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Item 2. Management’s Discussion and Analysis

2025-11-07 compared with 2025-08-08 · 229 added, 170 removed, 529 unchanged (43% of the section changed)

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A number of factors could cause our actual results, events or developments, or industry results, to be materially different from any future results, events or developments expressed, implied or anticipated by such forward-looking statements.

In addition to factors previously disclosed in the reports filed by C&N with the SEC, including our most recent annual report on Form 10-K and subsequent filings, and those identified elsewhere in this document, the following factors, among others, could cause actual results to differ materially from forward looking statements:

In addition to factors previously disclosed in the reports filed by the Corporation with the SEC, including our most recent annual report on Form 10-K and subsequent filings, and those identified elsewhere in this document, the following factors, among others, could cause actual results to differ materially from forward looking statements:

● changes in monetary and fiscal policies of the Federal Reserve Board and the U.S.

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● fraud and cyber malfunction risks as usage of artificial intelligence continues to expand

● the One Big Beautiful Bill Act of 2025 presents disparate potential impacts on financial institutions and the ultimate impact will depend on how the bill is implemented, how other countries respond, and how the overall economy reacts to the changes;

● the execution of the transaction with SQCF may take longer than anticipated or be more costly to complete and that the anticipated benefits, including any anticipated cost savings or strategic gains, may be significantly harder to achieve or take longer than anticipated or may not be achieved;

● completion of the merger is dependent on, among other things, receipt of SQCF shareholder and regulatory approvals, the timing of which cannot be predicted with precision, and which may not be received at all or may be conditioned in a manner that would impair our ability to fully implement our business plans;

● integration efforts between the Corporation and SQCF may divert the attention of the management teams of the Corporation and SQCF and cause a loss in the momentum of their ongoing businesses;.

● success of the Corporation in SQCF’s geographic market area will require the Corporation to attract and retain key personnel in the market and to differentiate the Corporation from its competitors in the market;

● the merger may be more expensive to complete than anticipated, including as a result of unexpected factors or events.

● integration efforts between the Corporation and Susquehanna Community Financial, Inc., (“Susquehanna”) may divert the attention of the management teams of the Corporation and Susquehanna and cause a loss in the momentum of their ongoing businesses

● success of the Corporation in Susquehanna’s geographic market area will require the Corporation to attract and retain key personnel in the market and to differentiate the Corporation from its competitors in the market.

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.

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The Corporation does not undertake to update forward-looking statements.

RECENTLY COMPLETED MERGER

On October 1, 2025, C&N completed its previously announced merger with Susquehanna.

Susquehanna was the parent company of Susquehanna Community Bank, with seven banking offices located in Lycoming, Northumberland, Synder and Union counties in Pennsylvania.

Pursuant to the Agreement and Plan of Merger dated April 23, 2025 between the Corporation and Susquehanna, Susquehanna merged with and into the Corporation, with the Corporation as the surviving corporation in the Merger.

Immediately following the completion of the Merger, Susquehanna Community Bank, the wholly owned subsidiary of Susquehanna, merged with and into C&N Bank, with C&N Bank surviving.

Upon completion of the merger, shareholders of Susquehanna became entitled to exchange each share of Susquehanna common stock owned for 0.80 shares of the Corporation’s common stock.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

PENDING ACQUISITION

On April 23, 2025, the Corporation announced that it had entered into an Agreement and Plan of Merger with Susquehanna Community Financial, Inc.

(“SQCF”) pursuant to which agreed to acquire SQCF.

SQCF is the financial holding company for Susquehanna Community Bank (“Susquehanna”), which operates 7 banking offices in Central Pennsylvania.

SQCF had assets of $593 million as of June 30, 2025.

Under the terms of the definitive agreement, each share of SQCF’s common stock issued and outstanding immediately prior to the effective time of the merger will be converted into the right to receive 0.80 shares of the Corporation’s common stock.

Holders of SQCF common stock prior to the consummation of the merger will own approximately 13% of the Corporation’s common stock outstanding immediately following the consummation of the merger.

The merger, which is expected to close in the fourth quarter of 2025, is subject to the satisfaction of customary closing conditions, including receipt of customary regulatory approvals and approval by SQCF’s shareholders.

In the second quarter, the Corporation incurred merger-related expenses of $167,000 which primarily consisted of professional and legal fees.

Based on the average of the high and low trading price of the Corporation’s common stock of $19.64 per share on October 1, 2025, the total purchase consideration in the merger is valued at approximately $44.6 million.

As of September 30, 2025, Susquehanna reported total assets of $587 million, including gross loans of $400 million, total deposits of $501 million and total stockholders’ equity of $36 million.

As of the date the Corporation’s September 30, 2025 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 October 1, 2025 merger date and the financial statement issuance, the calculation of the fair value of all material Susquehanna assets acquired and liabilities assumed had not yet been completed.

In the first nine months of 2025, the Corporation incurred pre-tax merger-related expenses related to the Susquehanna transaction of $1,049,000, including expenses totaling $882,000 in the third quarter of 2025.

Management estimates total pre-tax merger-related expenses associated with the Susquehanna transaction will be approximately $7.5 million, with most of the expenses expected to be incurred in the fourth quarter of 2025.

Merger-related expenses will include expenses related to conversion of Susquehanna’s core customer system data into the Corporation’s core system, severance and similar expenses and legal and other professional expenses.

EARNINGS OVERVIEW

Second Quarter 2025 as Compared to Second Quarter 2024

Second quarter 2025 net income was $6,117,000, or $0.40 per diluted share, as compared to $6,113,000, or $0.40 per diluted share, in the second quarter 2024.

Significant variances were as follows:

● Net interest income of $21,142,000 in the second quarter 2025 was $1,697,000 higher than in the second quarter 2024.

The net interest margin increased to 3.52% in the second quarter 2025 from 3.31% in the second quarter 2024.

Third Quarter 2025 as Compared to Third Quarter 2024

Third quarter 2025 net income was $6,551,000, or $0.42 per diluted share, as compared to $6,365,000, or $0.41 per diluted share, in the third quarter 2024.

Excluding the effects of merger-related expenses, net of taxes, of $697,000, adjusted earnings (non-GAAP) per share were $0.47 per diluted share for the third quarter 2025.

See “Reconciliation of Net Income and Diluted Earnings Per Share to Non-GAAP Measure” for additional information.

Other significant variances were as follows:

● Net interest income of $22,263,000 in the third quarter 2025 was $2,107,000 higher than in the third quarter 2024.

The net interest margin increased to 3.62% in the third quarter 2025 from 3.29% in the third quarter 2024.

The interest rate spread increased 0.39%, as the average yield on earning assets increased 0.08% while the average rate on interest-bearing liabilities decreased 0.31%.

Average total earning assets increased $46,907,000 from the second quarter 2024, as average interest-bearing due from banks increased $36,729,000 and average total loans receivable increased $18,034,000, or 1.0%.

Average total deposits increased $73,221,000, or 3.6% while total borrowed funds decreased $52,236,000, or 21.5%.

● The provision for credit losses was $2,354,000 for the second quarter 2025 as compared to a provision for credit losses of $565,000 in the second quarter 2024.

The provision for the second quarter 2025 included a provision related to loans receivable of $2,075,000 and a provision related to off-balance sheet exposures of $279,000.

The provision in the second quarter of 2025 resulted mainly from increases in the allowance for credit losses (“ACL”) related to changes in qualitative factors and an economic forecast.

During the second quarter 2025, there was a partial charge-off of $333,000 on a commercial construction and land loan with no individual allowance at March 31, 2025 and a partial charge-off of $208,000 on a commercial line of credit with an individual allowance of $142,000 at March 31, 2025.

Net charge-offs totaled $548,000, or 0.12% (annualized) of average loans receivable, in the second quarter of 2025 as compared to $207,000, or 0.04% (annualized) of average loans receivable, in the second quarter of 2024.

The ACL as a percentage of gross loans receivable was 1.13% at June 30, 2025, an increase from 1.06% March 31, 2025.

● Noninterest income of $8,142,000 in the second quarter 2025 increased $288,000 from the second quarter 2024 result.

Average total deposits increased $41,554,000 despite a decrease in average brokered deposits of $53,846,000 and average total borrowed funds decreased $56,519,000.

Average total earning assets increased $1,585,000 from the third quarter 2024, as average total loans receivable increased $37,761,000, or 2.0%, while average interest-bearing due from banks decreased $31,228,000 or 26.0%.

● The provision for credit losses was $2,163,000 for the third quarter 2025, compared to a provision for credit losses of $1,207,000 in the third quarter 2024.

The provision for the third quarter 2025 included a provision related to loans receivable of $1,869,000 and a provision related to off-balance sheet exposures of $294,000.

The provision in the third quarter of 2025 mainly resulted from increases in the allowance for credit losses (“ACL”) related to changes in qualitative factors partially offset by a decrease resulting from changes in an economic forecast.

Net charge-offs totaled $94,000, or 0.02% (annualized) of average loans receivable, in the third quarter of 2025 as compared to $1,237,000, or 0.26% (annualized) of average loans receivable, in the third quarter of 2024.

The ACL as a percentage of gross loans receivable was 1.21% at September 30, 2025, an increase from 1.08% at September 30, 2024.

● Noninterest income of $7,304,000 in the third quarter 2025 increased $171,000 from the third quarter 2024 result, including trust revenue of $2,056,000 which increased $110,000, or 5.7%, reflecting an increase in estate and pension fees.

● Noninterest expense totaled $19,389,000 in the third quarter of 2025, an increase of $1,120,000 from $18,269,000 in third quarter of 2024.

Excluding merger-related expenses of $882,000, non-interest expense totaled $18,507,000 in the third quarter of 2025, an increase of $238,000 from the third quarter of 2024 result.

Significant variances included the following:

Ø Interchange revenue from debit card transactions of $1,218,000 increased $129,000 reflecting an increase in volume-related incentive income.

Ø Other noninterest income of $2,030,000 increased $87,000, including increases of $34,000 in letter of credit fees, $33,000 in income from tax credits related to donations, and $24,000 of interest-rate swap fee income with no comparable amount in 2024.

Ø Net gains from sale of loans of $312,000 increased $77,000 reflecting an increase in volume of residential mortgage loans sold.

● Noninterest expense of $19,398,000 in the second quarter 2025 increased $143,000 from the second quarter 2024 expense including merger-related expenses of $167,000 discussed above with no comparable amount in 2024.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Six Months Ended June 30, 2025 as Compared to Six Months Ended June 30, 2024

Net income for the six-month period ended June 30, 2025 was $12,410,000, or $0.80 per diluted share, as compared to $11,419,000, or $0.74 per diluted share, for the first six months of 2024.

Significant variances were as follows:

● Net interest income totaled $41,117,000 in the six months ended June 30, 2025, an increase of $2,631,000 from the total for the first six months of 2024.

The net interest margin was 3.45% for the first six months of 2025, up from 3.30% in the corresponding period of 2024.

Ø Salaries and employee benefits expense of $11,293,000 increased $418,000 from the third quarter of 2024 including increases of $172,000 in health insurance expense, $150,000 in cash and stock-based compensation and an increase in base salaries expense of $77,000, or 1.0%.

Ø Other noninterest expense of $2,496,000 decreased $141,000 from the third quarter 2024 as legal fees and expenses totaled $60,000, a decrease of $158,000 from $218,000 in the third quarter of 2024.

Nine Months Ended September 30, 2025 as Compared to Nine Months Ended September 30, 2024

Net income for the nine-month period ended September 30, 2025 was $18,961,000, or $1.22 per diluted share, as compared to $17,784,000, or $1.16 per diluted share, for the first nine months of 2024.

Excluding the impact of merger-related expenses, net of taxes of $850,000, adjusted earnings (non-GAAP) for the first nine months of 2025 were $19,811,000, or $1.28 per diluted share.

See “Reconciliation of Net Income and Diluted Earnings Per Share to Non-GAAP Measure” for additional information Other significant variances were as follows:

● Net interest income totaled $63,380,000 in the nine months ended September 30, 2025, an increase of $4,738,000 from the total for the first nine months of 2024.

The net interest margin was 3.51% for the first nine months of 2025, up from 3.30% in the corresponding period of 2024.

The interest rate spread increased 0.23%, as the average rate on interest-bearing liabilities was 0.14% lower while the average yield on earning assets increased 0.09%.

Average total earning assets increased $56,090,000, including an increase in interest-bearing due from banks of $35,983,000 and an increase in average loans receivable of $29,116,000, or 1.6%.

Average total deposits increased $66,641,000, or 3.3%, despite a $58,784,000 reduction in average brokered deposits to $17,531,000 for the first six months of 2025 as compared to $76,315,000 for the first six months of 2024, while average total borrowed funds decreased $37,864,000.

● For the six months ended June 30, 2025, the provision for credit losses was $2,590,000, an increase of $1,071,000 from the first six months of 2024.

The provision in the six months ended June 30, 2025, included the impact of increases in the ACL related to changes in qualitative factors and an economic forecast.

In the first six months of 2025, the ACL on loans receivable increased $1,664,000 to 1.13% at June 30, 2025 as compared to 1.06% at December 31, 2024.

Net charge-offs totaled $639,000, or 0.07% (annualized) of average loans receivable for the six months ended June 30, 2025 compared to $352,000, or 0.04% (annualized) of average loans receivable for the first six months of 2024.

● Noninterest income totaled $15,150,000 in the first six months of 2025, up $621,000 from the total for the first six months of 2024.

Average total earning assets increased $37,834,000, including an increase in average loans receivable of $32,050,000, or 1.7%, and an increase in interest-bearing due from banks of $13,434,000.

Average total deposits increased $58,280,000, or 2.9%, despite a $57,141,000 reduction in average brokered deposits to $13,287,000 for the first nine months of 2025 as compared to $70,428,000 for the first nine months of 2024, while average total borrowed funds decreased $44,150,000.

● For the nine months ended September 30, 2025, the provision for credit losses was $4,753,000, an increase of $2,027,000 from the provision for the first nine months of 2024.

The provision in the nine months ended September 30, 2025 included the impact of increases in the ACL related to changes in qualitative factors partially offset by a reduction related to changes in the Corporation’s average net charge-off experience.

In the first nine months of 2025, the ACL on loans receivable increased $3,439,000 to 1.21% at September 30, 2025 as compared to 1.06% at December 31, 2024.

Net charge-offs totaled $733,000, or 0.05% (annualized) of average loans receivable for the nine months ended September 30, 2025 compared to $1,589,000, or 0.11% (annualized) of average loans receivable for the first nine months of 2024.

● Noninterest income totaled $22,454,000 in the first nine months of 2025, up $792,000 from the total for the first nine months of 2024.

Significant variances included the following:

Ø Other noninterest income of $3,162,000 increased $202,000 including increases in letter of credit fees of $68,000, income from tax credits related to donations of $51,000, changes in the fair value of a marketable equity security of $29,000, credit card interchange fees of $26,000 and interest-rate swap fee income of $24,000 with no comparable amount in 2024.

Ø Trust revenue of $6,125,000 increased $268,000, consistent with appreciation in the trading prices of many U.S.

equity securities and included an increase in estate fees.

Ø Other noninterest income of $4,320,000 increased $237,000, including increases in credit enhancement fees of $69,000, income from merchant services of $55,000, income from tax credits related to donations of $51,000 and letter of credit fees of $50,000.

Ø Interchange revenue from debit card transactions of $3,391,000 increased $186,000, including an increase in volume-related incentive income.

Ø Net gains from sale of loans of $925,000 increased $139,000, reflecting an increase in volume of residential mortgage loans sold.

● Noninterest expense totaled $38,441,000 for the first six months of 2025, an increase of $882,000 from the total for the first six months of 2024.

● Noninterest expense totaled $57,830,000 for the first nine months of 2025, an increase of $2,002,000 from $55,828,000for the first nine months of 2024.

