What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-08-07 compared with 2024-05-07 · 214 added, 123 removed, 483 unchanged (41% of the section changed)

20 unchanged sentences

EARNINGS OVERVIEW

First Quarter 2024 as Compared to First Quarter 2023

First quarter 2024 net income was $5,306,000, or $0.35 per diluted share, as compared to $6,253,000, or $0.40 per diluted share, in the first quarter 2023.

Second Quarter 2024 as Compared to Second Quarter 2023

Second quarter 2024 net income was $6,113,000, or $0.40 per diluted share, as compared to $6,043,000, or $0.39 per diluted share, in the second quarter 2023.

Significant variances were as follows:

● Net interest income of $19,041,000 in the first quarter 2024 was $1,740,000 lower than the first quarter 2023 total reflecting an increase in interest expense of $5,937,000 and an increase of $4,197,000 in interest and dividend income .

● Net interest income of $19,445,000 in the second quarter 2024 was $917,000 lower than the second quarter 2023.

The net interest margin was 3.31% in the second quarter 2024, down from 3.53% in the second quarter 2023.

The interest rate spread decreased 0.37%, as the average rate on interest-bearing liabilities increased 0.85%, while the average yield on earning assets increased 0.48%.

The net interest margin was 3.29% in the first quarter 2024, down from 3.71% in the first quarter 2023.

● For the quarter ended March 31, 2024, there was a provision for credit losses of $954,000, an increase of $1,306,000 in expense compared to a credit for credit losses (reduction in expense) of $352,000 in the first quarter 2023.

The provision for the first quarter 2024 included expense related to loans receivable of $960,000 and a credit related to off-balance sheet exposures of $6,000.

In the first quarter 2024, the provision related to loans receivable resulted from an increase in qualitative factors and specific allowances on individually evaluated commercial loans, partially offset by reductions in the Corporation’s average net charge-off experience and the impact of an economic forecast used in the calculation of the allowance for credit losses (“ACL”).

The credit for credit losses in the first quarter

● For the quarter ended June 30, 2024, the provision for credit losses was $565,000, a decrease of $247,000 compared to $812,000 in the second quarter 2023.

The allowance for credit losses (“ACL”) as a percentage of gross loans receivable was 1.08% at June 30, 2024 as compared to 1.05% at June 30, 2023.

● Noninterest income of $7,854,000 in the second quarter 2024 increased $1,220,000 from the second quarter 2023 amount.

Significant variances included the following:

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

2023 resulted mainly from a reduction in the allowance related to the commercial segment of the portfolio.

The ACL as a percentage of gross loans receivable was 1.07% at March 31, 2024 as compared to 1.05% at March 31, 2023.

● Noninterest income of $6,675,000 in the first quarter 2024 increased $1,059,000 from the first quarter 2023 amount.

Ø Other noninterest income of $1,943,000 increased $356,000 from the second quarter of 2023, including an increase of $145,000 in dividends from FHLB-Pittsburgh and Federal Reserve stock and an increase of $120,000 in income recognized from tax credits related to donations.

Ø Earnings from the increase in cash surrender value of life insurance of $444,000 increased $292,000 from the second quarter 2023 reflecting the earnings on additional Bank-Owned Life Insurance purchased in December 2023.

Ø Trust revenue of $2,014,000 increased $210,000 from the second quarter of 2023, including an increase of $169,000 in revenue from new business.

Ø Brokerage and insurance revenue of $527,000 increased $162,000 from the second quarter of 2023 due to an increase in sales volume.

Ø Net gains from sale of loans of $235,000 increased $96,000 from the second quarter 2023, reflecting an increase in volume of residential mortgage loans sold.

Ø Service charges on deposit accounts increased $84,000 from the second quarter 2023 reflecting an increase in volume of fees.

● Noninterest expense of $19,255,000 in the second quarter 2024 increased $533,000 from the second quarter 2023 amount.

Significant variances included the following:

Ø Earnings from the increase in cash surrender value of life insurance of $470,000 increased $332,000 from the first quarter 2023 reflecting the earnings on the additional $30 million in Bank-Owned Life Insurance purchased in December 2023.

Ø Other noninterest income of $1,017,000 increased $246,000, including an increase of $182,000 in dividends from FHLB-Pittsburgh and Federal Reserve stock.

Ø Salaries and employee benefits expense of $11,023,000 increased $246,000, or 2.3% from the second quarter of 2023, including increases in cash and stock-based incentive compensation expense of $378,000 and base salaries expense of $105,000, while Employee Stock Ownership Plan (ESOP) contributions and Supplemental Executive Retirement Plan (SERP) expenses decreased $233,000.

Ø Data processing and telecommunications of $2,003,000 increased $103,000 from the second quarter of 2023, including an increase in internet banking costs.

Ø Other noninterest expense of $3,437,000 increased $78,000 from the second quarter 2023.

Within this category, significant variances included the following:

◾ Donations expense increased $165,000 including an increase of $133,000 in PA Educational Improvement Tax Credit program donations made in 2024 compared to 2023.

◾ Expenses from check fraud, debit card fraud and other operational losses totaled $26,000 in the second quarter 2024 as compared to a net reduction in expense of $110,000 in the second quarter 2023.

◾ Legal fees totaled $131,000 in 2024, a decrease of $196,000, mainly due to a decrease in fees incurred related to non-litigation-related corporate matters.

Ø Automated teller machine and interchange expense of $473,000 increased $78,000 from the second quarter of 2023 reflecting increased volume of activity.

Six Months Ended June 30, 2024 as Compared to Six Months Ended June 30, 2023

Net income for the six-month period ended June 30, 2024 was $11,419,000, or $0.74 per diluted share, as compared to $12,296,000, or $0.80 per diluted share, for the first six months of 2023.

Significant variances were as follows:

● Net interest income totaled $38,486,000 in the six months ended June 30, 2024, a decrease of $2,657,000 from the total for the first six months of 2023.

The net interest margin was 3.30% for the six months of 2024, down from 3.62%

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

in the corresponding period of 2023.

The interest rate spread decreased 0.52%, as the average rate on interest-bearing liabilities was higher by 1.04% while the average yield on earning assets increased 0.52%.

● For the six months ended June 30, 2024, the provision for credit losses was $1,519,000, an increase of $1,059,000 from the first six months of 2023.

In the first six months of 2024, the ACL on loans receivable increased $1,174,000 to 1.08% at June 30, 2024 as compared to 1.04% at December 31, 2023.

For the six months ended June 30, 2024, net charge-offs totaled $352,000, or 0.04% (annualized) of average loans receivable.

● Noninterest income totaled $14,529,000 in the first six months of 2024, up $2,279,000 from the total for the first six months of 2023.

Significant variances included the following:

Ø Earnings from the increase in cash surrender value of life insurance of $914,000 increased $624,000 reflecting earnings on additional Bank-Owned Life Insurance purchased in December 2023.

Ø Other noninterest income of $2,960,000 increased $602,000 as dividends on FHLB-Pittsburgh and Federal Reserve stock totaled $835,000, an increase of $328,000, and income from tax credits related to donations increased $120,000.

Ø Trust revenue of $3,911,000 increased $330,000, consistent with recent appreciation in the trading prices of many U.S.

equity securities and includes revenue from new business.

Ø Net gains from sale of loans of $191,000 increased $117,000 from the first quarter 2023, reflecting an increase in volume of residential mortgage loans sold.

Ø Brokerage and insurance revenue of $1,066,000 increased $271,000 due to an increase in sales volume.

Ø Loan servicing fees, net, of $230,000 increased $108,000, as the fair value of servicing rights increased $25,000 in 2024 as compared to a decrease of $83,000 in 2023.

● Noninterest expense of $18,304,000 in the first quarter 2024 decreased $783,000 from the first quarter 2023 amount.

Ø Net gains from sale of loans of $426,000 increased $213,000, reflecting an increase in volume of residential mortgage loans sold.

● Noninterest expense totaled $37,559,000 for the first six months of 2024, a decrease of $250,000 from the total for the first six months of 2023.

Significant variances included the following:

Ø Other noninterest expense of $1,862,000 decreased $645,000 from the first quarter 2023.

Ø Other noninterest expense of $5,299,000 decreased $567,000.

Within this category, significant variances included the following:

◾ In the first quarter 2024, there was a reduction in expense of $483,000 related to the defined benefit postretirement medical benefit plan including a curtailment gain of $469,000 related to plan adjustments.

In comparison, in the first quarter 2023, there was a reduction in expense associated with the postretirement plan of $5,000.

◾ Expenses from check fraud, debit card fraud and other operational losses totaled $50,000 in the first quarter 2024, a decrease of $139,000 from the first quarter 2023.

◾ Advertising expense totaled $136,000 in the first quarter 2024, a decrease of $77,000.

◾ FDIC insurance expense increased $120,000 from the first quarter of 2023, reflecting the impact of an increase in base deposit insurance assessment rate applicable to all FDIC-insured banks.

Ø Professional fees of $518,000 decreased $419,000 as first quarter 2023 included $389,000 of conversion costs related to a change in wealth management platform for providing brokerage and investment advisory services.

Ø Salaries and employee benefits expense of $11,562,000 increased $135,000, including an increase in base salaries expense of $336,000, or 4.6%, while incentive compensation expense decreased $171,000.

● The income tax provision of $1,152,000, or 17.8% of pre-tax income for the first quarter 2024 decreased $257,000 from $1,409,000, or 18.4% of pre-tax income for the first quarter 2023.

The decrease in income tax provision reflected the decrease in pre-tax income of $1,204,000 for the quarter.

◾ For the first six months of 2024, there was a reduction in expense of $498,000 related to the defined benefit postretirement medical benefit plan, including a curtailment of $469,000 related to plan adjustments in the first quarter 2024 as noted above.

In comparison, in the first six months of 2023, there was a reduction in expense associated with the postretirement plan of $10,000.

◾ Legal fees totaled $273,000 in the first six months of 2024, a decrease of $240,000, mainly due to lower fees incurred related to non-litigation-related corporate matters.

◾ Donations expense increased $147,000 including an increase of $133,000 in PA Educational Improvement Tax Credit program donations made in the first six months of 2024 compared to the corresponding period in 2023.

Ø Professional fees of $1,070,000 decreased $431,000 as 2023 included $389,000 of conversion costs related to a change in Wealth Management platform for providing brokerage and investment advisory services.

Ø Salaries and employee benefits expense of $22,585,000 increased $381,000, including an increase in base salaries expense of $441,000, or 3.0%, an increase of $207,000 in cash and stock-based incentive compensation and an increase of $78,000 in severance expense, while ESOP and SERP expense decreased $433,000

Ø Data processing and telecommunications of $3,995,000 increased $159,000, including an increase of $191,000 in internet banking expenses.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

28 unchanged sentences

Other noninterest income

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

Total noninterest income

(Dollars in Thousands)

Six Months Ended

Trust revenue

Brokerage and insurance revenue

Service charges on deposit accounts

Interchange revenue from debit card transactions

Net gains from sales of loans

Loan servicing fees, net

Increase in cash surrender value of life insurance

Other noninterest income

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

Total noninterest income

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

NONINTEREST EXPENSE

10 unchanged sentences

Total noninterest expense

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

(Dollars in Thousands)

Six Months Ended

Salaries and employee benefits

Net occupancy and equipment expense

Data processing and telecommunications expense

Automated teller machine and interchange expense

Pennsylvania shares tax

Professional fees

Other noninterest expense

Total noninterest expense

Additional detailed information concerning fluctuations in the Corporation’s earnings results and other financial information are provided in other sections of Management’s Discussion and Analysis.

11 unchanged sentences

The ACL may increase or decrease due to changes in economic conditions affecting borrowers and macroeconomic variables, including new information regarding existing problem loans, identification of additional problem loans, changes in the fair value of underlying collateral, unforeseen events such as natural disasters and pandemics, and other factors.

Because current economic conditions and forecasts can change and future events are inherently difficult to predict, the anticipated amount of estimated credit losses on loans, and therefore the appropriateness of the ACL, could change significantly.

Because current economic conditions and

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

forecasts can change and future events are inherently difficult to predict, the anticipated amount of estimated credit losses on loans, and therefore the appropriateness of the ACL, could change significantly.

Fair Value of Available-For-Sale Debt Securities – Another material estimate is the calculation of fair values of the Corporation’s debt securities.

4 unchanged sentences

The Corporation’s primary source of operating income is net interest income, which is equal to the difference between the amounts of interest income and interest expense.

Tables IV, V and VI include information regarding the Corporation’s net interest income for the three-month periods ended March 31, 2024 and 2023.

Tables IV, V and VI include information regarding the Corporation’s net interest income for the three-month and six-month periods ended June 30, 2024 and 2023.

In each of these tables, the amounts of interest income earned on tax-exempt securities and loans have been adjusted to a fully taxable-equivalent basis.

Management believes presentation of net interest income on a fully taxable-equivalent basis provides investors with meaningful information for purposes of comparing returns on tax-exempt securities and loans with returns on taxable securities and loans.

Accordingly, the net interest income amounts reflected in these tables exceed the amounts presented in the consolidated financial statements.

Management believes presentation of net interest income on a fully taxable-equivalent basis, which is a non-GAAP financial measure, provides investors with meaningful information for purposes of comparing returns on tax-exempt securities and loans with returns on taxable securities and loans.

Accordingly, the amount of net interest income on a fully taxable-equivalent basis reflected in these tables exceed the net interest income amounts presented in the consolidated financial statements.

The discussion that follows is based on amounts in the related tables.

Three-Month Periods Ended March 31, 2024 and 2023

Three-Month Periods Ended June 30, 2024 and 2023

For the three-month periods, fully taxable equivalent net interest income (a non-GAAP measure) of $19,647,000 in 2024 was $954,000 (4.6%) lower than in 2023.

The decrease in net interest income reflected an increase in interest expense of $5,937,000 (includes $5,661,000 interest on deposits and $276,000 in interest on borrowings) and an increase of $4,123,000 in total interest income.

As presented in Table VI, the net impact of changes in volume of earning assets and interest-bearing liabilities increased net interest income in the first quarter 2024 as compared to first quarter 2023 by $862,000, while the net impact of changes in interest rates (primarily increases) decreased net interest income by $2,676,000.

As presented in Table V, the Net Interest Margin was 3.29% in the first quarter 2024 as compared to 3.71% in the first quarter 2023, and the “Interest Rate Spread” (excess of average rate of return on earning assets

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

over average cost of funds on interest-bearing liabilities) decreased to 2.62% in 2024 from 3.30% in 2023.

The decrease in net interest income reflected an increase in interest expense of $4,232,000 and an increase in interest income of $3,278,000.

As presented in Table VI, the net impact of changes in volume of earning assets and interest-bearing liabilities increased net interest income in the second quarter 2024 as compared to second quarter 2023 by $374,000, while the net impact of changes in interest rates (primarily increases) decreased net interest income by $1,328,000.

As presented in Table V, the Net Interest Margin was 3.31% in the second quarter 2024 as compared to 3.53% in the second quarter 2023, and the “Interest Rate Spread” (excess of average rate of return on earning assets over average cost of funds on interest-bearing liabilities) decreased to 2.61% in 2024 from 2.98% in 2023.

The average yield on earning assets of 5.32% was 0.48% higher in 2024 as compared to 2023, and the average rate on interest-bearing liabilities of 2.71% in 2024 was 0.85% higher.

4 unchanged sentences

Average outstanding loans receivable increased $95,535,000 (5.3%) to $1,883,386,000 in 2024 from $1,787,851,000 in 2023.

The Corporation has experienced growth in commercial real estate and other commercial loans in 2023 and the first three months of 2024.

The increase in average loans receivable includes the impact of growth in commercial real estate and other commercial loans.

Income from interest-bearing due from banks totaled $516,000 in 2024, an increase of $207,000 from the total for 2023.

The average yield on interest-bearing due from banks was 4.71% in 2024, up from 3.56% in 2023.

The average balance of interest-bearing due from banks was $43,139,000 in 2024, up from $29,861,000 in 2023.

Within this category, the largest asset balance in 2024 and 2023 has been interest-bearing deposits held with the Federal Reserve.

The average yield on interest-bearing due from banks was 4.81% in 2024, up from 4.15% in 2023.

Interest income from available-for-sale debt securities, on a fully taxable-equivalent basis, totaled $2,763,000 in 2024, down $102,000 from 2023, as the average balance (at amortized cost) of available-for-sale debt securities decreased $65,672,000 as indicated in Table V.

The average yield on available-for-sale debt securities was 2.43% in 2024, up from 2.20% in 2023.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

INTEREST EXPENSE AND INTEREST-BEARING LIABILITIES

1 unchanged sentence

Interest expense on deposits increased $4,215,000, as the average rate on interest-bearing deposits increased to 2.46% in 2024 from 1.45% in 2023.

Average total deposits (interest-bearing and noninterest-bearing) amounted to $2,001,278,000 for the first quarter 2024, up $70,152,000 (3.6%) from the first quarter 2023.

Within average total deposits, average brokered deposits (primarily time and money market) were $84,318,000 with an average interest rate of 5.23% in the first quarter 2024, up from $16,179,000 with an average interest rate of 3.04% in the first quarter 2023.

Average total deposits (interest-bearing and noninterest-bearing) amounted to $2,016,520,000 for the second quarter 2024, up $68,115,000 (3.5%) from the second quarter 2023.

Within average total deposits, average brokered deposits (primarily time and money market) were $68,311,000 with an average interest rate of 5.20% in the second quarter 2024, up from $45,230,000 with an average interest rate of 4.52% in the second quarter 2023.

The deposit mix has changed as businesses and consumers have become more interest-rate sensitive in light of higher market rates.

In comparing the first quarter 2024 to the first quarter 2023, average time deposits increased $116,588,000 and average interest checking deposits increased $57,628,000, while average noninterest-bearing demand deposits decreased $58,513,000 and average savings deposits decreased $43,769,000.

In comparing the second quarter 2024 to the second quarter 2023, average time deposits increased $82,328,000 and average interest checking deposits increased $53,845,000, while average savings deposits decreased $39,904,000 and average noninterest-bearing demand deposits decreased $39,611,000.

Interest expense on short-term borrowings decreased $784,000 to $360,000 in 2024 from $1,144,000 in 2023.

3 unchanged sentences

The average balance of long-term borrowings was $175,373,000 in 2024, up from an average balance of $110,982,000 in 2023.

Over the last several months of 2023 and the first six months of 2024, the Corporation entered into FHLB advances maturing mainly in 2025 to 2029, effectively using the proceeds to reduce higher rate short-term borrowings.

Borrowings are classified as long-term within the Tables based on their term at origination or assumption in business combinations.

The average rate on long-term borrowings was 4.25% in 2024 compared to 3.82% in 2023.

Six-Month Periods Ended June 30, 2024 and 2023

For the six-month periods, fully taxable equivalent net interest income was $38,883,000 in 2024, which was $2,768,000 (6.6%) lower than in 2023.

The decrease in net interest income reflected an increase in interest expense of $10,169,000 and an increase in interest income of $7,401,000.

As presented in Table VI, the net impact of changes in volume of earning assets and interest-bearing liabilities increased net interest income for the six months ended June 30, 2024 over the six months ended June 30, 2023 by $1,236,000, while the net impact of changes in interest rates (primarily increases) decreased net interest income by $4,004,000.

As presented in Table V, the Net Interest Margin was 3.30% in the first six months of 2024 as compared to 3.62% in the first six months of 2023, and the “Interest Rate Spread” (excess of average rate of return on earning assets over average cost of funds on interest-bearing liabilities) decreased to 2.62% in 2024 from 3.14% in 2023.

The average yield on earning assets of 5.27% was 0.52% higher in 2024 as compared to 2023, while the average rate on interest-bearing liabilities of 2.65% in 2024 was 1.04% higher.

INTEREST INCOME AND EARNING ASSETS

Interest income totaled $62,059,000 in 2024, an increase of $7,401,000 from 2023.

Interest and fees from loans receivable increased $7,387,000 in 2024 as compared to 2023.

In the six-month period ended June 30, 2024, t he fully taxable equivalent yield on loans was 5.97%, up from 5.53% in the first half of 2023, reflecting the effects of rising interest rates on new loan originations and floating-rate loans.

Average outstanding loans receivable increased $114,288,000 (6.5%) to $1,871,316,000 in 2024 from $1,757,028,000 in 2023.

As noted above, the Corporation has experienced growth in commercial real estate and other commercial loans in 2023 and in the first six months of 2024.

Income from interest-bearing due from banks totaled $899,000 in 2024, an increase of $312,000 from 2023.

The average balance of interest-bearing due from banks was $37,932,000 in 2024, up from $30,744,000 in 2023.

Within this category, the largest asset balance in 2024 and 2023 has been interest-bearing deposits held with the Federal Reserve.

The average yield on interest-bearing due from banks was 4.77% in 2024, up from 3.85% in 2023.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Interest income from available-for-sale debt securities decreased $321,000 in 2024 from 2023.

The average balance of available-for-sale debt securities (at amortized cost) decreased to $459,070,000 in 2024 from $531,981,000 in 2023, as proceeds from maturities and sales have been used to help fund loan growth.

The average yield on available-for-sale debt securities was 2.42% for 2024 as compared to 2.21% in 2023.

INTEREST EXPENSE AND INTEREST-BEARING LIABILITIES

For the six-month periods, interest expense increased $10,169,000 to $23,176,000 in 2024 from $13,007,000 in 2023.

Interest expense on deposits increased $9,876,000, as the average rate on interest-bearing deposits increased to 2.41% in 2024 from 1.20% in 2023.

Average total deposits (interest-bearing and noninterest-bearing) amounted to $2,008,899,000 for the first six months of 2024, up $69,086,000 (3.6%) from the first six months of 2023.

Within average total deposits, average brokered deposits (primarily time and money market) were $76,315,000 with an average interest rate of 5.21% in 2024, up from $30,785,000 with an average interest rate of 4.13% in 2023.

Average time deposits increased $99,284,000 and average interest checking deposits increased $55,720,000, while average noninterest-bearing demand deposits decreased $49,045,000 and the average balance of savings accounts decreased $41,810,000.

Interest expense on borrowed funds increased $293,000 in 2024 as compared to 2023.

Interest expense on short-term borrowings of $957,000 in 2024 was down from $2,241,000 in 2023 as the average balance of short-term borrowings decreased to $36,187,000 in 2024 from $89,611,000 in 2023.

The average rate on short-term borrowings was 5.32% in 2024 compared to 5.04% in 2023.

Interest expense on long-term borrowings (FHLB advances) increased $1,574,000 to $3,311,000 in 2024 from $1,737,000 in 2023.

The average balance of long-term borrowings was $159,063,000 in 2024, up from an average balance of $95,899,000 in 2023.

Borrowings are classified as long-term within the Tables based on their term at origination or assumption in business combinations.

The average rate on long-term borrowings was 4.19% in 2024 compared to 3.65% in 2023.

More information regarding borrowed funds is provided in Note 8 to the unaudited consolidated financial statements.

2 unchanged sentences

Three Months Ended

Six Months Ended

(In Thousands)

24 unchanged sentences

Three Months Ended

Six Months Ended

Net Interest Income Under U.S.

46 unchanged sentences

Three Months Ended 6/30/2024 vs.

Six Months Ended 6/30/2024 vs.

EARNING ASSETS

21 unchanged sentences

The income tax provision in interim periods is based on the Corporation’s estimate of the effective tax rate expected to be applicable for the full year.

Due to a lower amount of pre-tax income in 2024, the income tax provision for the first quarter 2024 of $1,152,000 was $257,000 lower than the provision for the first quarter 2023.

The effective tax rate (tax provision as a percentage of pre-tax income) was 17.8% in the first quarter 2024 compared to 18.4% in the first quarter 2023.

The income tax provision for the second quarter 2024 of $1,366,000 was $53,000 lower than the provision for the second quarter 2023 and the provision for the six months ended June 30, 2024 of $2,518,000 was $310,000 lower than the amount for the first six months of 2023 due to a lower amount of pre-tax income in 2024.

The effective tax rate (tax provision as a percentage of pre-tax income) was 18.3% in the second quarter 2024 compared to 19.0% in the second quarter 2023 and 18.1% for the first six months of 2024 as compared to 18.7% for the first six months of 2023.

The Corporation’s effective tax rates differ from the statutory rate of 21% principally because of the effects of tax-exempt interest income, nondeductible interest expense, state income taxes and other permanent differences.

1 unchanged sentence

The Corporation recognizes deferred tax assets and liabilities based on differences between the financial statement carrying amounts and the tax basis of assets and liabilities.

The net deferred tax asset at March 31, 2024 and December 31, 2023 represents the following temporary difference components:

The net deferred tax asset at June 30, 2024 and December 31, 2023 represents the following temporary difference components:

(In Thousands)

21 unchanged sentences

Realization of deferred tax assets ultimately depends on the existence of sufficient taxable income.

Management believes the recorded net deferred tax asset at March 31, 2024 is fully realizable;

Management believes the recorded net deferred tax asset at June 30, 2024 is fully realizable;

however, if management determines the Corporation will be unable to realize all or part of the net deferred tax asset, the Corporation would adjust the deferred tax asset, which would negatively impact earnings .

2 unchanged sentences

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

The composition of the available-for-sale debt securities portfolio at March 31, 2024, December 31, 2023, December 31, 2022 and December 31, 2021 is as follows:

The composition of the available-for-sale debt securities portfolio at June 30, 2024 and December 31, 2023, 2022 and 2021 is as follows:

(Dollars In Thousands)

March 31, 2024

June 30, 2024

December 31, 2023

18 unchanged sentences

Treasury.gov (Daily Treasury Par Yield Curve Rates)

As reflected in the table above, the fair value of available-for-sale securities was lower than the amortized cost basis by $51,987,000, or 11.4%, at March 31, 2024, $49,213,000, or 10.6%, at December 31, 2023 and $63,761,000, or 11.3%, at December 31, 2022 while the aggregate unrealized gain position was $6,087,000, or (1.2%) at December 31, 2021.

As reflected in the table above, the fair value of available-for-sale securities was lower than the amortized cost basis by $52,799,000, or 11.6%, at June 30, 2024, $49,213,000, or 10.6%, at December 31, 2023 and $63,761,000, or 11.3%, at December 31, 2022 while the aggregate unrealized gain position was $6,087,000, or 1.2% at December 31, 2021.

The volatility in the fair value of the portfolio, including the reduction in fair value, resulted from changes in interest rates.

As shown above, the market yield on the 5-year U.S.

Treasury Note was 0.37% higher at March 31, 2024 in comparison to December 31, 2023, 0.22% higher than at December 31, 2022 and 2.95% higher than at December 31, 2021.

The table also shows that the amortized cost basis of the portfolio has been reduced to $457,081,000 at March 31, 2024 from $561,794,000 at December 31, 2022 as proceeds from maturities and sales have been used to help fund loan growth.

Treasury Note was 0.49% higher at June 30, 2024 in comparison to December 31, 2023, 0.34% higher than at December 31, 2022 and 3.07% higher than at December 31, 2021.

The table also shows that the amortized cost basis of the portfolio has been reduced to $453,944,000 at June 30, 2024 from $561,794,000 at December 31, 2022 as proceeds from maturities and sales have been used to help fund loan growth.

Additional information regarding the potential impact of interest rate changes on all of the Corporation’s financial instruments is provided in Item 3, Quantitative and Qualitative Disclosures about Market Risk.

As described in Note 5 to the unaudited consolidated financial statements, management determined the Corporation does not have the intent to sell, nor is it more likely than not that it will be required to sell, available-for-sale debt securities in an unrealized loss position at March 31, 2024 before it is able to recover the amortized cost basis.

Further, management reviewed the Corporation’s holdings as of

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

March 31, 2024 and concluded there were no credit-related declines in fair value.

Additional information related to the types of securities held at March 31, 2024, other than securities issued or guaranteed by U.S.

As described in Note 5 to the unaudited consolidated financial statements, management determined the Corporation does not have the intent to sell, nor is it more likely than not that it will be required to sell, available-for-sale debt securities in an unrealized loss position at June 30, 2024 before it is able to recover the amortized cost basis.

Further, management reviewed the Corporation’s holdings as of June 30, 2024 and concluded there were no credit-related declines in fair value.

Additional information related to the types of securities held at June 30, 2024, other than securities issued or guaranteed by U.S.

Government entities or agencies, is as follows:

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

● Bank holding company debt securities – All of the Corporation’s holdings of bank holding company debt securities were investment grade and there have been no payment defaults.

1 unchanged sentence

All of the issuers have publicly traded common stock .

At March 31, 2024, the securities have external ratings ranging from BBB-/Baa3 to A-.

At June 30, 2024, the securities have external ratings ranging from BBB-/Baa3 to A-.

● Obligations of states and political subdivisions (municipal bonds) – All of the Corporation’s holdings of municipal bonds were investment grade and there have been no payment defaults.

Summary ratings information at March 31, 2024, based on the amortized cost basis and reflecting the lowest enhanced or underlying rating by Moody’s, Standard & Poors or Fitch, is as follows:

Summary ratings information at June 30, 2024, based on the amortized cost basis and reflecting the lowest enhanced or underlying rating by Moody’s, Standard & Poors or Fitch, is as follows:

AAA or pre-refunded – 22% of the portfolio;

1 unchanged sentence

These securities were investment grade (rated Aaa), and there have been no payment defaults on these securities.

Based on the results of management’s assessment, there was no ACL required on available-for-sale debt securities in an unrealized loss position at March 31, 2024.

Based on the results of management’s assessment, there was no ACL required on available-for-sale debt securities in an unrealized loss position at June 30, 2024.

FINANCIAL CONDITION

2 unchanged sentences

Other significant balance sheet items, including securities, the allowance for credit losses and stockholders’ equity, are discussed in separate sections of Management’s Discussion and Analysis.

Management does not expect the amount of purchases of bank premises and equipment to have a material, detrimental effect on the Corporation’s financial condition in 2024.

Table VII shows the composition of the loan portfolio at March 31, 2024 and at year-end from 2019 through 2023.

Management does not expect the amount of purchases of bank premises and equipment to have a material effect on the Corporation’s financial condition in 2024.

Table VII shows the composition of the loan portfolio at June 30, 2024 and at year-end from 2019 through 2023.

The significant loan growth in 2020 reflects the impact of an acquisition of a bank located in Southeastern Pennsylvania.

Primarily as a result of the expansion into Southeastern Pennsylvania, as well as expansion by opening two offices in Southcentral Pennsylvania, the mix of the loan portfolio has become predominantly commercial in nature.

At March 31, 2024, commercial loans represented 75% of the portfolio while residential loans totaled 22% of the portfolio.

Also included in Table VII is additional detail regarding the composition of the non-owner occupied commercial real estate loan portfolio at March 31, 2024.

At June 30, 2024, commercial loans represented 75% of the portfolio while residential loans totaled 22% of the portfolio.

Also included in Table VII is additional detail regarding the composition of the non-owner occupied commercial real estate loan portfolio at June 30, 2024.

The data in Table VII shows the recorded investment in non-owner occupied commercial real estate loans for which the primary purpose is utilization of office space by third parties was $96,642,000, or 5.1% of gross loans receivable.

At March 31, 2024, within this segment there were two loans with a total recorded investment of $3,899,000 in nonaccrual status with specific allowances totaling $506,000.

The remainder of the non-owner occupied commercial real estate loans with a primary purpose of office space utilization were in accrual status with no specific allowance at March 31, 2024.

At June 30, 2024, within this segment there were two loans with a total recorded investment of $3,885,000 in nonaccrual status with specific allowances totaling $493,000.

The remainder of the non-owner occupied commercial real estate loans with a primary purpose of office space utilization were in accrual status with no specific allowance at June 30, 2024.

The Provision and Allowance for Credit Losses section of Management’s Discussion and Analysis provides additional related discussion.

2 unchanged sentences

Although not the lead bank, the Corporation conducts detailed underwriting and monitoring of participation loan opportunities.

Total participation loans outstanding amounted to $38,252,000 at March 31, 2024 down from $38,652,000 at December 31, 2023.

The Corporation originates and sells residential mortgage loans to the secondary market through the MPF Xtra program administered by the Federal Home Loan Banks of Pittsburgh and Chicago.

Residential mortgages originated and sold through the MPF Xtra program consist primarily of conforming, prime loans sold to the Federal National Mortgage Association (Fannie Mae), a quasi-government

Total participation loans outstanding amounted to $36,383,000 at June 30, 2024 down from $38,652,000 at December 31, 2023.

The Corporation is a party to financial instruments with off-balance risk, including commitments to extend credit and standby letters of credit.

At June 30, 2024, the total contract amount of commitments to extend credit was $387,563,000 as compared to $395,997,000 at December 31, 2023, and the contract amount of standby letters of credit increased to $57,532,000 at June 30, 2024 from $19,158,000 at December 31, 2023.

The increase in standby letters of credit at June 30, 2024 included a $40,000,000 letter of credit with a one-year term, subject to annual review for possible renewal, that was issued to guarantee performance on behalf of a municipal customer.

This letter of credit is collateralized by the municipal customer’s investments in certificates of deposit and marketable securities.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

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 $683,000 at June 30, 2024 and $690,000 at December 31, 2023, is included in accrued interest and other liabilities on the unaudited consolidated balance sheets.

The Corporation originates and sells residential mortgage loans to the secondary market through the MPF Xtra program administered by the Federal Home Loan Banks of Pittsburgh and Chicago.

Residential mortgages originated and sold through the MPF Xtra program consist primarily of conforming, prime loans sold to the Federal National Mortgage Association (Fannie Mae), a quasi-government entity.

The Corporation also originates and sells residential mortgage loans to the secondary market through the MPF Original program, administered by the Federal Home Loan Banks of Pittsburgh and Chicago.

Residential mortgages originated and sold through the MPF Original program consist primarily of conforming, prime loans sold to the Federal Home Loan Bank of Pittsburgh.

In late 2019, the Corporation began to originate and sell larger-balance, nonconforming mortgages under the MPF Direct Program, which is also administered by the Federal Home Loan Banks of Pittsburgh and Chicago.

The Corporation does not retain servicing rights for loans sold under the MPF Direct Program.

Through March 31, 2024, the Corporation’s activity under the MPF Direct Program has been minimal.

For loan sales originated under the MPF programs, the Corporation provides customary representations and warranties to investors that specify, among other things, that the loans have been underwritten to the standards established by the investor.

1 unchanged sentence

Such repurchases or reimbursements generally result from an underwriting or documentation deficiency.

At March 31, 2024, the total outstanding balance of loans the Corporation has repurchased as a result of identified instances of noncompliance amounted to $1,322,000, and the corresponding total outstanding balance of repurchased loans at December 31, 2023 was $1,335,000.

At March 31, 2024, outstanding balances of loans sold and serviced through the MPF Xtra and Original programs totaled $322,319,000, including loans sold through the MPF Xtra program of $149,219,000 and loans sold through the Original program of $173,100,000.

At June 30, 2024, the total outstanding balance of loans the Corporation has repurchased as a result of identified instances of noncompliance amounted to $1,428,000, and the corresponding total outstanding balance of repurchased loans at December 31, 2023 was $1,457,000.

At June 30, 2024, outstanding balances of loans sold and serviced through the MPF Xtra and Original programs totaled $321,136,000, including loans sold through the MPF Xtra program of $149,523,000 and loans sold through the Original program of $171,613,000.

At December 31, 2023, outstanding balances of loans sold and serviced through the two programs totaled $323,298,000, including loans sold through the MPF Xtra program of $150,015,000 and loans sold through the Original Program of $173,283,000.

Based on the fairly limited volume of required repurchases to date, no allowance has been established for representation and warranty exposures as of March 31, 2024 and December 31, 2023.

Based on the fairly limited volume of required repurchases to date, no allowance has been established for representation and warranty exposures as of June 30, 2024 and December 31, 2023.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

24 unchanged sentences

allowance for credit losses on loans

Additional details regarding the composition of the non-owner occupied commercial real estate loan portfolio, excluding multi-family (5 or more) residential and 1-4 Family-commercial purpose loans, at March 31, 2024 is as follows:

NON-OWNER OCCUPIED COMMERCIAL REAL ESTATE

5 unchanged sentences

PROVISION AND ALLOWANCE FOR CREDIT LOSSES

A summary of the credit for credit losses for the first quarter 2024 and 2023 is as follows:

A summary of the provision (credit) for credit losses for the three-month and six-month periods ended June 30, 2024 and 2023 is as follows:

(In Thousands)

2 unchanged sentences

Off-balance sheet exposures

Total provision (credit) for credit losses

For the quarter ended March 31, 2024, there was a provision for credit losses of $954,000, an increase of $1,306,000 in expense compared to a credit for credit losses (reduction in expense) of $352,000 in the first quarter 2023.

The ACL as a percentage of gross loans receivable increased to 1.07% at March 31, 2024 from 1.04% at December 31, 2023;

in comparison, the ACL dropped to 1.05% of gross loans receivable at March 31, 2023 from 1.08% upon adoption of CECL on January 1, 2023.

As shown in Table IX, the ACL on loans individually evaluated increased to $1,403,000 at March 31, 2024 from $743,000 at December 31, 2023.

The net increase in individual ACLs is primarily related to two borrowers:

(1) at March 31, 2024, an ACL of $477,000 was recorded on loans totaling $2,360,000 for land related to a planned commercial construction project, and (2) consistent with an updated collateral valuation assessment, the ACL increased $239,000 to $244,000 at March 31, 2024 on commercial loans to one borrower totaling $284,000 at March 31, 2024.

At March 31, 2024, there were seven commercial relationships with loans receivable totaling $10,062,000 for which individual ACLs were recorded, including two non-owner occupied office loans with total outstanding balances of $3,899,000 and individual ACLs totaling $506,000.

Table IX also shows that, at March 31, 2024 as compared to December 31, 2023, the ACL related to collectively evaluated commercial loans increased by a total of $1,125,000, while the ACL on collectively evaluated residential mortgage loans decreased $940,000 and the ACL on collectively evaluated consumer loans decreased $30,000.

The increase for commercial loans includes the impact of an increase in outstanding loans and a net increase in qualitative factors used in the ACL evaluation, partially offset by the impact to the ACL valuation of lower estimated net charge-offs based on recent experience and a reduction from the impact of an economic forecast.

The decrease for residential mortgage loans includes the impact of a net reduction in qualitative factors, lower net charge-offs based on recent experience and a reduction from the impact of an economic forecast.

Table X shows that total nonperforming assets as a percentage of total assets was 0.78% at March 31, 2024, up from 0.75% at December 31, 2023 and lower than that at year-end 2019 through 2022.

Total nonperforming assets were $19.8 million at March 31, 2024, up from $18.8 million at December 31, 2023 but lower than the totals at year-end 2020 through 2022.

Total provision for credit losses

For the quarter ended June 30, 2024, there was a provision for credit losses of $565,000, a decrease of $247,000 compared to $812,000 in the second quarter 2023.

For the six months ended June 30, 2024, there was a provision for credit losses of $1,519,000, an increase of $1,059,000 compared to $460,000 in 2023.

The ACL as a percentage of gross loans receivable increased to 1.08% at June 30, 2024 from 1.04% at December 31, 2023;

in comparison, the ACL dropped to 1.05% of gross loans receivable at June 30, 2023 from 1.08% upon adoption of CECL on January 1, 2023.

As shown in Table IX, the ACL on loans individually evaluated increased to $1,230,000 at June 30, 2024 from $743,000 at December 31, 2023.

The increase in individual ACLs is primarily related to two borrowers:

(1) at June 30, 2024, an ACL of $447,000 was recorded on loans totaling $2,330,000 for land related to a planned commercial construction project, and (2) consistent with an updated collateral valuation assessment, the ACL increased $229,000 to $234,000 at June 30, 2024 on commercial loans to one borrower totaling $278,000 at June 30, 2024.

A partial offset to the net increase in individual ACLs resulted from a net charge-off of $117,000 in the second quarter 2024 on a non-owner occupied commercial loan for which there was an ACL of $124,000 at December 31, 2023.

At June 30, 2024, there was no ACL on the loan and the carrying value of the loan, net of the partial charge-off, was $3,276,000.

At June 30, 2024, there were six commercial relationships with loans receivable totaling $6,613,000 for which individual ACLs were recorded, including two non-owner occupied office loans with total outstanding balances of $3,885,000 and individual ACLs totaling $493,000.

Table IX also shows that, at June 30, 2024 as compared to December 31, 2023, the ACL related to collectively evaluated commercial loans increased by a total of $1,225,000 and the ACL on collectively evaluated consumer loans increased $114,000, while the ACL on collectively evaluated residential mortgage loans decreased $652,000.

The increase for commercial loans includes the impact of an increase in outstanding loans and a net increase in qualitative factors used in the ACL evaluation, partially offset by a reduction from the impact of an economic forecast and the impact to the ACL valuation of lower estimated net charge-offs based on recent experience.

The decrease for residential mortgage loans includes a reduction from the impact of an economic forecast, a net decrease in qualitative factors and lower net charge-offs based on recent experience.

Table X shows that total nonperforming assets as a percentage of total assets was 0.76% at June 30, 2024, up from 0.75% at December 31, 2023 but lower than at year-end 2019 through 2022.

Total nonperforming assets were $19.8 million at June 30, 2024, up from $18.8 million at December 31, 2023 but lower than the totals at year-end 2020 through 2022.

Nonperforming loans included increases in nonaccrual loans of $4.4 million from December 31, 2023, while loans past due 90 days or more still accruing decreased $3.2 million from December 31, 2023.

In the first quarter 2024, the increase in nonaccrual loans included the commercial construction and land loans to one borrower totaling $2,360,000 noted above.

In the first three months of 2024, net charge-offs were low by historical standards, totaling $145,000, or 0.01% of average outstanding loans.

In the first six months of 2024, the increase in nonaccrual loans included the commercial construction and land loans to one borrower totaling $2,330,000 noted above.

In the first six months of 2024, net charge-offs were low by historical standards, totaling $352,000, or 0.02% of average outstanding loans.

Table VIII shows annual average net charge-off rates ranging from a high of 0.26% in 2022 to a low of 0.01% in 2023.

Over the period 2019-2023 and the first quarter of 2024, each period includes a few large commercial relationships that have required significant monitoring and workout efforts.

As a result, a limited number of relationships may significantly impact the total amount of allowance required on individual loans and may significantly impact the provision for credit losses and the amount of total charge-offs reported in any one period.

Management believes it has been conservative in its decisions concerning identification of loans requiring individual evaluation for credit loss, estimates of loss, and nonaccrual status;

however, the actual losses realized from these relationships could vary materially

Over the period 2019-2023 and the first six months of 2024, each period includes a few large commercial relationships that have required significant monitoring and workout efforts.

As a result, a limited number of relationships may significantly impact the total amount of

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

from the allowances calculated as of March 31, 2024.

Management continues to closely monitor its commercial loan relationships for possible credit losses and will adjust its estimates of loss and decisions concerning nonaccrual status, if appropriate.

allowance required on individual loans and may significantly impact the provision for credit losses and the amount of total charge-offs reported in any one period.

Management believes it has been conservative in its decisions concerning identification of loans requiring individual evaluation for credit loss, estimates of loss, and nonaccrual status;

however, the actual losses realized from these relationships could vary materially from the allowances calculated as of June 30, 2024.

Management continues to closely monitor its commercial loan relationships for credit losses and will adjust its estimates of loss and decisions concerning nonaccrual status, if appropriate.

Tables VIII through X present historical data related to loans and the allowance for credit losses.

1 unchanged sentence

(Dollars In Thousands)

Three Months Ended

Six Months Ended

Years Ended December 31,

48 unchanged sentences

Management intends to use this line of credit as a contingency funding source.

As collateral for the line, the Corporation has pledged available-for-sale debt securities with a carrying value of $20,237,000 at March 31, 2024.

The Corporation’s outstanding, available, and total credit facilities at March 31, 2024 and December 31, 2023 are as follows:

As collateral for the line, the Corporation has pledged available-for-sale debt securities with a carrying value of $19,718,000 at June 30, 2024.

The Corporation’s outstanding, available, and total credit facilities at June 30, 2024 and December 31, 2023 are as follows:

(In Thousands)

3 unchanged sentences

Total credit facilities

At March 31, 2024, the Corporation’s outstanding credit facilities with the Federal Home Loan Bank of Pittsburgh consisted of overnight and short-term advances of $47,000,000, long-term borrowings of $148,810,000 and letters of credit totaling $19,208,000.

At June 30, 2024, the Corporation’s outstanding credit facilities with the Federal Home Loan Bank of Pittsburgh consisted of short-term advances of $15,000,000, long-term borrowings of $185,645,000 and letters of credit totaling $23,208,000.

At December 31, 2023, the Corporation’s outstanding credit facilities with the Federal Home Loan Bank of Pittsburgh consisted of overnight and short-term borrowings of $31,500,000, long-term borrowings of $138,313,000 and letters of credit totaling $19,208,000.

2 unchanged sentences

If required to raise cash in an emergency situation, the Corporation could sell available-for-sale securities to meet its obligations or use repurchase agreements placed with brokers to borrow funds secured by investment assets.

At March 31, 2024, the carrying value of available-for-sale securities in excess of amounts required to meet pledging or repurchase agreement obligations was $259,489,000.

Deposits totaled $1,995,903,000 at March 31,2024, down $18,903,000 (0.9%) from $2,014,806,000 at December 31, 2023.

Excluding brokered deposits, adjusted total deposits at March 31, 2024 were lower by $23,925,000 (1.2%) as compared to December 31, 2023.

Brokered deposits totaled $69,391,000 at March 31, 2024, an increase of $5,522,000 from December 31, 2023.

The reduction in total deposits, excluding brokered deposits, included a reduction in total deposits from municipal relationships of $20,321,000 to $257,391,000 at March 31, 2024 from $277,712,000 at December 31, 2023, consistent with historic seasonal trends for the Corporation’s Pennsylvania-based municipal depositors.

As shown in the table below, at March 31, 2024, estimated uninsured deposits totaled $568.1 million, or 28.2% of total deposits, down from $592.2 million or 29.2% of total deposits at December 31, 2023.

Included in uninsured deposits are deposits collateralized by securities (almost exclusively municipal deposits) totaling $140.1 million at March 31, 2024.

As shown in the table below, total uninsured and uncollateralized deposits amounted to 21.3% of total deposits at March 31, 2024, down from 21.7% at December 31, 2023.

As summarized in the table that immediately follows, the Corporation’s highly liquid sources of available funds described above, including unused borrowing capacity with the Federal Home Loan Bank of Pittsburgh, unused availability on the Federal Reserve Bank of Philadelphia’s discount window, available federal funds lines with other banks and unencumbered available-for-sale debt securities totaled $1.1 billion at March 31, 2024.

Available funding from these sources totaled 187.7% of uninsured deposits and 249.2% of total uninsured and uncollateralized deposits at March 31, 2024.

At June 30, 2024, the carrying value of available-for-sale securities in excess of amounts required to meet pledging or repurchase agreement obligations was $238,375,000.

Deposits totaled $2,059,309,000 at June 30, 2024, up $44,503,000 (2.2%) from $2,014,806,000 at December 31, 2023.

Excluding brokered deposits, adjusted total deposits at June 30, 2024 were higher by $49,371,000 (2.5%) as compared to December 31, 2023.

Brokered deposits totaled $59,501,000 at June 30, 2024, a decrease of $4,868,000 from December 31, 2023.

The increase in total deposits, excluding brokered deposits, included an increase in total deposits from municipal relationships of $16,587,000 to $294,299,000 at June 30, 2024 from $277,712,000 at December 31, 2023, consistent with historic seasonal trends for the Corporation’s Pennsylvania-based municipal depositors.

As shown in the table below, at June 30, 2024, estimated uninsured deposits totaled $605.8 million, or 29.2% of total deposits, as compared to $592.2 million or 29.2% of total deposits at December 31, 2023.

Included in uninsured deposits are deposits collateralized by securities (almost exclusively municipal deposits) totaling $158.3 million at June 30, 2024.

As shown in the table below, total uninsured and uncollateralized deposits amounted to 21.6% of total deposits at June 30, 2024, as compared to 21.7% at December 31, 2023.

Available funding from these sources totaled 173.7% of uninsured deposits and 235.1% of total uninsured and uncollateralized deposits at June 30, 2024.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

15 unchanged sentences

Uninsured and Uncollateralized Deposits

Despite the reduction in deposits, excluding brokered deposits, in the first three months of 2024, based on the ample sources of highly liquid funds as described above, management believes the Corporation is well-positioned to meet its short-term and long-term funding obligations.

Based on the ample sources of highly liquid funds as described above, management believes the Corporation is well-positioned to meet its short-term and long-term funding obligations.

STOCKHOLDERS’ EQUITY AND CAPITAL ADEQUACY

5 unchanged sentences

The interim final rule provides that, if warranted for supervisory purposes, the Federal Reserve may exclude a company from the threshold increase.

Management believes the Corporation meets the conditions of the Federal Reserve’s small bank holding company policy statement and is therefore excluded from consolidated capital requirements at March 31, 2024;

however, C&N Bank remains subject to regulatory capital requirements administered by the federal banking agencies.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Details concerning capital ratios at March 31, 2024 and December 31, 2023 are presented below.

Management believes, as of March 31, 2024, that C&N Bank meets all capital adequacy requirements to which it is subject and maintains a capital conservation buffer (described in more detail below) that allows the Bank to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers.

Further, as reflected in the table below, the Corporation’s and C&N Bank’s capital ratios at March 31, 2024 and December 31, 2023 exceed the Corporation’s Board policy threshold levels.

Details concerning capital ratios at June 30, 2024 and December 31, 2023 are presented below.

Management believes, as of June 30, 2024, that C&N Bank meets all capital adequacy requirements to which it is subject and maintains a capital conservation buffer (described in more detail below) that allows the Bank to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers.

Further, as reflected in the table below, the Corporation’s and C&N Bank’s capital ratios at June 30, 2024 and December 31, 2023 exceed the Corporation’s Board policy threshold levels.

(Dollars in Thousands)

9 unchanged sentences

Policy Thresholds

March 31, 2024:

June 30, 2024:

Total capital to risk-weighted assets:

11 unchanged sentences

All shares of common stock repurchased pursuant to the new program shall be held as treasury shares and be available for use and reissuance for purposes as and when determined by the Board of Directors including, without limitation, pursuant to the Corporation’s Dividend Reinvestment and Stock Purchase Plans and its equity compensation program.

Through March 31, 2024, no shares were repurchased under the new program.

For the three and six months ended June 30, 2024, 22,496 shares were repurchased for a total cost of $383,000, at an average price of $17.01 per share.

At June 30, 2024, there were 727,504 shares available to be repurchased under the program.

Future dividend payments and repurchases of common stock will depend upon maintenance of a strong financial condition, future earnings and capital and regulatory requirements.

4 unchanged sentences

The buffer is measured relative to risk-weighted assets.

At March 31, 2024, the minimum risk-based capital ratios, and the capital ratios including the capital conservation buffer, are as follows:

At June 30, 2024, the minimum risk-based capital ratios, and the capital ratios including the capital conservation buffer, are as follows:

Minimum common equity tier 1 capital ratio

18 unchanged sentences

≤1.25% and >0.625%

At March 31, 2024 , C&N Bank’s Capital Conservation Buffer, determined based on the minimum total capital ratio, was 6.77%.

At June 30, 2024 , C&N Bank’s Capital Conservation Buffer, determined based on the minimum total capital ratio, was 6.75%.

The Corporation’s total stockholders’ equity is affected by fluctuations in the fair values of available-for-sale debt securities.

1 unchanged sentence

Accumulated other comprehensive (loss) income is excluded from the Bank’s and Corporation’s regulatory capital ratios.

The balance in accumulated other comprehensive loss related to unrealized losses on available-for-sale debt securities, net of deferred income tax, amounted to $41,071,000 at March 31, 2024 and $38,878,000 at December 31, 2023.

The decrease in stockholders’ equity in the first three months of 2024 from the change in accumulated other comprehensive loss resulted from an increase in interest rates.

The balance in accumulated other comprehensive loss related to unrealized losses on available-for-sale debt securities, net of deferred income tax, amounted to $41,710,000 at June 30, 2024 and $38,878,000 at December 31, 2023.

The decrease in stockholders’ equity in the first six months of 2024 from the change in accumulated other comprehensive loss resulted from an increase in interest rates.

Changes in accumulated other comprehensive loss are excluded from earnings and directly increase or decrease stockholders’ equity.

To the extent unrealized losses on available-for-sale debt securities result from credit losses, unrealized losses are recorded as a charge against earnings.

The securities section of Management’s Discussion and Analysis and Note 5 to the unaudited consolidated financial statements provide additional information concerning management’s evaluation of available-for-sale debt securities for credit losses at March 31, 2024.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

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 2. Management’s Discussion and Analysis