CITIZENS & NORTHERN CORP 10-Q

ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share and Per Share Data) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ September 30, December 31, ​ ​ 2021 ​ 2020 ASSETS ​ ​ Cash and due from banks: ​ ​ Noninterest-bearing ​ $ 26,589 ​ $ 24,780 Interest-bearing ​ 172,406 ​ 77,077 Total cash and due from banks ​ 198,995 ​ 101,857 Available-for-sale debt securities, at fair value ​ 437,857 ​ 349,332 ​ ​ ​ ​ ​ ​ ​ Loans receivable ​ 1,575,708 ​ 1,644,209 Allowance for loan losses ​ ( 12,700 ) ​ ( 11,385 ) Loans, net ​ 1,563,008 ​ 1,632,824 ​ ​ ​ ​ ​ ​ ​ Bank-owned life insurance ​ 30,530 ​ 30,096 Accrued interest receivable ​ 7,307 ​ 8,293 Bank premises and equipment, net ​ 20,526 ​ 21,526 Foreclosed assets held for sale ​ 1,374 ​ 1,338 Deferred tax asset, net ​ 5,128 ​ 2,705 Goodwill ​ 52,505 ​ 52,505 Core deposit intangibles, net ​ 3,450 ​ 3,851 Other assets ​ 34,216 ​ 34,773 TOTAL ASSETS ​ $ 2,354,896 ​ $ 2,239,100 ​ ​ ​ ​ ​ ​ ​ LIABILITIES ​ ​ ​ ​ Deposits: ​ ​ ​ ​ Noninterest-bearing ​ $ 521,561 ​ $ 465,332 Interest-bearing ​ 1,418,580 ​ 1,355,137 Total deposits ​ 1,940,141 ​ 1,820,469 Short-term borrowings ​ 1,875 ​ 20,022 Long-term borrowings - FHLB advances ​ 38,680 ​ 54,608 Senior notes, net ​ ​ 14,685 ​ ​ 0 Subordinated debt, net ​ 32,988 ​ 16,553 Accrued interest and other liabilities ​ 27,125 ​ 27,692 TOTAL LIABILITIES ​ 2,055,494 ​ 1,939,344 ​ ​ ​ ​ ​ ​ ​ STOCKHOLDERS' EQUITY ​ ​ ​ ​ Preferred stock, $ 1,000 par value; authorized 30,000 shares; $ 1,000 liquidation ​ ​ ​ ​ preference per share; no shares issued ​ 0 ​ 0 Common stock, par value $ 1.00 per share; authorized 20,000,000 shares; ​ ​ ​ ​ issued 16,030,172 and outstanding 15,750,250 at September 30, 2021; ​ ​ ​ ​ issued 15,982,815 and outstanding 15,911,984 at December 31, 2020 ​ 16,030 ​ 15,983 Paid-in capital ​ 144,172 ​ 143,644 Retained earnings ​ 139,715 ​ 129,703 Treasury stock, at cost; 279,922 shares at September 30, 2021 and 70,831 ​ ​ ​ ​ shares at December 31, 2020 ​ ( 6,920 ) ​ ( 1,369 ) Accumulated other comprehensive income ​ 6,405 ​ 11,795 TOTAL STOCKHOLDERS' EQUITY ​ 299,402 ​ 299,756 TOTAL LIABILITIES & STOCKHOLDERS' EQUITY ​ $ 2,354,896 ​ $ 2,239,100 ​ The accompanying notes are an integral part of these unaudited consolidated financial statements. ​ 3 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q Consolidated Statements of Income (In Thousands Except Per Share Data) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Nine Months Ended ​ ​ September 30, ​ September 30, ​ September 30, ​ September 30, ​ ​ 2021 ​ 2020 ​ 2021 ​ 2020 INTEREST INCOME ​ ​ ​ ​ ​ Interest and fees on loans: ​ ​ ​ ​ ​ Taxable ​ $ 18,529 ​ $ 19,158 ​ $ 56,095 ​ $ 47,745 Tax-exempt ​ 450 ​ 450 ​ 1,300 ​ 1,348 Income from available-for-sale debt securities: ​ ​ ​ ​ ​ ​ ​ ​ Taxable ​ 1,304 ​ 1,483 ​ 3,604 ​ 4,451 Tax-exempt ​ 668 ​ 561 ​ 1,973 ​ 1,505 Other interest and dividend income ​ 122 ​ 99 ​ 283 ​ 252 Total interest and dividend income ​ 21,073 ​ 21,751 ​ 63,255 ​ 55,301 INTEREST EXPENSE ​ ​ ​ ​ ​ ​ Interest on deposits ​ 1,063 ​ 1,787 ​ 3,558 ​ 5,726 Interest on short-term borrowings ​ 0 ​ 73 ​ 22 ​ 335 Interest on long-term borrowings - FHLB advances ​ 87 ​ 362 ​ 330 ​ 970 Interest on senior notes, net ​ 118 ​ ​ 0 ​ ​ 175 ​ ​ 0 Interest on subordinated debt, net ​ 346 ​ 247 ​ 947 ​ 460 Total interest expense ​ 1,614 ​ 2,469 ​ 5,032 ​ 7,491 Net interest income ​ 19,459 ​ 19,282 ​ 58,223 ​ 47,810 Provision for loan losses ​ 1,530 ​ 1,941 ​ 2,533 ​ 3,293 Net interest income after provision for loan losses ​ 17,929 ​ 17,341 ​ 55,690 ​ 44,517 NONINTEREST INCOME ​ ​ ​ ​ Trust revenue ​ 1,821 ​ 1,595 ​ 5,254 ​ 4,639 Brokerage and insurance revenue ​ 560 ​ 382 ​ 1,392 ​ 1,121 Service charges on deposit accounts ​ 1,249 ​ 1,045 ​ 3,337 ​ 3,126 Interchange revenue from debit card transactions ​ 975 ​ 828 ​ 2,854 ​ 2,277 Net gains from sale of loans ​ 797 ​ 2,052 ​ 2,786 ​ 3,931 Loan servicing fees, net ​ 153 ​ ( 87 ) ​ 547 ​ ( 259 ) Increase in cash surrender value of life insurance ​ 139 ​ 159 ​ 434 ​ 361 Other noninterest income ​ 665 ​ 996 ​ 2,837 ​ 2,583 Sub-total ​ ​ 6,359 ​ ​ 6,970 ​ ​ 19,441 ​ ​ 17,779 Realized gains on available-for-sale debt securities, net ​ ​ 23 ​ ​ 25 ​ ​ 25 ​ ​ 25 Total noninterest income ​ 6,382 ​ 6,995 ​ 19,466 ​ 17,804 NONINTEREST EXPENSE ​ ​ ​ ​ ​ ​ Salaries and employee benefits ​ ​ 9,427 ​ ​ 8,703 ​ ​ 27,821 ​ ​ 23,064 Net occupancy and equipment expense ​ ​ 1,217 ​ ​ 1,189 ​ ​ 3,740 ​ ​ 3,267 Data processing and telecommunications expense ​ ​ 1,475 ​ ​ 1,482 ​ ​ 4,342 ​ ​ 3,959 Automated teller machine and interchange expense ​ 357 ​ 340 ​ 1,049 ​ 912 Pennsylvania shares tax ​ 482 ​ 422 ​ 1,463 ​ 1,267 Professional fees ​ 538 ​ 422 ​ 1,683 ​ 1,265 Merger-related expenses ​ 0 ​ 6,402 ​ 0 ​ 7,526 Other noninterest expense ​ 1,850 ​ 2,090 ​ 6,356 ​ 6,100 Total noninterest expense ​ 15,346 ​ 21,050 ​ 46,454 ​ 47,360 Income before income tax provision ​ 8,965 ​ 3,286 ​ 28,702 ​ 14,961 Income tax provision ​ 1,566 ​ 438 ​ 5,456 ​ 2,509 NET INCOME ​ $ 7,399 ​ $ 2,848 ​ $ 23,246 ​ $ 12,452 EARNINGS PER COMMON SHARE - BASIC ​ $ 0.47 ​ $ 0.18 ​ $ 1.46 ​ $ 0.86 EARNINGS PER COMMON SHARE - DILUTED ​ $ 0.47 ​ $ 0.18 ​ $ 1.46 ​ $ 0.86 ​ The accompanying notes are an integral part of these unaudited consolidated financial statements. 4 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q ​ Consolidated Statements of Comprehensive Income (In Thousands) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Nine Months Ended ​ ​ September 30, ​ September 30, ​ September 30, ​ September 30, ​ 2021 2020 ​ 2021 2020 Net income ​ $ 7,399 ​ $ 2,848 ​ $ 23,246 ​ $ 12,452 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Available-for-sale debt securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized holding (losses) gains on available-for-sale debt securities ​ ​ ( 3,608 ) ​ ​ ( 95 ) ​ ​ ( 6,781 ) ​ ​ 9,980 Reclassification adjustment for (gains) realized in income ​ ​ ( 23 ) ​ ​ ( 25 ) ​ ​ ( 25 ) ​ ​ ( 25 ) Other comprehensive (loss) income on available-for-sale debt securities ​ ​ ( 3,631 ) ​ ​ ( 120 ) ​ ​ ( 6,806 ) ​ ​ 9,955 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Unfunded pension and postretirement obligations: ​ ​ ​ ​ ​ ​ ​ ​ Changes from plan amendments and actuarial gains and losses ​ 0 ​ 0 ​ ( 5 ) ​ 88 Amortization of prior service cost and net actuarial loss included in net periodic benefit cost ​ ( 5 ) ​ ( 8 ) ​ ( 13 ) ​ ( 22 ) Other comprehensive (loss) income on unfunded retirement obligations ​ ( 5 ) ​ ( 8 ) ​ ( 18 ) ​ 66 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other comprehensive (loss) income before income tax ​ ( 3,636 ) ​ ( 128 ) ​ ( 6,824 ) ​ 10,021 Income tax related to other comprehensive loss (income) ​ 765 ​ 26 ​ 1,434 ​ ( 2,103 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net other comprehensive (loss) income ​ ( 2,871 ) ​ ( 102 ) ​ ( 5,390 ) ​ 7,918 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Comprehensive income ​ $ 4,528 ​ $ 2,746 ​ $ 17,856 ​ $ 20,370 ​ The accompanying notes are an integral part of these unaudited consolidated financial statements. ​ 5 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended ​ ​ September 30, ​ September 30, ​ ​ 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES: ​ ​ Net income ​ $ 23,246 ​ $ 12,452 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ Provision for loan losses ​ 2,533 ​ 3,293 Realized gains on available-for-sale debt securities, net ​ ( 25 ) ​ ( 25 ) Net amortization of securities ​ ​ 1,554 ​ ​ 1,020 Increase in cash surrender value of life insurance ​ ( 434 ) ​ ( 361 ) Depreciation and amortization of bank premises and equipment ​ 1,602 ​ 1,429 Net accretion of purchase accounting adjustments ​ ( 1,827 ) ​ ( 1,547 ) Stock-based compensation ​ 970 ​ 672 Deferred income taxes ​ ( 989 ) ​ 649 Decrease in fair value of servicing rights ​ 9 ​ 617 Gains on sales of loans, net ​ ( 2,786 ) ​ ( 3,931 ) Origination of loans held for sale ​ ( 86,428 ) ​ ( 123,547 ) Proceeds from sales of loans held for sale ​ 87,483 ​ 126,268 Decrease (increase) in accrued interest receivable and other assets ​ 295 ​ ( 1,194 ) Decrease in accrued interest payable and other liabilities ​ ( 50 ) ​ ( 856 ) Other ​ ( 18 ) ​ ( 339 ) Net Cash Provided by Operating Activities ​ 25,135 ​ 14,600 CASH FLOWS FROM INVESTING ACTIVITIES: ​ ​ ​ Net cash and cash equivalents provided by business combination ​ ​ 0 ​ ​ 75,955 Purchase of certificates of deposit ​ ​ ( 3,000 ) ​ ​ ( 2,500 ) Proceeds from maturities of certificates of deposit ​ 0 ​ 250 Proceeds from sales of available-for-sale debt securities ​ 2,027 ​ 20,535 Proceeds from calls and maturities of available-for-sale debt securities ​ 48,262 ​ 71,009 Purchase of available-for-sale debt securities ​ ( 145,445 ) ​ ( 65,853 ) Redemption of Federal Home Loan Bank of Pittsburgh stock ​ 1,934 ​ 5,712 Purchase of Federal Home Loan Bank of Pittsburgh stock ​ ( 1,614 ) ​ ( 4,571 ) Net decrease (increase) in loans ​ 68,018 ​ ( 45,564 ) Proceeds from bank owned life insurance ​ 287 ​ 0 Proceeds from sales of premises and equipment ​ 575 ​ 0 Purchase of premises and equipment ​ ( 1,173 ) ​ ( 2,550 ) Proceeds from sale of foreclosed assets ​ 303 ​ 1,347 Other ​ 176 ​ 178 Net Cash (Used in) Provided by Investing Activities ​ ( 29,650 ) ​ 53,948 CASH FLOWS FROM FINANCING ACTIVITIES: ​ ​ ​ Net increase in deposits ​ 120,386 ​ 137,543 Net decrease in short-term borrowings ​ ( 18,082 ) ​ ( 79,213 ) Proceeds from long-term borrowings - FHLB advances ​ 0 ​ 25,891 Repayments of long-term borrowings - FHLB advances ​ ( 15,571 ) ​ ( 5,136 ) Proceeds from issuance of senior notes, net of issuance costs ​ ​ 14,663 ​ ​ 0 Proceeds from issuance of subordinated debt, net of issuance costs ​ ​ 24,437 ​ ​ 0 Redemption of subordinated debt ​ ​ ( 8,000 ) ​ ​ 0 Sale of treasury stock ​ 212 ​ 124 Purchases of treasury stock ​ ( 7,412 ) ​ ( 163 ) Common dividends paid ​ ( 11,980 ) ​ ( 10,568 ) Net Cash Provided by Financing Activities ​ 98,653 ​ 68,478 INCREASE IN CASH AND CASH EQUIVALENTS ​ 94,138 ​ 137,026 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ​ 96,017 ​ 31,122 CASH AND CASH EQUIVALENTS, END OF PERIOD ​ $ 190,155 ​ $ 168,148 ​ 6 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited) (Continued) ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended ​ ​ September 30, ​ September 30, ​ ​ 2021 2020 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: ​ ​ ​ ​ Increase in accrued purchase of available-for-sale debt securities ​ $ 1,704 ​ $ 287 Accrued sale of available-for-sale securities ​ $ 0 ​ $ 488 Accrued income from life insurance claim ​ $ 0 ​ $ 279 Assets acquired through foreclosure of real estate loans ​ $ 317 ​ $ 0 Leased assets obtained in exchange for new operating lease liabilities ​ $ 739 ​ $ 167 Interest paid ​ $ 6,063 ​ $ 7,635 Income taxes paid ​ $ 8,076 ​ $ 2,975 NONCASH INVESTING ASSETS ACQUIRED IN BUSINESS COMBINATION: ​ ​ ​ ​ ​ ​ Available-for-sale debt securities ​ $ 0 ​ $ 10,754 Loans receivable ​ $ 0 ​ $ 464,236 Bank-owned life insurance ​ $ 0 ​ $ 11,170 Foreclosed assets held for sale ​ $ 0 ​ $ 860 NONCASH FINANCING ACTIVITY RELATED TO BUSINESS COMBINATION: ​ ​ ​ ​ ​ ​ Common stock issued ​ $ 0 ​ $ 41,429 Liabilities assumed: ​ ​ ​ ​ ​ ​ Deposits ​ $ 0 ​ $ 481,796 Short-term borrowings ​ $ 0 ​ $ 33,950 Long-term borrowings ​ $ 0 ​ $ 30,025 Subordinated debt ​ $ 0 ​ $ 10,091 ​ The accompanying notes are an integral part of these unaudited consolidated financial statements. ​ ​ ​ 7 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q Consolidated Statements of Changes in Stockholders’ Equity (In Thousands Except Share and Per Share Data) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other ​ ​ ​ ​ ​ ​ ​ Common Treasury Common Paid-in Retained Comprehensive Treasury ​ ​ ​ Three Months Ended September 30, 2021 Shares Shares Stock Capital Earnings Income Stock Total Balance, June 30, 2021 16,030,172 72,660 ​ $ 16,030 ​ $ 143,817 ​ $ 136,756 ​ $ 9,276 ​ $ ( 1,746 ) ​ $ 304,133 Net income ​ ​ ​ ​ ​ ​ ​ 7,399 ​ ​ ​ ​ ​ 7,399 Other comprehensive loss, net ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 2,871 ) ​ ​ ​ ( 2,871 ) Cash dividends declared on common stock, $ .28 per share ​ ​ ​ ​ ​ ​ ​ ( 4,440 ) ​ ​ ​ ​ ​ ( 4,440 ) Shares issued for dividend reinvestment plan ​ ( 16,833 ) ​ ​ ​ 10 ​ ​ ​ ​ ​ 415 ​ 425 Shares issued from treasury and redeemed related to exercise of stock options ​ ​ ​ ( 7,000 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 135 ​ ​ 135 Stock-based compensation expense ​ ​ ​ ​ ​ 345 ​ ​ ​ ​ ​ ​ ​ 345 Purchase of restricted stock for tax withholding ​ ​ ​ 691 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 17 ) ​ ​ ( 17 ) Treasury stock purchases ​ ​ ​ 230,404 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 