What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-08-05 compared with 2022-05-06 · 281 added, 156 removed, 899 unchanged (33% of the section changed)

32 unchanged sentences

authorized 20,000,000 shares;

issued 16,030,172 and outstanding 15,718,723 at March 31, 2022;

issued 16,030,172 and outstanding 15,499,214 at June 30, 2022;

issued 16,030,172 and outstanding 15,759,090 at December 31, 2021

2 unchanged sentences

Treasury stock, at cost;

311,449 shares at March 31, 2022 and 271,082

530,958 shares at June 30, 2022 and 271,082

shares at December 31, 2021

7 unchanged sentences

Three Months Ended

Six Months Ended

INTEREST INCOME

22 unchanged sentences

Other noninterest income

Realized gains on available-for-sale debt securities, net

Realized (losses) gains on available-for-sale debt securities, net

Total noninterest income

17 unchanged sentences

Three Months Ended

Six Months Ended

Available-for-sale debt securities:

Unrealized holding losses on available-for-sale debt securities

Reclassification adjustment for (gains) realized in income

Other comprehensive loss on available-for-sale debt securities

Unrealized holding (losses) gains on available-for-sale debt securities

Reclassification adjustment for losses (gains) realized in income

Other comprehensive (loss) income on available-for-sale debt securities

Unfunded pension and postretirement obligations:

1 unchanged sentence

Amortization of prior service cost and net actuarial loss included in net periodic benefit cost

Other comprehensive income (loss) on pension and postretirement obligations

Other comprehensive loss before income tax

Income tax related to other comprehensive loss

Net other comprehensive loss

Other comprehensive (loss) income on pension and postretirement obligations

Other comprehensive (loss) income before income tax

Income tax related to other comprehensive loss (income)

Net other comprehensive (loss) income

Comprehensive (loss) income

3 unchanged sentences

(In Thousands) (Unaudited)

Three Months Ended

Six Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

12 unchanged sentences

Proceeds from sales of loans held for sale

Increase in accrued interest receivable and other assets

(Decrease) increase in accrued interest payable and other liabilities

(Increase) decrease in accrued interest receivable and other assets

Decrease in accrued interest payable and other liabilities

Net Cash Provided by Operating Activities

1 unchanged sentence

Purchase of certificates of deposit

Proceeds from maturities of certificates of deposit

Proceeds from sales of available-for-sale debt securities

Proceeds from calls and maturities of available-for-sale debt securities

2 unchanged sentences

Purchase of Federal Home Loan Bank of Pittsburgh stock

Net decrease in loans

Net (increase) decrease in loans

Proceeds from bank owned life insurance

2 unchanged sentences

Proceeds from sale of foreclosed assets

Net Cash (Used in) Provided by Investing Activities

Net Cash Used in Investing Activities

CASH FLOWS FROM FINANCING ACTIVITIES:

1 unchanged sentence

Net increase (decrease) in short-term borrowings

Proceeds from long-term borrowings - FHLB advances

Repayments of long-term borrowings - FHLB advances

Proceeds from issuance of senior notes, net of issuance costs

Proceeds from issuance of subordinated debt, net of issuance costs

Redemption of subordinated debt

Sale of treasury stock

2 unchanged sentences

Net Cash Provided by Financing Activities

INCREASE IN CASH AND CASH EQUIVALENTS

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

1 unchanged sentence

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Accrued purchase of certificates of deposit

Increase in accrued purchase of available-for-sale debt securities

Assets acquired through foreclosure of real estate loans

Leased assets obtained in exchange for new operating lease liabilities

Interest paid

5 unchanged sentences

Comprehensive

Three Months Ended March 31, 2022

Income (Loss)

Three Months Ended June 30, 2022

(Loss) Income

Balance, March 31, 2022

Other comprehensive loss, net

Cash dividends declared on common stock, $ .28 per share

Shares issued for dividend reinvestment plan

Forfeiture of restricted stock

Stock-based compensation expense

Treasury stock purchases

Balance, June 30, 2022

Three Months Ended June 30, 2021

Balance, March 31, 2021

Other comprehensive income, net

Cash dividends declared on common stock, $ .28 per share

Shares issued for dividend reinvestment plan

Restricted stock granted

Forfeiture of restricted stock

Stock-based compensation expense

Treasury stock purchases

Balance, June 30, 2021

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Consolidated Statements of Changes in Stockholders’ Equity

(In Thousands Except Share and Per Share Data) (Unaudited)

Comprehensive

Six Months Ended June 30, 2022

(Loss) Income

Balance, December 31, 2021

8 unchanged sentences

Treasury stock purchases

Balance, March 31, 2022

Three Months Ended March 31, 2021

Balance, June 30, 2022

Six Months Ended June 30, 2021

Balance, December 31, 2020

7 unchanged sentences

Purchase of restricted stock for tax withholding

Balance, March 31, 2021

Treasury stock purchases

Balance, June 30, 2021

The accompanying notes are an integral part of these unaudited consolidated financial statements.

10 unchanged sentences

GAAP”) for a complete set of financial statements.

Operating results reported for the three-month period ended March 31, 2022 might not be indicative of the results for the year ending December 31, 2022.

Operating results reported for the six-month period ended June 30, 2022 might not be indicative of the results for the year ending December 31, 2022.

The Corporation evaluates subsequent events through the date of filing with the Securities and Exchange Commission.

2 unchanged sentences

This section provides a summary description of recent ASUs that have significant implications (elected or required) within the consolidated financial statements, or that management expects may have a significant impact on financial statements issued in the near future.

Recent Accounting Pronouncements - Adopted

ASU 2020-04, Reference Rate Reform (Topic 848) provides temporary optional guidance to ease the potential burden in accounting for reference rate reform.

The amendments in ASU 2020-04 are elective and apply to all entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued.

The guidance includes a general principle that permits an entity to consider contract modifications due to reference rate reform to be an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination.

Some specific optional expedients are as follows:

● Simplifies accounting for contract modifications, including modifications to loans receivable and debt, by prospectively adjusting the effective interest rate.

● Simplifies the assessment of hedge effectiveness and allows hedging relationships affected by reference rate reform to continue.

The Corporation has elected to apply the optional expedients prospectively for applicable loan and other contracts, and implementation of this election did not have a material effect on the Corporation’s financial position or results of operations.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Recently Issued But Not Yet Effective Accounting Pronouncements

7 unchanged sentences

In November 2019, the FASB approved a delay of the required implementation date of ASU 2016-13 for smaller reporting companies, including the Corporation, resulting in a required implementation date for the Corporation of January 1, 2023.

ASU 2020-04, Reference Rate Reform (Topic 848) provides temporary optional guidance to ease the potential burden in accounting for reference rate reform.

Some specific optional expedients are as follows:

● Simplifies accounting for contract modifications, including modifications to loans receivable and debt, by prospectively adjusting the effective interest rate.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

● Simplifies the assessment of hedge effectiveness and allows hedging relationships affected by reference rate reform to continue.

The amendments in ASU 2020-04 are effective as of March 12, 2020 through December 31, 2022.

The Corporation has formed a cross functional management team to evaluate and implement changes to contracts with rates indexed to LIBOR and expects to apply the amendments prospectively for applicable loan and other contracts within the effective period of ASU 2020-04.

PER SHARE DATA

7 unchanged sentences

Three Months Ended

Six Months Ended

Dividends and undistributed earnings allocated to participating securities

9 unchanged sentences

(a) Basic and diluted earnings per share under the two-class method are determined on net income reported on the consolidated statements of income, less earnings allocated to non-vested restricted shares with nonforfeitable dividends (participating securities).

Anti-dilutive stock options are excluded from earnings per share calculations.

There were no anti-dilutive instruments in the three-month periods ended March 31, 2022 and 2021.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Anti-dilutive stock options are excluded from earnings per share calculations.

There were no anti-dilutive instruments in the three-month and six-month periods ended June 30, 2022 and 2021.

COMPREHENSIVE (LOSS) INCOME

2 unchanged sentences

(In Thousands)

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022

Available-for-sale debt securities:

Unrealized holding losses on available-for-sale debt securities

Reclassification adjustment for losses realized in income

Other comprehensive loss from available-for-sale debt securities

Unfunded pension and postretirement obligations,

Amortization of prior service cost and net actuarial loss included in net periodic benefit cost

Other comprehensive loss on unfunded retirement obligations

Total other comprehensive loss

(In Thousands)

Three Months Ended June 30, 2021

Available-for-sale debt securities:

Unrealized holding gains on available-for-sale debt securities

Reclassification adjustment for (gains) realized in income

Other comprehensive income from available-for-sale debt securities

Unfunded pension and postretirement obligations,

Amortization of prior service cost and net actuarial loss included in net periodic benefit cost

Other comprehensive loss on unfunded retirement obligations

Total other comprehensive income

(In Thousands)

Six Months Ended June 30, 2022

Available-for-sale debt securities:

Unrealized holding losses on available-for-sale debt securities

Reclassification adjustment for (gains) realized in income

Other comprehensive loss from available-for-sale debt securities

4 unchanged sentences

Total other comprehensive loss

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

(In Thousands)

Three Months Ended March 31, 2021

Six Months Ended June 30, 2021

Available-for-sale debt securities:

Unrealized holding losses on available-for-sale debt securities

Reclassification adjustment for (gains) realized in income

Other comprehensive loss from available-for-sale debt securities

Unfunded pension and postretirement obligations:

6 unchanged sentences

Consolidated Statements of Income

Reclassification adjustment for (gains) realized in income (before-tax)

Realized gains on available-for-sale debt securities, net

Reclassification adjustment for losses (gains) realized in income (before-tax)

Realized (losses) gains on available-for-sale debt securities, net

Amortization of prior service cost and net actuarial loss included in net periodic benefit cost (before-tax)

2 unchanged sentences

Income tax provision

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Changes in the components of accumulated other comprehensive (loss) income are as follows and are presented net of tax:

3 unchanged sentences

(Loss) Income

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022

Balance, beginning of period

Other comprehensive (loss) income during three months ended March 31, 2022

Other comprehensive loss during three months ended June 30, 2022

Balance, end of period

Three Months Ended March 31, 2021

Three Months Ended June 30, 2021

Balance, beginning of period

Other comprehensive loss during three months ended March 31, 2021

Other comprehensive income (loss) during three months ended June 30, 2021

Balance, end of period

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

(In Thousands)

Comprehensive

on Securities

(Loss) Income

Six Months Ended June 30, 2022

Balance, beginning of period

Other comprehensive (loss) income during six months ended June 30, 2022

Balance, end of period

Six Months Ended June 30, 2021

Balance, beginning of period

Other comprehensive loss during six months ended June 30, 2021

Balance, end of period

CASH AND DUE FROM BANKS

Cash and due from banks at March 31, 2022 and December 31, 2021 include the following:

Cash and due from banks at June 30, 2022 and December 31, 2021 include the following:

(In Thousands)

9 unchanged sentences

In March 2020, the Federal Reserve Board reduced reserve requirements for U.S.

Accordingly, C&N Bank had no required reserves at March 31, 2022 or December 31, 2021.

Accordingly, C&N Bank had no required reserves at June 30, 2022 or December 31, 2021.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Amortized cost and fair value of available-for-sale debt securities at March 31, 2022 and December 31, 2021 are summarized as follows:

Amortized cost and fair value of available-for-sale debt securities at June 30, 2022 and December 31, 2021 are summarized as follows:

(In Thousands)

March 31, 2022

June 30, 2022

Obligations of the U.S.

23 unchanged sentences

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

The following table presents gross unrealized losses and fair value of available-for-sale debt securities with unrealized loss positions that are not deemed to be other-than-temporarily impaired, aggregated by length of time that individual securities have been in a continuous unrealized loss position at March 31, 2022 and December 31, 2021:

March 31, 2022

June 30, 2022

Less Than 12 Months

30 unchanged sentences

Three Months Ended

Six Months Ended

Gross realized gains from sales

Gross realized losses from sales

Net realized gains

Net realized (losses) gains

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

The amortized cost and fair value of available-for-sale debt securities by contractual maturity are shown in the following table as of March 31, 2022.

The amortized cost and fair value of available-for-sale debt securities by contractual maturity are shown in the following table as of June 30, 2022.

Actual maturities may differ from contractual maturities because counterparties may have the right to call or prepay obligations with or without call or prepayment penalties.

(In Thousands)

March 31, 2022

June 30, 2022

Due in one year or less

10 unchanged sentences

In the table above, mortgage-backed securities and collateralized mortgage obligations are shown in one period.

Investment securities carried at $ 237,165,000 at March 31, 2022 and $ 241,428,000 at December 31, 2021 were pledged as collateral for public deposits, trusts and certain other deposits as provided by law.

Investment securities carried at $ 243,298,000 at June 30, 2022 and $ 241,428,000 at December 31, 2021 were pledged as collateral for public deposits, trusts and certain other deposits as provided by law.

See Note 8 for information concerning securities pledged to secure borrowing arrangements and Note 11 for information related to securities pledged against interest rate swap obligations.

1 unchanged sentence

Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) whether the Corporation intends to sell the security or more likely than not will be required to sell the security before its anticipated recovery.

A summary of information management considered in evaluating debt and equity securities for OTTI at March 31, 2022 is provided below.

A summary of information management considered in evaluating debt and equity securities for OTTI at June 30, 2022 is provided below.

Debt Securities

At March 31, 2022 and December 31, 2021, management performed an assessment for possible OTTI of the Corporation’s debt securities on an issue-by-issue basis, relying on information obtained from various sources, including publicly available financial data, ratings by external agencies, brokers and other sources.

At June 30, 2022 and December 31, 2021, management performed an assessment for possible OTTI of the Corporation’s debt securities on an issue-by-issue basis, relying on information obtained from various sources, including publicly available financial data, ratings by external agencies, brokers and other sources.

The extent of individual analysis applied to each security depended on the size of the Corporation’s investment, as well as management’s perception of the credit risk associated with each security.

As reflected in the table above, the fair value of available-for-sale debt securities as of March 31, 2022 was lower than the amortized cost basis by $ 25,940,000 , or 4.6 %.

As reflected in the table above, the fair value of available-for-sale debt securities as of June 30, 2022 was lower than the amortized cost basis by $ 45,957,000 , or 8.0 %.

In comparison, the aggregate unrealized gain position was $ 6,087,000 ( 1.2 %) at December 31, 2021.

The unrealized decrease in fair value of the portfolio in the first quarter 2022 was consistent with the significant increase in market interest rates that occurred during the period.

Based on the results of the assessment, management believes there were no credit-related declines in fair value and that impairment of debt securities at March 31, 2022 and December 31, 2021 is temporary.

The unrealized decrease in fair value of the portfolio in the first half of 2022 was consistent with the significant increase in market interest rates that occurred during the period.

Based on the results of the assessment, management believes there were no credit-related declines in fair value and that impairment of debt securities at June 30, 2022 and December 31, 2021 is temporary.

Equity Securities

1 unchanged sentence

As a member, C&N Bank is required to purchase and maintain stock in FHLB-Pittsburgh.

There is no active market for

There is no active market for FHLB-Pittsburgh stock, and it must ordinarily be redeemed by FHLB-Pittsburgh in order to be liquidated.

C&N Bank’s investment in

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

FHLB-Pittsburgh stock, and it must ordinarily be redeemed by FHLB-Pittsburgh in order to be liquidated.

C&N Bank’s investment in FHLB-Pittsburgh stock, included in other assets in the consolidated balance sheets, was $ 9,258,000 at March 31, 2022 and $ 9,313,000 at December 31, 2021.

The Corporation evaluated its holding of FHLB-Pittsburgh stock for impairment and deemed the stock to not be impaired at March 31, 2022 and December 31, 2021.

FHLB-Pittsburgh stock, included in other assets in the consolidated balance sheets, was $ 13,443,000 at June 30, 2022 and $ 9,313,000 at December 31, 2021.

The Corporation evaluated its holding of FHLB-Pittsburgh stock for impairment and deemed the stock to not be impaired at June 30, 2022 and December 31, 2021.

In making this determination, management concluded that recovery of total outstanding par value, which equals the carrying value, is expected.

The decision was based on review of financial information that FHLB-Pittsburgh has made publicly available.

The Corporation has a marketable equity security included in other assets in the consolidated balance sheets with a carrying value of $ 926,000 at March 31, 2022 and $ 971,000 at December 31, 2021, consisting exclusively of one mutual fund.

There was an unrealized loss on the mutual fund of $ 45,000 at March 31, 2022 and $ 29,000 at December 31, 2021.

The Corporation has a marketable equity security included in other assets in the consolidated balance sheets with a carrying value of $ 895,000 at June 30, 2022 and $ 971,000 at December 31, 2021, consisting exclusively of one mutual fund.

There was an unrealized loss on the mutual fund of $ 105,000 at June 30, 2022 and $ 29,000 at December 31, 2021.

Changes in the unrealized gains or losses on this security are included in other noninterest income in the consolidated statements of income.

The loans receivable portfolio is segmented into commercial, residential mortgage and consumer loans.

Loans outstanding at March 31, 2022 and December 31, 2021 are summarized by segment, and by classes within each segment, as follows:

Loans outstanding at June 30, 2022 and December 31, 2021 are summarized by segment, and by classes within each segment, as follows:

Summary of Loans by Type

18 unchanged sentences

allowance for loan losses

In the table above, outstanding loan balances are presented net of deferred loan origination fees, net, of $ 3,735,000 at March 31, 2022 and $ 4,427,000 at December 31, 2021.

In the table above, outstanding loan balances are presented net of deferred loan origination fees, net, of $ 4,031,000 at June 30, 2022 and $ 4,247,000 at December 31, 2021.

The Corporation grants loans to individuals as well as commercial and tax-exempt entities.

15 unchanged sentences

Fees on PPP loans, net of origination costs and a market rate adjustment on acquired PPP loans, are recognized in interest income as a yield adjustment over the term of the loans.

As of March 31, 2022, the recorded investment in 1st Draw PPP loans was $ 887,000 , including contractual principal balances of $ 905,000 , reduced by net deferred origination fees of $ 18,000 .

As of June 30, 2022, the recorded investment in 1st Draw PPP loans was $ 44,000 , including contractual principal balances of $ 49,000 , reduced by net deferred origination fees of $ 5,000 .

The recorded investment in 2nd Draw PPP loans was $ 6,208,000 , including contractual principal balances of $ 6,392,000 reduced by net deferred origination fees of $ 184,000 .

Interest and fees on PPP loans which are included in taxable interest and fees on loans in the unaudited consolidated statements of income totaled $ 575,000 in the three-month period ended March 31, 2022 and $ 1,998,000 in the three-month period ended March 31, 2021.

Interest and fees on PPP loans which are included in taxable interest and fees on loans in the unaudited consolidated statements of income totaled $ 206,000 in the second quarter 2022 and $ 1,249,000 in the second quarter 2021, and $ 781,000 in the six-month period ended June 30, 2022 and $ 3,247,000 in the six-month period ended June 30, 2021.

Acquired loans were initially recorded at fair value, with adjustments made to gross amortized cost based on movements in interest rates (market rate adjustment) and based on credit fair value adjustments on non-impaired loans and impaired loans.

Subsequently, the Corporation has recognized amortization and accretion of a portion of the market rate adjustments and credit adjustments on non-impaired (performing) loans, and a partial recovery of purchased credit impaired (PCI) loans.

For the three-month periods ended March 31, 2022 and 2021, adjustments to the initial market rate and credit fair value adjustments of performing loans were recognized as follows:

For the three-month and six-month periods ended June 30, 2022 and 2021, adjustments to the initial market rate and credit fair value adjustments of performing loans were recognized as follows:

(In Thousands)

Three Months Ended

Six Months Ended

Market Rate Adjustment

Adjustments to gross amortized cost of loans at beginning of period

Amortization recognized in interest income

Accretion (amortization) recognized in interest income

Adjustments to gross amortized cost of loans at end of period

3 unchanged sentences

Adjustments to gross amortized cost of loans at end of period

A summary of PCI loans held at March 31, 2022 and December 31, 2021 is as follows:

A summary of PCI loans held at June 30, 2022 and December 31, 2021 is as follows:

(In Thousands)

2 unchanged sentences

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

In the three-month period ended March 31, 2022, the Corporation received repayments on PCI loans in excess of previous carrying amounts, resulting in income of $ 1,398,000 .

This amount is included in interest and fees on taxable loans in the unaudited consolidated statements of income.

There was no corresponding income from repayments on PCI loans in the three-month period ended March 31, 2021.

In the second quarter 2022, the Corporation received repayments on PCI loans in excess of previous carrying amounts, resulting in income of $ 14,000 as compared to $ 18,000 in the second quarter 2021.

In the six-month period ended June 30, 2022, the Corporation received repayments on PCI loans in excess of previous carrying amounts, resulting in income of $ 1,412,000 as compared to $ 18,000 in the six-month period ended June 30, 2021.

These amounts are included in interest and fees on taxable loans in the unaudited consolidated statements of income.

The Corporation maintains an allowance for loan losses that represents management’s estimate of the losses inherent in the loan portfolio as of the balance sheet date and recorded as a reduction of the investment in loans.

4 unchanged sentences

In the process of evaluating the loan portfolio, management also considers the Corporation’s exposure to losses from unfunded loan commitments.

As of March 31, 2022 and December 31, 2021, management determined that no allowance for credit losses related to unfunded loan commitments was required.

Transactions within the allowance for loan losses, summarized by segment and class, for the three-month periods ended March 31, 2022 and 2021 were as follows:

Three Months Ended March 31, 2022

December 31, 2021

As of June 30, 2022 and December 31, 2021, management determined that no allowance for credit losses related to unfunded loan commitments was required.

Transactions within the allowance for loan losses, summarized by segment and class, for the three-month and six-month periods ended June 30, 2022 and 2021 were as follows:

Three Months Ended June 30, 2022

March 31, 2022

June 30, 2022

(In Thousands)

17 unchanged sentences

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Three Months Ended March 31, 2021

December 31, 2020

Three Months Ended June 30, 2021

March 31, 2021

June 30, 2021

(In Thousands)

16 unchanged sentences

Total Allowance for Loan Losses

For the three months ended March 31, 2022, the provision for loan losses was $ 891,000 , an increase in expense of $ 632,000 as compared to $ 259,000 for the three months ended March 31, 2021.

The first quarter 2022 provision included a net charge of $ 147,000 related to specific loans (net charge-offs of $ 157,000 offset by a net decrease in specific allowances on loans of $ 10,000 ), an increase of $ 748,000 in the collectively determined portion of the allowance and a decrease of $ 4,000 in the unallocated portion of the allowance.

The increase in the collectively determined portion of the allowance reflected the impact of an increase in volume of commercial loans, excluding PPP loans.

The first quarter 2021 provision included a net charge of $ 182,000 related to specific loans (increase in specific allowances on loans of $ 199,000 , partially offset by net recoveries of $ 17,000 ), an increase of $ 92,000 in the unallocated portion of the allowance and a reduction of $ 15,000 attributable to decreases in the collectively determined portion of the allowance for loan losses.

For the three months ended June 30, 2022, the provision for loan losses was $ 308,000 , a decrease in expense of $ 436,000 as compared to $ 744,000 for the three months ended June 30, 2021.

The second quarter 2022 provision included a net recovery of $ 271,000 related to specific loans (net decrease in specific allowances on loans of $ 303,000 offset by net charge-offs of $ 32,000 ), an increase of $ 246,000 in the collectively determined portion of the allowance and an increase of $ 333,000 in the unallocated portion of the allowance.

The second quarter 2021 provision included a net charge of $ 383,000 related to specific loans (net increase in specific allowances on loans of $ 353,000 and net charge-offs of $ 30,000 ), an increase of $ 367,000 in the collectively determined portion of the allowance and a $ 6,000 decrease in the unallocated portion.

Six Months Ended June 30, 2022

(In Thousands)

Allowance for Loan Losses:

Commercial loans secured by real estate

Commercial and industrial

Commercial construction and land

Loans secured by farmland

Multi-family (5 or more) residential

Agricultural loans

Other commercial loans

Total commercial

Residential mortgage:

Residential mortgage loans - first liens

Residential mortgage loans - junior liens

Home equity lines of credit

1-4 Family residential construction

Total residential mortgage

Total Allowance for Loan Losses

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Six Months Ended June 30, 2021

(In Thousands)

Allowance for Loan Losses:

Commercial loans secured by real estate

Commercial and industrial

Commercial construction and land

Loans secured by farmland

Multi-family (5 or more) residential

Agricultural loans

Other commercial loans

Total commercial

Residential mortgage:

Residential mortgage loans - first liens

Residential mortgage loans - junior liens

Home equity lines of credit

1-4 Family residential construction

Total residential mortgage

Total Allowance for Loan Losses

For the six months ended June 30, 2022, the provision for loan losses was $ 1,199,000 , an increase in expense of $ 196,000 as compared to $ 1,003,000 recorded for the first six months ended June 30, 2021.

The provision for the six months ended June 30, 2022 includes a net recovery of $ 124,000 related to specific loans (net decrease in specific allowances on loans of $ 313,000 offset by net charge-offs of $ 189,000 ), an increase of $ 994,000 in the collectively determined portion of the allowance and a $ 329,000 increase in the unallocated portion.

In comparison, the provision for loan losses for the six months ended June 30, 2021, includes a net charge of $ 565,000 related to specific loans (increase in specific allowances on loans of $ 552,000 and net charge-offs of $ 13,000 ), an increase of $ 352,000 in the collectively determined portion of the allowance and an $ 86,000 increase in the unallocated portion.

In determining the larger loan relationships for detailed assessment under the specific allowance component, the Corporation uses an internal risk rating system.

6 unchanged sentences

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

The following tables summarize the aggregate credit quality classification of outstanding loans by risk rating as of March 31, 2022 and December 31, 2021:

March 31, 2022

The following tables summarize the aggregate credit quality classification of outstanding loans by risk rating as of June 30, 2022 and December 31, 2021:

June 30, 2022

(In Thousands)

36 unchanged sentences

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

The following tables present a summary of loan balances and the related allowance for loan losses summarized by portfolio segment and class for each impairment method used as of March 31, 2022 and December 31, 2021.

March 31, 2022

The following tables present a summary of loan balances and the related allowance for loan losses summarized by portfolio segment and class for each impairment method used as of June 30, 2022 and December 31, 2021.

June 30, 2022

Allowance for Loan Losses:

38 unchanged sentences

Total residential mortgage

Summary information related to impaired loans at March 31, 2022 and December 31, 2021 is provided in the table immediately below.

Summary information related to impaired loans at June 30, 2022 and December 31, 2021 is provided in the table immediately below.

(In Thousands)

March 31, 2022

June 30, 2022

December 31, 2021

4 unchanged sentences

Residential mortgage loans - junior liens

Home equity lines of credit

Loans secured by farmland

8 unchanged sentences

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

The average balance of impaired loans, excluding purchased credit impaired loans, and interest income recognized on these impaired loans is as follows:

The average balance of impaired loans and interest income recognized on these impaired loans is as follows:

(In Thousands)

3 unchanged sentences

Three Months Ended

Six Months Ended

Three Months Ended

Six Months Ended

Commercial loans secured by real estate

12 unchanged sentences

(In Thousands)

March 31, 2022

June 30, 2022

December 31, 2021

12 unchanged sentences

The amounts shown in the table immediately above include loans classified as troubled debt restructurings (described in more detail below), if such loans are past due ninety days or more or nonaccrual.

PCI loans with a total recorded investment of $ 3,983,000 at March 31, 2022 and $ 6,558,000 at December 31, 2021 are classified as nonaccrual.

PCI loans with a total recorded investment of $ 3,879,000 at June 30, 2022 and $ 6,558,000 at December 31, 2021 are classified as nonaccrual.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

The table below presents a summary of the contractual aging of loans as of March 31, 2022 and December 31, 2021.

The table below presents a summary of the contractual aging of loans as of June 30, 2022 and December 31, 2021.

Loans modified under the Corporation’s program designed to work with clients impacted by COVID-19 are included in the current and past due less than 30 days category in the table that follows.

(In Thousands)

As of March 31, 2022

As of June 30, 2022

As of December 31, 2021

16 unchanged sentences

Total residential mortgage

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Nonaccrual loans are included in the contractual aging in the immediately preceding table.

A summary of the contractual aging of nonaccrual loans at March 31, 2022 and December 31, 2021 is as follows:

A summary of the contractual aging of nonaccrual loans at June 30, 2022 and December 31, 2021 is as follows:

(In Thousands)

March 31, 2022 Nonaccrual Totals

June 30, 2022 Nonaccrual Totals

December 31, 2021 Nonaccrual Totals

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Loans whose terms are modified are classified as troubled debt restructurings (TDRs) if the Corporation grants such borrowers concessions, and it is deemed that those borrowers are experiencing financial difficulty.

Loans classified as TDRs are designated as impaired.

The outstanding balance of loans subject to TDRs, as well as contractual aging information at March 31, 2022 and December 31, 2021 is as follows:

The outstanding balance of loans subject to TDRs, as well as contractual aging information at June 30, 2022 and December 31, 2021 is as follows:

(In Thousands)

March 31, 2022 Totals

June 30, 2022 Totals

December 31, 2021 Totals

At March 31, 2022 and December 31, 2021, there were no commitments to loan additional funds to borrowers whose loans have been classified as TDRs.

TDRs that occurred during the three-month periods ended March 31, 2022 and 2021 are as follows:

At June 30, 2022 and December 31, 2021, there were no commitments to loan additional funds to borrowers whose loans have been classified as TDRs.

TDRs that occurred during the three-month and six-month periods ended June 30, 2022 and 2021 are as follows:

(Balances in Thousands)

1 unchanged sentence

Three Months Ended

March 31, 2022

March 31, 2021

June 30, 2022

June 30, 2021

Residential mortgage - first liens,

Reduced monthly payments for a fifteen-month period

Six Months Ended

(Balances in Thousands)

June 30, 2022

June 30, 2021

Residential mortgage - first liens:

Reduced monthly payments and extended maturity date

Reduced monthly payments for a fifteen-month period

Home equity lines of credit,

Reduced monthly payments and extended maturity date

In the three-month periods ended March 31, 2022 and 2021, defaults on loans for which modifications that were considered to be TDR and were entered into within the previous 12 months are summarized as follows:

In the second quarters of 2022 and 2021, there were no defaults on loans for which TDRs were entered into within the previous 12 months.

In the six-month periods ended June 30, 2022 and 2021, defaults on loans for which modifications that were considered to be TDR and were entered into within the previous 12 months are summarized as follows:

(Balances in Thousands)

Three Months Ended

March 31, 2022

March 31, 2021

Six Months Ended

June 30, 2022

June 30, 2021

Commercial loans secured by real estate

13 unchanged sentences

Three Months Ended

Six Months Ended

Amortization expense

Goodwill represents the excess of the cost of acquisitions over the fair value of the net assets acquired.

At March 31, 2022 and December 31, 2021, the net carrying value of goodwill was $ 52,505,000 .

At June 30, 2022 and December 31, 2021, the net carrying value of goodwill was $ 52,505,000 .

BORROWED FUNDS

5 unchanged sentences

Total short-term borrowings

The Corporation had available credit with other correspondent banks totaling $ 45,000,000 at March 31, 2022 and December 31, 2021.

The Corporation had available credit with other correspondent banks totaling $ 95,000,000 at June 30, 2022 and $ 45,000,000 at December 31, 2021.

These lines of credit are primarily unsecured.

No amounts were outstanding at March 31, 2022 or December 31, 2021.

The Corporation has a line of credit with the Federal Reserve Bank of Philadelphia’s Discount Window.

At March 31, 2022, the Corporation had available credit in the amount of $ 12,429,000 on this line with no outstanding advances.

At December 31, 2021, the

No amounts were outstanding at June 30, 2022 or December 31, 2021.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Corporation had available credit in the amount of $ 13,642,000 on this line with no outstanding advances.

As collateral for this line, the Corporation has pledged available-for-sale securities with a carrying value of $ 12,817,000 at March 31, 2022 and $ 14,034,000 at December 31, 2021.

The Corporation has a line of credit with the Federal Reserve Bank of Philadelphia’s Discount Window.

At June 30, 2022, the Corporation had available credit in the amount of $ 17,491,000 on this line with no outstanding advances.

At December 31, 2021, the Corporation had available credit in the amount of $ 13,642,000 on this line with no outstanding advances.

As collateral for this line, the Corporation has pledged available-for-sale securities with a carrying value of $ 18,267,000 at June 30, 2022 and $ 14,034,000 at December 31, 2021.

The Corporation engages in repurchase agreements with certain commercial customers.

These agreements provide that the Corporation sells specified investment securities to the customers on an overnight basis and repurchases them on the following business day.

The weighted average rate paid by the Corporation on customer repurchase agreements was 0.10 %at March 31, 2022 and December 31, 2021.

The carrying value of the underlying securities was $ 2,380,000 at March 31, 2022 and $ 1,820,000 at December 31, 2021.

The FHLB-Pittsburgh loan facility is collateralized by qualifying loans secured by real estate with a book value totaling $ 1,077,215,000 at March 31, 2022 and $ 1,046,242,000 at December 31, 2021.

The weighted average rate paid by the Corporation on customer repurchase agreements was 0.10 % at June 30, 2022 and December 31, 2021.

The carrying value of the underlying securities was $ 1,560,000 at June 30, 2022 and $ 1,820,000 at December 31, 2021.

The FHLB-Pittsburgh loan facility is collateralized by qualifying loans secured by real estate with a book value totaling $ 1,158,305,000 at June 30, 2022 and $ 1,046,242,000 at December 31, 2021.

Also, the FHLB-Pittsburgh loan facility requires the Corporation to invest in established amounts of FHLB-Pittsburgh stock.

The carrying values of the Corporation’s holdings of FHLB-Pittsburgh stock (included in other assets in the consolidated balance sheets) were $ 9,258,000 at March 31, 2022 and $ 9,313,000 at December 31, 2021.

The Corporation’s total credit facility with FHLB-Pittsburgh was $ 757,811,000 at March 31, 2022, including an unused (available) amount of $ 731,429,000 .

The carrying values of the Corporation’s holdings of FHLB-Pittsburgh stock (included in other assets in the consolidated balance sheets) were $ 13,443,000 at June 30, 2022 and $ 9,313,000 at December 31, 2021.

The Corporation’s total credit facility with FHLB-Pittsburgh was $ 779,941,000 at June 30, 2022, including an unused (available) amount of $ 648,294,000 .

At December 31, 2021, the Corporation’s total credit facility with FHLB-Pittsburgh was $ 756,868,000 , including an unused (available) amount of $ 723,557,000 .

At March 31, 2022 and December 31, 2021, there were no overnight borrowings or short-term advances from FHLB-Pittsburgh.

At June 30, 2022 there was an overnight borrowing from FHLB-Pittsburgh of $ 88,500,000 with a rate of 1.75 % and no short-term advances.

At December 31, 2021, there were no overnight borrowings or short-term advances from FHLB-Pittsburgh.

LONG-TERM BORROWINGS – FHLB ADVANCES

3 unchanged sentences

Loans maturing in 2023 with a weighted-average rate of 1.35 %

Loan maturing in 2024 with a rate of 0.75 %

Loans maturing in 2024 with a weighted-average rate of 2.76 %

Loan maturing in 2025 with a rate of 4.91 %

Total long-term FHLB-Pittsburgh borrowings

Weighted-average rates are presented as of March 31, 2022.

Weighted-average rates are presented as of June 30, 2022.

On May 19, 2021, the Corporation issued and sold $ 15.0 million in aggregate principal amount of 2.75 % Fixed Rate Senior Unsecured Notes due 2026 (the "Senior Notes").

4 unchanged sentences

Debt issuance costs are amortized over the term of the Senior Notes as an adjustment of the effective interest rate.

Amortization of debt issuance costs associated with the Senior Notes totaling $ 16,000 in the first quarter 2022 was included in interest expense in the unaudited consolidated statements of income.

At March 31, 2022 and December 31, 2021, outstanding Senior Notes are as follows:

Amortization of debt issuance costs associated with the Senior Notes totaling $ 16,000 in the second quarter 2022 and $ 32,000 in the six-month period ended June 30, 2022, and $ 7,000 in the three-month and six-month periods ended June 30, 2021, was included in interest expense in the unaudited consolidated statements of income.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

At June 30, 2022 and December 31, 2021, outstanding Senior Notes are as follows:

(In Thousands)

3 unchanged sentences

Total carrying value

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

SUBORDINATED DEBT

10 unchanged sentences

Debt issuance costs are amortized through June 1, 2026 as an adjustment of the effective interest rate.

Amortization of debt issuance costs associated with the Subordinated Notes totaling $ 26,000 in the first quarter 2022 was included in interest expense in the unaudited consolidated statements of income.

At March 31, 2022 and December 31, 2021, the carrying amounts of subordinated debt agreements are as follows:

Amortization of debt issuance costs associated with the Subordinated Notes totaling $ 26,000 in the second quarter 2022 and $ 52,000 in the six-month period ended June 30, 2022, and $ 13,000 in the three-month and six-month periods ended June 30, 2021, was included in interest expense in the unaudited consolidated statements of income.

At June 30, 2022 and December 31, 2021, the carrying amounts of subordinated debt agreements are as follows:

(In Thousands)

4 unchanged sentences

bearing interest at 6.50 % with an effective interest rate of 5.60 %;

maturing in July 2027 and redeemable at par in July 2022

maturing in July 2027 and redeemed at par in June 2022

Agreements with a par value of $ 25,000,000 ;

2 unchanged sentences

Total carrying value

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

STOCK-BASED COMPENSATION PLANS

1 unchanged sentence

The 2022 restricted stock awards under the Stock Incentive Plan vest ratably over three years , and the 2022 restricted stock issued under the Independent Directors Stock Incentive Plan vests over one year .

There were no restricted stock awards granted in the three-month period ended June 30, 2022.

Following is a summary of restricted stock awards granted in the three-month period ended March 31, 2022:

5 unchanged sentences

Compensation cost related to restricted stock is recognized based on the fair value of the stock at the grant date over the vesting period, adjusted for estimated and actual forfeitures.

Total annual stock-based compensation for the year ending December 31, 2022 is estimated

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

to total $ 1,622,000 .

Total stock-based compensation expense attributable to restricted stock awards amounted to $ 368,000 in the first quarter 2022 and $ 341,000 in the first quarter 2021.

Total annual stock-based compensation for the year ending December 31, 2022 is estimated to total $ 1,610,000 .

Total stock-based compensation expense attributable to restricted stock awards amounted to $ 413,000 in the second quarter 2022 and $ 284,000 in the second quarter 2021.

Total stock-based compensation expense attributable to restricted stock awards amounted to $ 781,000 in the six-month period ended June 30, 2022 and $ 625,000 in the six-month period ended June 30, 2021.

CONTINGENCIES

10 unchanged sentences

As the interest rate swaps associated with this program do not meet the hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings.

The aggregate notional amount of interest rate swaps was $ 122,138,000 at March 31, 2022 and $ 123,904,000 at December 31, 2021.

There were no interest rate swaps originated in the first quarter 2022 or first quarter 2021.

There were no gross amounts of interest rate swap-related assets and liabilities not offset in the consolidated balance sheets at March 31, 2022.

The net impact on the consolidated statements of income from interest rate swaps was a reduction in interest income on loans of $ 317,000 in the first quarter 2022 as compared to a reduction in interest income on loans of $ 338,000 in the first quarter 2021.

The table below presents the fair value of the Corporation’s derivative financial instruments as well as their classification on the consolidated balance sheets at March 31, 2022 and December 31, 2021:

The aggregate notional amount of interest rate swaps was $ 115,050,000 at June 30, 2022 and $ 123,094,000 at December 31, 2021.

There were no interest rate swaps originated in the six-month periods ended June 30, 2022 and 2021.

There were no gross amounts of interest rate swap-related assets and liabilities not offset in the consolidated balance sheets at June 30, 2022.

The net impact on the consolidated statements of income from interest rate swaps was a reduction in interest income on loans of $ 220,000 in the second quarter 2022 and $ 537,000 in the six months ended June 30, 2022 as compared to a reduction in interest income on loans of $ 340,000 in the second quarter 2021 and $ 678,000 in the six months ended June 30, 2021.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

The table below presents the fair value of the Corporation’s derivative financial instruments as well as their classification on the consolidated balance sheets at June 30, 2022 and December 31, 2021:

(In Thousands)

At March 31, 2022

At June 30, 2022

At December 31, 2021

8 unchanged sentences

Further, if the Corporation were to fail to maintain its status as a well or adequately capitalized institution, then the counterparty could terminate the derivative positions and the Corporation would be required to settle its obligations under the agreements.

Available-for-sale securities with a carrying value of $ 3,965,000 were pledged as collateral against the Corporation’s obligations related to the interest rate swaps at March 31, 2022.

Available-for-sale securities with a carrying value of $ 2,338,000 were pledged as collateral against the Corporation’s obligations related to the interest rate swaps at June 30, 2022.

FAIR VALUE MEASUREMENTS AND FAIR VALUES OF FINANCIAL INSTRUMENTS

1 unchanged sentence

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

FASB topic 820, “Fair

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Value Measurements and Disclosures” establishes a framework for measuring fair value that includes a hierarchy used to classify the inputs used in measuring fair value.

FASB topic 820, “Fair Value Measurements and Disclosures” establishes a framework for measuring fair value that includes a hierarchy used to classify the inputs used in measuring fair value.

The hierarchy prioritizes the inputs used in determining valuations into three levels.

9 unchanged sentences

Examples of such changes may include the market for a particular asset or liability becoming active or inactive, changes in the availability of quoted prices, or changes in the availability of other market data.

At March 31, 2022 and December 31, 2021, assets and liabilities measured at fair value and the valuation methods used are as follows:

March 31, 2022

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

At June 30, 2022 and December 31, 2021, assets and liabilities measured at fair value and the valuation methods used are as follows:

June 30, 2022

(In Thousands)

51 unchanged sentences

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

At March 31, 2022 and December 31, 2021, quantitative information regarding valuation techniques and the significant unobservable inputs used for assets measured on a recurring basis using unobservable inputs (Level 3 methodologies) are as follows:

At June 30, 2022 and December 31, 2021, quantitative information regarding valuation techniques and the significant unobservable inputs used for assets measured on a recurring basis using unobservable inputs (Level 3 methodologies) are as follows:

Fair Value at

42 unchanged sentences

Three Months Ended

March 31, 2022

March 31, 2021

Six Months Ended

June 30, 2022

June 30, 2021

June 30, 2022

June 30, 2021

Servicing rights balance, beginning of period

Originations of servicing rights

Unrealized gain included in earnings

Unrealized gain (loss) included in earnings

Servicing rights balance, end of period

5 unchanged sentences

The discounts also include estimated costs to sell the property.

At March 31, 2022 and December 31, 2021, quantitative information regarding valuation techniques and the significant unobservable inputs used for nonrecurring fair value measurements using Level 3 methodologies are as follows:

At June 30, 2022 and December 31, 2021, quantitative information regarding valuation techniques and the significant unobservable inputs used for nonrecurring fair value measurements using Level 3 methodologies are as follows:

(Dollars In Thousands)

4 unchanged sentences

Discount to appraised value

Commercial and industrial

Liquidation of assets

Discount to appraised value

Total impaired loans

34 unchanged sentences

(In Thousands)

March 31, 2022

June 30, 2022

December 31, 2021

16 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements