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Item 8. Financial Statements and Supplementary Data

2025-03-06 compared with 2024-03-11 · 416 added, 315 removed, 1318 unchanged (36% of the section changed)

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TOTAL LIABILITIES

COMMITMENTS AND CONTINGENT LIABILITIES

STOCKHOLDERS' EQUITY

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Changes from plan amendments and actuarial gains and losses

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

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

Other comprehensive (loss) income on pension and postretirement obligations

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Balance, December 31, 2022

Other comprehensive loss, net

Adoption of ASU 2016-13 (CECL)

Other comprehensive income, net

Cash dividends declared on common stock, $ 1.12 per share

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Balance, December 31, 2023

Adoption of ASU 2016-13 (CECL)

Other comprehensive income, net

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Shares issued for dividend reinvestment plan

Shares issued from treasury and redeemed related to exercise of stock options

Restricted stock granted

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Decrease (increase) in fair value of servicing rights

Gains on sales of loans, net

Net gains from sale of loans

Origination of loans held for sale

Proceeds from sales of loans held for sale

(Increase) decrease in accrued interest receivable and other assets

Increase in accrued interest receivable and other assets

Increase (decrease) in accrued interest payable and other liabilities

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Purchase of Federal Reserve Bank stock

Net (increase) decrease in loans

Net increase in loans

Purchase of bank-owned life insurance

Proceeds from bank-owned life insurance

Proceeds from sales of premises and equipment

Purchase of premises and equipment

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Repayments of long-term borrowings - FHLB advances

Proceeds from issuance of senior notes, net of issuance costs

Proceeds from issuance of subordinated debt, net of issuance costs

Redemption of subordinated debt

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C&N Financial Services, LLC also offers mutual funds, annuities, educational savings accounts and other investment products through registered agents.

Management has determined that the Corporation has one reportable segment, “Community Banking.” All of the Corporation’s activities are interrelated, and each activity is dependent and assessed based on how each of the activities of the Corporation supports the others.

The Corporation conducts its operations through one reportable segment.

All of the Corporation’s activities are interrelated, and each activity is dependent and assessed based on how each of the activities of the Corporation supports the others.

See Note 21 Segment Reporting for additional information.

The Corporation is subject to competition from other financial institutions.

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USE OF ESTIMATES – The financial information is presented in accordance with accounting principles generally accepted in the United States of America (“U.S.

In preparing financial statements, management is required to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements.

In addition, these estimates and assumptions affect revenues and expenses in the financial statements and as such, actual results could differ from those estimates.

Material estimates that are particularly susceptible to change include:

(1) the allowance for credit losses and (2) fair values of available-for-sale debt securities based on estimates from independent valuation services or from brokers.

In preparing consolidated financial statements, management is required to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent liabilities as of the date of the consolidated financial statements.

In addition, these estimates and assumptions affect revenues and expenses in the consolidated financial statements and as such, actual results could differ from those estimates.

Material estimates that are particularly susceptible to change include the allowance for credit losses.

INVESTMENT SECURITIES – Investment securities are accounted for as follows:

Available-for-sale debt securities – includes debt securities not classified as held-to-maturity or trading.

Such securities are reported at fair value, with unrealized gains and losses excluded from earnings and reported separately through accumulated other comprehensive income (loss), net of tax.

Available-for-sale debt securities – Available-for-sale debt securities include debt securities not classified as held-to-maturity or trading.

Such securities are reported at fair value, with unrealized gains and losses excluded from earnings and reported separately through accumulated other comprehensive loss, net of tax.

Premiums on non-amortizing available-for-sale debt securities are amortized using the level yield method to the earliest call date, while discounts on non-amortizing securities are amortized to the maturity date.

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Securities within the available-for-sale portfolio may be used as part of the Corporation’s asset and liability management strategy and may be sold in response to changes in interest rate risk, prepayment risk or other factors.

A debt security is placed on nonaccrual status at the time any principal or interest payments become over 90 days delinquent.

Interest accrued but not received for a security placed on nonaccrual is reversed against interest income.

