What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-05-05 compared with 2022-11-07 · 411 added, 547 removed, 692 unchanged (58% of the section changed)

2 unchanged sentences

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

September 30,

Cash and due from banks:

4 unchanged sentences

Loans receivable

Allowance for loan losses

Allowance for credit losses on loans

Bank-owned life insurance

21 unchanged sentences

authorized 30,000,000 shares;

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

issued 16,030,172 and outstanding 15,485,035 at March 31, 2023;

issued 16,030,172 and outstanding 15,518,819 at December 31, 2022

2 unchanged sentences

Treasury stock, at cost;

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

545,137 shares at March 31, 2023 and 511,353

shares at December 31, 2022

Accumulated other comprehensive (loss) income

Accumulated other comprehensive loss

TOTAL STOCKHOLDERS' EQUITY

5 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

INTEREST INCOME

11 unchanged sentences

Net interest income

Provision for loan losses

Net interest income after provision for loan losses

(Credit) provision for credit losses

Net interest income after (credit) provision for credit losses

NONINTEREST INCOME

24 unchanged sentences

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Consolidated Statements of Comprehensive (Loss) Income

Consolidated Statements of Comprehensive Income (Loss)

(In Thousands) (Unaudited)

Three Months Ended

Nine Months Ended

September 30,

Available-for-sale debt securities:

Unrealized holding losses on available-for-sale debt securities

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

Reclassification adjustment for gains realized in income

Other comprehensive loss on available-for-sale debt securities

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

Unfunded pension and postretirement obligations:

2 unchanged sentences

Other comprehensive (loss) income on pension and postretirement obligations

Other comprehensive loss before income tax

Income tax related to other comprehensive loss

Net other comprehensive loss

Comprehensive (loss) income

Other comprehensive income (loss) before income tax

Income tax related to other comprehensive (income) loss

Net other comprehensive income (loss)

Comprehensive income (loss)

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

2 unchanged sentences

(In Thousands) (Unaudited)

Nine Months Ended

September 30,

Three Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

Adjustments to reconcile net income to net cash provided by operating activities:

Provision for loan losses

(Credit) provision for credit losses

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

5 unchanged sentences

Deferred income taxes

(Increase) decrease in fair value of servicing rights

Decrease (increase) in fair value of servicing rights

Gains on sales of loans, net

1 unchanged sentence

Proceeds from sales of loans held for sale

(Increase) decrease in accrued interest receivable and other assets

Decrease in accrued interest payable and other liabilities

Increase in accrued interest receivable and other assets

Increase (decrease) in accrued interest payable and other liabilities

Net Cash Provided by Operating Activities

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of certificates of deposit

Proceeds from maturities of certificates of deposit

5 unchanged sentences

Net (increase) decrease in loans

Proceeds from bank owned life insurance

Proceeds from sales of premises and equipment

Purchase of premises and equipment

Proceeds from sale of foreclosed assets

Net Cash Used in Investing Activities

Net Cash Provided by (Used in) Investing Activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Net increase in deposits

Net increase (decrease) in short-term borrowings

Net (decrease) increase in deposits

Net increase in short-term borrowings

Proceeds from long-term borrowings - FHLB advances

Repayments of long-term borrowings - FHLB advances

Proceeds from issuance of senior notes, net of issuance costs

Proceeds from issuance of subordinated debt, net of issuance costs

Redemption of subordinated debt

Sale of treasury stock

1 unchanged sentence

Common dividends paid

Net Cash Provided by Financing Activities

Net Cash (Used in) Provided by Financing Activities

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

2 unchanged sentences

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

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

(Decrease) increase in accrued purchase of available-for-sale debt securities

Assets acquired through foreclosure of real estate loans

Leased assets obtained in exchange for new operating lease liabilities

Interest paid

5 unchanged sentences

Comprehensive

Three Months Ended September 30, 2022

(Loss) Income

Balance, June 30, 2022

Other comprehensive loss, net

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

Shares issued for dividend reinvestment plan

Forfeiture of restricted stock

Stock-based compensation expense

Purchase of restricted stock for tax withholding

Treasury stock purchases

Balance, September 30, 2022

Three Months Ended September 30, 2021

Balance, June 30, 2021

Other comprehensive loss, net

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

Shares issued for dividend reinvestment plan

Shares issued from treasury related to exercise of stock options

Stock-based compensation expense

Purchase of restricted stock for tax withholding

Treasury stock purchases

Balance, September 30, 2021

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Consolidated Statements of Changes in Stockholders’ Equity

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

Comprehensive

Nine Months Ended September 30, 2022

Three Months Ended March 31, 2023

(Loss) Income

Balance, December 31, 2022

Other comprehensive loss, net

Adoption of ASU 2016-13 (CECL)

Other comprehensive income, net

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

Shares issued for dividend reinvestment plan

Shares issued from treasury related to exercise of stock options

Restricted stock granted

3 unchanged sentences

Treasury stock purchases

Balance, September 30, 2022

Nine Months Ended September 30, 2021

Balance, March 31, 2023

Three Months Ended March 31, 2022

Balance, December 31, 2021

8 unchanged sentences

Treasury stock purchases

Balance, September 30, 2021

Balance, March 31, 2022

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

10 unchanged sentences

GAAP”) for a complete set of financial statements.

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

Certain 2022 information has been reclassified for consistency with the 2023 presentation.

Operating results reported for the three-month period ended March 31, 2023 might not be indicative of the results for the year ending December 31, 2023.

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

1 unchanged sentence

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

On January 1, 2023, the Corporation adopted ASU 2016-13 Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (ASC 326).

This standard replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology.

CECL requires an estimate of credit losses for the remaining estimated life of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts and generally applies to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities, and some off-balance sheet credit exposures such as unfunded commitments to extend credit.

Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses.

Purchased credit deteriorated (“PCD”) loans will receive an initial allowance at the acquisition date that represents an adjustment to the amortized cost basis of the loan, with no impact to earnings.

In addition, CECL made changes to the accounting for available for sale debt securities.

One such change is to require credit losses to be presented as an allowance rather than as a write-down on available for sale debt securities if management does not intend to sell and does not believe that it is more likely than not, they will be required to sell.

The Corporation adopted ASC 326 using the prospective transition approach for debt securities for which other-than-temporary impairment had been recognized prior to January 1, 2023.

As of December 31, 2022, the Company did not have any other-than-temporarily impaired investment securities.

Therefore, upon adoption of ASC 326, the Company determined that an allowance for credit losses on available for sale debt securities was not necessary.

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.

Effective January 1, 2023, the Corporation adopted ASC 326 using the modified retrospective approach for all financial assets measured at amortized cost and off-balance sheet credit exposures.

Results for reporting periods beginning after January 1, 2023 are presented under CECL while prior period amounts continue to be reported in accordance with previously applicable accounting standards (“Incurred Loss”).

The following table illustrates the impact on the allowance for credit losses from the adoption of ASC 326:

(In Thousands)

January 1, 2023

December 31, 2022

Loans receivable

Allowance for credit losses on loans

Allowance for credit losses on off-balance sheet exposures (included in accrued interest and other liabilities)

Deferred tax asset, net

Retained earnings

The Corporation adopted ASC 326 using the prospective transition approach for PCD assets that were previously classified as purchased credit impaired (“PCI”) under ASC 310-30.

In accordance with the standard, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption.

On January 1, 2023, the amortized cost basis of PCD assets was adjusted to establish the allowance for credit losses.

Essentially all of the PCD loans were reported as nonaccrual loans at January 1, 2023 and March 31, 2023.

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.

This update reduces the complexity of accounting for Troubled Debt Restructurings (“TDRs”) by eliminating certain accounting guidance, enhancing disclosures and improving the consistency of vintage disclosures.

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

Changes in disclosure requirements in accordance with ASU 2022-02 are reflected in Note 6.

The adoption of ASU 2022-02 did not have a material impact on the consolidated financial statements.

Accounting Policies

The Corporation’s significant accounting policies followed in the preparation of the unaudited consolidated financial statements are disclosed in Note 1 of the audited consolidated financial statements and notes for the year ended December 31, 2022 and are contained in the Corporation’s Annual Report on Form 10-K.

There have been no significant changes to the application of significant accounting policies since December 31, 2022, except for the following:

Allowance for Credit Losses – Available-for-Sale Debt Securities

For available-for-sale debt securities, management evaluates all investments in an unrealized loss position on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation.

If the Corporation has the intent to sell the security or it is more likely than not that the Corporation will be required to sell the security, the security is written down to fair value and the entire loss is recorded in earnings.

If either of the above criteria is not met, the Corporation evaluates whether the decline in fair value is the result of credit losses or other factors.

The Corporation has elected the practical expedient of zero credit loss estimates for securities issued or guaranteed by U.S.

Government entities or agencies.

In making the credit loss assessment of securities not issued or guaranteed by U.S.

Government entities or agencies, the Corporation may consider various factors including the extent to which fair value is less than amortized cost, performance on any underlying collateral, downgrades in the ratings of the security by a rating agency, the failure of the issuer to make scheduled interest or principal payments and adverse conditions specifically related to the security.

If the assessment indicates that a credit loss exists, the present value of cash flows expected to be collected are compared to the amortized cost basis of the security and any excess is recorded as an allowance for credit loss, limited by the amount that the fair value is less than the amortized cost basis.

Any amount of unrealized loss that has not been recorded through an allowance for credit loss is recognized in other comprehensive income.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense.

Losses are charged against the allowance for credit losses when management believes an available-for-sale debt security is confirmed to be uncollectible or when either of the criteria regarding intent or requirement to sell is met.

At March 31, 2023, there was no allowance for credit losses related to the available-for-sale portfolio.

Accrued interest receivable on available-for-sale debt securities totaled $ 2,659,000 at March 31, 2023 and was excluded from the estimate of credit losses.

Allowance for Credit Losses on Loans

The allowance for credit losses is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans.

Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed.

Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

The allowance for credit losses represents management’s estimate of lifetime credit losses inherent in loans as of the balance sheet date.

The allowance for credit losses is estimated by management using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.

Accrued interest receivable on loans totaled $ 6,109,000 at March 31, 2023 and was excluded from the estimate of credit losses.

The allowance for credit losses (“ACL”) includes two primary components:

(i) an allowance established on loans which share similar risk characteristics collectively evaluated for credit losses (collective basis), and (ii) an allowance established on loans which do not share similar risk characteristics with any loan segment and which are individually evaluated for credit losses (individual basis).

Evaluation of Expected Losses on Individual Loans

Loans evaluated on an individual basis are identified based on a detailed assessment of certain larger loan relationships, and their related credit risk ratings, by a management committee referred to as the Watch List Committee.

The allowance will be determined on an individual basis using the present value of expected cash flows or, for collateral-dependent loans, the fair value of the collateral as of the reporting date, less estimated selling costs, as applicable.

If the fair value of the collateral is less than the amortized cost basis of the loan, the Corporation will charge off the difference between the fair value of the collateral, less costs to sell at the reporting date and the amortized cost basis of the loan.

The scope of loans reviewed individually for credit loss each quarter includes all commercial loan relationships greater than $ 200,000 and any residential mortgage or consumer loans of $ 400,000 or more for which there is at least one extension of credit graded Special Mention, Substandard or Doubtful.

Additionally, all PCD loans are evaluated individually for credit loss.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Collective Evaluation of Expected Losses – Pool Basis

The Corporation measures expected credit losses for loans on a pooled basis when similar risk characteristics exist.

The Corporation has identified the following portfolio segments and calculates the allowance for credit losses for each using the weighted-average remaining maturity (“WARM”) method:

Commercial real estate - nonowner occupied, further broken down into the following classes:

Nonowner occupied

Multi-family (5 or more) residential

1-4 Family - commercial purpose

Commercial real estate - owner occupied

All other commercial loans, further broken down into the following classes:

Commercial and industrial

Commercial lines of credit

Political subdivisions

Commercial construction and land

Other commercial loans

Residential mortgage loans, further broken down into the following classes:

1-4 Family – residential

1-4 Family residential construction

Consumer loans, further broken down into the following classes:

Consumer lines of credit (including HELOCs)

All other consumer

In determining the pools for collective evaluation, management used a combination of loan purpose, collateral and payment type (for example, lines of credit vs.

The pools identified are similar to the loan classes used in the Corporation’s financial reporting for several years, with several exceptions including the following which are of the most significance:

● Commercial real estate secured loans are broken out between non-owner occupied and owner-occupied

● Loans secured by 1-4 family residential mortgages are broken out between consumer-purpose and commercial-purpose

● Commercial lines of credit are broken out as an individual category

Each of these changes was made to better sort loans into pools with similar risk and cash flow characteristics.

Estimation Method - WARM (Weighted-Average Remaining Maturity Method)

In applying the WARM method, for each pool identified above, the Corporation determined the annual net charge-offs as a percentage of average total loan balances (net charge-off percentage).

In the January 1, 2023 calculation, the Corporation used the annualized net charge-off percentage over the prior 5 calendar years.

In the March 31, 2023 calculation, the Corporation used the net charge-off percentage for the 5.25 -year period ended March 31, 2023.

For each loan pool, the average annualized net charge-off percentage was multiplied by the estimated weighted-average remaining average life of the loans to calculate the loss rate.

The calculation of the estimated weighted-average remaining life of each loan pool was based on instrument-level data, with contractual principal payments adjusted for the estimated impact of prepayments.

Commercial lines of credit and other revolving credit facilities were generally assumed to repay after 1 year.

The estimated weighted-average remaining life of the entire portfolio was calculated to be 4.31 years at March 31, 2023 and 4.36 years at January 1, 2023.

Management determined that use of the Corporation’s net charge-off experience over a 5.25 -year period at March 31, 2023 and 5-year period at January 1, 2023 would provide a reasonable time period to include in the WARM expected loss rate calculations in relationship to the weighted-average life of the portfolio overall and to each of the pools.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Qualitative Factors

The allowance for credit losses calculation includes subjective adjustments for qualitative risk factors that are deemed likely to cause estimated credit losses to differ from historical experience.

These qualitative adjustments generally increase allowance levels and include adjustments for factors deemed relevant, including:

the nature and volume of portfolio changes, including loan portfolio growth;

concentrations of credit based on loan type (such as non-owner occupied commercial real estate) or industry;

the volume and severity of past due, nonaccrual or adversely classified loans;

trends in real estate or other collateral values;

lending policies and procedures, including changes in underwriting and collections practices;

credit review function;

lending, credit and other relevant management experience and risk tolerance;

external factors and economic conditions not already captured.

Economic Forecast

ASC Topic 326 requires management to consider forward-looking information that is both reasonable and supportable and relevant to the collectability of cash flows.

Reasonable and supportable forecasts may extend over the entire contractual term of a financial asset or a period shorter than the contractual term.

In that regard, management has selected a forecast period of 2 years, which is shorter than the estimated weighted-average remaining life of the loan portfolio.

The Corporation calculated an additional expected credit loss based on establishing a correlation between past loss experience and an economic statistic.

This additional credit loss is added to the allowance calculation, conceptually for the first 2 years of the weighted-average remaining life of the portfolio after which time the credit loss for each pool is determined based on the WARM historical loss rate as adjusted for qualitative factors.

Allowance for Credit Losses on Off-Balance Sheet Exposures

Financial instruments include off-balance sheet credit instruments, such as commitments to make loans, commercial letters of credit and credit enhancement obligations related to residential mortgage loans sold with recourse.

The Corporation’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments.

Such financial instruments are recorded when they are funded.

The Corporation records an allowance for credit losses on off-balance sheet credit exposures, unless the commitments to extend credit are unconditionally cancelable, through a charge to provision for unfunded commitments in the Corporation’s statements of income.

The allowance for credit losses on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date under the current expected credit loss model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur as well as any third-party guarantees.

The allowance for off-balance sheet exposures is included in accrued interest and other liabilities in the Corporation’s unaudited consolidated balance sheets and the related credit expense is recorded in the (credit) provision for credit losses in the unaudited consolidated statements of income.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

PER SHARE DATA

7 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Dividends and undistributed earnings allocated to participating securities

10 unchanged sentences

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.

There were no anti-dilutive instruments in the three-month periods ended March 31, 2023 and 2022.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

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)

Three Months Ended September 30, 2022

Available-for-sale debt securities:

Unrealized holding losses on available-for-sale debt securities

Reclassification adjustment for (gains) realized in income

Other comprehensive loss from available-for-sale debt securities

Unfunded pension and postretirement obligations,

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

Total other comprehensive loss

(In Thousands)

Three Months Ended September 30, 2021

Available-for-sale debt securities:

Unrealized holding losses on available-for-sale debt securities

Reclassification adjustment for (gains) realized in income

Other comprehensive loss from available-for-sale debt securities

Unfunded pension and postretirement obligations,

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

Total other comprehensive loss

COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) is the total of (1) net income, and (2) all other changes in equity from non-stockholder sources, which are referred to as other comprehensive income (loss).

The components of other comprehensive income (loss), and the related tax effects, are as follows:

(In Thousands)

Nine Months Ended September 30, 2022

Three Months Ended March 31, 2023

Available-for-sale debt securities:

Unrealized holding losses on available-for-sale debt securities

Unrealized holding gains on available-for-sale debt securities

Reclassification adjustment for (gains) realized in income

Other comprehensive loss from available-for-sale debt securities

Other comprehensive income from available-for-sale debt securities

Unfunded pension and postretirement obligations:

1 unchanged sentence

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

Other comprehensive income on unfunded retirement obligations

Total other comprehensive loss

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Other comprehensive loss on unfunded retirement obligations

Total other comprehensive income

(In Thousands)

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

Available-for-sale debt securities:

5 unchanged sentences

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

Other comprehensive loss on unfunded retirement obligations

Other comprehensive income on unfunded retirement obligations

Total other comprehensive loss

8 unchanged sentences

Income tax provision

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Changes in the components of accumulated other comprehensive (loss) income are as follows and are presented net of tax:

3 unchanged sentences

(Loss) Income

Three Months Ended September 30, 2022

Balance, beginning of period

Other comprehensive loss during three months ended September 30, 2022

Balance, end of period

Three Months Ended September 30, 2021

Balance, beginning of period

Other comprehensive loss during three months ended September 30, 2021

Balance, end of period

(In Thousands)

Comprehensive

on Securities

(Loss) Income

Nine Months Ended September 30, 2022

Three Months Ended March 31, 2023

Balance, beginning of period

Other comprehensive loss during nine months ended September 30, 2022

Other comprehensive income during three months ended March 31, 2023

Balance, end of period

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

Balance, beginning of period

Other comprehensive loss during nine months ended September 30, 2021

Other comprehensive loss during three months ended March 31, 2022

Balance, end of period

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

CASH AND DUE FROM BANKS

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

Cash and due from banks at March 31, 2023 and December 31, 2022 include the following:

(In Thousands)

September 30,

Cash and cash equivalents

5 unchanged sentences

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.

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

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

Amortized cost and fair value of available-for-sale debt securities at March 31, 2023 and December 31, 2022 are summarized as follows:

(In Thousands)

September 30, 2022

March 31, 2023

Obligations of the U.S.

23 unchanged sentences

Commercial mortgage-backed securities

Private label commercial mortgage-backed securities

Total available-for-sale debt securities

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

The following table presents gross unrealized losses and fair value of available-for-sale debt securities with unrealized loss positions aggregated by length of time that individual securities have been in a continuous unrealized loss position at March 31, 2023 and December 31, 2022:

March 31, 2023

Less Than 12 Months

28 unchanged sentences

Commercial mortgage-backed securities

Private label commercial mortgage-backed securities

Total temporarily impaired available-for-sale debt securities

2 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Gross realized gains from sales

1 unchanged sentence

Net realized gains

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

The amortized cost and fair value of available-for-sale debt securities by contractual maturity are shown in the following table as of March 31, 2023.

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

March 31, 2023

Due in one year or less

11 unchanged sentences

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.

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.

Investment securities carried at $ 245,374,000 at March 31, 2023 and $ 277,302,000 at December 31, 2022 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.

A summary of information management considered in evaluating debt and equity securities for credit losses at March 31, 2023 and December 31, 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.

As reflected in the table above, gross unrealized holding losses on available-for-sale debt securities totaled $ 55,125,000 at March 31, 2023 and $ 64,082,000 at December 31, 2022.

At March 31, 2023, the Corporation does not have the intent to sell, nor is it more likely than not it will be required to sell, these securities before it is able to recover the amortized cost basis.

The unrealized holding losses were consistent with significant increases in market interest rates that occurred in 2022.

At March 31, 2023 and December 31, 2022, management performed an assessment for possible credit losses of the Corporation’s debt securities on an issue-by-issue basis, relying on information obtained from various sources, including publicly available financial data, ratings by external agencies, brokers and other sources.

At March 31, 2023 and December 31, 2022, all of the Corporation’s holdings of bank holding company debt securities, obligations of states and political subdivisions and private label commercial mortgage-backed securities were investment grade and there have been no payment defaults.

Based on the results of the assessment, there was no ACL required on available-for-sale debt securities in an unrealized loss position at March 31, 2023 and December 31, 2022.

Equity Securities

2 unchanged sentences

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

C&N Bank’s investment in FHLB-Pittsburgh stock, included in other assets in the consolidated balance sheets, was $ 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.

C&N Bank’s investment in FHLB-Pittsburgh stock, included in other assets in the consolidated balance sheets, was $ 15,996,000 at March 31, 2023 and $ 14,168,000 at December 31, 2022.

The Corporation evaluated its holding of FHLB-Pittsburgh stock for impairment and deemed the stock to not be impaired at March 31, 2023 and December 31, 2022.

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.

The Corporation has a marketable equity security included in other assets in the consolidated balance sheets with a carrying value of $ 873,000 at March 31, 2023 and $ 859,000 at December 31, 2022, consisting exclusively of one mutual fund.

There was an unrealized loss on the mutual fund of $ 127,000 at March 31, 2023 and $ 141,000 at December 31, 2022.

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

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

LOANS AND ALLOWANCE FOR CREDIT LOSSES

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:

Loans outstanding at March 31, 2023 and December 31, 2022 are summarized by segment, and by classes within each segment, as follows:

Summary of Loans by Type

(In Thousands)

September 30,

Commercial loans secured by real estate

Commercial and industrial

Paycheck Protection Program - 1st Draw

Paycheck Protection Program - 2nd Draw

Political subdivisions

Commercial construction and land

Loans secured by farmland

Multi-family (5 or more) residential

Agricultural loans

Other commercial loans

Total commercial

Residential mortgage:

Residential mortgage loans - first liens

Residential mortgage loans - junior liens

Home equity lines of credit

1-4 Family residential construction

Total residential mortgage

allowance for loan losses

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.

Commercial real estate - nonowner occupied

Commercial real estate - owner occupied

All other commercial loans

Residential mortgage loans

Consumer loans

allowance for credit losses on loans

(1) Total loans at December 31, 2022 include purchased credit impaired loans of $ 1,027,000 .

In the table above, outstanding loan balances are presented net of deferred loan origination fees, net, of $ 4,506,000 at March 31, 2023 and $ 4,725,000 at December 31, 2022.

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

1 unchanged sentence

Although the Corporation has a diversified loan portfolio, a significant portion of its debtors’ ability to honor their contracts is dependent on the local economic conditions within the region.

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.

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:

For the three-month periods ended March 31, 2023 and 2022, 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,

Market Rate Adjustment

Adjustments to gross amortized cost of loans at beginning of period

Accretion (amortization) recognized in interest income

Amortization recognized in interest income

Adjustments to gross amortized cost of loans at end of period

3 unchanged sentences

Adjustments to gross amortized cost of loans at end of period

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

(In Thousands)

September 30,

Outstanding balance

Carrying amount

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

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)

Provision (Credit)

Allowance for Loan Losses:

Commercial loans secured by real estate

Commercial and industrial

Commercial construction and land

Loans secured by farmland

Multi-family (5 or more) residential

Agricultural loans

Other commercial loans

Total commercial

Residential mortgage:

Residential mortgage loans - first liens

Residential mortgage loans - junior liens

Home equity lines of credit

1-4 Family residential construction

Total residential mortgage

Total Allowance for Loan Losses

Three Months Ended September 30, 2021

June 30, 2021

September 30, 2021

(In Thousands)

Provision (Credit)

Allowance for Loan Losses:

Commercial loans secured by real estate

Commercial and industrial

Commercial construction and land

Loans secured by farmland

Multi-family (5 or more) residential

Agricultural loans

Other commercial loans

Total commercial

Residential mortgage:

Residential mortgage loans - first liens

Residential mortgage loans - junior liens

Home equity lines of credit

1-4 Family residential construction

Total residential mortgage

Total Allowance for Loan Losses

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

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

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

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

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

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

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

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

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

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

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

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

September 30,

Nine Months Ended September 30, 2022

The following table presents an analysis of past due loans as of March 31, 2023:

(In Thousands)

Allowance for Loan Losses:

Commercial loans secured by real estate

Commercial and industrial

Commercial construction and land

Loans secured by farmland

Multi-family (5 or more) residential

Agricultural loans

Other commercial loans

Total commercial

Residential mortgage:

Residential mortgage loans - first liens

Residential mortgage loans - junior liens

Home equity lines of credit

1-4 Family residential construction

Total residential mortgage

Total Allowance for Loan Losses

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

September 30,

Nine Months Ended September 30, 2021

As of March 31, 2023

Commercial real estate - nonowner occupied

Commercial real estate - owner occupied

All other commercial loans

Residential mortgage loans

Consumer loans

The following table presents an analysis of past due loans as of December 31, 2022:

(In Thousands)

Allowance for Loan Losses:

Commercial loans secured by real estate

Commercial and industrial

Commercial construction and land

Loans secured by farmland

Multi-family (5 or more) residential

Agricultural loans

Other commercial loans

Total commercial

Residential mortgage:

Residential mortgage loans - first liens

Residential mortgage loans - junior liens

Home equity lines of credit

1-4 Family residential construction

Total residential mortgage

Total Allowance for Loan Losses

For the 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.

As of December 31, 2022

Commercial real estate - nonowner occupied

Commercial real estate - owner occupied

All other commercial loans

Residential mortgage loans

Consumer loans

Purchased credit impaired

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

4 unchanged sentences

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.

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

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

The following table presents the recorded investment in loans by credit quality indicators by year of origination as of March 31, 2023:

(In Thousands)

Commercial loans secured by real estate

Commercial and Industrial

Paycheck Protection Program - 1st Draw

Paycheck Protection Program - 2nd Draw

Political subdivisions

Commercial construction and land

Loans secured by farmland

Multi-family (5 or more) residential

Agricultural loans

Other commercial loans

Total commercial

Residential Mortgage:

Residential mortgage loans - first liens

Residential mortgage loans - junior liens

Home equity lines of credit

1-4 Family residential construction

Total residential mortgage

Term Loans by Year of Origination

Commercial real estate - nonowner occupied

Special Mention

Total commercial real estate - nonowner occupied

Current period gross charge-offs

Commercial real estate - owner occupied

Special Mention

Total commercial real estate - owner occupied

Current period gross charge-offs

All other commercial loans

Special Mention

Total all other commercial loans

Current period gross charge-offs

Residential mortgage loans

Special Mention

Total residential mortgage loans

Current period gross charge-offs

Consumer loans

Special Mention

Total consumer loans

Current period gross charge-offs

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

The following table presents the recorded investment in loans by credit quality indicators as of December 31, 2022:

(In Thousands)

Commercial real estate - nonowner occupied

Commercial real estate - owner occupied

All other commercial loans

Residential mortgage loans

Consumer loans

Purchased credit impaired

The following table is a summary of the Corporation’s nonaccrual loans by major categories for the periods indicated.

March 31, 2023

December 31, 2022

Nonaccrual Loans with

Nonaccrual Loans

Total Nonaccrual

(In Thousands)

Commercial loans secured by real estate

Commercial and Industrial

Paycheck Protection Program - 1st Draw

Paycheck Protection Program - 2nd Draw

Political subdivisions

Commercial construction and land

Loans secured by farmland

Multi-family (5 or more) residential

Agricultural loans

Other commercial loans

Total commercial

Residential Mortgage:

Residential mortgage loans - first liens

Residential mortgage loans - junior liens

Home equity lines of credit

1-4 Family residential construction

Total residential mortgage

with an Allowance

Nonaccrual Loans

Commercial real estate - nonowner occupied

Commercial real estate - owner occupied

All other commercial loans

Residential mortgage loans

Consumer loans

Purchased credit impaired

The Corporation recognized $ 231,000 of interest income on nonaccrual loans during the three months ended March 31, 2023.

The following table represents the accrued interest receivable written off by reversing interest income during the three months ended March 31, 2023:

For the Three Months

(In Thousands)

Ended March 31, 2023

Commercial real estate - nonowner occupied

Residential mortgage loans

Consumer loans

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

Allowance for Loan Losses:

The Corporation has certain loans for which repayment is dependent upon the operation or sale of collateral, as the borrower is experiencing financial difficulty.

The underlying collateral can vary based upon the type of loan.

The following provides more detail about the types of collateral that secure collateral dependent loans:

● Commercial real estate loans can be secured by either owner occupied commercial real estate or non-owner occupied investment commercial real estate.

Typically, owner occupied commercial real estate loans are secured by office buildings, warehouses, manufacturing facilities and other commercial and industrial properties occupied by operating companies.

Non-owner occupied commercial real estate loans are generally secured by office buildings and complexes, retail facilities, multifamily complexes, land under development, industrial properties, as well as other commercial or industrial real estate.

● All other commercial loans are typically secured by business assets including inventory, equipment and receivables.

● Residential mortgage loans are typically secured by first mortgages, and in some cases could be secured by a second mortgage.

● Consumer loans are generally secured by automobiles, motorcycles, recreational vehicles and other personal property.

Some consumer loans are unsecured and have no underlying collateral.

The following table details the amortized cost of collateral dependent loans, which are individually evaluated to determine expected credit losses, and the related allowance for credit losses on loans allocated to these loans:

March 31, 2023

(In Thousands)

Commercial real estate - nonowner occupied

Commercial real estate - owner occupied

All other commercial loans

The following table summarizes the activity related to the allowance for credit losses for the three months ended March 31, 2023 under the CECL methodology.

real estate -

(In Thousands)

Balance, December 31, 2022

Adoption of ASU 2016-13 (CECL)

(Credit) provision for credit losses on loans

Balance, March 31, 2023

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Prior to the adoption of ASC 326 on January 1, 2023, the Corporation calculated the allowance for loan losses under the incurred loss methodology.

The following tables are disclosed related to the allowance for loan losses in prior periods.

Three Months Ended March 31, 2022

December 31, 2021

March 31, 2022

(In Thousands)

Provision (Credit)

Allowance for Loan Losses:

Commercial loans secured by real estate

Commercial and industrial

Paycheck Protection Program - 1st Draw

Paycheck Protection Program - 2nd Draw

Political subdivisions

Commercial construction and land

10 unchanged sentences

Total residential mortgage

Total Allowance for Loan Losses

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 December 31, 2022.

December 31, 2022

18 unchanged sentences

Total residential mortgage

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

Prior to the adoption of ASU 2016-13, loans were classified as impaired when, based on current information and events, it was probable that the Corporation would be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.

Factors considered by management in determining impairment included payment status, collateral value and the probability of collecting scheduled principal and interest payments when due.

Loans that experienced insignificant payment delays and payment shortfalls generally were not classified as impaired.

Management determined the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of shortfall in relation to the principal and interest owed.

Impairment was measured on a loan-by-loan basis for commercial loans by the fair value of the collateral (if the loan is collateral dependent), by future cash flows discounted at the loan’s effective rate or by the loan’s observable market price.

The scope of loans reviewed individually each quarter to determine if they were impaired included all commercial loan relationships greater than $ 200,000 and any residential mortgage or consumer loans of $ 400,000 or more for which there was at least one extension of credit graded Special Mention, Substandard or Doubtful.

All loans classified as troubled debt restructurings and all commercial loan relationships less than $ 200,000 or other loan relationships less than $ 400,000 in the aggregate, but with an estimated loss of $ 100,000 or more, were individually evaluated for impairment.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

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

(In Thousands)

September 30, 2022

December 31, 2022

8 unchanged sentences

Construction and other land loans

Multi-family (5 or more) residential

Total with no related allowance recorded

3 unchanged sentences

Total with a related allowance recorded

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)

Average Investment in

Interest Income Recognized on

Average Investment in Impaired Loans

Impaired Loans

Impaired Loans on a Cash Basis

Three Months Ended

Nine Months Ended

Three Months Ended

Nine Months Ended

September 30,

Commercial loans secured by real estate

10 unchanged sentences

Total residential mortgage

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

The breakdown by portfolio segment and class of nonaccrual loans and loans past due ninety days or more and still accruing is as follows:

(In Thousands)

September 30, 2022

December 31, 2021

Commercial loans secured by real estate

Commercial and industrial

Commercial construction and land

Loans secured by farmland

Multi-family (5 or more) residential

Agricultural loans

Total commercial

Residential mortgage:

Residential mortgage loans - first liens

Residential mortgage loans - junior liens

Home equity lines of credit

Total residential mortgage

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.

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

Commercial loans secured by real estate

Commercial and industrial

Paycheck Protection Program - 1st Draw

Paycheck Protection Program - 2nd Draw

Political subdivisions

Commercial construction and land

Loans secured by farmland

Multi-family (5 or more) residential

Agricultural loans

Other commercial loans

Total commercial

Residential mortgage:

Residential mortgage loans - first liens

Residential mortgage loans - junior liens

Home equity lines of credit

1-4 Family residential construction

Total residential mortgage

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)

September 30, 2022 Nonaccrual Totals

December 31, 2021 Nonaccrual Totals

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)

September 30, 2022 Totals

December 31, 2021 Totals

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

September 30, 2022

September 30, 2021

Home equity lines of credit,

Reduced monthly payments for an eighteen-month period

Nine Months Ended

(Balances in Thousands)

September 30, 2022

September 30, 2021

Residential mortgage - first liens:

Reduced monthly payments and extended maturity date

Reduced monthly payments for a fifteen-month period

Home equity lines of credit:

Reduced monthly payments and extended maturity date

Reduced monthly payments for an eighteen-month period

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

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

(Balances in Thousands)

Nine Months Ended

September 30, 2022

September 30, 2021

Commercial loans secured by real estate

The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon asset origination or acquisition.

The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty.

An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification.

Because the effect of most modifications made to borrowers experiencing financial difficulty, such as extensions of terms, insignificant payment delays and interest rate reductions, is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Occasionally, the Corporation modifies loans by providing principal forgiveness on certain of its real estate loans.

When principal forgiveness is provided, the amortized cost basis of the asset is written off against the allowance for credit losses.

The amount of the principal forgiveness is deemed to be uncollectible;

therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses.

There were no loans modified to borrowers experiencing financial difficulty in the first quarter 2023.

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,

Foreclosed residential real estate

1 unchanged sentence

(In Thousands)

September 30,

Residential real estate in process of foreclosure

The Corporation maintains an allowance for off-balance sheet credit exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, commercial letters of credit and credit enhancement obligations related to residential mortgage loans sold with recourse, when there is a contractual obligation to extend credit and when this extension of credit is not unconditionally cancellable (i.e.

commitment cannot be canceled at any time).

The allowance for off-balance sheet credit exposures is adjusted as a provision for credit loss expense.

The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over their estimated lives.

The allowance for credit losses for off-balance sheet exposures of $ 1,178,000 at March 31, 2023 and $ 425,000 at December 31, 2022, is included in accrued interest and other liabilities on the unaudited, consolidated balance sheets.

The following table presents the balance and activity in the allowance for credit losses for off-balance sheet exposures for the three months ended March 31, 2023.

Total Allowance for

Credit Losses -

(In Thousands)

Off-Balance Sheet Exposures

Balance, December 31, 2022

Adjustment to allowance for off-balance sheet exposures for adoption of ASU 2016-13

Credit for unfunded commitments

Balance, March 31, 2023

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

GOODWILL AND OTHER INTANGIBLE ASSETS

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

At March 31, 2023 and December 31, 2022, the net carrying value of goodwill was $ 52,505,000 .

Information related to core deposit intangibles is as follows:

(In Thousands)

September 30,

Accumulated amortization

2 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Amortization expense

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

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

BORROWED FUNDS

2 unchanged sentences

(In Thousands)

September 30,

FHLB-Pittsburgh borrowings

1 unchanged sentence

Total short-term borrowings

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

The Corporation had available credit with other correspondent banks totaling $ 95,000,000 at March 31, 2023 and December 31, 2022.

These lines of credit are primarily unsecured.

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

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

No amounts were outstanding at March 31, 2023 or December 31, 2022.

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 March 31, 2023, the Corporation had available credit in the amount of $ 22,340,000 on this line with no outstanding advances.

At December 31, 2022, the Corporation had available credit in the amount of $ 23,107,000 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.

As collateral for this line, the Corporation has pledged available-for-sale securities with a carrying value of $ 23,314,000 at March 31, 2023 and $ 24,113,000 at December 31, 2022.

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.

The weighted average rate paid by the Corporation on customer repurchase agreements was 0.10 % at March 31, 2023 and December 31, 2022.

The carrying value of the underlying securities was $ 2,410,000 at March 31, 2023 and $ 3,080,000 at December 31, 2022.

The FHLB-Pittsburgh loan facility is collateralized by qualifying loans secured by real estate with a book value totaling $ 1,244,696,000 at March 31, 2023 and $ 1,209,179,000 at December 31, 2022.

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 .

The carrying values of the Corporation’s holdings of FHLB-Pittsburgh stock (included in other assets in the consolidated balance sheets) were $ 15,996,000 at March 31, 2023 and $ 14,168,000 at December 31, 2022.

The Corporation’s total credit facility with FHLB-Pittsburgh was $ 856,934,000 at March 31, 2023, including an unused (available)

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

amount of $ 655,577,000 .

At December 31, 2022, the Corporation’s total credit facility with FHLB-Pittsburgh was $ 839,378,000 , including an unused (available) amount of $ 689,279,000 .

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

At March 31, 2023, the overnight borrowing from FHLB-Pittsburgh was $ 91,000,000 at an interest rate of 5.15 % with no other short-term advances.

At December 31, 2022, the overnight borrowing from FHLB-Pittsburgh was $ 77,000,000 at an interest rate of 4.45 % with no other short-term advances.

LONG-TERM BORROWINGS – FHLB ADVANCES

1 unchanged sentence

(In Thousands)

September 30,

Loan maturing in 2023 with a rate of 3.25 %

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

2 unchanged sentences

Loans maturing in 2027 with a weighted-average rate of 4.00 %

Loan maturing in 2028 with a rate of 3.72 %

Total long-term FHLB-Pittsburgh borrowings

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

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

Weighted-average rates are presented as of March 31, 2023.

In 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 %.

3 unchanged sentences

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

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

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

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

Amortization of debt issuance costs associated with the Senior Notes totaling $ 16,000 in the first quarter 2023 and $ 16,000 in the first quarter 2022, was included in interest expense in the unaudited consolidated statements of income.

At March 31, 2023 and December 31, 2022, outstanding Senior Notes are as follows:

(In Thousands)

September 30,

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

3 unchanged sentences

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").

In 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 .

2 unchanged sentences

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

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

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

4 unchanged sentences

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

Amortization of debt issuance costs associated with the Subordinated Notes totaling $ 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:

Amortization of debt issuance costs associated with the Subordinated Notes totaling $ 27,000 in the first quarter 2023 and $ 26,000 in the first quarter 2022, was included in interest expense in the unaudited consolidated statements of income.

At March 31, 2023 and December 31, 2022, the carrying amounts of subordinated debt agreements are as follows:

(In Thousands)

September 30,

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

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

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

2 unchanged sentences

Total carrying value

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

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 Corporation had a Stock Incentive Plan for a selected group of officers and an Independent Directors Stock Incentive Plan.

The 2023 restricted stock awards under the Stock Incentive Plan vest ratably over three years , and the 2023 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:

Following is a summary of restricted stock awards granted in the three-month period ended March 31, 2023:

(Dollars in Thousands)

3 unchanged sentences

Performance-based awards to employees

Effective April 20, 2023, the Corporation’s shareholders approved a new plan, the Citizens & Northern Corporation 2023 Equity Incentive Plan (the “2023 Equity Incentive Plan”).

New awards to employees and independent directors will be governed under the 2023 Equity Incentive Plan, while outstanding awards under the prior plans (including the awards made in the first quarter 2023) will be governed under the prior plans.

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.

Total annual stock-based compensation for the year ending December 31, 2023 is estimated to total $ 1,526,000 .

Total stock-based compensation expense attributable to restricted stock awards amounted to $ 377,000 in the first quarter 2023 and $ 368,000 in the first quarter 2022.

CONTINGENCIES

1 unchanged sentence

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.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

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.

These financial instruments consist of interest rate swap agreements and risk participation agreements (RPAs) 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.

4 unchanged sentences

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

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

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

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

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

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

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

The aggregate notional amount of interest rate swaps was $ 154,878,000 at March 31, 2023 and $ 155,214,000 at December 31, 2022.

There were no interest rate swaps originated in the three-month periods ended March 31, 2023 and 2022.

There were no gross amounts of interest rate swap-related assets and liabilities not offset in the consolidated balance sheets at March 31, 2023.

The net impact on the consolidated statements of income from interest rate swaps was an increase in interest income on loans of $ 345,000 in the first quarter 2023 as compared to a reduction in interest income on loans of $ 317,000 in first quarter 2022.

The Corporation has entered into an RPA with another institution as a means to assume a portion of the credit risk associated with a loan structure which includes a derivative instrument, in exchange for fee income commensurate with the risk assumed.

This type of derivative is referred to as an “RPA In.” In addition, in an effort to reduce the credit risk associated with an interest rate swap agreement with a borrower for whom the Corporation has provided a loan structured with a derivative, the Corporation purchased an RPA from an institution participating in the facility in exchange for a fee commensurate with the risk shared.

This type of derivative is referred to as an “RPA Out.” The net impact on the consolidated statements of income from RPAs was an increase in other noninterest income of $ 16,000 in the first quarter 2023 with no comparable amount in the first quarter 2022.

The table below presents the fair value of the Corporation’s derivative financial instruments as well as their classification on the consolidated balance sheets at March 31, 2023 and December 31, 2022:

(In Thousands)

At June 30, 2022

At March 31, 2023

At December 31, 2022

6 unchanged sentences

(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.

The Corporation’s agreement with its derivative counterparties provide 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 counterparties 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 $ 2,302,000 were pledged as collateral against the Corporation’s obligations related to the interest rate swaps at March 31, 2023.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

FAIR VALUE MEASUREMENTS AND FAIR VALUES OF FINANCIAL INSTRUMENTS

14 unchanged sentences

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

At March 31, 2023 and December 31, 2022, assets and liabilities measured at fair value and the valuation methods used are as follows:

March 31, 2023

(In Thousands)

20 unchanged sentences

Nonrecurring fair value measurements, assets:

Impaired loans, net

Loans individually evaluated for credit loss, net

Foreclosed assets held for sale

15 unchanged sentences

Commercial mortgage-backed securities

Private label commercial mortgage-backed securities

Total available-for-sale debt securities

12 unchanged sentences

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:

At March 31, 2023 and December 31, 2022, quantitative information regarding valuation techniques and the significant unobservable inputs used for assets measured on a recurring basis using unobservable inputs (Level 3 methodologies) are as follows:

Fair Value at

42 unchanged sentences

Three Months Ended

Nine Months Ended

September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

March 31, 2023

March 31, 2022

Servicing rights balance, beginning of period

8 unchanged sentences

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:

At March 31, 2023 and December 31, 2022, 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)

Fair Value at

Impaired loans:

Commercial loans secured by real estate

Loans individually evaluated for credit loss:

Commercial real estate - nonowner occupied

Sales comparison

Discount to appraised value

Total impaired loans

Commercial real estate - owner occupied

Sales comparison & SBA guaranty

Discount to appraised value

All other commercial loans

Liquidation & SBA guaranty

Discount to appraised value

Total loans individually evaluated for credit loss

Foreclosed assets held for sale - real estate:

Commercial real estate

Residential (1-4 family)

Sales comparison

Discount to appraised value

Residential (1-4 family)

Commercial real estate

Sales comparison

15 unchanged sentences

Discount to appraised value

Residential (1-4 family)

Sales comparison

Discount to appraised value

Total foreclosed assets held for sale

8 unchanged sentences

(In Thousands)

September 30, 2022

March 31, 2023

December 31, 2022

16 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements