What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-11-07 compared with 2022-08-05 · 244 added, 185 removed, 995 unchanged (30% of the section changed)

2 unchanged sentences

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

September 30,

Cash and due from banks:

28 unchanged sentences

authorized 30,000,000 shares;

issued 16,030,172 and outstanding 15,499,214 at June 30, 2022;

issued 16,030,172 and outstanding 15,500,416 at September 30, 2022;

issued 16,030,172 and outstanding 15,759,090 at December 31, 2021

2 unchanged sentences

Treasury stock, at cost;

530,958 shares at June 30, 2022 and 271,082

529,756 shares at September 30, 2022 and 271,082

shares at December 31, 2021

7 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

INTEREST INCOME

22 unchanged sentences

Other noninterest income

Realized (losses) gains on available-for-sale debt securities, net

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

Total noninterest income

17 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Available-for-sale debt securities:

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

Reclassification adjustment for losses (gains) realized in income

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

Unrealized holding losses on available-for-sale debt securities

Reclassification adjustment for gains realized in income

Other comprehensive loss on available-for-sale debt securities

Unfunded pension and postretirement obligations:

2 unchanged sentences

Other comprehensive (loss) income on pension and postretirement obligations

Other comprehensive (loss) income before income tax

Income tax related to other comprehensive loss (income)

Net other comprehensive (loss) income

Other comprehensive loss before income tax

Income tax related to other comprehensive loss

Net other comprehensive loss

Comprehensive (loss) income

3 unchanged sentences

(In Thousands) (Unaudited)

Six Months Ended

Nine Months Ended

September 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

8 unchanged sentences

Deferred income taxes

Increase in fair value of servicing rights

(Increase) decrease in fair value of servicing rights

Gains on sales of loans, net

44 unchanged sentences

Comprehensive

Three Months Ended June 30, 2022

Three Months Ended September 30, 2022

(Loss) Income

Balance, March 31, 2022

Balance, June 30, 2022

Other comprehensive loss, net

3 unchanged sentences

Stock-based compensation expense

Purchase of restricted stock for tax withholding

Treasury stock purchases

Balance, September 30, 2022

Three Months Ended September 30, 2021

Balance, June 30, 2021

Three Months Ended June 30, 2021

Balance, March 31, 2021

Other comprehensive income, net

Other comprehensive loss, net

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

Shares issued for dividend reinvestment plan

Restricted stock granted

Forfeiture of restricted stock

Shares issued from treasury related to exercise of stock options

Stock-based compensation expense

Purchase of restricted stock for tax withholding

Treasury stock purchases

Balance, June 30, 2021

Balance, September 30, 2021

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

2 unchanged sentences

Comprehensive

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

(Loss) Income

3 unchanged sentences

Shares issued for dividend reinvestment plan

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

Shares issued from treasury related to exercise of stock options

Restricted stock granted

3 unchanged sentences

Treasury stock purchases

Balance, June 30, 2022

Six Months Ended June 30, 2021

Balance, September 30, 2022

Nine Months Ended September 30, 2021

Balance, December 31, 2020

2 unchanged sentences

Shares issued for dividend reinvestment plan

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

Shares issued from treasury related to exercise of stock options

Restricted stock granted

3 unchanged sentences

Treasury stock purchases

Balance, June 30, 2021

Balance, September 30, 2021

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

10 unchanged sentences

GAAP”) for a complete set of financial statements.

Operating results reported for the six-month period ended June 30, 2022 might not be indicative of the results for the year ending December 31, 2022.

Operating results reported for the nine-month period ended September 30, 2022 might not be indicative of the results for the year ending December 31, 2022.

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

10 unchanged sentences

The Corporation has elected to apply the optional expedients prospectively for applicable loan and other contracts, and implementation of this election did not have a material effect on the Corporation’s financial position or results of operations.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

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.

The allowance for credit losses will be based on the

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Corporation’s historical loss experience, borrower characteristics, forecasts of future economic conditions and other relevant factors.

The Corporation will also apply qualitative factors to account for information that may not be reflected in quantitatively derived results or other relevant factors to ensure the allowance reflects management’s best estimate of current expected credit losses.

Preliminary expected loss estimates have been determined and continue to be validated and reviewed.

In the fourth quarter 2022, the Corporation will continue to refine its expected credit loss estimates and will finalize the operational and control structure supporting the process.

ASU 2022-02, Financial Instruments-Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures.

This update reduces the complexity of accounting for TDRs by eliminating certain accounting guidance, enhancing disclosures and improving the consistency of vintage disclosures.

The Corporation will adopt ASU 2022-02 on January 1, 2023.

The Corporation does not expect the adoption of ASU 2022-02 to have a material impact on its consolidated financial statements.

PER SHARE DATA

7 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Dividends and undistributed earnings allocated to participating securities

9 unchanged sentences

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

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

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

There were no anti-dilutive instruments in the three-month and six-month periods ended June 30, 2022 and 2021.

There were no anti-dilutive instruments in the three-month and nine-month periods ended September 30, 2022 and 2021.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

COMPREHENSIVE (LOSS) INCOME

2 unchanged sentences

(In Thousands)

Three Months Ended June 30, 2022

Three Months Ended September 30, 2022

Available-for-sale debt securities:

Unrealized holding losses on available-for-sale debt securities

Reclassification adjustment for losses realized in income

Reclassification adjustment for (gains) realized in income

Other comprehensive loss from available-for-sale debt securities

1 unchanged sentence

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

Other comprehensive loss on unfunded retirement obligations

Total other comprehensive loss

(In Thousands)

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

Available-for-sale debt securities:

Unrealized holding gains on available-for-sale debt securities

Unrealized holding losses on available-for-sale debt securities

Reclassification adjustment for (gains) realized in income

Other comprehensive income from available-for-sale debt securities

Other comprehensive loss from available-for-sale debt securities

Unfunded pension and postretirement obligations,

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

Other comprehensive loss on unfunded retirement obligations

Total other comprehensive income

Total other comprehensive loss

(In Thousands)

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

Available-for-sale debt securities:

9 unchanged sentences

(In Thousands)

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

Available-for-sale debt securities:

10 unchanged sentences

Consolidated Statements of Income

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

Realized (losses) gains on available-for-sale debt securities, net

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

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

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

7 unchanged sentences

(Loss) Income

Three Months Ended June 30, 2022

Three Months Ended September 30, 2022

Balance, beginning of period

Other comprehensive loss during three months ended June 30, 2022

Other comprehensive loss during three months ended September 30, 2022

Balance, end of period

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

Balance, beginning of period

Other comprehensive income (loss) during three months ended June 30, 2021

Other comprehensive loss during three months ended September 30, 2021

Balance, end of period

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

(In Thousands)

2 unchanged sentences

(Loss) Income

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

Balance, beginning of period

Other comprehensive (loss) income during six months ended June 30, 2022

Other comprehensive loss during nine months ended September 30, 2022

Balance, end of period

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

Balance, beginning of period

Other comprehensive loss during six months ended June 30, 2021

Other comprehensive loss during nine months ended September 30, 2021

Balance, end of period

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

CASH AND DUE FROM BANKS

Cash and due from banks at June 30, 2022 and December 31, 2021 include the following:

Cash and due from banks at September 30, 2022 and December 31, 2021 include the following:

(In Thousands)

September 30,

Cash and cash equivalents

8 unchanged sentences

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

Accordingly, C&N Bank had no required reserves at June 30, 2022 or December 31, 2021.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Amortized cost and fair value of available-for-sale debt securities at June 30, 2022 and December 31, 2021 are summarized as follows:

Accordingly, C&N Bank had no required reserves at September 30, 2022 or December 31, 2021.

Amortized cost and fair value of available-for-sale debt securities at September 30, 2022 and December 31, 2021 are summarized as follows:

(In Thousands)

June 30, 2022

September 30, 2022

Obligations of the U.S.

8 unchanged sentences

Commercial mortgage-backed securities

Private label commercial mortgage-backed securities

Total available-for-sale debt securities

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

(In Thousands)

11 unchanged sentences

Total available-for-sale debt securities

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

The following table presents gross unrealized losses and fair value of available-for-sale debt securities with unrealized loss positions that are not deemed to be other-than-temporarily impaired, aggregated by length of time that individual securities have been in a continuous unrealized loss position at June 30, 2022 and December 31, 2021:

June 30, 2022

September 30, 2022

Less Than 12 Months

11 unchanged sentences

Commercial mortgage-backed securities

Private label commercial mortgage-backed securities

Total temporarily impaired available-for-sale debt securities

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

December 31, 2021

16 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Gross realized gains from sales

Gross realized losses from sales

Net realized (losses) gains

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

The amortized cost and fair value of available-for-sale debt securities by contractual maturity are shown in the following table as of June 30, 2022.

Net realized gains

The amortized cost and fair value of available-for-sale debt securities by contractual maturity are shown in the following table as of September 30, 2022.

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)

June 30, 2022

September 30, 2022

Due in one year or less

7 unchanged sentences

Commercial mortgage-backed securities

Private label commercial mortgage-backed securities

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.

1 unchanged sentence

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

Investment securities carried at $ 243,298,000 at June 30, 2022 and $ 241,428,000 at December 31, 2021 were pledged as collateral for public deposits, trusts and certain other deposits as provided by law.

Investment securities carried at $ 281,096,000 at September 30, 2022 and $ 241,428,000 at December 31, 2021 were pledged as collateral for public deposits, trusts and certain other deposits as provided by law.

See Note 8 for information concerning securities pledged to secure borrowing arrangements and Note 11 for information related to securities pledged against interest rate swap obligations.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

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 June 30, 2022 is provided below.

A summary of information management considered in evaluating debt and equity securities for OTTI at September 30, 2022 is provided below.

Debt Securities

At June 30, 2022 and December 31, 2021, management performed an assessment for possible OTTI of the Corporation’s debt securities on an issue-by-issue basis, relying on information obtained from various sources, including publicly available financial data, ratings by external agencies, brokers and other sources.

At September 30, 2022 and December 31, 2021, 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.

As reflected in the table above, the fair value of available-for-sale debt securities as of June 30, 2022 was lower than the amortized cost basis by $ 45,957,000 , or 8.0 %.

As reflected in the table above, the fair value of available-for-sale debt securities as of September 30, 2022 was lower than the amortized cost basis by $ 71,857,000 , or 12.8 %.

In comparison, the aggregate unrealized gain position was $ 6,087,000 ( 1.2 %) at December 31, 2021.

The unrealized decrease in fair value of the portfolio in the first half of 2022 was consistent with the significant increase in market interest rates that occurred during the period.

Based on the results of the assessment, management believes there were no credit-related declines in fair value and that impairment of debt securities at June 30, 2022 and December 31, 2021 is temporary.

The unrealized decrease in fair value of the portfolio in the first nine months of 2022 was consistent with the significant increase in market interest rates that occurred during the period.

Based on the results of the assessment, management believes there were no credit-related declines in fair value and that impairment of debt securities at September 30, 2022 and December 31, 2021 is temporary.

Equity Securities

2 unchanged sentences

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

C&N Bank’s investment in

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

FHLB-Pittsburgh stock, included in other assets in the consolidated balance sheets, was $ 13,443,000 at June 30, 2022 and $ 9,313,000 at December 31, 2021.

The Corporation evaluated its holding of FHLB-Pittsburgh stock for impairment and deemed the stock to not be impaired at June 30, 2022 and December 31, 2021.

C&N Bank’s investment in FHLB-Pittsburgh stock, included in other assets in the consolidated balance sheets, was $ 10,557,000 at September 30, 2022 and $ 9,313,000 at December 31, 2021.

The Corporation evaluated its holding of FHLB-Pittsburgh stock for impairment and deemed the stock to not be impaired at September 30, 2022 and December 31, 2021.

In making this determination, management concluded that recovery of total outstanding par value, which equals the carrying value, is expected.

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

The Corporation has a marketable equity security included in other assets in the consolidated balance sheets with a carrying value of $ 895,000 at June 30, 2022 and $ 971,000 at December 31, 2021, consisting exclusively of one mutual fund.

There was an unrealized loss on the mutual fund of $ 105,000 at June 30, 2022 and $ 29,000 at December 31, 2021.

The Corporation has a marketable equity security included in other assets in the consolidated balance sheets with a carrying value of $ 857,000 at September 30, 2022 and $ 971,000 at December 31, 2021, consisting exclusively of one mutual fund.

There was an unrealized loss on the mutual fund of $ 143,000 at September 30, 2022 and $ 29,000 at December 31, 2021.

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

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

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

Loans outstanding at June 30, 2022 and December 31, 2021 are summarized by segment, and by classes within each segment, as follows:

Loans outstanding at September 30, 2022 and December 31, 2021 are summarized by segment, and by classes within each segment, as follows:

Summary of Loans by Type

(In Thousands)

September 30,

Commercial loans secured by real estate

16 unchanged sentences

allowance for loan losses

In the table above, outstanding loan balances are presented net of deferred loan origination fees, net, of $ 4,031,000 at June 30, 2022 and $ 4,247,000 at December 31, 2021.

In the table above, outstanding loan balances are presented net of deferred loan origination fees, net, of $ 4,221,000 at September 30, 2022 and $ 4,247,000 at December 31, 2021.

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

1 unchanged sentence

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.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law.

5 unchanged sentences

Among the additional relief measures included are certain extensions to elements of the CARES Act, including extension of relief from troubled debt restructurings reporting established under Section 4013 of the CARES Act to 60 days after the date on which the national COVID-19 emergency terminates.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

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.

4 unchanged sentences

Fees on PPP loans, net of origination costs and a market rate adjustment on acquired PPP loans, are recognized in interest income as a yield adjustment over the term of the loans.

As of June 30, 2022, the recorded investment in 1st Draw PPP loans was $ 44,000 , including contractual principal balances of $ 49,000 , reduced by net deferred origination fees of $ 5,000 .

As of September 30, 2022, the recorded investment in 1st Draw PPP loans was $ 24,000 , including contractual principal balances of $ 26,000 , reduced by net deferred origination fees of $ 2,000 .

The recorded investment in 2nd Draw PPP loans was $ 2,011,000 , including contractual principal balances of $ 2,093,000 reduced by net deferred origination fees of $ 82,000 .

Interest and fees on PPP loans which are included in taxable interest and fees on loans in the unaudited consolidated statements of income totaled $ 206,000 in the second quarter 2022 and $ 1,249,000 in the second quarter 2021, and $ 781,000 in the six-month period ended June 30, 2022 and $ 3,247,000 in the six-month period ended June 30, 2021.

Interest and fees on PPP loans which are included in taxable interest and fees on loans in the unaudited consolidated statements of income totaled $ 118,000 in the third quarter 2022 and $ 1,639,000 in the third quarter 2021, and $ 899,000 in the nine-month period ended September 30, 2022 and $ 4,886,000 in the nine-month period ended September 30, 2021.

Acquired loans were initially recorded at fair value, with adjustments made to gross amortized cost based on movements in interest rates (market rate adjustment) and based on credit fair value adjustments on non-impaired loans and impaired loans.

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

For the three-month and six-month periods ended June 30, 2022 and 2021, adjustments to the initial market rate and credit fair value adjustments of performing loans were recognized as follows:

For the three-month and nine-month periods ended September 30, 2022 and 2021, adjustments to the initial market rate and credit fair value adjustments of performing loans were recognized as follows:

(In Thousands)

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Market Rate Adjustment

6 unchanged sentences

Adjustments to gross amortized cost of loans at end of period

A summary of PCI loans held at June 30, 2022 and December 31, 2021 is as follows:

A summary of PCI loans held at September 30, 2022 and December 31, 2021 is as follows:

(In Thousands)

September 30,

Outstanding balance

Carrying amount

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

In the second quarter 2022, the Corporation received repayments on PCI loans in excess of previous carrying amounts, resulting in income of $ 14,000 as compared to $ 18,000 in the second quarter 2021.

In the six-month period ended June 30, 2022, the Corporation received repayments on PCI loans in excess of previous carrying amounts, resulting in income of $ 1,412,000 as compared to $ 18,000 in the six-month period ended June 30, 2021.

In the third quarter 2022, the Corporation received repayments on PCI loans in excess of previous carrying amounts, resulting in income of $ 173,000 as compared to $ 17,000 in the third quarter 2021.

In the nine-month period ended September 30, 2022, the Corporation received repayments on PCI loans in excess of previous carrying amounts, resulting in income of $ 1,585,000 as compared to $ 35,000 in the nine-month period ended September 30, 2021.

These amounts are included in interest and fees on taxable loans in the unaudited consolidated statements of income.

2 unchanged sentences

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.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

of the loan portfolio, current economic conditions and other relevant factors.

This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available.

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

As of June 30, 2022 and December 31, 2021, management determined that no allowance for credit losses related to unfunded loan commitments was required.

Transactions within the allowance for loan losses, summarized by segment and class, for the three-month and six-month periods ended June 30, 2022 and 2021 were as follows:

Three Months Ended June 30, 2022

March 31, 2022

As of September 30, 2022 and December 31, 2021, management determined that no allowance for credit losses related to unfunded loan commitments was required.

Transactions within the allowance for loan losses, summarized by segment and class, for the three-month and nine-month periods ended September 30, 2022 and 2021 were as follows:

Three Months Ended September 30, 2022

June 30, 2022

September 30, 2022

(In Thousands)

16 unchanged sentences

Total Allowance for Loan Losses

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Three Months Ended June 30, 2021

March 31, 2021

Three Months Ended September 30, 2021

June 30, 2021

September 30, 2021

(In Thousands)

16 unchanged sentences

Total Allowance for Loan Losses

For the three months ended June 30, 2022, the provision for loan losses was $ 308,000 , a decrease in expense of $ 436,000 as compared to $ 744,000 for the three months ended June 30, 2021.

The second quarter 2022 provision included a net recovery of $ 271,000 related to specific loans (net decrease in specific allowances on loans of $ 303,000 offset by net charge-offs of $ 32,000 ), an increase of $ 246,000 in the collectively determined portion of the allowance and an increase of $ 333,000 in the unallocated portion of the allowance.

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

Six Months Ended June 30, 2022

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

For the three months ended September 30, 2022, the provision for loan losses was $ 3,794,000 , an increase in expense of $ 2,264,000 as compared to $ 1,530,000 for the three months ended September 30, 2021.

The third quarter 2022 provision included net charge-offs of $ 2,171,000 and an increase of $ 1,623,000 in the collectively determined portion of the allowance.

In the third quarter 2022, the Corporation recorded a partial charge-off of $ 2,160,000 on a commercial real estate secured loan with a principal balance of $ 6,920,000 at the time of charge-off.

This is a participation loan to a borrower in the health care industry.

The charge-off resulted from the borrower’s default due to deterioration in financial performance accompanied by a significant decrease in the appraised value of property at a recently closed facility that had been one of the primary sources of collateral on the loan.

Realization of the recorded investment in the loan of $ 4,760,000 at September 30, 2022 is principally dependent upon the amount of proceeds from sales of the real estate and, if necessary, payments of any shortfall by the guarantors.

The third quarter 2021 provision included a net charge of $ 611,000 related to specific loans (net charge-offs of $ 1,205,000 offset by a net decrease in specific allowances on loans of $ 594,000 ), and an increase of $ 919,000 in the collectively determined portion of the allowance.

In the third quarter 2021, the Corporation recorded a partial charge-off of $ 1,194,000 on a commercial loan with an outstanding balance of $ 3,496,000 at the time of the charge-off.

At September 30, 2022, the recorded investment in this loan was $ 196,000 .

In addition, there is a PPP loan to this borrower with a balance of $ 727,000 at September 30, 2022 that is in the process of collection.

At September 30, 2022, there was no specific allowance related to loans to this borrower.

September 30,

Nine Months Ended September 30, 2022

(In Thousands)

16 unchanged sentences

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Six Months Ended June 30, 2021

September 30,

Nine Months Ended September 30, 2021

(In Thousands)

15 unchanged sentences

Total Allowance for Loan Losses

For the six months ended June 30, 2022, the provision for loan losses was $ 1,199,000 , an increase in expense of $ 196,000 as compared to $ 1,003,000 recorded for the first six months ended June 30, 2021.

The provision for the six months ended June 30, 2022 includes a net recovery of $ 124,000 related to specific loans (net decrease in specific allowances on loans of $ 313,000 offset by net charge-offs of $ 189,000 ), an increase of $ 994,000 in the collectively determined portion of the allowance and a $ 329,000 increase in the unallocated portion.

In comparison, the provision for loan losses for the six months ended June 30, 2021, includes a net charge of $ 565,000 related to specific loans (increase in specific allowances on loans of $ 552,000 and net charge-offs of $ 13,000 ), an increase of $ 352,000 in the collectively determined portion of the allowance and an $ 86,000 increase in the unallocated portion.

For the nine months ended September 30, 2022, the provision for loan losses was $ 4,993,000 , an increase in expense of $ 2,460,000 as compared to $ 2,533,000 recorded for the first nine months ended September 30, 2021.

The provision for the first nine months of 2022 includes $ 2,047,000 related to specific loans (net decrease in specific allowances on loans of $ 313,000 and net charge-offs of $ 2,360,000 ), an increase of $ 2,617,000 in the collectively determined portion of the allowance and a $ 329,000 increase in the unallocated portion.

In comparison, the provision for loan losses in the first nine months of 2021 includes $ 1,176,000 related to specific loans (net charge-offs of $ 1,218,000 and a decrease in specific allowances on loans of $ 42,000 ), an increase of $ 1,271,000 in the collectively determined portion of the allowance and an $ 86,000 increase in the unallocated portion.

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

6 unchanged sentences

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

The following tables summarize the aggregate credit quality classification of outstanding loans by risk rating as of June 30, 2022 and December 31, 2021:

June 30, 2022

The following tables summarize the aggregate credit quality classification of outstanding loans by risk rating as of September 30, 2022 and December 31, 2021:

September 30, 2022

(In Thousands)

36 unchanged sentences

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

The following tables present a summary of loan balances and the related allowance for loan losses summarized by portfolio segment and class for each impairment method used as of June 30, 2022 and December 31, 2021.

June 30, 2022

The following tables present a summary of loan balances and the related allowance for loan losses summarized by portfolio segment and class for each impairment method used as of September 30, 2022 and December 31, 2021.

September 30, 2022

Allowance for Loan Losses:

38 unchanged sentences

Total residential mortgage

Summary information related to impaired loans at June 30, 2022 and December 31, 2021 is provided in the table immediately below.

Summary information related to impaired loans at September 30, 2022 and December 31, 2021 is provided in the table immediately below.

(In Thousands)

June 30, 2022

September 30, 2022

December 31, 2021

21 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Commercial loans secured by real estate

10 unchanged sentences

Total residential mortgage

The increase in interest income recognized on a cash basis on impaired loans in 2022 resulted mainly from repayments received on loans that had been classified as purchased credit impaired at December 31, 2021.

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)

June 30, 2022

September 30, 2022

December 31, 2021

12 unchanged sentences

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

PCI loans with a total recorded investment of $ 3,879,000 at June 30, 2022 and $ 6,558,000 at December 31, 2021 are classified as nonaccrual.

PCI loans with a total recorded investment of $ 3,783,000 at September 30, 2022 and $ 6,558,000 at December 31, 2021 are classified as nonaccrual.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

The table below presents a summary of the contractual aging of loans as of June 30, 2022 and December 31, 2021.

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

The table below presents a summary of the contractual aging of loans as of September 30, 2022 and December 31, 2021.