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

If the Corporation has the intent to sell the security or it is more likely than not that the Corporation will be required to sell

the security, the security is written down to fair value and the entire loss is recorded in earnings.

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

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

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

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

Accrued interest receivable on available-for-sale debt securities totaled $ 2,018,000 at December 31, 2023 and was excluded from the estimate of credit losses.

At December 31, 2024 and 2023, there was no allowance for credit losses related to the available-for-sale portfolio.

Accrued interest receivable on available-for-sale debt securities totaled $ 1,964,000 and $ 2,018,000 at December 31, 2024 and 2023 and was excluded from the estimate of credit losses.

Marketable equity security – The marketable equity security is carried at fair value with unrealized gains and losses included in other noninterest income in the consolidated statements of income.

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Changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings.

Interest differentials paid or received under the swap agreements are reflected as adjustments to interest and fees on loans.

Interest differentials paid or received under the swap agreements are reflected as adjustments to interest and fees on loans in the consolidated statements of income.

The fair value of interest rate derivatives is included in the balance of other assets and other liabilities in the consolidated balance sheets.

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Fees paid and received associated with RPAs, as well as changes in fair value of the related derivatives, are included in other noninterest income in the consolidated statements of income.

LOANS HELD FOR SALE – Mortgage loans held for sale are reported at the lower of cost or fair value, determined in the aggregate.

LOANS HELD FOR SALE – Mortgage loans held for sale which are included in other assets in the consolidated balance sheets, are reported at the lower of cost or fair value, determined in the aggregate.

LOANS RECEIVABLE – Loans originated by the Corporation which management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at unpaid principal balances, less the allowance for credit losses and net deferred loan fees.

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Also, the amortization of deferred loan fees is discontinued when a loan is placed on nonaccrual status.

Loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.

PURCHASED LOANS – The Corporation purchased loans in business combinations, some of which had, at the acquisition dates, shown evidence of credit deterioration since origination.

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

Measurement of Credit Losses on Financial Instruments (ASC 326) which replaced the prior accounting for PCI loans and required credit deteriorated (“PCD”) loans receive an initial allowance at the acquisition date that represents an adjustment to the amortized cost basis of the loan, with no impact to earnings.

In accordance with ASC 326, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adaption.

Measurement of Credit Losses on Financial Instruments (ASC 326) which replaced the prior accounting for PCI loans and required purchase credit deteriorated (“PCD”) loans receive an initial allowance at the acquisition date that represents an adjustment to the amortized cost basis of the loan, with no impact to earnings.

In accordance with ASC 326, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption.

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

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

Essentially all of the PCD loans were reported as nonaccrual loans at December 31, 2024 and 2023.

ALLOWANCE FOR CREDIT LOSSES ON LOANS – As mentioned above, on January 1, 2023, the Corporation adopted ASC 326.

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

Results for reporting periods beginning after December 31, 2022 are presented under CECL while prior period amounts continue to be reported in accordance with previously applicable accounting standards (“Incurred Loss”).

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

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

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

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

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

Accrued interest receivable on loans totaled $ 7,099,000 at December 31, 2023 and was excluded from the estimate of credit losses.

Accrued interest receivable on loans totaled $ 6,680,000 and $ 7,099,000 at December 31, 2024 and 2023 and was excluded from the estimate of credit losses.

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

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

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

Based on the results of the Watch List analysis, certain loans are evaluated individually for credit loss .

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

If the fair value of the collateral is less than the amortized cost basis of the loan, the

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

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

If the fair value of the collateral is less than the amortized cost basis of the loan, the Corporation will create a specific allocation in the allowance for credit losses for the difference between the fair value of the collateral, less costs to sell at the reporting date and the amortized cost basis of the loan.

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

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

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

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

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

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

A summary of risk characteristics by portfolio segment is as follows:

Commercial real estate - non-owner occupied- Commercial real estate properties primarily include retail buildings/shopping centers, hotels, office buildings and mixed use properties.

Increases in vacancy rates, interest rates or other changes in general economic conditions can have an impact on the borrower’s ability to repay the loan.

Commercial real estate loans are generally considered to have a higher degree of credit risk as they may be dependent on the ongoing success and operating viability of a fewer number of tenants who are occupying the property and who may have a greater degree of exposure to economic conditions.

This segment also includes commercial purpose loans collateralized by multi-family (5 or more) and 1-4 Family residential properties.

Multi-family loans and commercial loans collateralized by 1-4 Family residences are expected to be repaid from the cash flows of the underlying properties so the collective amount of rents must be sufficient to cover all operating expenses, property management and maintenance, taxes and debt service.

Increases in vacancy rates, interest rates or other changes in general economic conditions can have an impact on the borrower’s ability to repay the loan.

Commercial real estate - owner-occupied - Owner-occupied loans are typically repaid first by the cash flows generated by the borrower’s business operations.

The primary risk characteristics are specific to the underlying business and its ability to generate sustainable profitability and positive cash flow.

Factors that may influence a borrower's ability to repay the loan include demand for the business’ products or services, the quality and depth of management, the degree of competition, regulatory changes, and general economic conditions.

All other commercial loans- All other commercial loans include commercial and industrial loans, commercial lines of credit, loans to political subdivisions, commercial construction and land loans and other commercial loans.

The primary risk characteristics for commercial and industrial loans are specific to the underlying business and its ability to generate sustainable profitability and positive cash flow.

The Corporation’s ability to foreclose and realize sufficient value from business assets securing these loans is often uncertain.

To mitigate the risk characteristics of commercial and industrial loans, commercial real estate may be included as a secondary source of collateral.

The Corporation will often require more frequent reporting requirements from the borrower in order to better monitor its business performance.

The Corporation also originates various types of loans made directly to political subdivisions.

These loans are repaid through general cash flows or through specific revenue streams.

The primary risk characteristics associated with political subdivisions are the municipalities’ ability to manage cash flow and balance the fiscal budget, fixed asset and infrastructure requirements.

Additional risks include changes in demographics, as well as social and political conditions.

The primary risk characteristics for commercial construction and land loans are specific to the uncertainty on whether the construction will be completed according to the specifications and schedules.

Factors that may influence the completion of construction may be customer specific, such as the quality and depth of property management, or related to changes in general economic conditions.

Residential mortgage loans - Residential mortgage loans include 1-4 Family residential mortgage loans and 1-4 Family construction mortgage loans.

These loans are secured by first or second liens on a primary residence or investment property.

The primary risk characteristics associated with residential mortgage loans typically involve major changes to the borrower, including unemployment or other loss of income;

unexpected significant expenses, such as medical expenses, catastrophic events, divorce or death.

Residential mortgage loans that have adjustable rates could expose the borrower to higher payments in a rising rate environment.

Real estate values could decrease and cause the value of the underlying property to fall below the loan amount, creating additional potential loss exposure for the Corporation.

Residential construction loans are exposed to uncertainty on whether the construction will be completed according to the specifications and schedules.

Factors that may influence the completion of construction may be customer specific or related to changes in general economic conditions.

Consumer loans - Consumer loans include consumer lines of credit (including HELOCs) and all other consumer loans.

Risks associated with HELOCs are similar to those of other residential mortgage loans.

Other consumer loans generally have higher interest rates and shorter terms than residential loans but tend to have higher credit risk due to the type of collateral securing the loan or in some cases the absence of collateral.

The primary risk characteristics associated with HELOCs and other consumer loans typically involve major changes to the borrower, including unemployment or other loss of income, unexpected significant expenses, such as for major medical expenses, catastrophic events, divorce or death.

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

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

The estimated weighted-average remaining life of the entire portfolio was calculated to be 4.48 years at December 31, 2023 and 4.36 years at January 1, 2023.

The estimated weighted-average remaining life of the entire portfolio was calculated to be 4.04 years at December 31, 2024, 4.48 years at December 31, 2023 and 4.36 years at January 1, 2023.

Qualitative Factors

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

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

The Corporation calculates an additional expected credit loss based the high correlation between past loss experience and the U.S national unemployment rate.

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

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Such financial instruments are recorded when they are funded.

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

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

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

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

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Repair and maintenance expenditures which extend the useful lives of assets are capitalized, and other repair and maintenance expenditures are expensed as incurred.

Depreciation and amortization expense is computed using the straight-line method.

Depreciation and amortization expense is computed using the straight-line method with useful lives ranging from 3 to 40 years for building and improvements and 3 to 7 years for furniture and equipment.

IMPAIRMENT OF LONG-LIVED ASSETS – The Corporation reviews long-lived assets, such as premises and equipment and intangibles, for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.

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FORECLOSED ASSETS HELD FOR SALE – Foreclosed assets held for sale consist of real estate acquired by foreclosure and are initially recorded at fair value, less estimated selling costs, establishing a new cost basis.

If fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense.

Operating costs after acquisition are expensed.

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

Goodwill is tested at least annually at December 31 for impairment, or more often if events or circumstances indicate there may be impairment.

Corporation has the option of performing a qualitative assessment to determine whether any further quantitative testing for impairment is necessary.

The option of whether or not to perform a qualitative assessment is made annually.

The Corporation has performed a qualitative assessment for impairment at December 31, 2024 and 2023.

CORE DEPOSIT INTANGIBLES – Amortization of core deposit intangibles is calculated using an accelerated method.

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If the Corporation’s cash flow patterns differ significantly from the initial estimates, the amortization schedule would be adjusted prospectively.

SERVICING RIGHTS – The estimated fair value of servicing rights related to mortgage loans sold and serviced by the Corporation is recorded as an asset upon the sale of such loans.

The valuation of servicing rights is adjusted quarterly, with changes in fair value included in loan servicing fees, net, in the consolidated statements of income.

SERVICING RIGHTS – When mortgage loans are sold with servicing retained by the Corporation, the servicing rights are initially recorded at fair value as an asset with the consolidated statement of income effect recorded in net gains on sales of loans.

Under the fair value method, the valuation of servicing rights is adjusted quarterly, with changes in fair value included in loan servicing fees, net, in the consolidated statements of income.

Significant inputs to the valuation include expected net servicing income to be received, the expected life of the underlying loans and the discount rate.

The servicing rights asset is included in other assets in the consolidated balance sheets.

INCOME TAXES – Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases given the provisions of the enacted tax laws.

INCOME TAXES – Income tax provision is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases given the provisions of the enacted tax laws.

Deferred tax assets are reduced, if necessary, by the amount of such benefits that are not expected to be realized based upon available evidence.

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OFF-BALANCE SHEET FINANCIAL INSTRUMENTS – In the ordinary course of business, the Corporation has entered into off-balance sheet financial instruments consisting of commitments to extend credit and standby letters of credit.

Such financial instruments are recorded in the financial statements when they become payable.

Such financial instruments are recorded in the consolidated financial statements when they are funded.

CASH FLOWS – The Corporation utilizes the net reporting of cash receipts and cash payments for certain deposit and lending activities.

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Additional disclosures related to the Corporation’s largest sources of noninterest income within the consolidated statements of income from contracts with customers that are subject to ASC Topic 606 are as follows:

Trust and financial management revenue – C&N Bank’s trust department provides a wide range of financial services, including wealth management services for individuals, businesses and retirement funds, administration of 401(k) and other retirement plans, retirement planning, estate planning and estate settlement services.

Trust revenue – C&N Bank’s trust department provides a wide range of financial services, including wealth management services for individuals, businesses and retirement funds, administration of 401(k) and other retirement plans, retirement planning, estate planning and estate settlement services.

Trust clients are located primarily within the Corporation’s geographic markets.

Assets held in a fiduciary capacity by C&N Bank are not the Corporation’s assets and are therefore not included in the consolidated balance sheets.

The fair value of trust assets under management was approximately $ 1,188,082,000 at December 31,

2023 and $ 1,063,615,000 at December 31, 2022.

The fair value of trust assets under administration was approximately $ 1,347,853,000 at December 31, 2024 and $ 1,188,082,000 at December 31, 2023.

Trust revenue is included within noninterest income in the consolidated statements of income.

Trust revenue is recorded on a cash basis, which is not materially different from the accrual basis.

The majority (approximately 81 %, based on annual 2023 results) of trust revenue is earned and collected monthly, with the amount determined based on a percentage of the fair value of the trust assets under management.

Wealth management fees are contractually agreed with each customer, and fee levels vary based mainly on the size of assets under management.

The majority (approximately 81 %, based on annual 2024 results) of trust revenue is earned and collected monthly, with the amount determined based on a percentage of the fair value of the trust assets under administration.

Wealth management fees are contractually agreed with each customer, and fee levels vary based mainly on the size of assets under administration.

The services provided under such a contract represent a single performance obligation under ASC 606 because it embodies a series of distinct goods or services that are substantially the same and have the same pattern of transfer to the customer.

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The costs of acquiring trust customers are incremental and recognized within noninterest expense in the consolidated statements of income.

Brokerage and insurance revenue- Investment commissions are earned through the sales of non-deposit investment products to customers of the Corporation.

The sales are conducted through a third-party broker-dealer.

When the commissions are received and recorded into income on the Corporation’s consolidated income statement, there is no contingent portion that may need to be refunded back to the broker-dealer.

Service charges on deposit accounts – Deposits are included as liabilities in the consolidated balance sheets.

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Incremental costs associated with ATM and interchange processing are recognized as expense when incurred within noninterest expense in the consolidated statements of income.

Bank-Owned Life Insurance- The Corporation has purchased bank-owned life insurance policies (“BOLI”) and is the beneficiary of these policies that insure the lives of certain of its current and former officers.

The Corporation recognizes the cash surrender value under the insurance policies as an asset in the consolidated balance sheet.

Changes in the cash surrender value are recorded in non-interest income in the consolidated statements of income.

Transfer of Financial Assets - Transfers of financials assets are accounted for as sales, when control over the assets has been relinquished.

Control over transferred assets is deemed to be surrendered when (1) the assets have been legally isolated from the Corporation, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Corporation does not maintain effective control over the transferred assets.

RECENT ACCOUNTING PRONOUNCEMENTS

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This section provides a summary description of recent ASUs that have significant implications (elected or required) within the consolidated financial statements, or that management expects may have a significant impact on financial statements issued in the foreseeable future.

Recent Accounting Pronouncements – Adopted

As described in Note 1, on January 1, 2023, the Corporation adopted ASC 326.

This standard replaced the incurred loss methodology for measuring credit losses on financial instruments with an expected loss methodology that is referred to as the CECL methodology.

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

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

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

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

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

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

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

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

Results for reporting periods beginning after December 31, 2022 are presented under CECL while prior period amounts continue to be reported using the Incurred Loss methodology.

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

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

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

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

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

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

(In Thousands)

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Retained earnings

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

Troubled Debt Restructurings and Vintage Disclosures.

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

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

Changes in disclosure requirements in accordance with ASU 2022-02 are reflected in Note 7.

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

Recent Issued but Not Yet Effective Accounting Pronouncements

In November of 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures , which requires annual and interim disclosure of significant segment expenses and other segment items.

The amendments in this ASU became effective for the Corporation beginning with this Annual Report on Form 10-K for the year ended December 31, 2024, and we have adopted using the retrospective transition method.

See Note 21 for additional information on the adoption of ASU 2023-07.

Recently Issued but Not Yet Effective Accounting Pronouncements

In December 2023 , the FASB issued ASU 2023 - 09 , Income Taxes (Topic 740):

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T he ASU may be adopted on a prospective or retrospective basis and early adoption is permitted.

The Corporation is currently evaluating the impact the new guidance will have on related disclosures related to income taxes.

The Corporation is currently evaluating the impact the new guidance will have on disclosures related to income taxes.

In December of 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40), which requires disclosure of certain costs and expenses in the notes to the consolidated financial statements.

The amendments in this ASU will become effective for fiscal years beginning after December 15, 2026, and will be effective for interim periods with fiscal years beginning after December 15, 2027, with early adoption permitted.

The amendments will be applied prospectively with the option for retrospective application .

