Results/Resource Management.

    6

Mr. Peluso’s performance evaluation was based
on evaluation criteria designed to be specific to his role as Controller for a portion of the year and Interim Chief Financial
Officer for a portion of the year. Mr. Peluso’s ratings were also based on evaluation of results achieved in comparison to
specific goals as well as subjective ratings of his effectiveness as a supervisor and mentor, ability to be a resource for the
senior management team and his effectiveness at adhering to C&N’s standards for quality client service. Mr. Peluso’s
overall evaluation was determined in the conte