What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-08-08 compared with 2023-05-05 · 230 added, 136 removed, 967 unchanged (27% of the section changed)

32 unchanged sentences

authorized 30,000,000 shares;

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

issued 16,030,172 and outstanding 15,268,096 at June 30, 2023;

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

2 unchanged sentences

Treasury stock, at cost;

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

762,076 shares at June 30, 2023 and 511,353

shares at December 31, 2022

7 unchanged sentences

Three Months Ended

Six Months Ended

INTEREST INCOME

11 unchanged sentences

Net interest income

(Credit) provision for credit losses

Net interest income after (credit) provision for credit losses

Provision for credit losses

Net interest income after provision for credit losses

NONINTEREST INCOME

7 unchanged sentences

Other noninterest income

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

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

Total noninterest income

17 unchanged sentences

Three Months Ended

Six Months Ended

Available-for-sale debt securities:

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

Reclassification adjustment for gains realized in income

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

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

Reclassification adjustment for losses (gains) realized in income

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

Unfunded pension and postretirement obligations:

2 unchanged sentences

Other comprehensive (loss) income on pension and postretirement obligations

Other comprehensive income (loss) before income tax

Income tax related to other comprehensive (income) loss

Net other comprehensive income (loss)

Other comprehensive (loss) income before income tax

Income tax related to other comprehensive loss (income)

Net other comprehensive (loss) income

Comprehensive income (loss)

3 unchanged sentences

(In Thousands) (Unaudited)

Three Months Ended

Six Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

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

(Credit) provision for credit losses

Provision for credit losses

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

19 unchanged sentences

Purchase of Federal Home Loan Bank of Pittsburgh stock

Net (increase) decrease in loans

Net increase in loans

Purchase of premises and equipment

Proceeds from sale of foreclosed assets

Net Cash Provided by (Used in) Investing Activities

Net Cash Used in Investing Activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Net (decrease) increase in deposits

Net increase in short-term borrowings

Net increase in deposits

Net (decrease) increase in short-term borrowings

Proceeds from long-term borrowings - FHLB advances

Repayments of long-term borrowings - FHLB advances

Redemption of subordinated debt

Sale of treasury stock

1 unchanged sentence

Common dividends paid

Net Cash (Used in) Provided by Financing Activities

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

Net Cash Provided by Financing Activities

DECREASE IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

1 unchanged sentence

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

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

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

Assets acquired through foreclosure of real estate loans

Leased assets obtained in exchange for new operating lease liabilities

Interest paid

5 unchanged sentences

Comprehensive

Three Months Ended March 31, 2023

Three Months Ended June 30, 2023

Balance, March 31, 2023

Other comprehensive loss, net

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

Shares issued for dividend reinvestment plan

Forfeiture of restricted stock

Stock-based compensation expense

Treasury stock purchases

Balance, June 30, 2023

Three Months Ended June 30, 2022

Balance, March 31, 2022

Other comprehensive loss, net

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

Shares issued for dividend reinvestment plan

Forfeiture of restricted stock

Stock-based compensation expense

Treasury stock purchases

Balance, June 30, 2022

Comprehensive

Six Months Ended June 30, 2023

(Loss) Income

9 unchanged sentences

Treasury stock purchases

Balance, March 31, 2023

Three Months Ended March 31, 2022

Balance, June 30, 2023

Six Months Ended June 30, 2022

Balance, December 31, 2021

8 unchanged sentences

Treasury stock purchases

Balance, March 31, 2022

Balance, June 30, 2022

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

11 unchanged sentences

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.

Operating results reported for the six-month period ended June 30, 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.

17 unchanged sentences

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:

The following table illustrates the impact from the adoption of ASC 326:

(In Thousands)

9 unchanged sentences

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.

Essentially all of the PCD loans were reported as nonaccrual loans at January 1, 2023 and June 30, 2023.

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

20 unchanged sentences

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.

At June 30, 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 $ 2,202,000 at June 30, 2023 and was excluded from the estimate of credit losses.

Allowance for Credit Losses on Loans

4 unchanged sentences

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.

Accrued interest receivable on loans totaled $ 6,217,000 at June 30, 2023 and was excluded from the estimate of credit losses.

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

23 unchanged sentences

1-4 Family – residential

1-4 Family residential construction

1-4 Family residential construction and land

Consumer loans, further broken down into the following classes:

1 unchanged sentence

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.

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

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

6 unchanged sentences

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.

In the June 30, 2023 calculation, the Corporation used the net charge-off percentage for the 5.5 -year period ended June 30, 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.

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

The estimated weighted-average remaining life of the entire portfolio was calculated to be 4.20 years at June 30, 2023 and 4.36 years at January 1, 2023.

Management determined that use of the Corporation’s net charge-off experience over a 5.5 -year period at June 30, 2023 and 5-year period at January 1, 2023 would provide a reasonable time period to include in the WARM expected loss rate calculations in relationship to the weighted-average life of the portfolio overall and to each of the pools.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

22 unchanged sentences

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.

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 provision for credit losses in the unaudited consolidated statements of income.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

8 unchanged sentences

Three Months Ended

Six Months Ended

Dividends and undistributed earnings allocated to participating securities

10 unchanged sentences

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

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

The weighted-average number of anti-dilutive instruments outstanding was 8,988 in the three-month period ended June 30, 2023 and 0 in the six-month period ended June 30, 2023.

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

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

3 unchanged sentences

(In Thousands)

Three Months Ended March 31, 2023

Three Months Ended June 30, 2023

Available-for-sale debt securities:

Unrealized holding losses on available-for-sale debt securities

Reclassification adjustment for losses realized in income

Other comprehensive loss from available-for-sale debt securities

Unfunded pension and postretirement obligations:

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

Other comprehensive loss on unfunded retirement obligations

Total other comprehensive loss

(In Thousands)

Three Months Ended June 30, 2022

Available-for-sale debt securities:

Unrealized holding losses on available-for-sale debt securities

Reclassification adjustment for losses realized in income

Other comprehensive loss from available-for-sale debt securities

Unfunded pension and postretirement obligations:

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

Other comprehensive loss on unfunded retirement obligations

Total other comprehensive loss

(In Thousands)

Six Months Ended June 30, 2023

Available-for-sale debt securities:

Unrealized holding gains on available-for-sale debt securities

7 unchanged sentences

(In Thousands)

Three Months Ended March 31, 2022

Six Months Ended June 30, 2022

Available-for-sale debt securities:

7 unchanged sentences

Total other comprehensive loss

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

The amounts shown in the table immediately above are included in the following line items in the consolidated statements of income:

1 unchanged sentence

Consolidated Statements of Income

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

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

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

Realized (losses) 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)

2 unchanged sentences

Income tax provision

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

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

3 unchanged sentences

(Loss) Income

Three Months Ended March 31, 2023

Three Months Ended June 30, 2023

Balance, beginning of period

Other comprehensive income during three months ended March 31, 2023

Other comprehensive loss during three months ended June 30, 2023

Balance, end of period

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022

Balance, beginning of period

Other comprehensive loss during three months ended March 31, 2022

Other comprehensive loss during three months ended June 30, 2022

Balance, end of period

(In Thousands)

Comprehensive

on Securities

(Loss) Income

Six Months Ended June 30, 2023

Balance, beginning of period

Other comprehensive income during six months ended June 30, 2023

Balance, end of period

Six Months Ended June 30, 2022

Balance, beginning of period

Other comprehensive loss during six months ended June 30, 2022

Balance, end of period

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

CASH AND DUE FROM BANKS

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

Cash and due from banks at June 30, 2023 and December 31, 2022 include the following:

(In Thousands)

6 unchanged sentences

The Corporation maintains cash and cash equivalents with certain financial institutions in excess of the FDIC insurance limit.

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

Amortized cost and fair value of available-for-sale debt securities at June 30, 2023 and December 31, 2022 are summarized as follows:

(In Thousands)

March 31, 2023

June 30, 2023

Obligations of the U.S.

25 unchanged sentences

Total available-for-sale debt securities

The following table presents gross unrealized losses and fair value of available-for-sale debt securities with unrealized loss positions 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

June 30, 2023

Less Than 12 Months

33 unchanged sentences

Three Months Ended

Six Months Ended

Gross realized gains from sales

Gross realized losses from sales

Net realized gains

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

Net realized (losses) gains

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

June 30, 2023

Due in one year or less

12 unchanged sentences

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.

Investment securities carried at $ 213,954,000 at June 30, 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.

A summary of information management considered in evaluating debt and equity securities for credit losses at June 30, 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.

As reflected in the table above, gross unrealized holding losses on available-for-sale debt securities totaled $ 61,682,000 at June 30, 2023 and $ 64,082,000 at December 31, 2022.

At June 30, 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 and 2023.

At June 30, 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 June 30, 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 June 30, 2023 and December 31, 2022.

Equity Securities

2 unchanged sentences

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

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

C&N Bank’s investment in FHLB-Pittsburgh stock, included in other assets in the consolidated balance sheets, was $ 14,770,000 at June 30, 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 June 30, 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.

The Corporation has a marketable equity security included in other assets in the consolidated balance sheets with a carrying value of $ 859,000 at June 30, 2023 and December 31, 2022, consisting exclusively of one mutual fund.

There was an unrealized loss on the mutual fund of $ 141,000 at June 30, 2023 and December 31, 2022.

Changes in the unrealized gains or losses on this security, which are included in other noninterest income in the consolidated statements of income, were a loss of $ 14,000 in the second quarter 2023 and no net gain or loss in the six-month period ended June 30, 2023, and a loss of $ 31,000 in the second quarter 2022 and a loss of $ 76,000 in the six-month period ended June 30, 2022.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

LOANS AND ALLOWANCE FOR CREDIT LOSSES

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

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

Loans receivable at June 30, 2023 and December 31, 2022 are summarized as follows:

Summary of Loans by Type

7 unchanged sentences

(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.

In the table above, outstanding loan balances are presented net of deferred loan origination fees, net, of $ 4,639,000 at June 30, 2023 and $ 4,725,000 at December 31, 2022.

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

2 unchanged sentences

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:

Subsequently, the Corporation has recognized amortization and accretion of a portion of the market rate adjustments and credit adjustments on performing loans.

For the three-month and six-month periods ended June 30, 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

Six Months Ended

Market Rate Adjustment

Adjustments to gross amortized cost of loans at beginning of period

Amortization recognized in interest income

(Amortization) accretion recognized in interest income

Adjustments to gross amortized cost of loans at end of period

4 unchanged sentences

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

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

The following table presents an analysis of past due loans as of June 30, 2023:

(In Thousands)

As of March 31, 2023

As of June 30, 2023

Commercial real estate - nonowner occupied

20 unchanged sentences

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:

The following table presents the recorded investment in loans by credit quality indicators by year of origination as of June 30, 2023:

(In Thousands)

30 unchanged sentences

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

March 31, 2023

June 30, 2023

December 31, 2022

11 unchanged sentences

Purchased credit impaired

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

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

For the Three Months

The Corporation recognized $ 196,000 and $ 427,000 of interest income on nonaccrual loans during the three months and six months ended June 30, 2023, respectively.

The following table represents the accrued interest receivable written off by reversing interest income during the three-month and six-month periods ended June 30, 2023:

Three Months Ended

Six Months Ended

(In Thousands)

Ended March 31, 2023

June 30, 2023

Commercial real estate - nonowner occupied

13 unchanged sentences

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

June 30, 2023

(In Thousands)

2 unchanged sentences

All other commercial loans

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

The following table summarizes the activity related to the allowance for credit losses for the three and six months ended June 30, 2023 under the CECL methodology.

real estate -

1 unchanged sentence

(In Thousands)

Balance, March 31, 2023

Provision (credit) for credit losses on loans

Balance, June 30, 2023

real estate -

(In Thousands)

Balance, December 31, 2022

Adoption of ASU 2016-13 (CECL)

(Credit) provision for credit losses on loans

Balance, March 31, 2023

Provision (credit) for credit losses on loans

Balance, June 30, 2023

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

1 unchanged sentence

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

Three Months Ended March 31, 2022

December 31, 2021

Three Months Ended June 30, 2022

March 31, 2022

June 30, 2022

(In Thousands)

16 unchanged sentences

Total Allowance for Loan Losses

Six Months Ended June 30, 2022

December 31, 2021

June 30, 2022

(In Thousands)

Provision (Credit)

Allowance for Loan Losses:

Commercial loans secured by real estate

Commercial and industrial

Commercial construction and land

Loans secured by farmland

Multi-family (5 or more) residential

Agricultural loans

Other commercial loans

Total commercial

Residential mortgage:

Residential mortgage loans - first liens

Residential mortgage loans - junior liens

Home equity lines of credit

1-4 Family residential construction

Total residential mortgage

Total Allowance for Loan Losses

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

47 unchanged sentences

(In Thousands)

Average Investment in

Interest Income Recognized on

Impaired Loans

Average Investment in Impaired Loans

Impaired Loans on a Cash Basis

Three Months Ended

Six Months Ended

Three Months Ended

Six Months Ended

Commercial loans secured by real estate

19 unchanged sentences

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.

There were no loans modified to borrowers experiencing financial difficulty in the three-month and six-month periods ended June 30, 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:

8 unchanged sentences

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 -

The allowance for credit losses for off-balance sheet exposures of $ 1,154,000 at June 30, 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 and six months ended June 30, 2023.

(In Thousands)

Off-Balance Sheet Exposures

Balance, December 31, 2022

June 30, 2023

Beginning Balance

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

Credit for unfunded commitments

Balance, March 31, 2023

Balance, June 30, 2023

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

1 unchanged sentence

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 .

At June 30, 2023 and December 31, 2022, the net carrying value of goodwill was $ 52,505,000 .

Information related to core deposit intangibles is as follows:

4 unchanged sentences

Three Months Ended

Six Months Ended

Amortization expense

6 unchanged sentences

Total short-term borrowings

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

The Corporation had available credit with other correspondent banks totaling $ 95,000,000 at June 30, 2023 and December 31, 2022.

These lines of credit are primarily unsecured.

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

No amounts were outstanding at June 30, 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 June 30, 2023, the Corporation had available credit in the amount of $ 21,903,000 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.

As collateral for this line, the Corporation has pledged available-for-sale securities with a carrying value of $ 22,814,000 at June 30, 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.

The weighted average rate paid by the Corporation on customer repurchase agreements was 0.10 % at June 30, 2023 and December 31, 2022.

The carrying value of the underlying securities was $ 940,000 at June 30, 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 $ 1,309,714,000 at June 30, 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)

The carrying values of the Corporation’s holdings of FHLB-Pittsburgh stock (included in other assets in the consolidated balance sheets) were $ 14,770,000 at June 30, 2023 and $ 14,168,000 at December 31, 2022.

The Corporation’s total credit facility with FHLB-Pittsburgh was $ 882,845,000 at June 30, 2023, including an unused (available) amount

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

amount of $ 655,577,000 .

of $ 725,417,000 .

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 June 30, 2023, short-term borrowings included an overnight borrowing from FHLB-Pittsburgh of $ 5,500,000 at an interest rate of 5.39 % and an advance of $ 25,000,000 maturing in July 2023 with an interest rate of 5.39 %.

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.

9 unchanged sentences

Total long-term FHLB-Pittsburgh borrowings

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

Weighted-average rates are presented as of June 30, 2023.

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

4 unchanged sentences

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

Amortization of debt issuance costs associated with the Senior Notes totaling $ 16,000 in the 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:

Amortization of debt issuance costs associated with the Senior Notes totaling $ 17,000 in the second quarter 2023 and $ 33,000 in the six-month period ended June 30, 2023, and $ 16,000 in the second quarter 2022 and $ 32,000 in the six month-period ended June 30, 2022, was included in interest expense in the unaudited consolidated statements of income.

At June 30, 2023 and December 31, 2022, outstanding Senior Notes are as follows:

(In Thousands)

16 unchanged sentences

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

Amortization of debt issuance costs associated with the Subordinated Notes totaling $ 27,000 in the 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:

Amortization of debt issuance costs associated with the Subordinated Notes totaling $ 27,000 in the second quarter 2023 and $ 54,000 in the six-month period ended June 30, 2023, and $ 26,000 in the second quarter 2022 and $ 52,000 in the six-month period ended June 30, 2022, was included in interest expense in the unaudited consolidated statements of income.

At June 30, 2023 and December 31, 2022, the carrying amounts of subordinated debt agreements are as follows:

(In Thousands)

6 unchanged sentences

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 .

There were no restricted stock awards granted in the three-month period ended June 30, 2023.

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

8 unchanged sentences

Total annual stock-based compensation for the year ending December 31, 2023 is estimated to total $ 1,352,000 .

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.

Total stock-based compensation expense attributable to restricted stock awards amounted to $ 318,000 in the second quarter 2023 and $ 413,000 in the second quarter 2022.

Total stock-based compensation expense attributable to restricted stock awards amount to $ 695,000 in the six-month period ended June 30, 2023 and $ 781,000 in the six-month period ended June 30, 2022.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

CONTINGENCIES

1 unchanged sentence

In management’s opinion, the Corporation’s financial position and results of operations would not be materially affected by the outcome of these legal proceedings.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

DERIVATIVE FINANCIAL INSTRUMENTS

7 unchanged sentences

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

The aggregate notional amount of interest rate swaps was $ 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 aggregate notional amount of interest rate swaps was $ 153,714,000 at June 30, 2023 and $ 155,214,000 at December 31, 2022.

There were no interest rate swaps originated in the three or six-month periods ended June 30, 2023 and 2022.

There were no gross amounts of interest rate swap-related assets and liabilities not offset in the consolidated balance sheets at June 30, 2023.

The net impact on the consolidated statements of income from interest rate swaps was an increase in interest income on loans of $ 439,000 in the second quarter 2023 and $ 784,000 in the six-month period ended June 30, 2023 as compared to a reduction in interest income on loans of $ 220,000 in second quarter 2022 and $ 537,000 in the six months ended June 30, 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:

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 $ 2,000 in the second quarter 2023 and $ 18,000 in the six-month period ended June 30, 2023 with no comparable amount in the second quarter 2022 and in the six months ended June 30, 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 June 30, 2023 and December 31, 2022:

(In Thousands)

At March 31, 2023

At June 30, 2023

At December 31, 2022

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(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.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

The Corporation’s agreements 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.

Available-for-sale securities with a carrying value of $ 2,265,000 were pledged as collateral against the Corporation’s obligations related to the interest rate swaps at June 30, 2023.

FAIR VALUE MEASUREMENTS AND FAIR VALUES OF FINANCIAL INSTRUMENTS

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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

At June 30, 2023 and December 31, 2022, assets and liabilities measured at fair value and the valuation methods used are as follows:

June 30, 2023

(In Thousands)

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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:

At June 30, 2023 and December 31, 2022, quantitative information regarding valuation techniques and the significant unobservable inputs used for assets measured on a recurring basis using unobservable inputs (Level 3 methodologies) are as follows:

Fair Value at

42 unchanged sentences

Three Months Ended

March 31, 2023

March 31, 2022

Six Months Ended

June 30, 2023

June 30, 2022

June 30, 2023

June 30, 2022

Servicing rights balance, beginning of period

3 unchanged sentences

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.

Loans are individually evaluated for credit loss 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.

For individually evaluated 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:

At June 30, 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)

43 unchanged sentences

(In Thousands)

March 31, 2023

June 30, 2023

December 31, 2022

16 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements