Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain statements in this section and elsewhere in this quarterly report on Form 10-Q are forward-looking statements for purposes of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. Such forward-looking statements may include financial and other projections as well as statements regarding the Corporation that may include future plans, objectives, performance, revenues, growth, profits, operating expenses or the Corporation’s underlying assumptions. Citizens & Northern Corporation and its wholly-owned subsidiaries (collectively, the Corporation) intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Reform Act of 1995. Forward-looking statements are not statements of historical facts, are based on certain assumptions and describe future plans, business objectives and expectations, and are generally identifiable by the use of words such as, “may”, “would”, “will”, "should", “likely”, “possibly”, "expect", "anticipate", “intend”, “pro forma”, “estimate”, “target”, “potentially”, “probably”, “outlook”, “predict”, “contemplate”, “continue”, “strategic”, “objective”, “plan”, “forecast”, “project”, “believe” and “goal” or other similar words, phrases or concepts. Persons reading this document are cautioned that such statements are only predictions, and that the Corporation’s actual future results or performance may be materially different. 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 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. Government, particularly related to changes in interest rates
● changes in general economic conditions
● the potential for adverse developments in the banking industry that could have a negative impact on customer confidence
● the Corporation’s credit standards and its on-going credit assessment processes might not protect it from significant credit losses
● legislative or regulatory changes
● downturn in demand for loan, deposit and other financial services in the Corporation’s market area
● increased competition from other banks and non-bank providers of financial services
● technological changes and increased technology-related costs
● information security breaches or other technology difficulties or failures
● changes in, or the application of, generally accepted accounting principles with respect to the presentation of the Corporation’s financial statements
● fraud and cyber malfunction risks as usage of artificial intelligence continues to expand
● 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. All forward-looking statements and information made herein are based on management’s current beliefs and assumptions as of the date of filing of this document. 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.
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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
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 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:
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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 $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 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 $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
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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. Within this category, significant variances included the following:
◾ In 2025, there was a reduction in expense associated with the defined benefit postretirement medical benefit plan of $49,000. 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. 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,
September 30,
September 30,
September 30,
(Unaudited)
2025
2024
2025
2024
Calculation of Adjusted Net Income:
Net Income (GAAP) (A)
$
6,551
$
6,365
$
18,961
$
17,784
Add: Merger-related expenses (B)
882
0
1,049
0
Less: Tax effect of merger-related expenses (C)
(185)
0
(199)
0
Adjusted Net Income (D=A+B-C) - Non-GAAP
$
7,248
$
6,365
$
19,811
$
17,784
Adjusted Net Income Attributable to Common Shares - Non-GAAP
$
7,189
$
6,311
$
19,651
$
17,644
Number of Shares Used in Computation - Basic and Diluted
15,398,262
15,267,120
15,371,733
15,254,124
Net Income- Basic and Diluted per Common Share - GAAP
$
0.42
$
0.41
$
1.22
$
1.16
Adjusted Net Income- Basic and Diluted Per Common Share - Non-GAAP
$
0.47
$
0.41
$
1.28
$
1.16
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TABLE I – QUARTERLY FINANCIAL DATA
(Dollars In Thousands,
For the Three Months Ended :
Except Per Share Data)
September 30,
June 30,
March 31,
December 31,
September 30,
(Unaudited)
2025
2025
2025
2024
2024
Interest and dividend income
$
33,650
$
32,454
$
31,709
$
33,329
$
33,087
Interest expense
11,387
11,312
11,734
12,856
12,931
Net interest income
22,263
21,142
19,975
20,473
20,156
Provision (credit) for credit losses
2,163
2,354
236
(531)
1,207
Net interest income after provision (credit) for credit losses
20,100
18,788
19,739
21,004
18,949
Noninterest income
7,304
8,142
7,008
7,547
7,133
Merger-related expenses
882
167
0
0
0
Other noninterest expenses
18,507
19,231
19,043
18,430
18,269
Income before income tax provision
8,015
7,532
7,704
10,121
7,813
Income tax provision
1,464
1,415
1,411
1,947
1,448
Net income
$
6,551
$
6,117
$
6,293
$
8,174
$
6,365
Net income attributable to common shares
$
6,498
$
6,068
$
6,242
$
8,103
$
6,311
Basic and diluted earnings per common share
$
0.42
$
0.40
$
0.41
$
0.53
$
0.41
NONINTEREST INCOME
TABLE II – COMPARISON OF NONINTEREST INCOME
(Dollars in Thousands)
Three Months Ended
September 30,
$
%
2025
2024
Change
Change
Trust revenue
$
2,056
$
1,946
$
110
5.7
%
Brokerage and insurance revenue
490
523
(33)
(6.3)
%
Service charges on deposit accounts
1,471
1,546
(75)
(4.9)
%
Interchange revenue from debit card transactions
1,137
1,103
34
3.1
%
Net gains from sales of loans
408
360
48
13.3
%
Loan servicing fees, net
107
74
33
44.6
%
Increase in cash surrender value of life insurance
477
458
19
4.1
%
Other noninterest income
1,158
1,123
35
3.1
%
Total noninterest income
$
7,304
$
7,133
$
171
2.4
%
(Dollars in Thousands)
Nine Months Ended
September 30,
$
%
2025
2024
Change
Change
Trust revenue
$
6,125
$
5,857
$
268
4.6
%
Brokerage and insurance revenue
1,542
1,589
(47)
(3.0)
%
Service charges on deposit accounts
4,333
4,336
(3)
(0.1)
%
Interchange revenue from debit card transactions
3,391
3,205
186
5.8
%
Net gains from sales of loans
925
786
139
17.7
%
Loan servicing fees, net
418
434
(16)
(3.7)
%
Increase in cash surrender value of life insurance
1,400
1,372
28
2.0
%
Other noninterest income
4,320
4,083
237
5.8
%
Total noninterest income
$
22,454
$
21,662
$
792
3.7
%
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NONINTEREST EXPENSE
TABLE III - COMPARISON OF NONINTEREST EXPENSE
(Dollars in Thousands)
Three Months Ended
September 30,
$
%
2025
2024
Change
Change
Salaries and employee benefits
$
11,293
$
10,875
$
418
3.8
%
Net occupancy and equipment expense
1,336
1,377
(41)
(3.0)
%
Data processing and telecommunications expense
1,939
1,882
57
3.0
%
Automated teller machine and interchange expense
529
510
19
3.7
%
Pennsylvania shares tax
469
433
36
8.3
%
Professional fees
445
555
(110)
(19.8)
%
Other noninterest expense
2,496
2,637
(141)
(5.3)
%
Total noninterest expense, excluding merger-related expenses
18,507
18,269
238
1.3
%
Merger-related expenses
882
0
882
0.0
%
Total noninterest expense
$
19,389
$
18,269
$
1,120
6.1
%
(Dollars in Thousands)
Nine Months Ended
September 30,
$
%
2025
2024
Change
Change
Salaries and employee benefits
34,119
$
33,460
$
659
2.0
%
Net occupancy and equipment expense
4,198
4,160
38
0.9
%
Data processing and telecommunications expense
5,991
5,877
114
1.9
%
Automated teller machine and interchange expense
1,319
1,470
(151)
(10.3)
%
Pennsylvania shares tax
1,435
1,300
135
10.4
%
Professional fees
1,468
1,625
(157)
(9.7)
%
Other noninterest expense
8,251
7,936
315
4.0
%
Total noninterest expense, excluding merger-related expenses
56,781
55,828
953
1.7
%
Merger-related expenses
1,049
0
1,049
0.0
%
Total noninterest expense
$
57,830
$
55,828
$
2,002
3.6
%
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.
CRITICAL ACCOUNTING POLICIES
The presentation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect many of the reported amounts and disclosures. Actual results could differ from these estimates.
Allowance for Credit Losses on Loans – A material estimate that is particularly susceptible to significant change is the determination of the allowance for credit losses (ACL) on loans. The Corporation maintains an ACL on loans which represents management’s estimate of expected net charge-offs over the life of the loans. The ACL includes two primary components: (i) an allowance established on loans which share similar risk characteristics collectively evaluated for credit losses (collective basis), and (ii) an allowance established on loans which do not share similar risk characteristics with any loan segment and which are individually evaluated for credit losses (individual basis). Management considers the determination of the ACL on loans to be critical because it requires significant judgment regarding estimates of expected credit losses based on the Corporation’s historical loss experience, current conditions and economic forecasts. Management’s evaluation is based upon a continuous review of the Corporation’s loans, with consideration given to evaluations resulting from examinations performed by regulatory authorities. 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.
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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. Because current economic conditions and forecasts can change and future events are inherently difficult to predict, the anticipated amount of estimated credit losses on loans, and therefore the appropriateness of the ACL, could change significantly.
NET INTEREST INCOME
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 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. Management believes presentation of net interest income on a fully taxable-equivalent basis, which is a non-GAAP financial measure, provides investors with meaningful information for purposes of comparing returns on tax-exempt securities and loans with returns on taxable securities and loans. Accordingly, the amount of net interest income on a fully taxable-equivalent basis reflected in these tables exceed the net interest income amounts presented in the consolidated financial statements. A reconciliation of net interest income on a fully taxable-equivalent basis to the closest GAAP financial measure is included with Table IV. The discussion that follows is based on amounts in the related tables.
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 3.62% 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 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.
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 $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 $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.
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INTEREST EXPENSE AND INTEREST-BEARING LIABILITIES
Interest expense decreased $1,544,000 to $11,387,000 in 2025 from $12,931,000 in 2024.
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 $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 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. The average balance of long-term borrowings was $138,749,000 in 2025, down from an average balance of $181,075,000 in 2024. The average rate on long-term borrowings was 4.51% in 2025 compared to 4.36% in 2024. Borrowings are classified as long-term within the Tables based on their term at origination or assumption in business combinations.
More information regarding borrowed funds is provided in Note 8 to the unaudited consolidated financial statements.
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 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.
INTEREST INCOME AND EARNING ASSETS
Interest income totaled $98,462,000 in 2025, an increase of $3,111,000 from 2024.
Interest and fees from loans receivable increased $2,396,000 in 2025 as compared to 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. The average balance of interest-bearing due from banks was $78,883,000 in 2025, up from $65,449,000 in 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 4.34% in 2025, down from 5.15% in 2024.
Interest income from available-for-sale debt securities, on a fully taxable-equivalent basis, totaled $8,976,000 in 2025, up $680,000 from 2024, as the average yield on available-for-sale debt securities was 2.68% in 2025, up from 2.43% in 2024. 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 .