Excluding merger-related expenses of $1,049,000, non-interest expense

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

totaled $56,781,000 for the first nine months of 2025, an increase of $953,000 from the total for the first nine months of 2024.

Significant variances included the following:

Ø Salaries and employee benefits expense of $34,119,000 increased $659,000, including increases of $548,000 in cash-and stock-based incentive compensation and $137,000 in wealth management-related commissions, while base salaries decreased $52,000.

Ø Other noninterest expense of $8,251,000 increased $315,000.

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In comparison, in 2024, there was a reduction in expense of $513,000 related to the defined benefit postretirement medical benefit plan, including a curtailment gain of $469,000.

◾ Legal fees totaled $138,000 in the first six months of 2025, a decrease of $134,000.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Ø Salaries and employee benefits expense of $22,826,000 increased $241,000, including increases of $398,000 in cash-and stock-based incentive compensation and $136,000 in wealth management-related commissions while health insurance expenses decreased $206,000 due to a reduction in claims on C&N’s partially self-funded plan and base salaries decreased $129,000, or 0.8%.

Ø Merger-related expenses were $167,000, primarily consisting of professional and legal fees, with no comparable expenses in 2024 as discussed above.

Ø Automated teller machine and interchange expenses decreased $170,000, reflecting the effects of pricing improvements negotiated in mid-2024.

In addition, pension costs from a frozen defined benefit plan increased $93,000 to $109,000 in 2025 from $14,000 in 2024, primarily from a settlement charge of $87,000 in 2025, and net collection expense increased $60,000 to $38,000 in 2025 as compared to net recoveries of $22,000 in 2024.

◾ Legal fees totaled $199,000 in the first nine months of 2025, a decrease of $292,000 from 2024.

● The income tax provision of $4,290,000, or 18.5% of pre-tax income for 2025 increased $324,000 from $3,966,000, or 18.2% of pre-tax income, for 2024.

The increase in income tax provision was consistent with the increase in pre-tax income of $1,501,000.

The following table provides a reconciliation of the Corporation’s third quarter and September 30, 2025 year-to-date unaudited earnings results under U.S.

generally accepted accounting principles (U.S.

GAAP) to comparative non-U.S.

GAAP results excluding merger-related expenses.

Management believes disclosure of unaudited third quarter and September 30, 2025 earnings results, adjusted to exclude the impact of merger-related expenses, provides useful information for comparative purposes.

RECONCILIATION OF NET INCOME AND DILUTED EARNINGS PER SHARE TO NON-GAAP MEASURE:

Three Months Ended

Nine Months Ended

(Dollars In Thousands, Except Per Share Data)

September 30,

Calculation of Adjusted Net Income:

Net Income (GAAP) (A)

Merger-related expenses (B)

Tax effect of merger-related expenses (C)

Adjusted Net Income (D=A+B-C) - Non-GAAP

Adjusted Net Income Attributable to Common Shares - Non-GAAP

Number of Shares Used in Computation - Basic and Diluted

Net Income- Basic and Diluted per Common Share - GAAP

Adjusted Net Income- Basic and Diluted Per Common Share - Non-GAAP

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

TABLE I – QUARTERLY FINANCIAL DATA

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September 30,

Interest and dividend income

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Noninterest income

Noninterest expense

Merger-related expenses

Other noninterest expenses

Income before income tax provision

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Three Months Ended

September 30,

Trust revenue

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Total noninterest income

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

(Dollars in Thousands)

Six Months Ended

Nine Months Ended

September 30,

Trust revenue

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Total noninterest income

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

NONINTEREST EXPENSE

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Three Months Ended

September 30,

Salaries and employee benefits

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(Dollars in Thousands)

Six Months Ended

Nine Months Ended

September 30,

Salaries and employee benefits

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Additional detailed information concerning fluctuations in the Corporation’s earnings results and other financial information are provided in other sections of Management’s Discussion and Analysis.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

CRITICAL ACCOUNTING POLICIES

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Note 6 to the unaudited consolidated financial statements provides an overview of the process management uses for determining the ACL, and additional discussion of the ACL is provided in a separate section below of Management’s Discussion and Analysis.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

The ACL may increase or decrease due to changes in economic conditions affecting borrowers and macroeconomic variables, including new information regarding existing problem loans, identification of additional problem loans, changes in the fair value of underlying collateral, unforeseen events such as natural disasters and pandemics, and other factors.

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The Corporation’s primary source of operating income is net interest income, which is equal to the difference between the amounts of interest income and interest expense.

Tables IV, V and VI include information regarding the Corporation’s net interest income for the three-month and six-month periods ended June 30, 2025 and 2024.

Tables IV, V and VI include information regarding the Corporation’s net interest income for the three-month and nine-month periods ended September 30, 2025 and 2024.

In each of these tables, the amounts of interest income earned on tax-exempt securities and loans have been adjusted to a fully taxable-equivalent basis.

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The discussion that follows is based on amounts in the related tables.

Three-Month Periods Ended June 30, 2025 and 2024

Fully taxable equivalent net interest income (a non-GAAP measure) was $21,362,000 in the second quarter of 2025, $1,715,000 (8.7%) higher than in the second quarter of 2024.

Three-Month Periods Ended September 30, 2025 and 2024

Fully taxable equivalent net interest income (a non-GAAP measure) was $22,481,000 in the third quarter of 2025, $2,120,000 (10.4%) higher than in the third quarter of 2024.

The increase in net interest income reflected an increase in interest income of $576,000 and a decrease in interest expense of $1,544,000.

As presented in Table V, the Net Interest Margin was 3.52% in the second quarter 2025 as compared to 3.31% in the second quarter 2024, and the “Interest Rate Spread” (excess of average rate of return on earning assets over average cost of funds on interest-bearing liabilities) increased to 2.84% in 2025 from 2.61% in 2024.

As presented in Table V, the Net Interest Margin was 3.62% in the third quarter 2025 as compared to 3.29% in the third quarter 2024, and the “Interest Rate Spread” (excess of average rate of return on earning assets over average cost of funds on interest-bearing liabilities) increased to 2.94% in 2025 from 2.55% in 2024.

The average yield on earning assets of 5.46% was 0.08% higher in 2025 compared to 2024, and the average rate on interest-bearing liabilities of 2.52% in 2025 was 0.31% lower.

Additionally , average total earning assets increased $46,907,000 as average interest-bearing due from banks increased $36,729,000 and average total loans increased $18,034,000 while average total deposits increased $73,221,000 (3.6%) offset by a decrease in total average borrowed funds of $52,236,000.

As presented in Table VI, the net impact of changes in interest rates increased net interest income in the second quarter 2025 as compared to second quarter 2024 by $1,123,000 and changes in volume of earning assets and interest-bearing liabilities increased net interest income by $592,000.

Additionally, average total deposits increased $41,554,000 despite a decrease in average brokered deposits of $53,846,000 and total average borrowed funds decreased $56,519,000.

Average total earning assets increased $1,585,000 from the third quarter 2024, as average total loans receivable increased $37,761,000 while average interest-bearing due from banks decreased $31,228,000.

As presented in Table VI, the net impact of changes in interest rates increased net interest income in the third quarter 2025 as compared to third quarter 2024 by $1,483,000 and changes in volume of earning assets and interest-bearing liabilities increased net interest income by $637,000.

INTEREST INCOME AND EARNING ASSETS

Interest income totaled $33,868,000 in 2025, an increase of $576,000, or 1.7%, from 2024.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Interest and fees from loans receivable increased $964,000 in 2025 as compared to 2024.

The fully taxable equivalent yield on loans in 2025 increased to 6.14% from 6.08% in 2024, r eflecting the effects of gradual paydowns on loans originated prior to interest rates rising in 2022 and 2023 with more recent loans originated at higher market rates.

Average outstanding loans receivable increased $18,034,000 (1.0%) to $1,901,420,000 in 2025 from $1,883,386,000 in 2024.

Income from interest-bearing due from banks totaled $855,000 in 2025, an increase of $339,000 from the total for 2024.

