CITIZENS & NORTHERN CORP 10-Q

ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share and Per Share Data) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ March 31, December 31, ​ ​ 2023 ​ 2022 ASSETS ​ ​ Cash and due from banks: ​ ​ Noninterest-bearing ​ $ 23,283 ​ $ 25,811 Interest-bearing ​ 28,929 ​ 29,237 Total cash and due from banks ​ 52,212 ​ 55,048 Available-for-sale debt securities, at fair value ​ 472,814 ​ 498,033 ​ ​ ​ ​ ​ ​ ​ Loans receivable ​ 1,745,139 ​ 1,740,040 Allowance for credit losses on loans ​ ( 18,346 ) ​ ( 16,615 ) Loans, net ​ 1,726,793 ​ 1,723,425 ​ ​ ​ ​ ​ ​ ​ Bank-owned life insurance ​ 31,352 ​ 31,214 Accrued interest receivable ​ 8,805 ​ 8,653 Bank premises and equipment, net ​ 21,277 ​ 21,574 Foreclosed assets held for sale ​ 459 ​ 275 Deferred tax asset, net ​ 18,914 ​ 20,884 Goodwill ​ 52,505 ​ 52,505 Core deposit intangibles, net ​ 2,775 ​ 2,877 Other assets ​ 41,966 ​ 39,819 TOTAL ASSETS ​ $ 2,429,872 ​ $ 2,454,307 ​ ​ ​ ​ ​ ​ ​ LIABILITIES ​ ​ ​ ​ Deposits: ​ ​ ​ ​ Noninterest-bearing ​ $ 544,556 ​ $ 563,843 Interest-bearing ​ 1,371,484 ​ 1,433,750 Total deposits ​ 1,916,040 ​ 1,997,593 Short-term borrowings ​ 93,396 ​ 80,062 Long-term borrowings - FHLB advances ​ 98,701 ​ 62,347 Senior notes, net ​ ​ 14,781 ​ ​ 14,765 Subordinated debt, net ​ 24,634 ​ 24,607 Accrued interest and other liabilities ​ 26,752 ​ 25,608 TOTAL LIABILITIES ​ 2,174,304 ​ 2,204,982 ​ ​ ​ ​ ​ ​ ​ STOCKHOLDERS' EQUITY ​ ​ ​ ​ Preferred stock, $ 1,000 par value; authorized 30,000 shares; $ 1,000 liquidation ​ ​ ​ ​ preference per share; no shares issued ​ 0 ​ 0 Common stock, par value $ 1.00 per share; authorized 30,000,000 shares; ​ ​ ​ ​ issued 16,030,172 and outstanding 15,485,035 at March 31, 2023; ​ ​ ​ ​ issued 16,030,172 and outstanding 15,518,819 at December 31, 2022 ​ 16,030 ​ 16,030 Paid-in capital ​ 143,395 ​ 143,950 Retained earnings ​ 151,990 ​ 151,743 Treasury stock, at cost; 545,137 shares at March 31, 2023 and 511,353 ​ ​ ​ ​ shares at December 31, 2022 ​ ( 13,050 ) ​ ( 12,520 ) Accumulated other comprehensive loss ​ ( 42,797 ) ​ ( 49,878 ) TOTAL STOCKHOLDERS' EQUITY ​ 255,568 ​ 249,325 TOTAL LIABILITIES & STOCKHOLDERS' EQUITY ​ $ 2,429,872 ​ $ 2,454,307 ​ The accompanying notes are an integral part of these unaudited consolidated financial statements. ​ 3 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q Consolidated Statements of Income (In Thousands Except Per Share Data) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ March 31, ​ March 31, ​ ​ 2023 ​ 2022 INTEREST INCOME ​ ​ Interest and fees on loans: ​ ​ Taxable ​ $ 22,431 ​ $ 18,549 Tax-exempt ​ 571 ​ 454 Income from available-for-sale debt securities: ​ ​ ​ ​ Taxable ​ 2,211 ​ 1,969 Tax-exempt ​ 640 ​ 722 Other interest and dividend income ​ 286 ​ 79 Total interest and dividend income ​ 26,139 ​ 21,773 INTEREST EXPENSE ​ ​ ​ Interest on deposits ​ 3,230 ​ 910 Interest on short-term borrowings ​ 1,097 ​ 1 Interest on long-term borrowings - FHLB advances ​ 681 ​ 49 Interest on senior notes, net ​ 120 ​ ​ 118 Interest on subordinated debt, net ​ 230 ​ 363 Total interest expense ​ 5,358 ​ 1,441 Net interest income ​ 20,781 ​ 20,332 (Credit) provision for credit losses ​ ( 352 ) ​ 891 Net interest income after (credit) provision for credit losses ​ 21,133 ​ 19,441 NONINTEREST INCOME ​ ​ Trust revenue ​ 1,777 ​ 1,786 Brokerage and insurance revenue ​ 430 ​ 522 Service charges on deposit accounts ​ 1,290 ​ 1,235 Interchange revenue from debit card transactions ​ 1,007 ​ 963 Net gains from sale of loans ​ 74 ​ 382 Loan servicing fees, net ​ 122 ​ 210 Increase in cash surrender value of life insurance ​ 138 ​ 135 Other noninterest income ​ 771 ​ 588 Realized gains on available-for-sale debt securities, net ​ ​ 7 ​ ​ 2 Total noninterest income ​ 5,616 ​ 5,823 NONINTEREST EXPENSE ​ ​ ​ ​ Salaries and employee benefits ​ ​ 11,427 ​ ​ 10,607 Net occupancy and equipment expense ​ ​ 1,402 ​ ​ 1,411 Data processing and telecommunications expense ​ ​ 1,936 ​ ​ 1,623 Automated teller machine and interchange expense ​ 475 ​ 384 Pennsylvania shares tax ​ 403 ​ 488 Professional fees ​ 937 ​ 489 Other noninterest expense ​ 2,507 ​ 1,884 Total noninterest expense ​ 19,087 ​ 16,886 Income before income tax provision ​ 7,662 ​ 8,378 Income tax provision ​ 1,409 ​ 1,483 NET INCOME ​ $ 6,253 ​ $ 6,895 EARNINGS PER COMMON SHARE - BASIC ​ $ 0.40 ​ $ 0.44 EARNINGS PER COMMON SHARE - DILUTED ​ $ 0.40 ​ $ 0.44 ​ The accompanying notes are an integral part of these unaudited consolidated financial statements. 4 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q ​ Consolidated Statements of Comprehensive Income (Loss) (In Thousands) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ March 31, ​ March 31, ​ ​ 2023 2022 Net income ​ $ 6,253 ​ $ 6,895 ​ ​ ​ ​ ​ ​ ​ Available-for-sale debt securities: ​ ​ ​ ​ ​ ​ Unrealized holding gains (losses) on available-for-sale debt securities ​ ​ 8,993 ​ ​ ( 32,025 ) Reclassification adjustment for gains realized in income ​ ​ ( 7 ) ​ ​ ( 2 ) Other comprehensive income (loss) on available-for-sale debt securities ​ ​ 8,986 ​ ​ ( 32,027 ) ​ ​ ​ ​ ​ ​ ​ Unfunded pension and postretirement obligations: ​ ​ ​ ​ Changes from plan amendments and actuarial gains and losses ​ ( 8 ) ​ 133 Amortization of prior service cost and net actuarial loss included in net periodic benefit cost ​ ( 14 ) ​ ( 11 ) Other comprehensive (loss) income on pension and postretirement obligations ​ ( 22 ) ​ 122 ​ ​ ​ ​ ​ ​ ​ Other comprehensive income (loss) before income tax ​ 8,964 ​ ( 31,905 ) Income tax related to other comprehensive (income) loss ​ ( 1,883 ) ​ 6,701 ​ ​ ​ ​ ​ ​ ​ Net other comprehensive income (loss) ​ 7,081 ​ ( 25,204 ) ​ ​ ​ ​ ​ ​ ​ Comprehensive income (loss) ​ $ 13,334 ​ $ ( 18,309 ) ​ The accompanying notes are an integral part of these unaudited consolidated financial statements. ​ 5 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ March 31, ​ March 31, ​ ​ 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES: ​ ​ Net income ​ $ 6,253 ​ $ 6,895 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ (Credit) provision for credit losses ​ ( 352 ) ​ 891 Realized gains on available-for-sale debt securities, net ​ ( 7 ) ​ ( 2 ) Net amortization of securities ​ ​ 530 ​ ​ 714 Increase in cash surrender value of life insurance ​ ( 138 ) ​ ( 135 ) Depreciation and amortization of bank premises and equipment ​ 570 ​ 507 Net accretion of purchase accounting adjustments ​ ( 84 ) ​ ( 340 ) Stock-based compensation ​ 377 ​ 368 Deferred income taxes ​ 526 ​ 770 Decrease (increase) in fair value of servicing rights ​ 83 ​ ( 2 ) Gains on sales of loans, net ​ ( 74 ) ​ ( 382 ) Origination of loans held for sale ​ ( 2,493 ) ​ ( 14,752 ) Proceeds from sales of loans held for sale ​ 2,265 ​ 13,661 Increase in accrued interest receivable and other assets ​ ( 851 ) ​ ( 963 ) Increase (decrease) in accrued interest payable and other liabilities ​ 2,982 ​ ( 1,663 ) Other ​ ( 38 ) ​ 81 Net Cash Provided by Operating Activities ​ 9,549 ​ 5,648 CASH FLOWS FROM INVESTING ACTIVITIES: ​ ​ ​ Proceeds from maturities of certificates of deposit ​ 1,250 ​ 0 Proceeds from sales of available-for-sale debt securities ​ 16,658 ​ 0 Proceeds from calls and maturities of available-for-sale debt securities ​ 17,024 ​ 18,746 Purchase of available-for-sale debt securities ​ ( 2,000 ) ​ ( 62,949 ) Redemption of Federal Home Loan Bank of Pittsburgh stock ​ 3,634 ​ 337 Purchase of Federal Home Loan Bank of Pittsburgh stock ​ ( 5,462 ) ​ ( 282 ) Net (increase) decrease in loans ​ ( 4,392 ) ​ 26,807 Purchase of premises and equipment ​ ( 276 ) ​ ( 993 ) Proceeds from sale of foreclosed assets ​ 0 ​ 139 Other ​ 70 ​ 75 Net Cash Provided by (Used in) Investing Activities ​ 26,506 ​ ( 18,120 ) CASH FLOWS FROM FINANCING ACTIVITIES: ​ ​ ​ Net (decrease) increase in deposits ​ ( 81,536 ) ​ 35,952 Net increase in short-term borrowings ​ 13,334 ​ 554 Proceeds from long-term borrowings - FHLB advances ​ ​ 43,403 ​ ​ 0 Repayments of long-term borrowings - FHLB advances ​ ( 7,026 ) ​ ( 7,380 ) Sale of treasury stock ​ 0 ​ 141 Purchases of treasury stock ​ ( 1,865 ) ​ ( 3,380 ) Common dividends paid ​ ( 3,951 ) ​ ( 4,017 ) Net Cash (Used in) Provided by Financing Activities ​ ( 37,641 ) ​ 21,870 (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ​ ( 1,586 ) ​ 9,398 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ​ 47,698 ​ 95,848 CASH AND CASH EQUIVALENTS, END OF PERIOD ​ $ 46,112 ​ $ 105,246 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: ​ ​ ​ ​ (Decrease) increase in accrued purchase of available-for-sale debt securities ​ $ ( 2,000 ) ​ $ 3,770 Assets acquired through foreclosure of real estate loans ​ $ 184 ​ $ 0 Interest paid ​ $ 4,836 ​ $ 1,116 Income taxes paid ​ $ 64 ​ $ 46 ​ The accompanying notes are an integral part of these unaudited consolidated financial statements. ​ 6 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q Consolidated Statements of Changes in Stockholders’ Equity (In Thousands Except Share and Per Share Data) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other ​ ​ ​ ​ ​ ​ ​ ​ Common ​ Treasury ​ Common ​ Paid-in ​ Retained ​ Comprehensive ​ Treasury ​ ​ ​ Three Months Ended March 31, 2023 ​ Shares ​ Shares ​ Stock ​ Capital ​ Earnings ​ (Loss) Income ​ Stock ​ Total Balance, December 31, 2022 16,030,172 511,353 ​ $ 16,030 ​ $ 143,950 ​ $ 151,743 ​ $ ( 49,878 ) ​ $ ( 12,520 ) ​ $ 249,325 Adoption of ASU 2016-13 (CECL) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 1,652 ) ​ ​ ​ ​ ​ ​ ​ ​ ( 1,652 ) Net income ​ ​ ​ ​ ​ 6,253 ​ ​ ​ 6,253 Other comprehensive income, net ​ ​ ​ ​ ​ ​ 7,081 ​ ​ 7,081 Cash dividends declared on common stock, $ .28 per share ​ ​ ​ ​ ​ ( 4,354 ) ​ ​ ​ ( 4,354 ) Shares issued for dividend reinvestment plan ​ ( 17,695 ) ​ ​ ​ ( 29 ) ​ ​ ​ ​ ​ 432 ​ 403 Restricted stock granted ​ ( 53,788 ) ​ ​ ​ ( 1,314 ) ​ ​ ​ 1,314 ​ 0 Forfeiture of restricted stock ​ 19,222 ​ ​ ​ 411 ​ ​ ​ ( 411 ) ​ 0 Stock-based compensation expense ​ ​ ​ ​ 377 ​ ​ ​ ​ 377 Purchase of restricted stock for tax withholding ​ 8,615 ​ ​ ​ ​ ​ ​ ( 203 ) ​ ( 203 ) Treasury stock purchases ​ ​ ​ 77,430 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 1,662 ) ​ ​ ( 1,662 ) Balance, March 31, 2023 16,030,172 545,137 ​ $ 16,030 ​ $ 143,395 ​ $ 151,990 ​ $ ( 42,797 ) ​ $ ( 13,050 ) ​ $ 255,568 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, 2022 ​ ​ ​ ​ ​ ​ Balance, December 31, 2021 16,030,172 271,082 ​ $ 16,030 ​ $ 144,453 ​ $ 142,612 ​ $ 5,026 ​ $ ( 6,716 ) ​ $ 301,405 Net income ​ ​ ​ ​ ​ 6,895 ​ ​ ​ 6,895 Other comprehensive loss, net ​ ​ ​ ​ ​ ​ ( 25,204 ) ​ ​ ( 25,204 ) Cash dividends declared on common stock, $ .28 per share ​ ​ ​ ​ ​ ( 4,434 ) ​ ​ ​ ( 4,434 ) Shares issued for dividend reinvestment plan ​ ( 16,134 ) ​ ​ ​ 12 ​ ​ ​ 405 ​ 417 Shares issued from treasury related to exercise of stock options ​ ( 7,024 ) ​ ​ ​ ( 34 ) ​ ​ ​ 175 ​ 141 Restricted stock granted ​ ( 78,243 ) ​ ​ ​ ( 1,932 ) ​ ​ ​ 1,932 ​ 0 Forfeiture of restricted stock ​ 6,072 ​ ​ ​ 124 ​ ​ ​ ( 124 ) ​ 0 Stock-based compensation expense ​ ​ ​ ​ 368 ​ ​ ​ ​ 368 Purchase of restricted stock for tax withholding ​ 6,054 ​ ​ ​ ​ ​ ​ ( 153 ) ​ ( 153 ) Treasury stock purchases ​ ​ 129,642 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 3,227 ) ​ ( 3,227 ) Balance, March 31, 2022 16,030,172 311,449 ​ $ 16,030 ​ $ 142,991 ​ $ 145,073 ​ $ ( 20,178 ) ​ $ ( 7,708 ) ​ $ 276,208 ​ The accompanying notes are an integral part of these unaudited consolidated financial statements. ​ ​ 7 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q Notes to Unaudited Consolidated Financial Statements 1. BASIS OF INTERIM PRESENTATION AND STATUS OF RECENT ACCOUNTING PRONOUNCEMENTS The consolidated financial statements include the accounts of Citizens & Northern Corporation and its subsidiaries, Citizens & Northern Bank (“C&N Bank”), Bucktail Life Insurance Company and Citizens & Northern Investment Corporation (collectively, “Corporation”). The consolidated financial statements also include C&N Bank’s wholly-owned subsidiaries, C&N Financial Services, LLC and Northern Tier Holding LLC. C&N Bank is the sole member of C&N Financial Services, LLC and Northern Tier Holding LLC. All material intercompany balances and transactions have been eliminated in consolidation. The consolidated financial information included herein, except the consolidated balance sheet dated December 31, 2022, is unaudited. Such information reflects all adjustments (consisting solely of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations, comprehensive income, cash flows and changes in stockholders’ equity for the interim periods; however, the information does not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for a complete set of financial statements. Certain 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. RECENT ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board (FASB) issues Accounting Standards Updates (ASUs) to the FASB Accounting Standards Codification (ASC). This section provides a summary description of recent ASUs that have significant implications (elected or required) within the consolidated financial statements, or that management expects may have a significant impact on the consolidated financial statements issued in the near future. Recent Accounting Pronouncements - Adopted 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. ​ 8 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As Reported ​ ​ ​ ​ Under ​ Pre-ASC 326 ​ Impact of ​ ​ ASC 326 ​ Adoption ​ ASC 326 (In Thousands) ​ January 1, 2023 ​ December 31, 2022 ​ Adoption Loans receivable ​ $ 1,740,846 ​ $ 1,740,040 ​ $ 806 Allowance for credit losses on loans ​ ​ 18,719 ​ ​ 16,615 ​ ​ 2,104 Allowance for credit losses on off-balance sheet exposures (included in accrued interest and other liabilities) ​ 1,218 ​ 425 ​ 793 Deferred tax asset, net ​ 21,323 ​ 20,884 ​ 439 Retained earnings ​ 150,091 ​ 151,743 ​ ( 1,652 ) ​ 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 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. 9 Table of Contents 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. ​ 10 Table of Contents 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. amortizing). 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. ​ 11 Table of Contents 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. 12 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q 2. PER SHARE DATA Basic earnings per common share are calculated using the two-class method to determine income attributable to common shareholders. Unvested restricted stock awards that contain nonforfeitable rights to dividends are considered participating securities under the two-class method. Distributed dividends and an allocation of undistributed net income to participating securities reduce the amount of income attributable to common shareholders. Income attributable to common shareholders is then divided by weighted-average common shares outstanding for the period to determine basic earnings per common share. Diluted earnings per common share are calculated under the more dilutive of either the treasury method or the two-class method. Diluted earnings per common share is computed using weighted-average common shares outstanding, plus weighted-average common shares available from the exercise of all dilutive stock options, less the number of shares that could be repurchased with the proceeds of stock option exercises based on the average share price of the Corporation’s common stock during the period. ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands, Except Share and Per Share Data) ​ Three Months Ended ​ ​ March 31, ​ March 31, ​ 2023 2022 Basic ​ ​ ​ Net income ​ $ 6,253 ​ $ 6,895 Less: Dividends and undistributed earnings allocated to participating securities ​ ( 52 ) ​ ( 60 ) Net income attributable to common shares ​ $ 6,201 ​ $ 6,835 Basic weighted-average common shares outstanding ​ 15,409,680 ​ 15,645,474 Basic earnings per common share (a) ​ $ 0.40 ​ $ 0.44 Diluted ​ ​ Net income attributable to common shares ​ $ 6,201 ​ $ 6,835 Basic weighted-average common shares outstanding ​ 15,409,680 ​ 15,645,474 Dilutive effect of potential common stock arising from stock options ​ 937 ​ 3,701 Diluted weighted-average common shares outstanding ​ 15,410,617 ​ 15,649,175 Diluted earnings per common share (a) ​ $ 0.40 ​ $ 0.44 Weighted-average nonvested restricted shares outstanding ​ 128,435 ​ 138,141 (a) Basic and diluted earnings per share under the two-class method are determined on net income reported on the consolidated statements of income, less earnings allocated to non-vested restricted shares with nonforfeitable dividends (participating securities). Anti-dilutive stock options are excluded from earnings per share calculations. There were no anti-dilutive instruments in the three-month periods ended March 31, 2023 and 2022. ​ 13 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q 3. 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) Before-Tax Income Tax Net-of-Tax ​ ​ Amount ​ Effect ​ Amount Three Months Ended March 31, 2023 ​ ​ ​ Available-for-sale debt securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized holding gains on available-for-sale debt securities ​ $ 8,993 ​ $ ( 1,888 ) ​ $ 7,105 Reclassification adjustment for (gains) realized in income ​ ​ ( 7 ) ​ ​ 1 ​ ​ ( 6 ) Other comprehensive income from available-for-sale debt securities ​ ​ 8,986 ​ ​ ( 1,887 ) ​ ​ 7,099 Unfunded pension and postretirement obligations: ​ ​ ​ Changes from plan amendments and actuarial gains and losses ​ ​ ( 8 ) ​ ​ 1 ​ ​ ( 7 ) Amortization of prior service cost and net actuarial loss included in net periodic benefit cost ​ ( 14 ) ​ 3 ​ ( 11 ) Other comprehensive loss on unfunded retirement obligations ​ ​ ( 22 ) ​ ​ 4 ​ ​ ( 18 ) Total other comprehensive income ​ $ 8,964 ​ $ ( 1,883 ) ​ $ 7,081 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) Before-Tax Income Tax Net-of-Tax ​ ​ Amount ​ Effect ​ Amount Three Months Ended March 31, 2022 ​ ​ ​ Available-for-sale debt securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized holding losses on available-for-sale debt securities ​ $ ( 32,025 ) ​ $ 6,726 ​ $ ( 25,299 ) Reclassification adjustment for (gains) realized in income ​ ( 2 ) ​ 0 ​ ( 2 ) Other comprehensive loss from available-for-sale debt securities ​ $ ( 32,027 ) ​ $ 6,726 ​ $ ( 25,301 ) Unfunded pension and postretirement obligations: ​ ​ ​ Changes from plan amendments and actuarial gains and losses ​ ​ 133 ​ ( 27 ) ​ 106 Amortization of prior service cost and net actuarial loss included in net periodic benefit cost ​ ( 11 ) ​ 2 ​ ( 9 ) Other comprehensive income on unfunded retirement obligations ​ ​ 122 ​ ​ ( 25 ) ​ ​ 97 Total other comprehensive loss ​ $ ( 31,905 ) ​ $ 6,701 ​ $ ( 25,204 ) ​ The amounts shown in the table immediately above are included in the following line items in the consolidated statements of income: ​ ​ ​ ​ ​ ​ Affected Line Item in the Description Consolidated Statements of Income Reclassification adjustment for (gains) realized in income (before-tax) ​ Realized gains on available-for-sale debt securities, net Amortization of prior service cost and net actuarial loss included in net periodic benefit cost (before-tax) Other noninterest expense Income tax effect ​ Income tax provision ​ 14 Table of Contents 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) Unrealized ​ Accumulated ​ ​ (Losses) ​ Unfunded ​ Other ​ ​ Gains ​ Retirement ​ Comprehensive ​ ​ on Securities ​ Obligations ​ (Loss) Income Three Months Ended March 31, 2023 ​ ​ ​ Balance, beginning of period ​ $ ( 50,370 ) ​ $ 492 ​ $ ( 49,878 ) Other comprehensive income during three months ended March 31, 2023 ​ 7,099 ​ ( 18 ) ​ 7,081 Balance, end of period ​ $ ( 43,271 ) ​ $ 474 ​ $ ( 42,797 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, 2022 ​ ​ ​ Balance, beginning of period ​ $ 4,809 ​ $ 217 ​ $ 5,026 Other comprehensive loss during three months ended March 31, 2022 ​ ( 25,301 ) ​ 97 ​ ( 25,204 ) Balance, end of period ​ $ ( 20,492 ) ​ $ 314 ​ $ ( 20,178 ) ​ ​ ​ ​ ​ ​ ​ 4. CASH AND DUE FROM BANKS Cash and due from banks at March 31, 2023 and December 31, 2022 include the following: ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) March 31, December 31, ​ ​ 2023 ​ 2022 Cash and cash equivalents ​ $ 46,112 ​ $ 47,698 Certificates of deposit ​ 6,100 ​ 7,350 Total cash and due from banks ​ $ 52,212 ​ $ 55,048 ​ Certificates of deposit are issues by U.S. banks with original maturities greater than three months. Each certificate of deposit is fully FDIC-insured. The Corporation maintains cash and cash equivalents with certain financial institutions in excess of the FDIC insurance limit. 5. SECURITIES 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) March 31, 2023 ​ ​ ​ ​ ​ Gross ​ Gross ​ ​ ​ ​ ​ ​ ​ ​ Unrealized ​ Unrealized ​ ​ ​ ​ Amortized Holding Holding Fair ​ Cost Gains Losses Value ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Obligations of the U.S. Treasury ​ $ 33,924 ​ $ 0 ​ $ ( 2,761 ) ​ $ 31,163 Obligations of U.S. Government agencies ​ ​ 25,479 ​ ​ 0 ​ ​ ( 2,131 ) ​ ​ 23,348 Bank holding company debt securities ​ ​ 28,947 ​ ​ 0 ​ ​ ( 4,224 ) ​ ​ 24,723 Obligations of states and political subdivisions: ​ ​ ​ ​ ​ ​ ​ Tax-exempt ​ 128,285 ​ 330 ​ ( 10,803 ) ​ 117,812 Taxable ​ 67,076 ​ 0 ​ ( 9,504 ) ​ 57,572 Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies: ​ ​ ​ ​ Residential pass-through securities ​ 109,028 ​ 0 ​ ( 11,221 ) ​ 97,807 Residential collateralized mortgage obligations ​ 42,296 ​ 0 ​ ( 4,179 ) ​ 38,117 Commercial mortgage-backed securities ​ 84,449 ​ 10 ​ ( 10,264 ) ​ 74,195 Private label commercial mortgage-backed securities ​ ​ 8,105 ​ ​ 10 ​ ​ ( 38 ) ​ ​ 8,077 Total available-for-sale debt securities ​ $ 527,589 ​ $ 350 ​ $ ( 55,125 ) ​ $ 472,814 15 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) December 31, 2022 ​ ​ ​ ​ ​ Gross ​ Gross ​ ​ ​ ​ ​ Unrealized ​ Unrealized ​ ​ ​ ​ Amortized Holding Holding Fair ​ Cost Gains Losses Value ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Obligations of the U.S. Treasury ​ $ 35,166 ​ $ 0 ​ $ ( 3,330 ) ​ $ 31,836 Obligations of U.S. Government agencies ​ ​ 25,938 ​ ​ 0 ​ ​ ( 2,508 ) ​ ​ 23,430 Bank holding company debt securities ​ ​ 28,945 ​ ​ 0 ​ ​ ( 3,559 ) ​ ​ 25,386 Obligations of states and political subdivisions: ​ ​ ​ ​ ​ ​ ​ Tax-exempt ​ 146,149 ​ 319 ​ ( 13,845 ) ​ 132,623 Taxable ​ 68,488 ​ 0 ​ ( 11,676 ) ​ 56,812 Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies: ​ ​ ​ ​ Residential pass-through securities ​ 112,782 ​ 0 ​ ( 12,841 ) ​ 99,941 Residential collateralized mortgage obligations ​ 44,868 ​ 0 ​ ( 4,572 ) ​ 40,296 Commercial mortgage-backed securities ​ 91,388 ​ 0 ​ ( 11,702 ) ​ 79,686 Private label commercial mortgage-backed securities ​ ​ 8,070 ​ ​ 2 ​ ​ ( 49 ) ​ ​ 8,023 Total available-for-sale debt securities ​ $ 561,794 ​ $ 321 ​ $ ( 64,082 ) ​ $ 498,033 ​ 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 12 Months or More Total (In Thousands) ​ Fair ​ Unrealized ​ Fair ​ Unrealized ​ Fair ​ Unrealized ​ Value Losses Value Losses Value Losses Obligations of the U.S. Treasury ​ $ 0 ​ $ 0 ​ $ 31,163 ​ $ ( 2,761 ) ​ $ 31,163 ​ $ ( 2,761 ) Obligations of U.S. Government agencies ​ ​ 8,867 ​ ​ ( 361 ) ​ ​ 14,481 ​ ​ ( 1,770 ) ​ ​ 23,348 ​ ​ ( 2,131 ) Bank holding company debt securities ​ ​ 5,894 ​ ​ ( 1,106 ) ​ ​ 18,829 ​ ​ ( 3,118 ) ​ ​ 24,723 ​ ​ ( 4,224 ) Obligations of states and political subdivisions: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Tax-exempt ​ ​ 12,891 ​ ​ ( 177 ) ​ ​ 97,284 ​ ​ ( 10,626 ) ​ ​ 110,175 ​ ​ ( 10,803 ) Taxable ​ 10,170 ​ ( 380 ) ​ 46,902 ​ ( 9,124 ) ​ 57,072 ​ ( 9,504 ) Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies: ​ ​ ​ ​ ​ ​ ​ Residential pass-through securities ​ ​ 15,066 ​ ​ ( 419 ) ​ ​ 82,741 ​ ​ ( 10,802 ) ​ ​ 97,807 ​ ​ ( 11,221 ) Residential collateralized mortgage obligations ​ 7,821 ​ ( 257 ) ​ 30,296 ​ ( 3,922 ) ​ 38,117 ​ ( 4,179 ) Commercial mortgage-backed securities ​ 14,886 ​ ( 702 ) ​ 56,963 ​ ( 9,562 ) ​ 71,849 ​ ( 10,264 ) Private label commercial mortgage-backed securities ​ ​ 4,790 ​ ​ ( 38 ) ​ ​ 0 ​ ​ 0 ​ ​ 4,790 ​ ​ ( 38 ) Total temporarily impaired available-for-sale debt securities ​ $ 80,385 ​ $ ( 3,440 ) ​ $ 378,659 ​ $ ( 51,685 ) ​ $ 459,044 ​ $ ( 55,125 ) ​ 16 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 Less Than 12 Months 12 Months or More Total (In Thousands) ​ Fair ​ Unrealized ​ Fair ​ Unrealized ​ Fair ​ Unrealized ​ Value Losses Value Losses Value Losses Obligations of the U.S. Treasury ​ $ 20,192 ​ $ ( 1,939 ) ​ $ 11,644 ​ $ ( 1,391 ) ​ $ 31,836 ​ $ ( 3,330 ) Obligations of U.S. Government agencies ​ ​ 8,509 ​ ​ ( 430 ) ​ ​ 12,921 ​ ​ ( 2,078 ) ​ ​ 21,430 ​ ​ ( 2,508 ) Bank holding company debt securities ​ ​ 14,248 ​ ​ ( 1,697 ) ​ ​ 11,138 ​ ​ ( 1,862 ) ​ ​ 25,386 ​ ​ ( 3,559 ) Obligations of states and political subdivisions: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Tax-exempt ​ ​ 106,204 ​ ​ ( 11,023 ) ​ ​ 15,153 ​ ​ ( 2,822 ) ​ ​ 121,357 ​ ​ ( 13,845 ) Taxable ​ 28,901 ​ ( 4,739 ) ​ 27,761 ​ ( 6,937 ) ​ 56,662 ​ ( 11,676 ) Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies: ​ ​ ​ ​ ​ ​ ​ Residential pass-through securities ​ ​ 45,410 ​ ​ ( 4,226 ) ​ ​ 54,531 ​ ​ ( 8,615 ) ​ ​ 99,941 ​ ​ ( 12,841 ) Residential collateralized mortgage obligations ​ 28,670 ​ ( 2,042 ) ​ 11,626 ​ ( 2,530 ) ​ 40,296 ​ ( 4,572 ) Commercial mortgage-backed securities ​ 40,408 ​ ( 2,585 ) ​ 39,278 ​ ( 9,117 ) ​ 79,686 ​ ( 11,702 ) Private label commercial mortgage-backed securities ​ ​ 4,762 ​ ​ ( 49 ) ​ ​ 0 ​ ​ 0 ​ ​ 4,762 ​ ​ ( 49 ) Total temporarily impaired available-for-sale debt securities ​ $ 297,304 ​ $ ( 28,730 ) ​ $ 184,052 ​ $ ( 35,352 ) ​ $ 481,356 ​ $ ( 64,082 ) ​ Gross realized gains and losses from available-for-sale debt securities were as follows: ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) ​ Three Months Ended ​ ​ March 31, ​ March 31, ​ 2023 2022 Gross realized gains from sales ​ $ 80 ​ $ 2 Gross realized losses from sales ​ ( 73 ) ​ 0 Net realized gains ​ $ 7 ​ $ 2 ​ 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) ​ March 31, 2023 ​ ​ Amortized ​ Fair ​ Cost Value Due in one year or less ​ $ 11,807 ​ $ 11,688 Due from one year through five years ​ 69,781 ​ 65,627 Due from five years through ten years ​ 80,332 ​ 71,674 Due after ten years ​ 121,791 ​ 105,629 Sub-total ​ 283,711 ​ 254,618 Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies: ​ ​ Residential pass-through securities ​ 109,028 ​ 97,807 Residential collateralized mortgage obligations ​ 42,296 ​ 38,117 Commercial mortgage-backed securities ​ 84,449 ​ 74,195 Private label commercial mortgage-backed securities ​ ​ 8,105 ​ ​ 8,077 Total ​ $ 527,589 ​ $ 472,814 ​ The Corporation’s mortgage-backed securities and collateralized mortgage obligations have stated maturities that may differ from actual maturities due to borrowers’ ability to prepay obligations. Cash flows from such investments are dependent upon the performance of the underlying mortgage loans and are generally influenced by the level of interest rates. In the table above, mortgage-backed securities and collateralized mortgage obligations are shown in one period. 17 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q 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 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 C&N Bank is a member of the Federal Home Loan Bank of Pittsburgh (FHLB-Pittsburgh), which is one of 11 regional Federal Home Loan Banks. As a member, C&N Bank is required to purchase and maintain stock in FHLB-Pittsburgh. There is no active market for FHLB-Pittsburgh stock, and it must ordinarily be redeemed by FHLB-Pittsburgh in order to be liquidated. C&N Bank’s investment in FHLB-Pittsburgh stock, included in other assets in the consolidated balance sheets, was $ 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 $ 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. ​ 18 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q 6. LOANS AND ALLOWANCE FOR CREDIT LOSSES The loans receivable portfolio is segmented into commercial, residential mortgage and consumer loans. 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) ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, December 31, ​ ​ 2023 ​ 2022 (1) Commercial real estate - nonowner occupied ​ $ 682,698 ​ $ 675,597 Commercial real estate - owner occupied ​ ​ 221,766 ​ ​ 205,910 All other commercial loans ​ ​ 384,802 ​ ​ 410,077 Residential mortgage loans ​ ​ 401,720 ​ ​ 393,582 Consumer loans ​ ​ 54,153 ​ ​ 54,874 Total ​ ​ 1,745,139 ​ ​ 1,740,040 Less: allowance for credit losses on loans ​ ​ ( 18,346 ) ​ ​ ( 16,615 ) Loans, net ​ $ 1,726,793 ​ $ 1,723,425 (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. Commercial, residential and personal loans are made to customers geographically concentrated in Northcentral Pennsylvania, the Southern tier of New York State, Southeastern Pennsylvania and Southcentral Pennsylvania. Although the Corporation has a diversified loan portfolio, a significant portion of its debtors’ ability to honor their contracts is dependent on the local economic conditions within the region. 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 PCI loans. 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 ​ ​ March 31, ​ March 31, ​ ​ 2023 ​ 2022 Market Rate Adjustment ​ ​ Adjustments to gross amortized cost of loans at beginning of period ​ $ ( 916 ) ​ $ ( 637 ) Amortization recognized in interest income ​ ​ ( 52 ) ​ ​ ( 248 ) Adjustments to gross amortized cost of loans at end of period ​ $ ( 968 ) ​ $ ( 885 ) Credit Adjustment on Non-impaired Loans ​ ​ ​ ​ ​ ​ Adjustments to gross amortized cost of loans at beginning of period ​ $ ( 1,840 ) ​ $ ( 3,335 ) Accretion recognized in interest income ​ 198 ​ 553 Adjustments to gross amortized cost of loans at end of period ​ $ ( 1,642 ) ​ $ ( 2,782 ) ​ 19 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q The following table presents an analysis of past due loans as of March 31, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) ​ As of March 31, 2023 ​ ​ Past Due ​ Past Due ​ ​ ​ ​ ​ ​ ​ ​ ​ 30-89 ​ 90+ ​ Nonaccrual ​ Current ​ Total ​ ​ Days ​ Days ​ Loans ​ Loans ​ Loans Commercial real estate - nonowner occupied ​ $ 233 ​ $ 365 ​ $ 6,017 ​ $ 676,083 ​ $ 682,698 Commercial real estate - owner occupied ​ 484 ​ 141 ​ 1,612 ​ 219,529 ​ 221,766 All other commercial loans ​ ​ 827 ​ ​ 147 ​ ​ 1,680 ​ ​ 382,148 ​ ​ 384,802 Residential mortgage loans ​ ​ 3,666 ​ ​ 398 ​ ​ 3,251 ​ ​ 394,405 ​ ​ 401,720 Consumer loans ​ 283 ​ 165 ​ 316 ​ 53,389 ​ 54,153 Total ​ $ 5,493 ​ $ 1,216 ​ $ 12,876 ​ $ 1,725,554 ​ $ 1,745,139 ​ The following table presents an analysis of past due loans as of December 31, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) ​ As of December 31, 2022 ​ ​ Past Due ​ Past Due ​ ​ ​ ​ ​ ​ ​ ​ ​ 30-89 ​ 90+ ​ Nonaccrual ​ Current ​ Total ​ ​ Days ​ Days ​ Loans ​ Loans ​ Loans Commercial real estate - nonowner occupied ​ $ 644 ​ $ 947 ​ $ 6,350 ​ $ 667,656 ​ $ 675,597 Commercial real estate - owner occupied ​ 723 ​ 141 ​ 19 ​ 204,099 ​ 204,982 All other commercial loans ​ ​ 537 ​ ​ 151 ​ ​ 11,528 ​ ​ 397,762 ​ ​ 409,978 Residential mortgage loans ​ ​ 4,540 ​ ​ 866 ​ ​ 3,974 ​ ​ 384,202 ​ ​ 393,582 Consumer loans ​ ​ 635 ​ ​ 132 ​ ​ 187 ​ ​ 53,920 ​ ​ 54,874 Purchased credit impaired ​ 0 ​ 0 ​ 1,027 ​ 0 ​ 1,027 Total ​ $ 7,079 ​ $ 2,237 ​ $ 23,085 ​ $ 1,707,639 ​ $ 1,740,040 ​ In determining the larger loan relationships for detailed assessment under the specific allowance component, the Corporation uses an internal risk rating system. Under the risk rating system, the Corporation classifies problem or potential problem loans as “Special Mention,” “Substandard,” or “Doubtful” on the basis of currently existing facts, conditions and values. Substandard loans include those characterized by the distinct possibility that the Corporation will sustain some loss if the deficiencies are not corrected. Loans classified as Doubtful have all the weaknesses inherent in those classified as Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Loans that do not currently expose the Corporation to sufficient risk to warrant classification as Substandard or Doubtful, but possess weaknesses that deserve management’s close attention, are deemed to be Special Mention. Risk ratings are updated any time that conditions or the situation warrants. Loans not classified are included in the “Pass” rows in the table that follows. ​ 20 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q The following table presents the recorded investment in loans by credit quality indicators by year of origination as of March 31, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) ​ Term Loans by Year of Origination ​ ​ ​ ​ ​ ​ ​ ​ 2023 ​ 2022 ​ 2021 ​ 2020 ​ 2019 ​ Prior ​ Revolving ​ Total Commercial real estate - nonowner occupied ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ $ 22,553 ​ $ 181,862 ​ $ 94,978 ​ $ 51,333 ​ $ 83,703 ​ $ 225,718 ​ $ 0 ​ $ 660,147 Special Mention ​ 0 ​ 0 ​ 1,531 ​ 0 ​ 123 ​ 10,282 ​ 0 ​ 11,936 Substandard ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 20 ​ ​ 625 ​ ​ 9,970 ​ ​ 0 ​ ​ 10,615 Doubtful ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 0 Total commercial real estate - nonowner occupied ​ $ 22,553 ​ $ 181,862 ​ $ 96,509 ​ $ 51,353 ​ $ 84,451 ​ $ 245,970 ​ $ 0 ​ $ 682,698 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Current period gross charge-offs ​ $ 0 ​ $ 0 ​ $ 0 ​ $ 0 ​ $ 0 ​ $ 0 ​ $ 0 ​ $ 0 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial real estate - owner occupied ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ $ 17,090 ​ $ 33,112 ​ $ 52,442 ​ $ 13,905 ​ $ 18,071 ​ $ 80,580 ​ $ 0 ​ $ 215,200 Special Mention ​ 0 ​ 0 ​ 2,717 ​ 0 ​ 0 ​ 1,659 ​ 0 ​ 4,376 Substandard ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 2,190 ​ ​ 0 ​ ​ 2,190 Doubtful ​ 0 ​ 0 ​ 0 ​ 0 ​ 0 ​ 0 ​ 0 ​ 0 Total commercial real estate - owner occupied ​ $ 17,090 ​ $ 33,112 ​ $ 55,159 ​ $ 13,905 ​ $ 18,071 ​ $ 84,429 ​ $ 0 ​ $ 221,766 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Current period gross charge-offs ​ $ 0 ​ $ 0 ​ $ 0 ​ $ 0 ​ $ 0 ​ $ 0 ​ $ 0 ​ $ 0 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ All other commercial loans ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ $ 11,961 ​ $ 88,513 ​ $ 64,892 ​ $ 40,119 ​ $ 20,443 ​ $ 33,290 ​ $ 108,892 ​ $ 368,110 Special Mention ​ 0 ​ 45 ​ 12 ​ 146 ​ 0 ​ 513 ​ 1,720 ​ 2,436 Substandard ​ ​ 805 ​ ​ 1,962 ​ ​ 60 ​ ​ 189 ​ ​ 1,658 ​ ​ 1,205 ​ ​ 8,377 ​ ​ 14,256 Doubtful ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 0 Total all other commercial loans ​ $ 12,766 ​ $ 90,520 ​ $ 64,964 ​ $ 40,454 ​ $ 22,101 ​ $ 35,008 ​ $ 118,989 ​ $ 384,802 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Current period gross charge-offs ​ $ 0 ​ $ 0 ​ $ 0 ​ $ 0 ​ $ 0 ​ $ 0 ​ $ 5 ​ $ 5 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential mortgage loans ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ $ 11,807 ​ $ 98,765 ​ $ 59,192 ​ $ 42,155 ​ $ 34,008 ​ $ 150,715 ​ $ 0 ​ $ 396,642 Special Mention ​ 0 ​ 0 ​ 0 ​ 0 ​ 0 ​ 0 ​ 0 ​ 0 Substandard ​ ​ 0 ​ ​ 0 ​ ​ 34 ​ ​ 97 ​ ​ 372 ​ ​ 4,575 ​ ​ 0 ​ ​ 5,078 Doubtful ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 0 Total residential mortgage loans ​ $ 11,807 ​ $ 98,765 ​ $ 59,226 ​ $ 42,252 ​ $ 34,380 ​ $ 155,290 ​ $ 0 ​ $ 401,720 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Current period gross charge-offs ​ $ 0 ​ $ 0 ​ $ 0 ​ $ 0 ​ $ 0 ​ $ 19 ​ $ 0 ​ $ 19 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Consumer loans ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ $ 2,639 ​ $ 6,387 ​ $ 3,107 ​ $ 1,725 ​ $ 432 ​ $ 1,243 ​ $ 37,876 ​ $ 53,409 Special Mention ​ 0 ​ 0 ​ 0 ​ 0 ​ 0 ​ 0 ​ 0 ​ 0 Substandard ​ ​ 0 ​ ​ 0 ​ ​ 2 ​ ​ 27 ​ ​ 14 ​ ​ 103 ​ ​ 598 ​ ​ 744 Doubtful ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 0 Total consumer loans ​ $ 2,639 ​ $ 6,387 ​ $ 3,109 ​ $ 1,752 ​ $ 446 ​ $ 1,346 ​ $ 38,474 ​ $ 54,153 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Current period gross charge-offs ​ $ 0 ​ $ 21 ​ $ 0 ​ $ 0 ​ $ 0 ​ $ 3 ​ $ 19 ​ $ 43 21 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q The following table presents the recorded investment in loans by credit quality indicators as of December 31, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Special ​ ​ ​ ​ ​ ​ (In Thousands) ​ Pass ​ Mention ​ Substandard ​ Doubtful ​ Total Commercial real estate - nonowner occupied ​ $ 654,430 ​ $ 9,486 ​ $ 11,681 ​ $ 0 ​ $ 675,597 Commercial real estate - owner occupied ​ 202,702 ​ 1,909 ​ 371 ​ 0 ​ 204,982 All other commercial loans ​ ​ 383,846 ​ ​ 2,516 ​ ​ 23,616 ​ ​ 0 ​ ​ 409,978 Residential mortgage loans ​ ​ 387,944 ​ ​ 0 ​ ​ 5,638 ​ ​ 0 ​ ​ 393,582 Consumer loans ​ ​ 54,353 ​ ​ 0 ​ ​ 521 ​ ​ 0 ​ ​ 54,874 Purchased credit impaired ​ 0 ​ 0 ​ 1,027 ​ 0 ​ 1,027 Total ​ $ 1,683,275 ​ $ 13,911 ​ $ 42,854 ​ $ 0 ​ $ 1,740,040 ​ 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) ​ No Allowance ​ with an Allowance ​ Loans ​ Nonaccrual Loans Commercial real estate - nonowner occupied ​ $ 1,236 ​ $ 4,781 ​ $ 6,017 ​ $ 6,350 Commercial real estate - owner occupied ​ 800 ​ 812 ​ 1,612 ​ 19 All other commercial loans ​ ​ 1,471 ​ ​ 209 ​ ​ 1,680 ​ ​ 11,528 Residential mortgage loans ​ ​ 3,251 ​ ​ 0 ​ ​ 3,251 ​ ​ 3,974 Consumer loans ​ 316 ​ 0 ​ 316 ​ 187 Purchased credit impaired ​ 0 ​ 0 ​ 0 ​ 1,027 Total ​ $ 7,074 ​ $ 5,802 ​ $ 12,876 ​ $ 23,085 ​ 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 ​ $ 26 Residential mortgage loans ​ ​ 3 Consumer loans ​ 2 Total ​ $ 31 ​ ​ 22 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q 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 ​ ​ Amortized ​ ​ (In Thousands) ​ Cost ​ Allowance Commercial real estate - nonowner occupied ​ $ 6,017 ​ $ 609 Commercial real estate - owner occupied ​ 1,612 ​ 183 All other commercial loans ​ ​ 1,680 ​ ​ 103 Total ​ $ 9,309 ​ $ 895 ​ 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. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial ​ Commercial ​ All ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ real estate - ​ real estate - ​ other ​ Residential ​ ​ ​ ​ ​ ​ ​ ​ ​ nonowner ​ owner ​ commercial ​ mortgage ​ Consumer ​ ​ ​ ​ ​ (In Thousands) occupied ​ occupied ​ loans ​ loans ​ loans ​ Unallocated ​ Total Balance, December 31, 2022 $ 6,305 ​ $ 1,942 ​ $ 4,142 ​ $ 2,751 ​ $ 475 ​ $ 1,000 ​ $ 16,615 Adoption of ASU 2016-13 (CECL) ​ 3,763 ​ ​ 7 ​ ​ ( 88 ) ​ ​ ( 344 ) ​ ​ ( 234 ) ​ ​ ( 1,000 ) ​ ​ 2,104 Charge-offs ​ 0 ​ ​ 0 ​ ​ ( 5 ) ​ ​ ( 19 ) ​ ​ ( 43 ) ​ ​ 0 ​ ​ ( 67 ) Recoveries ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 1 ​ ​ 5 ​ ​ 0 ​ ​ 6 (Credit) provision for credit losses on loans ( 414 ) ​ ( 7 ) ​ ( 469 ) ​ 475 ​ 103 ​ 0 ​ ( 312 ) Balance, March 31, 2023 $ 9,654 ​ $ 1,942 ​ $ 3,580 ​ $ 2,864 ​ $ 306 ​ $ 0 ​ $ 18,346 ​ ​ 23 Table of Contents 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) Balance Charge-offs Recoveries Provision (Credit) Balance Allowance for Loan Losses: ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial: ​ ​ ​ ​ ​ Commercial loans secured by real estate ​ $ 4,405 ​ $ 0 ​ $ 0 ​ $ 612 ​ $ 5,017 Commercial and industrial ​ 2,723 ​ ( 150 ) ​ 0 ​ 268 ​ 2,841 Commercial construction and land ​ 637 ​ 0 ​ 0 ​ ( 246 ) ​ 391 Loans secured by farmland ​ 115 ​ 0 ​ 0 ​ 14 ​ 129 Multi-family (5 or more) residential ​ 215 ​ 0 ​ 0 ​ 152 ​ 367 Agricultural loans ​ 25 ​ 0 ​ 0 ​ 2 ​ 27 Other commercial loans ​ 173 ​ 0 ​ 0 ​ ( 23 ) ​ 150 Total commercial ​ 8,293 ​ ( 150 ) ​ 0 ​ 779 ​ 8,922 Residential mortgage: ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential mortgage loans - first liens ​ ​ 3,650 ​ ​ 0 ​ ​ 1 ​ ​ 159 ​ ​ 3,810 Residential mortgage loans - junior liens ​ 184 ​ 0 ​ 0 ​ ( 3 ) ​ 181 Home equity lines of credit ​ 302 ​ 0 ​ 15 ​ ( 11 ) ​ 306 1-4 Family residential construction ​ 202 ​ 0 ​ 0 ​ ( 54 ) ​ 148 Total residential mortgage ​ 4,338 ​ 0 ​ 16 ​ 91 ​ 4,445 Consumer ​ 235 ​ ( 30 ) ​ 7 ​ 25 ​ 237 Unallocated ​ 671 ​ 0 ​ 0 ​ ( 4 ) ​ 667 Total Allowance for Loan Losses ​ $ 13,537 ​ $ ( 180 ) ​ $ 23 ​ $ 891 ​ $ 14,271 ​ ​ ​ 24 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q The following tables present a summary of loan balances and the related allowance for loan losses summarized by portfolio segment and class for each impairment method used as of December 31, 2022. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 Loans: ​ Allowance for Loan Losses: (In Thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Individually ​ Collectively ​ ​ ​ ​ Individually ​ Collectively ​ ​ ​ Evaluated Evaluated Totals Evaluated Evaluated Totals Commercial: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial loans secured by real estate ​ $ 7,154 ​ $ 675,095 ​ $ 682,249 ​ $ 427 ​ $ 6,647 ​ $ 7,074 Commercial and industrial ​ 11,223 ​ 167,048 ​ 178,271 ​ 26 ​ 2,883 ​ 2,909 Paycheck Protection Program - 1st Draw ​ 0 ​ 5 ​ 5 ​ 0 ​ 0 ​ 0 Paycheck Protection Program - 2nd Draw ​ ​ 0 ​ ​ 163 ​ ​ 163 ​ ​ 0 ​ ​ 0 ​ ​ 0 Political subdivisions ​ 0 ​ 90,719 ​ 90,719 ​ 0 ​ 0 ​ 0 Commercial construction and land ​ 244 ​ 73,719 ​ 73,963 ​ 0 ​ 647 ​ 647 Loans secured by farmland ​ 76 ​ 12,874 ​ 12,950 ​ 0 ​ 112 ​ 112 Multi-family (5 or more) residential ​ 0 ​ 55,886 ​ 55,886 ​ 0 ​ 411 ​ 411 Agricultural loans ​ 57 ​ 2,378 ​ 2,435 ​ 0 ​ 21 ​ 21 Other commercial loans ​ 0 ​ 14,857 ​ 14,857 ​ 0 ​ 124 ​ 124 Total commercial ​ 18,754 ​ 1,092,744 ​ 1,111,498 ​ 453 ​ 10,845 ​ 11,298 Residential mortgage: ​ ​ ​ ​ ​ ​ Residential mortgage loans - first liens ​ ​ 506 ​ ​ 509,276 ​ ​ 509,782 ​ ​ 0 ​ ​ 3,413 ​ ​ 3,413 Residential mortgage loans - junior liens ​ 30 ​ 24,919 ​ 24,949 ​ 0 ​ 167 ​ 167 Home equity lines of credit ​ 68 ​ 43,730 ​ 43,798 ​ 0 ​ 282 ​ 282 1-4 Family residential construction ​ 0 ​ 30,577 ​ 30,577 ​ 0 ​ 211 ​ 211 Total residential mortgage ​ 604 ​ 608,502 ​ 609,106 ​ 0 ​ 4,073 ​ 4,073 Consumer ​ 0 ​ 19,436 ​ 19,436 ​ 0 ​ 244 ​ 244 Unallocated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1,000 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total ​ $ 19,358 ​ $ 1,720,682 ​ $ 1,740,040 ​ $ 453 ​ $ 15,162 ​ $ 16,615 ​ 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. ​ 25 Table of Contents 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) ​ December 31, 2022 ​ ​ Unpaid ​ ​ ​ ​ ​ ​ ​ ​ Principal ​ Recorded ​ Related ​ Balance Investment Allowance With no related allowance recorded: ​ ​ ​ Commercial loans secured by real estate ​ $ 8,563 ​ $ 3,754 ​ $ 0 Commercial and industrial ​ 12,926 ​ 11,163 ​ 0 Residential mortgage loans - first liens ​ ​ 506 ​ ​ 506 ​ ​ 0 Residential mortgage loans - junior liens ​ 68 ​ 30 ​ 0 Home equity lines of credit ​ ​ 68 ​ 68 ​ 0 Loans secured by farmland ​ 76 ​ 76 ​ 0 Agricultural loans ​ ​ 57 ​ ​ 57 ​ ​ 0 Construction and other land loans ​ ​ 244 ​ ​ 244 ​ ​ 0 Total with no related allowance recorded ​ 22,508 ​ 15,898 ​ 0 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ With a related allowance recorded: ​ ​ ​ ​ ​ ​ Commercial loans secured by real estate ​ ​ 3,400 ​ ​ 3,400 ​ ​ 427 Commercial and industrial ​ 60 ​ 60 ​ 26 Total with a related allowance recorded ​ 3,460 ​ 3,460 ​ 453 Total ​ $ 25,968 ​ $ 19,358 ​ $ 453 ​ 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 ​ ​ Impaired Loans ​ Impaired Loans on a Cash Basis ​ ​ Three Months Ended ​ Three Months Ended ​ ​ March 31, ​ March 31, ​ 2022 ​ 2022 Commercial: ​ ​ ​ ​ ​ ​ Commercial loans secured by real estate ​ $ 10,735 ​ $ 129 Commercial and industrial ​ ​ 1,626 ​ ​ 4 Commercial construction and land ​ ​ 48 ​ ​ 1 Loans secured by farmland ​ ​ 82 ​ ​ 0 Multi-family (5 or more) residential ​ ​ 789 ​ ​ 0 Agricultural loans ​ ​ 63 ​ ​ 2 Total commercial ​ ​ 13,343 ​ ​ 136 Residential mortgage: ​ ​ ​ ​ ​ Residential mortgage loans - first lien ​ ​ 565 ​ ​ 7 Residential mortgage loans - junior lien ​ ​ 37 ​ ​ 1 Home equity lines of credit ​ ​ 0 ​ ​ 1 Total residential mortgage ​ ​ 602 ​ ​ 9 Total ​ $ 13,945 ​ $ 145 ​ 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. 26 Table of Contents 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) March 31, December 31, ​ ​ 2023 ​ 2022 Foreclosed residential real estate ​ $ 184 ​ $ 0 ​ The recorded investment of consumer mortgage loans secured by residential real properties for which formal foreclosure proceedings were in process is as follows: ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) March 31, December 31, ​ ​ 2023 ​ 2022 Residential real estate in process of foreclosure ​ $ 1,154 ​ $ 1,229 ​ 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 ​ $ 425 Adjustment to allowance for off-balance sheet exposures for adoption of ASU 2016-13 ​ 793 Credit for unfunded commitments ​ ​ ( 40 ) Balance, March 31, 2023 ​ $ 1,178 ​ ​ ​ ​ ​ 27 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q 7. 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) March 31, December 31, ​ ​ 2023 ​ 2022 Gross amount ​ $ 6,639 ​ $ 6,639 Accumulated amortization ​ ( 3,864 ) ​ ( 3,762 ) Net ​ $ 2,775 ​ $ 2,877 ​ Amortization expense related to core deposit intangibles is included in other noninterest expense in the consolidated statements of income, as follows: ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) ​ Three Months Ended ​ ​ March 31, ​ March 31, ​ 2023 2022 Amortization expense ​ $ 102 $ 110 ​ ​ 8. BORROWED FUNDS ​ SHORT-TERM BORROWINGS Short-term borrowings (initial maturity within one year) include the following: ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) March 31, December 31, ​ ​ 2023 ​ 2022 FHLB-Pittsburgh borrowings ​ $ 91,000 ​ $ 77,000 Customer repurchase agreements ​ 2,396 ​ 3,062 Total short-term borrowings ​ $ 93,396 ​ $ 80,062 ​ 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 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 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 $ 23,314,000 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 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 $ 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) 28 Table of Contents 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 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 Long-term borrowings from FHLB-Pittsburgh are as follows: ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) March 31, December 31, ​ ​ 2023 ​ 2022 Loan maturing in 2023 with a rate of 3.25 % ​ $ 2,290 ​ $ 9,303 Loans maturing in 2024 with a weighted-average rate of 2.89 % ​ ​ 29,803 ​ ​ 29,813 Loans maturing in 2025 with a weighted-average rate of 4.04 % ​ ​ 28,205 ​ ​ 23,231 Loans maturing in 2026 with a weighted-average rate of 4.67 % ​ ​ 12,372 ​ ​ 0 Loans maturing in 2027 with a weighted-average rate of 4.00 % ​ ​ 24,031 ​ ​ 0 Loan maturing in 2028 with a rate of 3.72 % ​ ​ 2,000 ​ ​ 0 Total long-term FHLB-Pittsburgh borrowings ​ $ 98,701 ​ $ 62,347 ​ Note: Weighted-average rates are presented as of March 31, 2023. SENIOR NOTES 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 %. The Corporation is not entitled to redeem the Senior Notes, in whole or in part, at any time prior to maturity and the Senior Notes are not subject to redemption by the holders. The Senior Notes are unsecured and unsubordinated obligations of the Corporation only and are not obligations of, and are not guaranteed by, any subsidiary of the Corporation. The Senior Notes were recorded, net of debt issuance costs of $ 337,000 , at an initial carrying amount of $ 14,663,000 . Debt issuance costs are amortized over the term of the Senior Notes as an adjustment of the effective interest rate. Amortization of debt issuance costs associated with the Senior Notes totaling $ 16,000 in the 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) March 31, December 31, ​ ​ 2023 ​ 2022 Senior Notes with an aggregate par value of $ 15,000,000 ; bearing interest at 2.75 % with an effective interest rate of 3.23 %; maturing in June 2026 ​ $ 14,781 ​ $ 14,765 Total carrying value ​ $ 14,781 ​ $ 14,765 ​ SUBORDINATED DEBT 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 . From June 1, 2026 to maturity or early redemption, the interest rate will reset quarterly to an interest rate per annum equal to the three-month Secured Overnight Financing Rate provided by the Federal Reserve Bank of New York plus 259 basis points. The Corporation is entitled to redeem the Subordinated Notes, in whole or in part, at any time on or after June 1, 2026, and to redeem the Subordinated Notes at any time in whole upon certain other events. Any redemption of the Subordinated Notes will be subject to prior regulatory approval to the extent required. 29 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q The Subordinated Notes are not subject to redemption at the option of the holders. The Subordinated Notes are unsecured, subordinated obligations of the Corporation only and are not obligations of, and are not guaranteed by, any subsidiary of the Corporation. The Subordinated Notes rank junior in right to payment to the Corporation's current and future senior indebtedness, including the Senior Notes (described above). The Subordinated Notes are intended to qualify as Tier 2 capital for regulatory capital purposes. The Subordinated Notes were recorded, net of debt issuance costs of $ 563,000 , at an initial carrying amount of $ 24,437,000 . Debt issuance costs are amortized through June 1, 2026 as an adjustment of the effective interest rate. Amortization of debt issuance costs associated with the Subordinated Notes totaling $ 27,000 in the 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) March 31, December 31, ​ ​ 2023 ​ 2022 Agreements with a par value of $ 25,000,000 ; bearing interest at 3.25 % with an effective interest rate of 3.74 % ; maturing in June 2031 and redeemable at par in June 2026 ​ $ 24,634 ​ $ 24,607 Total carrying value ​ $ 24,634 ​ $ 24,607 ​ ​ 9. STOCK-BASED COMPENSATION PLANS 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 three-month period ended March 31, 2023: ​ ​ ​ ​ ​ ​ ​ (Dollars in Thousands) ​ Aggregate ​ ​ ​ ​ Grant ​ ​ ​ ​ Date ​ ​ Number of ​ Fair ​ ​ Shares ​ Value 1st quarter 2023 awards: ​ ​ ​ ​ ​ Time-based awards to independent directors ​ 11,000 ​ $ 257 Time-based awards to employees ​ 31,684 ​ ​ 740 Performance-based awards to employees ​ 11,104 ​ ​ 259 Total ​ 53,788 ​ $ 1,256 ​ 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, 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. ​ 10. CONTINGENCIES In the normal course of business, the Corporation is subject to pending and threatened litigation in which claims for monetary damages are asserted. In management’s opinion, the Corporation’s financial position and results of operations would not be materially affected by the outcome of these legal proceedings. 30 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q 11. DERIVATIVE FINANCIAL INSTRUMENTS The Corporation is a party to derivative financial instruments. 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. Under the terms of these arrangements, the commercial banking customers effectively exchanged their floating interest rate exposures on loans into fixed interest rate exposures. Those interest rate swaps have been simultaneously economically hedged by offsetting interest rate swaps with a third party, such that the Corporation has effectively exchanged its fixed interest rate exposures for floating rate exposures. These derivatives are not designated as hedges and are not speculative. Rather, these derivatives result from a service provided to certain customers. As the interest rate swaps associated with this program do not meet the hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. The aggregate notional amount of interest rate swaps was $ 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 March 31, 2023 ​ At December 31, 2022 ​ Asset Derivatives ​ Liability Derivatives ​ Asset Derivatives ​ Liability Derivatives ​ Notional ​ Fair ​ Notional ​ Fair ​ Notional ​ Fair ​ Notional ​ Fair ​ Amount ​ Value (1) ​ Amount ​ Value (2) ​ Amount ​ Value (1) ​ Amount ​ Value (2) Interest rate swap agreements $ 77,439 ​ $ 3,145 ​ $ 77,439 ​ $ 3,145 ​ $ 77,607 ​ $ 3,638 ​ $ 77,607 ​ $ 3,638 RPA Out ​ 7,200 ​ ​ 21 ​ ​ 0 ​ ​ 0 ​ ​ 7,200 ​ ​ 0 ​ ​ 0 ​ ​ 0 RPA In ​ 0 ​ ​ 0 ​ ​ 10,000 ​ ​ 24 ​ ​ 0 ​ ​ 0 ​ ​ 10,000 ​ ​ 19 ​ (1) Included in other assets in the consolidated balance sheets. (2) Included in accrued interest and other liabilities in the consolidated balance sheets. The Corporation’s agreement with its derivative 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. 31 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q 12. FAIR VALUE MEASUREMENTS AND FAIR VALUES OF FINANCIAL INSTRUMENTS The Corporation measures certain assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB topic 820, “Fair Value Measurements and Disclosures” establishes a framework for measuring fair value that includes a hierarchy used to classify the inputs used in measuring fair value. The hierarchy prioritizes the inputs used in determining valuations into three levels. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The levels of the fair value hierarchy are as follows: Level 1 – Fair value is based on unadjusted quoted prices in active markets that are accessible to the Corporation for identical assets or liabilities. These generally provide the most reliable evidence and are used to measure fair value whenever available. Level 2 – Fair value is based on significant inputs, other than Level 1 inputs, that are observable either directly or indirectly for substantially the full term of the asset or liability through corroboration with observable market data. Level 2 inputs include quoted market prices in active markets for similar assets or liabilities, quoted market prices in markets that are not active for identical or similar assets or liabilities and other observable inputs. Level 3 – Fair value is based on significant unobservable inputs. Examples of valuation methodologies that would result in Level 3 classification include option pricing models, discounted cash flows and other similar techniques. The Corporation monitors and evaluates available data relating to fair value measurements on an ongoing basis and recognizes transfers among the levels of the fair value hierarchy as of the date of an event or change in circumstances that affects the valuation method chosen. Examples of such changes may include the market for a particular asset or liability becoming active or inactive, changes in the availability of quoted prices, or changes in the availability of other market data. 32 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q At 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 ​ Quoted ​ ​ ​ ​ ​ ​ ​ ​ Prices ​ Other ​ ​ ​ ​ ​ ​ ​ ​ in Active ​ Observable ​ Unobservable ​ Total ​ ​ Markets ​ Inputs ​ Inputs ​ Fair (In Thousands) ​ (Level 1) ​ (Level 2) ​ (Level 3) ​ Value Recurring fair value measurements, assets: ​ ​ ​ ​ AVAILABLE-FOR-SALE DEBT SECURITIES: ​ ​ ​ ​ Obligations of the U.S. Treasury ​ $ 31,163 ​ $ 0 ​ $ 0 ​ $ 31,163 Obligations of U.S. Government agencies ​ ​ 0 ​ ​ 23,348 ​ ​ 0 ​ ​ 23,348 Bank holding company debt securities ​ ​ 0 ​ ​ 24,723 ​ ​ 0 ​ ​ 24,723 Obligations of states and political subdivisions: ​ ​ ​ ​ ​ ​ Tax-exempt ​ 0 ​ 117,812 ​ 0 ​ 117,812 Taxable ​ 0 ​ 57,572 ​ 0 ​ 57,572 Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies: ​ ​ ​ ​ Residential pass-through securities ​ 0 ​ 97,807 ​ 0 ​ 97,807 Residential collateralized mortgage obligations ​ 0 ​ 38,117 ​ 0 ​ 38,117 Commercial mortgage-backed securities ​ 0 ​ 74,195 ​ 0 ​ 74,195 Private label commercial mortgage-backed securities ​ 0 ​ 8,077 ​ 0 ​ 8,077 Total available-for-sale debt securities ​ 31,163 ​ 441,651 ​ 0 ​ 472,814 Marketable equity security ​ 873 ​ 0 ​ 0 ​ 873 Servicing rights ​ 0 ​ 0 ​ 2,585 ​ 2,585 Interest rate swap agreements, assets ​ ​ 0 ​ ​ 3,145 ​ ​ 0 ​ ​ 3,145 Total recurring fair value measurements, assets ​ $ 32,036 ​ $ 444,796 ​ $ 2,585 ​ $ 479,417 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Recurring fair value measurements, liabilities, ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest rate swap agreements, liabilities ​ $ 0 ​ $ 3,145 ​ $ 0 ​ $ 3,145 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nonrecurring fair value measurements, assets: ​ ​ ​ ​ Loans individually evaluated for credit loss, net ​ $ 0 ​ $ 0 ​ $ 4,907 ​ $ 4,907 Foreclosed assets held for sale ​ 0 ​ 0 ​ 459 ​ 459 Total nonrecurring fair value measurements, assets ​ $ 0 ​ $ 0 ​ $ 5,366 ​ $ 5,366 ​ 33 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ Quoted ​ ​ ​ ​ ​ ​ ​ ​ Prices ​ Other ​ ​ ​ ​ ​ ​ ​ ​ in Active ​ Observable ​ Unobservable ​ Total ​ ​ Markets ​ Inputs ​ Inputs ​ Fair (In Thousands) ​ (Level 1) ​ (Level 2) ​ (Level 3) ​ Value Recurring fair value measurements, assets: ​ ​ ​ ​ AVAILABLE-FOR-SALE DEBT SECURITIES: ​ ​ ​ ​ Obligations of the U.S. Treasury ​ $ 31,836 ​ $ 0 ​ $ 0 ​ $ 31,836 Obligations of U.S. Government agencies ​ ​ 0 ​ ​ 23,430 ​ ​ 0 ​ ​ 23,430 Bank holding company debt securities ​ ​ 0 ​ ​ 25,386 ​ ​ 0 ​ ​ 25,386 Obligations of states and political subdivisions: ​ ​ ​ ​ ​ ​ Tax-exempt ​ 0 ​ 132,623 ​ 0 ​ 132,623 Taxable ​ 0 ​ 56,812 ​ 0 ​ 56,812 Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies: ​ ​ ​ ​ Residential pass-through securities ​ 0 ​ 99,941 ​ 0 ​ 99,941 Residential collateralized mortgage obligations ​ 0 ​ 40,296 ​ 0 ​ 40,296 Commercial mortgage-backed securities ​ 0 ​ 79,686 ​ 0 ​ 79,686 Private label commercial mortgage-backed securities ​ 0 ​ 8,023 ​ 0 ​ 8,023 Total available-for-sale debt securities ​ 31,836 ​ 466,197 ​ 0 ​ 498,033 Marketable equity security ​ 859 ​ 0 ​ 0 ​ 859 Servicing rights ​ 0 ​ 0 ​ 2,653 ​ 2,653 Interest rate swap agreements, assets ​ ​ 0 ​ ​ 3,638 ​ ​ 0 ​ ​ 3,638 Total recurring fair value measurements, assets ​ $ 32,695 ​ $ 469,835 ​ $ 2,653 ​ $ 505,183 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Recurring fair value measurements, liabilities, ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest rate swap agreements, liabilities ​ $ 0 ​ $ 3,638 ​ $ 0 ​ $ 3,638 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nonrecurring fair value measurements, assets: ​ ​ ​ ​ Impaired loans, net ​ $ 0 ​ $ 0 ​ $ 3,007 ​ $ 3,007 Foreclosed assets held for sale ​ 0 ​ 0 ​ 275 ​ 275 Total nonrecurring fair value measurements, assets ​ $ 0 ​ $ 0 ​ $ 3,282 ​ $ 3,282 ​ Management’s evaluation and selection of valuation techniques and the unobservable inputs used in determining the fair values of assets valued using Level 3 methodologies include sensitive assumptions. Other market participants might use substantially different assumptions, which could result in calculations of fair values that would be substantially different than the amount calculated by management. 34 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q At 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 ​ ​ ​ 3/31/2023 ​ Valuation ​ Unobservable ​ ​ ​ ​ Method or Value As of Asset ​ (In Thousands) ​ Technique ​ Input(s) ​ ​ ​ ​ 3/31/2023 Servicing rights ​ $ 2,585 Discounted cash flow Discount rate ​ 13.00 % Rate used through modeling period ​ ​ ​ ​ ​ Loan prepayment speeds ​ ​ 138.00 % Weighted-average PSA ​ ​ ​ ​ ​ Servicing fees ​ ​ 0.25 % of loan balances ​ ​ ​ ​ ​ ​ ​ ​ ​ 4.00 % of payments are late ​ ​ ​ ​ ​ ​ ​ ​ ​ 5.00 % late fees assessed ​ ​ ​ ​ ​ ​ ​ ​ ​ $ 1.94 ​ Miscellaneous fees per account per month ​ ​ ​ ​ ​ Servicing costs ​ $ 6.00 ​ Monthly servicing cost per account ​ ​ ​ ​ ​ ​ ​ ​ ​ $ 24.00 ​ Additional monthly servicing cost per loan on loans more than 30 days delinquent ​ ​ ​ ​ ​ ​ ​ ​ ​ 1.50 % of loans more than 30 days delinquent ​ ​ ​ ​ ​ ​ ​ ​ 3.00 % annual increase in servicing costs ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value at ​ ​ ​ 12/31/2022 ​ Valuation ​ Unobservable ​ ​ ​ ​ Method or Value As of Asset ​ (In Thousands) ​ Technique ​ Input(s) ​ ​ ​ ​ 12/31/2022 Servicing rights ​ $ 2,653 Discounted cash flow Discount rate ​ 13.00 % Rate used through modeling period ​ ​ ​ ​ ​ Loan prepayment speeds ​ ​ 133.00 % Weighted-average PSA ​ ​ ​ ​ ​ Servicing fees ​ ​ 0.25 % of loan balances ​ ​ ​ ​ ​ ​ ​ ​ ​ 4.00 % of payments are late ​ ​ ​ ​ ​ ​ ​ ​ ​ 5.00 % late fees assessed ​ ​ ​ ​ ​ ​ ​ ​ ​ $ 1.94 ​ Miscellaneous fees per account per month ​ ​ ​ ​ ​ Servicing costs ​ $ 6.00 ​ Monthly servicing cost per account ​ ​ ​ ​ ​ ​ ​ ​ ​ $ 24.00 ​ Additional monthly servicing cost per loan on loans more than 30 days delinquent ​ ​ ​ ​ ​ ​ ​ ​ ​ 1.50 % of loans more than 30 days delinquent ​ ​ ​ ​ ​ ​ ​ ​ 3.00 % annual increase in servicing costs ​ The fair value of servicing rights is affected by expected future interest rates. Increases (decreases) in future expected interest rates tend to increase (decrease) the fair value of the Corporation’s servicing rights because of changes in expected prepayment behavior by the borrowers on the underlying loans. Unrealized gains (losses) in fair value of servicing rights are included in Loan servicing fees, net, in the unaudited consolidated statements of income. Following is a reconciliation of activity for Level 3 assets measured at fair value on a recurring basis: ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) ​ Three Months Ended ​ March 31, 2023 March 31, 2022 Servicing rights balance, beginning of period ​ $ 2,653 ​ $ 2,329 Originations of servicing rights ​ 15 ​ 98 Unrealized (loss) gain included in earnings ​ ( 83 ) ​ 2 Servicing rights balance, end of period ​ $ 2,585 ​ $ 2,429 ​ 35 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q Loans are classified as impaired when, based on current information and events, it is probable that the Corporation will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Foreclosed assets held for sale consist of real estate acquired by foreclosure. For impaired commercial loans secured by real estate and foreclosed assets held for sale, estimated fair values are determined primarily using values from third-party appraisals. Appraised values are discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property. At 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) ​ ​ ​ ​ Weighted ​ ​ ​ ​ ​ Valuation ​ ​ ​ ​ ​ Average ​ ​ Balance at ​ Allowance at ​ Fair Value at ​ Valuation ​ Unobservable ​ Discount at Asset ​ 3/31/2023 ​ 3/31/2023 ​ 3/31/2023 ​ Technique ​ Inputs ​ 3/31/2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans individually evaluated for credit loss: ​ ​ ​ ​ Commercial real estate - nonowner occupied ​ $ 4,781 ​ $ 609 ​ $ 4,172 Sales comparison Discount to appraised value 27 % Commercial real estate - owner occupied ​ ​ 812 ​ ​ 183 ​ ​ 629 ​ Sales comparison & SBA guaranty ​ Discount to appraised value ​ 56 % All other commercial loans ​ ​ 209 ​ ​ 103 ​ ​ 106 ​ Liquidation & SBA guaranty ​ Discount to appraised value ​ 20 % Total loans individually evaluated for credit loss ​ $ 5,802 ​ $ 895 ​ $ 4,907 ​ Foreclosed assets held for sale - real estate: ​ ​ ​ ​ ​ Residential (1-4 family) ​ $ 184 ​ $ 0 ​ $ 184 Sales comparison Discount to appraised value 36 % Commercial real estate ​ ​ 275 ​ ​ 0 ​ ​ 275 ​ Sales comparison ​ Discount to appraised value ​ 50 % Total foreclosed assets held for sale ​ $ 459 ​ $ 0 ​ $ 459 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Dollars In Thousands) ​ ​ ​ ​ Weighted ​ ​ ​ ​ Valuation ​ ​ ​ ​ ​ Average ​ ​ Balance at ​ Allowance at ​ Fair Value at ​ Valuation ​ Unobservable ​ Discount at Asset ​ 12/31/2022 ​ 12/31/2022 ​ 12/31/2022 ​ Technique ​ Inputs ​ 12/31/2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Impaired loans: ​ ​ ​ ​ Commercial: ​ ​ ​ ​ ​ ​ ​ Commercial loans secured by real estate ​ $ 3,400 ​ $ 427 ​ $ 2,973 Sales comparison Discount to appraised value 25 % Commercial and industrial ​ ​ 60 ​ ​ 26 ​ ​ 34 ​ Liquidation of assets ​ Discount to appraised value ​ 33 % Total impaired loans ​ $ 3,460 ​ $ 453 ​ $ 3,007 ​ Foreclosed assets held for sale - real estate: ​ ​ ​ ​ ​ Commercial real estate ​ $ 275 ​ $ 0 ​ $ 275 Sales comparison Discount to appraised value 50 % Total foreclosed assets held for sale ​ $ 275 ​ $ 0 ​ $ 275 ​ ​ ​ Certain of the Corporation’s financial instruments are not measured at fair value in the consolidated financial statements. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. Certain financial instruments and all nonfinancial instruments are excluded from disclosure requirements. Therefore, the aggregate fair value amounts presented may not represent the underlying fair value of the Corporation. 36 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q The estimated fair values, and related carrying amounts, of the Corporation’s financial instruments that are not recorded at fair value are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) ​ Fair Value ​ March 31, 2023 ​ December 31, 2022 ​ ​ Hierarchy ​ Carrying ​ Fair ​ Carrying ​ Fair ​ Level Amount Value Amount Value Financial assets: ​ ​ ​ ​ Cash and cash equivalents Level 1 ​ $ 46,112 ​ $ 46,112 ​ $ 47,698 ​ $ 47,698 Certificates of deposit Level 2 ​ 6,100 ​ 5,729 ​ 7,350 ​ 6,956 Restricted equity securities (included in other assets) Level 2 ​ 16,246 ​ 16,246 ​ 14,418 ​ 14,418 Loans, net Level 3 ​ 1,726,793 ​ 1,691,155 ​ 1,723,425 ​ 1,674,002 Accrued interest receivable Level 2 ​ 8,805 ​ 8,805 ​ 8,653 ​ 8,653 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Financial liabilities: ​ ​ ​ ​ Deposits with no stated maturity Level 2 ​ 1,584,383 ​ 1,584,383 ​ 1,702,404 ​ 1,702,404 Time deposits Level 2 ​ 331,657 ​ 329,780 ​ 295,189 ​ 293,814 Short-term borrowings Level 2 ​ 93,396 ​ 93,396 ​ 80,062 ​ 80,062 Long-term borrowings Level 2 ​ 98,701 ​ 97,992 ​ 62,347 ​ 60,944 Senior debt ​ Level 2 ​ ​ 14,781 ​ ​ 13,346 ​ ​ 14,765 ​ ​ 9,712 Subordinated debt ​ Level 2 ​ ​ 24,634 ​ ​ 21,491 ​ ​ 24,607 ​ ​ 16,186 Accrued interest payable Level 2 ​ 980 ​ 980 ​ 461 ​ 461 ​ The Corporation has commitments to extend credit and has issued standby letters of credit. Standby letters of credit are conditional guarantees of performance by a customer to a third party. Estimates of the fair value of these off-balance sheet items were not made because of the short-term nature of these arrangements and the credit standing of the counterparties. ​ ​ ​ 37 Table of Contents CITIZENS & NORTHERN CORPORATION – FORM 10-Q