We are currently evaluating the impact of the standard to our consolidated financial statement disclosures.

PER SHARE DATA

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Weighted-average nonvested restricted shares outstanding

(a) Basic and diluted earnings per share under the two-class method are determined on net income reported on the income statement less earnings allocated to nonvested restricted shares with nonforfeitable dividends (participating securities).

(a) Basic and diluted earnings per share under the two-class method are determined on net income reported on the consolidated income statement less earnings allocated to nonvested restricted shares with nonforfeitable dividends (participating securities).

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

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Changes from plan amendments and actuarial gains and losses

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

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

Other comprehensive loss on unfunded retirement obligations

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Available-for-sale debt securities:

Unrealized holding losses on available-for-sale debt securities

Reclassification adjustment for (gains) realized in income

Other comprehensive loss from available-for-sale debt securities

Unrealized holding gains on available-for-sale debt securities

Reclassification adjustment for losses realized in income

Other comprehensive income from available-for-sale debt securities

Unfunded pension and postretirement obligations:

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

Other comprehensive income on unfunded retirement obligations

Total other comprehensive loss

Other comprehensive loss on unfunded retirement obligations

Total other comprehensive income

Available-for-sale debt securities:

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Total other comprehensive loss

Items reclassified out of each component of accumulated other comprehensive (loss) income are as follows:

Items reclassified out of each component of accumulated other comprehensive loss are as follows:

Affected Line Item in the

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Income tax provision

Changes in the components of accumulated other comprehensive (loss) income, included in stockholders’ equity, are as follows:

Changes in the components of accumulated other comprehensive loss, included in stockholders’ equity, are as follows:

(In Thousands)

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on Securities

(Loss) Income

Balance, beginning of period

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Balance, beginning of period

Other comprehensive (loss) income during year ended December 31, 2022

Other comprehensive income (loss) during year ended December 31, 2023

Balance, end of period

12 unchanged sentences

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

The Corporation has not experienced any losses in such accounts.

Amortized cost and fair value of available-for-sale debt securities at December 31, 2024 and 2023 are summarized as follows.

No allowance for credit losses was recorded at December 31, 2024 and 2023.

(In Thousands)

26 unchanged sentences

Total available-for-sale debt securities

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

December 31, 2024

12 unchanged sentences

Commercial mortgage-backed securities

Private label commercial mortgage-backed securities

December 31, 2023

13 unchanged sentences

Private label commercial mortgage-backed securities

As reflected in the table above, gross unrealized holding losses on available-for-sale debt securities totaled $ 47,806,000 at December 31, 2024 and $ 49,564,000 at December 31, 2023.

At December 31, 2024, the Corporation does not have the intent to sell, nor is it more likely than not it will be required to sell, these securities before it is able to recover the amortized cost basis.

The unrealized holding losses were consistent with significant increases in market interest rates that occurred subsequent to the purchase of most of the securities.

At December 31, 2024 and December 31, 2023, management performed an assessment for credit losses of the Corporation’s debt securities on an issue-by-issue basis, relying on information obtained from various sources, including publicly available financial data, ratings by external agencies, brokers and other sources.

At December 31, 2024 and 2023, all of the Corporation’s holdings of bank holding company debt securities, obligations of states and political subdivisions and private label commercial mortgage-backed securities were investment grade and there have been no payment defaults.

Based on the results of the assessment, there was no ACL required on available-for-sale debt securities in an unrealized loss position at December 31, 2024 and 2023.

Gross realized gains and losses from available-for-sale securities and the related income tax provision were as follows:

21 unchanged sentences

In the table above, mortgage-backed securities and collateralized mortgage obligations are shown in one period.

Investment securities carried at $ 232,437,000 at December 31, 2023 and $ 277,302,000 at December 31, 2022 were pledged as collateral for public deposits, trusts and certain other deposits, as provided by law, totaling $ 136,494,000 at December 31, 2023 and $ 196,760,000 at December 31, 2022.

Investment securities carried at $ 190,949,000 at December 31, 2024 and $ 232,437,000 at December 31, 2023 were pledged as collateral for public deposits, trusts and certain other deposits, as provided by law, to secure uninsured deposits totaling $ 144,066,000 at December 31, 2024 and $ 136,494,000 at December 31, 2023.