5,707 ) ​ ​ ( 5,707 ) Balance, September 30, 2021 16,030,172 279,922 ​ $ 16,030 ​ $ 144,172 ​ $ 139,715 ​ $ 6,405 ​ $ ( 6,920 ) ​ $ 299,402 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, 2020 ​ ​ ​ ​ ​ ​ Balance, June 30, 2020 13,934,996 127,839 ​ $ 13,935 ​ $ 103,954 ​ $ 128,661 ​ $ 11,711 ​ $ ( 2,470 ) ​ $ 255,791 Net income ​ ​ ​ ​ ​ ​ ​ 2,848 ​ ​ ​ ​ ​ 2,848 Other comprehensive loss, net ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 102 ) ​ ​ ​ ( 102 ) Cash dividends declared on common stock, $ .27 per share ​ ​ ​ ​ ​ ​ ​ ( 4,285 ) ​ ​ ​ ​ ​ ( 4,285 ) Shares issued for dividend reinvestment plan ​ ( 21,949 ) ​ ​ ​ ( 36 ) ​ ​ ​ ​ ​ 423 ​ 387 Restricted stock granted ​ ( 15,076 ) ​ ​ ​ ( 291 ) ​ ​ ​ ​ ​ 291 ​ 0 Forfeiture of restricted stock ​ 1,648 ​ ​ ​ 30 ​ ​ ​ ​ ​ ( 30 ) ​ 0 Stock-based compensation expense ​ ​ ​ ​ ​ 248 ​ ​ ​ ​ ​ ​ ​ 248 Shares issued for acquisition of Covenant Financial, Inc., net of equity issuance costs ​ 2,047,819 ​ ​ ​ ​ 2,048 ​ ​ 39,381 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 41,429 Balance, September 30, 2020 15,982,815 92,462 ​ $ 15,983 ​ $ 143,286 ​ $ 127,224 ​ $ 11,609 ​ $ ( 1,786 ) ​ $ 296,316 ​ ​ 8 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q Consolidated Statements of Changes in Stockholders’ Equity (In Thousands Except Share and Per Share Data) (Unaudited) (Continued) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other ​ ​ ​ ​ ​ ​ ​ ​ Common ​ Treasury ​ Common ​ Paid-in ​ Retained ​ Comprehensive ​ Treasury ​ ​ ​ Nine Months Ended September 30, 2021 ​ Shares ​ Shares ​ Stock ​ Capital ​ Earnings ​ Income ​ Stock ​ Total Balance, December 31, 2020 15,982,815 70,831 ​ $ 15,983 ​ $ 143,644 ​ $ 129,703 ​ $ 11,795 ​ $ ( 1,369 ) ​ $ 299,756 Net income ​ ​ ​ ​ ​ 23,246 ​ ​ ​ 23,246 Other comprehensive loss, net ​ ​ ​ ​ ​ ​ ( 5,390 ) ​ ​ ( 5,390 ) Cash dividends declared on common stock, $ .83 per share ​ ​ ​ ​ ​ ( 13,234 ) ​ ​ ​ ( 13,234 ) Shares issued for dividend reinvestment plan 36,368 ( 16,833 ) ​ 36 ​ 803 ​ ​ ​ ​ ​ 415 ​ 1,254 Shares issued from treasury and redeemed related to exercise of stock options ​ ( 12,414 ) ​ ​ ​ ( 28 ) ​ ​ ​ 240 ​ 212 Restricted stock granted 10,989 ( 67,402 ) ​ 11 ​ ( 1,319 ) ​ ​ ​ 1,308 ​ 0 Forfeiture of restricted stock ​ 5,290 ​ ​ ​ 102 ​ ​ ​ ( 102 ) ​ 0 Stock-based compensation expense ​ ​ ​ ​ 970 ​ ​ ​ ​ 970 Purchase of restricted stock for tax withholding ​ 8,350 ​ ​ ​ ​ ​ ​ ( 174 ) ​ ( 174 ) Treasury stock purchases ​ ​ ​ 292,100 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 7,238 ) ​ ​ ( 7,238 ) Balance, September 30, 2021 16,030,172 279,922 ​ $ 16,030 ​ $ 144,172 ​ $ 139,715 ​ $ 6,405 ​ $ ( 6,920 ) ​ $ 299,402 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, 2020 ​ ​ ​ ​ ​ ​ Balance, December 31, 2019 13,934,996 218,551 ​ $ 13,935 ​ $ 104,519 ​ $ 126,480 ​ $ 3,691 ​ $ ( 4,173 ) ​ $ 244,452 Net income ​ ​ ​ ​ ​ 12,452 ​ ​ ​ 12,452 Other comprehensive income, net ​ ​ ​ ​ ​ ​ 7,918 ​ ​ 7,918 Cash dividends declared on common stock, $ .81 per share ​ ​ ​ ​ ​ ( 11,708 ) ​ ​ ​ ( 11,708 ) Shares issued for dividend reinvestment plan ​ ( 56,649 ) ​ ​ ​ 46 ​ ​ ​ 1,094 ​ 1,140 Shares issued from treasury and redeemed related to exercise of stock options ​ ( 9,652 ) ​ ​ ​ ( 62 ) ​ ​ ​ 186 ​ 124 Restricted stock granted ​ ( 70,940 ) ​ ​ ​ ( 1,370 ) ​ ​ ​ 1,370 ​ 0 Forfeiture of restricted stock ​ 5,290 ​ ​ ​ 100 ​ ​ ​ ( 100 ) ​ 0 Stock-based compensation expense ​ ​ ​ ​ 672 ​ ​ ​ ​ 672 Purchase of restricted stock for tax withholding ​ 5,862 ​ ​ ​ ​ ​ ​ ( 163 ) ​ ( 163 ) Shares issued for acquisition of Covenant Financial, Inc., net of equity issuance costs 2,047,819 ​ ​ ​ ​ 2,048 ​ ​ 39,381 ​ ​ ​ ​ ​ ​ ​ ​ ​ 41,429 Balance, September 30, 2020 15,982,815 92,462 ​ $ 15,983 ​ $ 143,286 ​ $ 127,224 ​ $ 11,609 ​ $ ( 1,786 ) ​ $ 296,316 ​ The accompanying notes are an integral part of these unaudited consolidated financial statements. ​ ​ 9 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q Notes to Unaudited Consolidated Financial Statements 1. BASIS OF INTERIM PRESENTATION AND STATUS OF RECENT ACCOUNTING PRONOUNCEMENTS The consolidated financial statements include the accounts of Citizens & Northern Corporation and its subsidiaries, Citizens & Northern Bank (“C&N Bank”), Bucktail Life Insurance Company and Citizens & Northern Investment Corporation (collectively, “Corporation”). The consolidated financial statements also include C&N Bank’s wholly-owned subsidiaries, C&N Financial Services Corporation and Northern Tier Holding LLC. C&N Bank is the sole member of Northern Tier Holding LLC. All material intercompany balances and transactions have been eliminated in consolidation. The consolidated financial information included herein, except the consolidated balance sheet dated December 31, 2020, is unaudited. Such information reflects all adjustments (consisting solely of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations, comprehensive income, cash flows and changes in stockholders’ equity for the interim periods; however, the information does not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for a complete set of financial statements. Certain 2020 information has been reclassified for consistency with the 2021 presentation. Operating results reported for the nine-month period ended September 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. RECENT ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board (FASB) issues Accounting Standards Updates (ASUs) to the FASB Accounting Standards Codification (ASC). This section provides a summary description of recent ASUs that have significant implications (elected or required) within the consolidated financial statements, or that management expects may have a significant impact on financial statements issued in the near future. Recently Issued But Not Yet Effective Accounting Pronouncements ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), as modified by subsequent ASUs, changes accounting for credit losses on loans receivable and debt securities from an incurred loss methodology to an expected credit loss methodology. Among other things, ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Accordingly, ASU 2016-13 requires the use of forward-looking information to form credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, though the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, ASU 2016-13 amends the accounting for credit losses on debt securities and purchased financial assets with credit deterioration. The effect of implementing this ASU is recorded through a cumulative-effect adjustment to retained earnings. The Corporation has formed a cross functional management team and is working with an outside vendor assessing alternative loss estimation methodologies and the Corporation’s data and system needs to evaluate the impact that adoption of this standard will have on the Corporation’s financial condition and results of operations. In November 2019, the FASB approved a delay of the required implementation date of ASU 2016-13 for smaller reporting companies, including the Corporation, resulting in a required implementation date for the Corporation of January 1, 2023. ASU 2020-04, Reference Rate Reform (Topic 848) provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The amendments in ASU 2020-04 are elective and apply to all entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued. The guidance includes a general principle that permits an entity to consider contract modifications due to reference rate reform to be an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. Some specific optional expedients are as follows: ● Simplifies accounting for contract modifications, including modifications to loans receivable and debt, by prospectively adjusting the effective interest rate. 10 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q ● Simplifies the assessment of hedge effectiveness and allows hedging relationships affected by reference rate reform to continue. The amendments in ASU 2020-04 are effective as of March 12, 2020 through December 31, 2022. The Corporation has formed a cross functional management team to evaluate and implement changes to contracts with rates indexed to LIBOR and expects to apply the amendments prospectively for applicable loan and other contracts within the effective period of ASU 2020-04. ​ 2. BUSINESS COMBINATIONS Acquisition of Covenant Financial, Inc. On July 1, 2020, the Corporation completed its acquisition of Covenant Financial, Inc. (“Covenant”). Covenant was the holding company for Covenant Bank, which operated banking offices in Bucks and Chester Counties of Pennsylvania. The Covenant acquisition has contributed significantly to growth in the size of the Corporation’s balance sheet and in net interest income and noninterest expenses. In connection with the transaction, the Corporation recorded goodwill of $ 24.1 million and a core deposit intangible asset of $ 3.1 million. Total loans acquired on July 1, 2020 were valued at $ 464.2 million, while total deposits assumed were valued at $ 481.8 million, borrowings were valued at $ 64.0 million and subordinated debt was valued at $ 10.1 million. The Corporation acquired available-for-sale debt securities valued at $ 10.8 million and bank-owned life insurance valued at $ 11.2 million. 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 nine months ended September 30, 2021. Merger-related expenses related to the acquisition of Covenant totaled $ 6,402,000 in the third quarter 2020 and $ 7,526,000 in the nine months ended September 30, 2020. There were no merger-related expenses in the nine months ended September 30, 2021. 3. PER SHARE DATA Basic earnings per common share are calculated using the two-class method to determine income attributable to common shareholders. Unvested restricted stock awards that contain nonforfeitable rights to dividends are considered participating securities under the two-class method. Distributed dividends and an allocation of undistributed net income to participating securities reduce the amount of income attributable to common shareholders. Income attributable to common shareholders is then divided by weighted-average common shares outstanding for the period to determine basic earnings per common share. Diluted earnings per common share are calculated under the more dilutive of either the treasury method or the two-class method. 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. 11 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands, Except Share and Per Share Data) ​ Three Months Ended Nine Months Ended ​ ​ September 30, ​ September 30, ​ September 30, ​ September 30, ​ 2021 2020 2021 2020 Basic ​ ​ ​ ​ ​ Net income ​ $ 7,399 ​ $ 2,848 ​ $ 23,246 ​ $ 12,452 Less: Dividends and undistributed earnings allocated to participating securities ​ ( 63 ) ​ ( 18 ) ​ ( 189 ) ​ ( 74 ) Net income attributable to common shares ​ $ 7,336 ​ $ 2,830 ​ $ 23,057 ​ $ 12,378 Basic weighted-average common shares outstanding ​ 15,703,932 ​ 15,778,391 ​ 15,806,897 ​ 14,388,797 Basic earnings per common share (a) ​ $ 0.47 ​ $ 0.18 ​ $ 1.46 ​ $ 0.86 Diluted ​ ​ ​ ​ Net income attributable to common shares ​ $ 7,336 ​ $ 2,830 ​ $ 23,057 ​ $ 12,378 Basic weighted-average common shares outstanding ​ 15,703,932 ​ 15,778,391 ​ 15,806,897 ​ 14,388,797 Dilutive effect of potential common stock arising from stock options ​ 6,413 ​ 1,330 ​ 6,232 ​ 4,632 Diluted weighted-average common shares outstanding ​ 15,710,345 ​ 15,779,721 ​ 15,813,129 ​ 14,393,429 Diluted earnings per common share (a) ​ $ 0.47 ​ $ 0.18 ​ $ 1.46 ​ $ 0.86 Weighted-average nonvested restricted shares outstanding ​ 133,053 ​ 102,629 ​ 129,456 ​ 85,611 (a) Basic and diluted earnings per share under the two-class method are determined on net income reported on the consolidated statements of income, less earnings allocated to non-vested restricted shares with nonforfeitable dividends (participating securities). Anti-dilutive stock options are excluded from earnings per share calculations. There were no anti-dilutive instruments in the three-month and nine month periods ended September 30, 2021. Weighted-average common shares available from anti-dilutive instruments totaled 39,012 shares in the three-month period ended September 30, 2020 and 19,506 shares in the nine-month period ended September 30, 2020. ​ 4. COMPREHENSIVE INCOME Comprehensive income is the total of (1) net income, and (2) all other changes in equity from non-stockholder sources, which are referred to as other comprehensive income (loss). The components of other comprehensive income (loss), and the related tax effects, are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) Before-Tax Income Tax Net-of-Tax ​ ​ Amount ​ Effect ​ Amount Three Months Ended September 30, 2021 ​ ​ ​ Available-for-sale debt securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized holding losses on available-for-sale debt securities ​ $ ( 3,608 ) ​ $ 759 ​ $ ( 2,849 ) Reclassification adjustment for (gains) realized in income ​ ​ ( 23 ) ​ ​ 5 ​ ​ ( 18 ) Other comprehensive loss from available-for-sale debt securities ​ ​ ( 3,631 ) ​ ​ 764 ​ ​ ( 2,867 ) Unfunded pension and postretirement obligations, ​ ​ ​ Amortization of prior service cost and net actuarial loss included in net periodic benefit cost ​ ( 5 ) ​ 1 ​ ( 4 ) Total other comprehensive loss ​ $ ( 3,636 ) ​ $ 765 ​ $ ( 2,871 ) ​ ​ 12 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) Before-Tax Income Tax Net-of-Tax ​ ​ Amount ​ Effect ​ Amount Three Months Ended September 30, 2020 ​ ​ ​ Available-for-sale debt securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized holding losses on available-for-sale debt securities ​ $ ( 95 ) ​ $ 19 ​ $ ( 76 ) Reclassification adjustment for (gains) realized in income ​ ( 25 ) ​ 5 ​ ( 20 ) Other comprehensive loss from available-for-sale debt securities ​ ( 120 ) ​ 24 ​ ( 96 ) Unfunded pension and postretirement obligations, ​ ​ ​ Amortization of prior service cost and net actuarial loss included in net periodic benefit cost ​ ( 8 ) ​ 2 ​ ( 6 ) Total other comprehensive loss ​ $ ( 128 ) ​ $ 26 ​ $ ( 102 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) Before-Tax Income Tax Net-of-Tax ​ ​ Amount ​ Effect ​ Amount Nine Months Ended September 30, 2021 ​ ​ ​ Available-for-sale debt securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized holding losses on available-for-sale debt securities ​ $ ( 6,781 ) ​ $ 1,425 ​ $ ( 5,356 ) Reclassification adjustment for (gains) realized in income ​ ​ ( 25 ) ​ ​ 5 ​ ​ ( 20 ) Other comprehensive loss from available-for-sale debt securities ​ ​ ( 6,806 ) ​ ​ 1,430 ​ ​ ( 5,376 ) Unfunded pension and postretirement obligations: ​ ​ ​ Changes from plan amendments and actuarial gains and losses ​ ​ ( 5 ) ​ ​ 1 ​ ​ ( 4 ) Amortization of prior service cost and net actuarial loss included in net periodic benefit cost ​ ( 13 ) ​ 3 ​ ( 10 ) Other comprehensive loss on unfunded retirement obligations ​ ​ ( 18 ) ​ ​ 4 ​ ​ ( 14 ) Total other comprehensive loss ​ $ ( 6,824 ) ​ $ 1,434 ​ $ ( 5,390 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) Before-Tax Income Tax Net-of-Tax ​ ​ Amount ​ Effect ​ Amount Nine Months Ended September 30, 2020 ​ ​ ​ Available-for-sale debt securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized holding gains on available-for-sale debt securities ​ $ 9,980 ​ $ ( 2,095 ) ​ $ 7,885 Reclassification adjustment for (gains) realized in income ​ ​ ( 25 ) ​ ​ 5 ​ ​ ( 20 ) Other comprehensive income from available-for-sale debt securities ​ ​ 9,955 ​ ​ ( 2,090 ) ​ ​ 7,865 Unfunded pension and postretirement obligations: ​ ​ ​ Changes from plan amendments and actuarial gains and losses ​ 88 ​ ( 18 ) ​ 70 Amortization of prior service cost and net actuarial loss included in net periodic benefit cost ​ ( 22 ) ​ 5 ​ ( 17 ) Other comprehensive income on unfunded retirement obligations ​ 66 ​ ( 13 ) ​ 53 Total other comprehensive income ​ $ 10,021 ​ $ ( 2,103 ) ​ $ 7,918 ​ The amounts shown in the table immediately above are included in the following line items in the consolidated statements of income: ​ ​ ​ ​ ​ ​ Affected Line Item in the Description 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) Other noninterest expense Income tax effect ​ Income tax provision ​ 13 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q Changes in the components of accumulated other comprehensive income are as follows and are presented net of tax: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) ​ ​ Accumulated ​ ​ Unrealized ​ Unfunded ​ Other ​ ​ Losses ​ Retirement ​ Comprehensive ​ ​ on Securities ​ Obligations ​ Income Three Months Ended September 30, 2021 ​ ​ ​ Balance, beginning of period ​ $ 9,167 ​ $ 109 ​ $ 9,276 Other comprehensive loss during three months ended September 30, 2021 ​ ( 2,867 ) ​ ( 4 ) ​ ( 2,871 ) Balance, end of period ​ $ 6,300 ​ $ 105 ​ $ 6,405 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, 2020 ​ ​ ​ Balance, beginning of period ​ $ 11,472 ​ $ 239 ​ $ 11,711 Other comprehensive loss during three months ended September 30, 2020 ​ ( 96 ) ​ ( 6 ) ​ ( 102 ) Balance, end of period ​ $ 11,376 ​ $ 233 ​ $ 11,609 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) Unrealized ​ Accumulated ​ ​ Gains ​ Unfunded ​ Other ​ (Losses) Retirement Comprehensive ​ on Securities Obligations Income Nine Months Ended September 30, 2021 ​ ​ ​ Balance, beginning of period ​ $ 11,676 ​ $ 119 ​ $ 11,795 Other comprehensive loss during nine months ended September 30, 2021 ​ ( 5,376 ) ​ ( 14 ) ​ ( 5,390 ) Balance, end of period ​ $ 6,300 ​ $ 105 ​ $ 6,405 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, 2020 ​ ​ ​ Balance, beginning of period ​ $ 3,511 ​ $ 180 ​ $ 3,691 Other comprehensive income during nine months ended September 30, 2020 ​ 7,865 ​ 53 ​ 7,918 Balance, end of period ​ $ 11,376 ​ $ 233 ​ $ 11,609 ​ ​ ​ ​ 5. CASH AND DUE FROM BANKS Cash and due from banks at September 30, 2021 and December 31, 2020 include the following: ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) September 30, December 31, ​ ​ 2021 ​ 2020 Cash and cash equivalents ​ $ 190,155 ​ $ 96,017 Certificates of deposit ​ 8,840 ​ 5,840 Total cash and due from banks ​ $ 198,995 ​ $ 101,857 ​ Certificates of deposit are issues by U.S. banks with original maturities greater than three months. Each certificate of deposit is fully FDIC-insured. The Corporation maintains cash and cash equivalents with certain financial institutions in excess of the FDIC insurance limit. Historically, C&N Bank has been required to maintain reserves against deposit liabilities in the form of cash and balances with the Federal Reserve Bank of Philadelphia. The reserves are based on deposit levels, account activity, and other services provided by the Federal Reserve Bank. In March 2020, the Federal Reserve Board reduced reserve requirements for U.S. banks to 0%. Accordingly, C&N Bank had no required reserves at September 30, 2021 and December 31, 2020. ​ 14 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q 6. SECURITIES Amortized cost and fair value of available-for-sale debt securities at September 30, 2021 and December 31, 2020 are summarized as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) September 30, 2021 ​ ​ ​ ​ ​ Gross ​ Gross ​ ​ ​ ​ ​ ​ ​ ​ Unrealized ​ Unrealized ​ ​ ​ ​ Amortized Holding Holding Fair ​ Cost Gains Losses Value ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Obligations of the U.S. Treasury ​ $ 25,088 ​ $ 60 ​ $ ( 80 ) ​ $ 25,068 Obligations of U.S. Government agencies ​ ​ 23,935 ​ ​ 666 ​ ​ ( 289 ) ​ ​ 24,312 Obligations of states and political subdivisions: ​ ​ ​ ​ ​ ​ ​ Tax-exempt ​ 135,362 ​ 4,390 ​ ( 508 ) ​ 139,244 Taxable ​ 69,426 ​ 1,516 ​ ( 449 ) ​ 70,493 Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies: ​ ​ ​ ​ Residential pass-through securities ​ 59,920 ​ 978 ​ ( 269 ) ​ 60,629 Residential collateralized mortgage obligations ​ 43,811 ​ 820 ​ ( 38 ) ​ 44,593 Commercial mortgage-backed securities ​ 72,341 ​ 1,963 ​ ( 786 ) ​ 73,518 Total available-for-sale debt securities ​ $ 429,883 ​ $ 10,393 ​ $ ( 2,419 ) ​ $ 437,857 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) December 31, 2020 ​ ​ ​ ​ ​ Gross ​ Gross ​ ​ ​ ​ ​ Unrealized ​ Unrealized ​ ​ ​ ​ Amortized Holding Holding Fair ​ Cost Gains Losses Value ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Obligations of the U.S. Treasury ​ $ 12,184 ​ $ 0 ​ $ ( 2 ) ​ $ 12,182 Obligations of U.S. Government agencies ​ ​ 25,349 ​ ​ 1,003 ​ ​ ( 8 ) ​ ​ 26,344 Obligations of states and political subdivisions: ​ ​ ​ ​ ​ ​ Tax-exempt ​ 116,427 ​ 6,000 ​ ( 26 ) ​ 122,401 Taxable ​ 45,230 ​ 2,246 ​ ( 24 ) ​ 47,452 Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies: ​ ​ ​ ​ Residential pass-through securities ​ 36,853 ​ 1,323 ​ 0 ​ 38,176 Residential collateralized mortgage obligations ​ 56,048 ​ 1,428 ​ ( 9 ) ​ 57,467 Commercial mortgage-backed securities ​ 42,461 ​ 2,849 ​ 0 ​ 45,310 Total available-for-sale debt securities ​ $ 334,552 ​ $ 14,849 ​ $ ( 69 ) ​ $ 349,332 ​ ​ 15 Table of Contents 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 September 30, 2021 and December 31, 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2021 Less Than 12 Months 12 Months or More Total (In Thousands) ​ Fair ​ Unrealized ​ Fair ​ Unrealized ​ Fair ​ Unrealized ​ Value Losses Value Losses Value Losses Obligations of the U.S. Treasury ​ $ 11,001 ​ $ ( 80 ) ​ $ 0 ​ $ 0 ​ $ 11,001 ​ $ ( 80 ) Obligations of U.S. Government agencies ​ ​ 12,210 ​ ​ ( 289 ) ​ ​ 0 ​ ​ 0 ​ ​ 12,210 ​ ​ ( 289 ) Obligations of states and political subdivisions: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Tax-exempt ​ ​ 41,145 ​ ​ ( 508 ) ​ ​ 0 ​ ​ 0 ​ ​ 41,145 ​ ​ ( 508 ) Taxable ​ 25,561 ​ ( 365 ) ​ 2,200 ​ ( 84 ) ​ 27,761 ​ ( 449 ) Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies: ​ ​ ​ ​ ​ ​ ​ Residential pass-through securities ​ ​ 36,651 ​ ​ ( 269 ) ​ ​ 0 ​ ​ 0 ​ ​ 36,651 ​ ​ ( 269 ) Residential collateralized mortgage obligations ​ 4,745 ​ ( 38 ) ​ 0 ​ 0 ​ 4,745 ​ ( 38 ) Commercial mortgage-backed securities ​ 34,931 ​ ( 786 ) ​ 0 ​ 0 ​ 34,931 ​ ( 786 ) Total temporarily impaired available-for-sale debt securities ​ $ 166,244 ​ $ ( 2,335 ) ​ $ 2,200 ​ $ ( 84 ) ​ $ 168,444 ​ $ ( 2,419 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 Less Than 12 Months 12 Months or More Total (In Thousands) ​ Fair ​ Unrealized ​ Fair ​ Unrealized ​ Fair ​ Unrealized ​ Value Losses Value Losses Value Losses Obligations of the U.S. Treasury ​ $ 9,159 ​ $ ( 2 ) ​ $ 0 ​ $ 0 ​ $ 9,159 ​ $ ( 2 ) Obligations of U.S. Government agencies ​ ​ 4,992 ​ ​ ( 8 ) ​ ​ 0 ​ ​ 0 ​ ​ 4,992 ​ ​ ( 8 ) Obligations of states and political subdivisions: ​ ​ ​ ​ ​ ​ ​ Tax-exempt ​ ​ 3,811 ​ ​ ( 26 ) ​ ​ 0 ​ ​ 0 ​ ​ 3,811 ​ ​ ( 26 ) Taxable ​ 5,235 ​ ( 24 ) ​ 0 ​ 0 ​ 5,235 ​ ( 24 ) Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies, ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential collateralized mortgage obligations ​ 2,861 ​ ( 9 ) ​ 0 ​ 0 ​ 2,861 ​ ( 9 ) Total temporarily impaired available-for-sale debt securities ​ $ 26,058 ​ $ ( 69 ) ​ $ 0 ​ $ 0 ​ $ 26,058 ​ $ ( 69 ) ​ Gross realized gains and losses from available-for-sale debt securities were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) ​ Three Months Ended ​ Nine Months Ended ​ ​ September 30, ​ September 30, ​ September 30, ​ September 30, ​ 2021 2020 2021 2020 Gross realized gains from sales ​ $ 23 ​ $ 26 ​ $ 27 ​ $ 78 Gross realized losses from sales ​ 0 ​ ( 1 ) ​ ( 2 ) ​ ( 53 ) Net realized gains ​ $ 23 ​ $ 25 ​ $ 25 ​ $ 25 ​ 16 Table of Contents 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 September 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) ​ September 30, 2021 ​ ​ Amortized ​ Fair ​ Cost Value Due in one year or less ​ $ 15,531 ​ $ 15,641 Due from one year through five years ​ 51,151 ​ 52,150 Due from five years through ten years ​ 65,651 ​ 67,498 Due after ten years ​ 121,478 ​ 123,828 Sub-total ​ 253,811 ​ 259,117 Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies: ​ ​ Residential pass-through securities ​ 59,920 ​ 60,629 Residential collateralized mortgage obligations ​ 43,811 ​ 44,593 Commercial mortgage-backed securities ​ 72,341 ​ 73,518 Total ​ $ 429,883 ​ $ 437,857 ​ The Corporation’s mortgage-backed securities and collateralized mortgage obligations have stated maturities that may differ from actual maturities due to borrowers’ ability to prepay obligations. Cash flows from such investments are dependent upon the performance of the underlying mortgage loans and are generally influenced by the level of interest rates. In the table above, mortgage-backed securities and collateralized mortgage obligations are shown in one period. Investment securities carried at $ 254,062,000 at September 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. Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) whether the Corporation intends to sell the security or more likely than not will be required to sell the security before its anticipated recovery. A summary of information management considered in evaluating debt and equity securities for OTTI at September 30, 2021 is provided below. Debt Securities At September 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 September 30, 2021 and December 31, 2020 to be temporary. Equity Securities C&N Bank is a member of the Federal Home Loan Bank of Pittsburgh (FHLB-Pittsburgh), which is one of 11 regional Federal Home Loan Banks. As a member, C&N Bank is required to purchase and maintain stock in FHLB-Pittsburgh. 