Average outstanding loans receivable increased $37,761,000, or 2.0% to $1,926,231,000 in 2025 from $1,888,470,000 in 2024.

Income from interest-bearing due from banks totaled $982,000 in 2025, a decrease of $640,000 from the total for 2024.

Within this category, the largest asset balance in 2025 and 2024 has been interest-bearing deposits held with the Federal Reserve.

The average yield on interest-bearing due from banks was 4.39% in 2025, down from 5.38% in 2024.

The average balance of interest-bearing due from banks was $79,868,000 in 2025, up $36,729,000 from $43,139,000 in 2024.

The net increase in average interest-bearing due from banks for 2025 as compared to 2024 reflected net sources of cash from deposit growth, a reduction in other assets resulting mainly from collection of a receivable related to redemption of an insurance policy, and a reduction in average available-for-sale debt securities, partially offset by net uses of cash for loan growth and a decrease in borrowed funds.

The average balance of interest-bearing due from banks was $88,657,000 in 2025, down $31,228,000 from $119,885,000 in 2024.

The net decrease in average interest-bearing due from banks for 2025 as compared to 2024 reflected net uses of cash for loan growth and a decrease in borrowed funds partially offset by net sources of cash from deposit growth and a reduction in average available-for-sale debt securities.

Interest income from available-for-sale debt securities, on a fully taxable-equivalent basis, totaled $3,039,000 in 2025, up $265,000 from 2024, as the average yield on available-for-sale debt securities was 2.71% in 2025, up from 2.45% in 2024.

The average balance (at amortized cost) of available-for-sale debt securities decreased $4,681,000 between periods.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

INTEREST EXPENSE AND INTEREST-BEARING LIABILITIES

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Interest expense on deposits decreased $956,000, as the average rate decreased to 2.32% in 2025 from 2.62% in 2024 while the average balance of interest-bearing deposits increased $31,611,000.

Average total deposits (interest-bearing and noninterest-bearing) increased $73,221,000 (3.6%) in the second quarter of 2025 as compared to 2024.

Within average deposits, average brokered deposits were $8,582,000 at an average rate of 4.47% in the second quarter of 2025 as compared to $68,311,000 at an average rate of 5.21% in the second quarter of 2024.

In comparing the second quarter 2025 to the second quarter 2024, average time deposits increased $28,364,000, average interest checking deposits increased $25,387,000, average total money market accounts increased $24,200,000 and average noninterest-bearing demand deposits increased $4,247,000 while average savings deposits decreased $8,977,000.

Average total deposits (interest-bearing and noninterest-bearing) increased $41,554,000 or 2.0% in the third quarter of 2025 as compared to 2024.

Within average deposits, average brokered deposits were $4,936,000 at an average rate of 4.18% in the third quarter of 2025 as compared to $58,782,000 at an average rate of 5.28% in the third quarter of 2024.

In comparing the third quarter 2025 to the third quarter 2024, average total money market accounts increased $20,274,000, average time deposits increased $13,341,000, average noninterest-bearing demand deposits increased $9,943,000 and average interest checking deposits increased $1,716,000 while average savings deposits decreased $3,720,000.

Interest expense on borrowed funds decreased $588,000 in 2025 as compared to 2024.

Interest expense on short-term borrowings was $1,000 in 2025 compared to $360,000 in 2024 as the average balance of short-term borrowings decreased to $980,000 in 2025 from $27,732,000 in 2024.

Interest expense on short-term borrowings was less than $1,000 in the third quarter 2025 compared to $184,000 in the third quarter 2024 as the average balance of short-term borrowings decreased to $658,000 in 2025 from $15,038,000 in 2024.

Interest expense on long-term borrowings (FHLB advances) decreased $406,000 to $1,577,000 in 2025 from $1,983,000 in 2024.

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More information regarding borrowed funds is provided in Note 8 to the unaudited consolidated financial statements.

Six-Month Periods Ended June 30, 2025 and 2024

For the six-month periods, fully taxable equivalent net interest income was $41,548,000 in 2025, which was $2,665,000 (6.9%) higher than in 2024.

Nine Month Periods Ended September 30, 2025 and 2024

For the nine-month periods, fully taxable equivalent net interest income was $64,029,000 in 2025, which was $4,785,000 or 8.1% higher than in 2024.

The increase in net interest income reflected an increase in interest income of $3,111,000 and a decrease in interest expense of $1,674,000.

As presented in Table VI, the net impact of changes in interest rates increased net interest income for the six months ended June 30, 2025 over the six months ended June 30, 2024 by $1,879,000 and the net impact of changes in volume of earning assets and interest-bearing liabilities increased net interest income by $786,000.

As presented in Table V, the Net Interest Margin was 3.45% in the first six months of 2025 as compared to 3.30% in the first six months of 2024, and the “Interest Rate Spread” (excess of average rate of return on earning assets over average cost of funds on interest-bearing liabilities) increased to 2.77% in 2025 from 2.62% in 2024.

As presented in Table VI, the net impact of changes in interest rates increased net interest income for the nine months ended September 30, 2025 over the nine months ended September 30, 2024 by $3,362,000 and the net impact of changes in volume of earning assets and interest-bearing liabilities increased net interest income by $1,423,000.

As presented in Table V, the Net Interest Margin was 3.51% in the first nine months of 2025 as compared to 3.30% in the first nine months of 2024, and the “Interest Rate Spread” (excess of average rate of return on earning assets over average cost of funds on interest-bearing liabilities) increased to 2.83% in 2025 from 2.60% in 2024.

The average yield on earning assets of 5.40% was 0.09% higher in 2025 as compared to 2024, while the average rate on interest-bearing liabilities of 2.57% in 2025 was 0.14% lower compared to 2024.

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Interest income totaled $98,462,000 in 2025, an increase of $3,111,000 from 2024.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Interest and fees from loans receivable increased $2,396,000 in 2025 as compared to 2024.

In the six-month period ended June 30, 2025, t he fully taxable equivalent yield on loans was 6.05%, up from 5.97% in the first half of 2024, r eflecting the effects of gradual paydowns on loans originated prior to interest rates rising in 2022 and 2023 with more recent loans originated at higher market rates.

Average outstanding loans receivable increased $29,116,000 (1.6%) to $1,900,432,000 in 2025 from $1,871,316,000 in 2024.

In the nine-month period ended September 30, 2025, t he fully taxable equivalent yield on loans was 6.08%, up from 6.01% in the first nine months of 2024, r eflecting the effects of gradual paydowns on loans originated prior to interest rates rising in 2022 and 2023 with more recent loans originated at higher market rates.

Average outstanding loans receivable increased $32,050,000 or 1.7% to $1,909,126,000 in 2025 from $1,877,076,000 in 2024.

Income from interest-bearing due from banks totaled $2,558,000 in 2025, an increase of $37,000 from 2024.

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The average balance (at amortized cost) of available-for-sale debt securities decreased to $448,032,000 in 2025 from $455,944,000 in 2024 .

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

INTEREST EXPENSE AND INTEREST-BEARING LIABILITIES

For the six-month periods, interest expense decreased $130,000 to $23,046,000 in 2025 from $23,176,000 in 2024.

Interest expense on deposits increased $671,000, as the average balance of interest-bearing deposits increased $66,729,000.

The average rate on interest-bearing deposits was 2.40% in 2025 and 2.41% in 2024.

Average total deposits (interest-bearing and noninterest-bearing) amounted to $2,075,540,000 for the first six months of 2025, up $66,641,000 (3.3%) from the first six months of 2024.

For the nine-month periods, interest expense decreased $1,674,000 to $34,433,000 in 2025 from $36,107,000 in 2024.

Interest expense on deposits decreased $285,000, as the average rate on interest-bearing deposits was 2.37% in 2025 and 2.48% in 2024.

The average balance of interest-bearing deposits increased $54,971,000.

Average total deposits (interest-bearing and noninterest-bearing) amounted to $2,092,615,000 for the first nine months of 2025, up $58,280,000 or 2.9% from the first nine months of 2024.

