Exhibit 10.6


 





 


2016
Annual Performance Incentive Award Plan – Mortgage Lenders


 


Section 1: Purpose
of the Plan


 


The purpose of the Performance Incentive
Award Plan ("the Plan") is to provide variable compensation to Citizens & Northern employees who are actively engaged
in interviewing residential real estate applicants, processing the applications and closing the loans. The Plan is designed to
reward mortgage lending employees who attain and sustain consistently high levels of performance by meeting and exceeding defined
goals and to provide a component of the compensation package essential to retaining and attracting quality employees in mortgage
lending positions. Incentive awards are not directly tied to Company/mortgage business profits nor the terms of the closed-end
mortgage transaction or a proxy for a transaction term. The expense of the plan is incorporated into the Company’s operating
budget. The objective is to align the interests of these employees with the interests of the Company in obtaining superior performance
results while being in compliance with the SAFE Act and 12 CFR Part 1026.36 (Regulation Z).


 


Section 2: General
Description


 


There are two components of the Plan: (1) unit/functional
performance; and (2) individual performance. The individual performance component will be subject to an evaluation
of the participants’ overall contributions to the “team”. To earn the individual component, the participant must
attain at least the threshold performance level.The unit/functional component is based on the attainment of pre-established
goals by the applicable branch or mortgage lending business unit,. To receive the unit/functional bonus payout, the participant
must achieve at least the threshold level.


 


In addition to goals based on production,
the Plan requires management to consider non-financial goals designed to improve operational and risk management effectiveness,
as appropriate for each participant’s position. The Plan permits future inclusion of additional positions during a Plan year,
if the need arises.


 


The incentive formulas ensure a level of
incentive award that is competitive with comparable positions and job levels in similar financial institutions, thus enabling Citizens
& Northern to attract, retain, and motivate high-performing mortgage lending employees.


 


The Plan is established to augment regular
salary and benefit programs already in existence. The Incentive Plan is not meant to be a substitute for salary increases but supplemental
to salary and as stated earlier, a reward for “exceptional" performance.


 


The Plan has been developed to recognize
that the amount of incentive bonus award attainable by key mortgage lending employees should vary depending upon the employee’s
position with the company and the competitive levels of incentive bonus for those positions within the banking and financial service
industry. Thus threshold, target and maximum Incentive Opportunities are established for each position.


 




     


     

    

 


Section 3: Other
Payment Conditions


 


Termination for Reasons Other Than Death,
Permanent Disability or Retirement – In the event of termination of employment for reasons other than death,
permanent disability or retirement, the participant, at the discretion of the committee, may forfeit all unpaid incentive
awards.


 


In the event a participant becomes disabled
for a period greater than two (2) weeks, any salary continuation as a result of the Corporation’s short and long-term disability
programs will not be included in the base salary used for the incentive bonus calculation.


 


Section 4: Administration
of the Plan


 


Throughout this Plan, reference to the actions and authority
of the Compensation Committee of the Board of Directors ("the Committee") presumes that the Committee will recommend,
and the board of directors will approve or disapprove, final disposition of all matters pertaining to administration of the Plan.
The Committee, with board approval, has the responsibility to interpret, administer, and amend the Plan as necessary. The recommendations
of the Committee as approved by the board, affecting the construction, interpretation, and administration of the Plan shall be
final and binding on all parties, including the Corporation, its subsidiaries and employees.


 


At or before the beginning of each Plan
year, the Committee will review and may revise the operating rules. The Incentive Opportunity levels for individual and unit/functional
awards for attaining those targets may be changed in order to maintain a competitive incentive program. However, it is expected
that the Plan will require modification only when significant changes in the organization, goals, personnel, or performance occur.
The Chief Executive Officer shall be the Plan czar with the power to control and oversee proper administration of the Plan, and
may recommend to the Committee proposed changes to the operating rules. Additionally, the Committee may engage a third party expert
to review and amend the plan.


 


An individual or individuals designated
by the Chief Executive Officer will perform the computation of incentive awards. Maintenance of participant payment records shall
be the responsibility of the Human Resource Director.


 


Section 5: Plan
Participants


 


Executive management shall select and recommend
for participation in the Plan employees in those job positions that are responsible for mortgage lending functions. Those job positions
which are selected for participation in the Plan will be in positions that normally include an incentive bonus component in the
compensation package offered by similar financial institutions.


 




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At or before the beginning of each Plan
year, the Committee shall review the recommendations of management on the selection of those positions eligible for participation
in the Plan for that year. Additionally, management shall recommend a threshold, target and maximum Incentive Opportunity percentage
of base salary for each position. Participants shall be notified of their eligibility as soon as selection is completed and the
board of directors has adopted the Plan. The Committee shall review and recommend the inclusion of participants to the full board
for their approval.


 


Positions and thus participants may be
added during the Plan year at the discretion of management and the Committee, and the incentive award will be prorated from date
of entry into the Plan.


 


Section 6: Payment
of Individual Incentive Compensation Awards


 


Within 60 days following the end of the
Plan year and as soon as the participant’s performance has been evaluated, participants will receive their incentive payment.


 


Section 7: Incentive
Compensation Plan Operating Rules


 


Before the beginning of each Plan year,
the Committee may review and revise, if deemed appropriate, the operating rules of the Plan for the year then beginning. The operating
rules shall include the following:


 


		a)	Identification of positions selected for participation in the Plan



 


		b)	The method for determining the amount of the total bonus to be paid to Plan participants.



 


		c)	Schedules and formulas for determining the amount of the incentive compensation awards to Plan participants for the Plan year
then beginning, including threshold, target and maximum performance measures and the percentage of bonus award determined by functional/unit
and individual performances. Participants will be informed at or before the Plan year of the manner in which performance will be
evaluated.



 


		d)	Other administrative and procedural rules, which the Committee considers appropriate.



 


After approval by the Committee and the
board of directors, management shall, as soon as practical, inform each of the participants of the operating rules for the Plan
year then beginning.


 


Section 8: Performance
Progress Reporting


 


Participants and their direct supervisors
will meet periodically to review their performance relative to the established unit/functional and individual goals.


 




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Section 9: Amendment
or Termination of Plan


 


The Committee, with concurrence of the
board of directors, may terminate, amend, or modify this Plan at any time. The termination, amendment, or modification of the Plan
will not affect a participant's right to unpaid incentive compensation awards under this Plan.


 


Section 10: Other
Considerations


 


Recoupment-  Amounts allocated or paid pursuant
to this Plan shall be subject to recovery by the Corporation under any claw back, recovery, recoupment or similar policy hereafter
adopted by the Corporation, whether in connection with Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection
Act, as amended from time to time, or otherwise, whether or not required by law.


 


Active Employment Contingency- Except in the case of
a retirement, if a participant voluntarily is not actively employed by the Corporation prior to the date of bonus payout, the bonus
will be forfeited.


 


Right of Assignment - No right or interest of any participant
in the Plan shall be assignable or transferable, or subject to any lien, directly, by operation of law, or otherwise, including
levy, garnishment, attachment, pledge, or bankruptcy.


 


Right of Employment - The participation in or the receipt
of an award under this Plan shall not guarantee any employee any right to continued employment; the right to dismiss any employee
is specifically reserved to the organization. The receipt of an award for any one year shall not guarantee an employee the right
to receive an award for any subsequent year.


 


Change of Position – If a participant transfers
to another position in the organization that is not included in the Incentive Compensation Plan, they will cease being a Plan participant.
At the time of the position change a determination will be made as to whether the participant will be eligible for a bonus for
the period during which they were a participant.


 


Withholding for Taxes - The organization shall have the
right to deduct from all payments under this Plan any federal, state or local taxes required by law to be withheld with respect
to such payments.


 


Salary - Salary is defined as base earnings for the year,
which includes any increase in weekly rate of pay but not including any referral awards, brokerage or insurance commissions, golden
nugget payments, taxable fringe benefits or prior bonus payments.


 


Board Prerogatives – It will be the right of the
Board of Directors to amend, alter and/or terminate the plan in its sole discretion at any time. Any Incentive Bonus earned by
the Participant at the time of amendment, alteration and/or termination shall remain due and payable as stated.


 



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