What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-08-06 compared with 2021-05-07 · 341 added, 167 removed, 930 unchanged (35% of the section changed)

19 unchanged sentences

Short-term borrowings

Long-term borrowings

Subordinated debt

Long-term borrowings - FHLB advances

Senior notes, net

Subordinated debt, net

Accrued interest and other liabilities

8 unchanged sentences

authorized 20,000,000 shares;

issued 16,013,279 and outstanding 15,999,814 at March 31, 2021;

issued 16,030,172 and outstanding 15,957,512 at June 30, 2021;

issued 15,982,815 and outstanding 15,911,984 at December 31, 2020

2 unchanged sentences

Treasury stock, at cost;

13,465 shares at March 31, 2021 and 70,831

72,660 shares at June 30, 2021 and 70,831

shares at December 31, 2020

7 unchanged sentences

Three Months Ended

Six Months Ended

INTEREST INCOME

6 unchanged sentences

Interest on short-term borrowings

Interest on long-term borrowings

Interest on subordinated debt

Interest on long-term borrowings - FHLB advances

Interest on senior notes, net

Interest on subordinated debt, net

Total interest expense

Net interest income

Provision for loan losses

Net interest income after provision for loan losses

Provision (credit) for loan losses

Net interest income after provision (credit) for loan losses

NONINTEREST INCOME

7 unchanged sentences

Other noninterest income

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

Total noninterest income

18 unchanged sentences

Three Months Ended

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

Six Months Ended

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

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

Reclassification adjustment for (gains) realized in income

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

Unfunded pension and postretirement obligations:

2 unchanged sentences

Other comprehensive (loss) income on unfunded retirement obligations

Other comprehensive (loss) income before income tax

Income tax benefit (expense) related to other comprehensive (loss) income

Net other comprehensive (loss) income

Other comprehensive income (loss) before income tax

Income tax related to other comprehensive income (loss)

Net other comprehensive income (loss)

Comprehensive income

3 unchanged sentences

(In Thousands) (Unaudited)

Three Months Ended

Six Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

1 unchanged sentence

Provision for loan losses

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

Net amortization of securities

8 unchanged sentences

Proceeds from sales of loans held for sale

Increase in accrued interest receivable and other assets

Increase (decrease) in accrued interest payable and other liabilities

Decrease (increase) in accrued interest receivable and other assets

(Decrease) increase in accrued interest payable and other liabilities

Net Cash Provided by Operating Activities

1 unchanged sentence

Purchase of certificates of deposit

Proceeds from maturities of certificates of deposit

Proceeds from sales of available-for-sale debt securities

3 unchanged sentences

Purchase of Federal Home Loan Bank of Pittsburgh stock

Net decrease in loans

Net decrease (increase) in loans

Proceeds from bank owned life insurance

2 unchanged sentences

Proceeds from sale of foreclosed assets

Net Cash Provided by Investing Activities

Net Cash Used in Investing Activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Net increase (decrease) in deposits

Net increase in deposits

Net decrease in short-term borrowings

Proceeds from long-term borrowings

Repayments of long-term borrowings

Proceeds from long-term borrowings - FHLB advances

Repayments of long-term borrowings - FHLB advances

Proceeds from issuance of senior notes, net of issuance costs

Proceeds from issuance of subordinated debt, net of issuance costs

Redemption of subordinated debt

Sale of treasury stock

Purchase of vested restricted stock for tax withholding

Purchases of treasury stock

Common dividends paid

Net Cash Provided by (Used in) Financing Activities

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

Net Cash Provided by Financing Activities

INCREASE IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

1 unchanged sentence

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Accrued purchase of certificates of deposit

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

7 unchanged sentences

Comprehensive

Three Months Ended March 31, 2021

Three Months Ended June 30, 2021

Balance, March 31, 2021

Other comprehensive income, net

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

Shares issued for dividend reinvestment plan

Restricted stock granted

Forfeiture of restricted stock

Stock-based compensation expense

Treasury stock purchases

Balance, June 30, 2021

Three Months Ended June 30, 2020

Balance, March 31, 2020

Other comprehensive income, net

Cash dividends declared on common stock, $ .27 per share

Shares issued for dividend reinvestment plan

Forfeiture of restricted stock

Stock-based compensation expense

Balance, June 30, 2020

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Consolidated Statements of Changes in Stockholders’ Equity

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

Comprehensive

Six Months Ended June 30, 2021

Balance, December 31, 2020

2 unchanged sentences

Shares issued for dividend reinvestment plan

Share issued from treasury and redeemed related to exercise of stock options

Shares issued from treasury and redeemed related to exercise of stock options

Restricted stock granted

2 unchanged sentences

Purchase of restricted stock for tax withholding

Balance, March 31, 2021

Three Months Ended March 31, 2020

Treasury stock purchases

Balance, June 30, 2021

Six Months Ended June 30, 2020

Balance, December 31, 2019

7 unchanged sentences

Purchase of restricted stock for tax withholding

Balance, March 31, 2020

Balance, June 30, 2020

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

11 unchanged sentences

Certain 2020 information has been reclassified for consistency with the 2021 presentation.

Operating results reported for the three-month period ended March 31, 2021 might not be indicative of the results for the year ending December 31, 2021.

Operating results reported for the six-month period ended June 30, 2021 might not be indicative of the results for the year ending December 31, 2021.

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

12 unchanged sentences

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

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

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

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

15 unchanged sentences

The assets purchased and liabilities assumed in the merger were recorded at their estimated fair values at the time of closing, subject to refinement for up to one year after the closing date.

There were no adjustments to the fair value measurements of assets acquired or liabilities assumed in the first quarter 2021.