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CITIZENS & NORTHERN CORPORATION – FORM 10-Q
INTEREST EXPENSE AND INTEREST-BEARING LIABILITIES
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 $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. Interest expense on short-term borrowings of $1,000 in 2025 was down from $1,141,000 in 2024 as the average balance of short-term borrowings decreased to $1,010,000 in 2025 from $29,086,000 in 2024. 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) 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.
More information regarding borrowed funds is provided in Note 8 to the unaudited consolidated financial statements.
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CITIZENS & NORTHERN CORPORATION – FORM 10-Q
TABLE IV - ANALYSIS OF INTEREST INCOME AND EXPENSE
Three Months Ended
Nine Months Ended
September 30,
Increase/
September 30,
Increase/
(In Thousands)
2025
2024
(Decrease)
2025
2024
(Decrease)
INTEREST INCOME
Interest-bearing due from banks
$
982
$
1,622
$
(640)
$
2,558
$
2,521
$
37
Available-for-sale debt securities:
Taxable
2,390
2,136
254
7,021
6,409
612
Tax-exempt
649
638
11
1,955
1,887
68
Total available-for-sale debt securities
3,039
2,774
265
8,976
8,296
680
Loans receivable:
Taxable
29,085
28,099
986
84,639
82,292
2,347
Tax-exempt
727
749
(22)
2,198
2,149
49
Total loans receivable
29,812
28,848
964
86,837
84,441
2,396
Other earning assets
35
48
(13)
91
93
(2)
Total Interest Income
33,868
33,292
576
98,462
95,351
3,111
INTEREST EXPENSE
Interest-bearing deposits:
Interest checking
2,770
3,240
(470)
8,205
8,882
(677)
Money market
2,034
2,159
(125)
5,963
6,256
(293)
Savings
50
50
0
148
157
(9)
Time deposits
4,602
4,963
(361)
14,016
13,322
694
Total interest-bearing deposits
9,456
10,412
(956)
28,332
28,617
(285)
Borrowed funds:
Short-term
0
184
(184)
1
1,141
(1,140)
Long-term - FHLB advances
1,577
1,983
(406)
5,040
5,294
(254)
Senior notes, net
121
120
1
362
360
2
Subordinated debt, net
233
232
1
698
695
3
Total borrowed funds
1,931
2,519
(588)
6,101
7,490
(1,389)
Total Interest Expense
11,387
12,931
(1,544)
34,433
36,107
(1,674)
Net Interest Income
$
22,481
$
20,361
$
2,120
$
64,029
$
59,244
$
4,785
Note: Interest income from tax-exempt securities and loans has been adjusted to a fully taxable-equivalent basis (a non-GAAP measure), using the Corporation’s marginal federal income tax rate of 21%. The following table reconciles net interest income under U.S. GAAP as compared to net interest income as adjusted to a fully taxable-equivalent basis.
(In Thousands)
Three Months Ended
Nine Months Ended
September 30,
Increase/
September 30,
Increase/
2025
2024
(Decrease)
2025
2024
(Decrease)
Net Interest Income Under U.S. GAAP
$
22,263
$
20,156
$
2,107
$
63,380
$
58,642
$
4,738
Add: fully taxable-equivalent interest income adjustment from tax-exempt securities
81
66
15
235
202
33
Add: fully taxable-equivalent interest income adjustment from tax-exempt loans
137
139
(2)
414
400
14
Net Interest Income as adjusted to a fully taxable-equivalent basis - Non-GAAP
$
22,481
$
20,361
$
2,120
$
64,029
$
59,244
$
4,785
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CITIZENS & NORTHERN CORPORATION – FORM 10-Q
TABLE V - Analysis of Average Daily Balances and Rates
(Dollars in Thousands)
Three Months
Three Months
Nine Months
Nine Months
Ended
Rate of
Ended
Rate of
Ended
Rate of
Ended
Rate of
9/30/2025
Return/
9/30/2024
Return/
9/30/2025
Return/
9/30/2024
Return/
Average
Cost of
Average
Cost of
Average
Cost of
Average
Cost of
Balance
Funds %
Balance
Funds %
Balance
Funds %
Balance
Funds %
EARNING ASSETS
Interest-bearing due from banks
$
88,657
4.39
%
$
119,885
5.38
%
$
78,883
4.34
%
$
65,449
5.15
%
Available-for-sale debt securities, at amortized cost:
Taxable
337,101
2.81
%
336,246
2.53
%
338,390
2.77
%
342,677
2.50
%
Tax-exempt
107,978
2.38
%
113,514
2.24
%
109,642
2.38
%
113,267
2.23
%
Total available-for-sale debt securities
445,079
2.71
%
449,760
2.45
%
448,032
2.68
%
455,944
2.43
%
Loans receivable:
Taxable
1,841,875
6.26
%
1,797,224
6.22
%
1,821,817
6.21
%
1,787,982
6.15
%
Tax-exempt
84,356
3.42
%
91,246
3.27
%
87,309
3.37
%
89,094
3.22
%
Total loans receivable
1,926,231
6.14
%
1,888,470
6.08
%
1,909,126
6.08
%
1,877,076
6.01
%
Other earning assets
2,809
4.94
%
3,076
6.21
%
2,477
4.91
%
2,215
