CITIZENS & NORTHERN CORP 10-K

ITEM 8. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS ​ ​ ​ ​ ​ ​ ​ ​ December 31, December 31, (In Thousands, Except Share and Per Share Data) ​ 2021 ​ 2020 ASSETS ​ ​ Cash and due from banks: ​ ​ Noninterest-bearing ​ $ 16,729 ​ $ 24,780 Interest-bearing ​ 88,219 ​ 77,077 Total cash and due from banks ​ 104,948 ​ 101,857 Available-for-sale debt securities, at fair value ​ 517,679 ​ 349,332 ​ ​ ​ ​ ​ ​ ​ Loans receivable ​ 1,564,849 ​ 1,644,209 Allowance for loan losses ​ ( 13,537 ) ​ ( 11,385 ) Loans, net ​ 1,551,312 ​ 1,632,824 ​ ​ ​ ​ ​ ​ ​ Bank-owned life insurance ​ 30,669 ​ 30,096 Accrued interest receivable ​ 7,235 ​ 8,293 Bank premises and equipment, net ​ 20,683 ​ 21,526 Foreclosed assets held for sale ​ 684 ​ 1,338 Deferred tax asset, net ​ 5,887 ​ 2,705 Goodwill ​ 52,505 ​ 52,505 Core deposit intangibles, net ​ 3,316 ​ 3,851 Other assets ​ 32,730 ​ 34,773 TOTAL ASSETS ​ $ 2,327,648 ​ $ 2,239,100 ​ ​ ​ ​ ​ ​ ​ LIABILITIES ​ ​ ​ ​ Deposits: ​ ​ ​ ​ Noninterest-bearing ​ $ 521,206 ​ $ 465,332 Interest-bearing ​ 1,403,854 ​ 1,355,137 Total deposits ​ 1,925,060 ​ 1,820,469 Short-term borrowings ​ 1,803 ​ 20,022 Long-term borrowings - FHLB advances ​ 28,042 ​ 54,608 Senior notes, net ​ ​ 14,701 ​ ​ 0 Subordinated debt, net ​ 33,009 ​ 16,553 Accrued interest and other liabilities ​ 23,628 ​ 27,692 TOTAL LIABILITIES ​ 2,026,243 ​ 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 15,759,090 at December 31, 2021; ​ ​ ​ ​ issued 15,982,815 and outstanding 15,911,984 at December 31, 2020 ​ 16,030 ​ 15,983 Paid-in capital ​ 144,453 ​ 143,644 Retained earnings ​ 142,612 ​ 129,703 Treasury stock, at cost; 271,082 shares at December 31, 2021 and 70,831 ​ ​ ​ ​ shares at December 31, 2020 ​ ( 6,716 ) ​ ( 1,369 ) Accumulated other comprehensive income ​ 5,026 ​ 11,795 TOTAL STOCKHOLDERS' EQUITY ​ 301,405 ​ 299,756 TOTAL LIABILITIES & STOCKHOLDERS' EQUITY ​ $ 2,327,648 ​ $ 2,239,100 ​ The accompanying notes are an integral part of the consolidated financial statements. ​ 38 Table of Contents ​ Consolidated Statements of Income ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, (In Thousands Except Per Share Data) ​ 2021 ​ 2020 INTEREST INCOME ​ ​ Interest and fees on loans: ​ ​ Taxable ​ $ 74,549 ​ $ 67,384 Tax-exempt ​ 1,770 ​ 1,768 Income from available-for-sale debt securities: ​ ​ ​ ​ Taxable ​ 5,114 ​ 5,534 Tax-exempt ​ 2,684 ​ 2,143 Other interest and dividend income ​ 384 ​ 331 Total interest and dividend income ​ 84,501 ​ 77,160 INTEREST EXPENSE ​ ​ Interest on deposits ​ 4,538 ​ 7,231 Interest on short-term borrowings ​ 23 ​ 367 Interest on long-term borrowings - FHLB advances ​ 399 ​ 1,291 Interest on senior notes, net ​ ​ 293 ​ ​ 0 Interest on subordinated debt, net ​ ​ 1,309 ​ 706 Total interest expense ​ 6,562 ​ 9,595 Net interest income ​ 77,939 ​ 67,565 Provision for loan losses ​ 3,661 ​ 3,913 Net interest income after provision for loan losses ​ 74,278 ​ 63,652 NONINTEREST INCOME ​ ​ Trust revenue ​ 7,234 ​ 6,321 Brokerage and insurance revenue ​ 1,860 ​ 1,486 Service charges on deposit accounts ​ 4,633 ​ 4,231 Interchange revenue from debit card transactions ​ 3,855 ​ 3,094 Net gains from sale of loans ​ 3,428 ​ 5,403 Loan servicing fees, net ​ 694 ​ ( 61 ) Increase in cash surrender value of life insurance ​ 573 ​ 515 Other noninterest income ​ 3,580 ​ 3,355 Sub-total ​ ​ 25,857 ​ ​ 24,344 Realized gains on available-for-sale debt securities, net ​ ​ 24 ​ ​ 169 Total noninterest income ​ 25,881 ​ 24,513 NONINTEREST EXPENSE ​ ​ Salaries and employee benefits ​ ​ 37,603 ​ ​ 33,062 Net occupancy and equipment expense ​ ​ 4,984 ​ ​ 4,461 Data processing and telecommunications expense ​ ​ 5,903 ​ ​ 5,316 Automated teller machine and interchange expense ​ 1,433 ​ 1,231 Pennsylvania shares tax ​ 1,951 ​ 1,689 Professional fees ​ 2,243 ​ 1,692 Loss on prepayment of borrowings ​ ​ 0 ​ ​ 1,636 Merger-related expenses ​ 0 ​ 7,708 Other noninterest expense ​ 8,355 ​ 8,158 Total noninterest expense ​ 62,472 ​ 64,953 Income before income tax provision ​ 37,687 ​ 23,212 Income tax provision ​ 7,133 ​ 3,990 NET INCOME ​ $ 30,554 ​ $ 19,222 EARNINGS PER COMMON SHARE - BASIC ​ $ 1.92 ​ $ 1.30 EARNINGS PER COMMON SHARE - DILUTED ​ $ 1.92 ​ $ 1.30 ​ The accompanying notes are an integral part of consolidated financial statements. ​ 39 Table of Contents ​ Consolidated Statements of Comprehensive Income ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, (In Thousands) 2021 2020 Net income ​ $ 30,554 ​ $ 19,222 ​ ​ ​ ​ ​ ​ ​ Available-for-sale debt securities: ​ ​ ​ ​ Unrealized holding (losses) gains on available-for-sale debt securities ​ ​ ( 8,669 ) ​ ​ 10,504 Reclassification adjustment for (gains) realized in income ​ ​ ( 24 ) ​ ​ ( 169 ) Other comprehensive (loss) income on available-for-sale debt securities ​ ​ ( 8,693 ) ​ ​ 10,335 ​ ​ ​ ​ ​ ​ ​ Unfunded pension and postretirement obligations: ​ ​ ​ ​ Changes from plan amendments and actuarial gains and losses ​ 140 ​ ( 49 ) Amortization of prior service cost and net actuarial loss included in net periodic benefit cost ​ ( 17 ) ​ ( 29 ) Other comprehensive income (loss) on pension and postretirement obligations ​ 123 ​ ( 78 ) ​ ​ ​ ​ ​ ​ ​ Other comprehensive (loss) income before income tax ​ ( 8,570 ) ​ 10,257 Income tax related to other comprehensive loss (income) ​ 1,801 ​ ( 2,153 ) ​ ​ ​ ​ ​ ​ ​ Net other comprehensive (loss) income ​ ( 6,769 ) ​ 8,104 ​ ​ ​ ​ ​ ​ ​ Comprehensive income ​ $ 23,785 ​ $ 27,326 ​ The accompanying notes are an integral part of the consolidated financial statements. ​ 40 Table of Contents ​ Consolidated Statements of Changes in Stockholders’ Equity (In Thousands Except Share and Per Share Data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other ​ ​ ​ ​ ​ ​ ​ ​ Common ​ Treasury ​ Common ​ Paid-in ​ Retained ​ Comprehensive ​ Treasury ​ ​ ​ ​ ​ Shares ​ Shares ​ Stock ​ Capital ​ Earnings ​ Income ​ Stock ​ Total Balance, January 1, 2020 13,934,996 218,551 ​ $ 13,935 ​ $ 104,519 ​ $ 126,480 ​ $ 3,691 ​ $ ( 4,173 ) ​ $ 244,452 Net income ​ ​ ​ ​ ​ 19,222 ​ ​ ​ 19,222 Other comprehensive income, net ​ ​ ​ ​ ​ ​ 8,104 ​ ​ 8,104 Cash dividends declared on common stock, $ 1.08 per share ​ ​ ​ ​ ​ ( 15,999 ) ​ ​ ​ ( 15,999 ) Shares issued for dividend reinvestment plan ​ ( 77,525 ) ​ ​ ​ 34 ​ ​ ​ 1,496 ​ 1,530 Shares issued from treasury and redeemed related to exercise of stock options ​ ( 10,407 ) ​ ​ ​ ( 70 ) ​ ​ ​ 201 ​ 131 Restricted stock granted ​ ( 70,940 ) ​ ​ ​ ( 1,370 ) ​ ​ ​ 1,370 ​ 0 Forfeiture of restricted stock ​ 5,290 ​ ​ ​ 100 ​ ​ ​ ( 100 ) ​ 0 Stock-based compensation expense ​ ​ ​ ​ 1,050 ​ ​ ​ ​ ​ 1,050 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, December 31, 2020 15,982,815 70,831 ​ ​ 15,983 ​ ​ 143,644 ​ ​ 129,703 ​ ​ 11,795 ​ ​ ( 1,369 ) ​ ​ 299,756 Net income ​ ​ ​ ​ ​ 30,554 ​ ​ ​ 30,554 Other comprehensive loss, net ​ ​ ​ ​ ​ ​ ( 6,769 ) ​ ​ ( 6,769 ) Cash dividends declared on common stock, $ 1.11 per share ​ ​ ​ ​ ​ ( 17,645 ) ​ ​ ​ ( 17,645 ) Shares issued for dividend reinvestment plan 36,368 ( 31,877 ) ​ 36 ​ 845 ​ ​ ​ 788 ​ 1,669 Shares issued from treasury and redeemed related to exercise of stock options ​ ( 13,169 ) ​ ​ ​ ( 33 ) ​ ​ ​ 245 ​ 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 ​ ​ ​ ​ 1,214 ​ ​ ​ ​ ​ 1,214 Purchase of restricted stock for tax withholding ​ 8,350 ​ ​ ​ ​ ​ ​ ( 174 ) ​ ( 174 ) Treasury stock purchases ​ 299,059 ​ ​ ​ ​ ​ ​ ​ ​ ( 7,412 ) ​ ( 7,412 ) Balance, December 31, 2021 16,030,172 271,082 ​ $ 16,030 ​ $ 144,453 ​ $ 142,612 ​ $ 5,026 ​ $ ( 6,716 ) ​ $ 301,405 ​ The accompanying notes are an integral part of the consolidated financial statements. ​ 41 Table of Contents ​ CONSOLIDATED STATEMENTS OF CASH FLOWS ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, (In Thousands) ​ 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES: ​ ​ Net income ​ $ 30,554 ​ $ 19,222 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ Provision for loan losses ​ 3,661 ​ 3,913 Loss on prepayment of borrowings ​ ​ 0 ​ ​ 1,636 Realized gains on available-for-sale debt securities, net ​ ( 24 ) ​ ( 169 ) Net amortization of securities ​ ​ 2,204 ​ ​ 1,570 Increase in cash surrender value of life insurance ​ ( 573 ) ​ ( 515 ) Depreciation and amortization of bank premises and equipment ​ 2,130 ​ 1,981 Net accretion of purchase accounting adjustments ​ ( 2,124 ) ​ ( 2,524 ) Stock-based compensation ​ 1,214 ​ 1,050 Deferred income taxes ​ ( 1,381 ) ​ ( 361 ) Decrease in fair value of servicing rights ​ 68 ​ 576 Gains on sales of loans, net ​ ( 3,428 ) ​ ( 5,403 ) Origination of loans held for sale ​ ( 105,523 ) ​ ( 158,909 ) Proceeds from sales of loans held for sale ​ 107,797 ​ 163,149 Decrease (increase) in accrued interest receivable and other assets ​ 186 ​ ( 2,645 ) Increase in accrued interest payable and other liabilities ​ 210 ​ 2,473 Other ​ ( 127 ) ​ ( 260 ) Net Cash Provided by Operating Activities ​ 34,844 ​ 24,784 CASH FLOWS FROM INVESTING ACTIVITIES: ​ ​ ​ ​ Net cash and cash equivalents provided by business combination ​ ​ 0 ​ ​ 75,955 Purchase of certificates of deposit ​ ​ ( 4,500 ) ​ ​ ( 2,500 ) Proceeds from maturities of certificates of deposit ​ 1,240 ​ 740 Proceeds from sales of available-for-sale debt securities ​ 2,027 ​ 28,941 Proceeds from calls and maturities of available-for-sale debt securities ​ 61,684 ​ 94,486 Purchase of available-for-sale debt securities ​ ( 243,925 ) ​ ( 105,354 ) Redemption of Federal Home Loan Bank of Pittsburgh stock ​ 2,517 ​ 8,496 Purchase of Federal Home Loan Bank of Pittsburgh stock ​ ( 2,110 ) ​ ( 5,146 ) Net decrease in loans ​ 78,746 ​ 1,564 Proceeds from bank owned life insurance ​ 287 ​ 0 Proceeds from sales of premises and equipment ​ ​ 627 ​ ​ 0 Purchase of premises and equipment ​ ( 1,864 ) ​ ( 3,137 ) Proceeds from sale of foreclosed assets ​ 1,148 ​ 2,262 Other ​ 228 ​ 273 Net Cash (Used in) Provided by Investing Activities ​ ( 103,895 ) ​ 96,580 CASH FLOWS FROM FINANCING ACTIVITIES: ​ ​ ​ ​ Net increase in deposits ​ 105,381 ​ 86,941 Net decrease in short-term borrowings ​ ( 18,154 ) ​ ( 99,969 ) Proceeds from long-term borrowings - FHLB advances ​ 0 ​ 25,891 Repayments of long-term borrowings - FHLB advances ​ ( 26,095 ) ​ ( 54,831 ) 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 ​ 131 Purchases of treasury stock ​ ( 7,586 ) ​ ( 163 ) Common dividends paid ​ ( 15,976 ) ​ ( 14,469 ) Net Cash Provided by (Used in) Financing Activities ​ 68,882 ​ ( 56,469 ) (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ​ ( 169 ) ​ 64,895 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ​ 96,017 ​ 31,122 CASH AND CASH EQUIVALENTS, END OF YEAR ​ $ 95,848 ​ $ 96,017 ​ ​ 42 Table of Contents ​ CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, (In Thousands) ​ 2021 2020 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: ​ ​ (Decrease) increase in accrued purchase of available-for-sale debt securities ​ $ ( 994 ) ​ $ 994 Accrued income from life insurance claim ​ $ 0 ​ $ 279 Assets acquired through foreclosure of real estate loans ​ $ 394 ​ $ 273 Leased assets obtained in exchange for new operating lease liabilities ​ $ 739 ​ $ 167 Interest paid ​ $ 8,174 ​ $ 10,742 Income taxes paid ​ $ 10,098 ​ $ 3,137 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 the consolidated financial statements. ​ 43 Table of Contents ​ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF CONSOLIDATION – 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”), as well as 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. NATURE OF OPERATIONS – The Corporation’s principal office is located in Wellsboro, Pennsylvania. The majority of the Corporation’s operations are conducted in the Northern tier/Northcentral region of Pennsylvania and Southern tier of New York. As discussed further in Note 3, in 2020 the Corporation expanded its presence in Southeastern Pennsylvania by acquiring Covenant Financial, Inc. (“Covenant”). The Covenant acquisition follows the acquisition of Monument Bancorp, Inc. (“Monument”) in 2019, as well as the opening of offices in York and Lancaster, which are located in Southcentral Pennsylvania. The Corporation provides banking and related services to individual and corporate customers. Lending products include commercial, mortgage and consumer loans, as well as specialized instruments such as commercial letters-of-credit. Deposit products include various types of checking accounts, passbook and statement savings, money market accounts, interest checking accounts, Individual Retirement Accounts and certificates of deposit. The Corporation provides wealth management services through its trust department, including administration of trusts and estates, retirement plans, and other employee benefit plans, and investment management services. The Corporation offers a variety of personal and commercial insurance products through C&N Financial Services Corporation. C&N Financial Services Corporation also offers mutual funds, annuities, educational savings accounts and other investment products through registered agents. Management has determined that the Corporation has one reportable segment, “Community Banking.” All of the Corporation’s activities are interrelated, and each activity is dependent and assessed based on how each of the activities of the Corporation supports the others. The Corporation is subject to competition from other financial institutions. It is also subject to regulation by certain federal and state agencies and undergoes periodic examination by those regulatory authorities. As a consequence, the Corporation’s business is particularly susceptible to being affected by future federal and state legislation and regulations. USE OF ESTIMATES – The financial information is presented in accordance with generally accepted accounting principles and general practice for financial institutions in the United States of America (“U.S. GAAP”). In preparing financial statements, management is required to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements. In addition, these estimates and assumptions affect revenues and expenses in the financial statements and as such, actual results could differ from those estimates. Material estimates that are particularly susceptible to change include: (1) the allowance for loan losses and (2) fair values of available-for-sale debt securities based on estimates from independent valuation services or from brokers. INVESTMENT SECURITIES – Investment securities are accounted for as follows: Available-for-sale debt securities – includes debt securities not classified as held-to-maturity or trading. Such securities are reported at fair value, with unrealized gains and losses excluded from earnings and reported separately through accumulated other comprehensive income (loss), net of tax. Premiums on non-amortizing available-for-sale debt securities are amortized using the level yield method to the earliest call date, while discounts on non-amortizing securities are amortized to the maturity date. Premiums and discounts on amortizing securities (mortgage-backed securities) are amortized using the level yield method over the remaining contractual life of the securities, adjusted for actual prepayments. Realized gains and losses on sales of available-for-sale securities are computed on the basis of specific identification of the adjusted cost of each security. Securities within the available-for-sale portfolio may be used as part of the Corporation’s asset and liability management strategy and may be sold in response to changes in interest rate risk, prepayment risk or other factors. 44 Table of Contents ​ Other-than-temporary impairment – Credit-related declines in the fair value of available-for-sale debt securities that are deemed to be other-than-temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment (OTTI) losses, management considers (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, (3) the intent and ability of the Corporation to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value, and (4) whether the Corporation intends to sell the security or if it is more likely than not that the Corporation will be required to sell the security before the recovery of its amortized cost basis. The credit-related impairment is recognized in earnings and is the difference between a security’s amortized cost basis and the present value of expected future cash flows discounted at the security’s effective interest rate. For debt securities classified as held-to-maturity, if any, the amount of noncredit-related impairment is recognized in other comprehensive income and accreted over the remaining life of the debt security as an increase in the carrying value of the security. Marketable equity security – The marketable equity security is carried at fair value with unrealized gains and losses included in other noninterest income in the consolidated statements of income. Restricted equity securities – Restricted equity securities consist primarily of Federal Home Loan Bank of Pittsburgh stock, and are carried at cost and evaluated for impairment. Holdings of restricted equity securities are included in Other Assets in the consolidated balance sheets, and dividends received on restricted securities are included in Other Income in the consolidated statements of income. DERIVATIVES – 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. Interest differentials paid or received under the swap agreements are reflected as adjustments to interest and fees on loans. The notional amounts of the interest rate swaps are not exchanged and do not represent exposure to credit loss. The fair value of interest rate derivatives is included in the balance of other assets and other liabilities in the consolidated balance sheets. LOANS HELD FOR SALE – Mortgage loans held for sale are reported at the lower of cost or fair value, determined in the aggregate. LOANS RECEIVABLE – Loans originated by the Corporation which management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at unpaid principal balances, less the allowance for loan losses and net deferred loan fees. Interest income is accrued on the unpaid principal balance. Loan origination and commitment fees, as well as certain direct origination costs, are deferred and amortized as a yield adjustment over the lives of the related loans using the interest method. The loans receivable portfolio is segmented into residential mortgage, commercial and consumer loans. The residential mortgage segment includes the following classes: first and junior lien residential mortgages, home equity lines of credit and residential construction loans. The most significant classes of commercial loans are commercial loans secured by real estate, non-real estate secured commercial and industrial loans, loans to political subdivisions, commercial construction, multi-family residential and loans secured by farmland. Loans are placed on nonaccrual status for all classes of loans when, in the opinion of management, collection of interest is doubtful. Any unpaid interest previously accrued on those loans is reversed from income. Interest income is not recognized on specific impaired loans unless the likelihood of further loss is remote. Interest payments received on loans for which the risk of further loss is greater than remote are applied as a reduction of the loan principal balance. Interest income on other nonaccrual loans is recognized only to the extent of interest payments received. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time (generally six months ) and the ultimate collectability of the total contractual principal and interest is no longer in doubt. The past due status of all classes of loans receivable is determined based on contractual due dates for loan payments. Also, the amortization of deferred loan fees is discontinued when a loan is placed on nonaccrual status. 45 Table of Contents ​ PURCHASED LOANS – The Corporation purchased loans in 2019 and 2020, some of which had, at the acquisition dates, shown evidence of credit deterioration since origination. The Corporation considers several factors as indicators that an acquired loan has evidence of deterioration in credit quality. These factors include loans 90 days or more past due, loans with an internal risk rating of substandard or below, loans classified as nonaccrual by the acquired institution and loans that have been previously modified in a troubled debt restructuring. The purchased loans that showed evidence of credit impairment were designated as the purchased credit impaired (“PCI”) loans and were recorded at fair value, with no carryover of the allowance for loan losses. The PCI loans acquired are secured by real estate and the fair value of each loan at the acquisition date was determined based on the estimated proceeds to be derived from selling the collateral, net of selling costs. The PCI loans were placed into nonaccrual status upon acquisition (and remained in nonaccrual status at December 31, 2021 and 2020) as the Corporation cannot reasonably estimate cash flows expected to be collected in order to compute yield on the loans. The excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable yield and is recognized into interest income over the remaining life of the loan. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the nonaccretable yield. The nonaccretable yield represents estimated future credit losses expected to be incurred over the life of the loan. Subsequent decreases to the expected cash flows require us to evaluate the need for an allowance for credit losses. Subsequent improvements in expected cash flows result in the reversal of a corresponding amount of the nonaccretable yield which we then reclassify as accretable yield that is recognized into interest income over the remaining life of the loan using the interest method. Our evaluation of the amount of future cash flows that we expect to collect is performed in a similar manner as that used to determine our allowance for credit losses. Charge-offs of the principal amount on acquired loans would be first applied to the nonaccretable yield portion of the fair value adjustment. ALLOWANCE FOR LOAN LOSSES – The allowance for loan losses represents management’s estimate of losses inherent in the loan portfolio as of the balance sheet date and is recorded as a reduction to loans. The allowance for loan losses is increased by the provision for loan losses, and decreased by charge-offs, net of recoveries. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance. All, or part, of the principal balance of loans receivable are charged off to the allowance as soon as it is determined that the collection of all, or part, of the principal balance is highly unlikely. Non-residential consumer loans are generally charged off no later than when they are 120 days past due on a contractual basis, or earlier in the event of bankruptcy or if there is an amount deemed uncollectible. 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 addition, various regulatory agencies, as an integral part of their examination process, periodically review the Corporation’s allowance for loan losses. Such agencies may require the Corporation to recognize adjustments to the allowance based on their judgments of information available to them at the time of their examination. In the process of evaluating the loan portfolio, management also considers the Corporation’s exposure to losses from unfunded loan commitments. As of December 31, 2021 and 2020, management determined that no allowance for credit losses related to unfunded loan commitments was required. The allowance consists primarily of two major components – (1) a specific component based on a detailed assessment of certain larger loan relationships, mainly commercial purpose, determined on a loan-by-loan basis; and (2) a general component for the remainder of the portfolio based on a collective evaluation of pools of loans with similar risk characteristics. The general component is assigned to each pool of loans based on both historical net charge-off experience, and an evaluation of certain qualitative factors. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the above methodologies for estimating specific and general losses in the portfolio. The specific component relates to loans that are classified as impaired based on a detailed assessment of certain larger loan relationships evaluated by a management committee referred to as the Watch List Committee. Specific loan relationships are identified for evaluation based on the related credit risk rating. For individual loans classified as impaired, an allowance is established when the collateral value less estimated selling costs, present value of discounted cash flows or observable market price of the impaired loan is lower than the carrying value of that loan. 46 Table of Contents ​ The scope of loans reviewed individually each quarter to determine if they are impaired include all commercial loan relationships greater than $ 200,000 and any residential mortgage or consumer loans of $ 400,000 or more for which there is at least one extension of credit graded Special Mention, Substandard or Doubtful. Loans that are individually reviewed, but which are determined to not be impaired, are combined with all remaining loans that are not reviewed on a specific basis, and such loans are included within larger pools of loans based on similar risk and loss characteristics for purposes of determining the general component of the allowance. All loans classified as troubled debt restructurings (TDR) and all commercial loan relationships less than $ 200,000 or other loan relationships less than $ 400,000 in the aggregate, but with an estimated loss of $ 100,000 or more, are individually evaluated for impairment. The general component covers pools of loans by loan class including commercial loans not considered individually impaired, as well as smaller balance homogeneous classes of loans, such as residential real estate, home equity lines of credit and other consumer loans. Accordingly, the Corporation generally does not separately identify individual consumer and residential loans for impairment disclosures, unless such a loan: (1) is subject to a restructuring agreement, (2) has an outstanding balance of $ 400,000 or more and a credit grade of Special Mention, Substandard or Doubtful, or (3) has an estimated loss of $ 100,000 or more. The pools of loans for each loan segment are evaluated for loss exposure based upon average historical net charge-off rates, adjusted for qualitative factors. The time period used in determining the average historical net charge-off rate for each loan class is based on management’s evaluation of an appropriate time period that captures an historical loss experience relevant to the current portfolio. Qualitative risk factors (described in the following paragraph) are evaluated for the impact on each of the three distinct segments (residential mortgage, commercial and consumer) within the loan portfolio. Each qualitative factor is assigned a value to reflect improving, stable or declining conditions based on management’s judgment using relevant information available at the time of the evaluation. Any adjustments to the factors are supported by a narrative documentation of changes in conditions accompanying the allowance for loan losses calculation. The qualitative factors used in the general component calculations are designed to address credit risk characteristics associated with each segment. The Corporation’s credit risk associated with all of the segments is significantly impacted by these factors, which include economic conditions within its market area, the Corporation’s lending policies, changes or trends in the portfolio, risk profile, competition, regulatory requirements and other factors. Purchased loans that did not show evidence of credit deterioration at the acquisition dates were initially recorded at fair value, including a discount for credit losses reflecting an estimate of the present value of credit losses based on market expectations. The general component of the allowance on purchased loans is evaluated separately from the rest of the portfolio. This evaluation includes consideration of the qualitative risk factors described above as well as the remaining purchased discount. 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. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial loans by the fair value of the collateral (if the loan is collateral dependent), by future cash flows discounted at the loan’s effective rate or by the loan’s observable market price. For commercial loans secured by real estate, estimated fair values are determined primarily through third-party appraisals. When a real estate secured loan becomes impaired, a decision is made regarding whether an updated certified appraisal of the real estate is necessary. This decision is based on various considerations, including the age of the most recent appraisal, the loan-to-value ratio based on the original appraisal and the condition of the property. 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 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. 47 Table of Contents ​ Loans whose terms are modified are classified as troubled debt restructurings if the Corporation grants such borrowers concessions and it is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a troubled debt restructuring generally involve reductions in required payments, an extension of a loan’s stated maturity date or a temporary reduction in interest rate. Loans classified as troubled debt restructurings are designated as impaired. Nonaccrual troubled debt restructurings may be restored to accrual status if the ultimate collectability of principal and interest payments under the modified terms is not in doubt, and there has been a period (generally, for at least six consecutive months) of satisfactory payment performance by the borrower either immediately before or after the restructuring. In March 2020, various regulatory agencies, including the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation issued an interagency statement on loan modifications and reporting for financial institutions working with customers affected by COVID-19. The interagency statement was effective immediately and impacted accounting for loan modifications. The agencies confirmed with the staff of the FASB that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not to be considered TDRs. Provisions of the CARES Act Section 4013 largely mirrored the provisions of the interagency statement, providing that modified loans were not to be considered TDRs if they were performing at December 31, 2019 and other considerations set forth in the interagency statements were met. 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 or at December 31, 2019. Consistent with this guidance, the Corporation has not reported loans that were modified in response to COVID-19 as past due, nonaccrual or as TDRs. BANK PREMISES AND EQUIPMENT – Bank premises and equipment are stated at cost less accumulated depreciation. Repair and maintenance expenditures which extend the useful lives of assets are capitalized, and other repair and maintenance expenditures are expensed as incurred. Depreciation expense is computed using the straight-line method. IMPAIRMENT OF LONG-LIVED ASSETS – The Corporation reviews long-lived assets, such as premises and equipment and intangibles, for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. These changes in circumstances may include a significant decrease in the market value of an asset or the manner in which an asset is used. If there is an indication the carrying value of an asset may not be recoverable, future undiscounted cash flows expected to result from use of the asset are estimated. If the sum of the expected cash flows is less than the carrying value of the asset, a loss is recognized for the difference between the carrying value and fair market value of the asset. FORECLOSED ASSETS HELD FOR SALE – Foreclosed assets held for sale consist of real estate acquired by foreclosure and are initially recorded at fair value, less estimated selling costs. GOODWILL – Goodwill represents the excess of the cost of acquisitions over the fair value of the net assets acquired. Goodwill is tested at least annually at December 31 for impairment, or more often if events or circumstances indicate there may be impairment. The Corporation has the option of performing a qualitative assessment to determine whether any further quantitative testing for impairment is necessary. The option of whether or not to perform a qualitative assessment is made annually. CORE DEPOSIT INTANGIBLES – Amortization of core deposit intangibles is calculated using an accelerated method. In determining amortization using the accelerated method for any given period, the amount of expected cash flows for that period that were used in determining the acquisition-date fair value is divided by the total amount of expected cash flows over the life of the asset. That percentage is multiplied by the initial carrying amount of the asset to arrive at amortization expense for that period. If the Corporation’s cash flow patterns differ significantly from the initial estimates, the amortization schedule would be adjusted prospectively. SERVICING RIGHTS – The estimated fair value of servicing rights related to mortgage loans sold and serviced by the Corporation is recorded as an asset upon the sale of such loans. The valuation of servicing rights is adjusted quarterly, with changes in fair value included in Loan Servicing Fees, Net, in the consolidated statements of income. Significant inputs to the valuation include expected net servicing income to be received, the expected life of the underlying loans and the discount rate. The servicing rights asset is included in Other Assets in the consolidated balance sheets. INCOME TAXES – Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases given the provisions of the enacted 48 Table of Contents ​ tax laws. Deferred tax assets are reduced, if necessary, by the amount of such benefits that are not expected to be realized based upon available evidence. Tax benefits from investments in limited partnerships that have qualified for federal low-income tax credits are recognized as a reduction in the provision for income tax over the term of the investment using the effective yield method. The Corporation includes income tax penalties in the provision for income tax. The Corporation has no accrued interest related to unrecognized tax benefits. STOCK COMPENSATION PLANS – The Corporation’s stock-based compensation policy applies to all forms of stock-based compensation including stock options and restricted stock. All stock-based compensation is accounted for under the fair value method as required by U.S. GAAP. The expense associated with stock-based compensation is recognized over the vesting period of each individual arrangement. The fair value of each stock option is estimated on the date of grant using the Black-Scholes-Merton option valuation model. The fair value of restricted stock is based on the current market price on the date of grant. TREASURY STOCK – Common stock held in treasury is accounted for using the cost method, which treats stock held in treasury as a reduction to total stockholders’ equity. The shares may be purchased in the open market or in privately negotiated transactions from time to time depending upon market conditions and other factors . OFF-BALANCE SHEET FINANCIAL INSTRUMENTS – In the ordinary course of business, the Corporation has entered into off-balance sheet financial instruments consisting of commitments to extend credit and standby letters of credit. Such financial instruments are recorded in the financial statements when they become payable. CASH FLOWS – The Corporation utilizes the net reporting of cash receipts and cash payments for certain deposit and lending activities. Cash equivalents include federal funds sold and all cash and amounts due from depository institutions and interest-bearing deposits in other banks with original maturities of three months or less. REVENUE RECOGNITION – The Corporation generally fully satisfies its performance obligations on its contracts with customers as services are rendered and the transaction prices are typically fixed; charged either on a periodic basis or based on activity. Because performance obligations are satisfied as services are rendered and the transaction prices are fixed, there is little judgment involved in the determination of the amount and timing of revenue from contracts with customers. Additional disclosures related to the Corporation’s largest sources of noninterest income within the consolidated statements of income from contracts with customers that are subject to Accounting Standards Codification (ASC) Topic 606 are as follows: Trust and financial management revenue – C&N Bank’s trust department provides a wide range of financial services, including wealth management services for individuals, businesses and retirement funds, administration of 401(k) and other retirement plans, retirement planning, estate planning and estate settlement services. Trust clients are located primarily within the Corporation’s geographic markets. Assets held in a fiduciary capacity by C&N Bank are not the Corporation’s assets and are therefore not included in the consolidated balance sheets. The fair value of trust assets under management was approximately $ 1,232,919,000 at December 31, 2021 and $ 1,103,228,000 at December 31, 2020. Trust revenue is included within noninterest income in the consolidated statements of income. Trust revenue is recorded on a cash basis, which is not materially different from the accrual basis. The majority (approximately 84 %, based on annual 2021 results) of trust revenue is earned and collected monthly, with the amount determined based on a percentage of the fair value of the trust assets under management. Wealth management fees are contractually agreed with each customer, and fee levels vary based mainly on the size of assets under management. The services provided under such a contract represent a single performance obligation under the Accounting Standards Updates (ASUs) because it embodies a series of distinct goods or services that are substantially the same and have the same pattern of transfer to the customer. None of the contracts with trust customers provide for incentive-based fees. In addition to wealth management fees, trust revenue includes fees for provision of services, including employee benefit plan administration, tax return preparation and estate planning and settlement. Fees for such services are billed based on contractual arrangements or established fee schedules and are typically billed upon completion of providing such services. The costs of acquiring trust customers are incremental and recognized within noninterest expense in the consolidated statements of income. 49 Table of Contents ​ Service charges on deposit accounts – Deposits are included as liabilities in the consolidated balance sheets. Service charges on deposit accounts include: overdraft fees, which are charged when customers overdraw their accounts beyond available funds; automated teller machine (ATM) fees charged for withdrawals by deposit customers from other financial institutions’ ATMs; and a variety of other monthly or transactional fees for services provided to retail and business customers, mainly associated with checking accounts. All deposit liabilities are considered to have one-day terms and therefore related fees are recognized in income at the time when the services are provided to the customers. Incremental costs of obtaining deposit contracts are not significant and are recognized as expense when incurred within noninterest expense in the consolidated statements of income. Interchange revenue from debit card transactions – The Corporation issues debit cards to consumer and business customers with checking, savings or money market deposit accounts. Debit card and ATM transactions are processed via electronic systems that involve several parties. The Corporation’s debit card and ATM transaction processing is executed via contractual arrangements with payment processing networks, a processor and a settlement bank. As described above, all deposit liabilities are considered to have one-day terms and therefore interchange revenue from customers’ use of their debit cards to initiate transactions are recognized in income at the time when the services are provided and related fees received in the Corporation’s deposit account with the settlement bank. Incremental costs associated with ATM and interchange processing are recognized as expense when incurred within noninterest expense in the consolidated statements of income. ​ 2. RECENT ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board (FASB) issues ASUs to the FASB 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 foreseeable 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 Update 2020-04 are elective and apply to all entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued. The guidance includes a general principle that permits an entity to consider contract modifications due to reference rate reform to be an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. Some specific optional expedients are as follows: ● Simplifies accounting for contract modifications, including modifications to loans receivable and debt, by prospectively adjusting the effective interest rate. ● Simplifies the assessment of hedge effectiveness and allows hedging relationships affected by reference rate reform to continue. The amendments in ASU 2020-04 are effective as of March 12, 2020 through December 31, 2022. The Corporation expects to apply the amendments prospectively for applicable loan and other contracts within the effective period of ASU 2020-04. 50 Table of Contents ​ ​ 3. BUSINESS COMBINATION On July 1, 2020, the Corporation completed its acquisition of Covenant, which operated banking offices in Bucks and Chester Counties of Pennsylvania. 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 year ended December 31, 2021. Merger-related expenses related to the acquisition of Covenant totaled $ 7,708,000 in 2020. There were no merger-related expenses in 2021. ​ 4. 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. ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands, Except Share and Per Share Data) ​ Years Ended ​ ​ December 31, ​ December 31, ​ 2021 2020 Basic ​ ​ ​ Net income ​ $ 30,554 ​ $ 19,222 Less: Dividends and undistributed earnings allocated to participating securities ​ ( 241 ) ​ ( 116 ) Net income attributable to common shares ​ $ 30,313 ​ $ 19,106 Basic weighted-average common shares outstanding ​ 15,765,639 ​ 14,743,386 Basic earnings per common share (a) ​ $ 1.92 ​ $ 1.30 Diluted ​ ​ Net income attributable to common shares ​ $ 30,313 ​ $ 19,106 Basic weighted-average common shares outstanding ​ 15,765,639 ​ 14,743,386 Dilutive effect of potential common stock arising from stock options ​ 6,316 ​ 3,662 Diluted weighted-average common shares outstanding ​ 15,771,955 ​ 14,747,048 Diluted earnings per common share (a) ​ $ 1.92 ​ $ 1.30 Weighted-average nonvested restricted shares outstanding ​ 125,539 ​ 89,718 (a) Basic and diluted earnings per share under the two-class method are determined on net income reported on the income statement less earnings allocated to nonvested restricted shares with nonforfeitable dividends (participating securities). Anti-dilutive stock options are excluded from net income per share calculations. There were no anti-dilutive instruments in 2021. Weighted-average common shares available from anti-dilutive instruments totaled 32,538 shares in 2020. ​ 51 Table of Contents ​ 5. 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 2021 ​ ​ ​ Available-for-sale debt securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized holding losses on available-for-sale debt securities ​ $ ( 8,669 ) ​ $ 1,821 ​ $ ( 6,848 ) Reclassification adjustment for (gains) realized in income ​ ​ ( 24 ) ​ ​ 5 ​ ​ ( 19 ) Other comprehensive loss from available-for-sale debt securities ​ ​ ( 8,693 ) ​ ​ 1,826 ​ ​ ( 6,867 ) Unfunded pension and postretirement obligations: ​ ​ ​ Changes from plan amendments and actuarial gains and losses ​ ​ 140 ​ ​ ( 29 ) ​ ​ 111 Amortization of prior service cost and net actuarial loss included in net periodic benefit cost ​ ( 17 ) ​ 4 ​ ( 13 ) Other comprehensive income on unfunded retirement obligations ​ ​ 123 ​ ​ ( 25 ) ​ ​ 98 Total other comprehensive loss ​ $ ( 8,570 ) ​ $ 1,801 ​ $ ( 6,769 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) Before-Tax Income Tax Net-of-Tax ​ ​ Amount ​ Effect ​ Amount 2020 ​ ​ ​ Available-for-sale debt securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized holding gains on available-for-sale debt securities ​ $ 10,504 ​ $ ( 2,205 ) ​ $ 8,299 Reclassification adjustment for (gains) realized in income ​ ​ ( 169 ) ​ ​ 35 ​ ​ ( 134 ) Other comprehensive income from available-for-sale debt securities ​ ​ 10,335 ​ ​ ( 2,170 ) ​ ​ 8,165 Unfunded pension and postretirement obligations: ​ ​ ​ Changes from plan amendments and actuarial gains and losses ​ ​ ( 49 ) ​ ​ 11 ​ ​ ( 38 ) Amortization of prior service cost and net actuarial loss included in net periodic benefit cost ​ ( 29 ) ​ 6 ​ ( 23 ) Other comprehensive loss on unfunded retirement obligations ​ ​ ( 78 ) ​ ​ 17 ​ ​ ( 61 ) Total other comprehensive income ​ $ 10,257 ​ $ ( 2,153 ) ​ $ 8,104 ​ Items reclassified out of each component of accumulated other comprehensive income are as follows: ​ ​ ​ ​ ​ ​ 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 ​ 52 Table of Contents ​ Changes in the components of accumulated other comprehensive income, included in stockholders’ equity, are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) ​ ​ ​ Accumulated ​ ​ Unrealized ​ Unfunded ​ Other ​ Gains Retirement Comprehensive ​ on Securities Obligations Income 2021 ​ ​ ​ Balance, beginning of period ​ $ 11,676 ​ $ 119 ​ $ 11,795 Other comprehensive loss during year ended December 31, 2021 ​ ( 6,867 ) ​ 98 ​ ( 6,769 ) Balance, end of period ​ $ 4,809 ​ $ 217 ​ $ 5,026 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2020 ​ ​ ​ Balance, beginning of period ​ $ 3,511 ​ $ 180 ​ $ 3,691 Other comprehensive income during year ended December 31, 2020 ​ 8,165 ​ ( 61 ) ​ 8,104 Balance, end of period ​ $ 11,676 ​ $ 119 ​ $ 11,795 ​ ​ ​ 6. CASH AND DUE FROM BANKS Cash and due from banks at December 31, 2021 and 2020 include the following: ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) December 31, December 31, ​ ​ 2021 ​ 2020 Cash and cash equivalents ​ $ 95,848 ​ $ 96,017 Certificates of deposit ​ 9,100 ​ 5,840 Total cash and due from banks ​ $ 104,948 ​ $ 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. The Corporation has not experienced any losses in such accounts. 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 December 31, 2021 or December 31, 2020. ​ 53 Table of Contents ​ 7. SECURITIES Amortized cost and fair value of available-for-sale debt securities at December 31, 2021 and 2020 are summarized as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) December 31, 2021 ​ ​ ​ ​ ​ Gross ​ Gross ​ ​ ​ ​ ​ ​ ​ ​ Unrealized ​ Unrealized ​ ​ ​ ​ Amortized Holding Holding Fair ​ Cost Gains Losses Value ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Obligations of the U.S. Treasury ​ $ 25,058 ​ $ 52 ​ $ ( 198 ) ​ $ 24,912 Obligations of U.S. Government agencies ​ ​ 23,936 ​ ​ 563 ​ ​ ( 408 ) ​ ​ 24,091 Bank holding company debt securities ​ ​ 18,000 ​ ​ 18 ​ ​ ( 31 ) ​ ​ 17,987 Obligations of states and political subdivisions: ​ ​ ​ ​ ​ ​ ​ Tax-exempt ​ 143,427 ​ 4,749 ​ ( 148 ) ​ 148,028 Taxable ​ 72,182 ​ 1,232 ​ ( 649 ) ​ 72,765 Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies: ​ ​ ​ ​ Residential pass-through securities ​ 98,048 ​ 705 ​ ( 572 ) ​ 98,181 Residential collateralized mortgage obligations ​ 44,015 ​ 437 ​ ( 205 ) ​ 44,247 Commercial mortgage-backed securities ​ 86,926 ​ 1,548 ​ ( 1,006 ) ​ 87,468 Total available-for-sale debt securities ​ $ 511,592 ​ $ 9,304 ​ $ ( 3,217 ) ​ $ 517,679 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (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 ​ 54 Table of Contents ​ 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 December 31, 2021 and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 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 ​ $ 18,886 ​ $ ( 198 ) ​ $ 0 ​ $ 0 ​ $ 18,886 ​ $ ( 198 ) Obligations of U.S. Government agencies ​ ​ 9,735 ​ ​ ( 264 ) ​ ​ 4,856 ​ ​ ( 144 ) ​ ​ 14,591 ​ ​ ( 408 ) Bank holding company debt securities ​ ​ 12,969 ​ ​ ( 31 ) ​ ​ 0 ​ ​ 0 ​ ​ 12,969 ​ ​ ( 31 ) Obligations of states and political subdivisions: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Tax-exempt ​ ​ 17,852 ​ ​ ( 141 ) ​ ​ 549 ​ ​ ( 7 ) ​ ​ 18,401 ​ ​ ( 148 ) Taxable ​ 31,261 ​ ( 517 ) ​ 3,277 ​ ( 132 ) ​ 34,538 ​ ( 649 ) Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies: ​ ​ ​ ​ ​ ​ ​ Residential pass-through securities ​ ​ 71,451 ​ ​ ( 572 ) ​ ​ 0 ​ ​ 0 ​ ​ 71,451 ​ ​ ( 572 ) Residential collateralized mortgage obligations ​ 15,117 ​ ( 205 ) ​ 0 ​ 0 ​ 15,117 ​ ( 205 ) Commercial mortgage-backed securities ​ 52,867 ​ ( 1,006 ) ​ 0 ​ 0 ​ 52,867 ​ ( 1,006 ) Total temporarily impaired available-for-sale debt securities ​ $ 230,138 ​ $ ( 2,934 ) ​ $ 8,682 ​ $ ( 283 ) ​ $ 238,820 ​ $ ( 3,217 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 securities and the related income tax provision were as follows: ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) ​ 2021 ​ 2020 Gross realized gains from sales ​ $ 27 ​ $ 222 Gross realized losses from sales ​ ( 3 ) ​ ( 53 ) Net realized gains ​ $ 24 ​ $ 169 Income tax provision related to net realized gains ​ $ 5 ​ $ 35 ​ 55 Table of Contents ​ The amortized cost and fair value of available-for-sale debt securities by contractual maturity are shown in the following table as of December 31, 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) ​ December 31, 2021 ​ ​ Amortized ​ Fair ​ Cost Value Due in one year or less ​ $ 14,454 ​ $ 14,538 Due from one year through five years ​ 58,561 ​ 59,116 Due from five years through ten years ​ 79,532 ​ 81,073 Due after ten years ​ 130,056 ​ 133,056 Sub-total ​ 282,603 ​ 287,783 Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies: ​ ​ Residential pass-through securities ​ 98,048 ​ 98,181 Residential collateralized mortgage obligations ​ 44,015 ​ 44,247 Commercial mortgage-backed securities ​ 86,926 ​ 87,468 Total ​ $ 511,592 ​ $ 517,679 ​ 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 $ 241,428,000 at December 31, 2021 and $ 247,373,000 at December 31, 2020 were pledged as collateral for public deposits, trusts and certain other deposits, as provided by law, totaling $ 189,383,000 at December 31, 2021 and $ 201,176,000 at December 31, 2020. See Note 12 for information concerning securities pledged to secure borrowing arrangements and Note 21 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 December 31, 2021 and 2020 is provided below. Debt Securities At December 31, 2021 and 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 these debt securities at December 31, 2021 and 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 $ 9,313,000 at December 31, 2021 and $ 9,720,000 at December 31, 2020. The Corporation evaluated its holding of FHLB-Pittsburgh stock for impairment and deemed the stock to not be impaired at December 31, 2021 and December 31, 2020. In making this determination, management concluded that 56 Table of Contents ​ 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’s marketable equity security, with a carrying value of $ 971,000 at December 31, 2021 and $ 1,000,000 at December 31, 2020, consisted exclusively of one mutual fund. There was an unrealized loss of $ 29,000 on the mutual fund at December 31, 2021 and no unrealized gain/loss at December 31, 2020. The increase in the unrealized loss of $ 29,000 in 2021 and the decrease in the unrealized loss of $ 21,000 in 2020 are included in other noninterest income in the consolidated statements of income. There were no sales of equity securities in 2021 and 2020. ​ ​ 8. LOANS The loans receivable portfolio is segmented into commercial, residential mortgage and consumer loans. Loans outstanding at December 31, 2021 and December 31, 2020 are summarized by segment, and by classes within each segment, as follows: ​ Summary of Loans by Type (In Thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, December 31, ​ ​ 2021 ​ 2020 Commercial: ​ ​ Commercial loans secured by real estate ​ $ 569,840 ​ $ 531,810 Commercial and industrial ​ 159,073 ​ 159,577 Paycheck Protection Program - 1st Draw ​ ​ 1,356 ​ ​ 132,269 Paycheck Protection Program - 2nd Draw ​ ​ 25,508 ​ ​ 0 Political subdivisions ​ 81,301 ​ 53,221 Commercial construction and land ​ 60,579 ​ 42,874 Loans secured by farmland ​ 11,121 ​ 11,736 Multi-family (5 or more) residential ​ 50,089 ​ 55,811 Agricultural loans ​ 2,351 ​ 3,164 Other commercial loans ​ 17,153 ​ 17,289 Total commercial ​ 978,371 ​ 1,007,751 Residential mortgage: ​ ​ Residential mortgage loans - first liens ​ ​ 483,629 ​ ​ 532,947 Residential mortgage loans - junior liens ​ 23,314 ​ 27,311 Home equity lines of credit ​ 39,252 ​ 39,301 1-4 Family residential construction ​ 23,151 ​ 20,613 Total residential mortgage ​ 569,346 ​ 620,172 Consumer ​ 17,132 ​ 16,286 Total ​ 1,564,849 ​ 1,644,209 Less: allowance for loan losses ​ ( 13,537 ) ​ ( 11,385 ) Loans, net ​ $ 1,551,312 ​ $ 1,632,824 ​ In the table above, outstanding loan balances are presented net of deferred loan origination fees of $ 4,247,000 at December 31, 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 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 57 Table of Contents ​ 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 December 31, 2021, the recorded investment in 1st Draw PPP loans was $ 1,356,000 , including contractual principal balances of $ 1,410,000 , reduced by net deferred origination fees of $ 54,000 . The recorded investment in 2nd Draw PPP loans was $ 25,508,000 , including contractual principal balances of $ 26,356,000 reduced by net deferred origination fees of $ 848,000 . Accretion of fees received on PPP loans, net of amortization of the market rate adjustment on PPP loans acquired from Covenant, was $ 5,515,000 in 2021 and $ 1,901,000 in 2020. Interest and fees on PPP loans which are included in taxable interest and fees on loans in the consolidated statements of income totaled $ 6,530,000 in 2021 and $ 2,924,000 in 2020. To work with clients impacted by COVID-19, the Corporation offered 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 were designed to assist borrowers as they deal with the crisis and help the Corporation mitigate credit risk. For loans subject to the program, each 58 Table of Contents ​ borrower was required to resume making regularly scheduled loan payments at the end of the modification period and the deferred amounts have been 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 December 31, 2021 and 2020. 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 December 31, 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 3, effective July 1, 2020, the Corporation acquired loans pursuant to its acquisition of Covenant. In 2019, the Corporation acquired loans pursuant to the acquisition of Monument Bancorp, Inc. (“Monument”). 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 years ended December 31, 2021 and 2020, adjustments to the initial market rate and credit fair value adjustments of performing loans were recognized as follows: ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) ​ Year Ended ​ ​ December 31, ​ December 31, ​ ​ 2021 ​ 2020 Market Rate Adjustment ​ ​ Adjustments to gross amortized cost of loans at beginning of period ​ $ 718 ​ $ ( 1,415 ) Market rate adjustment recorded in acquisition ​ ​ 0 ​ ​ 2,909 Amortization recognized in interest income ​ ​ ( 1,355 ) ​ ​ ( 776 ) Adjustments to gross amortized cost of loans at end of period ​ $ ( 637 ) ​ $ 718 Credit Adjustment on Non-impaired Loans ​ ​ ​ ​ ​ ​ Adjustments to gross amortized cost of loans at beginning of period ​ $ ( 5,979 ) ​ $ ( 1,216 ) Credit adjustment recorded in acquisition ​ ​ 0 ​ ​ ( 7,219 ) Accretion recognized in interest income ​ 2,644 ​ 2,456 Adjustments to gross amortized cost of loans at end of period ​ $ ( 3,335 ) ​ $ ( 5,979 ) ​ 59 Table of Contents ​ A summary of PCI loans held at December 31, 2021 and December 31, 2020 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) ​ December 31, ​ December 31, ​ 2021 2020 Outstanding balance ​ $ 9,802 ​ $ 10,316 Carrying amount ​ 6,558 ​ 6,841 ​ Transactions within the allowance for loan losses, summarized by segment and class, were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ ​ ​ ​ ​ December 31, Year Ended December 31, 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 ​ $ 1,352 ​ $ 4,405 Commercial and industrial ​ 2,245 ​ ( 1,464 ) ​ 20 ​ 1,922 ​ 2,723 Commercial construction and land ​ 454 ​ 0 ​ 0 ​ 183 ​ 637 Loans secured by farmland ​ 120 ​ 0 ​ 0 ​ ( 5 ) ​ 115 Multi-family (5 or more) residential ​ 236 ​ 0 ​ 0 ​ ( 21 ) ​ 215 Agricultural loans ​ 34 ​ 0 ​ 0 ​ ( 9 ) ​ 25 Other commercial loans ​ 168 ​ 0 ​ 0 ​ 5 ​ 173 Total commercial ​ 6,308 ​ ( 1,464 ) ​ 22 ​ 3,427 ​ 8,293 Residential mortgage: ​ ​ ​ ​ ​ Residential mortgage loans - first liens ​ ​ 3,524 ​ ​ ( 11 ) ​ ​ 4 ​ ​ 133 ​ ​ 3,650 Residential mortgage loans - junior liens ​ 349 ​ 0 ​ 0 ​ ( 165 ) ​ 184 Home equity lines of credit ​ 281 ​ 0 ​ 2 ​ 19 ​ 302 1-4 Family residential construction ​ 99 ​ 0 ​ 0 ​ 103 ​ 202 Total residential mortgage ​ 4,253 ​ ( 11 ) ​ 6 ​ 90 ​ 4,338 Consumer ​ 239 ​ ( 100 ) ​ 38 ​ 58 ​ 235 Unallocated ​ 585 ​ 0 ​ 0 ​ 86 ​ 671 Total Allowance for Loan Losses ​ $ 11,385 ​ $ ( 1,575 ) ​ $ 66 ​ $ 3,661 ​ $ 13,537 ​ 60 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ ​ ​ ​ ​ December 31, Year Ended December 31, 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 ​ $ 1,130 ​ $ 3,051 Commercial and industrial ​ 1,391 ​ ( 2,236 ) ​ 16 ​ 3,074 ​ 2,245 Commercial construction and land ​ 966 ​ ( 107 ) ​ 0 ​ ( 405 ) ​ 454 Loans secured by farmland ​ 158 ​ 0 ​ 0 ​ ( 38 ) ​ 120 Multi-family (5 or more) residential ​ 156 ​ 0 ​ 0 ​ 80 ​ 236 Agricultural loans ​ 41 ​ 0 ​ 0 ​ ( 7 ) ​ 34 Other commercial loans ​ 155 ​ 0 ​ 0 ​ 13 ​ 168 Total commercial ​ 4,788 ​ ( 2,343 ) ​ 16 ​ 3,847 ​ 6,308 Residential mortgage: ​ ​ ​ ​ ​ Residential mortgage loans - first liens ​ ​ 3,405 ​ ​ 0 ​ ​ 39 ​ ​ 80 ​ ​ 3,524 Residential mortgage loans - junior liens ​ 384 ​ 0 ​ 1 ​ ( 36 ) ​ 349 Home equity lines of credit ​ 276 ​ 0 ​ 4 ​ 1 ​ 281 1-4 Family residential construction ​ 117 ​ 0 ​ 0 ​ ( 18 ) ​ 99 Total residential mortgage ​ 4,182 ​ 0 ​ 44 ​ 27 ​ 4,253 Consumer ​ 281 ​ ( 122 ) ​ 41 ​ 39 ​ 239 Unallocated ​ 585 ​ 0 ​ 0 ​ 0 ​ 585 Total Allowance for Loan Losses ​ $ 9,836 ​ $ ( 2,465 ) ​ $ 101 ​ $ 3,913 ​ $ 11,385 ​ For the year ended December 31, 2021, the provision for loan losses was $ 3,661,000 , a decrease in expense of $ 252,000 as compared to 2020. In 2021, the provision included the impact of partial charge-offs totaling $ 1,463,000 on a commercial loan. At December 31, 2021, the recorded investment in this loan was $ 1,391,000 . In total, the provision for 2021 included a net charge of $ 1,324,000 related to specific loans (net charge-offs of $ 1,509,000 offset by a net decrease in specific allowances on loans of $ 185,000 ), an increase of $ 2,251,000 in the collectively determined potion of the allowance and an $ 86,000 increase in the unallocated allowance. The increase in the collectively determined portion of the allowance reflected the impact of an increase in volume of commercial loans, excluding PPP loans. In 2020, the provision included a $ 2,219,000 charge-off on one commercial loan for which there was no recorded investment at December 31, 2021 and 2020. 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. 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. 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. 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. ​ 61 Table of Contents ​ The following tables summarize the aggregate credit quality classification of outstanding loans by risk rating as of December 31, 2021 and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ ​ ​ ​ ​ ​ ​ ​ Purchased ​ ​ (In Thousands) ​ ​ ​ ​ Special ​ ​ ​ ​ ​ ​ ​ Credit ​ ​ ​ ​ ​ Pass ​ Mention ​ Substandard ​ Doubtful ​ Impaired ​ Total Commercial: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial loans secured by real estate ​ $ 538,966 ​ $ 10,510 ​ $ 16,220 ​ $ 0 ​ $ 4,144 ​ $ 569,840 Commercial and Industrial ​ 142,775 ​ 10,841 ​ 4,694 ​ 0 ​ 763 ​ 159,073 Paycheck Protection Program - 1st Draw ​ ​ 1,356 ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 1,356 Paycheck Protection Program - 2nd Draw ​ ​ 25,508 ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 25,508 Political subdivisions ​ 81,301 ​ 0 ​ 0 ​ 0 ​ 0 ​ 81,301 Commercial construction and land ​ 59,816 ​ 715 ​ 48 ​ 0 ​ 0 ​ 60,579 Loans secured by farmland ​ 10,011 ​ 186 ​ 924 ​ 0 ​ 0 ​ 11,121 Multi-family (5 or more) residential ​ 47,638 ​ 0 ​ 873 ​ 0 ​ 1,578 ​ 50,089 Agricultural loans ​ 1,802 ​ 0 ​ 549 ​ 0 ​ 0 ​ 2,351 Other commercial loans ​ 17,150 ​ 3 ​ 0 ​ 0 ​ 0 ​ 17,153 Total commercial ​ 926,323 ​ 22,255 ​ 23,308 ​ 0 ​ 6,485 ​ 978,371 Residential Mortgage: ​ ​ ​ ​ ​ ​ Residential mortgage loans - first liens ​ ​ 469,044 ​ ​ 7,981 ​ ​ 6,534 ​ ​ 0 ​ ​ 70 ​ ​ 483,629 Residential mortgage loans - junior liens ​ 22,914 ​ 114 ​ 283 ​ 0 ​ 3 ​ 23,314 Home equity lines of credit ​ 38,652 ​ 59 ​ 541 ​ 0 ​ 0 ​ 39,252 1-4 Family residential construction ​ 23,151 ​ 0 ​ 0 ​ 0 ​ 0 ​ 23,151 Total residential mortgage ​ 553,761 ​ 8,154 ​ 7,358 ​ 0 ​ 73 ​ 569,346 Consumer ​ 17,092 ​ 0 ​ 40 ​ 0 ​ 0 ​ 17,132 Totals ​ $ 1,497,176 ​ $ 30,409 ​ $ 30,706 ​ $ 0 ​ $ 6,558 ​ $ 1,564,849 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 ​ ​ 62 Table of Contents ​ 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 December 31, 2021 and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 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 ​ $ 10,926 ​ $ 558,914 ​ $ 569,840 ​ $ 669 ​ $ 3,736 ​ $ 4,405 Commercial and industrial ​ 2,503 ​ 156,570 ​ 159,073 ​ 71 ​ 2,652 ​ 2,723 Paycheck Protection Program - 1st Draw ​ 0 ​ 1,356 ​ 1,356 ​ 0 ​ 0 ​ 0 Paycheck Protection Program - 2nd Draw ​ ​ 0 ​ ​ 25,508 ​ ​ 25,508 ​ ​ 0 ​ ​ 0 ​ ​ 0 Political subdivisions ​ 0 ​ 81,301 ​ 81,301 ​ 0 ​ 0 ​ 0 Commercial construction and land ​ 0 ​ 60,579 ​ 60,579 ​ 0 ​ 637 ​ 637 Loans secured by farmland ​ 83 ​ 11,038 ​ 11,121 ​ 0 ​ 115 ​ 115 Multi-family (5 or more) residential ​ 1,578 ​ 48,511 ​ 50,089 ​ 0 ​ 215 ​ 215 Agricultural loans ​ 0 ​ 2,351 ​ 2,351 ​ 0 ​ 25 ​ 25 Other commercial loans ​ 0 ​ 17,153 ​ 17,153 ​ 0 ​ 173 ​ 173 Total commercial ​ 15,090 ​ 963,281 ​ 978,371 ​ 740 ​ 7,553 ​ 8,293 Residential mortgage: ​ ​ ​ ​ ​ ​ Residential mortgage loans - first liens ​ ​ 630 ​ ​ 482,999 ​ ​ 483,629 ​ ​ 0 ​ ​ 3,650 ​ ​ 3,650 Residential mortgage loans - junior liens ​ 14 ​ 23,300 ​ 23,314 ​ 0 ​ 184 ​ 184 Home equity lines of credit ​ 0 ​ 39,252 ​ 39,252 ​ 0 ​ 302 ​ 302 1-4 Family residential construction ​ 0 ​ 23,151 ​ 23,151 ​ 0 ​ 202 ​ 202 Total residential mortgage ​ 644 ​ 568,702 ​ 569,346 ​ 0 ​ 4,338 ​ 4,338 Consumer ​ 0 ​ 17,132 ​ 17,132 ​ 0 ​ 235 ​ 235 Unallocated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 671 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total ​ $ 15,734 ​ $ 1,549,115 ​ $ 1,564,849 ​ $ 740 ​ $ 12,126 ​ $ 13,537 ​ 63 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 as of December 31, 2021 and 2020 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) ​ December 31, 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 ​ $ 6,600 ​ $ 4,458 ​ $ 0 ​ $ 7,168 ​ $ 5,398 ​ $ 0 Commercial and industrial ​ 5,213 ​ 2,431 ​ 0 ​ 1,781 ​ 1,287 ​ 0 Residential mortgage loans - first liens ​ ​ 656 ​ ​ 630 ​ ​ 0 ​ ​ 1,248 ​ ​ 1,248 ​ ​ 0 Residential mortgage loans - junior liens ​ 124 ​ 14 ​ 0 ​ 160 ​ 105 ​ 0 Loans secured by farmland ​ 83 ​ 83 ​ 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 ​ 15,410 ​ 9,194 ​ 0 ​ 13,211 ​ 9,736 ​ 0 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ With a related allowance recorded: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial loans secured by real estate ​ ​ 6,468 ​ ​ 6,468 ​ ​ 668 ​ ​ 6,501 ​ ​ 6,501 ​ ​ 691 Commercial and industrial ​ 72 ​ 72 ​ 72 ​ 72 ​ 72 ​ 72 Residential mortgage loans - first liens ​ 0 ​ 0 ​ 0 ​ 1,200 ​ 1,200 ​ 9 Residential mortgage loans - junior liens ​ 0 ​ 0 ​ 0 ​ 309 ​ 309 ​ 153 Total with a related allowance recorded ​ 6,540 ​ 6,540 ​ 740 ​ 8,082 ​ 8,082 ​ 925 Total ​ $ 21,950 ​ $ 15,734 ​ $ 740 ​ $ 21,293 ​ $ 17,818 ​ $ 925 ​ ​ 64 Table of Contents ​ The average balance of impaired loans and interest income recognized on impaired loans is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) ​ ​ ​ Interest Income Recognized on ​ ​ Average Investment in ​ on Impaired Loans ​ ​ Impaired Loans ​ on a Cash Basis ​ ​ Year Ended December 31, ​ Year Ended December 31, ​ 2021 ​ 2020 2021 2020 Commercial: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial loans secured by real estate ​ $ 11,617 ​ $ 5,266 ​ $ 557 ​ $ 258 Commercial and industrial ​ ​ 2,636 ​ ​ 2,542 ​ 34 ​ 34 Commercial construction and land ​ ​ 48 ​ ​ 521 ​ 3 ​ 15 Loans secured by farmland ​ ​ 84 ​ ​ 319 ​ 1 ​ 27 Multi-family (5 or more) residential ​ ​ 1,583 ​ ​ 202 ​ ​ 133 ​ ​ 0 Agricultural loans ​ ​ 67 ​ ​ 76 ​ 4 ​ 4 Other commercial loans ​ ​ 0 ​ ​ 18 ​ 0 ​ 1 Total commercial ​ ​ 16,035 ​ ​ 8,944 ​ 732 ​ 339 Residential mortgage: ​ ​ ​ ​ ​ ​ ​ Residential mortgage loans - first lien ​ ​ 1,647 ​ ​ 1,853 ​ ​ 78 ​ ​ 116 Residential mortgage loans - junior lien ​ ​ 361 ​ ​ 392 ​ 11 ​ 22 Home equity lines of credit ​ ​ 0 ​ ​ 57 ​ 0 ​ 3 Total residential mortgage ​ ​ 2,008 ​ ​ 2,302 ​ 89 ​ 141 Total ​ $ 18,043 ​ $ 11,246 ​ $ 821 ​ $ 480 ​ 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) ​ December 31, 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 ​ $ 738 ​ $ 10,885 ​ $ 395 ​ $ 11,550 Commercial and industrial ​ 30 ​ 2,299 ​ 142 ​ 970 Commercial construction and land ​ 0 ​ 48 ​ 0 ​ 49 Loans secured by farmland ​ 28 ​ 83 ​ 188 ​ 84 Multi-family (5 or more) residential ​ ​ 0 ​ ​ 1,578 ​ ​ 0 ​ ​ 1,614 Agricultural loans ​ ​ 65 ​ ​ 0 ​ ​ 0 ​ ​ 0 Other commercial ​ 0 ​ 0 ​ 71 ​ 0 Total commercial ​ 861 ​ 14,893 ​ 796 ​ 14,267 Residential mortgage: ​ ​ ​ ​ Residential mortgage loans - first liens ​ ​ 1,144 ​ ​ 4,005 ​ ​ 838 ​ ​ 6,387 Residential mortgage loans - junior liens ​ 69 ​ 3 ​ 52 ​ 378 Home equity lines of credit ​ 102 ​ 82 ​ 233 ​ 299 Total residential mortgage ​ 1,315 ​ 4,090 ​ 1,123 ​ 7,064 Consumer ​ 43 ​ 16 ​ 56 ​ 85 Totals ​ $ 2,219 ​ $ 18,999 ​ $ 1,975 ​ $ 21,416 ​ Loans past due 90 days or more for which interest continues to be accrued have been evaluated and determind to be well secured and in the process of collection. 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 $ 6,558,000 at December 31, 2021 and $ 6,841,000 at December 31, 2020 are classified as nonaccrual. 65 Table of Contents ​ The table below presents a summary of the contractual aging of loans as of December 31, 2021 and 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 December 31, 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 ​ $ 563,658 ​ $ 762 ​ $ 5,420 ​ $ 569,840 ​ $ 529,998 ​ $ 66 ​ $ 1,746 ​ $ 531,810 Commercial and industrial ​ 158,188 ​ 72 ​ 813 ​ 159,073 ​ 158,523 ​ 55 ​ 999 ​ 159,577 Paycheck Protection Program - 1st Draw ​ ​ 1,339 ​ ​ 17 ​ ​ 0 ​ ​ 1,356 ​ ​ 132,269 ​ ​ 0 ​ ​ 0 ​ ​ 132,269 Paycheck Protection Program - 2nd Draw ​ ​ 25,508 ​ ​ 0 ​ ​ 0 ​ ​ 25,508 ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 0 Political subdivisions ​ 81,301 ​ 0 ​ 0 ​ 81,301 ​ 53,221 ​ 0 ​ 0 ​ 53,221 Commercial construction and land ​ 60,509 ​ 70 ​ 0 ​ 60,579 ​ 42,590 ​ 284 ​ 0 ​ 42,874 Loans secured by farmland ​ 11,010 ​ 0 ​ 111 ​ 11,121 ​ 11,419 ​ 95 ​ 222 ​ 11,736 Multi-family (5 or more) residential ​ 48,532 ​ 0 ​ 1,557 ​ 50,089 ​ 53,860 ​ 1,951 ​ 0 ​ 55,811 Agricultural loans ​ 2,279 ​ 7 ​ 65 ​ 2,351 ​ 3,091 ​ 2 ​ 71 ​ 3,164 Other commercial loans ​ 17,153 ​ 0 ​ 0 ​ 17,153 ​ 17,289 ​ 0 ​ 0 ​ 17,289 Total commercial ​ 969,477 ​ 928 ​ 7,966 ​ 978,371 ​ 1,002,260 ​ 2,453 ​ 3,038 ​ 1,007,751 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential mortgage: ​ ​ ​ ​ ​ ​ ​ ​ Residential mortgage loans - first liens ​ ​ 475,637 ​ ​ 5,038 ​ ​ 2,954 ​ ​ 483,629 ​ ​ 523,191 ​ ​ 5,703 ​ ​ 4,053 ​ ​ 532,947 Residential mortgage loans - junior liens ​ 23,229 ​ 16 ​ 69 ​ 23,314 ​ 27,009 ​ 111 ​ 191 ​ 27,311 Home equity lines of credit ​ 38,830 ​ 279 ​ 143 ​ 39,252 ​ 38,919 ​ 101 ​ 281 ​ 39,301 1-4 Family residential construction ​ 23,151 ​ 0 ​ 0 ​ 23,151 ​ 20,457 ​ 156 ​ 0 ​ 20,613 Total residential mortgage ​ 560,847 ​ 5,333 ​ 3,166 ​ 569,346 ​ 609,576 ​ 6,071 ​ 4,525 ​ 620,172 Consumer ​ 17,001 ​ 72 ​ 59 ​ 17,132 ​ 16,063 ​ 83 ​ 140 ​ 16,286 Totals ​ $ 1,547,325 ​ $ 6,333 ​ $ 11,191 ​ $ 1,564,849 ​ $ 1,627,899 ​ $ 8,607 ​ $ 7,703 ​ $ 1,644,209 ​ Nonaccrual loans are included in the contractual aging immediately above. A summary of the contractual aging of nonaccrual loans at December 31, 2021 and 2020 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) ​ Current & ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Past Due ​ Past Due ​ Past Due ​ ​ ​ ​ Less than ​ 30-89 ​ 90+ ​ ​ ​ 30 Days Days Days Total December 31, 2021 Nonaccrual Totals ​ $ 8,800 ​ $ 1,227 ​ $ 8,972 ​ $ 18,999 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 the contractual aging information at December 31, 2021 and 2020 is as follows: ​ 66 Table of Contents ​ Troubled Debt Restructurings (TDRs): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) ​ Current & ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Past Due ​ Past Due ​ Past Due ​ ​ ​ ​ ​ ​ Less than ​ 30-89 ​ 90+ ​ ​ ​ ​ ​ 30 Days Days Days Nonaccrual Total December 31, 2021 Totals ​ $ 248 ​ $ 40 ​ $ 65 ​ $ 5,452 ​ $ 5,805 December 31, 2020 Totals ​ $ 166 ​ $ 0 ​ $ 418 ​ $ 6,867 ​ $ 7,451 ​ At December 31, 2021 and 2020, there were no commitments to loan additional funds to borrowers whose loans have been classified as TDRs. A summary of TDRs that occurred during 2021 and 2020 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Balances in Thousands) ​ 2021 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 year ended December 31, 2020, the Corporation recorded a specific allowance for loan losses of $ 416,000 related to a loan secured by commercial real estate for which a TDR concession was made in 2020 and included in the table above. In 2021, the allowance on this loan with a recorded investment of $ 3,405,000 at December 31, 2021 was increased to $ 427,000 . The other loans for which TDRs were granted in 2021 and 2020 had no specific impact on the provision or allowance for loan losses. In 2021 and 2020, payment defaults on loans for which modifications considered to be TDRs were entered into within the previous 12 months are summarized as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 2020 ​ ​ Number ​ ​ ​ ​ Number ​ ​ ​ ​ ​ of ​ Recorded ​ of ​ Recorded (Balances in Thousands) Loans Investment Loans Investment Commercial loans secured by real estate 1 ​ $ 3,405 1 ​ $ 240 Total 1 ​ $ 3,405 1 ​ $ 240 ​ 67 Table of Contents ​ The default that occurred in 2021 was on the loan referred to above with a specific allowance of $ 427,000 at December 31, 2021. The loan for which a default occurred in 2020 was repaid in full in 2021. 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 consolidated balance sheets) is as follows: ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) December 31, December 31, ​ ​ 2021 ​ 2020 Foreclosed residential real estate ​ $ 256 ​ $ 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) December 31, December 31, ​ ​ 2021 ​ 2020 Residential real estate in process of foreclosure ​ $ 1,260 ​ $ 1,246 ​ ​ ​ 9. BANK PREMISES AND EQUIPMENT ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) ​ December 31, ​ ​ 2021 ​ 2020 Land ​ $ 3,623 ​ $ 3,826 Buildings and improvements ​ ​ 32,606 ​ ​ 33,058 Furniture and equipment ​ ​ 15,162 ​ ​ 15,235 Construction in progress ​ ​ 835 ​ ​ 8 Total ​ ​ 52,226 ​ ​ 52,127 Less: accumulated depreciation ​ ​ ( 31,543 ) ​ ​ ( 30,601 ) Net ​ $ 20,683 ​ $ 21,526 ​ Depreciation expense is included in the following line items of the consolidated statements of income: ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) ​ 2021 ​ 2020 Net occupancy and equipment expense ​ $ 1,723 ​ $ 1,595 Data processing and telecommunications expense ​ ​ 407 ​ ​ 386 Total ​ $ 2,130 ​ $ 1,981 ​ ​ 10. GOODWILL AND OTHER INTANGIBLE ASSETS, NET Information related to the core deposit intangibles is as follows: ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) December 31, ​ ​ 2021 ​ 2020 Gross amount ​ $ 6,639 ​ $ 6,639 Accumulated amortization ​ ( 3,323 ) ​ ( 2,788 ) Net ​ $ 3,316 ​ $ 3,851 ​ 68 Table of Contents ​ Amortization expense related to core deposit intangibles is included in other noninterest expense in the consolidated statements of income, as follows: ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) ​ Year Ended ​ ​ December 31, ​ December 31, ​ ​ 2021 ​ 2020 Amortization expense ​ $ 535 ​ $ 540 ​ The amount of amortization expense to be recognized in each of the ensuing five years is as follows: ​ ​ ​ ​ ​ (In Thousands) ​ 2022 ​ $ 439 2023 ​ 408 2024 ​ 390 2025 ​ 424 2026 ​ 396 ​ ​ Goodwill represents the excess of the cost of acquisitions over the fair value of the net assets acquired. Changes in the carrying amount of goodwill are summarized in the following table: ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) ​ Year Ended ​ ​ December 31, ​ December 31, ​ ​ 2021 ​ 2020 Balance, beginning of period ​ $ 52,505 ​ $ 28,388 Goodwill arising in business combination ​ ​ 0 ​ ​ 24,117 Balance, end of period ​ $ 52,505 ​ $ 52,505 ​ In testing goodwill for impairment at December 31, 2021, the Corporation by-passed performing a qualitative assessment and performed a quantitative assessment based on comparison of the Corporation’s market capitalization to its stockholders’ equity, resulting in the determination that the fair value of its reporting unit, its community banking operation, exceeded its carrying amount. Accordingly, there was no goodwill impairment at December 31, 2021. There were no goodwill impairment charges recorded in the years ended December 31, 2021 and 2020. ​ 69 Table of Contents ​ 11. DEPOSITS At December 31, 2021 the scheduled maturities of time deposits are as follows: ​ ​ ​ ​ ​ (In Thousands) ​ ​ ​ 2022 ​ $ 163,170 2023 ​ ​ 80,711 2024 ​ ​ 22,224 2025 ​ ​ 11,963 2026 ​ ​ 7,825 Total ​ $ 285,893 ​ Time deposits of more than $250,000 totaled $ 75,375,000 at December 31, 2021 and $ 103,024,000 at December 31, 2020. As of December 31, 2021, the remaining maturities or time to next re-pricing of time deposits more than $250,000 was as follows: ​ ​ ​ ​ ​ (In Thousands) ​ ​ ​ Three months or less ​ $ 15,981 Over 3 months through 12 months ​ ​ 32,648 Over 1 year through 3 years ​ ​ 25,438 Over 3 years ​ ​ 1,308 Total ​ $ 75,375 ​ ​ 12. BORROWED FUNDS SHORT-TERM BORROWINGS Short-term borrowings (initial maturity within one year) include the following: ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) December 31, December 31, ​ ​ 2021 ​ 2020 FHLB-Pittsburgh borrowings ​ $ 0 ​ $ 18,066 Customer repurchase agreements ​ 1,803 ​ 1,956 Total short-term borrowings ​ $ 1,803 ​ $ 20,022 ​ The weighted average interest rate on total short-term borrowings outstanding was 0.10 % at December 31, 2021 and 0.40 % at December 31, 2020. The maximum amount of total short-term borrowings outstanding at any month-end was $ 17,353,000 in 2021 and $ 56,647,000 in 2020. The Corporation had available credit with other correspondent banks totaling $ 45,000,000 at December 31, 2021 and 2020. These lines of credit are primarily unsecured. No amounts were outstanding at December 31, 2021 or 2020. The Corporation has a line of credit with the Federal Reserve Bank of Philadelphia’s Discount Window. At December 31, 2021, the Corporation had available credit in the amount of $ 13,642,000 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 $ 14,034,000 at December 31, 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 December 31, 2021 and 2020. The carrying value of the underlying securities was $ 1,820,000 at December 31, 2021 and $ 1,980,000 at December 31, 2020. 70 Table of Contents ​ The FHLB-Pittsburgh loan facility is collateralized by qualifying loans secured by real estate with a book value totaling $ 1,046,242,000 at December 31, 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) were $ 9,313,000 at December 31, 2021 and $ 9,720,000 at December 31, 2020. The Corporation’s total credit facility with FHLB-Pittsburgh was $ 756,868,000 at December 31, 2021, including an unused (available) amount of $ 723,557,000 . 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 December 31, 2021, there were no overnight borrowings or short-term advances from FHLB-Pittsburgh. At December 31, 2020, other short-term advances from FHLB-Pittsburgh included five advances totaling $ 18,000,000 which are presented in the table net of the unamortized purchase accounting adjustment, with a weighted-average effective rate of 0.43 %. LONG-TERM BORROWINGS – FHLB ADVANCES Long-term borrowings from FHLB-Pittsburgh are as follows: ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) December 31, December 31, ​ ​ 2021 ​ 2020 Loans matured in 2021 ​ $ 0 ​ $ 26,098 Loans maturing in 2022 with a weighted-average rate of 0.60 % ​ ​ 15,452 ​ ​ 15,682 Loans maturing in 2023 with a weighted-average rate of 0.73 % ​ ​ 7,119 ​ ​ 7,224 Loan maturing in 2024 with a rate of 0.75 % ​ ​ 5,099 ​ ​ 5,137 Loan maturing in 2025 with a rate of 4.91 % ​ ​ 372 ​ ​ 467 Total long-term FHLB-Pittsburgh borrowings ​ $ 28,042 ​ $ 54,608 Note: Weighted-average rates are presented as of December 31, 2021. 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 prior to maturity 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 $ 38,000 in 2021 was included in interest expense in the consolidated statements of income. At December 31, 2021 and December 31, 2020, outstanding Senior Notes are as follows: ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) December 31, 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 ​ $ 14,701 ​ $ 0 Total carrying value ​ $ 14,701 ​ $ 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 71 Table of Contents ​ 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 $ 63,000 in 2021 was included in interest expense in the unaudited consolidated statements of income. At December 31, 2021 and 2020, outstanding subordinated debt agreements are as follows: ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) December 31, 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 ​ ​ 2,008 ​ ​ 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 ​ ​ 24,501 ​ ​ 0 Total carrying value ​ $ 33,009 ​ $ 16,553 ​ ​ ​ 13. EMPLOYEE AND POSTRETIREMENT BENEFIT PLANS DEFINED BENEFIT PLANS The Corporation sponsors a defined benefit health care plan that provides postretirement medical benefits and life insurance to employees who meet certain age and length of service requirements. Full-time employees no longer accrue service time toward the Corporation-subsidized portion of the medical benefits. The plan contains a cost-sharing feature which causes participants to pay for all future increases in costs related to benefit coverage. Accordingly, actuarial assumptions related to health care cost trend rates do not significantly affect the liability balance at December 31, 2021 and 2020 and are not expected to significantly affect the Corporation’s future expenses. The Corporation uses a December 31 measurement date for the postretirement plan. In an acquisition in 2007, the Corporation assumed the Citizens Trust Company Retirement Plan, a defined benefit pension plan. This plan covers certain employees who were employed by Citizens Trust Company on December 31, 2002, when the plan was amended to discontinue admittance of any future participant and to freeze benefit accruals. Information related to the Citizens Trust Company Retirement Plan has been included in the tables that follow. The Corporation uses a December 31 measurement date for this plan. 72 Table of Contents ​ The following table shows the funded status of the defined benefit plans: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pension Postretirement (In Thousands) 2021 2020 2021 2020 CHANGE IN BENEFIT OBLIGATION: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Benefit obligation at beginning of year ​ $ 1,101 ​ $ 976 ​ $ 1,347 ​ $ 1,326 Service cost ​ 0 ​ 0 ​ 63 ​ 46 Interest cost ​ 20 ​ 23 ​ 33 ​ 39 Plan participants' contributions ​ 0 ​ 0 ​ 148 ​ 185 Actuarial loss (gain) ​ 12 ​ 108 ​ ( 65 ) ​ 11 Benefits paid ​ ( 5 ) ​ ( 6 ) ​ ( 229 ) ​ ( 260 ) Benefit obligation at end of year ​ $ 1,128 ​ $ 1,101 ​ $ 1,297 ​ $ 1,347 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ CHANGE IN PLAN ASSETS: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair value of plan assets at beginning of year ​ $ 1,062 ​ $ 971 ​ $ 0 ​ $ 0 Actual return on plan assets ​ 118 ​ 97 ​ 0 ​ 0 Employer contribution ​ 0 ​ 0 ​ 81 ​ 75 Plan participants' contributions ​ 0 ​ 0 ​ 148 ​ 185 Benefits paid ​ ( 5 ) ​ ( 6 ) ​ ( 229 ) ​ ( 260 ) Fair value of plan assets at end of year ​ $ 1,175 ​ $ 1,062 ​ $ 0 ​ $ 0 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Funded status at end of year ​ $ 47 ​ $ ( 39 ) ​ $ ( 1,297 ) ​ $ ( 1,347 ) ​ At December 31, 2021 and 2020, the following pension plan and postretirement plan asset and liability amounts were recognized in the consolidated balance sheets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pension ​ Postretirement (In Thousands) 2021 2020 2021 2020 Other assets ​ $ 47 ​ $ 0 ​ $ 0 ​ $ 0 Accrued interest and other liabilities ​ ​ 0 ​ ​ 39 ​ ​ 1,297 ​ ​ 1,347 ​ At December 31, 2021 and 2020, the following items included in accumulated other comprehensive income had not been recognized as components of expense: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pension ​ Postretirement (In Thousands) 2021 2020 2021 2020 Prior service cost ​ $ 0 ​ $ 0 ​ $ ( 186 ) ​ $ ( 217 ) Net actuarial loss (gain) ​ 182 ​ 277 ​ ( 271 ) ​ ( 211 ) Total ​ $ 182 ​ $ 277 ​ $ ( 457 ) ​ $ ( 428 ) ​ For the defined benefit pension plan, amortization of the net actuarial loss is expected to be $ 8,000 in 2022. For the postretirement plan, the estimated amount of prior service cost that will be amortized from accumulated other comprehensive income into net periodic benefit cost in 2022 is a reduction in expense of $ 31,000 , and net actuarial gain of $ 9,000 is expected to be amortized in 2022. The accumulated benefit obligation for the defined benefit pension plan was $ 1,128,000 at December 31, 2021 and $ 1,101,000 at December 31, 2020. 73 Table of Contents ​ The components of net periodic benefit costs from defined benefit plans are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pension ​ Postretirement (In Thousands) 2021 2020 2021 2020 Service cost ​ $ 0 ​ $ 0 ​ $ 63 ​ $ 46 Interest cost ​ 20 ​ 23 ​ 33 ​ 39 Expected return on plan assets ​ ( 30 ) ​ ( 27 ) ​ 0 ​ 0 Amortization of prior service cost ​ 0 ​ 0 ​ ( 31 ) ​ ( 31 ) Recognized net actuarial loss (gain) ​ 19 ​ 16 ​ ( 5 ) ​ ( 14 ) Total net periodic benefit cost ​ $ 9 ​ $ 12 ​ $ 60 ​ $ 40 ​ The weighted-average assumptions used to determine net periodic benefit cost are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pension ​ Postretirement ​ 2021 2020 2021 2020 Discount rate 2.30 % 3.10 % 2.50 % 3.25 % Expected return on plan assets 4.81 % 4.99 % N/A N/A ​ Rate of compensation increase N/A N/A N/A N/A ​ ​ The weighted-average assumptions used to determine benefit obligations as of December 31, 2021 and 2020 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pension Postretirement ​ ​ 2021 2020 2021 2020 ​ Discount rate 2.60 % 2.30 % 3.00 % 2.50 % Rate of compensation increase N/A N/A N/A N/A ​ ​ Estimated future benefit payments, including only estimated employer contributions for the postretirement plan, which reflect expected future service, are as follows: ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) Pension Postretirement 2022 ​ $ 542 ​ $ 84 2023 ​ 187 ​ 81 2024 ​ 8 ​ 83 2025 ​ 8 ​ 85 2026 ​ 14 ​ 95 2027-2031 ​ 360 ​ 428 ​ No estimated minimum contribution to the defined benefit pension plan is required in 2022, though the Corporation may make discretionary contributions. The expected return on pension plan assets is a significant assumption used in the calculation of net periodic benefit cost. This assumption reflects the average long-term rate of earnings expected on the funds invested or to be invested to provide for the benefits included in the projected benefit obligation. The fair values of pension plan assets at December 31, 2021 and 2020 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ 2021 2020 Mutual funds invested principally in: ​ ​ ​ ​ Cash and cash equivalents 3 % 2 % Debt securities 38 % 36 % Equity securities 51 % 51 % Alternative funds 8 % 11 % Total 100 % 100 % ​ 74 Table of Contents ​ C&N Bank’s Wealth Management Department manages the investment of the pension plan assets. The Plan’s securities include mutual funds invested principally in debt securities, a diversified mix of large, mid- and small-capitalization U.S. stocks, foreign stocks and alternative asset classes such as real estate, commodities, and inflation-protected securities. The fair values of plan assets are determined based on Level 1 inputs (as described in Note 22). The Plan’s assets do not include any shares of the Corporation’s common stock. PROFIT SHARING AND DEFERRED COMPENSATION PLANS The Corporation has a profit sharing plan that incorporates the deferred salary savings provisions of Section 401(k) of the Internal Revenue Code. The Corporation’s matching contributions to the Plan depend upon the tax deferred contributions of employees. The Corporation’s total basic and matching contributions were $ 1,299,000 in 2021 and $ 1,050,000 in 2020. The Corporation has an Employee Stock Ownership Plan (ESOP). Contributions to the ESOP are discretionary, and the ESOP uses funds contributed to purchase Corporation stock for the accounts of ESOP participants. These purchases are made in the market (not directly from the Corporation), and employees are not permitted to purchase Corporation stock under the ESOP. The ESOP includes a diversification feature, which allows participants, upon reaching age 55 and 10 years of service (as defined), to sell up to 50 % of their Corporation shares over a period of 6 years . As of December 31, 2021, and 2020, there were no shares allocated for repurchase by the ESOP. Dividends paid on shares held by the ESOP are charged to retained earnings. All Corporation shares owned through the ESOP are included in the calculation of weighted-average shares outstanding for purposes of calculating earnings per share – basic and diluted. The ESOP held 513,494 shares of Corporation stock at December 31, 2021 and 481,478 shares at December 31, 2020, all of which had been allocated to Plan participants. The Corporation’s contributions to the ESOP totaled $ 1,040,000 in 2021 and $ 912,000 in 2020. The Corporation has a nonqualified supplemental deferred compensation arrangement with its key officers. Charges to operating expense for officers’ supplemental deferred compensation were $ 314,000 in 2021 and $ 286,000 in 2020. In connection with the Covenant acquisition, the Corporation assumed an obligation to provide a supplemental retirement benefit to a former Covenant executive. Under the terms of the agreement, the executive or his heirs will receive monthly payments totaling $ 1 million over a 10-year period starting in October 2025. Effective July 1, 2020, the Corporation recorded a liability of $ 499,000 representing the present value of the obligation prior to the executive fully vesting in the benefit. In 2020, the Corporation recorded expense of $ 360,000 , which is included in merger-related expenses in the consolidated statements of income, representing the impact of the executive fully vesting upon the change in control. In addition, the Corporation recorded expense of $ 13,000 in 2021 and $ 6,000 in 2020, which is included in pensions and other employee benefits in the consolidated statements of income, representing the effective interest cost on the obligation. The discount rate used to measure the liability is 1.5 %. The balance of the liability, which is included in accrued interest and other liabilities in the consolidated balance sheets, is $ 878,000 at December 31, 2021 and $ 865,000 at December 31, 2020. The Corporation also has a nonqualified deferred compensation plan that allows selected officers the option to defer receipt of cash compensation, including base salary and any cash bonuses or other cash incentives. This nonqualified deferred compensation plan does not provide for Corporation contributions. STOCK-BASED COMPENSATION PLANS The Corporation has a Stock Incentive Plan for a selected group of senior officers. A total of 850,000 shares of common stock may be issued under the Stock Incentive Plan. Awards may be made under the Stock Incentive Plan in the form of qualified options (“Incentive Stock Options,” as defined in the Internal Revenue Code), nonqualified options, stock appreciation rights or restricted stock. Historically through December 31, 2021, all awards made under this Plan have consisted of Incentive Stock Options or restricted stock. Incentive Stock Options have an exercise price equal to the market value of the stock at the date of grant, vest after 6 months and expire after 10 years . There are 110,800 shares available for issuance under the Stock Incentive Plan as of December 31, 2021. Also, the Corporation has an Independent Directors Stock Incentive Plan. This plan permits awards of nonqualified stock options and/or restricted stock to non-employee directors. A total of 235,000 shares of common stock may be issued under the Independent Directors Stock Incentive Plan. The recipients’ rights to exercise stock options under this plan expire 10 years from the date of grant. The exercise 75 Table of Contents ​ prices of all stock options awarded under the Independent Directors Stock Incentive Plan are equal to market value as of the dates of grant. There are 96,309 shares available for issuance under the Independent Directors Stock Incentive Plan as of December 31, 2021. Total stock-based compensation expense is as follows: ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) 2021 2020 Restricted stock ​ $ 1,214 ​ $ 1,050 Stock options ​ 0 ​ 0 Total ​ $ 1,214 ​ $ 1,050 ​ The following summarizes non-vested restricted stock activity for the year ended December 31, 2021: ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ Average ​ ​ Number ​ Grant Date ​ of Shares Fair Value Outstanding, December 31, 2020 101,942 ​ $ 23.42 Granted 78,391 ​ $ 20.28 Vested ( 48,016 ) ​ $ 23.85 Forfeited ( 5,290 ) ​ $ 22.10 Outstanding, December 31, 2021 127,027 ​ $ 21.37 ​ Compensation cost related to restricted stock is recognized based on the market price of the stock at the grant date over the vesting period, adjusted for estimated and actual forfeitures. As of December 31, 2021, there was $ 1,498,000 total unrecognized compensation cost related to restricted stock, which is expected to be recognized over a weighted average period of 1.4 years. In 2021 and 2020, the Corporation awarded shares of restricted stock under the Stock Incentive Plan, as follows: ​ ​ ​ ​ ​ ​ ​ 2021 2020 Time-based awards to independent directors ​ 10,989 ​ 7,580 Time-based awards to employees 50,178 45,457 Performance-based awards to employees 17,224 17,903 Total 78,391 70,940 ​ Time-based restricted stock awards granted under the Independent Directors Stock Incentive Plan in 2021 and 2020 vest over one-year terms. Time-based restricted stock awards granted to employees in 2021 and 2020 vest ratably over three-year terms, subject to continued employment and satisfactory job performance. Performance-based restricted stock awards granted in 2021 and 2020 vest ratably over three-year terms, with vesting contingent upon meeting conditions based on the Corporation’s earnings as specified in the agreements. ​ 76 Table of Contents ​ There were no stock options granted in 2021 or 2020. A summary of stock option activity is presented below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 2020 ​ ​ ​ ​ Weighted ​ ​ ​ Weighted ​ ​ ​ ​ Average ​ ​ ​ Average ​ ​ ​ ​ Exercise ​ ​ ​ Exercise ​ Shares Price Shares Price Outstanding, beginning of year 57,111 ​ $ 18.92 75,897 ​ $ 18.69 Granted 0 ​ ​ 0 ​ ​ Exercised ( 22,429 ) ​ $ 18.96 ( 17,222 ) ​ $ 18.25 Forfeited ( 3,156 ) ​ $ 19.20 ( 1,564 ) ​ $ 15.06 Expired ( 7,308 ) ​ $ 15.06 0 ​ $ ​ Outstanding, end of year 24,218 ​ $ 20.01 57,111 ​ $ 18.92 Options exercisable at year-end 24,218 ​ $ 20.01 57,111 ​ $ 18.92 Weighted-average fair value of options forfeited ​ ​ $ 4.59 ​ ​ $ 4.26 ​ The weighted-average remaining contractual term of outstanding stock options at December 31, 2021 was 1.6 years. The aggregate intrinsic value of stock options outstanding was $ 148,000 at December 31, 2021. The total intrinsic value of options exercised was $ 97,000 in 2021 and $ 128,000 in 2020. The Corporation has issued shares from treasury stock for almost all stock option exercises through December 31, 2021. Management does not anticipate that stock repurchases will be necessary to accommodate stock option exercises in 2022. In January 2022, the Corporation awarded 66,405 shares of restricted stock under the Stock Incentive Plan and 9,588 shares of restricted stock under the Independent Directors Stock Incentive Plans. The January 2022 restricted stock awards under the Stock Incentive Plan vest ratably over three years . The 2022 restricted stock issued under the Independent Directors Stock Incentive Plan vests over one year . Total estimated stock-based compensation for 2022 is $ 1,600,000 . The restricted stock awards made in January 2022 are not included in the tables above. ​ 14. INCOME TAXES The net deferred tax asset at December 31, 2021 and 2020 represents the following temporary difference components: ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, (In Thousands) 2021 2020 Deferred tax assets: ​ ​ ​ ​ ​ ​ Allowance for loan losses ​ $ 2,935 ​ $ 2,154 Purchase accounting adjustments on loans ​ 1,621 ​ 1,930 Net operating loss carryforward ​ ​ 778 ​ ​ 896 Operating leases liability ​ ​ 821 ​ ​ 724 Other deferred tax assets ​ 3,260 ​ 3,089 Total deferred tax assets ​ 9,415 ​ 8,793 ​ ​ ​ ​ ​ ​ ​ Deferred tax liabilities: ​ ​ Unrealized holding gains on securities ​ 1,278 ​ 3,104 Defined benefit plans - ASC 835 ​ 57 ​ 32 Bank premises and equipment ​ 460 ​ 1,216 Core deposit intangibles ​ 725 ​ 840 Right-of-use assets from operating leases ​ ​ 821 ​ ​ 724 Other deferred tax liabilities ​ 187 ​ 172 Total deferred tax liabilities ​ 3,528 ​ 6,088 Deferred tax asset, net ​ $ 5,887 ​ $ 2,705 ​ ​ 77 Table of Contents ​ The provision for income taxes includes the following: ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) 2021 2020 Currently payable ​ $ 8,386 ​ $ 4,230 Tax expense resulting from allocations of certain tax benefits to equity or as a reduction in other assets ​ 128 ​ 121 Deferred ​ ( 1,381 ) ​ ( 361 ) Total provision ​ $ 7,133 ​ $ 3,990 ​ A reconciliation of income tax at the statutory rate to the Corporation’s effective rate is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 ​ 2020 (Dollars In Thousands) Amount % Amount % Expected provision ​ $ 7,914 21.0 ​ $ 4,875 21.0 Tax-exempt interest income ​ ( 921 ) ( 2.4 ) ​ ( 808 ) ( 3.5 ) Increase in cash surrender value and other income from life insurance, net ​ ( 118 ) ( 0.3 ) ​ ( 170 ) ( 0.7 ) ESOP dividends ​ ( 120 ) ( 0.3 ) ​ ( 110 ) ( 0.5 ) State income tax, net of Federal benefit ​ 375 1.0 ​ 172 0.7 Other, net ​ 3 0.0 ​ 31 0.1 Effective income tax provision ​ $ 7,133 18.9 ​ $ 3,990 17.2 ​ In connection with the 2020 Covenant merger, the Corporation received a net operating loss (“NOL”) available to be carried forward against future federal taxable income of $ 4.6 million. Availability of the NOL does not expire; however, the amount that may be offset against taxable income is limited to approximately $ 563,000 per year and further limited annually to no more than 80 % of taxable income without regard to the NOL. At December 31, 2021, the unused amount of the NOL is $ 3.7 million. The Corporation has no unrecognized tax benefits, nor pending examination issues related to tax positions taken in preparation of its income tax returns. With limited exceptions, the Corporation is no longer subject to examination by the Internal Revenue Service for years prior to 2018. ​ 15. RELATED PARTY TRANSACTIONS Loans to executive officers, directors of the Corporation and its subsidiaries and any associates of the foregoing persons are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Beginning New ​ Other Ending (In Thousands) Balance Loans Repayments Changes Balance 13 directors, 9 executive officers 2021 ​ $ 18,445 ​ $ 1,249 ​ $ ( 6,034 ) ​ $ 251 ​ $ 13,911 13 directors, 9 executive officers 2020 ​ $ 14,455 ​ $ 242 ​ $ ( 2,150 ) ​ $ 5,898 ​ $ 18,445 ​ In the table above, other changes represent net changes in the balance of existing lines of credit and transfers in and out of the related party category. Deposits from related parties held by the Corporation amounted to $ 10,124,000 at December 31, 2021 and $ 13,182,000 at December 31, 2020. ​ 16. OFF-BALANCE SHEET RISK The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit, interest rate or liquidity risk in excess of the amount recognized in the consolidated balance sheets. The contract amounts of these instruments express the extent of involvement the Corporation has in particular classes of financial instruments. 78 Table of Contents ​ The Corporation’s exposure to credit loss from nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual amount of these instruments. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Financial instruments whose contract amounts represent credit risk at December 31, 2021 and 2020 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) 2021 2020 Commitments to extend credit ​ $ 366,076 ​ $ 317,470 Standby letters of credit ​ 10,079 ​ 9,107 ​ Commitments to extend credit are legally binding agreements to lend to customers. Commitments generally have fixed expiration dates or other termination clauses and may require payment of fees. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future liquidity requirements. The Corporation evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Corporation, for extensions of credit is based on management’s credit assessment of the counterparty. Standby letters of credit are conditional commitments issued by the Corporation guaranteeing performance by a customer to a third party. Those guarantees are issued primarily to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Some of the standby letters of credit are collateralized by real estate or other assets, and others are unsecured. The extent to which proceeds from liquidation of collateral would be expected to cover the maximum potential amount of future payments related to standby letters of credit is not estimable. The Corporation has recorded no liability associated with standby letters of credit as of December 31, 2021 and 2020. Standby letters of credit as of December 31, 2021 expire as follows: ​ ​ ​ ​ ​ Year of Expiration (In Thousands) 2022 ​ $ 10,021 2023 ​ 13 2024 ​ ​ 20 2026 ​ ​ 25 Total ​ $ 10,079 ​ ​ ​ 17. OPERATING LEASE COMMITMENTS AND CONTINGENCIES Operating Lease Commitments Operating leases in which the Corporation is the lessee are recorded as operating lease Right of Use ("ROU") assets and operating lease liabilities, included in other assets and other liabilities, respectively, on the Consolidated Balance Sheets. The Corporation does not currently have any finance leases. Operating lease ROU assets represent the right to use an underlying asset during the lease term and operating lease liabilities represent the obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities were recognized as of the date of adoption of ASU 2017-02 based on the present value of the remaining lease payments using a discount rate that represented the then Corporation’s incremental borrowing rate at the date of initial application. Operating lease expense, which is comprised of amortization of the ROU assets and the implicit interest accreted on the operating lease liability, is recognized on a straight line basis over the remaining lease term of the operating lease, and is recorded in office occupancy expense in the Consolidated Statements of Income. The leases relate to Bank branches with remaining lease terms of generally 1 to 10 years . The Corporation leases certain branch locations, office space and equipment. All leases are classified as operating leases. Leases with an initial term of 12 months or less are not recorded on the balance sheet and the related lease expense is recognized on a straight-line basis over the lease term. 79 Table of Contents ​ Certain leases include options to renew, with renewal terms that can extend the lease term from one to eight years that are reasonably certain of being exercised. The discount rate used in determining the lease liability for each individual lease was the FHLB fixed advance rate which corresponded with the remaining lease term as of January 1, 2019 for leases that existed at adoption and as of the lease commencement date for leases subsequently entered into after January 1, 2019. At December 31, 2021, discount rates ranged from 0.84 % to 3.50 % with a weighted-average discount rate of 1.90 %. At December 31, 2021, the weighted-average remaining lease term was 4.8 years. As shown in the table below, at December 31, 2021, right-of-use assets of $ 3,751,000 were included in other assets , and the related lease liabilities totaling the same amount were included in accrued interest and other liabilities, in the consolidated balance sheets. At December 31, 2020, right of use assets and the related liabilities totaled $ 3,446,000 . ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, (In Thousands) 2021 2020 Other assets ​ $ 3,751 ​ $ 3,446 Other liabilities ​ $ 3,751 ​ $ 3,446 ​ In 2021 and 2020, operating lease expenses are included in the following line item of the consolidated statements of income: ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) 2021 2020 Net occupancy and equipment expense ​ $ 492 ​ $ 371 Total ​ $ 492 ​ $ 371 ​ A maturity analysis of the Corporation’s lease liabilities at December 31, 2021 is as follows: ​ (In Thousands) Lease Payments Due ​ ​ ​ ​ ​ 2022 $ 540 2023 ​ 528 2024 ​ 521 2025 ​ 501 2026 ​ 438 Thereafter ​ 1,524 Total lease payments ​ 4,052 Discount on cash flows ​ ( 301 ) Total lease liabilities ​ $ 3,751 ​ Litigation Matters ​ In the normal course of business, the Corporation is subject to pending and threatened litigation in which claims for monetary damages are asserted. In management’s opinion, the Corporation’s financial position and results of operations would not be materially affected by the outcome of these 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. Losses related to trust department tax compliance matters totaled $ 164,000 in 2021 and $ 571,000 in 2020. These losses are included in other noninterest 80 Table of Contents ​ expense in the consolidated statements of income. The balance of accrued interest and other liabilities in the consolidated balance sheets includes $ 465,000 at December 31, 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. ​ 18. REGULATORY MATTERS In August 2018, the Federal Reserve Board issued an interim final rule that expanded applicability of the Board’s small bank holding company policy statement. The interim final rule raised the policy statement’s asset threshold from $1 billion to $3 billion in total consolidated assets for a bank holding company or savings and loan holding company that: (1) is not engaged in significant nonbanking activities; (2) does not conduct significant off-balance sheet activities; and (3) does not have a material amount of debt or equity securities, other than trust-preferred securities, outstanding. The interim final rule provides that, if warranted for supervisory purposes, the Federal Reserve may exclude a company from the threshold increase. Management believes the Corporation meets the conditions of the Federal Reserve’s small bank holding company policy statement and is therefore excluded from consolidated capital requirements at December 31, 2021; however, C&N Bank remains subject to regulatory capital requirements administered by the federal banking agencies. Details concerning capital ratios at December 31, 2021 and December 31, 2020 are presented below. Management believes, as of December 31, 2021, that C&N Bank meets all capital adequacy requirements to which it is subject and maintains a capital conservation buffer (described in more detail below) that allows the Bank to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers. Further, as reflected in the table below, the Corporation’s and C&N Bank’s capital ratios at December 31, 2021 and December 31, 2020 exceed the Corporation’s Board policy threshold levels. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Minimum To Be Well ​ ​ ​ ​ ​ ​ ​ Minimum ​ Minimum To Maintain ​ Capitalized Under ​ Minimum To Meet ​ ​ ​ ​ ​ Capital ​ Capital Conservation ​ Prompt Corrective ​ the Corporation's ​ ​ Actual ​ Requirement Buffer at Reporting Date ​ Action Provisions ​ Policy Thresholds ​ (Dollars In Thousands) ​ Amount Ratio Amount Ratio Amount Ratio Amount Ratio Amount Ratio ​ December 31, 2021: ​ ​ ​ Total capital to risk-weighted assets: ​ ​ ​ Consolidated ​ $ 287,614 18.21 % N/A N/A N/A N/A N/A N/A ​ $ 165,846 ³ 10.5 % C&N Bank ​ 252,606 16.04 % 126,012 ³ 8 % 165,390 ³ 10.5 % 157,514 ³ 10 % 165,390 ³ 10.5 % Tier 1 capital to risk-weighted assets: ​ ​ ​ ​ ​ ​ ​ ​ Consolidated ​ 240,433 15.22 % N/A N/A N/A N/A N/A N/A ​ 134,256 ³ 8.5 % C&N Bank ​ 238,434 15.14 % 94,509 ³ 6 % 133,887 ³ 8.5 % 126,012 ³ 8 % 133,887 ³ 8.5 % Common equity tier 1 capital to risk-weighted assets: ​ ​ ​ Consolidated ​ 240,433 15.22 % N/A N/A N/A N/A N/A N/A ​ 110,564 ³ 7 % C&N Bank ​ 238,434 15.14 % 70,881 ³ 4.5 % 110,260 ³ 7.0 % 102,384 ³ 6.5 % 110,260 ³ 7 % Tier 1 capital to average assets: ​ ​ ​ ​ ​ ​ ​ Consolidated ​ 240,433 10.53 % N/A N/A N/A N/A N/A N/A ​ 182,683 ³ 8 % C&N Bank ​ 238,434 10.52 % 90,688 ³ 4 % N/A N/A 113,360 ³ 5 % 181,376 ³ 8 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020: ​ ​ ​ Total capital to risk-weighted assets: ​ ​ ​ Consolidated ​ $ 260,015 17.49 % N/A N/A N/A N/A N/A N/A ​ $ 156,113 ³ 10.5 % C&N Bank ​ 236,943 15.98 % 118,602 ³ 8 % 155,665 ³ 10.5 % 148,252 ³ 10 % 155,665 ³ 10.5 % Tier 1 capital to risk-weighted assets: ​ ​ ​ Consolidated ​ 231,577 15.58 % N/A N/A N/A N/A N/A N/A ​ 126,377 ³ 8.5 % C&N Bank ​ 225,058 15.18 % 88,951 ³ 6 % 126,015 ³ 8.5 % 118,602 ³ 8 % 126,015 ³ 8.5 % Common equity tier 1 capital to risk-weighted assets: ​ ​ ​ Consolidated ​ 231,577 15.58 % N/A N/A N/A N/A N/A N/A ​ 104,075 ³ 7 % C&N Bank ​ 225,058 15.18 % 66,714 ³ 4.5 % 103,777 ³ 7.0 % 96,364 ³ 6.5 % 103,777 ³ 7 % Tier 1 capital to average assets: ​ ​ ​ Consolidated ​ 231,577 10.34 % N/A N/A N/A N/A N/A N/A ​ 179,206 ³ 8 % C&N Bank ​ 225,058 10.12 % 88,959 ³ 4 % N/A N/A 111,199 ³ 5 % 177,919 ³ 8 % ​ Federal regulatory authorities impose a capital rule providing that, to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, a banking organization subject to the rule must hold a capital conservation buffer composed of common equity tier 1 capital above its minimum risk-based capital requirements. The buffer is 81 Table of Contents ​ measured relative to risk-weighted assets. At December 31, 2021, the minimum risk-based capital ratios, and the capital ratios including the capital conservation buffer, are as follows: ​ ​ ​ ​ ​ Minimum common equity tier 1 capital ratio 4.5 % Minimum common equity tier 1 capital ratio plus capital conservation buffer 7.0 % Minimum tier 1 capital ratio 6.0 % Minimum tier 1 capital ratio plus capital conservation buffer 8.5 % Minimum total capital ratio 8.0 % Minimum total capital ratio plus capital conservation buffer 10.5 % ​ A banking organization with a buffer greater than 2.5 % over the minimum risk-based capital ratios would not be subject to additional limits on dividend payments or discretionary bonus payments; however, a banking organization with a buffer less than 2.5 % would be subject to increasingly stringent limitations as the buffer approaches zero. Also, a banking organization is prohibited from making dividend payments or discretionary bonus payments if its eligible retained income is negative in that quarter and its capital conservation buffer ratio was less than 2.5 % as of the beginning of that quarter. Eligible net income is defined as net income for the four calendar quarters preceding the current calendar quarter, net of any distributions and associated tax effects not already reflected in net income. A summary of payout restrictions based on the capital conservation buffer is as follows: ​ ​ ​ ​ ​ Capital Conservation Buffer Maximum Payout (as a % of risk-weighted assets) ​ (as a % of eligible retained income) Greater than 2.5 % No payout limitation applies ≤ 2.5 % and > 1.875 % ​ 60 % ≤ 1.875 % and > 1.25 % ​ 40 % ≤ 1.25 % and > 0.625 % ​ 20 % ≤ 0.625 % ​ 0 % ​ At December 31, 2021, C&N Bank’s Capital Conservation Buffer, determined based on the minimum total capital ratio, was 8.04 %. Banking regulators limit the amount of dividends that may be paid by C&N Bank to the Corporation. Retained earnings against which dividends may be paid without prior approval of the banking regulators amounted to approximately $ 88,252,000 at December 31, 2021, subject to the minimum capital ratio requirements noted above. Restrictions imposed by federal law prohibit the Corporation from borrowing from C&N Bank unless the loans are secured in specific amounts. Such secured loans to the Corporation are generally limited to 10 % of C&N Bank’s tangible stockholder’s equity (excluding accumulated other comprehensive income) or $ 23,856,000 at December 31, 2021. ​ 82 Table of Contents ​ 19. PARENT COMPANY ONLY The following is condensed financial information for Citizens & Northern Corporation: ​ ​ ​ ​ ​ ​ ​ ​ CONDENSED BALANCE SHEET Dec. 31, Dec. 31, (In Thousands) ​ 2021 ​ 2020 ASSETS ​ ​ Cash ​ $ 33,518 ​ $ 7,246 Investment in subsidiaries: ​ ​ Citizens & Northern Bank ​ 298,797 ​ 292,455 Citizens & Northern Investment Corporation ​ 13,085 ​ 12,959 Bucktail Life Insurance Company ​ 3,825 ​ 3,804 Other assets ​ 33 ​ 4 TOTAL ASSETS ​ $ 349,258 ​ $ 316,468 ​ ​ ​ ​ ​ ​ ​ LIABILITIES AND STOCKHOLDERS' EQUITY ​ ​ Senior notes, net ​ $ 14,701 ​ $ 0 Subordinated debt, net ​ 33,009 ​ 16,553 Other liabilities ​ 143 ​ 159 Stockholders' equity ​ 301,405 ​ 299,756 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ​ $ 349,258 ​ $ 316,468 ​ ​ ​ ​ ​ ​ ​ ​ CONDENSED INCOME STATEMENT ​ ​ ​ (In Thousands) 2021 2020 Dividends from Citizens & Northern Bank ​ $ 20,200 ​ $ 38,507 Expenses ​ ( 1,691 ) ​ ( 1,488 ) Income before equity in undistributed income (excess distributions) of subsidiaries ​ 18,509 ​ 37,019 Equity in undistributed income (excess distributions) of subsidiaries ​ 12,045 ​ ( 17,797 ) NET INCOME ​ $ 30,554 ​ $ 19,222 ​ 83 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ CONDENSED STATEMENT OF CASH FLOWS ​ ​ ​ (In Thousands) 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES: ​ ​ ​ ​ ​ ​ Net income ​ $ 30,554 ​ $ 19,222 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ Accretion of purchase accounting adjustment ​ ​ ( 43 ) ​ ​ ( 38 ) Amortization of debt issuance costs ​ 101 ​ 0 Equity in (undistributed income) excess distributions of subsidiaries ​ ( 12,045 ) ​ 17,797 (Increase) decrease in other assets ​ ( 29 ) ​ 105 (Decrease) increase in other liabilities ​ ( 16 ) ​ 13 Net Cash Provided by Operating Activities ​ 18,522 ​ 37,099 ​ ​ ​ ​ ​ ​ ​ CASH FLOWS FROM INVESTING ACTIVITIES, ​ ​ Net cash used in business combination ​ 0 ​ ( 21,837 ) ​ ​ ​ ​ ​ ​ ​ CASH FLOWS FROM FINANCING ACTIVITIES: ​ ​ Proceeds from issuance of senior notes and subordinated debt ​ 39,100 ​ 0 Repayment of subordinated debt ​ ( 8,000 ) ​ 0 Proceeds from sale of treasury stock ​ 212 ​ 131 Purchase of treasury stock ​ ( 7,586 ) ​ ( 163 ) Dividends paid ​ ( 15,976 ) ​ ( 14,469 ) Net Cash Provided by (Used in) Financing Activities ​ 7,750 ​ ( 14,501 ) ​ ​ ​ ​ ​ ​ ​ INCREASE IN CASH AND CASH EQUIVALENTS ​ 26,272 ​ 761 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ​ 7,246 ​ 6,485 CASH AND CASH EQUIVALENTS, END OF YEAR ​ $ 33,518 ​ $ 7,246 ​ ​ ​ ​ ​ ​ ​ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: ​ ​ Investment of net assets acquired in business combination in Citizens & Northern Bank ​ $ 0 ​ $ 73,426 Common equity issued in business combination ​ $ 0 ​ $ 41,429 Subordinated debt assumed in business combination ​ $ 0 ​ $ 10,091 Other liabilities assumed in business combination ​ $ 0 ​ $ 69 Interest paid ​ $ 1,567 ​ $ 655 ​ ​ ​ ​ 84 Table of Contents ​ 20. SUMMARY OF QUARTERLY CONSOLIDATED FINANCIAL DATA (Unaudited) The following tables present summarized quarterly financial data for 2021 and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 Quarter Ended ​ ​ March 31, ​ June 30, ​ Sept. 30, ​ Dec. 31, (In Thousands Except Per Share Data) (Unaudited) 2021 2021 2021 2021 Interest income ​ $ 21,754 ​ $ 20,428 ​ $ 21,073 ​ $ 21,246 Interest expense ​ 1,671 ​ 1,747 ​ 1,614 ​ 1,530 Net interest income ​ 20,083 ​ 18,681 ​ 19,459 ​ 19,716 Provision for loan losses ​ 259 ​ 744 ​ 1,530 ​ 1,128 Net interest income after provision for loan losses ​ 19,824 ​ 17,937 ​ 17,929 ​ 18,588 Noninterest income ​ 6,782 ​ 6,300 ​ 6,359 ​ 6,416 Net gains (losses) on available-for-sale debt securities ​ 0 ​ 2 ​ 23 ​ ( 1 ) Other noninterest expenses ​ 15,709 ​ 15,399 ​ 15,346 ​ 16,018 Income before income tax provision ​ 10,897 ​ 8,840 ​ 8,965 ​ 8,985 Income tax provision ​ 2,110 ​ 1,780 ​ 1,566 ​ 1,677 Net income ​ $ 8,787 ​ $ 7,060 ​ $ 7,399 ​ $ 7,308 Net income attributable to common shares ​ $ 8,722 ​ $ 6,999 ​ $ 7,336 ​ $ 7,256 Net income per share – basic ​ $ 0.55 ​ $ 0.44 ​ $ 0.47 ​ $ 0.46 Net income per share – diluted ​ $ 0.55 ​ $ 0.44 ​ $ 0.47 ​ $ 0.46 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2020 Quarter Ended ​ ​ March 31, ​ June 30, ​ Sept. 30, ​ Dec. 31, (In Thousands Except Per Share Data) (Unaudited) 2020 2020 2020 2020 Interest income ​ $ 17,037 ​ $ 16,513 ​ $ 21,751 ​ $ 21,859 Interest expense ​ 2,755 ​ 2,267 ​ 2,469 ​ 2,104 Net interest income ​ 14,282 ​ 14,246 ​ 19,282 ​ 19,755 Provision (credit) for loan losses ​ 1,528 ​ ( 176 ) ​ 1,941 ​ 620 Net interest income after provision (credit) for loan losses ​ 12,754 ​ 14,422 ​ 17,341 ​ 19,135 Noninterest income ​ 5,281 ​ 5,528 ​ 6,970 ​ 6,565 Net gains on available-for-sale debt securities ​ 0 ​ 0 ​ 25 ​ 144 Loss on prepayment of borrowings ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 1,636 Merger-related expenses ​ 141 ​ 983 ​ 6,402 ​ 182 Other expenses ​ 12,912 ​ 12,274 ​ 14,648 ​ 15,775 Income before income tax provision ​ 4,982 ​ 6,693 ​ 3,286 ​ 8,251 Income tax provision ​ 816 ​ 1,255 ​ 438 ​ 1,481 Net income ​ $ 4,166 ​ $ 5,438 ​ $ 2,848 ​ $ 6,770 Net income attributable to common shares ​ $ 4,146 ​ $ 5,405 ​ $ 2,830 ​ $ 6,727 Net income per share – basic ​ $ 0.30 ​ $ 0.39 ​ $ 0.18 ​ $ 0.43 Net income per share – diluted ​ $ 0.30 ​ $ 0.39 ​ $ 0.18 ​ $ 0.43 ​ ​ ​ ​ 85 Table of Contents ​ 21. 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 loan 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 $ 123,094,000 at December 31, 2021 and $ 135,740,000 at December 31, 2020. The Corporation originated no interest rate swaps in 2021 or 2020. There were no gross amounts of interest rate swap-related assets and liabilities not offset in the consolidated balance sheets at December 31, 2021. The net impact on the consolidated statements of income from interest rate swaps was a reduction in interest income on loans of $ 1,347,000 in 2021 and $ 698,000 in 2020. The table below presents the fair value of the Corporation’s derivative financial instruments as well as their classification on the consolidated balance sheets at December 31, 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) At December 31, 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 $ 61,547 ​ $ 3,104 ​ $ 61,547 ​ $ 3,104 ​ $ 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 $ 7,027,000 were pledged as collateral against the Corporation’s liability related to the interest rate swaps at December 31, 2021. ​ 22. FAIR VALUE MEASUREMENTS AND FAIR VALUES OF FINANCIAL INSTRUMENTS The Corporation measures certain assets at fair value. Fair value is defined as the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. FASB ASC 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. 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 through corroboration with observable market data. Level 2 inputs include quoted market prices 86 Table of Contents ​ in active markets for similar assets, quoted market prices in markets that are not active for identical or similar assets 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 becoming active or inactive, changes in the availability of quoted prices, or changes in the availability of other market data. At December 31, 2021 and 2020, assets measured at fair value and the valuation methods used are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 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 ​ $ 24,912 ​ $ 0 ​ $ 0 ​ $ 24,912 Obligations of U.S. Government agencies ​ ​ 0 ​ ​ 24,091 ​ ​ 0 ​ ​ 24,091 Bank holding company debt securities ​ ​ 0 ​ ​ 17,987 ​ ​ 0 ​ ​ 17,987 Obligations of states and political subdivisions: ​ ​ ​ ​ ​ ​ Tax-exempt ​ 0 ​ 148,028 ​ 0 ​ 148,028 Taxable ​ 0 ​ 72,765 ​ 0 ​ 72,765 Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies: ​ ​ ​ ​ Residential pass-through securities ​ 0 ​ 98,181 ​ 0 ​ 98,181 Residential collateralized mortgage obligations ​ 0 ​ 44,247 ​ 0 ​ 44,247 Commercial mortgage-backed securities ​ 0 ​ 87,468 ​ 0 ​ 87,468 Total available-for-sale debt securities ​ 24,912 ​ 492,767 ​ 0 ​ 517,679 Marketable equity security ​ 971 ​ 0 ​ 0 ​ 971 Servicing rights ​ 0 ​ 0 ​ 2,329 ​ 2,329 Interest rate swap agreements, assets ​ ​ 0 ​ ​ 3,104 ​ ​ 0 ​ ​ 3,104 Total recurring fair value measurements, assets ​ $ 25,883 ​ $ 495,871 ​ $ 2,329 ​ $ 524,083 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Recurring fair value measurements, liabilities, ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest rate swap agreements, liabilities ​ $ 0 ​ $ 3,104 ​ $ 0 ​ $ 3,104 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nonrecurring fair value measurements, assets: ​ ​ ​ ​ Impaired loans, net ​ $ 0 ​ $ 0 ​ $ 5,800 ​ $ 5,800 Foreclosed assets held for sale ​ 0 ​ 0 ​ 684 ​ 684 Total nonrecurring fair value measurements, assets ​ $ 0 ​ $ 0 ​ $ 6,484 ​ $ 6,484 ​ 87 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 ​ $ 12,182 ​ $ 0 ​ $ 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 ​ 12,182 ​ 337,150 ​ 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 ​ $ 13,182 ​ $ 343,716 ​ $ 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, 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 ​ ​ 88 Table of Contents ​ 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. The following table shows quantitative information regarding significant techniques and inputs used at December 31, 2021 and 2020 for servicing rights assets measured using unobservable inputs (Level 3 methodologies) on a recurring basis: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value at ​ ​ ​ 12/31/2021 ​ Valuation ​ Unobservable ​ ​ ​ ​ Method or Value As of Asset ​ (In Thousands) ​ Technique ​ Input(s) ​ ​ ​ ​ 12/31/2021 Servicing rights ​ $ 2,329 Discounted cash flow Discount rate ​ 13.00 % Rate used through modeling period ​ ​ ​ ​ ​ Loan prepayment speeds ​ ​ 209.00 % 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. Following is a reconciliation of activity for Level 3 assets (servicing rights) measured at fair value on a recurring basis: ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) ​ Years Ended December 31, ​ 2021 2020 Servicing rights balance, beginning of period ​ $ 1,689 ​ $ 1,277 Originations of servicing rights ​ 708 ​ 988 Unrealized loss included in earnings ​ ( 68 ) ​ ( 576 ) Servicing rights balance, end of period ​ $ 2,329 ​ $ 1,689 ​ 89 Table of Contents ​ 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 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. At December 31, 2021 and 2020, quantitative information regarding significant techniques and inputs used for nonrecurring fair value measurements using unobservable inputs (Level 3 methodologies) are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Dollars In Thousands) ​ ​ ​ ​ Weighted ​ ​ ​ ​ ​ Valuation ​ ​ ​ ​ ​ Average ​ ​ Balance at ​ Allowance at ​ Fair Value at ​ Valuation ​ Unobservable ​ Discount at Asset ​ 12/31/2021 ​ 12/31/2021 ​ 12/31/2021 ​ Technique ​ Inputs ​ 12/31/2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Impaired loans: ​ ​ ​ ​ Commercial: ​ ​ ​ ​ ​ ​ ​ Commercial loans secured by real estate ​ $ 6,468 ​ $ 668 ​ $ 5,800 Sales comparison Discount to appraised value 27 % Commercial and industrial ​ ​ 72 ​ ​ 72 ​ ​ 0 ​ Liquidation of assets Discount to appraised value 100 % Total impaired loans ​ $ 6,540 ​ $ 740 ​ $ 5,800 ​ Foreclosed assets held for sale - real estate: ​ ​ ​ ​ Commercial real estate ​ $ 428 ​ $ 0 ​ $ 428 Sales comparison Discount to appraised value 50 % Residential (1-4 family) ​ ​ 256 ​ ​ 0 ​ ​ 256 Sales comparison Discount to appraised value 53 % Total foreclosed assets held for sale ​ $ 684 ​ $ 0 ​ $ 684 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (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. 90 Table of Contents ​ 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 ​ December 31, 2021 ​ December 31, 2020 ​ ​ Hierarchy ​ Carrying ​ Fair ​ Carrying ​ Fair ​ Level Amount Value Amount Value Financial assets: ​ ​ ​ ​ Cash and cash equivalents Level 1 ​ $ 95,848 ​ $ 95,848 ​ $ 96,017 ​ $ 96,017 Certificates of deposit Level 2 ​ 9,100 ​ 9,142 ​ 5,840 ​ 6,054 Restricted equity securities (included in Other Assets) Level 2 ​ 9,562 ​ 9,562 ​ 9,970 ​ 9,970 Loans, net Level 3 ​ 1,551,312 ​ 1,573,955 ​ 1,632,824 ​ 1,646,207 Accrued interest receivable Level 2 ​ 7,235 ​ 7,235 ​ 8,293 ​ 8,293 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Financial liabilities: ​ ​ ​ ​ Deposits with no stated maturity Level 2 ​ 1,639,167 ​ 1,639,167 ​ 1,430,062 ​ 1,430,062 Time deposits Level 2 ​ 285,893 ​ 286,962 ​ 390,407 ​ 393,566 Short-term borrowings Level 2 ​ 1,803 ​ 1,603 ​ 20,022 ​ 19,974 Long-term borrowings Level 2 ​ 28,042 ​ 28,347 ​ 54,608 ​ 55,723 Senior debt ​ Level 2 ​ ​ 14,701 ​ ​ 15,016 ​ ​ 0 ​ ​ 0 Subordinated debt ​ Level 2 ​ ​ 33,009 ​ ​ 33,171 ​ ​ 16,553 ​ ​ 16,680 Accrued interest payable Level 2 ​ 205 ​ 205 ​ 548 ​ 548 ​ ​ ​ ​ ​ 91 Table of Contents ​ Report of Independent Registered Public Accounting Firm Stockholders and Board of Directors of Citizens & Northern Corporation Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Citizens & Northern Corporation and subsidiaries (collectively the "Corporation") as of December 31, 2021 and 2020, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the "consolidated financial statements"). We also have audited the Corporation’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Corporation as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO. Basis for Opinions The Corporation’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Corporation's consolidated financial statements and an opinion on the Corporation’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Corporation in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. 92 Table of Contents ​ Definition and Limitations of Internal Control Over Financial Reporting A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates. Allowance for Loan Losses – Qualitative Factors Critical Audit Matter Description As disclosed in Note 8 to the Corporation's consolidated financial statements, the Corporation's loan portfolio totaled $1,564,849,000 as of December 31, 2021, and the related allowance for loan losses was $13,537,000. As described in Note 1 and Note 8, the allowance for loan losses consists of two major components: (1) a specific component consisting of the valuation allowance for loans individually evaluated for impairment (“specific component”), representing $740,000 and (2) a general component consisting of the valuation allowance for pools of loans with similar risk characteristics collectively evaluated for impairment (“general reserves”), representing $12,797,000. The general reserves are further broken down as reserves assigned to each pool of loans based on both historical net charge-off experience ($1,332,000) and reserves related to qualitative factors ($11,465,000). The determination of the allowance for loan losses requires significant estimates and subjective assumptions which require a high degree of judgment relating to how those assumptions impact probable incurred credit losses within the loan portfolio. Changes in these assumptions could have a material effect on the Corporation’s financial results. Qualitative risk factors are evaluated for the impact on each of the three distinct loan segments (residential mortgage, commercial and consumer) within the loan portfolio. Each qualitative factor is assigned a value to reflect improving, stable or declining conditions based on management’s judgment using relevant information available at the time of the evaluation. Management has designed qualitative factors that include such factors as 1) economic conditions within its market area, 2) the Corporation’s lending policies, 3) changes or trends in the portfolio, 4) risk profile, 5) competition, and 6) regulatory requirements. To formulate the additional allocations to the allowance for loan losses for general reserve qualitative factors, management multiplies the outstanding principal balance of the various loan classes by the applicable qualitative factor. ​ Management’s identification and analysis of these issues requires significant judgment. We identified the estimate of the general reserve's qualitative factors of the allowance for loan losses as a critical audit matter as auditing the underlying qualitative factors requires significant auditor judgment as amounts determined by management rely on analysis that is highly subjective and includes significant estimation uncertainty. 93 Table of Contents ​ How We Addressed the Matter in Our Audit The primary procedures we performed to address this critical audit matter included, among others: ● Obtaining an understanding of the management review control over the determination, review and approval of the qualitative factors, including controls over the underlying internal and external data inputs, and testing such control for design and operating effectiveness. ​ ● Evaluating the reasonableness of management’s judgments related to qualitative factor adjustments to determine if they are calculated in accordance with management’s policies and consistently applied. ​ ● Evaluating the relevance and reliability of underlying internal and external data inputs used as a basis for the qualitative factor adjustments and corroborating these inputs by comparing to the Corporation’s lending practices, historical loan portfolio performance, and third-party macroeconomic data, as well as considering current economic factors. ​ ● Analytically evaluate changes that occurred in the allowance for loan losses. ​ /s/ Baker Tilly US, LLP ​ We have served as the Corporation’s auditor since 1979. Pittsburgh, Pennsylvania February 22, 202 2 ​ ​ 94 Table of Contents ​ ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None ​