Merger-related expenses related to the planned acquisition of Covenant totaled $ 141,000 in the first quarter 2020.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

There were no adjustments to the fair value measurements of assets acquired or liabilities assumed in the six months ended June 30, 2021.

Merger-related expenses related to the acquisition of Covenant totaled $ 983,000 in the second quarter 2020 and $ 1,124,000 in the six months ended June 30, 2020.

There were no merger-related expenses in the six months ended June 30, 2021.

PER SHARE DATA

5 unchanged sentences

Diluted earnings per common share is computed using weighted-average common shares outstanding, plus weighted-average common shares available from the exercise of all dilutive stock options, less the number of shares that could be repurchased with the proceeds of stock option exercises based on the average share price of the Corporation’s common stock during the period.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

(In Thousands, Except Share and Per Share Data)

Three Months Ended

Six Months Ended

Dividends and undistributed earnings allocated to participating securities

9 unchanged sentences

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

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

There were no anti-dilutive instruments in the three-month periods ended March 31, 2021 and 2020.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

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

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

Weighted-average common shares available from anti-dilutive instruments totaled 39,012 shares in the three-month period ended June 30, 2020 and 19,506 shares in the six-month period ended June 30, 2020.

COMPREHENSIVE INCOME

2 unchanged sentences

(In Thousands)

Three Months Ended March 31, 2021

Other comprehensive loss from available-for-sale debt securities,

Three Months Ended June 30, 2021

Available-for-sale debt securities:

Unrealized holding gains on available-for-sale debt securities

Reclassification adjustment for (gains) realized in income

Other comprehensive income from available-for-sale debt securities

Unfunded pension and postretirement obligations,

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

Other comprehensive loss on unfunded retirement obligations

Total other comprehensive income

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

(In Thousands)

Three Months Ended June 30, 2020

Available-for-sale debt securities,

Unrealized holding gains on available-for-sale debt securities

Unfunded pension and postretirement obligations,

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

Total other comprehensive income

(In Thousands)

Six Months Ended June 30, 2021

Available-for-sale debt securities:

Unrealized holding losses on available-for-sale debt securities

Reclassification adjustment for (gains) realized in income

Other comprehensive loss from available-for-sale debt securities

Unfunded pension and postretirement obligations:

4 unchanged sentences

(In Thousands)

Three Months Ended March 31, 2020

Other comprehensive income from available-for-sale debt securities,

Six Months Ended June 30, 2020

Available-for-sale debt securities,

Unrealized holding gains on available-for-sale debt securities

7 unchanged sentences

Consolidated Statements of Income

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

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

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

7 unchanged sentences

on Securities

Three Months Ended March 31, 2021

Three Months Ended June 30, 2021

Balance, beginning of period

Other comprehensive loss during three months ended March 31, 2021

Other comprehensive income during three months ended June 30, 2021

Balance, end of period

Three Months Ended March 31, 2020

Three Months Ended June 30, 2020

Balance, beginning of period

Other comprehensive income during three months ended March 31, 2020

Other comprehensive income during three months ended June 30, 2020

Balance, end of period

(In Thousands)

Comprehensive

on Securities

Income (Loss)

Six Months Ended June 30, 2021

Balance, beginning of period

Other comprehensive loss during six months ended June 30, 2021

Balance, end of period

Six Months Ended June 30, 2020

Balance, beginning of period

Other comprehensive income during six months ended June 30, 2020

Balance, end of period

CASH AND DUE FROM BANKS

Cash and due from banks at March 31, 2021 and December 31, 2020 include the following:

Cash and due from banks at June 30, 2021 and December 31, 2020 include the following:

(In Thousands)

9 unchanged sentences

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

Accordingly, C&N Bank had no required reserves at March 31, 2021 and December 31, 2020.

Accordingly, C&N Bank had no required reserves at June 30, 2021 and December 31, 2020.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Amortized cost and fair value of available-for-sale debt securities at March 31, 2021 and December 31, 2020 are summarized as follows:

Amortized cost and fair value of available-for-sale debt securities at June 30, 2021 and December 31, 2020 are summarized as follows:

(In Thousands)

March 31, 2021

June 30, 2021

Obligations of the U.S.

21 unchanged sentences

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

The following table presents gross unrealized losses and fair value of available-for-sale debt securities with unrealized loss positions that are not deemed to be other-than-temporarily impaired, aggregated by length of time that individual securities have been in a continuous unrealized loss position at March 31, 2021 and December 31, 2020:

March 31, 2021

June 30, 2021

Less Than 12 Months

26 unchanged sentences

Three Months Ended

Six Months Ended

Gross realized gains from sales

2 unchanged sentences

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

The amortized cost and fair value of available-for-sale debt securities by contractual maturity are shown in the following table as of March 31, 2021.

The amortized cost and fair value of available-for-sale debt securities by contractual maturity are shown in the following table as of June 30, 2021.

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

(In Thousands)

March 31, 2021

June 30, 2021

Due in one year or less

10 unchanged sentences

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

Investment securities carried at $ 254,860,000 at March 31, 2021 and $ 247,373,000 at December 31, 2020 were pledged as collateral for public deposits, trusts and certain other deposits as provided by law.

Investment securities carried at $ 250,123,000 at June 30, 2021 and $ 247,373,000 at December 31, 2020 were pledged as collateral for public deposits, trusts and certain other deposits as provided by law.

See Note 9 for information concerning securities pledged to secure borrowing arrangements and Note 12 for information related to securities pledged against interest rate swap obligations.

1 unchanged sentence

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

A summary of information management considered in evaluating debt and equity securities for other-than-temporary impairment (“OTTI”) at March 31, 2021 is provided below.

