CITIZENS & NORTHERN CORP 10-Q

ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share and Per Share Data) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ September 30, December 31, ​ ​ 2022 ​ 2021 ASSETS ​ ​ Cash and due from banks: ​ ​ Noninterest-bearing ​ $ 30,959 ​ $ 16,729 Interest-bearing ​ 33,085 ​ 88,219 Total cash and due from banks ​ 64,044 ​ 104,948 Available-for-sale debt securities, at fair value ​ 487,980 ​ 517,679 ​ ​ ​ ​ ​ ​ ​ Loans receivable ​ 1,690,246 ​ 1,564,849 Allowance for loan losses ​ ( 16,170 ) ​ ( 13,537 ) Loans, net ​ 1,674,076 ​ 1,551,312 ​ ​ ​ ​ ​ ​ ​ Bank-owned life insurance ​ 31,074 ​ 30,669 Accrued interest receivable ​ 8,425 ​ 7,235 Bank premises and equipment, net ​ 21,881 ​ 20,683 Foreclosed assets held for sale ​ 454 ​ 684 Deferred tax asset, net ​ 22,327 ​ 5,887 Goodwill ​ 52,505 ​ 52,505 Core deposit intangibles, net ​ 2,987 ​ 3,316 Other assets ​ 34,427 ​ 32,730 TOTAL ASSETS ​ $ 2,400,180 ​ $ 2,327,648 ​ ​ ​ ​ ​ ​ ​ LIABILITIES ​ ​ ​ ​ Deposits: ​ ​ ​ ​ Noninterest-bearing ​ $ 557,769 ​ $ 521,206 Interest-bearing ​ 1,481,826 ​ 1,403,854 Total deposits ​ 2,039,595 ​ 1,925,060 Short-term borrowings ​ 2,457 ​ 1,803 Long-term borrowings - FHLB advances ​ 55,463 ​ 28,042 Senior notes, net ​ ​ 14,749 ​ ​ 14,701 Subordinated debt, net ​ 24,580 ​ 33,009 Accrued interest and other liabilities ​ 24,547 ​ 23,628 TOTAL LIABILITIES ​ 2,161,391 ​ 2,026,243 ​ ​ ​ ​ ​ ​ ​ 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 30,000,000 shares; ​ ​ ​ ​ 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 ​ 16,030 ​ 16,030 Paid-in capital ​ 143,894 ​ 144,453 Retained earnings ​ 148,304 ​ 142,612 Treasury stock, at cost; 529,756 shares at September 30, 2022 and 271,082 ​ ​ ​ ​ shares at December 31, 2021 ​ ( 12,970 ) ​ ( 6,716 ) Accumulated other comprehensive (loss) income ​ ( 56,469 ) ​ 5,026 TOTAL STOCKHOLDERS' EQUITY ​ 238,789 ​ 301,405 TOTAL LIABILITIES & STOCKHOLDERS' EQUITY ​ $ 2,400,180 ​ $ 2,327,648 ​ The accompanying notes are an integral part of these unaudited consolidated financial statements. ​ 3 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q Consolidated Statements of Income (In Thousands Except Per Share Data) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Nine Months Ended ​ ​ September 30, ​ September 30, ​ September 30, ​ September 30, ​ ​ 2022 ​ 2021 ​ 2022 ​ 2021 INTEREST INCOME ​ ​ ​ ​ ​ Interest and fees on loans: ​ ​ ​ ​ ​ Taxable ​ $ 20,085 ​ $ 18,529 ​ $ 56,561 ​ $ 56,095 Tax-exempt ​ 505 ​ 450 ​ 1,426 ​ 1,300 Income from available-for-sale debt securities: ​ ​ ​ ​ ​ ​ ​ ​ Taxable ​ 2,138 ​ 1,304 ​ 6,143 ​ 3,604 Tax-exempt ​ 768 ​ 668 ​ 2,258 ​ 1,973 Other interest and dividend income ​ 214 ​ 122 ​ 404 ​ 283 Total interest and dividend income ​ 23,710 ​ 21,073 ​ 66,792 ​ 63,255 INTEREST EXPENSE ​ ​ ​ ​ ​ ​ Interest on deposits ​ 1,972 ​ 1,063 ​ 4,012 ​ 3,558 Interest on short-term borrowings ​ 179 ​ 0 ​ 302 ​ 22 Interest on long-term borrowings - FHLB advances ​ 332 ​ 87 ​ 436 ​ 330 Interest on senior notes, net ​ 119 ​ ​ 118 ​ ​ 357 ​ ​ 175 Interest on subordinated debt, net ​ 229 ​ 346 ​ 849 ​ 947 Total interest expense ​ 2,831 ​ 1,614 ​ 5,956 ​ 5,032 Net interest income ​ 20,879 ​ 19,459 ​ 60,836 ​ 58,223 Provision for loan losses ​ 3,794 ​ 1,530 ​ 4,993 ​ 2,533 Net interest income after provision for loan losses ​ 17,085 ​ 17,929 ​ 55,843 ​ 55,690 NONINTEREST INCOME ​ ​ ​ ​ Trust revenue ​ 1,744 ​ 1,821 ​ 5,245 ​ 5,254 Brokerage and insurance revenue ​ 696 ​ 560 ​ 1,784 ​ 1,392 Service charges on deposit accounts ​ 1,105 ​ 1,249 ​ 3,662 ​ 3,337 Interchange revenue from debit card transactions ​ 1,031 ​ 975 ​ 3,050 ​ 2,854 Net gains from sale of loans ​ 131 ​ 797 ​ 733 ​ 2,786 Loan servicing fees, net ​ 189 ​ 153 ​ 757 ​ 547 Increase in cash surrender value of life insurance ​ 133 ​ 139 ​ 405 ​ 434 Other noninterest income ​ 622 ​ 665 ​ 2,666 ​ 2,837 Realized gains on available-for-sale debt securities, net ​ ​ 20 ​ ​ 23 ​ ​ 21 ​ ​ 25 Total noninterest income ​ 5,671 ​ 6,382 ​ 18,323 ​ 19,466 NONINTEREST EXPENSE ​ ​ ​ ​ ​ ​ Salaries and employee benefits ​ ​ 10,826 ​ ​ 9,427 ​ ​ 31,698 ​ ​ 27,821 Net occupancy and equipment expense ​ ​ 1,498 ​ ​ 1,217 ​ ​ 4,217 ​ ​ 3,740 Data processing and telecommunications expense ​ ​ 1,719 ​ ​ 1,475 ​ ​ 5,062 ​ ​ 4,342 Automated teller machine and interchange expense ​ 397 ​ 357 ​ 1,128 ​ 1,049 Pennsylvania shares tax ​ 487 ​ 482 ​ 1,463 ​ 1,463 Professional fees ​ 521 ​ 538 ​ 1,490 ​ 1,683 Other noninterest expense ​ 1,995 ​ 1,850 ​ 6,310 ​ 6,356 Total noninterest expense ​ 17,443 ​ 15,346 ​ 51,368 ​ 46,454 Income before income tax provision ​ 5,313 ​ 8,965 ​ 22,798 ​ 28,702 Income tax provision ​ 858 ​ 1,566 ​ 3,959 ​ 5,456 NET INCOME ​ $ 4,455 ​ $ 7,399 ​ $ 18,839 ​ $ 23,246 EARNINGS PER COMMON SHARE - BASIC ​ $ 0.29 ​ $ 0.47 ​ $ 1.21 ​ $ 1.46 EARNINGS PER COMMON SHARE - DILUTED ​ $ 0.29 ​ $ 0.47 ​ $ 1.21 ​ $ 1.46 ​ The accompanying notes are an integral part of these unaudited consolidated financial statements. 4 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q ​ Consolidated Statements of Comprehensive (Loss) Income (In Thousands) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Nine Months Ended ​ ​ September 30, ​ September 30, ​ September 30, ​ September 30, ​ 2022 2021 ​ 2022 2021 Net income ​ $ 4,455 ​ $ 7,399 ​ $ 18,839 ​ $ 23,246 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Available-for-sale debt securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized holding losses on available-for-sale debt securities ​ ​ ( 25,880 ) ​ ​ ( 3,608 ) ​ ​ ( 77,923 ) ​ ​ ( 6,781 ) Reclassification adjustment for gains realized in income ​ ​ ( 20 ) ​ ​ ( 23 ) ​ ​ ( 21 ) ​ ​ ( 25 ) Other comprehensive loss on available-for-sale debt securities ​ ​ ( 25,900 ) ​ ​ ( 3,631 ) ​ ​ ( 77,944 ) ​ ​ ( 6,806 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Unfunded pension and postretirement obligations: ​ ​ ​ ​ ​ ​ ​ ​ Changes from plan amendments and actuarial gains and losses ​ 0 ​ 0 ​ 133 ​ ( 5 ) Amortization of prior service cost and net actuarial loss included in net periodic benefit cost ​ ( 9 ) ​ ( 5 ) ​ ( 31 ) ​ ( 13 ) Other comprehensive (loss) income on pension and postretirement obligations ​ ( 9 ) ​ ( 5 ) ​ 102 ​ ( 18 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other comprehensive loss before income tax ​ ( 25,909 ) ​ ( 3,636 ) ​ ( 77,842 ) ​ ( 6,824 ) Income tax related to other comprehensive loss ​ 5,442 ​ 765 ​ 16,347 ​ 1,434 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net other comprehensive loss ​ ( 20,467 ) ​ ( 2,871 ) ​ ( 61,495 ) ​ ( 5,390 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Comprehensive (loss) income ​ $ ( 16,012 ) ​ $ 4,528 ​ $ ( 42,656 ) ​ $ 17,856 ​ The accompanying notes are an integral part of these unaudited consolidated financial statements. ​ 5 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended ​ ​ September 30, ​ September 30, ​ ​ 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES: ​ ​ Net income ​ $ 18,839 ​ $ 23,246 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ Provision for loan losses ​ 4,993 ​ 2,533 Realized gains on available-for-sale debt securities, net ​ ( 21 ) ​ ( 25 ) Net amortization of securities ​ ​ 2,174 ​ ​ 1,554 Increase in cash surrender value of life insurance ​ ( 405 ) ​ ( 434 ) Depreciation and amortization of bank premises and equipment ​ 1,780 ​ 1,602 Net accretion of purchase accounting adjustments ​ ( 1,017 ) ​ ( 1,827 ) Stock-based compensation ​ 1,169 ​ 970 Deferred income taxes ​ ( 93 ) ​ ( 989 ) (Increase) decrease in fair value of servicing rights ​ ( 128 ) ​ 9 Gains on sales of loans, net ​ ( 733 ) ​ ( 2,786 ) Origination of loans held for sale ​ ( 25,003 ) ​ ( 86,428 ) Proceeds from sales of loans held for sale ​ 26,752 ​ 87,483 (Increase) decrease in accrued interest receivable and other assets ​ ( 1,562 ) ​ 295 Decrease in accrued interest payable and other liabilities ​ ( 352 ) ​ ( 50 ) Other ​ 148 ​ ( 18 ) Net Cash Provided by Operating Activities ​ 26,541 ​ 25,135 CASH FLOWS FROM INVESTING ACTIVITIES: ​ ​ ​ Purchase of certificates of deposit ​ ​ ( 250 ) ​ ​ ( 3,000 ) Proceeds from maturities of certificates of deposit ​ 750 ​ 0 Proceeds from sales of available-for-sale debt securities ​ 4,100 ​ 2,027 Proceeds from calls and maturities of available-for-sale debt securities ​ 50,263 ​ 48,262 Purchase of available-for-sale debt securities ​ ( 104,601 ) ​ ( 145,445 ) Redemption of Federal Home Loan Bank of Pittsburgh stock ​ 10,765 ​ 1,934 Purchase of Federal Home Loan Bank of Pittsburgh stock ​ ( 12,009 ) ​ ( 1,614 ) Net (increase) decrease in loans ​ ( 126,792 ) ​ 68,018 Proceeds from bank owned life insurance ​ 0 ​ 287 Proceeds from sales of premises and equipment ​ 0 ​ 575 Purchase of premises and equipment ​ ( 2,986 ) ​ ( 1,173 ) Proceeds from sale of foreclosed assets ​ 351 ​ 303 Other ​ 161 ​ 176 Net Cash Used in Investing Activities ​ ( 180,248 ) ​ ( 29,650 ) CASH FLOWS FROM FINANCING ACTIVITIES: ​ ​ ​ Net increase in deposits ​ 114,667 ​ 120,386 Net increase (decrease) in short-term borrowings ​ 654 ​ ( 18,082 ) Proceeds from long-term borrowings - FHLB advances ​ ​ 39,041 ​ ​ 0 Repayments of long-term borrowings - FHLB advances ​ ( 11,430 ) ​ ( 15,571 ) Proceeds from issuance of senior notes, net of issuance costs ​ ​ 0 ​ ​ 14,663 Proceeds from issuance of subordinated debt, net of issuance costs ​ ​ 0 ​ ​ 24,437 Redemption of subordinated debt ​ ​ ( 8,500 ) ​ ​ ( 8,000 ) Sale of treasury stock ​ 141 ​ 212 Purchases of treasury stock ​ ( 9,349 ) ​ ( 7,412 ) Common dividends paid ​ ( 11,921 ) ​ ( 11,980 ) Net Cash Provided by Financing Activities ​ 113,303 ​ 98,653 (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ​ ( 40,404 ) ​ 94,138 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ​ 95,848 ​ 96,017 CASH AND CASH EQUIVALENTS, END OF PERIOD ​ $ 55,444 ​ $ 190,155 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: ​ ​ ​ ​ Increase in accrued purchase of available-for-sale debt securities ​ $ 160 ​ $ 1,704 Assets acquired through foreclosure of real estate loans ​ $ 51 ​ $ 317 Leased assets obtained in exchange for new operating lease liabilities ​ $ 904 ​ $ 739 Interest paid ​ $ 5,729 ​ $ 6,063 Income taxes paid ​ $ 3,835 ​ $ 8,076 ​ The accompanying notes are an integral part of these unaudited consolidated financial statements. 6 Table of Contents ​ CITIZENS & NORTHERN CORPORATION – FORM 10-Q Consolidated Statements of Changes in Stockholders’ Equity (In Thousands Except Share and Per Share Data) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other ​ ​ ​ ​ ​ ​ ​ Common Treasury Common Paid-in Retained Comprehensive Treasury ​ ​ ​ Three Months Ended September 30, 2022 Shares Shares Stock Capital Earnings (Loss) Income Stock Total Balance, June 30, 2022 16,030,172 530,958 ​ $ 16,030 ​ $ 143,417 ​ $ 148,187 ​ $ ( 36,002 ) ​ $ ( 13,013 ) ​ $ 258,619 Net income ​ ​ ​ ​ ​ ​ ​ 4,455 ​ ​ ​ ​ ​ 4,455 Other comprehensive loss, net ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 20,467 ) ​ ​ ​ ( 20,467 ) Cash dividends declared on common stock, $ .28 per share ​ ​ ​ ​ ​ ​ ​ ( 4,338 ) ​ ​ ​ ​ ​ ( 4,338 ) Shares issued for dividend reinvestment plan ​ ( 16,019 ) ​ ​ ​ 8 ​ ​ ​ ​ ​ 392 ​ 400 Forfeiture of restricted stock ​ 3,638 ​ ​ ​ 81 ​ ​ ​ ​ ​ ( 81 ) ​ 0 Stock-based compensation expense ​ ​ ​ ​ ​ 388 ​ ​ ​ ​ ​ ​ ​ 388 Purchase of restricted stock for tax withholding ​ ​ ​ 910 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 22 ) ​ ​ ( 22 ) Treasury stock purchases ​ ​ ​ 10,269 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 246 ) ​ ​ ( 246 ) Balance, September 30, 2022 16,030,172 529,756 ​ $ 16,030 ​ $ 143,894 ​ $ 148,304 ​ $ ( 56,469 ) ​ $ ( 12,970 ) ​ $ 238,789 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, 2021 ​ ​ ​ ​ ​ ​ Balance, June 30, 2021 16,030,172 72,660 ​ $ 16,030 ​ $ 143,817 ​ $ 136,756 ​ $ 9,276 ​ $ ( 1,746 ) ​ $ 304,133 Net income ​ ​ ​ ​ ​ ​ ​ 7,399 ​ ​ ​ ​ ​ 7,399 Other comprehensive loss, net ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 2,871 ) ​ ​ ​ ( 2,871 ) Cash dividends declared on common stock, $ .28 per share ​ ​ ​ ​ ​ ​ ​ ( 4,440 ) ​ ​ ​ ​ ​ ( 4,440 ) Shares issued for dividend reinvestment plan ​ ( 16,833 ) ​ ​ ​ 10 ​ ​ ​ ​ ​ 415 ​ 425 Shares issued from treasury related to exercise of stock options ​ ( 7,000 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ 135 ​ 135 Stock-based compensation expense ​ ​ ​ ​ ​ 345 ​ ​ ​ ​ ​ ​ ​ 345 Purchase of restricted stock for tax withholding ​ ​ ​ 691 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 17 ) ​ ​ ( 17 ) Treasury stock purchases ​ ​ ​ 230,404 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 5,707 ) ​ ​ ( 5,707 ) Balance, September 30, 2021 16,030,172 279,922 ​ $ 16,030 ​ $ 144,172 ​ $ 139,715 ​ $ 6,405 ​ $ ( 6,920 ) ​ $ 299,402 ​ ​ 7 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q Consolidated Statements of Changes in Stockholders’ Equity (In Thousands Except Share and Per Share Data) (Unaudited) (Continued) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other ​ ​ ​ ​ ​ ​ ​ ​ Common ​ Treasury ​ Common ​ Paid-in ​ Retained ​ Comprehensive ​ Treasury ​ ​ ​ Nine Months Ended September 30, 2022 ​ Shares ​ Shares ​ Stock ​ Capital ​ Earnings ​ (Loss) Income ​ Stock ​ Total Balance, December 31, 2021 16,030,172 271,082 ​ $ 16,030 ​ $ 144,453 ​ $ 142,612 ​ $ 5,026 ​ $ ( 6,716 ) ​ $ 301,405 Net income ​ ​ ​ ​ ​ 18,839 ​ ​ ​ 18,839 Other comprehensive loss, net ​ ​ ​ ​ ​ ​ ( 61,495 ) ​ ​ ( 61,495 ) Cash dividends declared on common stock, $ .84 per share ​ ​ ​ ​ ​ ( 13,147 ) ​ ​ ​ ( 13,147 ) Shares issued for dividend reinvestment plan ​ ( 49,221 ) ​ ​ ​ 10 ​ ​ ​ ​ ​ 1,216 ​ 1,226 Shares issued from treasury related to exercise of stock options ​ ( 7,024 ) ​ ​ ​ ( 34 ) ​ ​ ​ 175 ​ 141 Restricted stock granted ​ ( 78,243 ) ​ ​ ​ ( 1,932 ) ​ ​ ​ 1,932 ​ 0 Forfeiture of restricted stock ​ 10,782 ​ ​ ​ 228 ​ ​ ​ ( 228 ) ​ 0 Stock-based compensation expense ​ ​ ​ ​ 1,169 ​ ​ ​ ​ 1,169 Purchase of restricted stock for tax withholding ​ 6,964 ​ ​ ​ ​ ​ ​ ( 175 ) ​ ( 175 ) Treasury stock purchases ​ ​ ​ 375,416 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 9,174 ) ​ ​ ( 9,174 ) Balance, September 30, 2022 16,030,172 529,756 ​ $ 16,030 ​ $ 143,894 ​ $ 148,304 ​ $ ( 56,469 ) ​ $ ( 12,970 ) ​ $ 238,789 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, 2021 ​ ​ ​ ​ ​ ​ Balance, December 31, 2020 15,982,815 70,831 ​ $ 15,983 ​ $ 143,644 ​ $ 129,703 ​ $ 11,795 ​ $ ( 1,369 ) ​ $ 299,756 Net income ​ ​ ​ ​ ​ 23,246 ​ ​ ​ 23,246 Other comprehensive loss, net ​ ​ ​ ​ ​ ​ ( 5,390 ) ​ ​ ( 5,390 ) Cash dividends declared on common stock, $ .83 per share ​ ​ ​ ​ ​ ( 13,234 ) ​ ​ ​ ( 13,234 ) Shares issued for dividend reinvestment plan 36,368 ( 16,833 ) ​ 36 ​ 803 ​ ​ ​ 415 ​ 1,254 Shares issued from treasury related to exercise of stock options ​ ( 12,414 ) ​ ​ ​ ( 28 ) ​ ​ ​ 240 ​ 212 Restricted stock granted 10,989 ( 67,402 ) ​ 11 ​ ( 1,319 ) ​ ​ ​ 1,308 ​ 0 Forfeiture of restricted stock ​ 5,290 ​ ​ ​ 102 ​ ​ ​ ( 102 ) ​ 0 Stock-based compensation expense ​ ​ ​ ​ 970 ​ ​ ​ ​ 970 Purchase of restricted stock for tax withholding ​ 8,350 ​ ​ ​ ​ ​ ​ ( 174 ) ​ ( 174 ) Treasury stock purchases ​ ​ 292,100 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 7,238 ) ​ ( 7,238 ) Balance, September 30, 2021 16,030,172 279,922 ​ $ 16,030 ​ $ 144,172 ​ $ 139,715 ​ $ 6,405 ​ $ ( 6,920 ) ​ $ 299,402 ​ The accompanying notes are an integral part of these unaudited consolidated financial statements. ​ ​ 8 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q Notes to Unaudited Consolidated Financial Statements 1. BASIS OF INTERIM PRESENTATION AND STATUS OF RECENT ACCOUNTING PRONOUNCEMENTS The consolidated financial statements include the accounts of Citizens & Northern Corporation and its subsidiaries, Citizens & Northern Bank (“C&N Bank”), Bucktail Life Insurance Company and Citizens & Northern Investment Corporation (collectively, “Corporation”). The consolidated financial statements also include C&N Bank’s wholly-owned subsidiaries, C&N Financial Services, LLC and Northern Tier Holding LLC. C&N Bank is the sole member of C&N Financial Services, LLC and Northern Tier Holding LLC. All material intercompany balances and transactions have been eliminated in consolidation. The consolidated financial information included herein, except the consolidated balance sheet dated December 31, 2021, is unaudited. Such information reflects all adjustments (consisting solely of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations, comprehensive income, cash flows and changes in stockholders’ equity for the interim periods; however, the information does not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for a complete set of financial statements. 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. RECENT ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board (FASB) issues Accounting Standards Updates (ASUs) to the FASB Accounting Standards Codification (ASC). This section provides a summary description of recent ASUs that have significant implications (elected or required) within the consolidated financial statements, or that management expects may have a significant impact on financial statements issued in the near future. Recent Accounting Pronouncements - Adopted ASU 2020-04, Reference Rate Reform (Topic 848) provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The amendments in ASU 2020-04 are elective and apply to all entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued. The guidance includes a general principle that permits an entity to consider contract modifications due to reference rate reform to be an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. Some specific optional expedients are as follows: ● Simplifies accounting for contract modifications, including modifications to loans receivable and debt, by prospectively adjusting the effective interest rate. ● Simplifies the assessment of hedge effectiveness and allows hedging relationships affected by reference rate reform to continue. 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. 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. 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. 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 9 Table of Contents 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. 2. 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) ​ Three Months Ended Nine Months Ended ​ ​ September 30, ​ September 30, ​ September 30, ​ September 30, ​ 2022 2021 2022 2021 Basic ​ ​ ​ ​ ​ Net income ​ $ 4,455 ​ $ 7,399 ​ $ 18,839 ​ $ 23,246 Less: Dividends and undistributed earnings allocated to participating securities ​ ( 39 ) ​ ( 63 ) ​ ( 169 ) ​ ( 189 ) Net income attributable to common shares ​ $ 4,416 ​ $ 7,336 ​ $ 18,670 ​ $ 23,057 Basic weighted-average common shares outstanding ​ 15,364,075 ​ 15,703,932 ​ 15,482,672 ​ 15,806,897 Basic earnings per common share (a) ​ $ 0.29 ​ $ 0.47 ​ $ 1.21 ​ $ 1.46 Diluted ​ ​ ​ ​ Net income attributable to common shares ​ $ 4,416 ​ $ 7,336 ​ $ 18,670 ​ $ 23,057 Basic weighted-average common shares outstanding ​ 15,364,075 ​ 15,703,932 ​ 15,482,672 ​ 15,806,897 Dilutive effect of potential common stock arising from stock options ​ 3,114 ​ 6,413 ​ 3,276 ​ 6,232 Diluted weighted-average common shares outstanding ​ 15,367,189 ​ 15,710,345 ​ 15,485,948 ​ 15,813,129 Diluted earnings per common share (a) ​ $ 0.29 ​ $ 0.47 ​ $ 1.21 ​ $ 1.46 Weighted-average nonvested restricted shares outstanding ​ 136,040 ​ 133,053 ​ 139,761 ​ 129,456 (a) Basic and diluted earnings per share under the two-class method are determined on net income reported on the consolidated statements of income, less earnings allocated to non-vested restricted shares with nonforfeitable dividends (participating securities). Anti-dilutive stock options are excluded from earnings per share calculations. There were no anti-dilutive instruments in the three-month and nine-month periods ended September 30, 2022 and 2021. ​ 10 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q 3. COMPREHENSIVE (LOSS) INCOME Comprehensive (loss) 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 (loss) income. The components of other comprehensive (loss) income, and the related tax effects, are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) Before-Tax Income Tax Net-of-Tax ​ ​ Amount ​ Effect ​ Amount Three Months Ended September 30, 2022 ​ ​ ​ Available-for-sale debt securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized holding losses on available-for-sale debt securities ​ $ ( 25,880 ) ​ $ 5,437 ​ $ ( 20,443 ) Reclassification adjustment for (gains) realized in income ​ ​ ( 20 ) ​ ​ 4 ​ ​ ( 16 ) Other comprehensive loss from available-for-sale debt securities ​ ​ ( 25,900 ) ​ ​ 5,441 ​ ​ ( 20,459 ) Unfunded pension and postretirement obligations, ​ ​ ​ Amortization of prior service cost and net actuarial loss included in net periodic benefit cost ​ ( 9 ) ​ 1 ​ ( 8 ) Total other comprehensive loss ​ $ ( 25,909 ) ​ $ 5,442 ​ $ ( 20,467 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) Before-Tax Income Tax Net-of-Tax ​ ​ Amount ​ Effect ​ Amount Three Months Ended September 30, 2021 ​ ​ ​ Available-for-sale debt securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized holding losses on available-for-sale debt securities ​ $ ( 3,608 ) ​ $ 759 ​ $ ( 2,849 ) Reclassification adjustment for (gains) realized in income ​ ( 23 ) ​ 5 ​ ( 18 ) Other comprehensive loss from available-for-sale debt securities ​ $ ( 3,631 ) ​ $ 764 ​ $ ( 2,867 ) Unfunded pension and postretirement obligations, ​ ​ ​ Amortization of prior service cost and net actuarial loss included in net periodic benefit cost ​ ( 5 ) ​ 1 ​ ( 4 ) Total other comprehensive loss ​ $ ( 3,636 ) ​ $ 765 ​ $ ( 2,871 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) Before-Tax Income Tax Net-of-Tax ​ ​ Amount ​ Effect ​ Amount Nine Months Ended September 30, 2022 ​ ​ ​ Available-for-sale debt securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized holding losses on available-for-sale debt securities ​ $ ( 77,923 ) ​ $ 16,365 ​ $ ( 61,558 ) Reclassification adjustment for (gains) realized in income ​ ​ ( 21 ) ​ ​ 4 ​ ​ ( 17 ) Other comprehensive loss from available-for-sale debt securities ​ ​ ( 77,944 ) ​ ​ 16,369 ​ ​ ( 61,575 ) Unfunded pension and postretirement obligations: ​ ​ ​ Changes from plan amendments and actuarial gains and losses ​ ​ 133 ​ ​ ( 27 ) ​ ​ 106 Amortization of prior service cost and net actuarial loss included in net periodic benefit cost ​ ( 31 ) ​ 5 ​ ( 26 ) Other comprehensive income on unfunded retirement obligations ​ ​ 102 ​ ​ ( 22 ) ​ ​ 80 Total other comprehensive loss ​ $ ( 77,842 ) ​ $ 16,347 ​ $ ( 61,495 ) ​ ​ 11 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) Before-Tax Income Tax Net-of-Tax ​ ​ Amount ​ Effect ​ Amount Nine Months Ended September 30, 2021 ​ ​ ​ Available-for-sale debt securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized holding losses on available-for-sale debt securities ​ $ ( 6,781 ) ​ $ 1,425 ​ $ ( 5,356 ) Reclassification adjustment for (gains) realized in income ​ ​ ( 25 ) ​ ​ 5 ​ ​ ( 20 ) Other comprehensive loss from available-for-sale debt securities ​ ​ ( 6,806 ) ​ ​ 1,430 ​ ​ ( 5,376 ) Unfunded pension and postretirement obligations: ​ ​ ​ Changes from plan amendments and actuarial gains and losses ​ ​ ( 5 ) ​ ​ 1 ​ ​ ( 4 ) Amortization of prior service cost and net actuarial loss included in net periodic benefit cost ​ ( 13 ) ​ 3 ​ ( 10 ) Other comprehensive loss on unfunded retirement obligations ​ ​ ( 18 ) ​ ​ 4 ​ ​ ( 14 ) Total other comprehensive loss ​ $ ( 6,824 ) ​ $ 1,434 ​ $ ( 5,390 ) ​ The amounts shown in the table immediately above are included in the following line items in the consolidated statements of income: ​ ​ ​ ​ ​ ​ Affected Line Item in the Description Consolidated Statements of Income Reclassification adjustment for (gains) realized in income (before-tax) ​ Realized gains on available-for-sale debt securities, net Amortization of prior service cost and net actuarial loss included in net periodic benefit cost (before-tax) Other noninterest expense Income tax effect ​ Income tax provision ​ Changes in the components of accumulated other comprehensive (loss) income are as follows and are presented net of tax: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) Unrealized ​ Accumulated ​ ​ (Losses) ​ Unfunded ​ Other ​ ​ Gains ​ Retirement ​ Comprehensive ​ ​ on Securities ​ Obligations ​ (Loss) Income Three Months Ended September 30, 2022 ​ ​ ​ Balance, beginning of period ​ $ ( 36,307 ) ​ $ 305 ​ $ ( 36,002 ) Other comprehensive loss during three months ended September 30, 2022 ​ ( 20,459 ) ​ ( 8 ) ​ ( 20,467 ) Balance, end of period ​ $ ( 56,766 ) ​ $ 297 ​ $ ( 56,469 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, 2021 ​ ​ ​ Balance, beginning of period ​ $ 9,167 ​ $ 109 ​ $ 9,276 Other comprehensive loss during three months ended September 30, 2021 ​ ( 2,867 ) ​ ( 4 ) ​ ( 2,871 ) Balance, end of period ​ $ 6,300 ​ $ 105 ​ $ 6,405 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) Unrealized ​ Accumulated ​ ​ (Losses) ​ Unfunded ​ Other ​ Gains Retirement Comprehensive ​ on Securities Obligations (Loss) Income Nine Months Ended September 30, 2022 ​ ​ ​ Balance, beginning of period ​ $ 4,809 ​ $ 217 ​ $ 5,026 Other comprehensive loss during nine months ended September 30, 2022 ​ ( 61,575 ) ​ 80 ​ ( 61,495 ) Balance, end of period ​ $ ( 56,766 ) ​ $ 297 ​ $ ( 56,469 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, 2021 ​ ​ ​ Balance, beginning of period ​ $ 11,676 ​ $ 119 ​ $ 11,795 Other comprehensive loss during nine months ended September 30, 2021 ​ ( 5,376 ) ​ ( 14 ) ​ ( 5,390 ) Balance, end of period ​ $ 6,300 ​ $ 105 ​ $ 6,405 ​ ​ ​ ​ ​ 12 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q 4. CASH AND DUE FROM BANKS Cash and due from banks at September 30, 2022 and December 31, 2021 include the following: ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) September 30, December 31, ​ ​ 2022 ​ 2021 Cash and cash equivalents ​ $ 55,444 ​ $ 95,848 Certificates of deposit ​ 8,600 ​ 9,100 Total cash and due from banks ​ $ 64,044 ​ $ 104,948 ​ Certificates of deposit are issues by U.S. banks with original maturities greater than three months. Each certificate of deposit is fully FDIC-insured. The Corporation maintains cash and cash equivalents with certain financial institutions in excess of the FDIC insurance limit. Historically, C&N Bank has been required to maintain reserves against deposit liabilities in the form of cash and balances with the Federal Reserve Bank of Philadelphia. The reserves are based on deposit levels, account activity, and other services provided by the Federal Reserve Bank. In March 2020, the Federal Reserve Board reduced reserve requirements for U.S. banks to 0%. Accordingly, C&N Bank had no required reserves at September 30, 2022 or December 31, 2021. ​ 5. SECURITIES 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) September 30, 2022 ​ ​ ​ ​ ​ Gross ​ Gross ​ ​ ​ ​ ​ ​ ​ ​ Unrealized ​ Unrealized ​ ​ ​ ​ Amortized Holding Holding Fair ​ Cost Gains Losses Value ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Obligations of the U.S. Treasury ​ $ 35,155 ​ $ 0 ​ $ ( 3,556 ) ​ $ 31,599 Obligations of U.S. Government agencies ​ ​ 23,939 ​ ​ 0 ​ ​ ( 2,550 ) ​ ​ 21,389 Bank holding company debt securities ​ ​ 28,944 ​ ​ 0 ​ ​ ( 3,512 ) ​ ​ 25,432 Obligations of states and political subdivisions: ​ ​ ​ ​ ​ ​ ​ Tax-exempt ​ 146,847 ​ 153 ​ ( 20,290 ) ​ 126,710 Taxable ​ 69,902 ​ 0 ​ ( 11,585 ) ​ 58,317 Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies: ​ ​ ​ ​ Residential pass-through securities ​ 116,833 ​ 0 ​ ( 14,094 ) ​ 102,739 Residential collateralized mortgage obligations ​ 44,075 ​ 0 ​ ( 4,443 ) ​ 39,632 Commercial mortgage-backed securities ​ 89,349 ​ 0 ​ ( 11,966 ) ​ 77,383 Private label commercial mortgage-backed securities ​ ​ 4,793 ​ ​ 0 ​ ​ ( 14 ) ​ ​ 4,779 Total available-for-sale debt securities ​ $ 559,837 ​ $ 153 ​ $ ( 72,010 ) ​ $ 487,980 ​ 13 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (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 ​ The following table presents gross unrealized losses and fair value of available-for-sale debt securities with unrealized loss positions that are not deemed to be other-than-temporarily impaired, aggregated by length of time that individual securities have been in a continuous unrealized loss position at September 30, 2022 and December 31, 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2022 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 ​ $ 20,913 ​ $ ( 2,195 ) ​ $ 10,686 ​ $ ( 1,361 ) ​ $ 31,599 ​ $ ( 3,556 ) Obligations of U.S. Government agencies ​ ​ 8,486 ​ ​ ( 454 ) ​ ​ 12,903 ​ ​ ( 2,096 ) ​ ​ 21,389 ​ ​ ( 2,550 ) Bank holding company debt securities ​ ​ 25,432 ​ ​ ( 3,512 ) ​ ​ 0 ​ ​ 0 ​ ​ 25,432 ​ ​ ( 3,512 ) Obligations of states and political subdivisions: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Tax-exempt ​ ​ 107,565 ​ ​ ( 16,818 ) ​ ​ 13,122 ​ ​ ( 3,472 ) ​ ​ 120,687 ​ ​ ( 20,290 ) Taxable ​ 37,480 ​ ( 6,189 ) ​ 20,837 ​ ( 5,396 ) ​ 58,317 ​ ( 11,585 ) Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies: ​ ​ ​ ​ ​ ​ ​ Residential pass-through securities ​ ​ 66,747 ​ ​ ( 7,746 ) ​ ​ 35,992 ​ ​ ( 6,348 ) ​ ​ 102,739 ​ ​ ( 14,094 ) Residential collateralized mortgage obligations ​ 31,957 ​ ( 2,763 ) ​ 7,675 ​ ( 1,680 ) ​ 39,632 ​ ( 4,443 ) Commercial mortgage-backed securities ​ 47,633 ​ ( 4,214 ) ​ 29,750 ​ ( 7,752 ) ​ 77,383 ​ ( 11,966 ) Private label commercial mortgage-backed securities ​ ​ 4,779 ​ ​ ( 14 ) ​ ​ 0 ​ ​ 0 ​ ​ 4,779 ​ ​ ( 14 ) Total temporarily impaired available-for-sale debt securities ​ $ 350,992 ​ $ ( 43,905 ) ​ $ 130,965 ​ $ ( 28,105 ) ​ $ 481,957 ​ $ ( 72,010 ) ​ ​ 14 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 ) ​ Gross realized gains and losses from available-for-sale debt securities were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) ​ Three Months Ended ​ Nine Months Ended ​ ​ September 30, ​ September 30, ​ September 30, ​ September 30, ​ 2022 2021 2022 2021 Gross realized gains from sales ​ $ 44 ​ $ 23 ​ $ 48 ​ $ 27 Gross realized losses from sales ​ ( 24 ) ​ 0 ​ ( 27 ) ​ ( 2 ) Net realized gains ​ $ 20 ​ $ 23 ​ $ 21 ​ $ 25 ​ 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) ​ September 30, 2022 ​ ​ Amortized ​ Fair ​ Cost Value Due in one year or less ​ $ 12,648 ​ $ 12,490 Due from one year through five years ​ 71,702 ​ 66,612 Due from five years through ten years ​ 92,119 ​ 81,106 Due after ten years ​ 128,318 ​ 103,239 Sub-total ​ 304,787 ​ 263,447 Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies: ​ ​ Residential pass-through securities ​ 116,833 ​ 102,739 Residential collateralized mortgage obligations ​ 44,075 ​ 39,632 Commercial mortgage-backed securities ​ 89,349 ​ 77,383 Private label commercial mortgage-backed securities ​ ​ 4,793 ​ ​ 4,779 Total ​ $ 559,837 ​ $ 487,980 ​ 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 $ 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. 15 Table of Contents 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 September 30, 2022 is provided below. Debt Securities 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 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 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 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 $ 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 $ 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. ​ 16 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q 6. LOANS The loans receivable portfolio is segmented into commercial, residential mortgage and consumer loans. 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, December 31, ​ ​ 2022 ​ 2021 Commercial: ​ ​ Commercial loans secured by real estate ​ $ 658,861 ​ $ 569,840 Commercial and industrial ​ 172,258 ​ 159,073 Paycheck Protection Program - 1st Draw ​ ​ 24 ​ ​ 1,356 Paycheck Protection Program - 2nd Draw ​ ​ 2,011 ​ ​ 25,508 Political subdivisions ​ 83,725 ​ 81,301 Commercial construction and land ​ 76,194 ​ 60,579 Loans secured by farmland ​ 12,839 ​ 11,121 Multi-family (5 or more) residential ​ 59,315 ​ 50,089 Agricultural loans ​ 2,492 ​ 2,351 Other commercial loans ​ 14,636 ​ 17,153 Total commercial ​ 1,082,355 ​ 978,371 Residential mortgage: ​ ​ Residential mortgage loans - first liens ​ ​ 492,854 ​ ​ 483,629 Residential mortgage loans - junior liens ​ 24,208 ​ 23,314 Home equity lines of credit ​ 42,972 ​ 39,252 1-4 Family residential construction ​ 29,950 ​ 23,151 Total residential mortgage ​ 589,984 ​ 569,346 Consumer ​ 17,907 ​ 17,132 Total ​ 1,690,246 ​ 1,564,849 Less: allowance for loan losses ​ ( 16,170 ) ​ ( 13,537 ) Loans, net ​ $ 1,674,076 ​ $ 1,551,312 ​ 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. 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. 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, provided SBA-guaranteed loans to small businesses to pay their employees, rent, mortgage interest, and utilities. PPP loans are 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. 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 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. 17 Table of Contents 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. 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 acquired PPP loans, are recognized in interest income as a yield adjustment over the term of the loans. 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 $ 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 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 ​ Nine Months Ended ​ ​ September 30, ​ September 30, ​ September 30, ​ September 30, ​ ​ 2022 ​ 2021 ​ 2022 ​ 2021 Market Rate Adjustment ​ ​ ​ ​ Adjustments to gross amortized cost of loans at beginning of period ​ $ ( 866 ) ​ $ ( 5 ) ​ $ ( 637 ) ​ $ 718 Accretion (amortization) recognized in interest income ​ ​ 5 ​ ​ ( 368 ) ​ ​ ( 224 ) ​ ​ ( 1,091 ) Adjustments to gross amortized cost of loans at end of period ​ $ ( 861 ) ​ $ ( 373 ) ​ $ ( 861 ) ​ $ ( 373 ) Credit Adjustment on Non-impaired Loans ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Adjustments to gross amortized cost of loans at beginning of period ​ $ ( 2,403 ) ​ $ ( 4,502 ) ​ $ ( 3,335 ) ​ $ ( 5,979 ) Accretion recognized in interest income ​ 308 ​ 666 ​ 1,240 ​ 2,143 Adjustments to gross amortized cost of loans at end of period ​ $ ( 2,095 ) ​ $ ( 3,836 ) ​ $ ( 2,095 ) ​ $ ( 3,836 ) ​ A summary of PCI loans held at September 30, 2022 and December 31, 2021 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) ​ September 30, ​ December 31, ​ 2022 2021 Outstanding balance ​ $ 5,564 ​ $ 9,802 Carrying amount ​ 3,783 ​ 6,558 ​ 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. The Corporation maintains an allowance for loan losses that represents management’s estimate of the losses inherent in the loan portfolio as of the balance sheet date and recorded as a reduction of the investment in loans. The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs a quarterly evaluation of the adequacy of the allowance. The allowance is based on the Corporation’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition 18 Table of Contents 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 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) Balance Charge-offs Recoveries Provision (Credit) Balance Allowance for Loan Losses: ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial: ​ ​ ​ ​ ​ Commercial loans secured by real estate ​ $ 4,982 ​ $ ( 2,160 ) ​ $ 0 ​ $ 3,225 ​ $ 6,047 Commercial and industrial ​ 2,792 ​ 0 ​ 0 ​ 31 ​ 2,823 Commercial construction and land ​ 515 ​ 0 ​ 0 ​ 169 ​ 684 Loans secured by farmland ​ 112 ​ 0 ​ 0 ​ 1 ​ 113 Multi-family (5 or more) residential ​ 339 ​ 0 ​ 0 ​ 88 ​ 427 Agricultural loans ​ 23 ​ 0 ​ 0 ​ ( 1 ) ​ 22 Other commercial loans ​ 131 ​ 0 ​ 0 ​ ( 9 ) ​ 122 Total commercial ​ 8,894 ​ ( 2,160 ) ​ 0 ​ 3,504 ​ 10,238 Residential mortgage: ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential mortgage loans - first liens ​ ​ 3,689 ​ ​ 0 ​ ​ 1 ​ ​ 229 ​ ​ 3,919 Residential mortgage loans - junior liens ​ 180 ​ 0 ​ 0 ​ 14 ​ 194 Home equity lines of credit ​ 308 ​ 0 ​ 0 ​ 25 ​ 333 1-4 Family residential construction ​ 215 ​ 0 ​ 0 ​ 36 ​ 251 Total residential mortgage ​ 4,392 ​ 0 ​ 1 ​ 304 ​ ​ 4,697 Consumer ​ 261 ​ ( 36 ) ​ 24 ​ ( 14 ) ​ 235 Unallocated ​ 1,000 ​ 0 ​ 0 ​ 0 ​ 1,000 Total Allowance for Loan Losses ​ $ 14,547 ​ $ ( 2,196 ) ​ $ 25 ​ $ 3,794 ​ $ 16,170 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, 2021 ​ June 30, 2021 ​ ​ ​ September 30, 2021 (In Thousands) Balance Charge-offs Recoveries Provision (Credit) Balance Allowance for Loan Losses: ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial: ​ ​ ​ ​ ​ Commercial loans secured by real estate ​ $ 3,452 ​ $ 0 ​ $ 0 ​ $ 368 ​ $ 3,820 Commercial and industrial ​ 2,781 ​ ( 1,194 ) ​ 6 ​ 947 ​ 2,540 Commercial construction and land ​ 452 ​ 0 ​ 0 ​ 107 ​ 559 Loans secured by farmland ​ 113 ​ 0 ​ 0 ​ ( 1 ) ​ 112 Multi-family (5 or more) residential ​ 150 ​ 0 ​ 0 ​ 46 ​ 196 Agricultural loans ​ 25 ​ 0 ​ 0 ​ 8 ​ 33 Other commercial loans ​ 145 ​ 0 ​ 0 ​ 28 ​ 173 Total commercial ​ 7,118 ​ ( 1,194 ) ​ 6 ​ 1,503 ​ 7,433 Residential mortgage: ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential mortgage loans - first liens ​ ​ 3,536 ​ ​ 0 ​ ​ 1 ​ ​ 29 ​ ​ 3,566 Residential mortgage loans - junior liens ​ 327 ​ 0 ​ 0 ​ ( 6 ) ​ 321 Home equity lines of credit ​ 294 ​ 0 ​ 0 ​ ( 11 ) ​ 283 1-4 Family residential construction ​ 198 ​ 0 ​ 0 ​ ( 9 ) ​ 189 Total residential mortgage ​ 4,355 ​ 0 ​ 1 ​ 3 ​ 4,359 Consumer ​ 231 ​ ( 26 ) ​ 8 ​ 24 ​ 237 Unallocated ​ 671 ​ 0 ​ 0 ​ 0 ​ 671 Total Allowance for Loan Losses ​ $ 12,375 ​ $ ( 1,220 ) ​ $ 15 ​ $ 1,530 ​ $ 12,700 ​ 19 Table of Contents 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. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ ​ ​ ​ ​ September 30, Nine Months Ended September 30, 2022 ​ 2021 ​ ​ ​ ​ ​ ​ ​ Provision ​ 2022 (In Thousands) ​ Balance ​ Charge-offs ​ Recoveries ​ (Credit) ​ Balance Allowance for Loan Losses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial: ​ ​ ​ ​ ​ Commercial loans secured by real estate ​ $ 4,405 ​ $ ( 2,160 ) ​ $ 0 ​ $ 3,802 ​ $ 6,047 Commercial and industrial ​ 2,723 ​ ( 150 ) ​ 0 ​ 250 ​ 2,823 Commercial construction and land ​ 637 ​ 0 ​ 0 ​ 47 ​ 684 Loans secured by farmland ​ 115 ​ 0 ​ 0 ​ ( 2 ) ​ 113 Multi-family (5 or more) residential ​ 215 ​ 0 ​ 0 ​ 212 ​ 427 Agricultural loans ​ 25 ​ 0 ​ 0 ​ ( 3 ) ​ 22 Other commercial loans ​ 173 ​ 0 ​ 0 ​ ( 51 ) ​ 122 Total commercial ​ 8,293 ​ ( 2,310 ) ​ 0 ​ 4,255 ​ 10,238 Residential mortgage: ​ ​ ​ ​ ​ Residential mortgage loans - first liens ​ ​ 3,650 ​ ​ 0 ​ ​ 3 ​ ​ 266 ​ ​ 3,919 Residential mortgage loans - junior liens ​ 184 ​ 0 ​ 0 ​ 10 ​ 194 Home equity lines of credit ​ 302 ​ 0 ​ 15 ​ 16 ​ 333 1-4 Family residential construction ​ 202 ​ 0 ​ 0 ​ 49 ​ 251 Total residential mortgage ​ 4,338 ​ 0 ​ 18 ​ 341 ​ 4,697 Consumer ​ 235 ​ ( 107 ) ​ 39 ​ 68 ​ 235 Unallocated ​ 671 ​ 0 ​ 0 ​ 329 ​ 1,000 Total Allowance for Loan Losses ​ $ 13,537 ​ $ ( 2,417 ) ​ $ 57 ​ $ 4,993 ​ $ 16,170 ​ ​ 20 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ ​ ​ ​ ​ September 30, Nine Months Ended September 30, 2021 ​ 2020 ​ ​ ​ ​ ​ ​ ​ Provision ​ 2021 (In Thousands) ​ Balance ​ Charge-offs ​ Recoveries ​ (Credit) ​ Balance Allowance for Loan Losses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial: ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial loans secured by real estate ​ $ 3,051 ​ $ 0 ​ $ 2 ​ $ 767 ​ $ 3,820 Commercial and industrial ​ 2,245 ​ ( 1,194 ) ​ 20 ​ 1,469 ​ 2,540 Commercial construction and land ​ 454 ​ 0 ​ 0 ​ 105 ​ 559 Loans secured by farmland ​ 120 ​ 0 ​ 0 ​ ( 8 ) ​ 112 Multi-family (5 or more) residential ​ 236 ​ 0 ​ 0 ​ ( 40 ) ​ 196 Agricultural loans ​ 34 ​ 0 ​ 0 ​ ( 1 ) ​ 33 Other commercial loans ​ 168 ​ 0 ​ 0 ​ 5 ​ 173 Total commercial ​ 6,308 ​ ( 1,194 ) ​ 22 ​ 2,297 ​ 7,433 Residential mortgage: ​ ​ ​ ​ ​ Residential mortgage loans - first liens ​ ​ 3,524 ​ ​ ( 11 ) ​ ​ 3 ​ ​ 50 ​ ​ 3,566 Residential mortgage loans - junior liens ​ 349 ​ 0 ​ 0 ​ ( 28 ) ​ 321 Home equity lines of credit ​ 281 ​ 0 ​ 2 ​ 0 ​ 283 1-4 Family residential construction ​ 99 ​ 0 ​ 0 ​ 90 ​ 189 Total residential mortgage ​ 4,253 ​ ( 11 ) ​ 5 ​ 112 ​ 4,359 Consumer ​ 239 ​ ( 73 ) ​ 33 ​ 38 ​ 237 Unallocated ​ 585 ​ 0 ​ 0 ​ 86 ​ 671 Total Allowance for Loan Losses ​ $ 11,385 ​ $ ( 1,278 ) ​ $ 60 ​ $ 2,533 ​ $ 12,700 ​ 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. Under the risk rating system, the Corporation classifies problem or potential problem loans as “Special Mention,” “Substandard,” or “Doubtful” on the basis of currently existing facts, conditions and values. Substandard loans include those characterized by the distinct possibility that the Corporation will sustain some loss if the deficiencies are not corrected. Loans classified as Doubtful have all the weaknesses inherent in those classified as Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Loans that do not currently expose the Corporation to sufficient risk to warrant classification as Substandard or Doubtful, but possess weaknesses that deserve management’s close attention, are deemed to be Special Mention. Risk ratings are updated any time that conditions or the situation warrants. Loans not classified are included in the “Pass” column in the table that follows. 21 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q 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 ​ ​ ​ ​ ​ ​ ​ ​ Purchased ​ ​ (In Thousands) ​ ​ ​ ​ Special ​ ​ ​ ​ ​ ​ ​ Credit ​ ​ ​ ​ ​ Pass ​ Mention ​ Substandard ​ Doubtful ​ Impaired ​ Total Commercial: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial loans secured by real estate ​ $ 637,390 ​ $ 5,938 ​ $ 11,789 ​ $ 0 ​ $ 3,744 ​ $ 658,861 Commercial and Industrial ​ 159,735 ​ 9,085 ​ 3,399 ​ 0 ​ 39 ​ 172,258 Paycheck Protection Program - 1st Draw ​ ​ 24 ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 24 Paycheck Protection Program - 2nd Draw ​ ​ 2,011 ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 2,011 Political subdivisions ​ 83,725 ​ 0 ​ 0 ​ 0 ​ 0 ​ 83,725 Commercial construction and land ​ 75,433 ​ 714 ​ 47 ​ 0 ​ 0 ​ 76,194 Loans secured by farmland ​ 10,903 ​ 618 ​ 1,318 ​ 0 ​ 0 ​ 12,839 Multi-family (5 or more) residential ​ 58,458 ​ 0 ​ 857 ​ 0 ​ 0 ​ 59,315 Agricultural loans ​ 1,875 ​ 29 ​ 588 ​ 0 ​ 0 ​ 2,492 Other commercial loans ​ 14,636 ​ 0 ​ 0 ​ 0 ​ 0 ​ 14,636 Total commercial ​ 1,044,190 ​ 16,384 ​ 17,998 ​ 0 ​ 3,783 ​ 1,082,355 Residential Mortgage: ​ ​ ​ ​ ​ ​ Residential mortgage loans - first liens ​ ​ 478,768 ​ ​ 7,398 ​ ​ 6,688 ​ ​ 0 ​ ​ 0 ​ ​ 492,854 Residential mortgage loans - junior liens ​ 23,739 ​ 164 ​ 305 ​ 0 ​ 0 ​ 24,208 Home equity lines of credit ​ 42,424 ​ 59 ​ 489 ​ 0 ​ 0 ​ 42,972 1-4 Family residential construction ​ 29,950 ​ 0 ​ 0 ​ 0 ​ 0 ​ 29,950 Total residential mortgage ​ 574,881 ​ 7,621 ​ 7,482 ​ 0 ​ 0 ​ 589,984 Consumer ​ 17,844 ​ 0 ​ 63 ​ 0 ​ 0 ​ 17,907 Totals ​ $ 1,636,915 ​ $ 24,005 ​ $ 25,543 ​ $ 0 ​ $ 3,783 ​ $ 1,690,246 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 ​ 22 Table of Contents 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 September 30, 2022 and December 31, 2021. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2022 Loans: ​ Allowance for Loan Losses: (In Thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Individually ​ Collectively ​ ​ ​ ​ Individually ​ Collectively ​ ​ ​ Evaluated Evaluated Totals Evaluated Evaluated Totals Commercial: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial loans secured by real estate ​ $ 12,080 ​ $ 646,781 ​ $ 658,861 ​ $ 427 ​ $ 5,620 ​ $ 6,047 Commercial and industrial ​ 369 ​ 171,889 ​ 172,258 ​ 0 ​ 2,823 ​ 2,823 Paycheck Protection Program - 1st Draw ​ 0 ​ 24 ​ 24 ​ 0 ​ 0 ​ 0 Paycheck Protection Program - 2nd Draw ​ ​ 0 ​ ​ 2,011 ​ ​ 2,011 ​ ​ 0 ​ ​ 0 ​ ​ 0 Political subdivisions ​ 0 ​ 83,725 ​ 83,725 ​ 0 ​ 0 ​ 0 Commercial construction and land ​ 47 ​ 76,147 ​ 76,194 ​ 0 ​ 684 ​ 684 Loans secured by farmland ​ 78 ​ 12,761 ​ 12,839 ​ 0 ​ 113 ​ 113 Multi-family (5 or more) residential ​ 0 ​ 59,315 ​ 59,315 ​ 0 ​ 427 ​ 427 Agricultural loans ​ 60 ​ 2,432 ​ 2,492 ​ 0 ​ 22 ​ 22 Other commercial loans ​ 0 ​ 14,636 ​ 14,636 ​ 0 ​ 122 ​ 122 Total commercial ​ 12,634 ​ 1,069,721 ​ 1,082,355 ​ 427 ​ 9,811 ​ 10,238 Residential mortgage: ​ ​ ​ ​ ​ ​ Residential mortgage loans - first liens ​ ​ 576 ​ ​ 492,278 ​ ​ 492,854 ​ ​ 0 ​ ​ 3,919 ​ ​ 3,919 Residential mortgage loans - junior liens ​ 31 ​ 24,177 ​ 24,208 ​ 0 ​ 194 ​ 194 Home equity lines of credit ​ 68 ​ 42,904 ​ 42,972 ​ 0 ​ 333 ​ 333 1-4 Family residential construction ​ 0 ​ 29,950 ​ 29,950 ​ 0 ​ 251 ​ 251 Total residential mortgage ​ 675 ​ 589,309 ​ 589,984 ​ 0 ​ 4,697 ​ 4,697 Consumer ​ 0 ​ 17,907 ​ 17,907 ​ 0 ​ 235 ​ 235 Unallocated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1,000 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total ​ $ 13,309 ​ $ 1,676,937 ​ $ 1,690,246 ​ $ 427 ​ $ 14,743 ​ $ 16,170 ​ 23 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 ​ Summary information related to impaired loans at September 30, 2022 and December 31, 2021 is provided in the table immediately below. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) ​ September 30, 2022 ​ December 31, 2021 ​ ​ 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 ​ $ 12,680 ​ $ 8,684 ​ $ 0 ​ $ 6,600 ​ $ 4,458 ​ $ 0 Commercial and industrial ​ 2,135 ​ 369 ​ 0 ​ 5,213 ​ 2,431 ​ 0 Residential mortgage loans - first liens ​ ​ 601 ​ ​ 576 ​ ​ 0 ​ ​ 656 ​ ​ 630 ​ ​ 0 Residential mortgage loans - junior liens ​ 71 ​ 31 ​ 0 ​ 124 ​ 14 ​ 0 Home equity lines of credit ​ 68 ​ 68 ​ 0 ​ ​ 0 ​ ​ 0 ​ 0 Loans secured by farmland ​ 78 ​ 78 ​ 0 ​ 83 ​ 83 ​ 0 Agricultural loans ​ ​ 60 ​ ​ 60 ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 0 Construction and other land loans ​ ​ 47 ​ ​ 47 ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 0 Multi-family (5 or more) residential ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 2,734 ​ ​ 1,578 ​ ​ 0 Total with no related allowance recorded ​ 15,740 ​ 9,913 ​ 0 ​ 15,410 ​ 9,194 ​ 0 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ With a related allowance recorded: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial loans secured by real estate ​ ​ 3,396 ​ ​ 3,396 ​ ​ 427 ​ ​ 6,468 ​ ​ 6,468 ​ ​ 668 Commercial and industrial ​ 0 ​ 0 ​ 0 ​ 72 ​ 72 ​ 72 Total with a related allowance recorded ​ 3,396 ​ 3,396 ​ 427 ​ 6,540 ​ 6,540 ​ 740 Total ​ $ 19,136 ​ $ 13,309 ​ $ 427 ​ $ 21,950 ​ $ 15,734 ​ $ 740 ​ 24 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q The average balance of impaired loans and interest income recognized on these impaired loans is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest Income Recognized on ​ ​ Average Investment in Impaired Loans ​ Impaired Loans on a Cash Basis ​ ​ Three Months Ended ​ Nine Months Ended ​ Three Months Ended ​ Nine Months Ended ​ ​ September 30, ​ September 30, ​ September 30, ​ September 30, ​ 2022 ​ 2021 ​ 2022 2021 ​ 2022 ​ 2021 ​ 2022 2021 Commercial: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial loans secured by real estate ​ $ 9,710 ​ $ 11,252 ​ $ 9,804 ​ $ 11,811 ​ $ 143 ​ $ 172 ​ $ 483 ​ $ 401 Commercial and industrial ​ ​ 371 ​ ​ 3,844 ​ 839 ​ 2,566 ​ ​ 4 ​ ​ 4 ​ 207 ​ 25 Commercial construction and land ​ ​ 47 ​ ​ 48 ​ 47 ​ 48 ​ ​ 0 ​ ​ 2 ​ 1 ​ 2 Loans secured by farmland ​ ​ 79 ​ ​ 84 ​ 81 ​ 84 ​ ​ 0 ​ ​ 0 ​ 0 ​ 1 Multi-family (5 or more) residential ​ ​ 0 ​ ​ 1,578 ​ ​ 263 ​ ​ 1,584 ​ ​ 0 ​ ​ 31 ​ ​ 1,156 ​ ​ 122 Agricultural loans ​ ​ 59 ​ ​ 66 ​ 61 ​ 67 ​ ​ 0 ​ ​ 0 ​ 2 ​ 3 Total commercial ​ ​ 10,266 ​ ​ 16,872 ​ 11,095 ​ 16,160 ​ ​ 147 ​ ​ 209 ​ 1,849 ​ 554 Residential mortgage: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential mortgage loans - first lien ​ ​ 612 ​ ​ 1,322 ​ ​ 587 ​ ​ 1,830 ​ ​ 5 ​ ​ 11 ​ ​ 17 ​ ​ 68 Residential mortgage loans - junior lien ​ ​ 31 ​ ​ 386 ​ 33 ​ 417 ​ ​ 0 ​ ​ 1 ​ 6 ​ 10 Home equity lines of credit ​ ​ 68 ​ ​ 0 ​ 34 ​ 0 ​ ​ 1 ​ ​ 0 ​ 3 ​ 0 Total residential mortgage ​ ​ 711 ​ ​ 1,708 ​ 654 ​ 2,247 ​ ​ 6 ​ ​ 12 ​ 26 ​ 78 Total ​ $ 10,977 ​ $ 18,580 ​ $ 11,749 ​ $ 18,407 ​ $ 153 ​ $ 221 ​ $ 1,875 ​ $ 632 ​ 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) ​ September 30, 2022 ​ December 31, 2021 ​ ​ Past Due ​ ​ ​ ​ Past Due ​ ​ ​ ​ ​ 90+ Days and ​ ​ ​ ​ 90+ Days and ​ ​ ​ ​ Accruing Nonaccrual Accruing Nonaccrual Commercial: ​ ​ ​ ​ ​ ​ Commercial loans secured by real estate ​ $ 1,898 ​ $ 12,079 ​ $ 738 ​ $ 10,885 Commercial and industrial ​ 248 ​ 304 ​ 30 ​ 2,299 Commercial construction and land ​ 25 ​ 47 ​ 0 ​ 48 Loans secured by farmland ​ 0 ​ 78 ​ 28 ​ 83 Multi-family (5 or more) residential ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 1,578 Agricultural loans ​ ​ 59 ​ ​ 0 ​ ​ 65 ​ ​ 0 Total commercial ​ 2,230 ​ 12,508 ​ 861 ​ 14,893 Residential mortgage: ​ ​ ​ ​ Residential mortgage loans - first liens ​ ​ 985 ​ ​ 4,271 ​ ​ 1,144 ​ ​ 4,005 Residential mortgage loans - junior liens ​ 55 ​ 0 ​ 69 ​ 3 Home equity lines of credit ​ 186 ​ 132 ​ 102 ​ 82 Total residential mortgage ​ 1,226 ​ 4,403 ​ 1,315 ​ 4,090 Consumer ​ 43 ​ 48 ​ 43 ​ 16 Totals ​ $ 3,499 ​ $ 16,959 ​ $ 2,219 ​ $ 18,999 ​ 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 $ 3,783,000 at September 30, 2022 and $ 6,558,000 at December 31, 2021 are classified as nonaccrual. 25 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q The table below presents a summary of the contractual aging of loans as of September 30, 2022 and December 31, 2021. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) ​ As of September 30, 2022 ​ As of December 31, 2021 ​ 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 ​ $ 655,851 ​ $ 0 ​ $ 3,010 ​ $ 658,861 ​ $ 563,658 ​ $ 762 ​ $ 5,420 ​ $ 569,840 Commercial and industrial ​ 171,819 ​ 129 ​ 310 ​ 172,258 ​ 158,188 ​ 72 ​ 813 ​ 159,073 Paycheck Protection Program - 1st Draw ​ ​ 24 ​ ​ 0 ​ ​ 0 ​ ​ 24 ​ ​ 1,339 ​ ​ 17 ​ ​ 0 ​ ​ 1,356 Paycheck Protection Program - 2nd Draw ​ ​ 1,062 ​ ​ 949 ​ ​ 0 ​ ​ 2,011 ​ ​ 25,508 ​ ​ 0 ​ ​ 0 ​ ​ 25,508 Political subdivisions ​ 83,725 ​ 0 ​ 0 ​ 83,725 ​ 81,301 ​ 0 ​ 0 ​ 81,301 Commercial construction and land ​ 75,925 ​ 197 ​ 72 ​ 76,194 ​ 60,509 ​ 70 ​ 0 ​ 60,579 Loans secured by farmland ​ 12,675 ​ 86 ​ 78 ​ 12,839 ​ 11,010 ​ 0 ​ 111 ​ 11,121 Multi-family (5 or more) residential ​ 59,315 ​ 0 ​ 0 ​ 59,315 ​ 48,532 ​ 0 ​ 1,557 ​ 50,089 Agricultural loans ​ 2,433 ​ 0 ​ 59 ​ 2,492 ​ 2,279 ​ 7 ​ 65 ​ 2,351 Other commercial loans ​ 14,636 ​ 0 ​ 0 ​ 14,636 ​ 17,153 ​ 0 ​ 0 ​ 17,153 Total commercial ​ 1,077,465 ​ 1,361 ​ 3,529 ​ 1,082,355 ​ 969,477 ​ 928 ​ 7,966 ​ 978,371 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential mortgage: ​ ​ ​ ​ ​ ​ ​ ​ Residential mortgage loans - first liens ​ ​ 487,629 ​ ​ 1,934 ​ ​ 3,291 ​ ​ 492,854 ​ ​ 475,637 ​ ​ 5,038 ​ ​ 2,954 ​ ​ 483,629 Residential mortgage loans - junior liens ​ 24,106 ​ 47 ​ 55 ​ 24,208 ​ 23,229 ​ 16 ​ 69 ​ 23,314 Home equity lines of credit ​ 42,465 ​ 227 ​ 280 ​ 42,972 ​ 38,830 ​ 279 ​ 143 ​ 39,252 1-4 Family residential construction ​ 29,950 ​ 0 ​ 0 ​ 29,950 ​ 23,151 ​ 0 ​ 0 ​ 23,151 Total residential mortgage ​ 584,150 ​ 2,208 ​ 3,626 ​ 589,984 ​ 560,847 ​ 5,333 ​ 3,166 ​ 569,346 Consumer ​ 17,674 ​ 142 ​ 91 ​ 17,907 ​ 17,001 ​ 72 ​ 59 ​ 17,132 Totals ​ $ 1,679,289 ​ $ 3,711 ​ $ 7,246 ​ $ 1,690,246 ​ $ 1,547,325 ​ $ 6,333 ​ $ 11,191 ​ $ 1,564,849 ​ Nonaccrual loans are included in the contractual aging in the immediately preceding table. A summary of the contractual aging of nonaccrual loans at September 30, 2022 and December 31, 2021 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) ​ Current & ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Past Due ​ Past Due ​ Past Due ​ ​ ​ ​ Less than ​ 30-89 ​ 90+ ​ ​ ​ 30 Days Days Days Total September 30, 2022 Nonaccrual Totals ​ $ 12,542 ​ $ 670 ​ $ 3,747 ​ $ 16,959 December 31, 2021 Nonaccrual Totals ​ $ 8,800 ​ $ 1,227 ​ $ 8,972 ​ $ 18,999 ​ ​ 26 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q Loans whose terms are modified are classified as troubled debt restructurings (TDRs) if the Corporation grants such borrowers concessions, and it is deemed that those borrowers are experiencing financial difficulty. Loans classified as TDRs are designated as impaired. The outstanding balance of loans subject to TDRs, as well as contractual aging information at September 30, 2022 and December 31, 2021 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) ​ Current & ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Past Due ​ Past Due ​ Past Due ​ ​ ​ ​ ​ ​ Less than ​ 30-89 ​ 90+ ​ ​ ​ ​ ​ 30 Days Days Days Nonaccrual Total September 30, 2022 Totals ​ $ 211 ​ $ 20 ​ $ 92 ​ $ 3,868 ​ $ 4,191 December 31, 2021 Totals ​ $ 248 ​ $ 40 ​ $ 65 ​ $ 5,452 ​ $ 5,805 ​ 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) ​ Three Months Ended ​ Three Months Ended ​ ​ September 30, 2022 ​ September 30, 2021 ​ ​ ​ ​ Post- ​ ​ ​ Post- ​ ​ Number ​ Modification ​ Number ​ Modification ​ ​ of ​ Recorded ​ of ​ Recorded ​ ​ Loans ​ Investment ​ Loans ​ Investment Home equity lines of credit, ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Reduced monthly payments for an eighteen-month period 0 $ 0 1 ​ $ 70 Total 0 $ 0 1 $ 70 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended ​ Nine Months Ended (Balances in Thousands) ​ September 30, 2022 ​ September 30, 2021 ​ ​ 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 0 ​ $ 0 1 ​ $ 12 Reduced monthly payments for a fifteen-month period ​ 0 ​ ​ 0 ​ 1 ​ ​ 116 Home equity lines of credit: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Reduced monthly payments and extended maturity date ​ 0 ​ ​ 0 ​ 1 ​ ​ 24 Reduced monthly payments for an eighteen-month period ​ 0 ​ ​ 0 ​ 1 ​ ​ 70 Total 0 ​ $ 0 4 ​ $ 222 ​ 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) ​ Nine Months Ended ​ Nine Months Ended ​ ​ September 30, 2022 ​ September 30, 2021 ​ ​ Number ​ ​ ​ Number ​ ​ ​ ​ of ​ Recorded ​ of ​ Recorded ​ ​ Loans ​ Investment ​ Loans ​ Investment Commercial loans secured by real estate ​ 0 ​ $ 0 ​ 1 ​ $ 3,392 Total 0 ​ $ 0 1 ​ $ 3,392 ​ 27 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q The carrying amount of foreclosed residential real estate properties held as a result of obtaining physical possession (included in foreclosed assets held for sale in the unaudited consolidated balance sheets) is as follows: ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) September 30, December 31, ​ ​ 2022 ​ 2021 Foreclosed residential real estate ​ $ 179 ​ $ 256 ​ The recorded investment of consumer mortgage loans secured by residential real properties for which formal foreclosure proceedings were in process is as follows: ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) September 30, December 31, ​ ​ 2022 ​ 2021 Residential real estate in process of foreclosure ​ $ 1,306 ​ $ 1,260 ​ ​ ​ 7. GOODWILL AND OTHER INTANGIBLE ASSETS Information related to core deposit intangibles is as follows: ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) September 30, December 31, ​ ​ 2022 ​ 2021 Gross amount ​ $ 6,639 ​ $ 6,639 Accumulated amortization ​ ( 3,652 ) ​ ( 3,323 ) Net ​ $ 2,987 ​ $ 3,316 ​ Amortization expense related to core deposit intangibles is included in other noninterest expense in the consolidated statements of income, as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) ​ Three Months Ended ​ Nine Months Ended ​ ​ September 30, ​ September 30, ​ September 30, ​ September 30, ​ 2022 2021 2022 2021 Amortization expense ​ $ 110 $ 133 $ 329 $ 401 ​ Goodwill represents the excess of the cost of acquisitions over the fair value of the net assets acquired. At September 30, 2022 and December 31, 2021, the net carrying value of goodwill was $ 52,505,000 . ​ 8. BORROWED FUNDS SHORT-TERM BORROWINGS Short-term borrowings (initial maturity within one year) include the following: ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) September 30, December 31, ​ ​ 2022 ​ 2021 FHLB-Pittsburgh borrowings ​ $ 0 ​ $ 0 Customer repurchase agreements ​ 2,457 ​ 1,803 Total short-term borrowings ​ $ 2,457 ​ $ 1,803 ​ 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 September 30, 2022 or December 31, 2021. 28 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q The Corporation has a line of credit with the Federal Reserve Bank of Philadelphia’s Discount Window. 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 $ 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 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 $ 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 September 30, 2022 and December 31, 2021, there were no overnight borrowings or short-term advances from FHLB-Pittsburgh. LONG-TERM BORROWINGS – FHLB ADVANCES Long-term borrowings from FHLB-Pittsburgh are as follows: ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) September 30, December 31, ​ ​ 2022 ​ 2021 Loans maturing in 2022 with a weighted-average rate of 0.61 % ​ $ 4,013 ​ $ 15,452 Loans maturing in 2023 with a weighted-average rate of 1.35 % ​ ​ 9,330 ​ ​ 7,119 Loans maturing in 2024 with a weighted-average rate of 2.89 % ​ ​ 29,822 ​ ​ 5,099 Loans maturing in 2025 with a weighted-average rate of 3.38 % ​ ​ 12,298 ​ ​ 372 Total long-term FHLB-Pittsburgh borrowings ​ $ 55,463 ​ $ 28,042 ​ Note: Weighted-average rates are presented as of September 30, 2022. 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 $ 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. ​ 29 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q At September 30, 2022 and December 31, 2021, outstanding Senior Notes are as follows: ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) September 30, December 31, ​ ​ 2022 ​ 2021 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 ​ $ 14,749 ​ $ 14,701 Total carrying value ​ $ 14,749 ​ $ 14,701 ​ SUBORDINATED DEBT On May 19, 2021 , the Corporation issued and sold $ 25.0 million in aggregate principal amount of 3.25 % Fixed-to-Floating Rate Subordinated Notes due 2031 (the "Subordinated Notes"). The Subordinated Notes mature on June 1, 2031 and bear interest at a fixed annual rate of 3.25 %, to June 1, 2026 . From June 1, 2026 to maturity or early redemption, the interest rate will reset quarterly to an interest rate per annum equal to the three-month Secured Overnight Financing Rate provided by the Federal Reserve Bank of New York plus 259 basis points. The Corporation is entitled to redeem the Subordinated Notes, in whole or in part, at any time on or after June 1, 2026, and to redeem the Subordinated Notes at any time in whole upon certain other events. Any redemption of the Subordinated Notes will be subject to prior regulatory approval to the extent required. The Subordinated Notes are not subject to redemption at the option of the holders. The Subordinated Notes are unsecured, subordinated obligations of the Corporation only and are not obligations of, and are not guaranteed by, any subsidiary of the Corporation. The Subordinated Notes rank junior in right to payment to the Corporation's current and future senior indebtedness, including the Senior Notes (described above). The Subordinated Notes are intended to qualify as Tier 2 capital for regulatory capital purposes. The Subordinated Notes were recorded, net of debt issuance costs of $ 563,000 , at an initial carrying amount of $ 24,437,000 . Debt issuance costs are amortized through June 1, 2026 as an adjustment of the effective interest rate. Amortization of debt issuance costs associated with the Subordinated Notes totaling $ 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, December 31, ​ ​ 2022 ​ 2021 Agreements with an aggregate par value of $ 6,500,000 ; bearing interest at 6.50 %; maturing in April 2027 and redeemed at par in April 2022 ​ $ 0 ​ $ 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 redeemed at par in June 2022 ​ ​ 0 ​ ​ 2,008 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 ​ ​ 24,580 ​ ​ 24,501 Total carrying value ​ $ 24,580 ​ $ 33,009 ​ ​ ​ 30 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q 9. STOCK-BASED COMPENSATION PLANS The Corporation has a Stock Incentive Plan for a selected group of officers and an Independent Directors Stock Incentive Plan. The 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 . 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) ​ Aggregate ​ ​ ​ ​ Grant ​ ​ ​ ​ Date ​ ​ Number of ​ Fair ​ ​ Shares ​ Value 1st quarter 2022 awards: ​ ​ ​ ​ ​ Time-based awards to independent directors ​ 9,588 ​ $ 240 Time-based awards to employees ​ 51,638 ​ ​ 1,293 Performance-based awards to employees ​ 17,017 ​ ​ 426 Total ​ 78,243 ​ $ 1,959 ​ 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 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. ​ 10. CONTINGENCIES 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. 11. 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 $ 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. 31 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q The table below presents the fair value of the Corporation’s derivative financial instruments as well as their classification on the consolidated balance sheets at September 30, 2022 and December 31, 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) At June 30, 2022 ​ At December 31, 2021 ​ 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 $ 55,682 ​ $ 3,795 ​ $ 55,682 ​ $ 3,795 ​ $ 61,547 ​ $ 3,104 ​ $ 61,547 ​ $ 3,104 ​ (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 $ 2,242,000 were pledged as collateral against the Corporation’s obligations related to the interest rate swaps at September 30, 2022. 12. FAIR VALUE MEASUREMENTS AND FAIR VALUES OF FINANCIAL INSTRUMENTS The Corporation measures certain assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB topic 820, “Fair Value Measurements and Disclosures” establishes a framework for measuring fair value that includes a hierarchy used to classify the inputs used in measuring fair value. The hierarchy prioritizes the inputs used in determining valuations into three levels. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The levels of the fair value hierarchy are as follows: Level 1 – Fair value is based on unadjusted quoted prices in active markets that are accessible to the Corporation for identical assets or liabilities. These generally provide the most reliable evidence and are used to measure fair value whenever available. Level 2 – Fair value is based on significant inputs, other than Level 1 inputs, that are observable either directly or indirectly for substantially the full term of the asset or liability through corroboration with observable market data. Level 2 inputs include quoted market prices in active markets for similar assets or liabilities, quoted market prices in markets that are not active for identical or similar assets or liabilities and other observable inputs. Level 3 – Fair value is based on significant unobservable inputs. Examples of valuation methodologies that would result in Level 3 classification include option pricing models, discounted cash flows and other similar techniques. The Corporation monitors and evaluates available data relating to fair value measurements on an ongoing basis and recognizes transfers among the levels of the fair value hierarchy as of the date of an event or change in circumstances that affects the valuation method chosen. Examples of such changes may include the market for a particular asset or liability becoming active or inactive, changes in the availability of quoted prices, or changes in the availability of other market data. 32 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q 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 ​ 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 ​ $ 31,599 ​ $ 0 ​ $ 0 ​ $ 31,599 Obligations of U.S. Government agencies ​ ​ 0 ​ ​ 21,389 ​ ​ 0 ​ ​ 21,389 Bank holding company debt securities ​ ​ 0 ​ ​ 25,432 ​ ​ 0 ​ ​ 25,432 Obligations of states and political subdivisions: ​ ​ ​ ​ ​ ​ Tax-exempt ​ 0 ​ 126,710 ​ 0 ​ 126,710 Taxable ​ 0 ​ 58,317 ​ 0 ​ 58,317 Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies: ​ ​ ​ ​ Residential pass-through securities ​ 0 ​ 102,739 ​ 0 ​ 102,739 Residential collateralized mortgage obligations ​ 0 ​ 39,632 ​ 0 ​ 39,632 Commercial mortgage-backed securities ​ 0 ​ 77,383 ​ 0 ​ 77,383 Private label commercial mortgage-backed securities ​ 0 ​ 4,779 ​ 0 ​ 4,779 Total available-for-sale debt securities ​ 31,599 ​ 456,381 ​ 0 ​ 487,980 Marketable equity security ​ 857 ​ 0 ​ 0 ​ 857 Servicing rights ​ 0 ​ 0 ​ 2,649 ​ 2,649 Interest rate swap agreements, assets ​ ​ 0 ​ ​ 3,795 ​ ​ 0 ​ ​ 3,795 Total recurring fair value measurements, assets ​ $ 32,456 ​ $ 460,176 ​ $ 2,649 ​ $ 495,281 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Recurring fair value measurements, liabilities, ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest rate swap agreements, liabilities ​ $ 0 ​ $ 3,795 ​ $ 0 ​ $ 3,795 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nonrecurring fair value measurements, assets: ​ ​ ​ ​ Impaired loans, net ​ $ 0 ​ $ 0 ​ $ 2,969 ​ $ 2,969 Foreclosed assets held for sale ​ 0 ​ 0 ​ 454 ​ 454 Total nonrecurring fair value measurements, assets ​ $ 0 ​ $ 0 ​ $ 3,423 ​ $ 3,423 ​ 33 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 ​ 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. 34 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q 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 ​ ​ ​ 9/30/2022 ​ Valuation ​ Unobservable ​ ​ ​ ​ Method or Value As of Asset ​ (In Thousands) ​ Technique ​ Input(s) ​ ​ ​ ​ 9/30/2022 Servicing rights ​ $ 2,649 Discounted cash flow Discount rate ​ 13.00 % Rate used through modeling period ​ ​ ​ ​ ​ Loan prepayment speeds ​ ​ 141.00 % 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 ​ ​ ​ 12/31/2021 ​ 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 ​ The fair value of servicing rights is affected by expected future interest rates. Increases (decreases) in future expected interest rates tend to increase (decrease) the fair value of the Corporation’s servicing rights because of changes in expected prepayment behavior by the borrowers on the underlying loans. Unrealized gains (losses) in fair value of servicing rights are included in Loan servicing fees, net, in the unaudited consolidated statements of income. Following is a reconciliation of activity for Level 3 assets measured at fair value on a recurring basis: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) ​ Three Months Ended ​ Nine Months Ended ​ September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021 Servicing rights balance, beginning of period ​ $ 2,640 ​ $ 2,116 ​ $ 2,329 ​ $ 1,689 Originations of servicing rights ​ 33 ​ 176 ​ 192 ​ 567 Unrealized (loss) gain included in earnings ​ ( 24 ) ​ ( 45 ) ​ 128 ​ ( 9 ) Servicing rights balance, end of period ​ $ 2,649 ​ $ 2,247 ​ $ 2,649 ​ $ 2,247 ​ ​ 35 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q 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 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) ​ ​ ​ ​ Weighted ​ ​ ​ ​ ​ Valuation ​ ​ ​ ​ ​ Average ​ ​ Balance at ​ Allowance at ​ Fair Value at ​ Valuation ​ Unobservable ​ Discount at Asset ​ 9/30/2022 ​ 9/30/2022 ​ 9/30/2022 ​ Technique ​ Inputs ​ 9/30/2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Impaired loans: ​ ​ ​ ​ Commercial: ​ ​ ​ ​ ​ ​ ​ Commercial loans secured by real estate ​ $ 3,396 ​ $ 427 ​ $ 2,969 Sales comparison Discount to appraised value 25 % Total impaired loans ​ $ 3,396 ​ $ 427 ​ $ 2,969 ​ Foreclosed assets held for sale - real estate: ​ ​ ​ ​ ​ Commercial real estate ​ $ 275 ​ $ 0 ​ $ 275 Sales comparison Discount to appraised value 50 % Residential (1-4 family) ​ ​ 179 ​ ​ 0 ​ ​ 179 Sales comparison Discount to appraised value 52 % Total foreclosed assets held for sale ​ $ 454 ​ $ 0 ​ $ 454 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (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 ​ ​ ​ 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. 36 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q The estimated fair values, and related carrying amounts, of the Corporation’s financial instruments that are not recorded at fair value are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) ​ Fair Value ​ September 30, 2022 ​ December 31, 2021 ​ ​ Hierarchy ​ Carrying ​ Fair ​ Carrying ​ Fair ​ Level Amount Value Amount Value Financial assets: ​ ​ ​ ​ Cash and cash equivalents Level 1 ​ $ 55,444 ​ $ 55,444 ​ $ 95,848 ​ $ 95,848 Certificates of deposit Level 2 ​ 8,600 ​ 8,184 ​ 9,100 ​ 9,142 Restricted equity securities (included in Other Assets) Level 2 ​ 10,807 ​ 10,807 ​ 9,562 ​ 9,562 Loans, net Level 3 ​ 1,674,076 ​ 1,643,468 ​ 1,551,312 ​ 1,573,955 Accrued interest receivable Level 2 ​ 8,425 ​ 8,425 ​ 7,235 ​ 7,235 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Financial liabilities: ​ ​ ​ ​ Deposits with no stated maturity Level 2 ​ 1,745,817 ​ 1,745,817 ​ 1,639,167 ​ 1,639,167 Time deposits Level 2 ​ 293,778 ​ 292,703 ​ 285,893 ​ 286,962 Short-term borrowings Level 2 ​ 2,457 ​ 1,849 ​ 1,803 ​ 1,603 Long-term borrowings Level 2 ​ 55,463 ​ 54,129 ​ 28,042 ​ 28,347 Senior debt ​ Level 2 ​ ​ 14,749 ​ ​ 10,492 ​ ​ 14,701 ​ ​ 15,016 Subordinated debt ​ Level 2 ​ ​ 24,580 ​ ​ 17,567 ​ ​ 33,009 ​ ​ 33,171 Accrued interest payable Level 2 ​ 635 ​ 635 ​ 205 ​ 205 ​ The Corporation has commitments to extend credit and has issued standby letters of credit. Standby letters of credit are conditional guarantees of performance by a customer to a third party. Estimates of the fair value of these off-balance sheet items were not made because of the short-term nature of these arrangements and the credit standing of the counterparties. ​ ​ ​ 37 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q