5.61
%
Total Earning Assets
2,462,776
5.46
%
2,461,191
5.38
%
2,438,518
5.40
%
2,400,684
5.31
%
Cash
22,592
24,987
21,890
22,619
Unrealized loss on securities
(39,294)
(47,806)
(42,068)
(51,792)
Allowance for credit losses
(22,040)
(20,643)
(20,989)
(20,141)
Bank-owned life insurance
52,321
50,470
51,853
51,647
Bank premises and equipment
21,263
21,793
21,310
21,858
Intangible assets
54,320
54,730
54,424
54,827
Other assets
73,209
73,320
72,730
81,988
Total Assets
$
2,625,147
$
2,618,042
$
2,597,668
$
2,561,690
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
Interest checking
$
545,004
2.02
%
$
543,288
2.37
%
$
542,281
2.02
%
$
525,179
2.26
%
Money market
376,761
2.14
%
356,487
2.41
%
365,460
2.18
%
353,142
2.37
%
Savings
194,592
0.10
%
198,312
0.10
%
196,367
0.10
%
206,344
0.10
%
Time deposits
499,049
3.66
%
485,708
4.07
%
493,190
3.80
%
457,662
3.89
%
Total interest-bearing deposits
1,615,406
2.32
%
1,583,795
2.62
%
1,597,298
2.37
%
1,542,327
2.48
%
Borrowed funds:
Short-term
658
0.00
%
15,038
4.87
%
1,010
0.13
%
29,086
5.24
%
Long-term - FHLB advances
138,749
4.51
%
181,075
4.36
%
150,195
4.49
%
166,454
4.25
%
Senior notes, net
14,944
3.21
%
14,875
3.21
%
14,926
3.24
%
14,857
3.24
%
Subordinated debt, net
24,905
3.71
%
24,787
3.72
%
24,875
3.75
%
24,759
3.75
%
Total borrowed funds
179,256
4.27
%
235,775
4.25
%
191,006
4.27
%
235,156
4.25
%
Total Interest-bearing Liabilities
1,794,662
2.52
%
1,819,570
2.83
%
1,788,304
2.57
%
1,777,483
2.71
%
Demand deposits
510,802
500,859
495,317
492,008
Other liabilities
31,823
29,226
31,119
29,527
Total Liabilities
2,337,287
2,349,655
2,314,740
2,299,018
Stockholders' equity, excluding accumulated other comprehensive loss
318,175
305,808
315,395
303,209
Accumulated other comprehensive loss
(30,315)
(37,421)
(32,467)
(40,537)
Total Stockholders' Equity
287,860
268,387
282,928
262,672
Total Liabilities and Stockholders' Equity
$
2,625,147
$
2,618,042
$
2,597,668
$
2,561,690
Interest Rate Spread
2.94
%
2.55
%
2.83
%
2.60
%
Net Interest Income/Earning Assets
3.62
%
3.29
%
3.51
%
3.30
%
Total Deposits (Interest-bearing and Demand)
$
2,126,208
$
2,084,654
$
2,092,615
$
2,034,335
Brokered Deposits
$
4,936
4.18
%
$
58,782
5.28
%
$
13,287
4.63
%
$
70,428
5.24
%
(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%.
(2) Nonaccrual loans have been included with loans for the purpose of analyzing net interest earnings.
(3) Rates of return on earning assets and costs of funds are presented on an annualized basis.
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CITIZENS & NORTHERN CORPORATION – FORM 10-Q
TABLE VI - ANALYSIS OF VOLUME AND RATE CHANGES
(In Thousands)
Three Months Ended 9/30/2025 vs. 9/30/2024
.
Nine Months Ended 9/30/2025 vs. 9/30/2024
Change in
Change in
Total
Change in
Change in
Total
Volume
Rate
Change
Volume
Rate
Change
EARNING ASSETS
Interest-bearing due from banks
$
(304)
$
(336)
$
(640)
$
469
$
(432)
$
37
Available-for-sale debt securities:
Taxable
6
248
254
(82)
694
612
Tax-exempt
(32)
43
11
(62)
130
68
Total available-for-sale debt securities
(26)
291
265
(144)
824
680
Loans receivable:
Taxable
739
247
986
1,517
830
2,347
Tax-exempt
(56)
34
(22)
(44)
93
49
Total loans receivable
683
281
964
1,473
923
2,396
Other earning assets
(2)
(11)
(13)
11
(13)
(2)
Total Interest Income
351
225
576
1,809
1,302
3,111
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
Interest checking
23
(493)
(470)
280
(957)
(677)
Money market
120
(245)
(125)
211
(504)
(293)
Savings
0
0
0
(9)
0
(9)
Time deposits
130
(491)
(361)
1,005
(311)
694
Total interest-bearing deposits
273
(1,229)
(956)
1,487
(1,772)
(285)
Borrowed funds:
Short-term
(89)
(95)
(184)
(567)
(573)
(1,140)
Long-term - FHLB advances
(472)
66
(406)
(538)
284
(254)
Senior notes, net
0
1
1
1
1
2
Subordinated debt, net
2
(1)
1
3
0
3
Total borrowed funds
(559)
(29)
(588)
(1,101)
(288)
(1,389)
Total Interest Expense
(286)
(1,258)
(1,544)
386
(2,060)
(1,674)
Net Interest Income
$
637
$
1,483
$
2,120
$
1,423
$
3,362
$
4,785
(1) Changes in income 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%.
(2) The change in interest due to both volume and rates has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amount of the change in each.
INCOME TAXES
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 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.
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CITIZENS & NORTHERN CORPORATION – FORM 10-Q
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 September 30, 2025 and December 31, 2024 represents the following temporary difference components:
September 30,
December 31,
(In Thousands)
2025
2024
Deferred tax assets:
Unrealized holding losses on securities
$
7,434
$
10,459
Allowance for credit losses on loans
5,121
4,400
Acquisition accounting adjustment on loans
247
333
Deferred compensation
1,556
1,465
Operating leases liability
815
692
Deferred loan origination fees
696
697
Net operating loss carryforward
347
423
Accrued incentive compensation
564
678
Other deferred tax assets
1,598
1,520
Total deferred tax assets
18,378
20,667
Deferred tax liabilities:
Right-of-use assets from operating leases
815
692
Core deposit intangibles
385
456
Bank premises and equipment
279
290
Defined benefit plans - ASC 835
91
90
Other deferred tax liabilities
49
41
Total deferred tax liabilities
1,619
1,569
Deferred tax asset, net
$
16,759
$
19,098
The Corporation regularly reviews deferred tax assets for recoverability based on history of earnings, expectations for future earnings and expected timing of reversals of temporary differences. Realization of deferred tax assets ultimately depends on the existence of sufficient taxable income.
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 .
SECURITIES
Management continually evaluates several objectives in determining the size, securities mix and other characteristics of the available-for-sale debt securities (investment) portfolio. Key objectives include supporting liquidity needs and maximizing return on earning assets within reasonable risk parameters.
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CITIZENS & NORTHERN CORPORATION – FORM 10-Q
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)
September 30, 2025
December 31, 2024
December 31, 2023
December 31, 2022
Amortized
Fair
Amortized
Fair
Amortized
Fair
Amortized
Fair
Cost
Value
Cost
Value
Cost
Value
Cost
Value
Obligations of the U.S. Treasury
$
8,052
7,429
$
8,067
7,118
$
12,325
11,290
$
35,166
$
31,836
Obligations of U.S. Government agencies
9,436
8,670
10,154
9,025
11,119
9,946
25,938
23,430
Bank holding company debt securities
28,963
26,291
28,958
25,246
28,952
23,500
28,945
25,386
Obligations of states and political subdivisions:
Tax-exempt
105,922
97,528
111,995
101,302
113,464
104,199
146,149
132,623
Taxable
50,373
43,862
51,147
42,506
58,720
50,111
68,488
56,812
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities
107,771
101,935
104,378
94,414
105,549
95,405
112,782
99,941
Residential collateralized mortgage obligations
54,678
52,420
53,389
49,894
50,212
46,462
44,868
40,296
Commercial mortgage-backed securities
72,433
65,697
73,470
64,501
76,412
66,682
91,388
79,686
Private label commercial mortgage-backed securities
3,471
3,471
8,365
8,374
8,215
8,160
8,070
8,023
Asset-backed securities,
Collateralized loan obligations
8,000
8,010
0
0
0
0
0
0
Total Available-for-Sale Debt Securities
$
449,099
$
415,313
$
449,923
$
402,380
$
464,968
$
415,755
$
561,794
$
498,033
Aggregate Unrealized Loss
$
(33,786)
$
(47,543)
$
(49,213)
$
(63,761)
Aggregate Unrealized Loss as a % of Amortized Cost
(7.5)
%
(10.6)
%
(10.6)
%
(11.3)
%
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 $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 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:
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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. There were seven securities with face amounts ranging from $3 million to $5 million, including one senior security and six subordinated securities. All of the issuers have publicly traded common stock . 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 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; AA – 73%; A – 8%.
● 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 September 30, 2025.
FINANCIAL CONDITION
This section includes information regarding the Corporation’s lending activities or other significant changes or exposures that are not otherwise addressed in Management’s Discussion and Analysis. Significant changes in the average balances of the Corporation’s earning assets and interest-bearing liabilities are described in the Net Interest Income section of Management’s Discussion and Analysis. 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 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 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 $2,874,000 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. Participation loans represent portions of larger commercial transactions for which other institutions are the “lead banks”. Although not the lead bank, the Corporation conducts detailed underwriting and monitoring of participation loan opportunities. 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.
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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. commitment cannot be canceled at any time). 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 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. Residential mortgages originated and sold through the MPF Xtra program consist primarily of conforming, prime loans sold to the Federal National Mortgage Association (Fannie Mae), a quasi-government entity. The Corporation also originates and sells residential mortgage loans to the secondary market through the MPF Original program, administered by the Federal Home Loan Banks of Pittsburgh and Chicago. Residential mortgages originated and sold through the MPF Original program consist primarily of conforming, prime loans sold to the Federal Home Loan Bank of Pittsburgh.
For loan sales originated under the MPF programs, the Corporation provides customary representations and warranties to investors that specify, among other things, that the loans have been underwritten to the standards established by the investor. The Corporation may be required to repurchase a loan and reimburse a portion of fees received or reimburse the investor for a credit loss incurred on a loan, if it is determined that the representations and warranties have not been met. Such repurchases or reimbursements generally result from an underwriting or documentation deficiency. 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 September 30, 2025 and December 31, 2024.
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CITIZENS & NORTHERN CORPORATION – FORM 10-Q
TABLE VII - SUMMARY OF LOANS BY TYPE
Summary of Loans by Type
(In Thousands)
September 30,
December 31,
2025
2024
2023
2022
2021
2020
Commercial real estate - non-owner occupied:
Non-owner occupied
$
497,295
$
471,171
$
499,104
$
454,386
$
358,352
$
328,662
Multi-family (5 or more) residential
108,376
105,174
64,076
55,406
49,054
54,893
1-4 Family - commercial purpose
159,695
163,220
174,162
165,805
175,027
198,918
Total commercial real estate - non-owner occupied
765,366
739,565
737,342
675,597
582,433
582,473
Commercial real estate - owner occupied
260,365
261,071
237,246
205,910
196,083
191,075
All other commercial loans:
Commercial and industrial
112,667
96,665
78,832
95,368
118,488
222,923
Commercial lines of credit
133,726
120,078
117,236
141,444
106,338
105,802
Political subdivisions
82,728
94,009
79,031
86,663
75,401
46,295
Commercial construction and land
100,015
92,741
104,123
60,892
59,505
41,000
Other commercial loans
20,039
19,784
20,471
25,710
26,498
29,310
Total all other commercial loans
449,175
423,277
399,693
410,077
386,230
445,330
Residential mortgage loans:
1-4 Family - residential
369,452
383,797
389,262
363,005
327,593
356,532
1-4 Family residential construction
27,358
24,212
24,452
30,577
23,151
18,736
Total residential mortgage
396,810
408,009
413,714
393,582
350,744
375,268
Consumer loans:
Consumer lines of credit (including HELOCs)
58,888
47,196
41,503
36,650
33,522
34,566
All other consumer
14,503
16,730
18,641
18,224
15,837
15,497
Total consumer
73,391
63,926
60,144
54,874
49,359
50,063
Total
1,945,107
1,895,848
1,848,139
1,740,040
1,564,849
1,644,209
Less: allowance for credit losses on loans
(23,474)
(20,035)
(19,208)
(16,615)
(13,537)
(11,385)
Loans, net
$
1,921,633
$
1,875,813
$
1,828,931
$
1,723,425
$
1,551,312
$
1,632,824
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 September 30, 2025 is as follows:
NON-OWNER OCCUPIED COMMERCIAL REAL ESTATE
(In Thousands)
September 30,
% of Non-owner
% of
2025
Occupied CRE
Total Loans
Office
$
117,046
23.5
%
6.0
%
Industrial
89,953
18.1
%
4.6
%
Retail
88,328
17.8
%
4.5
%
Hotels
72,776
14.6
%
3.7
%
Mixed Use
62,872
12.6
%
3.2
%
Other
66,320
13.3
%
3.4
%
Total Non-owner Occupied CRE Loans
$
497,295
Total Gross Loans
$
1,945,107
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PROVISION AND ALLOWANCE FOR CREDIT LOSSES
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)
3 Months
3 Months
9 Months
9 Months
Ended
Ended
Ended
Ended
September 30,
September 30,
September 30,
September 30,
2025
2024
2025
2024
Provision for credit losses:
Loans receivable
$
1,869
$
1,297
$
4,172
$
2,823
Off-balance sheet exposures
294
(90)
581
(97)
Total provision for credit losses
$
2,163
$
1,207
$
4,753
$
2,726
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 $21,437,000 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 $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. 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,
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2024. 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 $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.
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 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.
Tables VIII through X present historical data related to loans and the allowance for credit losses.
TABLE VIII - ANALYSIS OF THE ALLOWANCE FOR CREDIT LOSSES ON LOANS
(Dollars In Thousands)
Nine Months Ended September 30,
Years Ended December 31,
2025
2024
2024
2023
2022
2021
2020
Balance, beginning of year
$
20,035
$
19,208
$
19,208
$
16,615
$
13,537
$
11,385
$
9,836
Adoption of ASU 2016-13 (CECL)
0
0
0
2,104
0
0
0
Charge-offs
(821)
(1,684)
(1,716)
(356)
(4,245)
(1,575)
(2,465)
Recoveries
88
95
113
92
68
66
101
Net charge-offs
(733)
(1,589)
(1,603)
(264)
(4,177)
(1,509)
(2,364)
Provision for credit losses on loans
4,172
2,823
2,430
753
7,255
3,661
3,913
Balance, end of period
$
23,474
$
20,442
$
20,035
$
19,208
$
16,615
$
13,537
$
11,385
Net charge-offs as a % of average loans (annualized)
0.05
%
0.11
%
0.09
%
0.01
%
0.26
%
0.09
%
0.16
%
TABLE IX - COMPONENTS OF THE ALLOWANCE FOR CREDIT LOSSES ON LOANS
(In Thousands)
September 30,
December 31,
December 31,
January 1,
2025
2024
2023
2023
Loans individually evaluated
$
51
$
122
$
743
$
751
Loans collectively evaluated:
Commercial real estate - nonowner occupied
13,772
11,964
10,379
9,641
Commercial real estate - owner occupied
3,231
2,722
2,111
1,765
All other commercial loans
4,376
3,361
3,811
3,914
Residential mortgage
1,709
1,356
1,764
2,407
Consumer
335
510
400
241
Total Allowance
$
23,474
$
20,035
$
19,208
$
18,719
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CITIZENS & NORTHERN CORPORATION – FORM 10-Q
PRIOR TO CECL ADOPTION
(In Thousands)
As of December 31,
2022
2021
2020
ASC 310 - Impaired loans - individually evaluated
$
453
$
740
$
925
ASC 450 - Collectively evaluated:
Commercial
10,845
7,553
5,545
Residential mortgage
4,073
4,338
4,091
Consumer
244
235
239
Unallocated
1,000
671
585
Total Allowance
$
16,615
$
13,537
$
11,385
TABLE X - PAST DUE LOANS AND NONPERFORMING ASSETS
(Dollars In Thousands)
September 30,
As of December 31,
2025
2024
2023
2022
2021
2020
Collateral dependent loans with a valuation allowance
$
263
$
258
$
7,786
$
3,460
$
6,540
$
8,082
Collateral dependent loans without a valuation allowance
21,174
29,867
3,478
14,871
2,636
2,895
Purchased credit impaired loans
0
0
0
1,027
6,558
6,841
Total collateral dependent loans
$
21,437
$
30,125
$
11,264
$
19,358
$
15,734
$
17,818
Total loans past due 30-89 days and still accruing
$
2,509
$
5,658
$
9,275
$
7,079
$
5,106
$
5,918
Nonperforming assets:
Purchased credit impaired loans
$
0
$
0
$
0
$
1,027
$
6,558
$
6,841
Other nonaccrual loans
25,762
23,842
15,177
22,058
12,441
14,575
Total nonaccrual loans
25,762
23,842
15,177
23,085
18,999
21,416
Total loans past due 90 days or more and still accruing
1,025
119
3,190
2,237
2,219
1,975
Total nonperforming loans
26,787
23,961
18,367
25,322
21,218
23,391
Foreclosed assets held for sale (real estate)
402
181
478
275
684
1,338
Total nonperforming assets
$
27,189
$
24,142
$
18,845
$
25,597
$
21,902
$
24,729
Total nonperforming loans as a % of loans
1.38
%
1.26
%
0.99
%
1.46
%
1.36
%
1.42
%
Total nonperforming assets as a % of assets
1.02
%
0.92
%
0.75
%
1.04
%
0.94
%
1.10
%
Nonaccrual loans as a % of loans
1.32
%
1.26
%
0.82
%
1.33
%
1.21
%
1.30
%
Allowance for credit losses as a % of nonaccrual loans
91.12
%
84.03
%
79.01
%
71.97
%
71.25
%
53.16
%
Allowance for credit losses as a % of total loans
1.21
%
1.06
%
1.04
%
0.95
%
0.87
%
0.69
%
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CITIZENS & NORTHERN CORPORATION – FORM 10-Q
LIQUIDITY
Liquidity is the ability to quickly raise cash at a reasonable cost. An adequate liquidity position permits the Corporation to pay creditors, compensate for unforeseen deposit fluctuations and fund unexpected loan demand.
The Corporation maintains borrowing facilities with the Federal Home Loan Bank of Pittsburgh, secured by various mortgage loans. In addition, the Corporation maintains overnight borrowing facilities with several correspondent banks that provide a source of day-to-day liquidity.
The Corporation has a line of credit with the Federal Reserve Bank of Philadelphia’s Discount Window. 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 $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:
Outstanding
Available
Total Credit
(In Thousands)
September 30,
December 31,
September 30,
December 31,
September 30,
December 31,
2025
2024
2025
2024
2025
2024
Federal Home Loan Bank of Pittsburgh
$
155,881
$
188,692
$
802,213
$
749,999
$
973,060
$
938,691
Federal Reserve Bank Discount Window
0
0
25,228
18,093
25,228
18,093
Other correspondent banks
0
0
75,000
75,000
75,000
75,000
Total credit facilities
$
155,881
$
188,692
$
902,441
$
843,092
$
1,073,288
$
1,031,784
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.
Additionally, the Corporation uses “RepoSweep” arrangements to borrow funds from commercial banking customers on an overnight basis. 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 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.
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,
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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,
December 31,
2025
2024
Total Deposits - C&N Bank
$
2,184,401
$
2,111,547
Estimated Total Uninsured Deposits
$
696,542
$
632,804
Portion of Uninsured Deposits that are
Collateralized
178,525
161,958
Uninsured and Uncollateralized Deposits
$
518,017
$
470,846
Uninsured and Uncollateralized Deposits as
a % of Total Deposits
23.7
%
22.3
%
Available Funding from Credit Facilities
$
902,441
$
843,092
Fair Value of Available-for-sale Debt
Securities in Excess of Pledging Obligations
244,348
236,945
Highly Liquid Available Funding
$
1,146,789
$
1,080,037
Highly Liquid Available Funding as a % of
Uninsured Deposits
164.6
%
170.7
%
Highly Liquid Available Funding as a % of
Uninsured and Uncollateralized Deposits
221.4
%
229.4
%
Based on the ample sources of highly liquid funds as described above, management believes the Corporation is well-positioned to meet its short-term and long-term funding obligations.
STOCKHOLDERS’ EQUITY AND CAPITAL ADEQUACY
In August 2018, the Federal Reserve Board issued an interim final rule that expanded applicability of the Board’s small bank holding company capital adequacy policy statement. The interim final rule raised the policy statement’s asset threshold from $1 billion to $3 billion in total consolidated assets for a bank holding company or savings and loan holding company that: (1) is not engaged in significant nonbanking activities; (2) does not conduct significant off-balance sheet activities; and (3) does not have a material amount of debt or equity securities, other than trust-preferred securities, outstanding. 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 September 30, 2025; 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.
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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 September 30, 2025 and December 31, 2024 exceed the Corporation’s Board policy threshold levels.
(Dollars in Thousands)
Minimum To Be
Minimum To Maintain
Well
Minimum
Capital Conservation
Capitalized Under
Minimum To Meet
Capital
Buffer at Reporting
Prompt Corrective
the Corporation's
Actual
Requirement
Date
Action Provisions
Policy Thresholds
Amount
Ratio
Amount
Ratio
Amount
Ratio
Amount
Ratio
Amount
Ratio
September 30, 2025:
Total capital to risk-weighted assets:
Consolidated
$
315,170
16.01
%
N/A
N/A
N/A
N/A
N/A
N/A
$
216,568
≥11
%
C&N Bank
299,291
15.23
%
157,241
≥8
%
206,379
≥10.5
%
196,551
≥10
%
216,206
≥11
%
Tier 1 capital to risk-weighted assets:
Consolidated
265,741
13.50
%
N/A
N/A
N/A
N/A
N/A
N/A
177,192
≥9
%
C&N Bank
274,781
13.98
%
117,931
≥6
%
167,069
≥8.5
%
157,241
≥8
%
176,896
≥9
%
Common equity tier 1 capital to risk-weighted assets:
Consolidated
265,741
13.50
%
N/A
N/A
N/A
N/A
N/A
N/A
147,660
≥7.5
%
C&N Bank
274,781
13.98
%
88,448
≥4.5
%
137,586
≥7.0
%
127,758
≥6.5
%
147,413
≥7.5
%
Tier 1 capital to average assets:
Consolidated
265,741
10.21
%
N/A
N/A
N/A
N/A
N/A
N/A
208,229
≥8
%
C&N Bank
274,781
10.61
%
103,559
≥4
%
N/A
N/A
129,449
≥5
%
207,119
≥8
%
December 31, 2024:
Total capital to risk-weighted assets:
Consolidated
$
302,783
15.95
%
N/A
N/A
N/A
N/A
N/A
N/A
$
208,779
≥11
%
C&N Bank
287,721
15.19
%
151,567
≥8
%
198,832
≥10.5
%
189,459
≥10
%
208,405
≥11
%
Tier 1 capital to risk-weighted assets:
Consolidated
257,462
13.56
%
N/A
N/A
N/A
N/A
N/A
N/A
170,819
≥9
%
C&N Bank
267,231
14.10
%
113,675
≥6
%
161,040
≥8.5
%
151,567
≥8
%
170,513
≥9
%
Common equity tier 1 capital to risk-weighted assets:
Consolidated
257,462
13.56
%
N/A
N/A
N/A
N/A
N/A
N/A
142,349
≥7.5
%
C&N Bank
267,231
14.10
%
85,256
≥4.5
%
132,621
≥7.0
%
123,148
≥6.5
%
142,094
≥7.5
%
Tier 1 capital to average assets:
Consolidated
257,462
9.80
%
N/A
N/A
N/A
N/A
N/A
N/A
210,160
≥8
%
C&N Bank
267,231
10.23
%
104,514
≥4
%
N/A
N/A
130,642
≥5
%
209,027
≥8
%
To avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, a banking organization subject to the rule must hold a capital conservation buffer composed of common equity tier 1 capital above its minimum risk-based capital requirements. The buffer is measured relative to risk-weighted assets. 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
4.5
%
Minimum common equity tier 1 capital ratio plus capital conservation buffer
7.0
%
Minimum tier 1 capital ratio
6.0
%
Minimum tier 1 capital ratio plus capital conservation buffer
8.5
%
Minimum total capital ratio
8.0
%
Minimum total capital ratio plus capital conservation buffer
10.5
%
A banking organization with a buffer greater than 2.5% over the minimum risk-based capital ratios would not be subject to additional limits on dividend payments or discretionary bonus payments; however, a banking organization with a buffer less than 2.5% would be subject to increasingly stringent limitations as the buffer approaches zero. Also, a banking organization is prohibited from making dividend payments or discretionary bonus payments if its eligible retained income is negative in that quarter and its capital conservation buffer ratio was less than 2.5% as of the beginning of that quarter. Eligible net income is defined as net income for the four calendar
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CITIZENS & NORTHERN CORPORATION – FORM 10-Q
quarters preceding the current calendar quarter, net of any distributions and associated tax effects not already reflected in net income. A summary of payout restrictions based on the capital conservation buffer is as follows:
Capital Conservation Buffer
Maximum Payout
(as a % of risk-weighted assets)
(as a % of eligible retained income)
Greater than 2.5%
No payout limitation applies
≤2.5% and >1.875%
60
%
≤1.875% and >1.25%
40
%
≤1.25% and >0.625%
20
%
≤0.625%
0
%
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 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 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. In addition, the Corporation and C&N Bank are subject to restrictions on the amount of dividends that may be paid without approval of banking regulatory authorities. Further, although the Corporation is not currently subject to the specific consolidated capital requirements described herein, the Corporation’s ability to pay dividends, repurchase stock or engage in other activities may be limited by the Federal Reserve if the Corporation fails to hold capital commensurate with its overall risk profile.
The Corporation’s total stockholders’ equity is affected by fluctuations in the fair values of available-for-sale debt securities. The difference between amortized cost and fair value of available-for-sale debt securities, net of deferred income tax, is included in accumulated other comprehensive (loss) income within stockholders’ equity. 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 $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 September 30, 2025.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.