A summary of information management considered in evaluating debt and equity securities for OTTI at June 30, 2021 is provided below.

Debt Securities

At March 31, 2021 and December 31, 2020, management performed an assessment for possible OTTI of the Corporation’s debt securities on an issue-by-issue basis, relying on information obtained from various sources, including publicly available financial data, ratings by external agencies, brokers and other sources.

At June 30, 2021 and December 31, 2020, management performed an assessment for possible OTTI of the Corporation’s debt securities on an issue-by-issue basis, relying on information obtained from various sources, including publicly available financial data, ratings by external agencies, brokers and other sources.

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

Based on the results of the assessment, management believes impairment of debt securities at March 31, 2021 and December 31, 2020 to be temporary.

Based on the results of the assessment, management believes impairment of debt securities at June 30, 2021 and December 31, 2020 to be temporary.

Equity Securities

2 unchanged sentences

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

C&N Bank’s investment in FHLB-Pittsburgh stock, included in Other Assets in the consolidated balance sheets, was $ 9,609,000 at March 31, 2021 and $ 9,720,000 at December 31, 2020.

The Corporation evaluated its holding of FHLB-Pittsburgh stock for impairment and deemed the stock to not be impaired at March 31, 2021 and December 31, 2020.

C&N Bank’s investment in FHLB-Pittsburgh stock, included in Other Assets in the consolidated balance sheets, was $ 9,350,000 at June 30, 2021 and $ 9,720,000 at December 31, 2020.

The Corporation evaluated its holding of FHLB-Pittsburgh stock for impairment and deemed the stock to not be impaired at June 30, 2021 and December 31, 2020.

In making this determination, management concluded that recovery of total

2 unchanged sentences

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

The Corporation has a marketable equity security included in other assets in the consolidated balance sheets with a carrying value of $ 982,000 at March 31, 2021 and $ 1,000,000 at December 31, 2020, consisting exclusively of one mutual fund.

There was an unrealized loss on the mutual fund of $ 18,000 at March 31, 2021 and no unrealized gain or loss on the mutual fund at December 31, 2020.

The Corporation has a marketable equity security included in other assets in the consolidated balance sheets with a carrying value of $ 985,000 at June 30, 2021 and $ 1,000,000 at December 31, 2020, consisting exclusively of one mutual fund.

There was an unrealized loss on the mutual fund of $ 15,000 at June 30, 2021 and no unrealized gain or loss on the mutual fund at December 31, 2020.

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

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

Loans outstanding at March 31, 2021 and December 31, 2020 are summarized by segment, and by classes within each segment, as follows:

Loans outstanding at June 30, 2021 and December 31, 2020 are summarized by segment, and by classes within each segment, as follows:

Summary of Loans by Type

18 unchanged sentences

allowance for loan losses

In the table above, outstanding loan balances are presented net of deferred loan origination fees, net, of $ 7,388,000 at March 31, 2021 and $ 6,286,000 at December 31, 2020.

In the table above, outstanding loan balances are presented net of deferred loan origination fees, net, of $ 7,044,000 at June 30, 2021 and $ 6,286,000 at December 31, 2020.

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

33 unchanged sentences

Covenant also engaged in PPP lending starting in early April 2020.

As of March 31, 2021, the recorded investment in 1st Draw PPP loans was $ 71,708,000 , including contractual principal balances of $ 72,987,000 , increased by a market rate adjustment on PPP loans acquired from Covenant of $ 164,000 and reduced by net deferred origination fees of $ 1,443,000 .

As of June 30, 2021, the recorded investment in 1st Draw PPP loans was $ 37,902,000 , including contractual principal balances of $ 38,706,000 , increased by a market rate adjustment on PPP loans acquired from Covenant of $ 50,000 and reduced by net deferred origination fees of $ 854,000 .

The recorded investment in 2nd Draw PPP loans was $ 72,409,000 , including contractual principal balances of $ 75,446,000 reduced by net deferred origination fees of $ 3,037,000 .

Accretion of fees received on 1st Draw PPP loans, net of amortization of the market rate adjustment on PPP loans acquired from Covenant, was $ 1,548,000 and the accretion of fees on 2nd Draw PPP loans was $ 97,000 in the three-month period ended March 31, 2021.

Accretion of fees received on 1st Draw PPP loans, net of amortization of the market rate adjustment on PPP loans acquired from Covenant, was $ 722,000 and the accretion of fees on 2nd Draw PPP loans was $ 200,000 in the three-month period ended June 30, 2021.

For the six-month period ended June 30, 2021, accretion of fees received on 1st Draw PPP loans, net of amortization of the market rate adjustment on PPP loans acquired from Covenant, was $ 2,270,000 and the accretion of fees on 2nd Draw PPP loans was $ 297,000 .

For the three-month and six-month periods ended June 30, 2020, accretion of fees on 1st draw PPP loans was $ 337,000 .

To work with clients impacted by COVID-19, the Corporation is offering short-term loan modifications on a case-by-case basis to borrowers who were current in their payments at the inception of the loan modification program.

Prior to the merger, Covenant had a similar program in place, and these modified loans have been incorporated into the Corporation’s program.

These efforts have been designed to assist borrowers as they deal with the current crisis and help the Corporation mitigate credit risk.

For loans subject to the program, each borrower is required to resume making regularly scheduled loan payments at the end of the modification period and the

Prior to the merger, Covenant had a

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

deferred amounts will be moved to the end of the loan term.

Consistent with Section 4013 of the CARES Act, the modified loans have not been reported as past due, nonaccrual or as TDRs at March 31, 2021.

similar program in place, and these modified loans have been incorporated into the Corporation’s program.

These efforts have been designed to assist borrowers as they deal with the crisis and help the Corporation mitigate credit risk.

For loans subject to the program, each borrower is required to resume making regularly scheduled loan payments at the end of the modification period and the deferred amounts will be moved to the end of the loan term.

Consistent with Section 4013 of the CARES Act, the modified loans have not been reported as past due, nonaccrual or as TDRs at June 30, 2021.

Most of the initial modifications under the program became effective in March 2020 or the second quarter 2020 and provided a deferral of interest or principal and interest for 90-to-180 days.

Many of the loans for which deferrals were granted returned to full payment status prior to March 31, 2021, while additional deferrals have been granted on certain loans.

The quantity and balances of modifications outstanding under the program and a summary of their risk ratings at March 31, 2021 are as follows:

Many of the loans for which deferrals were granted returned to full payment status prior to June 30, 2021, while additional deferrals have been granted on certain loans.

At June 30, 2021, there were 12 loans in deferral status subject to CARES Act Section 4013 guidance with a total recorded investment of $ 6.7 million.

Total loans in deferral status at June 30, 2021 is down from $ 26.0 million at March 31, 2021 and down significantly from 693 loans and $ 241.2 million (including 152 loans and $ 82.5 million reported by Covenant) at June 30, 2020.

The amount of loans in deferral status has fallen over the past several quarters as the local and U.S.

economy has reopened.

The quantity and balances of modifications outstanding under the program and a summary of their risk ratings at June 30, 2021 are as follows:

Deferrals Remaining

As of March 31, 2021

As of June 30, 2021

(Dollars in Thousands)

2 unchanged sentences

Lessors of residential buildings and dwellings

Lessors of nonresidential buildings (except miniwarehouses)

Transportation and warehousing

Religious organizations

Real estate rental and leasing - other

1 unchanged sentence

Residential mortgage

For the loans in the table above, the deferral periods as of March 31, 2021 expire in the second or third quarters of 2021.

For the loans in the table above, the deferral periods as of June 30, 2021 expire in the third quarter of 2021.

The Corporation will continue to evaluate requests for additional deferrals on a case-by-case basis.

The ultimate effect of COVID-19 on the local or broader economy is not known.

In June, September and December 2020, and March 2021, the Corporation’s credit administration and commercial lending staffs performed reviews of commercial credits with “Pass” ratings in an effort to reduce the risk of failing to identify loans that should be evaluated for risk rating downgrade or a specific allowance.

Updated risk ratings and specific allowances based on that review have been included in the March 31, 2021 information presented below.

Because of the significant uncertainties related to the ultimate duration of the COVID-19 pandemic and its economic impact, the total impact on the Corporation’s loan portfolio is not determinable.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

2 unchanged sentences

The acquired loans were recorded at their initial fair value, with adjustments made to the gross amortized cost of loans based on movements in interest rates (market rate adjustment) and based on credit fair value adjustments on non-impaired loans and impaired loans.

In the last three quarters of 2019 and in 2020, the Corporation recognized amortization and accretion of a portion of the market rate adjustments and credit adjustments on non-impaired (performing) loans, and a partial recovery of purchased credit impaired (PCI) loans.

For the three-month periods ended March 31, 2021 and 2020, adjustments to the initial market rate and credit fair value adjustments of performing loans were recognized as follows:

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

For the three-month and six-month periods ended June 30, 2021 and 2020, adjustments to the initial market rate and credit fair value adjustments of performing loans were recognized as follows:

(In Thousands)

Three Months Ended

Six Months Ended

Market Rate Adjustment

6 unchanged sentences

Adjustments to gross amortized cost of loans at end of period

A summary of PCI loans held at March 31, 2021 and December 31, 2020 is as follows:

A summary of PCI loans held at June 30, 2021 and December 31, 2020 is as follows:

(In Thousands)

7 unchanged sentences

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

As of March 31, 2021 and December 31, 2020, management determined that no allowance for credit losses related to unfunded loan commitments was required.

As of June 30, 2021 and December 31, 2020, management determined that no allowance for credit losses related to unfunded loan commitments was required.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Transactions within the allowance for loan losses, summarized by segment and class, for the three-month periods ended March 31, 2021 and 2020 were as follows:

Three Months Ended March 31, 2021

December 31, 2020

Transactions within the allowance for loan losses, summarized by segment and class, for the three-month and six-month periods ended June 30, 2021 and 2020 were as follows:

Three Months Ended June 30, 2021

March 31, 2021

June 30, 2021

(In Thousands)

16 unchanged sentences

Total Allowance for Loan Losses

Three Months Ended March 31, 2020

December 31, 2019

Three Months Ended June 30, 2020

March 31, 2020

June 30, 2020

(In Thousands)

16 unchanged sentences

Total Allowance for Loan Losses

For the three months ended March 31, 2021, the provision for loan losses was $ 259,000 , a decrease in expense of $ 1,269,000 as compared to the three months ended March 31, 2020.

In the first three months of 2020, the provision included the effects of recording a specific allowance of $ 1,193,000 on a commercial loan for which a charge-off of $ 2,219,000 was subsequently recorded in the third quarter 2020.

For the three months ended June 30, 2021, the provision for loan losses was $ 744,000 , an increase in expense of $ 920,000 as compared to the credit for loan losses of $ 176,000 for the three months ended June 30, 2020.

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

The credit for loan losses in the second quarter 2020 included the benefit of repayment of a loan for less than the full principal balance,

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

resulting in a charge-off of $ 107,000 on a commercial loan for which an allowance for loan losses of $ 674,000 had been recorded at March 31, 2020.

Six Months Ended June 30, 2021

(In Thousands)

Allowance for Loan Losses:

Commercial loans secured by real estate

Commercial and industrial

Commercial construction and land

Loans secured by farmland

Multi-family (5 or more) residential

Agricultural loans

Other commercial loans

Total commercial

Residential mortgage:

Residential mortgage loans - first liens

Residential mortgage loans - junior liens

Home equity lines of credit

1-4 Family residential construction

Total residential mortgage

Total Allowance for Loan Losses

Six Months Ended June 30, 2020

(In Thousands)

Allowance for Loan Losses:

Commercial loans secured by real estate

Commercial and industrial

Commercial construction and land

Loans secured by farmland

Multi-family (5 or more) residential

Agricultural loans

Other commercial loans

Total commercial

Residential mortgage:

Residential mortgage loans - first liens

Residential mortgage loans - junior liens

Home equity lines of credit

1-4 Family residential construction

Total residential mortgage

Total Allowance for Loan Losses

For the six months ended June 30, 2021, the provision for loan losses was $ 1,003,000 , a decrease in expense of $ 349,000 as compared to $ 1,352,000 recorded for the first six months ended June 30, 2020.

The provision for the six months ended June 30, 2021, includes a net charge of $ 565,000 related to specific loans (increase in specific allowances on loans of $ 552,000 and net charge-offs of $ 13,000 ),

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

an increase of $ 352,000 in the collectively determined portion of the allowance and an $ 86,000 increase in the unallocated portion.

In comparison, the provision for loan losses in the first six months of 2020 included the effects of recording a specific allowance of $ 1,193,000 on a commercial loan for which a charge-off of $ 2,219,000 was subsequently recorded in the third quarter 2020.

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

5 unchanged sentences

Loans not classified are included in the “Pass” column in the table that follows.

The following tables summarize the aggregate credit quality classification of outstanding loans by risk rating as of March 31, 2021 and December 31, 2020:

March 31, 2021

The following tables summarize the aggregate credit quality classification of outstanding loans by risk rating as of June 30, 2021 and December 31, 2020:

June 30, 2021

(In Thousands)

35 unchanged sentences

Total residential mortgage

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

The following tables present a summary of loan balances and the related allowance for loan losses summarized by portfolio segment and class for each impairment method used as of March 31, 2021 and December 31, 2020.

March 31, 2021

The following tables present a summary of loan balances and the related allowance for loan losses summarized by portfolio segment and class for each impairment method used as of June 30, 2021 and December 31, 2020.

June 30, 2021

Allowance for Loan Losses:

37 unchanged sentences

Total residential mortgage

Summary information related to impaired loans at March 31, 2021 and December 31, 2020 is provided in the table immediately below.

Summary information related to impaired loans at June 30, 2021 and December 31, 2020 is provided in the table immediately below.

(In Thousands)

March 31, 2021

June 30, 2021

December 31, 2020

17 unchanged sentences

proceeds if the Corporation were to sell the property.

The total allowance related to these two borrowers was $ 146,000 at March 31, 2021 and $ 153,000 at December 31, 2020.

The total allowance related to these two borrowers was $ 140,000 at June 30, 2021 and $ 153,000 at December 31, 2020.

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

4 unchanged sentences

Three Months Ended

Six Months Ended

Three Months Ended

Six Months Ended

Commercial loans secured by real estate

14 unchanged sentences

(In Thousands)

March 31, 2021

June 30, 2021

December 31, 2020

4 unchanged sentences

Multi-family (5 or more) residential

Agricultural loans

Other commercial

6 unchanged sentences

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

PCI loans with a total recorded investment of $ 6,781,000 at March 31, 2021 and $ 6,841,000 at December 31, 2020 are classified as nonaccrual.

PCI loans with a total recorded investment of $ 6,733,000 at June 30, 2021 and $ 6,841,000 at December 31, 2020 are classified as nonaccrual.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

The table below presents a summary of the contractual aging of loans as of March 31, 2021 and December 31, 2020.

The table below presents a summary of the contractual aging of loans as of June 30, 2021 and December 31, 2020.

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

(In Thousands)

As of March 31, 2021

As of June 30, 2021

As of December 31, 2020

18 unchanged sentences

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

A summary of the contractual aging of nonaccrual loans at March 31, 2021 and December 31, 2020 is as follows:

A summary of the contractual aging of nonaccrual loans at June 30, 2021 and December 31, 2020 is as follows:

(In Thousands)

March 31, 2021 Nonaccrual Totals

June 30, 2021 Nonaccrual Totals

December 31, 2020 Nonaccrual Totals

1 unchanged sentence

Loans classified as TDRs are designated as impaired.

The outstanding balance of loans subject to TDRs, as well as contractual aging information at March 31, 2021 and December 31, 2020 is as follows:

The outstanding balance of loans subject to TDRs, as well as contractual aging information at June 30, 2021 and December 31, 2020 is as follows:

(In Thousands)

March 31, 2021 Totals

June 30, 2021 Totals

December 31, 2020 Totals

At March 31, 2021 and December 31, 2020, there were no commitments to loan additional funds to borrowers whose loans have been classified as TDRs.

TDRs that occurred during the three-month periods ended March 31, 2021 and 2020 are as follows:

At June 30, 2021 and December 31, 2020, there were no commitments to loan additional funds to borrowers whose loans have been classified as TDRs.

TDRs that occurred during the three-month and six-month periods ended June 30, 2021 and 2020 are as follows:

(Balances in Thousands)

Three Months Ended

March 31, 2021

March 31, 2020

June 30, 2021

June 30, 2020

Residential mortgage - first liens,

Reduced monthly payments for a fifteen-month period

Commercial and industrial,

Interest only payments for a nine-month period

(Balances in Thousands)

Six Months Ended

June 30, 2021

June 30, 2020

Residential mortgage - first liens:

Reduced monthly payments and extended maturity date

Reduced monthly payments for a fifteen-month period

Residential mortgage - junior liens,

New loan at lower than risk-adjusted market rate to borrower from whom short sale of other collateral was accepted

Home equity lines of credit,

Reduced monthly payments and extended maturity date

In the three-month periods ended March 31, 2021 and 2020, defaults on loans for which modifications that were considered to be TDR and were entered into within the previous 12 months are summarized as follows:

Commercial and industrial,

Interest only payments for a nine-month period

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

In the second quarters of 2021 and 2020, there were no defaults on loans for which TDRs were entered into within the previous 12 months.

In the six-month periods ended June 30, 2021 and 2020, defaults on loans for which modifications that were considered to be TDR and were entered into within the previous 12 months are summarized as follows:

(Balances in Thousands)

Three Months Ended

March 31, 2021

March 31, 2020

Six Months Ended

June 30, 2021

June 30, 2020

Commercial loans secured by real estate

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

The carrying amount of foreclosed residential real estate properties held as a result of obtaining physical possession (included in foreclosed assets held for sale in the unaudited consolidated balance sheets) is as follows:

11 unchanged sentences

Three Months Ended

Six Months Ended

Amortization expense

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

At March 31, 2021 and December 31, 2020, the net carrying value of goodwill was $ 52,505,000 .

There were no changes in the carrying value of goodwill in the three-month periods ended March 31, 2021 and 2020.

BORROWED FUNDS AND SUBORDINATED DEBT

At June 30, 2021 and December 31, 2020, the net carrying value of goodwill was $ 52,505,000 .

There were no changes in the carrying value of goodwill in the three-month or six-month periods ended June 30, 2021 and 2020.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

BORROWED FUNDS

SHORT-TERM BORROWINGS

Short-term borrowings (initial maturity within one year) include the following:

3 unchanged sentences

Total short-term borrowings

At March 31, 2021, short-term borrowings from FHLB-Pittsburgh include two advances with par values totaling $ 8,000,000 which are presented in the table inclusive of the unaccreted purchase accounting adjustment, with a weighted-average effective interest rate of 0.42 %.

At December 31, 2020, short-term borrowings from FHLB-Pittsburgh included five advances totaling $ 18,000,000 par value, with a weighted average effective interest rate of 0.43 %.

The Corporation had available credit with other correspondent banks totaling $ 45,000,000 at March 31, 2021 and December 31, 2020.

The Corporation had available credit with other correspondent banks totaling $ 45,000,000 at June 30, 2021 and December 31, 2020.

These lines of credit are primarily unsecured.

No amounts were outstanding at March 31, 2021 or December 31, 2020.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

No amounts were outstanding at June 30, 2021 or December 31, 2020.

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

At March 31, 2021, the Corporation had available credit in the amount of $ 14,522,000 on this line with no outstanding advances.

At June 30, 2021, the Corporation had available credit in the amount of $ 14,588,000 on this line with no outstanding advances.

At December 31, 2020, the Corporation had available credit in the amount of $ 14,654,000 on this line with no outstanding advances.

As collateral for this line, the Corporation has pledged available-for-sale securities with a carrying value of $ 14,992,000 at March 31, 2021 and $ 15,126,000 at December 31, 2020.

As collateral for this line, the Corporation has pledged available-for-sale securities with a carrying value of $ 15,035,000 at June 30, 2021 and $ 15,126,000 at December 31, 2020.

The Corporation engages in repurchase agreements with certain commercial customers.

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

The weighted average rate paid by the Corporation on customer repurchase agreements was 0.10 %at March 31, 2021 and December 31, 2020.

The carrying value of the underlying securities was $ 1,780,000 at March 31, 2021 and $ 1,980,000 at December 31, 2020.

The FHLB-Pittsburgh loan facility is collateralized by qualifying loans secured by real estate with a book value totaling $ 1,033,262,000 at March 31, 2021 and $ 1,049,690,000 at December 31, 2020.

The weighted average rate paid by the Corporation on customer repurchase agreements was 0.10 %at June 30, 2021 and December 31, 2020.

The carrying value of the underlying securities was $ 2,150,000 at June 30, 2021 and $ 1,980,000 at December 31, 2020.

The FHLB-Pittsburgh loan facility is collateralized by qualifying loans secured by real estate with a book value totaling $ 1,038,860,000 at June 30, 2021 and $ 1,049,690,000 at December 31, 2020.

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

The carrying values of the Corporation’s holdings of FHLB-Pittsburgh stock (included in other assets in the consolidated balance sheets) were $ 9,609,000 at March 31, 2021 and $ 9,720,000 at December 31, 2020.

In addition to the short-term and long-term borrowings shown in these tables, there was a $ 400,000 letter of credit from FHLB-Pittsburgh outstanding at March 31, 2021.

The Corporation’s total credit facility with FHLB-Pittsburgh was $ 761,761,000 at March 31, 2021, including an unused (available) amount of $ 703,562,000 .

The carrying values of the Corporation’s holdings of FHLB-Pittsburgh stock (included in other assets in the consolidated balance sheets) were $ 9,350,000 at June 30, 2021 and $ 9,720,000 at December 31, 2020.

In addition to the short-term and long-term borrowings shown in these tables, there was a $ 400,000 letter of credit from FHLB-Pittsburgh outstanding at June 30, 2021.

The Corporation’s total credit facility with FHLB-Pittsburgh was $ 749,994,000 at June 30, 2021, including an unused (available) amount of $ 705,819,000 .

At December 31, 2020, the Corporation’s total credit facility with FHLB-Pittsburgh was $ 771,199,000 , including an unused (available) amount of $ 698,977,000 .

LONG-TERM BORROWINGS

At June 30, 2021, there were no outstanding short-term borrowings from FHLB-Pittsburgh.

At December 31, 2020, short-term borrowings from FHLB-Pittsburgh included five advances totaling $ 18,000,000 par value, with a weighted average effective interest rate of 0.43 %.

LONG-TERM BORROWINGS – FHLB ADVANCES

Long-term borrowings from FHLB-Pittsburgh are as follows:

4 unchanged sentences

Loans maturing in 2024 with a weighted-average rate of 0.75 %

Loan maturing in 2025 with an average rate of 4.91 %

Loan maturing in 2025 with a rate of 4.91 %

Total long-term FHLB-Pittsburgh borrowings

_____________________________________________________

Weighted-average rates are presented as of March 31, 2021.

Weighted-average rates are presented as of June 30, 2021.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

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

The Senior Notes mature on June 1, 2026 and bear interest at a fixed annual rate of 2.75 %.

The Corporation is not entitled to redeem the Senior Notes, in whole or in part, at any time and the Senior Notes are not subject to redemption by the holders.

The Senior Notes are unsecured and unsubordinated obligations of the Corporation only and are not obligations of, and are not guaranteed by, any subsidiary of the Corporation.

The Senior Notes were recorded, net of debt issuance costs of $ 337,000 , at an initial carrying amount of $ 14,663,000 .

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

In the three-month and six-month periods ended June 30, 2021, amortization of debt issuance costs associated with the Senior Notes totaling $ 7,000 was included in interest expense in the unaudited consolidated statements of income.

At June 30, 2021 and December 31, 2020, outstanding Senior Notes are as follows:

(In Thousands)

Senior Notes with an aggregate par value of $ 15,000,000 ;

bearing interest at 2.75 % with an effective interest rate of 3.23 %;

maturing in June 2026

Total carrying value

SUBORDINATED DEBT

At March 31, 2021 and December 31, 2020, outstanding subordinated debt agreements are as follows:

On May 19, 2021 , the Corporation issued and sold $ 25.0 million in aggregate principal amount of 3.25 % Fixed-to-Floating Rate Subordinated Notes due 2031 (the "Subordinated Notes").

The Subordinated Notes mature on June 1, 2031 and bear interest at a fixed annual rate of 3.25 %, to June 1, 2026 .

From June 1, 2026 to maturity or early redemption, the interest rate will reset quarterly to an interest rate per annum equal to the three-month Secured Overnight Financing Rate provided by the Federal Reserve Bank of New York plus 259 basis points.

The Corporation is entitled to redeem the Subordinated Notes, in whole or in part, at any time on or after June 1, 2026, and to redeem the Subordinated Notes at any time in whole upon certain other events.

Any redemption of the Subordinated Notes will be subject to prior regulatory approval to the extent required.

The Subordinated Notes are not subject to redemption at the option of the holders.

The Subordinated Notes are unsecured, subordinated obligations of the Corporation only and are not obligations of, and are not guaranteed by, any subsidiary of the Corporation.

The Subordinated Notes rank junior in right to payment to the Corporation's current and future senior indebtedness, including the Senior Notes (described above).

The Subordinated Notes are intended to qualify as Tier 2 capital for regulatory capital purposes.

The Subordinated Notes were recorded, net of debt issuance costs of $ 563,000 , at an initial carrying amount of $ 24,437,000 .

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

In the three-month and six-month periods ended June 30, 2021, amortization of debt issuance costs associated with the Subordinated Notes totaling $ 13,000 was included in interest expense in the unaudited consolidated statements of income.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

At June 30, 2021 and December 31, 2020, the carrying amounts of subordinated debt agreements are as follows:

(In Thousands)

Agreements with an aggregate par value of $ 8,000,000 ;

bearing interest at 6.25 %;

maturing in June 2026 and redeemable at par in June 2021

bearing interest at 6.25 % with an effective interest rate of 5.49 %;

redeemed at par in June 2021

Agreements with an aggregate par value of $ 6,500,000 ;

2 unchanged sentences

Agreement with a par value of $ 2,000,000 ;

bearing interest at 6.50 %;

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

maturing in July 2027 and redeemable at par in July 2022

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

bearing interest at 3.25 % with an effective interest rate of 3.74 % ;

maturing in June 2031 and redeemable at par in June 2026

Total carrying value

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

STOCK-BASED COMPENSATION PLANS

1 unchanged sentence

The 2021 restricted stock awards under the Stock Incentive Plan vest ratably over three years , and the 2021 restricted stock issued under the Independent Directors Stock Incentive Plan vests over one year .

Following is a summary of restricted stock awards granted in the three-month period ended March 31, 2021:

Following is a summary of restricted stock awards granted in the six-month period ended June 30, 2021:

(Dollars in Thousands)

3 unchanged sentences

Performance-based awards to employees

2nd quarter 2021 awards,

Time-based awards to employees

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

Total annual stock-based compensation for the year ending December 31, 2021 is estimated to total $ 1,314,000 .

Total stock-based compensation expense attributable to restricted stock awards amounted to $ 341,000 in the first quarter 2021 and $ 194,000 in the first quarter 2020.

Total stock-based compensation expense attributable to restricted stock awards amounted to $ 284,000 in the second quarter 2021 and $ 230,000 in the second quarter 2020.

Total stock-based compensation expense attributable to restricted stock awards amounted to $ 625,000 in the six-month period ended June 30, 2021 and $ 424,000 in the six-month period ended June 30, 2020.

CONTINGENCIES

4 unchanged sentences

The Corporation has incurred operational losses from compliance oversight related to trust department tax preparation and administration activities that occurred prior to 2020.

In 2020, the Corporation made changes in internal controls and personnel responsible for trust department tax administration activities.

In 2020, the Corporation made changes in internal controls and personnel responsible for trust

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

department tax administration activities.

Management implemented the changes in internal controls and personnel in an effort to mitigate and prevent the likelihood of new instances of non-compliance from trust department tax administration activities.

Estimated losses related to trust department tax compliance matters totaled $ 107,000 in the first quarter 2021, with no corresponding amount in the first quarter 2020.

There were no losses related to trust department tax compliance matters in the second quarter 2021.

Losses related to trust department tax compliance matters totaled $ 107,000 in the six months ended June 30, 2021, and $ 300,000 in the three-month and six-month periods ended June 30, 2020.

These losses are included in other noninterest expense in the consolidated statements of income.

The balance of accrued interest and other liabilities in the consolidated balance sheets includes $ 429,000 at March 31, 2021 and $ 322,000 at December 31, 2020 related to specific tax compliance matters that have been identified;

The balance of accrued interest and other liabilities in the consolidated balance sheets includes $ 429,000 at June 30, 2021 and $ 322,000 at December 31, 2020 related to specific tax compliance matters that have been identified;

however, no estimate can be made of the amount of additional expenses that may be incurred related to these matters.

5 unchanged sentences

Those interest rate swaps have been simultaneously economically hedged by offsetting interest rate swaps with a third party, such that the Corporation has effectively exchanged its fixed interest rate exposures for floating rate exposures.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

These derivatives are not designated as hedges and are not speculative.

1 unchanged sentence

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

The aggregate notional amount of interest rate swaps was $ 129,416,000 at March 31, 2021 and $ 135,740,000 at December 31, 2020.

There were no interest rate swaps originated in the first quarter 2021or first quarter 2020.

There were no gross amounts of interest rate swap-related assets and liabilities not offset in the consolidated balance sheets at March 31, 2021.

In the first quarter 2021, the net impact on the consolidated statements of income from interest rate swaps was a reduction in interest income on loans of $ 338,000 .

There were no interest rate swaps in place in the first quarter 2020.

The table below presents the fair value of the Corporation’s derivative financial instruments as well as their classification on the consolidated balance sheets at March 31, 2021 and December 31,2020:

The aggregate notional amount of interest rate swaps was $ 126,716,000 at June 30, 2021 and $ 135,740,000 at December 31, 2020.

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

There were no gross amounts of interest rate swap-related assets and liabilities not offset in the consolidated balance sheets at June 30, 2021.

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

There were no interest rate swaps in place in the six months ended June 30, 2020.

The table below presents the fair value of the Corporation’s derivative financial instruments as well as their classification on the consolidated balance sheets at June 30, 2021 and December 31, 2020:

(In Thousands)

At March 31, 2021

At June 30, 2021

At December 31, 2020

8 unchanged sentences

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

Available-for-sale securities with a carrying value of $ 9,145,000 were pledged as collateral against the Corporation’s liability related to the interest rate swaps at March 31, 2021.

Available-for-sale securities with a carrying value of $ 9,109,000 were pledged as collateral against the Corporation’s liability related to the interest rate swaps at June 30, 2021.

FAIR VALUE MEASUREMENTS AND FAIR VALUES OF FINANCIAL INSTRUMENTS

1 unchanged sentence

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

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

FASB topic 820, “Fair

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

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

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

7 unchanged sentences

Examples of valuation methodologies that would result in Level 3 classification include option pricing models, discounted cash flows and other similar techniques.

The Corporation monitors and evaluates available data relating to fair value measurements on an ongoing basis and recognizes transfers among the levels of the fair value hierarchy as of the date of an event or change in circumstances that affects the valuation method

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

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

At March 31, 2021 and December 31, 2020, assets and liabilities measured at fair value and the valuation methods used are as follows:

March 31, 2021

At June 30, 2021 and December 31, 2020, assets and liabilities measured at fair value and the valuation methods used are as follows:

June 30, 2021

(In Thousands)

53 unchanged sentences

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

At March 31, 2021 and December 31, 2020, quantitative information regarding valuation techniques and the significant unobservable inputs used for assets measured on a recurring basis using unobservable inputs (Level 3 methodologies) are as follows:

At June 30, 2021 and December 31, 2020, quantitative information regarding valuation techniques and the significant unobservable inputs used for assets measured on a recurring basis using unobservable inputs (Level 3 methodologies) are as follows:

Fair Value at

42 unchanged sentences

Three Months Ended

March 31, 2021

March 31, 2020

Six Months Ended

June 30, 2021

June 30, 2020

June 30, 2021

June 30, 2020

Servicing rights balance, beginning of period

Originations of servicing rights

Unrealized gain (loss) included in earnings

Unrealized (loss) gain included in earnings

Servicing rights balance, end of period

7 unchanged sentences

Indications of value from these sources are generally discounted based on the age of the financial information or the quality of the assets.

At March 31, 2021 and December 31, 2020, quantitative information regarding valuation techniques and the significant unobservable inputs used for nonrecurring fair value measurements using Level 3 methodologies are as follows:

At June 30, 2021 and December 31, 2020, quantitative information regarding valuation techniques and the significant unobservable inputs used for nonrecurring fair value measurements using Level 3 methodologies are as follows:

(Dollars In Thousands)

5 unchanged sentences

Commercial and industrial

Liquidation of accounts receivable and equipment

Discount to borrower's financial statement value

Commercial and industrial

Liquidation of assets

42 unchanged sentences

(In Thousands)

March 31, 2021

June 30, 2021

December 31, 2020

18 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements