BUSINESS COMBINATION AND PENDING ACQUISITION	6 Months Ended
Jun. 30, 2020
Notes to Financial Statements
BUSINESS COMBINATION AND PENDING ACQUISITION	2. BUSINESS COMBINATION AND PENDING ACQUISITION Business Combination – Acquisition of Monument Bancorp, Inc. On April 1, 2019, the Corporation completed its acquisition of 100% of the common stock of Monument Bancorp, Inc.(“Monument”) Monument was the parent company of Monument Bank, a commercial bank which operated two community bank offices and one lending office in Bucks County, Pennsylvania. Pursuant to the merger, Monument was merged into Citizens & Northern Corporation and Monument Bank was merged into C&N Bank. Total purchase consideration was $42.7 million, including cash paid to former Monument shareholders totaling $9.6 million and 1,279,825 shares of Corporation common stock issued with a value of $33.1 million, net of costs directly related to stock issuance of $181,000. In connection with the transaction, the Corporation recorded goodwill of $16.4 million and a core deposit intangible asset of $1.5 million. Total loans acquired on April 1, 2019 were valued at $259.3 million, while total deposits assumed were valued at $223.3 million, borrowings were valued at $111.6 million and subordinated debt was valued at $12.4 million. The subordinated debt included an instrument with a fair value of $5.4 million that was redeemed on April 1, 2019 with no realized gain or loss. The Corporation acquired available-for-sale debt securities valued at $94.6 million and sold the securities in early April for approximately no realized gain or loss. The assets purchased and liabilities assumed in the merger were recorded at their estimated fair values at the time of closing, subject to refinement for up to one year after the closing date. There were no adjustments to the fair value measurements of assets or liabilities in 2020. Merger-related expenses, including legal and professional expenses and conversion of Monument’s customer accounting data into the Corporation’s core system, were $3,301,000 in the second quarter 2019 and $3,612,000 in the six-month period ended June 30, 2019. Acquisition of Covenant Financial, Inc. In December 2019, the Corporation announced a plan of merger to acquire Covenant Financial, Inc. (“Covenant”). In July 2020, the Corporation and Covenant announced the completion of the merger as of July 1, 2020. Covenant was the holding company for Covenant Bank, which operated banking offices in Bucks and Chester Counties of PA. Under the terms of the Agreement and Plan of Merger, Covenant merged into the Corporation, and Covenant Bank merged into C&N Bank. In the transaction, Covenant shareholders elected to receive either 0.6212 shares of Corporation common stock or $16.50 in cash for each share of Covenant common stock owned, subject to proration to ensure that, overall, 25% of the Covenant shares were converted into cash and 75% of the Covenant shares were converted into Corporation stock. The election and proration process commenced in June 2020 and was completed in early July 2020. Holders of Covenant common stock prior to the consummation of the merger own approximately 12.9% of the Corporation’s common stock outstanding following the merger. Based on the average of the high and low trading price of the Corporation’s common stock of $20.32 per share on July 1, 2020, the total purchase consideration is valued at approximately $63.3 million. As of June 30, 2020, Covenant reported total assets of $608 million, including gross loans of $472 million, total deposits of $480 million and total stockholders’ equity of $44 million. As of the date the Corporation’s June 30, 2020 financial statements are issued, some of the information required to be disclosed under U.S. GAAP was not available since, given the short period between the July 1, 2020 merger date and the financial statement issuance, the calculation of the fair value of all material Covenant assets acquired and liabilities assumed had not yet been completed. Merger-related expenses related to the planned acquisition of Covenant totaled $983,000 in the second quarter 2020 and $1,124,000 in the six-month period ended June 30, 2020. Merger-related expenses include severance and similar expenses as well as initial expenses related to conversion of Covenant’s core customer data into the Corporation’s core system and legal and other professional expenses. Management estimates total pre-tax merger-related expenses associated with the Covenant transaction will be approximately $8.0 million, including remaining expenses of approximately $6.6 million. Most of the expenses are expected to be incurred in the third quarter 2020.

BUSINESS COMBINATION AND PENDING ACQUISITION

6 Months Ended

Jun. 30, 2020

BUSINESS COMBINATION AND PENDING ACQUISITION

2. BUSINESS COMBINATION AND PENDING ACQUISITION

Business Combination – Acquisition of Monument Bancorp, Inc.

On April 1, 2019, the Corporation completed its acquisition of 100% of the common stock of Monument Bancorp, Inc.(“Monument”) Monument was the parent company of Monument Bank, a commercial bank which operated two community bank offices and one lending office in Bucks County, Pennsylvania. Pursuant to the merger, Monument was merged into Citizens & Northern Corporation and Monument Bank was merged into C&N Bank.

Total purchase consideration was $42.7 million, including cash paid to former Monument shareholders totaling $9.6 million and 1,279,825 shares of Corporation common stock issued with a value of $33.1 million, net of costs directly related to stock issuance of $181,000.

In connection with the transaction, the Corporation recorded goodwill of $16.4 million and a core deposit intangible asset of $1.5 million. Total loans acquired on April 1, 2019 were valued at $259.3 million, while total deposits assumed were valued at $223.3 million, borrowings were valued at $111.6 million and subordinated debt was valued at $12.4 million. The subordinated debt included an instrument with a fair value of $5.4 million that was redeemed on April 1, 2019 with no realized gain or loss. The Corporation acquired available-for-sale debt securities valued at $94.6 million and sold the securities in early April for approximately no realized gain or loss. The assets purchased and liabilities assumed in the merger were recorded at their estimated fair values at the time of closing, subject to refinement for up to one year after the closing date. There were no adjustments to the fair value measurements of assets or liabilities in 2020.

Merger-related expenses, including legal and professional expenses and conversion of Monument’s customer accounting data into the Corporation’s core system, were $3,301,000 in the second quarter 2019 and $3,612,000 in the six-month period ended June 30, 2019.

Acquisition of Covenant Financial, Inc.

In December 2019, the Corporation announced a plan of merger to acquire Covenant Financial, Inc. (“Covenant”). In July 2020, the Corporation and Covenant announced the completion of the merger as of July 1, 2020. Covenant was the holding company for Covenant Bank, which operated banking offices in Bucks and Chester Counties of PA. Under the terms of the Agreement and Plan of Merger, Covenant merged into the Corporation, and Covenant Bank merged into C&N Bank. In the transaction, Covenant shareholders elected to receive either 0.6212 shares of Corporation common stock or $16.50 in cash for each share of Covenant common stock owned, subject to proration to ensure that, overall, 25% of the Covenant shares were converted into cash and 75% of the Covenant shares were converted into Corporation stock. The election and proration process commenced in June 2020 and was completed in early July 2020. Holders of Covenant common stock prior to the consummation of the merger own approximately 12.9% of the Corporation’s common stock outstanding following the merger.

Based on the average of the high and low trading price of the Corporation’s common stock of $20.32 per share on July 1, 2020, the total purchase consideration is valued at approximately $63.3 million. As of June 30, 2020, Covenant reported total assets of $608 million, including gross loans of $472 million, total deposits of $480 million and total stockholders’ equity of $44 million. As of the date the Corporation’s June 30, 2020 financial statements are issued, some of the information required to be disclosed under U.S. GAAP was not available since, given the short period between the July 1, 2020 merger date and the financial statement issuance, the calculation of the fair value of all material Covenant assets acquired and liabilities assumed had not yet been completed.

Merger-related expenses related to the planned acquisition of Covenant totaled $983,000 in the second quarter 2020 and $1,124,000 in the six-month period ended June 30, 2020. Merger-related expenses include severance and similar expenses as well as initial expenses related to conversion of Covenant’s core customer data into the Corporation’s core system and legal and other professional expenses. Management estimates total pre-tax merger-related expenses associated with the Covenant transaction will be approximately $8.0 million, including remaining expenses of approximately $6.6 million. Most of the expenses are expected to be incurred in the third quarter 2020.