(In Thousands)

As of June 30, 2022

As of September 30, 2022

As of December 31, 2021

17 unchanged sentences

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

A summary of the contractual aging of nonaccrual loans at June 30, 2022 and December 31, 2021 is as follows:

A summary of the contractual aging of nonaccrual loans at September 30, 2022 and December 31, 2021 is as follows:

(In Thousands)

June 30, 2022 Nonaccrual Totals

September 30, 2022 Nonaccrual Totals

December 31, 2021 Nonaccrual Totals

2 unchanged sentences

Loans classified as TDRs are designated as impaired.

The outstanding balance of loans subject to TDRs, as well as contractual aging information at June 30, 2022 and December 31, 2021 is as follows:

The outstanding balance of loans subject to TDRs, as well as contractual aging information at September 30, 2022 and December 31, 2021 is as follows:

(In Thousands)

June 30, 2022 Totals

September 30, 2022 Totals

December 31, 2021 Totals

At June 30, 2022 and December 31, 2021, there were no commitments to loan additional funds to borrowers whose loans have been classified as TDRs.

TDRs that occurred during the three-month and six-month periods ended June 30, 2022 and 2021 are as follows:

At September 30, 2022 and December 31, 2021, there were no commitments to loan additional funds to borrowers whose loans have been classified as TDRs.

TDRs that occurred during the three-month and nine-month periods ended September 30, 2022 and 2021 are as follows:

(Balances in Thousands)

1 unchanged sentence

Three Months Ended

June 30, 2022

June 30, 2021

Residential mortgage - first liens,

Reduced monthly payments for a fifteen-month period

Six Months Ended

September 30, 2022

September 30, 2021

Home equity lines of credit,

Reduced monthly payments for an eighteen-month period

Nine Months Ended

(Balances in Thousands)

June 30, 2022

June 30, 2021

September 30, 2022

September 30, 2021

Residential mortgage - first liens:

3 unchanged sentences

Reduced monthly payments and extended maturity date

In the second quarters of 2022 and 2021, there were no defaults on loans for which TDRs were entered into within the previous 12 months.

In the six-month periods ended June 30, 2022 and 2021, defaults on loans for which modifications that were considered to be TDR and were entered into within the previous 12 months are summarized as follows:

Reduced monthly payments for an eighteen-month period

In the third quarters of 2022 and 2021, there were no defaults on loans for which TDRs were entered into within the previous 12 months.

In the nine-month periods ended September 30, 2022 and 2021, defaults on loans for which modifications that were considered to be TDR and were entered into within the previous 12 months are summarized as follows:

(Balances in Thousands)

Six Months Ended

June 30, 2022

June 30, 2021

Nine Months Ended

September 30, 2022

September 30, 2021

Commercial loans secured by real estate

2 unchanged sentences

(In Thousands)

September 30,

Foreclosed residential real estate

1 unchanged sentence

(In Thousands)

September 30,

Residential real estate in process of foreclosure

2 unchanged sentences

(In Thousands)

September 30,

Accumulated amortization

2 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Amortization expense

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

At June 30, 2022 and December 31, 2021, the net carrying value of goodwill was $ 52,505,000 .

At September 30, 2022 and December 31, 2021, the net carrying value of goodwill was $ 52,505,000 .

BORROWED FUNDS

2 unchanged sentences

(In Thousands)

September 30,

FHLB-Pittsburgh borrowings

1 unchanged sentence

Total short-term borrowings

The Corporation had available credit with other correspondent banks totaling $ 95,000,000 at June 30, 2022 and $ 45,000,000 at December 31, 2021.

The Corporation had available credit with other correspondent banks totaling $ 95,000,000 at September 30, 2022 and $ 45,000,000 at December 31, 2021.

These lines of credit are primarily unsecured.

No amounts were outstanding at June 30, 2022 or December 31, 2021.

No amounts were outstanding at September 30, 2022 or December 31, 2021.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

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

At June 30, 2022, the Corporation had available credit in the amount of $ 17,491,000 on this line with no outstanding advances.

At September 30, 2022, the Corporation had available credit in the amount of $ 22,376,000 on this line with no outstanding advances.

At December 31, 2021, the Corporation had available credit in the amount of $ 13,642,000 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 $ 18,267,000 at June 30, 2022 and $ 14,034,000 at December 31, 2021.

As collateral for this line, the Corporation has pledged available-for-sale securities with a carrying value of $ 23,420,000 at September 30, 2022 and $ 14,034,000 at December 31, 2021.

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 June 30, 2022 and December 31, 2021.

The carrying value of the underlying securities was $ 1,560,000 at June 30, 2022 and $ 1,820,000 at December 31, 2021.

The FHLB-Pittsburgh loan facility is collateralized by qualifying loans secured by real estate with a book value totaling $ 1,158,305,000 at June 30, 2022 and $ 1,046,242,000 at December 31, 2021.

The weighted average rate paid by the Corporation on customer repurchase agreements was 0.10 % at September 30, 2022 and December 31, 2021.

The carrying value of the underlying securities was $ 2,480,000 at September 30, 2022 and $ 1,820,000 at December 31, 2021.

The FHLB-Pittsburgh loan facility is collateralized by qualifying loans secured by real estate with a book value totaling $ 1,182,945,000 at September 30, 2022 and $ 1,046,242,000 at December 31, 2021.

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

The carrying values of the Corporation’s holdings of FHLB-Pittsburgh stock (included in other assets in the consolidated balance sheets) were $ 13,443,000 at June 30, 2022 and $ 9,313,000 at December 31, 2021.

The Corporation’s total credit facility with FHLB-Pittsburgh was $ 779,941,000 at June 30, 2022, including an unused (available) amount of $ 648,294,000 .

The carrying values of the Corporation’s holdings of FHLB-Pittsburgh stock (included in other assets in the consolidated balance sheets) were $ 10,557,000 at September 30, 2022 and $ 9,313,000 at December 31, 2021.

The Corporation’s total credit facility with FHLB-Pittsburgh was $ 821,608,000 at September 30, 2022, including an unused (available) amount of $ 754,743,000 .

At December 31, 2021, the Corporation’s total credit facility with FHLB-Pittsburgh was $ 756,868,000 , including an unused (available) amount of $ 723,557,000 .

At June 30, 2022 there was an overnight borrowing from FHLB-Pittsburgh of $ 88,500,000 with a rate of 1.75 % and no short-term advances.

At December 31, 2021, there were no overnight borrowings or short-term advances from FHLB-Pittsburgh.

At September 30, 2022 and December 31, 2021, there were no overnight borrowings or short-term advances from FHLB-Pittsburgh.

LONG-TERM BORROWINGS – FHLB ADVANCES

1 unchanged sentence

(In Thousands)

September 30,

Loans maturing in 2022 with a weighted-average rate of 0.61 %

1 unchanged sentence

Loans maturing in 2024 with a weighted-average rate of 2.89 %

Loan maturing in 2025 with a rate of 4.91 %

Loans maturing in 2025 with a weighted-average rate of 3.38 %

Total long-term FHLB-Pittsburgh borrowings

Weighted-average rates are presented as of June 30, 2022.

Weighted-average rates are presented as of September 30, 2022.

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").

4 unchanged sentences

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 $ 16,000 in the second quarter 2022 and $ 32,000 in the six-month period ended June 30, 2022, and $ 7,000 in the three-month and six-month periods ended June 30, 2021, was included in interest expense in the unaudited consolidated statements of income.

Amortization of debt issuance costs associated with the Senior Notes totaling $ 16,000 in the third quarter 2022 and $ 48,000 in the nine-month period ended September 30, 2022, and $ 15,000 in the third quarter 2021 and $ 22,000 in the nine-month period ended September 30, 2021, was included in interest expense in the unaudited consolidated statements of income.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

At June 30, 2022 and December 31, 2021, outstanding Senior Notes are as follows:

At September 30, 2022 and December 31, 2021, outstanding Senior Notes are as follows:

(In Thousands)

September 30,

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

14 unchanged sentences

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 $ 26,000 in the second quarter 2022 and $ 52,000 in the six-month period ended June 30, 2022, and $ 13,000 in the three-month and six-month periods ended June 30, 2021, was included in interest expense in the unaudited consolidated statements of income.

At June 30, 2022 and December 31, 2021, the carrying amounts of subordinated debt agreements are as follows:

Amortization of debt issuance costs associated with the Subordinated Notes totaling $ 27,000 in the third quarter 2022 and $ 79,000 in the nine-month period ended September 30, 2022, and $ 25,000 in the third quarter 2021 and $ 38,000 in the nine-month period ended September 30, 2021, was included in interest expense in the unaudited consolidated statements of income.

At September 30, 2022 and December 31, 2021, the carrying amounts of subordinated debt agreements are as follows:

(In Thousands)

September 30,

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

12 unchanged sentences

The 2022 restricted stock awards under the Stock Incentive Plan vest ratably over three years , and the 2022 restricted stock issued under the Independent Directors Stock Incentive Plan vests over one year .

There were no restricted stock awards granted in the three-month period ended June 30, 2022.

Following is a summary of restricted stock awards granted in the three-month period ended March 31, 2022:

Following is a summary of restricted stock awards granted in the nine-month period ended September 30, 2022, all of which were granted in the first quarter:

(Dollars in Thousands)

4 unchanged sentences

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

Total annual stock-based compensation for the year ending December 31, 2022 is estimated to total $ 1,610,000 .

Total stock-based compensation expense attributable to restricted stock awards amounted to $ 413,000 in the second quarter 2022 and $ 284,000 in the second quarter 2021.

Total stock-based compensation expense attributable to restricted stock awards amounted to $ 781,000 in the six-month period ended June 30, 2022 and $ 625,000 in the six-month period ended June 30, 2021.

Total annual stock-based compensation for the year ending December 31, 2022 is estimated to total between $ 1,228,000 and $ 1,574,000 , depending on whether applicable performance-based awards vest based on annual 2022 earnings performance criteria as defined in the grant documents.

Total stock-based compensation expense attributable to restricted stock awards amounted to $ 388,000 in the third quarter 2022 and $ 345,000 in the third quarter 2021.

Total stock-based compensation expense attributable to restricted stock awards amounted to $ 1,169,000 in the nine-month period ended September 30, 2022 and $ 970,000 in the nine-month period ended September 30, 2021.

CONTINGENCIES

10 unchanged sentences

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 $ 115,050,000 at June 30, 2022 and $ 123,094,000 at December 31, 2021.

There were no interest rate swaps originated in the six-month periods ended June 30, 2022 and 2021.

There were no gross amounts of interest rate swap-related assets and liabilities not offset in the consolidated balance sheets at June 30, 2022.

The net impact on the consolidated statements of income from interest rate swaps was a reduction in interest income on loans of $ 220,000 in the second quarter 2022 and $ 537,000 in the six months ended June 30, 2022 as compared to a reduction in interest income on loans of $ 340,000 in the second quarter 2021 and $ 678,000 in the six months ended June 30, 2021.

The aggregate notional amount of interest rate swaps was $ 111,364,000 at September 30, 2022 and $ 123,094,000 at December 31, 2021.

There were no interest rate swaps originated in the nine-month periods ended September 30, 2022 and 2021.

There were no gross amounts of interest rate swap-related assets and liabilities not offset in the consolidated balance sheets at September 30, 2022.

The net impact on the consolidated statements of income from interest rate swaps was a reduction in interest income on loans of $ 4,000 in the third quarter 2022 and $ 541,000 in the nine months ended September 30, 2022 as compared to a reduction in interest income on loans of $ 335,000 in the third quarter 2021 and $ 1,013,000 in the nine months ended September 30, 2021.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

The table below presents the fair value of the Corporation’s derivative financial instruments as well as their classification on the consolidated balance sheets at June 30, 2022 and December 31, 2021:

The table below presents the fair value of the Corporation’s derivative financial instruments as well as their classification on the consolidated balance sheets at September 30, 2022 and December 31, 2021:

(In Thousands)

10 unchanged sentences

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

Available-for-sale securities with a carrying value of $ 2,338,000 were pledged as collateral against the Corporation’s obligations related to the interest rate swaps at June 30, 2022.

Available-for-sale securities with a carrying value of $ 2,242,000 were pledged as collateral against the Corporation’s obligations related to the interest rate swaps at September 30, 2022.

FAIR VALUE MEASUREMENTS AND FAIR VALUES OF FINANCIAL INSTRUMENTS

14 unchanged sentences

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

At June 30, 2022 and December 31, 2021, assets and liabilities measured at fair value and the valuation methods used are as follows:

June 30, 2022

At September 30, 2022 and December 31, 2021, assets and liabilities measured at fair value and the valuation methods used are as follows:

September 30, 2022

(In Thousands)

11 unchanged sentences

Commercial mortgage-backed securities

Private label commercial mortgage-backed securities

Total available-for-sale debt securities

38 unchanged sentences

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

At June 30, 2022 and December 31, 2021, quantitative information regarding valuation techniques and the significant unobservable inputs used for assets measured on a recurring basis using unobservable inputs (Level 3 methodologies) are as follows:

At September 30, 2022 and December 31, 2021, quantitative information regarding valuation techniques and the significant unobservable inputs used for assets measured on a recurring basis using unobservable inputs (Level 3 methodologies) are as follows:

Fair Value at

42 unchanged sentences

Three Months Ended

Six Months Ended

June 30, 2022

June 30, 2021

June 30, 2022

June 30, 2021

Nine Months Ended

September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

Servicing rights balance, beginning of period

Originations of servicing rights

Unrealized gain (loss) included in earnings

Unrealized (loss) gain included in earnings

Servicing rights balance, end of period

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.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

assets held for sale consist of real estate acquired by foreclosure.

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.

1 unchanged sentence

The discounts also include estimated costs to sell the property.

At June 30, 2022 and December 31, 2021, quantitative information regarding valuation techniques and the significant unobservable inputs used for nonrecurring fair value measurements using Level 3 methodologies are as follows:

At September 30, 2022 and December 31, 2021, quantitative information regarding valuation techniques and the significant unobservable inputs used for nonrecurring fair value measurements using Level 3 methodologies are as follows:

(Dollars In Thousands)

40 unchanged sentences

(In Thousands)

June 30, 2022

September 30, 2022

December 31, 2021

16 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements