Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain statements in this section and elsewhere in this quarterly report on Form 10-Q are forward-looking statements. Citizens & Northern Corporation and its wholly-owned subsidiaries (collectively, the Corporation) intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Reform Act of 1995. Forward-looking statements, which are not historical facts, are based on certain assumptions and describe future plans, business objectives and expectations, and are generally identifiable by the use of words such as, "should", “likely”, "expect", “plan”, "anticipate", “target”, “forecast”, and “goal”. These forward-looking statements are subject to risks and uncertainties that are difficult to predict, may be beyond management’s control and could cause results to differ materially from those expressed or implied by such forward-looking statements. Factors which could have a material, adverse impact on the operations and future prospects of the Corporation include, but are not limited to, the following:
● changes in monetary and fiscal policies of the Federal Reserve Board and the U.S. Government, particularly related to changes in interest rates
● changes in general economic conditions
● adverse developments in the banking industry highlighted by high-profile bank failures and the potential impact of such developments on customer confidence, sources of liquidity and capital funding, and regulatory responses to these developments
● the Corporation’s credit standards and its on-going credit assessment processes might not protect it from significant credit losses
● current, pending or future legislation or regulation that could have a negative effect on the Corporation’s revenue and businesses, including rules and regulations relating to capital and liquidity requirements, bank products and financial services, and the Corporation’s ability to address, and the expense related to complying, with those requirements
● downturn in demand for loan, deposit and other financial services in the Corporation’s market area
● increased competition from other banks and non-bank providers of financial services
● technological changes and increased technology-related costs
● information security breach or other technology difficulties or failures
● changes in accounting principles, or the application of generally accepted accounting principles
● failure to achieve merger-related synergies and difficulties in integrating the business and operations of acquired institutions
● fraud and cyber malfunction risks as usage of artificial intelligence continues to expand
These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.
EARNINGS OVERVIEW
Third Quarter 2024 as Compared to Third Quarter 2023
Third quarter 2024 net income was $6,365,000, or $0.41 per diluted share, as compared to $7,591,000, or $0.50 per diluted share, in the third quarter 2023. Significant variances were as follows:
● Net interest income of $20,156,000 in the third quarter 2024 was $493,000 higher than in the third quarter 2023. Average earning assets were $106,852,000 higher in the third quarter 2024 as compared to the third quarter 2023. Average total deposits increased $94,562,000 in the third quarter 2024 over the third quarter 2023. The net interest margin was 3.29% in the third quarter 2024, down from 3.35% in the third quarter 2023. The interest rate spread decreased 0.18%, as the average rate on interest-bearing liabilities increased 0.62%, while the average yield on earning assets increased 0.44%.
● For the quarter ended September 30, 2024, there was a provision for credit losses of $1,207,000, an increase of $2,432,000 in expense compared to a credit for credit losses (reduction in expense) of $1,225,000 in the third quarter 2023. The allowance for credit losses (“ACL”) as a percentage of gross loans receivable was 1.08% at September 30, 2024 as compared to 0.99% at September 30, 2023.
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● Noninterest income of $7,133,000 in the third quarter 2024 increased $644,000 from the third quarter 2023 amount. Significant variances included the following:
Ø Earnings from the increase in cash surrender value of life insurance of $458,000 increased $298,000 from the third quarter 2023 as the average balance of Bank-Owned Life Insurance increased to $50,470,000 in the third quarter 2024 from $31,559,000 in the third quarter 2023.
Ø Brokerage and insurance revenue of $523,000 increased $129,000 due to an increase in sales volume.
Ø Net gains from sale of loans of $360,000 increased $123,000 from the third quarter 2023, reflecting an increase in volume of residential mortgage loans sold.
Ø Service charges on deposit accounts increased $103,000 from the third quarter 2024 reflecting an increase in volume of fees.
● Noninterest expense of $18,269,000 in the third quarter 2024 increased $329,000 (1.8%) from the third quarter 2023 including increases of $109,000 in net occupancy and equipment expense, $68,000 in professional fees, $60,000 in other expenses and $59,000 in data processing and telecommunications expenses.
● The income tax provision of $1,448,000, or 18.5% of pre-tax income, for the third quarter 2024 decreased $398,000 from $1,846,000 or 19.6% of pre-tax income, for the third quarter 2023 consistent with the decrease in pre-tax income.
Nine Months Ended September 30, 2024 as Compared to Nine Months Ended September 30, 2023
Net income for the nine-month period ended September 30, 2024 was $17,784,000, or $1.16 per diluted share, as compared to $19,887,000, or $1.29 per diluted share, for the first nine months of 2023. Significant variances were as follows:
● Net interest income totaled $58,642,000 in the nine months ended September 30, 2024, a decrease of $2,164,000 from the total for the first nine months of 2023. The net interest margin was 3.30% for the first nine months of 2024, down from 3.53% in the corresponding period of 2023. The interest rate spread decreased 0.39%, as the average rate on interest-bearing liabilities was higher by 0.89% while the average yield on earning assets increased 0.50%. Average total earning assets increased $68,438,000. Average total loans increased $99,838,000 (5.6%) and average total deposits increased $77,578,000 (4.0%).
● For the nine months ended September 30, 2024, the provision for credit losses was $2,726,000, compared to a credit for credit losses (reduction in expense) of $765,000 in the first nine months of 2023 resulting in an increase of $3,491,000. For the nine months ended September 30, 2024, the provision related to loans receivable included the impact of increases in the ACL from an increase in qualitative adjustments related to changes in external indexes and an increase in past due and nonaccrual loans as well as net charge-offs in excess of specific allowances at December 31, 2023. The credit related to loans receivable for the nine months ended September 30, 2023 was mainly attributable to qualitative adjustments in concentrations of credit based on loan type, lending policies and procedures and changes in external indexes, as well as a reduction in the Corporation’s average net charge-off experience, used in the calculation of the ACL. In the first nine months of 2024, the ACL increased $1,234,000 to 1.08% of loans receivable at September 30, 2024 as compared to 1.04% at December 31, 2023. For the nine months ended September 30, 2024, net charge-offs totaled $1,589,000, or 0.08% of average loans receivable as compared to $225,000 or 0.02% annualized for the first nine months of 2023.
● Noninterest income totaled $21,662,000 in the first nine months of 2024, up $2,923,000 from the total for the first nine months of 2023. Significant variances included the following:
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Ø Earnings from the increase in cash surrender value of life insurance of $1,372,000 increased $922,000 as the average balance of Bank-Owned Life Insurance increased to $51,647,000 in the nine months ended September 30, 2024 from $31,413,000 in the first nine months of 2023.
Ø Other noninterest income of $4,083,000 increased $641,000 as dividends on FHLB-Pittsburgh and Federal Reserve stock totaled $1,292,000, an increase of $400,000, and income from tax credits related to donations increased $120,000.
Ø Brokerage and insurance revenue of $1,589,000 increased $400,000 due to an increase in sales volume.
Ø Trust revenue of $5,857,000 increased $357,000, consistent with 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 $786,000 increased $336,000, reflecting an increase in volume of residential mortgage loans sold.
Ø Service charges on deposit accounts of $4,336,000 increased $215,000 reflecting an increase in volume of fees.
● Noninterest expense totaled $55,828,000 for the first nine months of 2024, a decrease of $79,000 from the total for the first nine months of 2023. Significant variances included the following:
Ø Other noninterest expense of $7,936,000 decreased $507,000. Within this category, significant variances included the following:
◾ For the first nine months of 2024, there was a reduction in expense of $513,000 related to the defined benefit postretirement medical benefit plan, including a curtailment of $469,000 related to plan adjustments in the first quarter 2024. In comparison, in the first nine months of 2023, there was a reduction in expense associated with the postretirement plan of $15,000.
◾ Legal fees totaled $491,000 in the first nine months of 2024, a decrease of $209,000, mainly due to lower fees incurred related to non-litigation-related corporate matters.
Ø Professional fees of $1,625,000 decreased $363,000 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 $33,460,000 increased $378,000, including an increase in base salaries expense of $690,000, or 3.1% and an increase of $451,000 in cash and stock-based incentive compensation, while estimated contributions to the Employee Stock Ownership Plan and Supplemental Executive Retirement Plan decreased $638,000 and health insurance expense decreased $344,000.
● The income tax provision of $3,966,000, or 18.2% of pre-tax income, for the nine months ended September 30, 2024 decreased $708,000 from $4,674,000, or 19.0% of pre-tax income, for nine months ended September 30, 2023. The decrease in income tax provision in 2024 reflected the decrease in pre-tax income of $2,811,000.
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TABLE I – QUARTERLY FINANCIAL DATA
(Dollars In Thousands,
For the Three Months Ended :
Except Per Share Data)
September 30,
June 30,
March 31,
December 31,
September 30,
(Unaudited)
2024
2024
2024
2023
2023
Interest income
$
33,087
$
31,326
$
30,336
$
30,236
$
29,118
Interest expense
12,931
11,881
11,295
10,642
9,455
Net interest income
20,156
19,445
19,041
19,594
19,663
Provision (credit) for credit losses
1,207
565
954
951
(1,225)
Net interest income after provision (credit) for credit losses
18,949
18,880
18,087
18,643
20,888
Noninterest income
7,133
7,854
6,675
5,678
6,489
Noninterest expense
18,269
19,255
18,304
18,399
17,940
Income before income tax provision
7,813
7,479
6,458
5,922
9,437
Income tax provision
1,448
1,366
1,152
1,661
1,846
Net income
$
6,365
$
6,113
$
5,306
$
4,261
$
7,591
Net income attributable to common shares
$
6,311
$
6,066
$
5,267
$
4,231
$
7,534
Basic earnings per common share
$
0.41
$
0.40
$
0.35
$
0.28
$
0.50
Diluted earnings per common share
$
0.41
$
0.40
$
0.35
$
0.28
$
0.50
NONINTEREST INCOME
TABLE II – COMPARISON OF NONINTEREST INCOME
(Dollars in Thousands)
Three Months Ended
September 30,
$
%
2024
2023
Change
Change
Trust revenue
$
1,946
$
1,919
$
27
1.4
%
Brokerage and insurance revenue
523
394
129
32.7
%
Service charges on deposit accounts
1,546
1,443
103
7.1
%
Interchange revenue from debit card transactions
1,103
1,098
5
0.5
%
Net gains from sales of loans
360
237
123
51.9
%
Loan servicing fees, net
74
154
(80)
(51.9)
%
Increase in cash surrender value of life insurance
458
160
298
186.3
%
Other noninterest income
1,123
1,084
39
3.6
%
Total noninterest income
$
7,133
$
6,489
$
644
9.9
%
(Dollars in Thousands)
Nine Months Ended
September 30,
$
%
2024
2023
Change
Change
Trust revenue
$
5,857
$
5,500
$
357
6.5
%
Brokerage and insurance revenue
1,589
1,189
400
33.6
%
Service charges on deposit accounts
4,336
4,121
215
5.2
%
Interchange revenue from debit card transactions
3,205
3,115
90
2.9
%
Net gains from sales of loans
786
450
336
74.7
%
Loan servicing fees, net
434
466
(32)
(6.9)
%
Increase in cash surrender value of life insurance
1,372
450
922
204.9
%
Other noninterest income
4,083
3,442
641
18.6
%
Realized gains on available-for-sale debt securities, net
0
6
(6)
(100.0)
%
Total noninterest income
$
21,662
$
18,739
$
2,923
15.6
%
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NONINTEREST EXPENSE
TABLE III - COMPARISON OF NONINTEREST EXPENSE
(Dollars in Thousands)
Three Months Ended
September 30,
$
%
2024
2023
Change
Change
Salaries and employee benefits
$
10,875
$
10,878
$
(3)
0.0
%
Net occupancy and equipment expense
1,377
1,268
109
8.6
%
Data processing and telecommunications expense
1,882
1,823
59
3.2
%
Automated teller machine and interchange expense
510
504
6
1.2
%
Pennsylvania shares tax
433
403
30
7.4
%
Professional fees
555
487
68
14.0
%
Other noninterest expense
2,637
2,577
60
2.3
%
Total noninterest expense
$
18,269
$
17,940
$
329
1.8
%
(Dollars in Thousands)
Nine Months Ended
September 30,
$
%
2024
2023
Change
Change
Salaries and employee benefits
$
33,460
$
33,082
$
378
1.1
%
Net occupancy and equipment expense
4,160
3,993
167
4.2
%
Data processing and telecommunications expense
5,877
5,659
218
3.9
%
Automated teller machine and interchange expense
1,470
1,374
96
7.0
%
Pennsylvania shares tax
1,300
1,210
90
7.4
%
Professional fees
1,625
1,988
(363)
(18.3)
%
Other noninterest expense
7,936
8,443
(507)
(6.0)
%
Total noninterest expense
$
55,828
$
55,749
$
79
0.1
%
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.
CRITICAL ACCOUNTING POLICIES
The presentation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect many of the reported amounts and disclosures. Actual results could differ from these estimates.
Allowance for Credit Losses on Loans – A material estimate that is particularly susceptible to significant change is the determination of the allowance for credit losses (ACL) on loans. The Corporation maintains an ACL on loans which represents management’s estimate of expected net charge-offs over the life of the loans. The ACL includes two primary components: (i) an allowance established on loans which share similar risk characteristics collectively evaluated for credit losses (collective basis), and (ii) an allowance established on loans which do not share similar risk characteristics with any loan segment and which are individually evaluated for credit losses (individual basis). Management considers the determination of the ACL on loans to be critical because it requires significant judgment regarding estimates of expected credit losses based on the Corporation’s historical loss experience, current conditions and economic forecasts. Management’s evaluation is based upon a continuous review of the Corporation’s loans, with consideration given to evaluations resulting from examinations performed by regulatory authorities. Note 6 to the unaudited consolidated financial statements provides an overview of the process management uses for determining the ACL, and additional discussion of the ACL is provided in a separate section of Management’s Discussion and Analysis.
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
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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.
Fair Value of Available-For-Sale Debt Securities – Another material estimate is the calculation of fair values of the Corporation’s debt securities. For most of the Corporation’s debt securities, the Corporation receives estimated fair values of debt securities from an independent valuation service, or from brokers. In developing fair values, the valuation service and the brokers use estimates of cash flows, based on historical performance of similar instruments in similar interest rate environments. Based on experience, management is aware that estimated fair values of debt securities tend to vary among brokers and other valuation services.
NET INTEREST INCOME
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 and nine-month periods ended September 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, 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 September 30, 2024 and 2023
For the three-month periods, fully taxable equivalent net interest income (a non-GAAP measure) of $20,361,000 in 2024 was $486,000 (2.4%) higher than in 2023 as average earning assets were $106,852,000 higher in the third quarter 2024 as compared to the third quarter 2023. Average total deposits increased $94,562,000 in the third quarter 2024 over the third quarter 2023. 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 third quarter 2024 as compared to third quarter 2023 by $613,000, while the net impact of changes in interest rates (primarily increases) decreased net interest income by $127,000. As presented in Table V, the Net Interest Margin was 3.29% in the third quarter 2024 as compared to 3.35% in the third 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 2.55% in 2024 from 2.73% in 2023. The average yield on earning assets of 5.38% was 0.44% higher in 2024 as compared to 2023, and the average rate on interest-bearing liabilities of 2.83% in 2024 was 0.62% higher.
INTEREST INCOME AND EARNING ASSETS
Interest income totaled $33,292,000 in 2024, an increase of $3,962,000, or 13.5% from 2023.
Interest and fees from loans receivable increased $2,639,000 in 2024 as compared to 2023. The fully taxable equivalent yield on loans in 2024 increased to 6.08% from 5.72% in 2023, reflecting the effects of rising interest rates on the loan portfolio. Average outstanding loans receivable increased $71,472,000 (3.9%) to $1,888,470,000 in 2024 from $1,816,998,000 in 2023. 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 $1,622,000 in 2024, an increase of $1,277,000 from the total for 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 5.38% in 2024, up from 4.31% in 2023. The average balance of interest-bearing due from banks was $119,885,000 in 2024, up $88,156,000 from $31,729,000 in 2023. The increase in interest-bearing due from banks included the net impact of the increase in average total deposits of $94,562,000, a reduction in average available-for-sale debt securities (amortized cost) of $54,384,000 and an increase in average borrowed funds of $27,739,000, partially offset by the increase in the average loans receivable of $71,472,000 and the net use of cash that contributed to an increase in average Bank-Owned Life Insurance of $18,911,000.
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Interest income from available-for-sale debt securities, on a fully taxable-equivalent basis, totaled $2,774,000 in 2024, up $16,000 from 2023, as the average yield on available-for-sale debt securities was 2.45% in 2024, up from 2.17% in 2023. The average balance (at amortized cost) of available-for-sale debt securities decreased $54,384,000.
INTEREST EXPENSE AND INTEREST-BEARING LIABILITIES
Interest expense increased $3,476,000 to $12,931,000 in 2024 from $9,455,000 in 2023.
Interest expense on deposits increased $3,148,000, as the average rate on interest-bearing deposits increased to 2.62% in 2024 from 1.93% in 2023. Average total deposits (interest-bearing and noninterest-bearing) amounted to $2,084,654,000 for the third quarter 2024, up $94,562,000 (4.8%) from the third quarter 2023. Within average total deposits, average brokered deposits (primarily time and money market) were $58,782,000 with an average interest rate of 5.28% in the third quarter 2024, as compared to $60,829,000 with an average interest rate of 4.98% in the third quarter 2023. At September 30, 2024, total brokered deposits were $45,051,000. The deposit mix has changed as businesses and consumers have become more interest-rate sensitive in light of higher market rates. In comparing the third quarter 2024 to the third quarter 2023, average time deposits increased $79,272,000, average interest checking deposits increased $31,214,000 and average total money market accounts increased $15,689,000 while average savings deposits decreased $33,928,000.
Interest expense on short-term borrowings decreased $493,000 to $184,000 in 2024 from $677,000 in 2023. The average balance of short-term borrowings decreased to $15,038,000 in 2024 from $49,157,000 in 2023. The average rate on short-term borrowings was 4.87% in 2024 compared to 5.46% in 2023.
Interest expense on long-term borrowings (FHLB advances) increased $819,000 to $1,983,000 in 2024 from $1,164,000 in 2023. The average balance of long-term borrowings was $181,075,000 in 2024, up from an average balance of $119,395,000 in 2023. Over the last several months of 2023 and the first nine 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 and increase cash held with the Federal Reserve. 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 4.36% in 2024 compared to 3.87% in 2023.
Nine-Month Periods Ended September 30, 2024 and 2023
For the nine-month periods, fully taxable equivalent net interest income (a non-GAAP measure) was $59,244,000 in 2024, which was $2,282,000 (3.7%) lower than in 2023. The decrease in net interest income reflected an increase in interest expense of $13,645,000 and an increase in interest income of $11,363,000. 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 nine months ended September 30, 2024 over the nine months ended September 30, 2023 by $1,849,000, while the net impact of changes in interest rates (primarily increases) decreased net interest income by $4,131,000. As presented in Table V, the Net Interest Margin was 3.30% in the first nine months of 2024 as compared to 3.53% in the first nine 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 2.60% in 2024 from 2.99% in 2023. The average yield on earning assets of 5.31% was 0.50% higher in 2024 as compared to 2023, while the average rate on interest-bearing liabilities of 2.71% in 2024 was 0.89% higher.
INTEREST INCOME AND EARNING ASSETS
Interest income totaled $95,351,000 in 2024, an increase of $11,363,000 from 2023.
Interest and fees from loans receivable increased $10,026,000 in 2024 as compared to 2023. In the nine-month period ended September 30, 2024, t he fully taxable equivalent yield on loans was 6.01%, up from 5.60% in the first nine months of 2023, reflecting the effects of primarily rising interest rates on new loan originations and floating-rate loans. Average outstanding loans receivable increased $99,838,000 (5.6%) to $1,877,076,000 in 2024 from $1,777,238,000 in 2023. As noted above, the Corporation has experienced growth in commercial real estate and other commercial loans in 2023 and in the first nine months of 2024.
Income from interest-bearing due from banks totaled $2,521,000 in 2024, an increase of $1,589,000 from 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
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interest-bearing due from banks was 5.15% in 2024, up from 4.01% in 2023. The average balance of interest-bearing due from banks was $65,449,000 in 2024, up from $31,076,000 in 2023. Similar to the third quarter 2024 to third quarter 2023 comparison, the net increase in average interest-bearing due from banks for the first nine months of 2024 as compared to 2023 reflected net sources of cash from deposit growth, a reduction in average available-for-sale debt securities and an increase in borrowed funds, partially offset by net uses of cash for loan growth and an increase in Bank-Owned Life Insurance.
Interest income from available-for-sale debt securities decreased $305,000 in 2024 from 2023. The average balance of available-for-sale debt securities (at amortized cost) decreased to $455,944,000 in 2024 from $522,600,000 in 2023. The average yield on available-for-sale debt securities increased to 2.43% for 2024 from 2.20% in 2023.
INTEREST EXPENSE AND INTEREST-BEARING LIABILITIES
For the nine-month periods, interest expense increased $13,645,000 to $36,107,000 in 2024 from $22,462,000 in 2023.
Interest expense on deposits increased $13,024,000, as the average rate on interest-bearing deposits increased to 2.48% in 2024 from 1.45% in 2023. Average total deposits (interest-bearing and noninterest-bearing) amounted to $2,034,335,000 for the first nine months of 2024, up $77,578,000 (4.0%) from the first nine months of 2023. Within average total deposits, average brokered deposits (primarily time and money market) were $70,428,000 with an average interest rate of 5.24% in 2024, up from $40,910,000 with an average interest rate of 4.56% in 2023. Average time deposits increased $92,488,000 and average interest checking deposits increased $47,428,000, while the average balance of savings accounts decreased $39,139,000 and average noninterest-bearing demand deposits decreased $31,814,000.
Interest expense on borrowed funds increased $621,000 in 2024 as compared to 2023. Interest expense on short-term borrowings of $1,141,000 in 2024 was down from $2,918,000 in 2023 as the average balance of short-term borrowings decreased to $29,086,000 in 2024 from $75,978,000 in 2023. The average rate on short-term borrowings was 5.24% in 2024 compared to 5.13% in 2023. Interest expense on long-term borrowings (FHLB advances) increased $2,393,000 to $5,294,000 in 2024 from $2,901,000 in 2023. The average balance of long-term borrowings was $166,454,000 in 2024, up from an average balance of $103,817,000 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 4.25% in 2024 compared to 3.74% in 2023.
More information regarding borrowed funds is provided in Note 8 to the unaudited consolidated financial statements.
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TABLE IV - ANALYSIS OF INTEREST INCOME AND EXPENSE
Three Months Ended
Nine Months Ended
September 30,
Increase/
.
September 30,
Increase/
(In Thousands)
2024
2023
(Decrease)
2024
2023
(Decrease)
INTEREST INCOME
Interest-bearing due from banks
$
1,622
$
345
$
1,277
$
2,521
$
932
$
1,589
Available-for-sale debt securities:
Taxable
2,136
2,077
59
6,409
6,440
(31)
Tax-exempt
638
681
(43)
1,887
2,161
(274)
Total available-for-sale debt securities
2,774
2,758
16
8,296
8,601
(305)
Loans receivable:
Taxable
28,099
25,529
2,570
82,292
72,322
9,970
Tax-exempt
749
680
69
2,149
2,093
56
Total loans receivable
28,848
26,209
2,639
84,441
74,415
10,026
Other earning assets
48
18
30
93
40
53
Total Interest Income
33,292
29,330
3,962
95,351
83,988
11,363
INTEREST EXPENSE
Interest-bearing deposits:
Interest checking
3,240
2,360
880
8,882
4,859
4,023
Money market
2,159
1,669
490
6,256
3,654
2,602
Savings
50
60
(10)
157
186
(29)
Time deposits
4,963
3,175
1,788
13,322
6,894
6,428
Total interest-bearing deposits
10,412
7,264
3,148
28,617
15,593
13,024
Borrowed funds:
Short-term
184
677
(493)
1,141
2,918
(1,777)
Long-term - FHLB advances
1,983
1,164
819
5,294
2,901
2,393
Senior notes, net
120
120
0
360
359
1
Subordinated debt, net
232
230
2
695
691
4
Total borrowed funds
2,519
2,191
328
7,490
6,869
621
Total Interest Expense
12,931
9,455
3,476
36,107
22,462
13,645
Net Interest Income
$
20,361
$
19,875
$
486
$
59,244
$
61,526
$
(2,282)
Note: Interest income from tax-exempt securities and loans has been adjusted to a fully taxable-equivalent basis (a non-GAAP measure), using the Corporation’s marginal federal income tax rate of 21%. The following table is a reconciliation of net interest income under U.S. GAAP as compared to net interest income as adjusted to a fully taxable-equivalent basis.
(In Thousands)
Three Months Ended
Nine Months Ended
September 30,
Increase/
September 30,
Increase/
2024
2023
(Decrease)
2024
2023
(Decrease)
Net Interest Income Under U.S. GAAP
$
20,156
$
19,663
$
493
$
58,642
$
60,806
$
(2,164)
Add: fully taxable-equivalent interest income adjustment from tax-exempt securities
66
84
(18)
202
314
(112)
Add: fully taxable-equivalent interest income adjustment from tax-exempt loans
139
128
11
400
406
(6)
Net Interest Income as adjusted to a fully taxable-equivalent basis
$
20,361
$
19,875
$
486
$
59,244
$
61,526
$
(2,282)
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CITIZENS & NORTHERN CORPORATION – FORM 10-Q
TABLE V - Analysis of Average Daily Balances and Rates
(Dollars in Thousands)
Three Months
Three Months
Nine Months
Nine Months
Ended
Rate of
Ended
Rate of
Ended
Rate of
Ended
Rate of
9/30/2024
Return/
9/30/2023
Return/
9/30/2024
Return/
9/30/2023
Return/
Average
Cost of
Average
Cost of
Average
Cost of
Average
Cost of
Balance
Funds %
Balance
Funds %
Balance
Funds %
Balance
Funds %
EARNING ASSETS
Interest-bearing due from banks
$
119,885
5.38
%
$
31,729
4.31
%
$
65,449
5.15
%
$
31,076
4.01
%
Available-for-sale debt securities, at amortized cost:
Taxable
336,246
2.53
%
379,709
2.17
%
342,677
2.50
%
395,070
2.18
%
Tax-exempt
113,514
2.24
%
124,435
2.17
%
113,267
2.23
%
127,530
2.27
%
Total available-for-sale debt securities
449,760
2.45
%
504,144
2.17
%
455,944
2.43
%
522,600
2.20
%
Loans receivable:
Taxable
1,797,224
6.22
%
1,729,972
5.85
%
1,787,982
6.15
%
1,687,593
5.73
%
Tax-exempt
91,246
3.27
%
87,026
3.10
%
89,094
3.22
%
89,645
3.12
%
Total loans receivable
1,888,470
6.08
%
1,816,998
5.72
%
1,877,076
6.01
%
1,777,238
5.60
%
Other earning assets
3,076
6.21
%
1,468
4.86
%
2,215
5.61
%
1,332
4.02
%
Total Earning Assets
2,461,191
5.38
%
2,354,339
4.94
%
2,400,684
5.31
%
2,332,246
4.81
%
Cash
24,987
22,068
22,619
22,475
Unrealized loss on securities
(47,806)
(63,110)
(51,792)
(59,921)
Allowance for credit losses
(20,643)
(19,540)
(20,141)
(18,472)
Bank-owned life insurance
50,470
31,559
51,647
31,413
Bank premises and equipment
21,793
21,132
21,858
21,262
Intangible assets
54,730
55,125
54,827
55,227
Other assets
73,320
74,483
81,988
70,369
Total Assets
$
2,618,042
$
2,476,056
$
2,561,690
$
2,454,599
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
Interest checking
$
543,288
2.37
%
$
512,074
1.83
%
$
525,179
2.26
%
$
477,751
1.36
%
Money market
356,487
2.41
%
340,618
1.94
%
353,142
2.37
%
344,527
1.42
%
Savings
198,312
0.10
%
232,240
0.10
%
206,344
0.10
%
245,483
0.10
%
Time deposits
485,708
4.07
%
406,436
3.10
%
457,662
3.89
%
365,174
2.52
%
Total interest-bearing deposits
1,583,795
2.62
%
1,491,368
1.93
%
1,542,327
2.48
%
1,432,935
1.45
%
Borrowed funds:
Short-term
15,038
4.87
%
49,157
5.46
%
29,086
5.24
%
75,978
5.13
%
Long-term - FHLB advances
181,075
4.36
%
119,395
3.87
%
166,454
4.25
%
103,817
3.74
%
Senior notes, net
14,875
3.21
%
14,808
3.22
%
14,857
3.24
%
14,790
3.25
%
Subordinated debt, net
24,787
3.72
%
24,676
3.70
%
24,759
3.75
%
24,648
3.75
%
Total borrowed funds
235,775
4.25
%
208,036
4.18
%
235,156
4.25
%
219,233
4.19
%
Total Interest-bearing Liabilities
1,819,570
2.83
%
1,699,404
2.21
%
1,777,483
2.71
%
1,652,168
1.82
%
Demand deposits
500,859
498,724
492,008
523,822
Other liabilities
29,226
30,749
29,527
28,091
Total Liabilities
2,349,655
2,228,877
2,299,018
2,204,081
Stockholders' equity, excluding accumulated other comprehensive loss
305,808
296,577
303,209
297,386
Accumulated other comprehensive loss
(37,421)
(49,398)
(40,537)
(46,868)
Total Stockholders' Equity
268,387
247,179
262,672
250,518
Total Liabilities and Stockholders' Equity
$
2,618,042
$
2,476,056
$
2,561,690
$
2,454,599
Interest Rate Spread
2.55
%
2.73
%
2.60
%
2.99
%
Net Interest Income/Earning Assets
3.29
%
3.35
%
3.30
%
3.53
%
Total Deposits (Interest-bearing and Demand)
$
2,084,654
$
1,990,092
$
2,034,335
$
1,956,757
(1) Annualized rates of return on tax-exempt securities and loans are presented on a fully taxable-equivalent basis, using the Corporation’s marginal federal income tax rate of 21%.
(2) Nonaccrual loans have been included with loans for the purpose of analyzing net interest earnings.
(3) Rates of return on earning assets and costs of funds are presented on an annualized basis.
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CITIZENS & NORTHERN CORPORATION – FORM 10-Q
TABLE VI - ANALYSIS OF VOLUME AND RATE CHANGES
(In Thousands)
Three Months Ended 9/30/2024 vs. 9/30/2023
.
Nine Months Ended 9/30/2024 vs. 9/30/2023
Change in
Change in
Total
Change in
Change in
Total
Volume
Rate
Change
Volume
Rate
Change
EARNING ASSETS
Interest-bearing due from banks
$
1,110
$
167
$
1,277
$
1,265
$
324
$
1,589
Available-for-sale debt securities:
Taxable
(257)
316
59
(912)
881
(31)
Tax-exempt
(62)
19
(43)
(237)
(37)
(274)
Total available-for-sale debt securities
(319)
335
16
(1,149)
844
(305)
Loans receivable:
Taxable
990
1,580
2,570
4,476
5,494
9,970
Tax-exempt
31
38
69
(13)
69
56
Total loans receivable
1,021
1,618
2,639
4,463
5,563
10,026
Other earning assets
22
8
30
33
20
53
Total Interest Income
1,834
2,128
3,962
4,612
6,751
11,363
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
Interest checking
188
692
880
525
3,498
4,023
Money market
65
425
490
93
2,509
2,602
Savings
(9)
(1)
(10)
(27)
(2)
(29)
Time deposits
750
1,038
1,788
2,052
4,376
6,428
Total interest-bearing deposits
994
2,154
3,148
2,643
10,381
13,024
Borrowed funds:
Short-term
(435)
(58)
(493)
(1,836)
59
(1,777)
Long-term - FHLB advances
661
158
819
1,950
443
2,393
Senior notes, net
0
0
0
2
(1)
1
Subordinated debt, net
1
1
2
4
0
4
Total borrowed funds
227
101
328
120
501
621
Total Interest Expense
1,221
2,255
3,476
2,763
10,882
13,645
Net Interest Income
$
613
$
(127)
$
486
$
1,849
$
(4,131)
$
(2,282)
(1) Changes in income on tax-exempt securities and loans are presented on a fully taxable-equivalent basis, using the Corporation’s marginal federal income tax rate of 21%.
(2) The change in interest due to both volume and rates has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amount of the change in each.
INCOME TAXES
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. The income tax provision for the third quarter 2024 of $1,448,000 was $398,000 lower than the provision for the third quarter 2023 and the provision for the nine months ended September 30, 2024 of $3,966,000 was $708,000 lower than the amount for the first nine months of 2023 due to lower pre-tax income in 2024. The effective tax rate (tax provision as a percentage of pre-tax income) was 18.5% in the third quarter 2024 compared to 19.6% in the third quarter 2023 and 18.2% for the first nine months of 2024 as compared to 19.0% for the first nine months of 2023. The Corporation’s effective tax rates differ from the statutory federal rate of 21% principally because of the effects of tax-exempt interest income, nondeductible interest expense, state income taxes and other permanent differences.
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CITIZENS & NORTHERN CORPORATION – FORM 10-Q
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 September 30, 2024 and December 31, 2023 represents the following temporary difference components:
September 30,
December 31,
(In Thousands)
2024
2023
Deferred tax assets:
Unrealized holding losses on securities
$
8,574
$
10,335
Allowance for credit losses on loans
4,490
4,230
Purchase accounting adjustments on loans
367
470
Deferred compensation
1,426
1,352
Operating leases liability
725
787
Deferred loan origination fees
716
731
Net operating loss carryforward
453
541
Accrued incentive compensation
494
463
Other deferred tax assets
1,442
1,316
Total deferred tax assets
18,687
20,225
Deferred tax liabilities:
BOLI surrender
0
950
Defined benefit plans - ASC 835
90
119
Bank premises and equipment
270
291
Core deposit intangibles
478
544
Right-of-use assets from operating leases
725
787
Other deferred tax liabilities
77
93
Total deferred tax liabilities
1,640
2,784
Deferred tax asset, net
$
17,047
$
17,441
The Corporation regularly reviews deferred tax assets for recoverability based on history of earnings, expectations for future earnings and expected timing of reversals of temporary differences. Realization of deferred tax assets ultimately depends on the existence of sufficient taxable income.
Management believes the recorded net deferred tax asset at September 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 .
SECURITIES
Management continually evaluates several objectives in determining the size, securities mix and other characteristics of the available-for-sale debt securities (investment) portfolio. Key objectives include supporting liquidity needs and maximizing return on earning assets within reasonable risk parameters.
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CITIZENS & NORTHERN CORPORATION – FORM 10-Q
The composition of the available-for-sale debt securities portfolio at September 30, 2024 and December 31, 2023, 2022 and 2021 is as follows:
(Dollars In Thousands)
September 30, 2024
December 31, 2023
December 31, 2022
December 31, 2021
Amortized
Fair
Amortized
Fair
Amortized
Fair
Amortized
Fair
Cost
Value
Cost
Value
Cost
Value
Cost
Value
Obligations of the U.S. Treasury
$
8,072
7,321
$
12,325
11,290
$
35,166
$
31,836
$
25,058
$
24,912
Obligations of U.S. Government agencies
10,271
9,376
11,119
9,946
25,938
23,430
23,936
24,091
Bank holding company debt securities
28,956
23,949
28,952
23,500
28,945
25,386
18,000
17,987
Obligations of states and political subdivisions:
Tax-exempt
113,093
104,936
113,464
104,199
146,149
132,623
143,427
148,028
Taxable
55,182
48,434
58,720
50,111
68,488
56,812
72,182
72,765
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities
101,545
94,053
105,549
95,405
112,782
99,941
98,048
98,181
Residential collateralized mortgage obligations
48,251
45,601
50,212
46,462
44,868
40,296
44,015
44,247
Commercial mortgage-backed securities
73,695
66,390
76,412
66,682
91,388
79,686
86,926
87,468
Private label commercial mortgage-backed securities
8,327
8,362
8,215
8,160
8,070
8,023
0
0
Total Available-for-Sale Debt Securities
$
447,392
$
408,422
$
464,968
$
415,755
$
561,794
$
498,033
$
511,592
$
517,679
Aggregate Unrealized (Loss) Gain
$
(38,970)
$
(49,213)
$
(63,761)
$
6,087
Aggregate Unrealized (Loss) Gain as a % of Amortized Cost
(8.7)
%
(10.6)
%
(11.3)
%
1.2
%
Market Yield on 5-Year U.S. Treasury Obligations (a)
3.58
%
3.84
%
3.99
%
1.26
%
(a) Source: 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 $38,970,000, or 8.7%, at September 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 0.26% lower at September 30, 2024 in comparison to December 31, 2023, 0.41% lower than at December 31, 2022 and 2.32% higher than at December 31, 2021. The table also shows that the amortized cost basis of the portfolio has been reduced to $447,392,000 at September 30, 2024 from $561,794,000 at December 31, 2022 as proceeds from maturities and sales have been used to help fund loan growth and for other purposes.
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 September 30, 2024 before it is able to recover the amortized cost basis. Further, management reviewed the Corporation’s holdings as of September 30, 2024 and concluded there were no credit-related declines in fair value. Additional information related to the types
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CITIZENS & NORTHERN CORPORATION – FORM 10-Q
of securities held at September 30, 2024, other than securities issued or guaranteed by U.S. Government entities or agencies, is as follows:
● 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. There were seven securities with face amounts ranging from $3 million to $5 million, including one senior security and six subordinated securities. All of the issuers have publicly traded common stock . At September 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 September 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; AA – 71%; A – 7%.
● Private label commercial mortgage-backed securities (PLCMBS) – There were two PLCMBS securities, both of which were from the most senior payment (subordination) classes of their respective issuances. 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 September 30, 2024.
FINANCIAL CONDITION
This section includes information regarding the Corporation’s lending activities or other significant changes or exposures that are not otherwise addressed in Management’s Discussion and Analysis. Significant changes in the average balances of the Corporation’s earning assets and interest-bearing liabilities are described in the Net Interest Income section of Management’s Discussion and Analysis. 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 effect on the Corporation’s financial condition in 2024.
Table VII shows the composition of the loan portfolio at September 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 September 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 September 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 $96,241,000, or 5.1% of gross loans receivable. At September 30, 2024, within this segment there were two loans with a total recorded investment of $3,204,000 in nonaccrual status with a specific allowance of $14,000 on one loan. During the third quarter 2024, there was a partial charge-off of $640,000 on the other office loan in nonaccrual status which had a specific allowance of $455,000 at June 30, 2024. The charge-off resulted from a decrease in the appraised value of property which is the primary source of collateral. At September 30, 2024, the carrying value of this loan was $1,846,000. At September 30, 2024, there was no specific allowance on this loan though it remained in nonaccrual status. 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 September 30, 2024. The Provision and Allowance for Credit Losses section of Management’s Discussion and Analysis provides additional related discussion.
While the Corporation’s lending activities are primarily concentrated in its market areas, a portion of the Corporation’s commercial loan segment consists of participation loans. Participation loans represent portions of larger commercial transactions for which other institutions are the “lead banks”. Although not the lead bank, the Corporation conducts detailed underwriting and monitoring of participation loan opportunities. Total participation loans outstanding amounted to $35,652,000 at September 30, 2024 down from $38,652,000 at December 31, 2023.
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CITIZENS & NORTHERN CORPORATION – FORM 10-Q
The Corporation is a party to financial instruments with off-balance risk, including commitments to extend credit and standby letters of credit. At September 30, 2024, the total contract amount of commitments to extend credit was $378,535,000 as compared to $395,997,000 at December 31, 2023, and the contract amount of standby letters of credit increased to $64,938,000 at September 30, 2024 from $19,158,000 at December 31, 2023. The increase in standby letters of credit at September 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.
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 $593,000 at September 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.
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. The Corporation may be required to repurchase a loan and reimburse a portion of fees received or reimburse the investor for a credit loss incurred on a loan, if it is determined that the representations and warranties have not been met. Such repurchases or reimbursements generally result from an underwriting or documentation deficiency. At September 30, 2024, the total outstanding balance of loans the Corporation has repurchased as a result of identified instances of noncompliance amounted to $2,698,000, and the corresponding total outstanding balance of repurchased loans at December 31, 2023 was $2,839,000.
At September 30, 2024, outstanding balances of loans sold and serviced through the MPF Xtra and Original programs totaled $325,004,000, including loans sold through the MPF Xtra program of $152,880,000 and loans sold through the Original program of $172,124,000. 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 September 30, 2024 and December 31, 2023.
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CITIZENS & NORTHERN CORPORATION – FORM 10-Q
TABLE VII - SUMMARY OF LOANS BY TYPE
Summary of Loans by Type
(In Thousands)
September 30,
December 31,
2024
2023
2022
2021
2020
2019
Commercial real estate - non-owner occupied:
Non-owner occupied
$
470,383
$
499,104
$
454,386
$
358,352
$
328,662
$
208,579
Multi-family (5 or more) residential
87,487
64,076
55,406
49,054
54,893
30,474
1-4 Family - commercial purpose
163,233
174,162
165,805
175,027
198,918
147,121
Total commercial real estate - non-owner occupied
721,103
737,342
675,597
582,433
582,473
386,174
Commercial real estate - owner occupied
266,477
237,246
205,910
196,083
191,075
78,729
All other commercial loans:
Commercial and industrial
93,205
78,832
95,368
118,488
222,923
67,288
Commercial lines of credit
128,461
117,236
141,444
106,338
105,802
92,509
Political subdivisions
85,479
79,031
86,663
75,401
46,295
46,054
Commercial construction and land
105,255
104,123
60,892
59,505
41,000
32,717
Other commercial loans
19,585
20,471
25,710
26,498
29,310
28,735
Total all other commercial loans
431,985
399,693
410,077
386,230
445,330
267,303
Residential mortgage loans:
1-4 Family - residential
383,482
389,262
363,005
327,593
356,532
388,415
1-4 Family residential construction
23,947
24,452
30,577
23,151
18,736
14,640
Total residential mortgage
407,429
413,714
393,582
350,744
375,268
403,055
Consumer loans:
Consumer lines of credit (including HELOCs)
43,624
41,503
36,650
33,522
34,566
30,810
All other consumer
22,146
18,641
18,224
15,837
15,497
16,151
Total consumer
65,770
60,144
54,874
49,359
50,063
46,961
Total
1,892,764
1,848,139
1,740,040
1,564,849
1,644,209
1,182,222
Less: allowance for credit losses on loans
(20,442)
(19,208)
(16,615)
(13,537)
(11,385)
(9,836)
Loans, net
$
1,872,322
$
1,828,931
$
1,723,425
$
1,551,312
$
1,632,824
$
1,172,386
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 September 30, 2024 is as follows:
NON-OWNER OCCUPIED COMMERCIAL REAL ESTATE
(In Thousands)
September 30,
% of Non-owner
% of
2024
Occupied CRE
Total Loans
Office
$
96,241
20.5
%
5.1
%
Retail
94,773
20.1
%
5.0
%
Industrial
82,946
17.6
%
4.4
%
Hotels
72,491
15.4
%
3.8
%
Mixed Use
60,800
12.9
%
3.2
%
Other
63,132
13.4
%
3.3
%
Total Non-owner Occupied CRE Loans
$
470,383
Total Gross Loans
$
1,892,764
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CITIZENS & NORTHERN CORPORATION – FORM 10-Q
PROVISION AND ALLOWANCE FOR CREDIT LOSSES
A summary of the provision (credit) for credit losses for the three-month and nine-month periods ended September 30, 2024 and 2023 is as follows:
(In Thousands)
3 Months
3 Months
9 Months
9 Months
Ended
Ended
Ended
Ended
September 30,
September 30,
September 30,
September 30,
2024
2023
2024
2023
Provision (credit) for credit losses:
Loans receivable
$
1,297
$
(933)
$
2,823
$
(409)
Off-balance sheet exposures
(90)
(292)
(97)
(356)
Total provision (credit) for credit losses
$
1,207
$
(1,225)
$
2,726
$
(765)
For the quarter ended September 30, 2024, there was a provision for credit losses of $1,207,000, an increase of $2,432,000 compared to a credit for credit losses (reduction in expense) of $1,225,000 in third quarter 2023. For the nine months ended September 30, 2024, there was a provision for credit losses of $2,726,000, an increase of $3,491,000 compared to a credit for credit losses of $765,000 in 2023. For the nine months ended September 30, 2024, the provision related to loans receivable included the impact of increases in the ACL from an increase in qualitative adjustments resulting mainly from changes in external indexes and an increase in past due and nonaccrual loans as well as net charge-offs in excess of specific allowances . The ACL as a percentage of gross loans receivable increased to 1.08% at September 30, 2024 from 1.04% at December 31, 2023; in comparison, the ACL dropped to 0.99% of gross loans receivable at September 30, 2023 from 1.08% upon adoption of CECL on January 1, 2023.
As shown in Table IX, the ACL on loans individually evaluated decreased to $173,000 at September 30, 2024 from $743,000 at December 31, 2023, primarily from partial charge-offs on two loans with individual ACLs at December 31, 2023. In the third quarter 2024, there was a partial charge-off of $640,000 on a non-owner occupied commercial real estate office loan with a specific allowance of $455,000 at June 30, 2024 and $486,000 at December 31, 2023. At September 30, 2024, the carrying value of this loan was $1,846,000 with no specific allowance on the loan. In the second quarter 2024, there was a partial charge-off of $117,000 on a non-owner occupied commercial real estate loan for which there was an ACL of $124,000 at December 31, 2023. At September 30, 2024, there was no ACL on the loan and the carrying value of the loan was $3,276,000 . At September 30, 2024, there were two commercial relationships with loans receivable totaling $1,622,000 for which individual ACLs were recorded, including one non-owner occupied office loan with an outstanding balance of $1,357,000 and an individual ACL of $14,000.
Table IX also shows that, at September 30, 2024 as compared to December 31, 2023, the ACL related to collectively evaluated commercial loans increased by a total of $1,741,000 and the ACL on collectively evaluated consumer loans increased $67,000, while the ACL on collectively evaluated residential mortgage loans decreased $4,000. The increase for commercial loans includes the impact of an increase in qualitative adjustments resulting mainly from changes in external indexes and an increase in past due and nonaccrual loans.
In the first nine months of 2024, net charge-offs totaled $1,589,000, or 0.08% (0.11% annualized) of average outstanding loans. In addition to the two charge-offs described above, in the third quarter 2024 there was a partial charge-off of $427,000 on two commercial construction and land loans to one borrower with a specific ACL of $447,000 at June 30, 2024 and no specific ACL at December 31, 2023. At September 30, 2024, the carrying value of these loans totaled $1,883,000 with no specific allowance on the 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.
Table X shows that total nonperforming assets as a percentage of total assets was 0.92% at September 30, 2024, up from 0.75% at December 31, 2023 but lower than at year-end 2020 through 2022. Total nonperforming assets were $24,638,000 at September 30, 2024, up from $18,845,000 at December 31, 2023. Nonperforming loans included an increase in nonaccrual loans of $9,244,000 from December 31, 2023, while loans past due 90 days or more still accruing decreased $3,134,000 from December 31, 2023. In the first nine
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CITIZENS & NORTHERN CORPORATION – FORM 10-Q
months of 2024, the net increase in nonaccrual loans included an increase in nonaccrual commercial construction and land loans, primarily to three borrowers.
Table X also shows that loans past due 30-89 days totaled $15,906,000 at September 30, 2024, up from $9,275,000 at December 31, 2023. The net increase includes a multi-family residential loan with a carrying value of $7,650,000 that was 60 days past due at September 30, 2024. The property that collateralizes this loan is a newly-built apartment complex for which construction was completed to the point of allowing tenants to begin occupying the units in the summer of 2024. Based on management’s assessment of appraisal and market information, and support provided by a guarantor, there was no individual ACL on this loan at September 30, 2024.
Over the period 2019-2023 and the first nine 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 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 September 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.
TABLE VIII - ANALYSIS OF THE ALLOWANCE FOR CREDIT LOSSES ON LOANS
(Dollars In Thousands)
Nine Months Ended
September 30,
September 30,
Years Ended December 31,
2024
2023
2023
2022
2021
2020
2019
Balance, beginning of year
$
19,208
$
16,615
$
16,615
$
13,537
$
11,385
$
9,836
$
9,309
Adoption of ASU 2016-13 (CECL)
0
2,104
2,104
0
0
0
0
Charge-offs
(1,684)
(299)
(356)
(4,245)
(1,575)
(2,465)
(379)
Recoveries
95
74
92
68
66
101
57
Net charge-offs
(1,589)
(225)
(264)
(4,177)
(1,509)
(2,364)
(322)
Provision (credit) for credit losses on loans
2,823
(409)
753
7,255
3,661
3,913
849
Balance, end of year
$
20,442
$
18,085
$
19,208
$
16,615
$
13,537
$
11,385
$
9,836
Net charge-offs (annualized) as a % of average loans
0.11
%
0.02
%
0.01
%
0.26
%
0.09
%
0.16
%
0.03
%
TABLE IX - COMPONENTS OF THE ALLOWANCE FOR CREDIT LOSSES ON LOANS
(In Thousands)
September 30,
December 31,
January 1,
2024
2023
2023
Loans individually evaluated
$
173
$
743
$
751
Loans collectively evaluated:
Commercial real estate - nonowner occupied
11,904
10,379
9,641
Commercial real estate - owner occupied
2,714
2,111
1,765
All other commercial loans
3,424
3,811
3,914
Residential mortgage
1,760
1,764
2,407
Consumer
467
400
241
Total Allowance
$
20,442
$
19,208
$
18,719
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CITIZENS & NORTHERN CORPORATION – FORM 10-Q
PRIOR TO CECL ADOPTION
(In Thousands)
As of December 31,
2022
2021
2020
2019
ASC 310 - Impaired loans - individually evaluated
$
453
$
740
$
925
$
1,051
ASC 450 - Collectively evaluated:
Commercial
10,845
7,553
5,545
3,913
Residential mortgage
4,073
4,338
4,091
4,006
Consumer
244
235
239
281
Unallocated
1,000
671
585
585
Total Allowance
$
16,615
$
13,537
$
11,385
$
9,836
TABLE X - PAST DUE LOANS AND NONPERFORMING ASSETS
(Dollars In Thousands)
September 30,
As of December 31,
2024
2023
2022
2021
2020
2019
Loans individually evaluated with a valuation allowance
$
1,622
$
7,786
$
3,460
$
6,540
$
8,082
$
3,375
Loans individually evaluated without a valuation allowance
18,069
3,478
14,871
2,636
2,895
1,670
Purchased credit impaired loans
0
0
1,027
6,558
6,841
441
Total individually evaluated loans
$
19,691
$
11,264
$
19,358
$
15,734
$
17,818
$
5,486
Total loans past due 30-89 days and still accruing
$
15,906
$
9,275
$
7,079
$
5,106
$
5,918
$
8,889
Nonperforming assets:
Purchased credit impaired loans
$
0
$
0
$
1,027
$
6,558
$
6,841
$
441
Other nonaccrual loans
24,401
15,177
22,058
12,441
14,575
8,777
Total nonaccrual loans
24,401
15,177
23,085
18,999
21,416
9,218
Total loans past due 90 days or more and still accruing
56
3,190
2,237
2,219
1,975
1,207
Total nonperforming loans
24,457
18,367
25,322
21,218
23,391
10,425
Foreclosed assets held for sale (real estate)
181
478
275
684
1,338
2,886
Total nonperforming assets
$
24,638
$
18,845
$
25,597
$
21,902
$
24,729
$
13,311
Total nonperforming loans as a % of loans
1.29
%
0.99
%
1.46
%
1.36
%
1.42
%
0.88
%
Total nonperforming assets as a % of assets
0.92
%
0.75
%
1.04
%
0.94
%
1.10
%
0.80
%
Allowance for credit losses as a % of total loans
1.08
%
1.04
%
0.95
%
0.87
%
0.69
%
0.83
%
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CITIZENS & NORTHERN CORPORATION – FORM 10-Q
LIQUIDITY
Liquidity is the ability to quickly raise cash at a reasonable cost. An adequate liquidity position permits the Corporation to pay creditors, compensate for unforeseen deposit fluctuations and fund unexpected loan demand.
The Corporation maintains overnight borrowing facilities with several correspondent banks that provide a source of day-to-day liquidity. Also, the Corporation maintains borrowing facilities with the Federal Home Loan Bank of Pittsburgh, secured by various mortgage loans.
The Corporation has a line of credit with the Federal Reserve Bank of Philadelphia’s Discount Window. 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 $19,387,000 at September 30, 2024.
The Corporation’s outstanding, available, and total credit facilities at September 30, 2024 and December 31, 2023 are as follows:
Outstanding
Available
Total Credit
(In Thousands)
September 30,
December 31,
September 30,
December 31,
September 30,
December 31,
2024
2023
2024
2023
2024
2023
Federal Home Loan Bank of Pittsburgh
$
207,858
$
189,021
$
737,284
$
737,824
$
945,142
$
926,845
Federal Reserve Bank Discount Window
0
0
18,602
19,982
18,602
19,982
Other correspondent banks
0
0
75,000
75,000
75,000
75,000
Total credit facilities
$
207,858
$
189,021
$
830,886
$
832,806
$
1,038,744
$
1,021,827
At September 30, 2024, the Corporation’s outstanding credit facilities with the Federal Home Loan Bank of Pittsburgh consisted of short-term advances of $10,000,000, long-term borrowings of $174,617,000 and letters of credit totaling $23,241,000. 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. Additional information regarding borrowed funds is included in Note 8 to the unaudited consolidated financial statements.
Additionally, the Corporation uses “RepoSweep” arrangements to borrow funds from commercial banking customers on an overnight basis. 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 September 30, 2024, the carrying value of available-for-sale securities in excess of amounts required to meet pledging or repurchase agreement obligations was $223,060,000.
Deposits totaled $2,135,879,000 at September 30, 2024, up $121,073,000 (6.0%) from $2,014,806,000 at December 31, 2023. Excluding brokered deposits, adjusted total deposits at September 30, 2024 were higher by $140,391,000 (7.2%) as compared to December 31, 2023. Brokered deposits totaled $45,051,000 at September 30, 2024, a decrease of $19,318,000 from December 31, 2023. The increase in total deposits, excluding brokered deposits, included an increase in total deposits from municipal relationships of $64,829,000 to $342,541,000 at September 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 September 30, 2024, estimated uninsured deposits totaled $655.6 million, or 30.5% 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 $183.3 million at September 30, 2024. As shown in the table below, total uninsured and uncollateralized deposits amounted to 21.9% of total deposits at September 30, 2024, as compared to 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 September 30, 2024. Available funding from these sources totaled 160.8% of uninsured deposits and 223.2% of total uninsured and uncollateralized deposits at September 30, 2024.
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CITIZENS & NORTHERN CORPORATION – FORM 10-Q
Uninsured Deposits Information
September 30,
December 31,
2024
2023
Total Deposits - C&N Bank
$
2,152,136
$
2,030,909
Estimated Total Uninsured Deposits
$
655,569
$
592,206
Portion of Uninsured Deposits that are
Collateralized
183,274
151,031
Uninsured and Uncollateralized Deposits
$
472,295
$
441,175
Uninsured and Uncollateralized Deposits as
a % of Total Deposits
21.9
%
21.7
%
Available Funding from Credit Facilities
$
830,886
$
832,806
Fair Value of Available-for-sale Debt
Securities in Excess of Pledging Obligations
223,060
256,058
Highly Liquid Available Funding
$
1,053,946
$
1,088,864
Highly Liquid Available Funding as a % of
Uninsured Deposits
160.8
%
183.9
%
Highly Liquid Available Funding as a % of
Uninsured and Uncollateralized Deposits
223.2
%
246.8
%
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
In August 2018, the Federal Reserve Board issued an interim final rule that expanded applicability of the Board’s small bank holding company policy statement. The interim final rule raised the policy statement’s asset threshold from $1 billion to $3 billion in total consolidated assets for a bank holding company or savings and loan holding company that: (1) is not engaged in significant nonbanking activities; (2) does not conduct significant off-balance sheet activities; and (3) does not have a material amount of debt or equity securities, other than trust-preferred securities, outstanding. 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 September 30, 2024; however, C&N Bank remains subject to regulatory capital requirements administered by the federal banking agencies.
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CITIZENS & NORTHERN CORPORATION – FORM 10-Q
Details concerning capital ratios at September 30, 2024 and December 31, 2023 are presented below. Management believes, as of September 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 C&N Bank to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers. For comparison purposes, the Corporation’s capital ratios are presented along with those of C&N Bank in the table below. Further, as reflected in the table below, the Corporation’s and C&N Bank’s capital ratios at September 30, 2024 and December 31, 2023 exceed the Corporation’s Board policy threshold levels.
(Dollars in Thousands)
Minimum To Be
Minimum To Maintain
Well
Minimum
Capital Conservation
Capitalized Under
Minimum To Meet
Capital
Buffer at Reporting
Prompt Corrective
the Corporation's
Actual
Requirement
Date
Action Provisions
Policy Thresholds
Amount
Ratio
Amount
Ratio
Amount
Ratio
Amount
Ratio
Amount
Ratio
September 30, 2024:
Total capital to risk-weighted assets:
Consolidated
$
298,517
15.72
%
N/A
N/A
N/A
N/A
N/A
N/A
$
208,892
≥11
%
C&N Bank
283,604
14.96
%
151,630
≥8
%
199,015
≥10.5
%
189,538
≥10
%
208,491
≥11
%
Tier 1 capital to risk-weighted assets:
Consolidated
252,679
13.31
%
N/A
N/A
N/A
N/A
N/A
N/A
170,912
≥9
%
C&N Bank
262,568
13.85
%
113,723
≥6
%
161,107
≥8.5
%
151,630
≥8
%
170,584
≥9
%
Common equity tier 1 capital to risk-weighted assets:
Consolidated
252,679
13.31
%
N/A
N/A
N/A
N/A
N/A
N/A
142,427
≥7.5
%
C&N Bank
262,568
13.85
%
85,292
≥4.5
%
132,676
≥7.0
%
123,200
≥6.5
%
142,153
≥7.5
%
Tier 1 capital to average assets:
Consolidated
252,679
9.71
%
N/A
N/A
N/A
N/A
N/A
N/A
208,240
≥8
%
C&N Bank
262,568
10.15
%
103,524
≥4
%
N/A
N/A
129,405
≥5
%
207,049
≥8
%
December 31, 2023:
Total capital to risk-weighted assets:
Consolidated
$
290,425
15.67
%
N/A
N/A
N/A
N/A
N/A
N/A
$
203,809
≥11
%
C&N Bank
275,307
14.89
%
147,925
≥8
%
194,151
≥10.5
%
184,906
≥10
%
203,396
≥11
%
Tier 1 capital to risk-weighted assets:
Consolidated
245,810
13.27
%
N/A
N/A
N/A
N/A
N/A
N/A
166,753
≥9
%
C&N Bank
255,409
13.81
%
110,943
≥6
%
157,170
≥8.5
%
147,925
≥8
%
166,415
≥9
%
Common equity tier 1 capital to risk-weighted assets:
Consolidated
245,810
13.27
%
N/A
N/A
N/A
N/A
N/A
N/A
138,961
≥7.5
%
C&N Bank
255,409
13.81
%
83,208
≥4.5
%
129,434
≥7.0
%
120,189
≥6.5
%
138,679
≥7.5
%
Tier 1 capital to average assets:
Consolidated
245,810
9.87
%
N/A
N/A
N/A
N/A
N/A
N/A
199,151
≥8
%
C&N Bank
255,409
10.32
%
99,010
≥4
%
N/A
N/A
123,762
≥5
%
198,020
≥8
%
To avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, a banking organization subject to the rule must hold a capital conservation buffer composed of common equity tier 1 capital above its minimum risk-based capital requirements. The buffer is measured relative to risk-weighted assets. At September 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
4.5
%
Minimum common equity tier 1 capital ratio plus capital conservation buffer
7.0
%
Minimum tier 1 capital ratio
6.0
%
Minimum tier 1 capital ratio plus capital conservation buffer
8.5
%
Minimum total capital ratio
8.0
%
Minimum total capital ratio plus capital conservation buffer
10.5
%
A banking organization with a buffer greater than 2.5% over the minimum risk-based capital ratios would not be subject to additional limits on dividend payments or discretionary bonus payments; however, a banking organization with a buffer less than 2.5% would be subject to increasingly stringent limitations as the buffer approaches zero. Also, a banking organization is prohibited from making dividend payments or discretionary bonus payments if its eligible retained income is negative in that quarter and its capital conservation buffer ratio was less than 2.5% as of the beginning of that quarter. Eligible net income is defined as net income for the four calendar
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quarters preceding the current calendar quarter, net of any distributions and associated tax effects not already reflected in net income. A summary of payout restrictions based on the capital conservation buffer is as follows:
Capital Conservation Buffer
Maximum Payout
(as a % of risk-weighted assets)
(as a % of eligible retained income)
Greater than 2.5%
No payout limitation applies
≤2.5% and >1.875%
60
%
≤1.875% and >1.25%
40
%
≤1.25% and >0.625%
20
%
≤0.625%
0
%
At September 30, 2024 , C&N Bank’s Capital Conservation Buffer, determined based on the minimum total capital ratio, was 6.96%.
On September 25, 2023, the Corporation announced a new treasury stock repurchase program. Under the program, the Corporation is authorized to repurchase up to 750,000 shares of the Corporation’s common stock, or slightly less than 5% of the Corporation’s issued and outstanding shares at August 4, 2023. The new program was effective when publicly announced and will continue thereafter until suspended or terminated by the Board of Directors, in its sole discretion. 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. For the three and nine months ended September 30, 2024, 26,034 shares were repurchased for a total cost of $443,000, at an average price of $17.02 per share. At September 30, 2024, there were 723,966 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. In addition, the Corporation and C&N Bank are subject to restrictions on the amount of dividends that may be paid without approval of banking regulatory authorities. Further, although the Corporation is no longer subject to the specific consolidated capital requirements described herein, the Corporation’s ability to pay dividends, repurchase stock or engage in other activities may be limited by the Federal Reserve if the Corporation fails to hold capital commensurate with its overall risk profile.
The Corporation’s total stockholders’ equity is affected by fluctuations in the fair values of available-for-sale debt securities. The difference between amortized cost and fair value of available-for-sale debt securities, net of deferred income tax, is included in accumulated other comprehensive (loss) income within stockholders’ equity. 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 $30,396,000 at September 30, 2024 and $38,878,000 at December 31, 2023. The increase in stockholders’ equity in the first nine months of 2024 from the change in accumulated other comprehensive loss resulted from a decrease 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 September 30, 2024.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.