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 $ 9,400,000 at September 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 September 30, 2021 and December 31, 2020. In making this determination, management concluded that 17 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q recovery of total outstanding par value, which equals the carrying value, is expected. The decision was based on review of financial information that FHLB-Pittsburgh has made publicly available. The Corporation has a marketable equity security included in other assets in the consolidated balance sheets with a carrying value of $ 981,000 at September 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 $ 19,000 at September 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. ​ 7. LOANS The loans receivable portfolio is segmented into commercial, residential mortgage and consumer loans. Loans outstanding at September 30, 2021 and December 31, 2020 are summarized by segment, and by classes within each segment, as follows: Summary of Loans by Type (In Thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, December 31, ​ ​ 2021 ​ 2020 Commercial: ​ ​ Commercial loans secured by real estate ​ $ 553,389 ​ $ 531,810 Commercial and industrial ​ 152,244 ​ 159,577 Paycheck Protection Program - 1st Draw ​ ​ 5,747 ​ ​ 132,269 Paycheck Protection Program - 2nd Draw ​ ​ 56,981 ​ ​ 0 Political subdivisions ​ 73,503 ​ 53,221 Commercial construction and land ​ 53,267 ​ 42,874 Loans secured by farmland ​ 10,812 ​ 11,736 Multi-family (5 or more) residential ​ 52,962 ​ 55,811 Agricultural loans ​ 3,092 ​ 3,164 Other commercial loans ​ 17,312 ​ 17,289 Total commercial ​ 979,309 ​ 1,007,751 Residential mortgage: ​ ​ Residential mortgage loans - first liens ​ ​ 494,376 ​ ​ 532,947 Residential mortgage loans - junior liens ​ 24,303 ​ 27,311 Home equity lines of credit ​ 38,465 ​ 39,301 1-4 Family residential construction ​ 21,719 ​ 20,613 Total residential mortgage ​ 578,863 ​ 620,172 Consumer ​ 17,536 ​ 16,286 Total ​ 1,575,708 ​ 1,644,209 Less: allowance for loan losses ​ ( 12,700 ) ​ ( 11,385 ) Loans, net ​ $ 1,563,008 ​ $ 1,632,824 ​ In the table above, outstanding loan balances are presented net of deferred loan origination fees, net, of $ 5,719,000 at September 30, 2021 and $ 6,286,000 at December 31, 2020. The Corporation grants loans to individuals as well as commercial and tax-exempt entities. Commercial, residential and personal loans are made to customers geographically concentrated in northcentral Pennsylvania, the southern tier of New York State, southeastern Pennsylvania and southcentral Pennsylvania. Although the Corporation has a diversified loan portfolio, a significant portion of its debtors’ ability to honor their contracts is dependent on the local economic conditions within the region. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law. The CARES Act is a $ 2 trillion stimulus package designed to provide relief to U.S. businesses and consumers struggling as a result of the pandemic. A 18 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q provision in the CARES Act includes creation of the Paycheck Protection Program (“PPP”) through the Small Business Administration (“SBA”) and Treasury Department. Under the PPP, the Corporation, as an SBA-certified lender, provides SBA-guaranteed loans to small businesses to pay their employees, rent, mortgage interest, and utilities. PPP loans will be forgiven subject to clients’ providing documentation evidencing their compliant use of funds and otherwise complying with the terms of the program. Information related to PPP loans advanced pursuant to the CARES Act are labeled “1st Draw” within the tables. Section 4013 of the CARES Act provides that, from the period beginning March 1, 2020 until 60 days after the date on which the national emergency concerning the coronavirus (COVID-19) pandemic declared by the President of the United States under the National Emergencies Act terminates (the “applicable period”), the Corporation may elect to suspend U.S. GAAP for loan modifications related to the pandemic that would otherwise be categorized as troubled debt restructurings (TDRs) and suspend any determination of a loan modified as a result of the effects of the pandemic as being a TDR, including impairment for accounting purposes. The suspension is applicable for the term of the loan modification that occurs during the applicable period for a loan that was not more than 30 days past due as of December 31, 2019. The suspension is not applicable to any adverse impact on the credit of a borrower that is not related to the pandemic. In addition, the banking regulators and other financial regulators, on March 22, 2020 and revised April 7, 2020, issued a joint interagency statement titled the “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus” that encourages financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of the COVID-19 pandemic. Pursuant to the interagency statement, loan modifications that do not meet the conditions of Section 4013 of the CARES Act may still qualify as a modification that does not need to be accounted for as a TDR. Specifically, the agencies confirmed with the FASB staff that short-term modifications made in good faith in response to the pandemic to borrowers who were current prior to any relief are not TDRs under U.S. GAAP. This includes short-term (e.g. six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented. Appropriate allowances for loan and lease losses are expected to be maintained. With regard to loans not otherwise reportable as past due, financial institutions are not expected to designate loans with deferrals granted due to the pandemic as past due because of the deferral. The interagency statement also states that during short-term pandemic-related loan modifications, these loans generally should not be reported as nonaccrual. On December 27, 2020, the President of the United States signed into law the Consolidated Appropriations Act, 2021 (the “CAA”), which includes provisions that broadly address additional COVID-19 responses and relief. Among the additional relief measures included are certain extensions to elements of the CARES Act, including extension of temporary relief from troubled debt restructurings established under Section 4013 of the CARES Act to the earlier of a) January 1, 2022, or b) the date that is 60 days after the date on which the national COVID-19 emergency terminates. The CAA also includes additional funding for the PPP with additional eligibility requirements for borrowers with generally the same loan terms as provided under the CARES Act. Information related to PPP loans advanced pursuant to the CAA are labeled “2nd Draw” within the tables. The maximum term of PPP loans is five years. Most of the Corporation’s 1st Draw PPP loans have two-year terms, while 2nd Draw PPP loans have five-year terms and the Corporation will be repaid sooner to the extent the loans are forgiven. The interest rate on PPP loans is 1%, and the Corporation has received fees from the SBA ranging between 1% and 5% per loan, depending on the size of the loan. Fees on PPP loans, net of origination costs and a market rate adjustment on PPP loans acquired from Covenant, are recognized in interest income as a yield adjustment over the term of the loans. The Corporation began accepting and processing applications for loans under the PPP on April 3, 2020. Covenant also engaged in PPP lending starting in early April 2020. As of September 30, 2021, the recorded investment in 1st Draw PPP loans was $ 5,747,000 , including contractual principal balances of $ 5,982,000 , increased by a market rate adjustment on PPP loans acquired from Covenant of $ 2,000 and reduced by net deferred origination fees of $ 237,000 . The recorded investment in 2nd Draw PPP loans was $ 56,981,000 , including contractual principal balances of $ 59,190,000 reduced by net deferred origination fees of $ 2,208,000 . Accretion of fees received on PPP loans, net of amortization of the market rate adjustment on PPP loans acquired from Covenant, was $ 1,409,000 in the three-month period ended September 30, 2021 and $ 467,000 in the three-month period ended September 30, 2020. Accretion of fees received on PPP loans, net of amortization of the market rate adjustment on PPP loans acquired from Covenant, was $ 3,975,000 in the nine-month period ended September 30, 2021 and $ 804,000 in the nine-month period ended September 30, 2020. ​ 19 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q To work with clients impacted by COVID-19, the Corporation offers 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 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 September 30, 2021. Most of the initial modifications under the program became effective in 2020 and provided a deferral of interest or principal and interest for 90-to-180 days. At September 30, 2021, there were no loans in deferral status under the program. At December 31, 2020, there were 45 loans with a total recorded investment of $ 37,397,000 , in deferral status under the program. As described in Note 2, effective July 1, 2020, the Corporation acquired loans pursuant to its acquisition of Covenant, and effective April 1, 2019, the Corporation acquired loans pursuant to the acquisition of Monument Bancorp, Inc. (“Monument”). 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. 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 nine-month periods ended September 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 ​ Nine Months Ended ​ ​ September 30, ​ September 30, ​ September 30, ​ September 30, ​ ​ 2021 ​ 2020 ​ 2021 ​ 2020 Market Rate Adjustment ​ ​ ​ ​ Adjustments to gross amortized cost of loans at beginning of period ​ $ ( 5 ) ​ $ ( 1,103 ) ​ $ 718 ​ $ ( 1,415 ) Market rate adjustment recorded in acquisition ​ ​ 0 ​ ​ 2,909 ​ ​ 0 ​ ​ 2,909 Amortization recognized in interest income ​ ​ ( 368 ) ​ ​ ( 452 ) ​ ​ ( 1,091 ) ​ ​ ( 140 ) Adjustments to gross amortized cost of loans at end of period ​ $ ( 373 ) ​ $ 1,354 ​ $ ( 373 ) ​ $ 1,354 Credit Adjustment on Non-impaired Loans ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Adjustments to gross amortized cost of loans at beginning of period ​ $ ( 4,502 ) ​ $ ( 878 ) ​ $ ( 5,979 ) ​ $ ( 1,216 ) Credit adjustment recorded in acquisition ​ ​ 0 ​ ​ ( 7,219 ) ​ ​ 0 ​ ​ ( 7,219 ) Accretion recognized in interest income ​ 666 ​ 970 ​ 2,143 ​ 1,308 Adjustments to gross amortized cost of loans at end of period ​ $ ( 3,836 ) ​ $ ( 7,127 ) ​ $ ( 3,836 ) ​ $ ( 7,127 ) ​ A summary of PCI loans held at September 30, 2021 and December 31, 2020 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) ​ September 30, ​ December 31, ​ 2021 2020 Outstanding balance ​ $ 10,064 ​ $ 10,316 Carrying amount ​ 6,624 ​ 6,841 ​ The Corporation maintains an allowance for loan losses that represents management’s estimate of the losses inherent in the loan portfolio as of the balance sheet date and recorded as a reduction of the investment in loans. The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs a quarterly evaluation of the adequacy of the allowance. The allowance is based on the Corporation’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available. In the process of evaluating the loan portfolio, management also considers the Corporation’s exposure to losses from unfunded loan commitments. As of September 30, 2021 and December 31, 2020, management determined that no allowance for credit losses related to unfunded loan commitments was required. 20 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q Transactions within the allowance for loan losses, summarized by segment and class, for the three-month and nine-month periods ended September 30, 2021 and 2020 were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, 2021 ​ June 30, 2021 ​ ​ ​ September 30, 2021 (In Thousands) Balance Charge-offs Recoveries Provision (Credit) Balance Allowance for Loan Losses: ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial: ​ ​ ​ ​ ​ Commercial loans secured by real estate ​ $ 3,452 ​ $ 0 ​ $ 0 ​ $ 368 ​ $ 3,820 Commercial and industrial ​ 2,781 ​ ( 1,194 ) ​ 6 ​ 947 ​ 2,540 Commercial construction and land ​ 452 ​ 0 ​ 0 ​ 107 ​ 559 Loans secured by farmland ​ 113 ​ 0 ​ 0 ​ ( 1 ) ​ 112 Multi-family (5 or more) residential ​ 150 ​ 0 ​ 0 ​ 46 ​ 196 Agricultural loans ​ 25 ​ 0 ​ 0 ​ 8 ​ 33 Other commercial loans ​ 145 ​ 0 ​ 0 ​ 28 ​ 173 Total commercial ​ 7,118 ​ ( 1,194 ) ​ 6 ​ 1,503 ​ 7,433 Residential mortgage: ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential mortgage loans - first liens ​ ​ 3,536 ​ ​ 0 ​ ​ 1 ​ ​ 29 ​ ​ 3,566 Residential mortgage loans - junior liens ​ 327 ​ 0 ​ 0 ​ ( 6 ) ​ 321 Home equity lines of credit ​ 294 ​ 0 ​ 0 ​ ( 11 ) ​ 283 1-4 Family residential construction ​ 198 ​ 0 ​ 0 ​ ( 9 ) ​ 189 Total residential mortgage ​ 4,355 ​ 0 ​ 1 ​ 3 ​ ​ 4,359 Consumer ​ 231 ​ ( 26 ) ​ 8 ​ 24 ​ 237 Unallocated ​ 671 ​ 0 ​ 0 ​ 0 ​ 671 Total Allowance for Loan Losses ​ $ 12,375 ​ $ ( 1,220 ) ​ $ 15 ​ $ 1,530 ​ $ 12,700 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, 2020 ​ June 30, 2020 ​ ​ ​ September 30, 2020 (In Thousands) Balance Charge-offs Recoveries Provision (Credit) Balance Allowance for Loan Losses: ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial: ​ ​ ​ ​ ​ Commercial loans secured by real estate ​ $ 2,426 ​ $ 0 ​ $ 0 ​ $ ( 40 ) ​ $ 2,386 Commercial and industrial ​ 2,496 ​ ( 2,219 ) ​ 0 ​ 1,974 ​ 2,251 Commercial construction and land ​ 420 ​ 0 ​ 0 ​ 20 ​ 440 Loans secured by farmland ​ 146 ​ 0 ​ 0 ​ ( 25 ) ​ 121 Multi-family (5 or more) residential ​ 163 ​ 0 ​ 0 ​ 64 ​ 227 Agricultural loans ​ 40 ​ 0 ​ 0 ​ ( 3 ) ​ 37 Other commercial loans ​ 167 ​ 0 ​ 0 ​ 0 ​ 167 Total commercial ​ 5,858 ​ ( 2,219 ) ​ 0 ​ 1,990 ​ 5,629 Residential mortgage: ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential mortgage loans - first liens ​ ​ 3,531 ​ ​ 0 ​ ​ 26 ​ ​ ( 92 ) ​ ​ 3,465 Residential mortgage loans - junior liens ​ 365 ​ 0 ​ 0 ​ ( 7 ) ​ 358 Home equity lines of credit ​ 287 ​ 0 ​ 1 ​ 1 ​ 289 1-4 Family residential construction ​ 137 ​ 0 ​ 0 ​ 32 ​ 169 Total residential mortgage ​ 4,320 ​ 0 ​ 27 ​ ( 66 ) ​ 4,281 Consumer ​ 263 ​ ( 30 ) ​ 8 ​ 17 ​ 258 Unallocated ​ 585 ​ 0 ​ 0 ​ 0 ​ 585 Total Allowance for Loan Losses ​ $ 11,026 ​ $ ( 2,249 ) ​ $ 35 ​ $ 1,941 ​ $ 10,753 ​ For the three months ended September 30, 2021, the provision for loan losses was $ 1,530,000 , a decrease in expense of $ 411,000 as compared to $ 1,941,000 for the three months ended September 30, 2020. The third quarter 2021 provision included a net charge of $ 611,000 related to specific loans (net charge-offs of $ 1,205,000 offset by a net decrease in specific allowances on loans of $ 594,000 ), and an increase of $ 919,000 in the collectively determined portion of the allowance. In the third quarter 2021, the Corporation recorded a partial charge-off of $ 1,194,000 on a commercial loan with an outstanding balance of $ 3,496,000 at the time of the charge-off. The 21 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q partial charge-off amount exceeded the specific allowance of $ 583,000 that had been established on this loan at June 30, 2021. The provision for loan losses in the third quarter 2020 included the net impact of a charge-off of $ 2,219,000 on a commercial loan of $ 3,500,000 for which the previously-established allowance had been $ 1,193,000 . ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ ​ ​ ​ ​ September 30, Nine Months Ended September 30, 2021 ​ 2020 ​ ​ ​ ​ ​ ​ ​ Provision ​ 2021 (In Thousands) ​ Balance ​ Charge-offs ​ Recoveries ​ (Credit) ​ Balance Allowance for Loan Losses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial: ​ ​ ​ ​ ​ Commercial loans secured by real estate ​ $ 3,051 ​ $ 0 ​ $ 2 ​ $ 767 ​ $ 3,820 Commercial and industrial ​ 2,245 ​ ( 1,194 ) ​ 20 ​ 1,469 ​ 2,540 Commercial construction and land ​ 454 ​ 0 ​ 0 ​ 105 ​ 559 Loans secured by farmland ​ 120 ​ 0 ​ 0 ​ ( 8 ) ​ 112 Multi-family (5 or more) residential ​ 236 ​ 0 ​ 0 ​ ( 40 ) ​ 196 Agricultural loans ​ 34 ​ 0 ​ 0 ​ ( 1 ) ​ 33 Other commercial loans ​ 168 ​ 0 ​ 0 ​ 5 ​ 173 Total commercial ​ 6,308 ​ ( 1,194 ) ​ 22 ​ 2,297 ​ 7,433 Residential mortgage: ​ ​ ​ ​ ​ Residential mortgage loans - first liens ​ ​ 3,524 ​ ​ ( 11 ) ​ ​ 3 ​ ​ 50 ​ ​ 3,566 Residential mortgage loans - junior liens ​ 349 ​ 0 ​ 0 ​ ( 28 ) ​ 321 Home equity lines of credit ​ 281 ​ 0 ​ 2 ​ 0 ​ 283 1-4 Family residential construction ​ 99 ​ 0 ​ 0 ​ 90 ​ 189 Total residential mortgage ​ 4,253 ​ ( 11 ) ​ 5 ​ 112 ​ 4,359 Consumer ​ 239 ​ ( 73 ) ​ 33 ​ 38 ​ 237 Unallocated ​ 585 ​ 0 ​ 0 ​ 86 ​ 671 Total Allowance for Loan Losses ​ $ 11,385 ​ $ ( 1,278 ) ​ $ 60 ​ $ 2,533 ​ $ 12,700 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ ​ ​ ​ ​ September 30, Nine Months Ended September 30, 2020 ​ 2019 ​ ​ ​ ​ ​ ​ ​ Provision ​ 2020 (In Thousands) ​ Balance ​ Charge-offs ​ Recoveries ​ (Credit) ​ Balance Allowance for Loan Losses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial: ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial loans secured by real estate ​ $ 1,921 ​ $ 0 ​ $ 0 ​ $ 465 ​ $ 2,386 Commercial and industrial ​ 1,391 ​ ( 2,236 ) ​ 0 ​ 3,096 ​ 2,251 Commercial construction and land ​ 966 ​ ( 107 ) ​ 0 ​ ( 419 ) ​ 440 Loans secured by farmland ​ 158 ​ 0 ​ 0 ​ ( 37 ) ​ 121 Multi-family (5 or more) residential ​ 156 ​ 0 ​ 0 ​ 71 ​ 227 Agricultural loans ​ 41 ​ 0 ​ 0 ​ ( 4 ) ​ 37 Other commercial loans ​ 155 ​ 0 ​ 0 ​ 12 ​ 167 Total commercial ​ 4,788 ​ ( 2,343 ) ​ 0 ​ 3,184 ​ 5,629 Residential mortgage: ​ ​ ​ ​ ​ Residential mortgage loans - first liens ​ ​ 3,405 ​ ​ 0 ​ ​ 28 ​ ​ 32 ​ ​ 3,465 Residential mortgage loans - junior liens ​ 384 ​ 0 ​ 1 ​ ( 27 ) ​ 358 Home equity lines of credit ​ 276 ​ 0 ​ 3 ​ 10 ​ 289 1-4 Family residential construction ​ 117 ​ 0 ​ 0 ​ 52 ​ 169 Total residential mortgage ​ 4,182 ​ 0 ​ 32 ​ 67 ​ 4,281 Consumer ​ 281 ​ ( 100 ) ​ 35 ​ 42 ​ 258 Unallocated ​ 585 ​ 0 ​ 0 ​ 0 ​ 585 Total Allowance for Loan Losses ​ $ 9,836 ​ $ ( 2,443 ) ​ $ 67 ​ $ 3,293 ​ $ 10,753 ​ ​ 22 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q For the nine months ended September 30, 2021, the provision for loan losses was $ 2,533,000 , a decrease in expense of $ 760,000 as compared to $ 3,293,000 recorded for the nine months ended September 30, 2020. The provision for the nine months ended September 30, 2021, includes the impact of a charge-off of $ 1,194,000 on a commercial loan with an ouststanding balance of $ 3,496,000 , as previously discussed. In comparison, the provision for loan losses in the first nine months of 2020 included the impact of the $ 2,219,000 charge-off of a commercial loan of $ 3,500,000 . In determining the larger loan relationships for detailed assessment under the specific allowance component, the Corporation uses an internal risk rating system. Under the risk rating system, the Corporation classifies problem or potential problem loans as “Special Mention,” “Substandard,” or “Doubtful” on the basis of currently existing facts, conditions and values. Substandard loans include those characterized by the distinct possibility that the Corporation will sustain some loss if the deficiencies are not corrected. Loans classified as Doubtful have all the weaknesses inherent in those classified as Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Loans that do not currently expose the Corporation to sufficient risk to warrant classification as Substandard or Doubtful, but possess weaknesses that deserve management’s close attention, are deemed to be Special Mention. Risk ratings are updated any time that conditions or the situation warrants. 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 September 30, 2021 and December 31, 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2021 ​ ​ ​ ​ ​ ​ ​ ​ Purchased ​ ​ (In Thousands) ​ ​ ​ ​ Special ​ ​ ​ ​ ​ ​ ​ Credit ​ ​ ​ ​ ​ Pass ​ Mention ​ Substandard ​ Doubtful ​ Impaired ​ Total Commercial: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial loans secured by real estate ​ $ 519,673 ​ $ 15,055 ​ $ 14,473 ​ $ 0 ​ $ 4,188 ​ $ 553,389 Commercial and Industrial ​ 136,858 ​ 8,578 ​ 6,028 ​ 0 ​ 780 ​ 152,244 Paycheck Protection Program - 1st Draw ​ ​ 5,747 ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 5,747 Paycheck Protection Program - 2nd Draw ​ ​ 56,981 ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 56,981 Political subdivisions ​ 73,503 ​ 0 ​ 0 ​ 0 ​ 0 ​ 73,503 Commercial construction and land ​ 52,504 ​ 715 ​ 48 ​ 0 ​ 0 ​ 53,267 Loans secured by farmland ​ 9,639 ​ 194 ​ 979 ​ 0 ​ 0 ​ 10,812 Multi-family (5 or more) residential ​ 48,154 ​ 2,352 ​ 878 ​ 0 ​ 1,578 ​ 52,962 Agricultural loans ​ 2,533 ​ 0 ​ 559 ​ 0 ​ 0 ​ 3,092 Other commercial loans ​ 17,307 ​ 5 ​ 0 ​ 0 ​ 0 ​ 17,312 Total commercial ​ 922,899 ​ 26,899 ​ 22,965 ​ 0 ​ 6,546 ​ 979,309 Residential Mortgage: ​ ​ ​ ​ ​ ​ Residential mortgage loans - first liens ​ ​ 482,710 ​ ​ 5,066 ​ ​ 6,528 ​ ​ 0 ​ ​ 72 ​ ​ 494,376 Residential mortgage loans - junior liens ​ 23,676 ​ 107 ​ 514 ​ 0 ​ 6 ​ 24,303 Home equity lines of credit ​ 37,889 ​ 59 ​ 517 ​ 0 ​ 0 ​ 38,465 1-4 Family residential construction ​ 21,719 ​ 0 ​ 0 ​ 0 ​ 0 ​ 21,719 Total residential mortgage ​ 565,994 ​ 5,232 ​ 7,559 ​ 0 ​ 78 ​ 578,863 Consumer ​ 17,505 ​ 0 ​ 31 ​ 0 ​ 0 ​ 17,536 Totals ​ $ 1,506,398 ​ $ 32,131 ​ $ 30,555 ​ $ 0 ​ $ 6,624 ​ $ 1,575,708 ​ 23 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 ​ ​ ​ ​ ​ ​ ​ ​ Purchased ​ ​ (In Thousands) ​ ​ ​ ​ Special ​ ​ ​ ​ ​ ​ ​ Credit ​ ​ ​ ​ ​ Pass ​ Mention ​ Substandard ​ Doubtful ​ Impaired ​ Total Commercial: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial loans secured by real estate ​ $ 494,876 ​ $ 17,374 ​ $ 15,262 ​ $ 0 ​ $ 4,298 ​ $ 531,810 Commercial and Industrial ​ 143,500 ​ 8,025 ​ 7,268 ​ 0 ​ 784 ​ 159,577 Paycheck Protection Program - 1st Draw ​ ​ 132,269 ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 132,269 Political subdivisions ​ 53,221 ​ 0 ​ 0 ​ 0 ​ 0 ​ 53,221 Commercial construction and land ​ 42,110 ​ 715 ​ 49 ​ 0 ​ 0 ​ 42,874 Loans secured by farmland ​ 10,473 ​ 405 ​ 858 ​ 0 ​ 0 ​ 11,736 Multi-family (5 or more) residential ​ 50,563 ​ 2,405 ​ 1,229 ​ 0 ​ 1,614 ​ 55,811 Agricultural loans ​ 2,569 ​ 0 ​ 595 ​ 0 ​ 0 ​ 3,164 Other commercial loans ​ 17,289 ​ 0 ​ 0 ​ 0 ​ 0 ​ 17,289 Total commercial ​ 946,870 ​ 28,924 ​ 25,261 ​ 0 ​ 6,696 ​ 1,007,751 Residential Mortgage: ​ ​ ​ ​ ​ ​ Residential Mortgage loans - first liens ​ ​ 516,685 ​ ​ 6,192 ​ ​ 9,994 ​ ​ 0 ​ ​ 76 ​ ​ 532,947 Residential Mortgage loans - junior liens ​ 26,480 ​ 141 ​ 621 ​ 0 ​ 69 ​ 27,311 Home equity lines of credit ​ 38,529 ​ 59 ​ 713 ​ 0 ​ 0 ​ 39,301 1-4 Family residential construction ​ 20,613 ​ 0 ​ 0 ​ 0 ​ 0 ​ 20,613 Total residential mortgage ​ 602,307 ​ 6,392 ​ 11,328 ​ 0 ​ 145 ​ 620,172 Consumer ​ 16,172 ​ 0 ​ 114 ​ 0 ​ 0 ​ 16,286 Totals ​ $ 1,565,349 ​ $ 35,316 ​ $ 36,703 ​ $ 0 ​ $ 6,841 ​ $ 1,644,209 ​ 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 September 30, 2021 and December 31, 2020. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2021 Loans: ​ Allowance for Loan Losses: (In Thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Individually ​ Collectively ​ ​ ​ ​ Individually ​ Collectively ​ ​ ​ Evaluated Evaluated Totals Evaluated Evaluated Totals Commercial: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial loans secured by real estate ​ $ 11,303 ​ $ 542,086 ​ $ 553,389 ​ $ 672 ​ $ 3,148 ​ $ 3,820 Commercial and industrial ​ 3,598 ​ 148,646 ​ 152,244 ​ 72 ​ 2,468 ​ 2,540 Paycheck Protection Program - 1st Draw ​ 0 ​ 5,747 ​ 5,747 ​ 0 ​ 0 ​ 0 Paycheck Protection Program - 2nd Draw ​ ​ 0 ​ ​ 56,981 ​ ​ 56,981 ​ ​ 0 ​ ​ 0 ​ ​ 0 Political subdivisions ​ 0 ​ 73,503 ​ 73,503 ​ 0 ​ 0 ​ 0 Commercial construction and land ​ 0 ​ 53,267 ​ 53,267 ​ 0 ​ 559 ​ 559 Loans secured by farmland ​ 84 ​ 10,728 ​ 10,812 ​ 0 ​ 112 ​ 112 Multi-family (5 or more) residential ​ 1,578 ​ 51,384 ​ 52,962 ​ 0 ​ 196 ​ 196 Agricultural loans ​ 0 ​ 3,092 ​ 3,092 ​ 0 ​ 33 ​ 33 Other commercial loans ​ 0 ​ 17,312 ​ 17,312 ​ 0 ​ 173 ​ 173 Total commercial ​ 16,563 ​ 962,746 ​ 979,309 ​ 744 ​ 6,689 ​ 7,433 Residential mortgage: ​ ​ ​ ​ ​ ​ Residential mortgage loans - first liens ​ ​ 1,134 ​ ​ 493,242 ​ ​ 494,376 ​ ​ 0 ​ ​ 3,566 ​ ​ 3,566 Residential mortgage loans - junior liens ​ 317 ​ 23,986 ​ 24,303 ​ 139 ​ 182 ​ 321 Home equity lines of credit ​ 0 ​ 38,465 ​ 38,465 ​ 0 ​ 283 ​ 283 1-4 Family residential construction ​ 0 ​ 21,719 ​ 21,719 ​ 0 ​ 189 ​ 189 Total residential mortgage ​ 1,451 ​ 577,412 ​ 578,863 ​ 139 ​ 4,220 ​ 4,359 Consumer ​ 0 ​ 17,536 ​ 17,536 ​ 0 ​ 237 ​ 237 Unallocated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 671 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total ​ $ 18,014 ​ $ 1,557,694 ​ $ 1,575,708 ​ $ 883 ​ $ 11,146 ​ $ 12,700 24 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 Loans: ​ Allowance for Loan Losses: (In Thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Individually ​ Collectively ​ ​ ​ ​ Individually ​ Collectively ​ ​ ​ Evaluated Evaluated Totals Evaluated Evaluated Totals Commercial: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial loans secured by real estate ​ $ 11,962 ​ $ 519,848 ​ $ 531,810 ​ $ 692 ​ $ 2,359 ​ $ 3,051 Commercial and industrial ​ 1,359 ​ 158,218 ​ 159,577 ​ 71 ​ 2,174 ​ 2,245 Paycheck Protection Program - 1st Draw ​ 0 ​ 132,269 ​ 132,269 ​ 0 ​ 0 ​ 0 Political subdivisions ​ 0 ​ 53,221 ​ 53,221 ​ 0 ​ 0 ​ 0 Commercial construction and land ​ 0 ​ 42,874 ​ 42,874 ​ 0 ​ 454 ​ 454 Loans secured by farmland ​ 84 ​ 11,652 ​ 11,736 ​ 0 ​ 120 ​ 120 Multi-family (5 or more) residential ​ 1,614 ​ 54,197 ​ 55,811 ​ 0 ​ 236 ​ 236 Agricultural loans ​ 0 ​ 3,164 ​ 3,164 ​ 0 ​ 34 ​ 34 Other commercial loans ​ 0 ​ 17,289 ​ 17,289 ​ 0 ​ 168 ​ 168 Total commercial ​ 15,019 ​ 992,732 ​ 1,007,751 ​ 763 ​ 5,545 ​ 6,308 Residential mortgage: ​ ​ ​ ​ ​ ​ Residential mortgage loans - first liens ​ ​ 2,385 ​ ​ 530,562 ​ ​ 532,947 ​ ​ 9 ​ ​ 3,515 ​ ​ 3,524 Residential mortgage loans - junior liens ​ 414 ​ 26,897 ​ 27,311 ​ 153 ​ 196 ​ 349 Home equity lines of credit ​ 0 ​ 39,301 ​ 39,301 ​ 0 ​ 281 ​ 281 1-4 Family residential construction ​ 0 ​ 20,613 ​ 20,613 ​ 0 ​ 99 ​ 99 Total residential mortgage ​ 2,799 ​ 617,373 ​ 620,172 ​ 162 ​ 4,091 ​ 4,253 Consumer ​ 0 ​ 16,286 ​ 16,286 ​ 0 ​ 239 ​ 239 Unallocated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 585 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total ​ $ 17,818 ​ $ 1,626,391 ​ $ 1,644,209 ​ $ 925 ​ $ 9,875 ​ $ 11,385 ​ Summary information related to impaired loans at September 30, 2021 and December 31, 2020 is provided in the table immediately below. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) ​ September 30, 2021 ​ December 31, 2020 ​ ​ Unpaid ​ ​ ​ ​ ​ ​ ​ Unpaid ​ ​ ​ ​ ​ ​ ​ ​ Principal ​ Recorded ​ Related ​ Principal ​ Recorded ​ Related ​ Balance Investment Allowance Balance Investment Allowance With no related allowance recorded: ​ ​ ​ ​ ​ ​ Commercial loans secured by real estate ​ $ 7,068 ​ $ 4,823 ​ $ 0 ​ $ 7,168 ​ $ 5,398 ​ $ 0 Commercial and industrial ​ 5,930 ​ 3,526 ​ 0 ​ 1,781 ​ 1,287 ​ 0 Residential mortgage loans - first liens ​ ​ 786 ​ ​ 760 ​ ​ 0 ​ ​ 1,248 ​ ​ 1,248 ​ ​ 0 Residential mortgage loans - junior liens ​ 65 ​ 18 ​ 0 ​ 160 ​ 105 ​ 0 Loans secured by farmland ​ 84 ​ 84 ​ 0 ​ 84 ​ 84 ​ 0 Multi-family (5 or more) residential ​ ​ 2,734 ​ ​ 1,578 ​ ​ 0 ​ ​ 2,770 ​ ​ 1,614 ​ ​ 0 Total with no related allowance recorded ​ 16,667 ​ 10,789 ​ 0 ​ 13,211 ​ 9,736 ​ 0 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ With a related allowance recorded: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial loans secured by real estate ​ ​ 6,480 ​ ​ 6,480 ​ ​ 672 ​ ​ 6,501 ​ ​ 6,501 ​ ​ 691 Commercial and industrial ​ 72 ​ 72 ​ 72 ​ 72 ​ 72 ​ 72 Residential mortgage loans - first liens ​ 374 ​ 374 ​ 0 ​ 1,200 ​ 1,200 ​ 9 Residential mortgage loans - junior liens ​ 299 ​ 299 ​ 139 ​ 309 ​ 309 ​ 153 Total with a related allowance recorded ​ 7,225 ​ 7,225 ​ 883 ​ 8,082 ​ 8,082 ​ 925 Total ​ $ 23,892 ​ $ 18,014 ​ $ 883 ​ $ 21,293 ​ $ 17,818 ​ $ 925 ​ ​ 25 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q In the table immediately above, loans to two borrowers are presented under the Residential mortgage loans – first liens and Residential mortgage loans – junior liens classes. Each of these loans is collateralized by one property, and the allowance associated with each of these loans was determined based on an analysis of the total amounts of the Corporation’s exposure in comparison to the estimated net proceeds if the Corporation were to sell the property. The total allowance related to these two borrowers was $ 139,000 at September 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest Income Recognized on ​ ​ Average Investment in Impaired Loans ​ Impaired Loans on a Cash Basis ​ ​ Three Months Ended ​ Nine Months Ended ​ Three Months Ended ​ Nine Months Ended ​ ​ September 30, ​ September 30, ​ September 30, ​ September 30, ​ 2021 ​ 2020 ​ 2021 2020 ​ 2021 ​ 2020 ​ 2021 2020 Commercial: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial loans secured by real estate ​ $ 11,252 ​ $ 7,298 ​ $ 11,811 ​ $ 3,779 ​ $ 172 ​ $ 65 ​ $ 401 ​ $ 81 Commercial and industrial ​ ​ 3,844 ​ ​ 2,235 ​ 2,566 ​ 3,178 ​ ​ 4 ​ ​ 1 ​ 25 ​ 21 Commercial construction and land ​ ​ 48 ​ ​ 49 ​ 48 ​ 678 ​ ​ 2 ​ ​ 1 ​ 2 ​ 14 Loans secured by farmland ​ ​ 84 ​ ​ 253 ​ 84 ​ 397 ​ ​ 0 ​ ​ 2 ​ 1 ​ 26 Multi-family (5 or more) residential ​ ​ 1,578 ​ ​ 0 ​ ​ 1,584 ​ ​ 0 ​ ​ 31 ​ ​ 0 ​ ​ 122 ​ ​ 0 Agricultural loans ​ ​ 66 ​ ​ 76 ​ 67 ​ 76 ​ ​ 0 ​ ​ 2 ​ 3 ​ 4 Other commercial loans ​ ​ 0 ​ ​ 0 ​ 0 ​ 25 ​ ​ 0 ​ ​ 0 ​ 0 ​ 1 Total commercial ​ ​ 16,872 ​ ​ 9,911 ​ 16,160 ​ 8,133 ​ ​ 209 ​ ​ 71 ​ 554 ​ 147 Residential mortgage: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential mortgage loans - first lien ​ ​ 1,322 ​ ​ 2,159 ​ ​ 1,830 ​ ​ 1,579 ​ ​ 11 ​ ​ 27 ​ ​ 68 ​ ​ 70 Residential mortgage loans - junior lien ​ ​ 386 ​ ​ 384 ​ 417 ​ 386 ​ ​ 1 ​ ​ 5 ​ 10 ​ 18 Home equity lines of credit ​ ​ 0 ​ ​ 65 ​ 0 ​ 65 ​ ​ 0 ​ ​ 0 ​ 0 ​ 2 Total residential mortgage ​ ​ 1,708 ​ ​ 2,608 ​ 2,247 ​ 2,030 ​ ​ 12 ​ ​ 32 ​ 78 ​ 90 Total ​ $ 18,580 ​ $ 12,519 ​ $ 18,407 ​ $ 10,163 ​ $ 221 ​ $ 103 ​ $ 632 ​ $ 237 ​ 26 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q The breakdown by portfolio segment and class of nonaccrual loans and loans past due ninety days or more and still accruing is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) ​ September 30, 2021 ​ December 31, 2020 ​ ​ Past Due ​ ​ ​ ​ Past Due ​ ​ ​ ​ ​ 90+ Days and ​ ​ ​ ​ 90+ Days and ​ ​ ​ ​ Accruing Nonaccrual Accruing Nonaccrual Commercial: ​ ​ ​ ​ ​ ​ Commercial loans secured by real estate ​ $ 752 ​ $ 11,205 ​ $ 395 ​ $ 11,550 Commercial and industrial ​ 99 ​ 3,232 ​ 142 ​ 970 Commercial construction and land ​ 0 ​ 48 ​ 0 ​ 49 Loans secured by farmland ​ 30 ​ 84 ​ 188 ​ 84 Multi-family (5 or more) residential ​ ​ 0 ​ ​ 1,578 ​ ​ 0 ​ ​ 1,614 Agricultural loans ​ ​ 66 ​ ​ 0 ​ ​ 0 ​ ​ 0 Other commercial ​ 0 ​ 0 ​ 71 ​ 0 Total commercial ​ 947 ​ 16,147 ​ 796 ​ 14,267 Residential mortgage: ​ ​ ​ ​ Residential mortgage loans - first liens ​ ​ 832 ​ ​ 4,569 ​ ​ 838 ​ ​ 6,387 Residential mortgage loans - junior liens ​ 71 ​ 305 ​ 52 ​ 378 Home equity lines of credit ​ 64 ​ 289 ​ 233 ​ 299 Total residential mortgage ​ 967 ​ 5,163 ​ 1,123 ​ 7,064 Consumer ​ 10 ​ 31 ​ 56 ​ 85 Totals ​ $ 1,924 ​ $ 21,341 ​ $ 1,975 ​ $ 21,416 ​ 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 $ 6,624,000 at September 30, 2021 and $ 6,841,000 at December 31, 2020 are classified as nonaccrual. 27 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q The table below presents a summary of the contractual aging of loans as of September 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 September 30, 2021 ​ As of December 31, 2020 ​ Current & ​ ​ ​ ​ ​ ​ Current & ​ ​ ​ ​ ​ ​ ​ ​ Past Due ​ Past Due ​ Past Due ​ ​ ​ ​ Past Due ​ Past Due ​ Past Due ​ ​ ​ ​ ​ Less than ​ 30-89 ​ 90+ ​ ​ ​ ​ Less than ​ 30-89 ​ 90+ ​ ​ ​ ​ ​ 30 Days ​ Days ​ Days ​ Total ​ 30 Days ​ Days ​ Days ​ Total Commercial: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial loans secured by real estate ​ $ 547,885 ​ $ 142 ​ $ 5,362 ​ $ 553,389 ​ $ 529,998 ​ $ 66 ​ $ 1,746 ​ $ 531,810 Commercial and industrial ​ 151,119 ​ 218 ​ 907 ​ 152,244 ​ 158,523 ​ 55 ​ 999 ​ 159,577 Paycheck Protection Program - 1st Draw ​ ​ 5,747 ​ ​ 0 ​ ​ 0 ​ ​ 5,747 ​ ​ 132,269 ​ ​ 0 ​ ​ 0 ​ ​ 132,269 Paycheck Protection Program - 2nd Draw ​ ​ 56,981 ​ ​ 0 ​ ​ 0 ​ ​ 56,981 ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 0 Political subdivisions ​ 73,503 ​ 0 ​ 0 ​ 73,503 ​ 53,221 ​ 0 ​ 0 ​ 53,221 Commercial construction and land ​ 53,125 ​ 142 ​ 0 ​ 53,267 ​ 42,590 ​ 284 ​ 0 ​ 42,874 Loans secured by farmland ​ 10,667 ​ 31 ​ 114 ​ 10,812 ​ 11,419 ​ 95 ​ 222 ​ 11,736 Multi-family (5 or more) residential ​ 52,962 ​ 0 ​ 0 ​ 52,962 ​ 53,860 ​ 1,951 ​ 0 ​ 55,811 Agricultural loans ​ 3,026 ​ 0 ​ 66 ​ 3,092 ​ 3,091 ​ 2 ​ 71 ​ 3,164 Other commercial loans ​ 17,312 ​ 0 ​ 0 ​ 17,312 ​ 17,289 ​ 0 ​ 0 ​ 17,289 Total commercial ​ 972,327 ​ 533 ​ 6,449 ​ 979,309 ​ 1,002,260 ​ 2,453 ​ 3,038 ​ 1,007,751 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential mortgage: ​ ​ ​ ​ ​ ​ ​ ​ Residential mortgage loans - first liens ​ ​ 489,339 ​ ​ 2,212 ​ ​ 2,825 ​ ​ 494,376 ​ ​ 523,191 ​ ​ 5,703 ​ ​ 4,053 ​ ​ 532,947 Residential mortgage loans - junior liens ​ 24,200 ​ 32 ​ 71 ​ 24,303 ​ 27,009 ​ 111 ​ 191 ​ 27,311 Home equity lines of credit ​ 38,059 ​ 342 ​ 64 ​ 38,465 ​ 38,919 ​ 101 ​ 281 ​ 39,301 1-4 Family residential construction ​ 21,719 ​ 0 ​ 0 ​ 21,719 ​ 20,457 ​ 156 ​ 0 ​ 20,613 Total residential mortgage ​ 573,317 ​ 2,586 ​ 2,960 ​ 578,863 ​ 609,576 ​ 6,071 ​ 4,525 ​ 620,172 Consumer ​ 17,447 ​ 48 ​ 41 ​ 17,536 ​ 16,063 ​ 83 ​ 140 ​ 16,286 Totals ​ $ 1,563,091 ​ $ 3,167 ​ $ 9,450 ​ $ 1,575,708 ​ $ 1,627,899 ​ $ 8,607 ​ $ 7,703 ​ $ 1,644,209 ​ 28 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q Nonaccrual loans are included in the contractual aging in the immediately preceding table. A summary of the contractual aging of nonaccrual loans at September 30, 2021 and December 31, 2020 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) ​ Current & ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Past Due ​ Past Due ​ Past Due ​ ​ ​ ​ Less than ​ 30-89 ​ 90+ ​ ​ ​ 30 Days Days Days Total September 30, 2021 Nonaccrual Totals ​ $ 12,787 ​ $ 1,028 ​ $ 7,526 ​ $ 21,341 December 31, 2020 Nonaccrual Totals ​ $ 12,999 ​ $ 2,689 ​ $ 5,728 ​ $ 21,416 ​ Loans whose terms are modified are classified as TDRs if the Corporation grants such borrowers concessions, and it is deemed that those borrowers are experiencing financial difficulty. Loans classified as TDRs are designated as impaired. The outstanding balance of loans subject to TDRs, as well as contractual aging information at September 30, 2021 and December 31, 2020 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) ​ Current & ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Past Due ​ Past Due ​ Past Due ​ ​ ​ ​ ​ ​ Less than ​ 30-89 ​ 90+ ​ ​ ​ ​ ​ 30 Days Days Days Nonaccrual Total September 30, 2021 Totals ​ $ 144 ​ $ 88 ​ $ 134 ​ $ 5,457 ​ $ 5,823 December 31, 2020 Totals ​ $ 166 ​ $ 0 ​ $ 418 ​ $ 6,867 ​ $ 7,451 ​ At September 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 nine-month periods ended September 30, 2021 and 2020 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Balances in Thousands) ​ Three Months Ended ​ Three Months Ended ​ ​ September 30, 2021 ​ September 30, 2020 ​ ​ ​ ​ Post- ​ ​ ​ Post- ​ ​ Number ​ Modification ​ Number ​ Modification ​ ​ of ​ Recorded ​ of ​ Recorded ​ ​ Loans ​ Investment ​ Loans ​ Investment Home equity lines of credit, ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Reduced monthly payments for an eighteen-month period 1 $ 70 0 $ 0 Commercial loans secured by real estate, ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Principal and interest payment deferral non-COVID related ​ 0 ​ ​ 0 ​ 2 ​ ​ 4,831 Multi-family (5 or more) residential, ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Principal and interest payment deferral non-COVID related ​ 0 ​ ​ 0 ​ 3 ​ ​ 2,170 Total 1 $ 70 5 $ 7,001 ​ 29 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Balances in Thousands) ​ Nine Months Ended ​ Nine Months Ended ​ ​ September 30, 2021 ​ September 30, 2020 ​ ​ Post- ​ Post- ​ ​ Number ​ Modification ​ Number ​ Modification ​ ​ of ​ Recorded ​ of ​ Recorded ​ ​ Loans ​ Investment ​ Loans ​ Investment Residential mortgage - first liens: ​ ​ Reduced monthly payments and extended maturity date 1 ​ $ 12 0 ​ $ 0 Reduced monthly payments for a fifteen-month period ​ 1 ​ ​ 116 ​ 0 ​ ​ 0 Residential mortgage - junior liens, ​ ​ ​ ​ New loan at lower than risk-adjusted market rate to borrower from whom short sale of other collateral was accepted 0 ​ 0 1 ​ 30 Home equity lines of credit: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Reduced monthly payments and extended maturity date ​ 1 ​ ​ 24 ​ 0 ​ ​ 0 Reduced monthly payments for an eighteen-month period ​ 1 ​ ​ 70 ​ 0 ​ ​ 0 Commercial loans secured by real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest only payments for a nine-month period ​ 0 ​ ​ 0 ​ 1 ​ ​ 240 Principal and interest payment deferral non-COVID related ​ 0 ​ ​ 0 ​ 2 ​ ​ 4,831 Multi-family (5 or more) residential, ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Principal and interest payment deferral non-COVID related ​ 0 ​ ​ 0 ​ 3 ​ ​ 2,170 Total 4 ​ $ 222 7 ​ $ 7,271 ​ In the three-month and nine-month periods ended September 30, 2020, the Corporation recorded a specific allowance for loan losses of $ 134,000 related to a loan secured by commercial real estate for which a TDR concession was also made in the third quarter 2020 and included in the table above. At December 31, 2020, the Corporation increased the specific allowance for loan losses related to this credit to $ 416,000 , where it remains at September 30, 2021. The other loans for which TDRs were granted in the three-month and nine-month periods ended September 30, 2021 and 2020 had no specific impact on the provision or allowance for loan losses. In the three-month and nine-month periods ended September 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 ​ Three Months Ended ​ ​ September 30, 2021 ​ September 30, 2020 ​ ​ Number ​ ​ ​ Number ​ ​ ​ ​ of ​ Recorded ​ of ​ Recorded ​ ​ Loans ​ Investment ​ Loans ​ Investment Commercial loans secured by real estate ​ 0 ​ $ 0 ​ 1 ​ $ 240 Total 0 ​ $ 0 1 ​ $ 240 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Balances in Thousands) ​ Nine Months Ended ​ Nine Months Ended ​ ​ September 30, 2021 ​ September 30, 2020 ​ ​ Number ​ ​ ​ Number ​ ​ ​ ​ of ​ Recorded ​ of ​ Recorded ​ ​ Loans ​ Investment ​ Loans ​ Investment Commercial loans secured by real estate ​ 1 ​ $ 3,392 ​ 1 ​ $ 240 Total 1 ​ $ 3,392 1 ​ $ 240 ​ ​ 30 Table of Contents 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: ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) September 30, December 31, ​ ​ 2021 ​ 2020 Foreclosed residential real estate ​ $ 179 ​ $ 80 ​ The recorded investment of consumer mortgage loans secured by residential real properties for which formal foreclosure proceedings were in process is as follows: ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) September 30, December 31, ​ ​ 2021 ​ 2020 Residential real estate in process of foreclosure ​ $ 1,392 ​ $ 1,246 ​ ​ ​ 8. GOODWILL AND OTHER INTANGIBLE ASSETS Information related to core deposit intangibles is as follows: ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) September 30, December 31, ​ ​ 2021 ​ 2020 Gross amount ​ $ 6,639 ​ $ 6,639 Accumulated amortization ​ ( 3,189 ) ​ ( 2,788 ) Net ​ $ 3,450 ​ $ 3,851 ​ Amortization expense related to core deposit intangibles is included in other noninterest expense in the consolidated statements of income, as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) ​ Three Months Ended ​ Nine Months Ended ​ ​ September 30, ​ September 30, ​ September 30, ​ September 30, ​ 2021 2020 2021 2020 Amortization expense ​ $ 133 $ 208 $ 401 $ 332 ​ Goodwill represents the excess of the cost of acquisitions over the fair value of the net assets acquired. At September 30, 2021 and December 31, 2020, the net carrying value of goodwill was $ 52,505,000 . Changes in the carrying amount of goodwill are summarized in the following table: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) Three Months Ended ​ Nine Months Ended ​ September 30, ​ September 30, ​ September 30, ​ September 30, ​ 2021 ​ 2020 ​ 2021 ​ 2020 Balance, beginning of period $ 52,505 ​ $ 28,388 ​ $ 52,505 ​ $ 28,388 Goodwill arising in business combination ​ 0 ​ ​ 24,138 ​ ​ 0 ​ ​ 24,138 Balance, end of period $ 52,505 ​ $ 52,526 ​ $ 52,505 ​ $ 52,526 ​ ​ ​ ​ 31 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q 9. BORROWED FUNDS SHORT-TERM BORROWINGS Short-term borrowings (initial maturity within one year) include the following: ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) September 30, December 31, ​ ​ 2021 ​ 2020 FHLB-Pittsburgh borrowings ​ $ 0 ​ $ 18,066 Customer repurchase agreements ​ 1,875 ​ 1,956 Total short-term borrowings ​ $ 1,875 ​ $ 20,022 ​ The Corporation had available credit with other correspondent banks totaling $ 45,000,000 at September 30, 2021 and December 31, 2020. These lines of credit are primarily unsecured. No amounts were outstanding at September 30, 2021 or December 31, 2020. The Corporation has a line of credit with the Federal Reserve Bank of Philadelphia’s Discount Window. At September 30, 2021, the Corporation had available credit in the amount of $ 14,482,000 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 $ 14,936,000 at September 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 September 30, 2021 and December 31, 2020. The carrying value of the underlying securities was $ 1,900,000 at September 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 $ 1,044,507,000 at September 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 $ 9,400,000 at September 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 are letters of credit from FHLB-Pittsburgh outstanding in the amount of $ 5,584,000 at September 30, 2021 and $ 400,000 at December 31, 2020. The Corporation’s total credit facility with FHLB-Pittsburgh was $ 752,847,000 at September 30, 2021, including an unused (available) amount of $ 709,012,000 . 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 . At September 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: ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) September 30, December 31, ​ ​ 2021 ​ 2020 Loans maturing in 2021 with a weighted-average rate of 0.94 % ​ $ 10,520 ​ $ 26,098 Loans maturing in 2022 with a weighted-average rate of 0.60 % ​ ​ 15,510 ​ ​ 15,682 Loans maturing in 2023 with a weighted-average rate of 0.73 % ​ ​ 7,145 ​ ​ 7,224 Loans maturing in 2024 with a weighted-average rate of 0.75 % ​ ​ 5,109 ​ ​ 5,137 Loan maturing in 2025 with an average rate of 4.91 % ​ ​ 396 ​ ​ 467 Total long-term FHLB-Pittsburgh borrowings ​ $ 38,680 ​ $ 54,608 ​ Note: Weighted-average rates are presented as of September 30, 2021. 32 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q SENIOR NOTES 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. Amortization of debt issuance costs associated with the Senior Notes totaling $ 15,000 in the third quarter 2021 and $ 22,000 in the nine-month period ended September 30, 2021 was included in interest expense in the unaudited consolidated statements of income. At September 30, 2021 and December 31, 2020, outstanding Senior Notes are as follows: ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) September 30, December 31, ​ ​ 2021 ​ 2020 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 ​ $ 14,685 ​ $ 0 Total carrying value ​ $ 14,685 ​ $ 0 ​ SUBORDINATED DEBT 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. Amortization of debt issuance costs associated with the Subordinated Notes totaling $ 25,000 in the third quarter 2021 and $ 38,000 in the nine-month period ended September 30, 2021 was included in interest expense in the unaudited consolidated statements of income. 33 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q At September 30, 2021 and December 31, 2020, the carrying amounts of subordinated debt agreements are as follows: ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) September 30, December 31, ​ ​ 2021 ​ 2020 Agreements with an aggregate par value of $ 8,000,000 ; bearing interest at 6.25 % with an effective interest rate of 5.49 %; redeemed at par in June 2021 ​ $ 0 ​ $ 8,027 Agreements with an aggregate par value of $ 6,500,000 ; bearing interest at 6.50 %; maturing in April 2027 and redeemable at par in April 2022 ​ ​ 6,500 ​ ​ 6,500 Agreement with a par value of $ 2,000,000 ; bearing interest at 6.50 % with an effective interest rate of 5.60 %; maturing in July 2027 and redeemable at par in July 2022 ​ ​ 2,013 ​ ​ 2,026 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 ​ ​ 24,475 ​ ​ 0 Total carrying value ​ $ 32,988 ​ $ 16,553 ​ ​ 10. STOCK-BASED COMPENSATION PLANS The Corporation has a Stock Incentive Plan for a selected group of officers and an Independent Directors Stock Incentive Plan. 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 nine-month period ended September 30, 2021: ​ ​ ​ ​ ​ ​ ​ (Dollars in Thousands) ​ Aggregate ​ ​ ​ ​ Grant ​ ​ ​ ​ Date ​ ​ Number of ​ Fair ​ ​ Shares ​ Value 1st quarter 2021 awards: ​ ​ ​ ​ ​ Time-based awards to independent directors ​ 10,989 ​ $ 220 Time-based awards to employees ​ 46,178 ​ ​ 924 Performance-based awards to employees ​ 17,224 ​ ​ 345 2nd quarter 2021 awards, ​ ​ ​ ​ ​ Time-based awards to employees ​ 4,000 ​ ​ 100 Total ​ 78,391 ​ $ 1,589 ​ 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 $ 345,000 in the third quarter 2021 and $ 248,000 in the third quarter 2020. Total stock-based compensation expense attributable to restricted stock awards amounted to $ 970,000 in the nine-month period ended September 30, 2021 and $ 672,000 in the nine-month period ended September 30, 2020. ​ ​ ​ 34 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q 11. CONTINGENCIES Litigation Matters In the normal course of business, the Corporation is subject to pending and threatened lawsuits in which claims for monetary damages have been asserted. In management’s opinion, the Corporation’s financial position and results of operations would not be materially affected by the outcome of such pending legal proceedings. ​ Trust Department Tax Reporting Contingency 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. 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. There were no losses related to trust department tax compliance matters in the third quarter 2021. Losses related to a state tax reporting matter totaled $ 200,000 in the third quarter 2020. Losses related to trust department tax compliance matters totaled $ 107,000 in the nine months ended September 30, 2021, and $ 500,000 in the nine-month period ended September 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 September 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. 12. DERIVATIVE FINANCIAL INSTRUMENTS The Corporation is a party to derivative financial instruments. These financial instruments consist of interest rate swap agreements which contain master netting and collateral provisions designed to protect the party at risk. Interest rate swaps with commercial banking customers were executed to facilitate their respective risk management strategies. Under the terms of these arrangements, the commercial banking customers effectively exchanged their floating interest rate exposures on loans into fixed interest rate exposures. 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. These derivatives are not designated as hedges and are not speculative. Rather, these derivatives result from a service provided to certain customers. 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 $ 123,990,000 at September 30, 2021 and $ 135,740,000 at December 31, 2020. There were no interest rate swaps originated in the nine-month periods ended September 30, 2021 and 2020. There were no gross amounts of interest rate swap-related assets and liabilities not offset in the consolidated balance sheets at September 30, 2021. The net impact on the consolidated statements of income from interest rate swaps was a reduction in interest income on loans of $ 335,000 in the third quarter 2021 and $ 1,013,000 in the nine months ended September 30, 2021 as compared to a reduction in interest income on loans of $ 351,000 in the third quarter 2020 and the nine months ended September 30, 2020. ​ 35 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q The table below presents the fair value of the Corporation’s derivative financial instruments as well as their classification on the consolidated balance sheets at September 30, 2021 and December 31, 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) At September 30, 2021 ​ At December 31, 2020 ​ Asset Derivatives ​ Liability Derivatives ​ Asset Derivatives ​ Liability Derivatives ​ Notional ​ Fair ​ Notional ​ Fair ​ Notional ​ Fair ​ Notional ​ Fair ​ Amount ​ Value (1) ​ Amount ​ Value (2) ​ Amount ​ Value (1) ​ Amount ​ Value (2) Interest rate swap agreements $ 61,995 ​ $ 3,902 ​ $ 61,995 ​ $ 3,902 ​ $ 67,870 ​ $ 6,566 ​ $ 67,870 ​ $ 6,566 ​ (1) Included in other assets in the consolidated balance sheets. (2) Included in accrued interest and other liabilities in the consolidated balance sheets. The Corporation’s agreement with its derivative counterparty provides that if the Corporation defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Corporation could also be declared in default on its derivative obligations. 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 $ 7,069,000 were pledged as collateral against the Corporation’s liability related to the interest rate swaps at September 30, 2021. 13. FAIR VALUE MEASUREMENTS AND FAIR VALUES OF FINANCIAL INSTRUMENTS The Corporation measures certain assets and liabilities at fair value. 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. The hierarchy prioritizes the inputs used in determining valuations into three levels. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The levels of the fair value hierarchy are as follows: Level 1 – Fair value is based on unadjusted quoted prices in active markets that are accessible to the Corporation for identical assets or liabilities. These generally provide the most reliable evidence and are used to measure fair value whenever available. Level 2 – Fair value is based on significant inputs, other than Level 1 inputs, that are observable either directly or indirectly for substantially the full term of the asset or liability through corroboration with observable market data. Level 2 inputs include quoted market prices in active markets for similar assets or liabilities, quoted market prices in markets that are not active for identical or similar assets or liabilities and other observable inputs. Level 3 – Fair value is based on significant unobservable inputs. 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 chosen. 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. 36 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q At September 30, 2021 and December 31, 2020, assets and liabilities measured at fair value and the valuation methods used are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2021 ​ Quoted ​ ​ ​ ​ ​ ​ ​ ​ Prices ​ Other ​ ​ ​ ​ ​ ​ ​ ​ in Active ​ Observable ​ Unobservable ​ Total ​ ​ Markets ​ Inputs ​ Inputs ​ Fair (In Thousands) ​ (Level 1) ​ (Level 2) ​ (Level 3) ​ Value Recurring fair value measurements, assets: ​ ​ ​ ​ AVAILABLE-FOR-SALE DEBT SECURITIES: ​ ​ ​ ​ Obligations of the U.S. Treasury ​ $ 0 ​ $ 25,068 ​ $ 0 ​ $ 25,068 Obligations of U.S. Government agencies ​ ​ 0 ​ ​ 24,312 ​ ​ 0 ​ ​ 24,312 Obligations of states and political subdivisions: ​ ​ ​ ​ ​ ​ Tax-exempt ​ 0 ​ 139,244 ​ 0 ​ 139,244 Taxable ​ 0 ​ 70,493 ​ 0 ​ 70,493 Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies: ​ ​ ​ ​ Residential pass-through securities ​ 0 ​ 60,629 ​ 0 ​ 60,629 Residential collateralized mortgage obligations ​ 0 ​ 44,593 ​ 0 ​ 44,593 Commercial mortgage-backed securities ​ 0 ​ 73,518 ​ 0 ​ 73,518 Total available-for-sale debt securities ​ 0 ​ 437,857 ​ 0 ​ 437,857 Marketable equity security ​ 981 ​ 0 ​ 0 ​ 981 Servicing rights ​ 0 ​ 0 ​ 2,247 ​ 2,247 Interest rate swap agreements, assets ​ ​ 0 ​ ​ 3,902 ​ ​ 0 ​ ​ 3,902 Total recurring fair value measurements, assets ​ $ 981 ​ $ 441,759 ​ $ 2,247 ​ $ 444,987 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Recurring fair value measurements, liabilities, ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest rate swap agreements, liabilities ​ $ 0 ​ $ 3,902 ​ $ 0 ​ $ 3,902 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nonrecurring fair value measurements, assets: ​ ​ ​ ​ Impaired loans with a valuation allowance ​ $ 0 ​ $ 0 ​ $ 7,225 ​ $ 7,225 Valuation allowance ​ 0 ​ 0 ​ ( 883 ) ​ ( 883 ) Impaired loans, net ​ 0 ​ 0 ​ 6,342 ​ 6,342 Foreclosed assets held for sale ​ 0 ​ 0 ​ 1,374 ​ 1,374 Total nonrecurring fair value measurements, assets ​ $ 0 ​ $ 0 ​ $ 7,716 ​ $ 7,716 ​ 37 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 ​ Quoted ​ ​ ​ ​ ​ ​ ​ ​ Prices ​ Other ​ ​ ​ ​ ​ ​ ​ ​ in Active ​ Observable ​ Unobservable ​ Total ​ ​ Markets ​ Inputs ​ Inputs ​ Fair (In Thousands) ​ (Level 1) ​ (Level 2) ​ (Level 3) ​ Value Recurring fair value measurements, assets: ​ ​ ​ ​ AVAILABLE-FOR-SALE DEBT SECURITIES: ​ ​ ​ ​ Obligations of the U.S. Treasury ​ $ 0 ​ $ 12,182 ​ $ 0 ​ $ 12,182 Obligations of U.S. Government agencies ​ ​ 0 ​ ​ 26,344 ​ ​ 0 ​ ​ 26,344 Obligations of states and political subdivisions: ​ ​ ​ ​ ​ ​ Tax-exempt ​ 0 ​ 122,401 ​ 0 ​ 122,401 Taxable ​ 0 ​ 47,452 ​ 0 ​ 47,452 Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies: ​ ​ ​ ​ Residential pass-through securities ​ 0 ​ 38,176 ​ 0 ​ 38,176 Residential collateralized mortgage obligations ​ 0 ​ 57,467 ​ 0 ​ 57,467 Commercial mortgage-backed securities ​ 0 ​ 45,310 ​ 0 ​ 45,310 Total available-for-sale debt securities ​ 0 ​ 349,332 ​ 0 ​ 349,332 Marketable equity security ​ 1,000 ​ 0 ​ 0 ​ 1,000 Servicing rights ​ 0 ​ 0 ​ 1,689 ​ 1,689 Interest rate swap agreements, assets ​ ​ 0 ​ ​ 6,566 ​ ​ 0 ​ ​ 6,566 Total recurring fair value measurements, assets ​ $ 1,000 ​ $ 355,898 ​ $ 1,689 ​ $ 358,587 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Recurring fair value measurements, liabilities, ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest rate swap agreements, liabilities ​ $ 0 ​ $ 6,566 ​ $ 0 ​ $ 6,566 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nonrecurring fair value measurements, assets: ​ ​ ​ ​ Impaired loans with a valuation allowance ​ $ 0 ​ $ 0 ​ $ 8,082 ​ $ 8,082 Valuation allowance ​ 0 ​ 0 ​ ( 925 ) ​ ( 925 ) Impaired loans, net ​ 0 ​ 0 ​ 7,157 ​ 7,157 Foreclosed assets held for sale ​ 0 ​ 0 ​ 1,338 ​ 1,338 Total nonrecurring fair value measurements, assets ​ $ 0 ​ $ 0 ​ $ 8,495 ​ $ 8,495 ​ Management’s evaluation and selection of valuation techniques and the unobservable inputs used in determining the fair values of assets valued using Level 3 methodologies include sensitive assumptions. Other market participants might use substantially different assumptions, which could result in calculations of fair values that would be substantially different than the amount calculated by management. 38 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q At September 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 ​ ​ ​ 9/30/2021 ​ Valuation ​ Unobservable ​ ​ ​ ​ Method or Value As of Asset ​ (In Thousands) ​ Technique ​ Input(s) ​ ​ ​ ​ 9/30/2021 Servicing rights ​ $ 2,247 Discounted cash flow Discount rate ​ 13.00 % Rate used through modeling period ​ ​ ​ ​ ​ Loan prepayment speeds ​ ​ 221.00 % Weighted-average PSA ​ ​ ​ ​ ​ Servicing fees ​ ​ 0.25 % of loan balances ​ ​ ​ ​ ​ ​ ​ ​ ​ 4.00 % of payments are late ​ ​ ​ ​ ​ ​ ​ ​ ​ 5.00 % late fees assessed ​ ​ ​ ​ ​ ​ ​ ​ ​ $ 1.94 ​ Miscellaneous fees per account per month ​ ​ ​ ​ ​ Servicing costs ​ $ 6.00 ​ Monthly servicing cost per account ​ ​ ​ ​ ​ ​ ​ ​ ​ $ 24.00 ​ Additional monthly servicing cost per loan on loans more than 30 days delinquent ​ ​ ​ ​ ​ ​ ​ ​ ​ 1.50 % of loans more than 30 days delinquent ​ ​ ​ ​ ​ ​ ​ ​ 3.00 % annual increase in servicing costs ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value at ​ ​ ​ 12/31/2020 ​ Valuation ​ Unobservable ​ ​ ​ ​ Method or Value As of Asset ​ (In Thousands) ​ Technique ​ Input(s) ​ ​ ​ ​ 12/31/2020 Servicing rights ​ $ 1,689 Discounted cash flow Discount rate ​ 13.00 % Rate used through modeling period ​ ​ ​ ​ ​ Loan prepayment speeds ​ ​ 277.00 % Weighted-average PSA ​ ​ ​ ​ ​ Servicing fees ​ ​ 0.25 % of loan balances ​ ​ ​ ​ ​ ​ ​ ​ ​ 4.00 % of payments are late ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 5.00 % late fees assessed ​ ​ ​ ​ ​ ​ ​ ​ ​ $ 1.94 Miscellaneous fees per account per month ​ ​ ​ ​ ​ ​ Servicing costs ​ $ 6.00 ​ Monthly servicing cost per account ​ ​ ​ ​ ​ ​ ​ ​ ​ $ 24.00 ​ Additional monthly servicing cost per loan on loans more than 30 days delinquent ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1.50 % of loans more than 30 days delinquent ​ ​ ​ ​ ​ ​ ​ ​ 3.00 % annual increase in servicing costs ​ The fair value of servicing rights is affected by expected future interest rates. Increases (decreases) in future expected interest rates tend to increase (decrease) the fair value of the Corporation’s servicing rights because of changes in expected prepayment behavior by the borrowers on the underlying loans. Unrealized gains (losses) in fair value of servicing rights are included in Loan servicing fees, net, in the unaudited consolidated statements of income. Following is a reconciliation of activity for Level 3 assets measured at fair value on a recurring basis: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) ​ Three Months Ended ​ Nine Months Ended ​ September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020 Servicing rights balance, beginning of period ​ $ 2,116 ​ $ 1,284 ​ $ 1,689 ​ $ 1,277 Originations of servicing rights ​ 176 ​ 374 ​ 567 ​ 777 Unrealized loss included in earnings ​ ( 45 ) ​ ( 221 ) ​ ( 9 ) ​ ( 617 ) Servicing rights balance, end of period ​ $ 2,247 ​ $ 1,437 ​ $ 2,247 ​ $ 1,437 ​ Loans are classified as impaired when, based on current information and events, it is probable that the Corporation will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Foreclosed 39 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q assets held for sale consist of real estate acquired by foreclosure. For impaired commercial loans secured by real estate and foreclosed assets held for sale, estimated fair values are determined primarily using values from third-party appraisals. Appraised values are discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property. For commercial and industrial and agricultural loans secured by non-real estate collateral, such as accounts receivable, inventory and equipment, estimated fair values are determined based on the borrower’s financial statements, inventory reports, accounts receivable aging data or equipment appraisals or invoices. Indications of value from these sources are generally discounted based on the age of the financial information or the quality of the assets. At September 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) ​ ​ ​ ​ Weighted ​ ​ ​ ​ ​ Valuation ​ ​ ​ ​ ​ Average ​ ​ Balance at ​ Allowance at ​ Fair Value at ​ Valuation ​ Unobservable ​ Discount at Asset ​ 9/30/2021 ​ 9/30/2021 ​ 9/30/2021 ​ Technique ​ Inputs ​ 9/30/2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Impaired loans: ​ ​ ​ ​ Commercial: ​ ​ ​ ​ ​ ​ ​ Commercial loans secured by real estate ​ $ 6,480 ​ $ 672 ​ $ 5,808 Sales comparison Discount to appraised value 27 % Commercial and industrial ​ ​ 72 ​ ​ 72 ​ ​ 0 ​ Liquidation of assets Discount to appraised value 100 % Residential mortgage loans - first and junior liens ​ ​ 673 ​ ​ 139 ​ ​ 534 Sales comparison Discount to appraised value 33 % Total impaired loans ​ $ 7,225 ​ $ 883 ​ $ 6,342 ​ Foreclosed assets held for sale - real estate: ​ ​ ​ ​ Commercial real estate ​ $ 1,195 ​ $ 0 ​ $ 1,195 Sales comparison Discount to appraised value 47 % Residential (1-4 family) ​ ​ 179 ​ ​ 0 ​ ​ 179 Sales comparison Discount to appraised value 52 % Total foreclosed assets held for sale ​ $ 1,374 ​ $ 0 ​ $ 1,374 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Dollars In Thousands) ​ ​ ​ ​ Weighted ​ ​ ​ ​ Valuation ​ ​ ​ ​ ​ Average ​ ​ Balance at ​ Allowance at ​ Fair Value at ​ Valuation ​ Unobservable ​ Discount at Asset ​ 12/31/2020 ​ 12/31/2020 ​ 12/31/2020 ​ Technique ​ Inputs ​ 12/31/2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Impaired loans: ​ ​ ​ ​ Commercial: ​ ​ ​ ​ ​ ​ ​ Commercial loans secured by real estate ​ $ 6,501 ​ $ 691 ​ $ 5,810 Sales comparison Discount to appraised value 28 % Commercial and industrial ​ 72 ​ 72 ​ 0 Liquidation of assets Discount to appraised value 100 % Residential mortgage loans - first and junior liens ​ ​ 1,509 ​ ​ 162 ​ ​ 1,347 Sales comparison Discount to appraised value 31 % Total impaired loans ​ $ 8,082 ​ $ 925 ​ $ 7,157 ​ Foreclosed assets held for sale - real estate: ​ ​ ​ ​ Commercial real estate ​ $ 1,258 ​ $ 0 ​ $ 1,258 Sales comparison Discount to appraised value 44 % Residential (1-4 family) ​ ​ 80 ​ ​ 0 ​ ​ 80 Sales comparison Discount to appraised value 36 % Total foreclosed assets held for sale ​ $ 1,338 ​ $ 0 ​ $ 1,338 ​ ​ Certain of the Corporation’s financial instruments are not measured at fair value in the consolidated financial statements. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. Certain financial instruments and all nonfinancial instruments are excluded from disclosure requirements. Therefore, the aggregate fair value amounts presented may not represent the underlying fair value of the Corporation. 40 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q The estimated fair values, and related carrying amounts, of the Corporation’s financial instruments that are not recorded at fair value are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) ​ Fair Value ​ September 30, 2021 ​ December 31, 2020 ​ ​ Hierarchy ​ Carrying ​ Fair ​ Carrying ​ Fair ​ Level Amount Value Amount Value Financial assets: ​ ​ ​ ​ Cash and cash equivalents Level 1 ​ $ 190,155 ​ $ 190,155 ​ $ 96,017 ​ $ 96,017 Certificates of deposit Level 2 ​ 8,840 ​ 8,949 ​ 5,840 ​ 6,054 Restricted equity securities (included in Other Assets) Level 2 ​ 9,650 ​ 9,650 ​ 9,970 ​ 9,970 Loans, net Level 3 ​ 1,563,008 ​ 1,586,592 ​ 1,632,824 ​ 1,646,207 Accrued interest receivable Level 2 ​ 7,307 ​ 7,307 ​ 8,293 ​ 8,293 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Financial liabilities: ​ ​ ​ ​ Deposits with no stated maturity Level 2 ​ 1,637,463 ​ 1,637,463 ​ 1,430,062 ​ 1,430,062 Time deposits Level 2 ​ 302,678 ​ 304,330 ​ 390,407 ​ 393,566 Short-term borrowings Level 2 ​ 1,875 ​ 1,685 ​ 20,022 ​ 19,974 Long-term borrowings Level 2 ​ 38,680 ​ 39,229 ​ 54,608 ​ 55,723 Senior debt ​ Level 2 ​ ​ 14,685 ​ ​ 15,000 ​ ​ 0 ​ ​ 0 Subordinated debt ​ Level 2 ​ ​ 32,988 ​ ​ 33,150 ​ ​ 16,553 ​ ​ 16,680 Accrued interest payable Level 2 ​ 633 ​ 633 ​ 390 ​ 390 ​ The Corporation has commitments to extend credit and has issued standby letters of credit. Standby letters of credit are conditional guarantees of performance by a customer to a third party. Estimates of the fair value of these off-balance sheet items were not made because of the short-term nature of these arrangements and the credit standing of the counterparties. ​ ​ ​ 41 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q