Within average total deposits, average brokered deposits (primarily time and money market) were $13,287,000 with an average interest rate of 4.63% in 2025, down from $70,428,000 with an average interest rate of 5.24% in 2024.

Average time deposits increased $46,727,000, average interest checking deposits increased $24,872,000 and average money market accounts increased $8,265,000 while average balance of savings accounts decreased $13,135,000.

Average time deposits increased $35,528,000, average interest checking deposits increased $17,102,000, average money market accounts increased $12,318,000 and average noninterest-bearing demand deposits increased $3,309,000, while average balance of savings accounts decreased $9,977,000.

Interest expense on borrowed funds decreased $1,389,000 in 2025 as compared to 2024.

1 unchanged sentence

The average rate on short-term borrowings was 0.13% in 2025 compared to 5.24% in 2024.

Interest expense on long-term borrowings (FHLB advances) increased $152,000 to $3,463,000 in 2025 from $3,311,000 in 2024 as the average rate on long-term borrowings was 4.48% in 2025 compared to 4.19% in 2024 while the average balance of long-term borrowings decreased to $156,013,000 in 2025 from $159,063,000 in 2024.

Interest expense on long-term borrowings (FHLB advances) decreased $254,000 to $5,040,000 in 2025 from $5,294,000 in 2024.

The average rate on long-term borrowings was 4.49% in 2025 compared to 4.25% in 2024 while the average balance of long-term borrowings decreased to $150,195,000 in 2025 from $166,454,000 in 2024.

Borrowings are classified as long-term within the Tables based on their term at origination or assumption in business combinations.

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In Thousands)

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Net Interest Income Under U.S.

1 unchanged sentence

fully taxable-equivalent interest income adjustment from tax-exempt loans

Net Interest Income as adjusted to a fully taxable-equivalent basis

Net Interest Income as adjusted to a fully taxable-equivalent basis - Non-GAAP

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

35 unchanged sentences

Total Deposits (Interest-bearing and Demand)

Brokered Deposits

(1) Annualized rates of return on tax-exempt securities and loans are presented on a fully taxable-equivalent basis, using the Corporation’s marginal federal income tax rate of 21%.

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Three Months Ended 9/30/2025 vs.

Six Months Ended 6/30/2025 vs.

Nine Months Ended 9/30/2025 vs.

EARNING ASSETS

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The income tax provision in interim periods is based on the Corporation’s estimate of the effective tax rate expected to be applicable for the full year.

The income tax provision for the second quarter 2025 of $1,415,000 was $49,000 higher than the provision for the second quarter 2024, and the provision for the six months ended June 30, 2025 of $2,826,000 was $308,000 higher than the amount for the first six months of 2025 due to a higher amount of pre-tax income in 2025.

The effective tax rate (tax provision as a percentage of pre-tax income) was 18.8% in the second quarter 2025 compared to 18.3% in the second quarter 2024 and 18.5% for the first six months of 2025 as compared to 18.1% for the first six months of 2024.

The income tax provision for the third quarter 2025 of $1,464,000 was $16,000 higher than the provision for the third quarter 2024, and the provision for the nine months ended September 30, 2025 of $4,290,000 was $324,000 higher than the amount for the first nine months of 2025 due to a higher amount of pre-tax income in 2025.

The effective tax rate (tax provision as a percentage of pre-tax income) was 18.3% in the third quarter 2025 compared to 18.5% in the third quarter 2024 and 18.5% for the first nine months of 2025 as compared to 18.2% for the first nine months of 2024.

The Corporation’s effective tax rates differ from the statutory federal rate of 21% principally because of the effects of tax-exempt interest income, nondeductible interest expense, state income taxes and other permanent differences.

1 unchanged sentence

The Corporation recognizes deferred tax assets and liabilities based on differences between the consolidated financial statement carrying amounts and the tax basis of assets and liabilities.

The net deferred tax asset at June 30, 2025 and December 31, 2024 represents the following temporary difference components:

The net deferred tax asset at September 30, 2025 and December 31, 2024 represents the following temporary difference components:

September 30,

(In Thousands)

2 unchanged sentences

Allowance for credit losses on loans

Purchase accounting adjustments on loans

Acquisition accounting adjustment on loans

Deferred compensation

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Realization of deferred tax assets ultimately depends on the existence of sufficient taxable income.

Management believes the recorded net deferred tax asset at June 30, 2025 is fully realizable;

Management believes the recorded net deferred tax asset at September 30, 2025 is fully realizable;

however, if management determines the Corporation will be unable to realize all or part of the net deferred tax asset, the Corporation would adjust the deferred tax asset, which would negatively impact earnings .

2 unchanged sentences

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

The composition of the available-for-sale debt securities portfolio at June 30, 2025 and December 31, 2024, 2023 and 2022 is as follows:

The composition of the available-for-sale debt securities portfolio at September 30, 2025 and December 31, 2024, 2023 and 2022 is as follows:

(Dollars In Thousands)

June 30, 2025

September 30, 2025

December 31, 2024

17 unchanged sentences

Aggregate Unrealized Loss as a % of Amortized Cost

As reflected in the table above, the fair value of available-for-sale securities was lower than the amortized cost basis by $39,765,000, or 8.9% at June 30, 2025, $47,543,000, or 10.6%, at December 31, 2024, $49,213,000, or 10.6%, at December 31, 2023 and $63,761,000, or 11.3%, at December 31, 2022.

As reflected in the table above, the fair value of available-for-sale securities was lower than the amortized cost basis by $33,786,000, or 7.5% at September 30, 2025, $47,543,000, or 10.6%, at December 31, 2024, $49,213,000, or 10.6%, at December 31, 2023 and $63,761,000, or 11.3%, at December 31, 2022.

The volatility in the fair value of the portfolio, including the reduction in fair value, resulted from changes in interest rates.

The table also shows that the amortized cost basis of the portfolio has been reduced to $445,817,000 at June 30, 2025 from $561,794,000 at December 31, 2022 as proceeds from maturities and sales have been used to help fund loan growth and for other purposes.

The table also shows that the amortized cost basis of the portfolio has been reduced to $449,099,000 at September 30, 2025 from $561,794,000 at December 31, 2022 as proceeds from maturities and sales have been used to help fund loan growth and for other purposes.

Additional information regarding the potential impact of interest rate changes on all of the Corporation’s financial instruments is provided in Item 3, Quantitative and Qualitative Disclosures about Market Risk.

As described in Note 5 to the unaudited consolidated financial statements, management determined the Corporation does not have the intent to sell, nor is it more likely than not that it will be required to sell, available-for-sale debt securities in an unrealized loss position at June 30, 2025 before it is able to recover the amortized cost basis.

Further, management reviewed the Corporation’s holdings as of June 30, 2025 and concluded there were no credit-related declines in fair value.

Additional information related to the types of securities held at June 30, 2025, other than securities issued or guaranteed by U.S.

As described in Note 5 to the unaudited consolidated financial statements, management determined the Corporation does not have the intent to sell, nor is it more likely than not that it will be required to sell, available-for-sale debt securities in an unrealized loss position at September 30, 2025 before it is able to recover the amortized cost basis.

Further, management reviewed the Corporation’s holdings as of September 30, 2025 and concluded there were no credit-related declines in fair value.

Additional information related to the types of securities held at September 30, 2025, other than securities issued or guaranteed by U.S.

Government entities or agencies, is as follows:

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

● Bank holding company debt securities – All of the Corporation’s holdings of bank holding company debt securities were investment grade and there have been no payment defaults.

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All of the issuers have publicly traded common stock .

At June 30, 2025, the securities have external ratings ranging from BBB-/Baa3 to A-.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

At September 30, 2025, the securities have external ratings ranging from BBB-/Baa3 to A-.

● Obligations of states and political subdivisions (municipal bonds) –Most of the Corporation’s holdings of municipal bonds were investment grade and there have been no payment defaults.

Summary ratings information at June 30, 2025, based on the amortized cost basis and reflecting the lowest enhanced or underlying rating by Moody’s, Standard & Poors or Fitch, is as follows:

Summary ratings information at September 30, 2025, based on the amortized cost basis and reflecting the lowest enhanced or underlying rating by Moody’s, Standard & Poors or Fitch, is as follows:

AAA or pre-refunded – 19% of the portfolio;

● Private label commercial mortgage-backed securities (PLCMBS) – There were two PLCMBS securities, both of which were from the most senior payment (subordination) classes of their respective issuances.

These securities were investment grade (rated Aaa), and there have been no payment defaults on these securities.

● Collateralized loan obligations (CLOs) – There were two CLOs securities, both of which were from the most senior payment (subordination) classes of their respective issuances.

● Private label commercial mortgage-backed security (PLCMBS) – There was one PLCMBS security which was from the most senior payment (subordination) class.

This security was investment grade (rated Aaa), and there have been no payment defaults on this security.

● Collateralized loan obligations (CLOs) – There were three CLOs securities, all of which were from the most senior payment (subordination) classes of their respective issuances.

These securities were investment grade (rated Aaa), and there have been no payment defaults on these securities.

Based on the results of management’s assessment, there was no ACL required on available-for-sale debt securities in an unrealized loss position at June 30, 2025.

Based on the results of management’s assessment, there was no ACL required on available-for-sale debt securities in an unrealized loss position at September 30, 2025.

FINANCIAL CONDITION

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Other significant balance sheet items, including securities, the allowance for credit losses and stockholders’ equity, are discussed in separate sections of Management’s Discussion and Analysis.

There are no significant concerns that have arisen related to the Corporation’s off-balance sheet loan commitments or outstanding letters of credit at June 30, 2025.

Table VII shows the composition of the loan portfolio at June 30, 2025 and at year-end from 2020 through 2024.

There are no significant concerns that have arisen related to the Corporation’s off-balance sheet loan commitments or outstanding letters of credit at September 30, 2025.

Table VII shows the composition of the loan portfolio at September 30, 2025 and at year-end from 2020 through 2024.

Throughout this time period, the portfolio was primarily commercial in nature.

At June 30, 2025, commercial loans represented 76% of the portfolio while residential loans totaled 21% of the portfolio.

Also included in Table VII is additional detail regarding the composition of the non-owner occupied commercial real estate loan portfolio at June 30, 2025.

At September 30, 2025, commercial loans represented 76% of the portfolio while residential loans totaled 20% of the portfolio.

Also included in Table VII is additional detail regarding the composition of the non-owner occupied commercial real estate loan portfolio at September 30, 2025.

As shown in Table VII, the amortized cost of non-owner occupied commercial real estate loans for which the primary purpose is utilization of office space by third parties was $117,046,000, or 6.0% of gross loans receivable.

Within this segment there were two loans with a total amortized cost basis of $2,913,000 in nonaccrual status with no individual allowances and the remainder of the non-owner occupied commercial real estate loans with a primary purpose of office space utilization were in accrual status with no individual allowance at June 30, 2025.

Within this segment there were two loans with a total amortized cost basis of $2,874,000 in nonaccrual status with no individual allowances and the remainder of the non-owner occupied commercial real estate loans with a primary purpose of office space utilization were in accrual status with no individual allowance at September 30, 2025.

While the Corporation’s lending activities are primarily concentrated in its market areas, a portion of the Corporation’s commercial loan segment consists of participation loans.

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Although not the lead bank, the Corporation conducts detailed underwriting and monitoring of participation loan opportunities.

Total participation loans outstanding amounted to $33,756,000 at June 30, 2025, down from $35,129,000 at December 31, 2024.

The Corporation is a party to financial instruments with off-balance risk, including commitments to extend credit and standby letters of credit.

At June 30, 2025, the total contract amount of commitments to extend credit was $408,779,000 as compared to $380,003,000 at December 31, 2024, and the contract amount of standby letters of credit was $65,258,000 at June 30, 2025 as compared to $64,586,000 at December 31, 2024.

Total participation loans outstanding amounted to $33,518,000 at September 30, 2025, down from $35,129,000 at December 31, 2024.

The Corporation is a party to financial instruments with off-balance sheet risk, including commitments to extend credit and standby letters of credit.

At September 30, 2025, the total contract amount of commitments to extend credit was $426,396,000 as compared to $380,003,000 at December 31, 2024, and the contract amount of standby letters of credit was $58,653,000 at September 30, 2025 as compared to $64,586,000 at December 31, 2024.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

The Corporation maintains an allowance for off-balance sheet credit exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, commercial letters of credit and credit enhancement obligations related to residential mortgage loans sold with recourse, when there is a contractual obligation to extend credit and when this extension of credit is not unconditionally cancellable (i.e.

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The allowance for off-balance sheet credit exposures is adjusted as a provision for credit loss expense.

The estimate includes consideration of the likelihood that funding will occur and an estimate of

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

expected credit losses on commitments expected to be funded over their estimated lives.

The allowance for credit losses for off-balance sheet exposures of $742,000 at June 30, 2025 and $455,000 at December 31, 2024, is included in accrued interest and other liabilities in the unaudited consolidated balance sheets.

The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over their estimated lives.

The allowance for credit losses for off-balance sheet exposures of $1,036,000 at September 30, 2025 and $455,000 at December 31, 2024, is included in accrued interest and other liabilities in the unaudited consolidated balance sheets.

The Corporation originates and sells residential mortgage loans to the secondary market through the MPF Xtra program administered by the Federal Home Loan Banks of Pittsburgh and Chicago.

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Such repurchases or reimbursements generally result from an underwriting or documentation deficiency.

At June 30, 2025, the total outstanding balance of loans the Corporation has repurchased as a result of identified instances of noncompliance amounted to $2,836,000, and the corresponding total outstanding balance of repurchased loans at December 31, 2024 was $3,029,000.

At June 30, 2025, outstanding balances of loans sold and serviced through the MPF Xtra and Original programs totaled $329,716,000, including loans sold through the MPF Xtra program of $154,352,000 and loans sold through the Original program of $175,364,000.

At September 30, 2025, the total outstanding balance of loans the Corporation has repurchased as a result of identified instances of noncompliance amounted to $2,635,000, and the corresponding total outstanding balance of repurchased loans at December 31, 2024 was $3,029,000.

At September 30, 2025, outstanding balances of loans sold and serviced through the MPF Xtra and Original programs totaled $335,330,000, including loans sold through the MPF Xtra program of $153,657,000 and loans sold through the Original program of $181,673,000.

At December 31, 2024, outstanding balances of loans sold and serviced through the MPF Xtra and Original programs totaled $329,766,000, including loans sold through the MPF Xtra program of $158,302,000 and loans sold through the Original program of $171,464,000.

Based on the fairly limited volume of required repurchases to date, no allowance has been established for representation and warranty exposures as of June 30, 2025 and December 31, 2024.

Based on the fairly limited volume of required repurchases to date, no allowance has been established for representation and warranty exposures as of September 30, 2025 and December 31, 2024.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

2 unchanged sentences

(In Thousands)

September 30,

Commercial real estate - non-owner occupied:

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allowance for credit losses on loans

Additional details regarding the composition of the non-owner occupied commercial real estate loan portfolio, excluding multi-family (5 or more) residential and 1-4 Family-commercial purpose loans, at June 30, 2025 is as follows:

NON-OWNER OCCUPIED COMMERCIAL REAL ESTATE

(In Thousands)

September 30,

% of Non-owner

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PROVISION AND ALLOWANCE FOR CREDIT LOSSES

A summary of the provision for credit losses for the three-month and six-months periods ended June 30, 2025 and 2024 is as follows:

A summary of the provision for credit losses for the three-month and nine-month periods ended September 30, 2025 and 2024 is as follows:

(In Thousands)

September 30,

Provision for credit losses:

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Total provision for credit losses

For the quarter ended June 30, 2025, there was a provision for credit losses of $2,354,000, an increase of $1,789,000 from a provision for credit losses of $565,000 in the second quarter 2024 .

For the six months ended June 30, 2025, there was a provision for credit losses of $2,590,000, an increase of $1,071,000 compared to $1,519,000 in 2024 .

As described in more detail above, the provision in the six months ended June 30, 2025 included the impact of increases in the ACL related to changes in qualitative factors and an economic forecast.

The allowance for credit losses (“ACL”) was 1.13% of gross loans receivable at June 30, 2025, up from 1.06% at March 31, 2025 and December 31, 2024.

As shown in Table IX, the ACL on loans individually evaluated decreased to $9,000 at June 30, 2025 from $122,000 at December 31, 2024.

At June 30, 2025, there were loans to one borrower with a total amortized cost basis of $239,000 for which individual ACLs were recorded.

At December 21, 2024, the amortized cost basis of loans to the same borrower was $258,000.

Table IX also shows that, at June 30, 2025 as compared to December 31, 2024, the ACL related to collectively evaluated commercial loans increased by a total of $1,983,000 while the ACL on collectively evaluated consumer loans decreased $164,000 and the ACL on collectively evaluated residential mortgage loans decreased $42,000.

The net increase in qualitative adjustments for commercial loans included an increase in a factor related to past due, nonaccrual and internally risk-rated loans and an increase related to changes in an economic forecast, partially offset by a decrease in WARM method estimated losses resulting mainly from a reduction in the estimated average life of the portfolio.

In the first six months of 2025, net charge-offs totaled $639,000, or 0.07% (annualized) of average outstanding loans.

For the quarter ended September 30, 2025, there was a provision for credit losses of $2,163,000, an increase of $956,000 from a provision for credit losses of $1,207,000 in the third quarter 2024 .

For the nine months ended September 30, 2025, there was a provision for credit losses of $4,753,000, an increase of $2,027,000 compared to $2,726,000 in 2024.

The provision in the nine months ended September 30, 2025 included the impact of increases in the ACL related to changes in qualitative factors partially offset by a reduction in the portion of the ACL based on the Corporation’s WARM method estimated losses resulting partially from a reduction in the estimated average life of the portfolio .

The ACL was 1.21% of gross loans receivable at September 30, 2025, up from 1.13% at June 30, 2025 and 1.06% at December 31, 2024.

As shown in Table IX, the ACL on loans individually evaluated decreased to $51,000 at September 30, 2025 from $122,000 at December 31, 2024.

At September 30, 2025, there was a loan to one borrower with an amortized cost basis of $263,000 for which an individual ACL was recorded.

At December 21, 2024, there were loans to one borrower with a total amortized cost basis of $258,000 for which individual ACLs were recorded.

Table IX also shows that, at September 30, 2025 as compared to December 31, 2024, the ACL related to collectively evaluated commercial loans increased by a total of $3,332,000 and the ACL on collectively evaluated residential mortgage loans increased $353,000 while the ACL on collectively evaluated consumer loans decreased $175,000.

The net increase in the collectively determined portion of the ACL included the impact of an aggregate increase from changes in qualitative adjustments, partially offset by a decrease in WARM method estimated losses resulting partially from a reduction in the estimated average life of the portfolio.

The increase in the ACL at September 30, 2025 from December 31, 2024 related to changes in qualitative adjustments included increases in estimates based on:

the volume and severity of past due, nonaccrual and criticized or adversely classified loans;

regional and local economic conditions;

and regional values of residential housing.

In the first nine months of 2025, net charge-offs totaled $733,000, or 0.05% (annualized) of average outstanding loans.

Table VIII shows annual average net charge-off rates over the prior five calendar years ranging from a high of 0.26% in 2022 to a low of 0.01% in 2023.

As presented in Table X, collateral dependent loans totaled $21,196,000 at June 30, 2025, down from $30,125,000 at December 31, 2024.

As presented in Table X, collateral dependent loans totaled $21,437,000 at September 30, 2025, down from $30,125,000 at December 31, 2024.

The decrease from December 31, 2024 included two loans related to one relationship with a total amortized cost basis of $11,023,000 at December 31, 2024 that were paid off in April 2025.

Total nonperforming assets were $25,678,000 at June 30, 2025, up $1,536,000 from December 31, 2024.

Total nonperforming assets were $27,189,000 at September 30, 2025, up $3,047,000 from December 31, 2024.

Nonperforming loans increased $2,826,000 from December 31, 2024.

Table X shows that total nonperforming assets as a percentage of total assets was 0.98% at June 30, 2025, up from 0.92% at December 31, 2024.

Nonperforming loans included an increase in nonaccrual loans of $1,920,000 from December 31, 2024 and an increase of $906,000 in loans past due 90 days or more still accruing from December 31, 2024.

Table X shows that total nonperforming assets as a percentage of total assets was 1.02% at September 30, 2025, up from 0.92% at December 31,

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Table X also shows that total nonperforming assets as a percentage of assets as of year-end 2020 through 2024, ranged from a high of 1.10% at December 31, 2020 to a low of 0.75% at December 31, 2023.

Table X also shows that loans past due 30-89 days totaled $1,721,000 at June 30, 2025, down from $5,658,000 at December 31, 2024 as there was a net decrease of $3,791,000 in 1-4 Family residential loans past due 30-89 days from December 31, 2024.

Table X also shows that loans past due 30-89 days totaled $2,509,000 at September 30, 2025, down from $5,658,000 at December 31, 2024 as there was a net decrease of $3,656,000 in 1-4 Family residential loans past due 30-89 days from December 31, 2024.

Over the period 2020-2024 and the first 9 months of 2025, each period includes a few large commercial relationships that have required significant monitoring and workout efforts.

As a result, a limited number of relationships may significantly impact the total amount of allowance required on individual loans and may significantly impact the provision for credit losses and the amount of total charge-offs reported in any one period.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Management believes it has been prudent in its decisions concerning identification of loans requiring individual evaluation for credit loss, estimates of loss, and nonaccrual status;

however, the actual losses realized from these relationships could vary materially from the ACL calculated as of June 30, 2025.

however, the actual losses realized from these relationships could vary materially from the ACL calculated as of September 30, 2025.

Management continues to closely monitor its commercial loan relationships for credit losses and will adjust its estimates of loss and decisions concerning nonaccrual status, if appropriate.

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(Dollars In Thousands)

Six Months Ended

Nine Months Ended September 30,

Years Ended December 31,

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(In Thousands)

September 30,

Loans individually evaluated

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Total Allowance

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

PRIOR TO CECL ADOPTION

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Total Allowance

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

TABLE X - PAST DUE LOANS AND NONPERFORMING ASSETS

(Dollars In Thousands)

September 30,

As of December 31,

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Management intends to use this line of credit as a contingency funding source.

As collateral for the line, the Corporation has pledged available-for-sale debt securities with a carrying value of $18,305,000 at June 30, 2025.

The Corporation’s outstanding, available, and total credit facilities at June 30, 2025 and December 31, 2024 are as follows:

As collateral for the line, the Corporation has pledged available-for-sale debt securities with a carrying value of $26,732,000 at September 30, 2025.

The Corporation’s outstanding, available, and total credit facilities at September 30, 2025 and December 31, 2024 are as follows:

(In Thousands)

September 30,

Federal Home Loan Bank of Pittsburgh

2 unchanged sentences

Total credit facilities

At June 30, 2025, the Corporation’s outstanding credit facilities with the Federal Home Loan Bank of Pittsburgh consisted of long-term borrowings with par values totaling $143,894,000 and letters of credit totaling $21,717,000.

At September 30, 2025, the Corporation’s outstanding credit facilities with the Federal Home Loan Bank of Pittsburgh consisted of long-term borrowings with par values totaling $132,894,000 and letters of credit totaling $22,987,000.

At December 31, 2024, the Corporation’s outstanding credit facilities with the Federal Home Loan Bank of Pittsburgh consisted of long-term borrowings with par values totaling $165,451,000 and letters of credit totaling $23,241,000.

Availability on the facility is also reduced by accrued interest payable on the borrowings and by the total of the Corporation’s credit enhancement obligations on residential mortgage loans sold under the MPF Original Program.

Additional information regarding borrowed funds is included in Note 8 to the unaudited consolidated financial statements.

1 unchanged sentence

If required to raise cash in an emergency situation, the Corporation could sell available-for-sale securities to meet its obligations or use repurchase agreements placed with brokers to borrow funds secured by investment assets.

At June 30, 2025, the carrying value of available-for-sale securities in excess of amounts required to meet pledging or repurchase agreement obligations was $267,695,000.

Deposits totaled $2,109,776,000 at June 30, 2025, up $15,867,000 (0.8%) from $2,093,909,000 at December 31, 2024.

Average total deposits were $66,641,000 or 3.3% higher for the six months ended June 30, 2025 as compared to the first six months of 2024 despite a reduction in average brokered deposits of $58,784,000.

Brokered deposits, consisting of short-term certificates of deposit and money market funds, totaled $5,005,000 at June 30, 2025, a decrease of $19,016,000 from December 31, 2024.

As shown in the table below, at June 30, 2025, estimated uninsured deposits totaled $649.2 million, or 30.5% of total deposits, as compared to $632.8 million, or 30.0% of total deposits at December 31, 2024.

Included in uninsured deposits are deposits collateralized by securities (almost exclusively municipal deposits) totaling $133.6 million at June 30, 2025.

As shown in the table below, total uninsured and uncollateralized deposits amounted to 24.2% of total deposits at June 30, 2025, as compared to 22.3% at December 31, 2024.

As summarized in the table that immediately follows, the Corporation’s highly liquid sources of available funds described above, including unused borrowing capacity with the Federal Home Loan Bank of Pittsburgh, unused availability on the Federal Reserve Bank of Philadelphia’s discount window, available federal funds lines with other banks and unencumbered available-for-sale debt securities, totaled $1.1 billion at June 30, 2025.

Available funding from these sources totaled 175.6% of uninsured deposits and 221.2% of total uninsured and uncollateralized deposits at June 30, 2025.

At September 30, 2025, the carrying value of available-for-sale securities in excess of amounts required to meet pledging or repurchase agreement obligations was $244,348,000.

Deposits totaled $2,165,735,000 at September 30, 2025, up $71,826,000 or 3.4% from $2,093,909,000 at December 31, 2024.

Average total deposits were $58,280,000 or 2.9% higher for the nine months ended September 30, 2025 as compared to the first nine months of 2024 despite a reduction in average brokered deposits of $57,141,000.

Brokered deposits, consisting of short-term certificates of deposit and money market funds, totaled $5,004,000 at September 30, 2025, a decrease of $19,017,000 from December 31, 2024.

As shown in the table below, at September 30, 2025, estimated uninsured deposits totaled $696.5 million, or 31.9%, of total deposits, as compared to $632.8 million, or 30.0% of total deposits at December 31, 2024.

Included in uninsured deposits are deposits collateralized by securities (almost exclusively municipal deposits) totaling $178.5 million at September 30, 2025.

As shown in the table below, total uninsured and uncollateralized deposits amounted to 23.7% of total deposits at September 30, 2025, as compared to 22.3% at December 31, 2024.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

totaled $1.1 billion at September 30, 2025.

Available funding from these sources totaled 164.6% of uninsured deposits and 221.4% of total uninsured and uncollateralized deposits at September 30, 2025.

Uninsured Deposits Information

September 30,

Total Deposits - C&N Bank

21 unchanged sentences

The interim final rule provides that, if warranted for supervisory purposes, the Federal Reserve may exclude a company from the threshold increase.

Management believes the Corporation meets the conditions of the Federal Reserve’s small bank holding company policy statement and is therefore excluded from consolidated capital requirements at June 30, 2025;

however, management believes the Corporation will likely be subject to the consolidated capital requirements upon completion of the previously described acquisition of SQCF.

Further, at June 30, 2025, C&N Bank remains subject to regulatory capital requirements administered by the federal banking agencies.

however, management believes the Corporation will likely be subject to the consolidated capital requirements in future periods due to the completion of the previously described acquisition of Susquehanna.

Further, at September 30, 2025, C&N Bank remains subject to regulatory capital requirements administered by the federal banking agencies.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Details concerning capital ratios at June 30, 2025 and December 31, 2024 are presented below.

Management believes, as of June 30, 2025, that C&N Bank meets all capital adequacy requirements to which it is subject and maintains a capital conservation buffer (described in more detail below) that allows C&N Bank to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers.

Details concerning capital ratios at September 30, 2025 and December 31, 2024 are presented below.

Management believes, as of September 30, 2025, that C&N Bank meets all capital adequacy requirements to which it is subject and maintains a capital conservation buffer (described in more detail below) that allows C&N Bank to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers.

For comparison purposes, the Corporation’s capital ratios are presented along with those of C&N Bank in the table below.

Further, as reflected in the table below, the Corporation’s and C&N Bank’s capital ratios at June 30, 2025 and December 31, 2024 exceed the Corporation’s Board policy threshold levels.

Further, as reflected in the table below, the Corporation’s and C&N Bank’s capital ratios at September 30, 2025 and December 31, 2024 exceed the Corporation’s Board policy threshold levels.

(Dollars in Thousands)

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Policy Thresholds

June 30, 2025:

September 30, 2025:

Total capital to risk-weighted assets:

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The buffer is measured relative to risk-weighted assets.

At June 30, 2025, the minimum risk-based capital ratios, and the capital ratios including the capital conservation buffer, are as follows:

At September 30, 2025, the minimum risk-based capital ratios, and the capital ratios including the capital conservation buffer, are as follows:

Minimum common equity tier 1 capital ratio

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≤1.25% and >0.625%

At June 30, 2025 , C&N Bank’s Capital Conservation Buffer, determined based on the minimum total capital ratio, was 7.21%.

At September 30, 2025 , C&N Bank’s Capital Conservation Buffer, determined based on the minimum total capital ratio, was 7.23%.

On September 25, 2023, the Corporation announced a treasury stock repurchase program.

Under the program, the Corporation is authorized to repurchase up to 750,000 shares of the Corporation’s common stock, or slightly less than 5% of the Corporation’s issued and outstanding shares at August 4, 2023.

The program was effective when publicly announced and will continue thereafter until suspended or terminated by the Board of Directors, in its sole discretion.

The program was effective when publicly announced and has no stated expiration date;

it will continue until suspended or terminated by the Board of Directors, in its sole discretion.

All shares of common stock repurchased pursuant to the program will be held as treasury shares and be available for use and reissuance for purposes as and when determined by the Board of Directors including, without limitation, pursuant to the Corporation’s Dividend Reinvestment and Stock Purchase and Sale Plan and its equity compensation program.

For the three and six months ended June 30, 2025, there were no shares repurchased.

At June 30, 2025, there were 723,966 shares available to be repurchased under the program.

For the three and nine months ended September 30, 2025, there were no shares repurchased.

At September 30, 2025, there were 723,966 shares available to be repurchased under the program.

Future dividend payments and repurchases of common stock will depend upon maintenance of a strong financial condition, future earnings and capital and regulatory requirements.

4 unchanged sentences

Accumulated other comprehensive (loss) income is excluded from the Bank’s and the Corporation’s regulatory capital ratios.

The balance in accumulated other comprehensive loss related to unrealized losses on available-for-sale debt securities, net of deferred income tax, amounted to $31,017,000 at June 30, 2025 and $37,084,000 at December 31, 2024 .

The balance in accumulated other comprehensive loss related to unrealized losses on available-for-sale debt securities, net of deferred income tax, amounted to $26,352,000 at September 30, 2025 and $37,084,000 at December 31, 2024 .

Changes in accumulated other comprehensive loss are excluded from earnings and directly increase or decrease stockholders’ equity.

To the extent unrealized losses on available-for-sale debt securities result from credit losses, unrealized losses are recorded as a charge against earnings.

The securities section of Management’s Discussion and Analysis and Note 5 to the unaudited consolidated financial statements provide additional information concerning management’s evaluation of available-for-sale debt securities for credit losses at June 30, 2025.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

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 2. Management’s Discussion and Analysis