See Note 11 for information concerning securities pledged to secure borrowing arrangements.

A summary of information management considered in evaluating debt and equity securities for credit losses at December 31, 2023 and 2022 is provided below.

Debt Securities

As reflected in the table above, gross unrealized holding losses on available-for-sale debt securities totaled $ 49,564,000 at December 31, 2023 and $ 64,082,000 at December 31, 2022.

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

The unrealized holding losses were consistent with significant increases in market interest rates that occurred in 2022 and 2023.

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

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

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

Equity Securities

2 unchanged sentences

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

C&N Bank’s investment in FHLB-Pittsburgh stock, included in other assets in the consolidated balance sheets, was $ 15,214,000 at December 31, 2023 and

$ 14,168,000 at December 31, 2022.

C&N Bank’s investment in FHLB-Pittsburgh stock, included in other assets in the consolidated balance sheets, was $ 15,018,000 at December 31, 2024 and $ 15,214,000 at December 31, 2023.

The Corporation evaluated its holding of FHLB-Pittsburgh stock for impairment and deemed the stock to not be impaired at December 31, 2024 and 2023.

4 unchanged sentences

There is no active market for Federal Reserve Bank stock, and it must ordinarily be redeemed by the Federal Reserve Bank of Philadelphia in order to be liquidated.

C&N Bank’s investment in Federal Reserve Bank stock, included in other assets in the consolidated balance sheets, was $ 6,252,000 at December 31, 2023.

C&N Bank’s investment in Federal Reserve Bank stock, included in other assets in the consolidated balance sheets, was $ 6,299,000 at December 31, 2024 and $ 6,252,000 at December 31, 2023.

The Corporation’s marketable equity security, with a carrying value of $ 863,000 at December 31, 2024 and $ 871,000 at December 31, 2023 consisted exclusively of one mutual fund.

There was an unrealized loss of $ 137,000 on the mutual fund at December 31, 2024 and $ 129,000 at December 31, 2023.

Changes in the unrealized gains or losses on this security, which are included in other noninterest income in the consolidated statements of income, were a gain of $ 12,000 in 2023, a loss of $ 112,000 in 2022 and a loss of $ 29,000 in 2021.

Changes in the unrealized gains or losses on this security, which are included in other noninterest income in the consolidated statements of income, were a loss of $ 8,000 in 2024, a gain of $ 12,000 in 2023 and a loss of $ 112,000 in 2022.

There were no sales of equity securities in 2024, 2023 and 2022.

9 unchanged sentences

allowance for credit losses on loans

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

In the table above, outstanding loan balances are presented net of deferred loan origination fees of $ 4,136,000 at December 31, 2024 and $ 4,459,000 at December 31, 2023.

2 unchanged sentences

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

Acquired loans were initially recorded at fair value, with adjustments made to gross amortized cost based on movements in interest rates (market rate adjustment) and based on credit fair value adjustments on non-impaired loans and impaired loans.

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

For the year ended December 31, 2023 and 2022, adjustments to the initial market rate and credit fair value adjustments of performing loans were recognized as follows:

(In Thousands)

Market Rate Adjustment

Adjustments to gross amortized cost of loans at beginning of period

Amortization recognized in interest income

Adjustments to gross amortized cost of loans at end of period

Credit Adjustment on Non-impaired Loans

Adjustments to gross amortized cost of loans at beginning of period

Accretion recognized in interest income

Adjustments to gross amortized cost of loans at end of period

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

The following table presents an analysis of past due loans as of December 31, 2024 and 2023:

(In Thousands)

As of December 31, 2024

Still Accruing

Commercial real estate - non-owner occupied

3 unchanged sentences

Consumer loans

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

(In Thousands)

As of December 31, 2023

Still Accruing

Commercial real estate - non-owner occupied

3 unchanged sentences

Consumer loans

Purchased credit impaired

The Corporation uses an internal risk rating system.

4 unchanged sentences

Risk ratings are updated any time that conditions or the situation warrants.

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

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

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

Residential mortgage and consumer loans are classified as Pass unless they become 90 days delinquent at which time their classification is changed to Substandard.

Such loans are classified as Substandard until six consecutive on-time payments are made at which time their classification is changes back to Pass.

The following table presents the amortized cost in loans by credit quality indicators by year of origination as of December 31, 2024:

(In Thousands)

20 unchanged sentences

Year-to-date gross charge-offs

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

Special Mention

Year-to-date gross charge-offs

The following table presents the amortized cost in loans by credit quality indicators by year of origination as of December 31, 2023:

Term Loans by Year of Origination

(In Thousands)

Commercial real estate - non-owner occupied

Special Mention

Total commercial real estate - non-owner occupied

Year-to-date gross charge-offs

Commercial real estate - owner occupied

Special Mention

Total commercial real estate - owner occupied

Year-to-date gross charge-offs

All other commercial loans

Special Mention

Total all other commercial loans

Year-to-date gross charge-offs

Residential mortgage loans

Special Mention

Total residential mortgage loans

Year-to-date gross charge-offs

Consumer loans

Purchased credit impaired

Special Mention

Total consumer loans

Year-to-date gross charge-offs

Special Mention

Year-to-date gross charge-offs

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

December 31, 2024

December 31, 2022

Nonaccrual Loans with

3 unchanged sentences

with an Allowance

Commercial real estate - non-owner occupied

Commercial real estate - owner occupied

All other commercial loans

Residential mortgage loans

Consumer loans

December 31, 2023

Nonaccrual Loans with

Nonaccrual Loans

Total Nonaccrual

(In Thousands)

with an Allowance

Commercial real estate - non-owner occupied

3 unchanged sentences

Consumer loans

Purchased credit impaired

The Corporation recognized $ 932,000 of interest income on nonaccrual loans during the year ended December 31, 2023.

The following table presents the accrued interest receivable written off by reversing interest income during the year ended December 31, 2023:

The Corporation recognized $ 1,042,000 and $ 932,000 of interest income on nonaccrual loans during the years ended December 31, 2024 and 2023.

The following table presents the accrued interest receivable written off by reversing interest income during the year ended December 31, 2024 and 2023:

(In Thousands)

December 31, 2024

December 31, 2023

Commercial real estate - non-owner occupied

Commercial real estate - owner occupied

All other commercial loans

Residential mortgage loans

6 unchanged sentences

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

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

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

Also within this category, commercial construction and land loans and some commercial lines of credit are secured by real estate.

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

1 unchanged sentence

Some consumer loans are unsecured and have no underlying collateral.

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

December 31, 2024

December 31, 2023

(In Thousands)

2 unchanged sentences

All other commercial loans

The following table summarizes the activity related to the ACL for the year ended December 31, 2023 under the CECL methodology.

The following tables summarize the activity related to the ACL on loans for the years ended December 31, 2024 and 2023:

real estate -

2 unchanged sentences

Balance, December 31, 2023

Provision (credit) for credit losses on loans

Balance, December 31, 2024

real estate -

(In Thousands)

Balance, December 31, 2022

Adoption of ASU 2016-13 (CECL)

(Credit) provision for credit losses on loans

Provision (credit) for credit losses on loans

Balance, December 31, 2023

The ACL on loans individually evaluated decreased to $ 122,000 at December 31, 2024 from $ 743,000 at December 31, 2023, primarily from partial charge-offs including two loans with individual ACLs at December 31, 2023.

The ACL on loans collectively evaluated was $ 19,913,000 at December 31, 2024 and $ 18,465,000 at December 31, 2023.

The increase in the ACL at December 31, 2024 as compared to December 31, 2023 included a net increase related to changes in qualitative adjustments and the net impact of an increase in loans receivable, partially offset by a decrease in the WARM method estimate and a decrease related to the economic forecast.

The ACL on loans individually evaluated was $ 743,000 at December 31, 2023 compared to $ 751,000 at January 1, 2023, upon the initial adoption of CECL.

The decrease in the ACL at December 31, 2023 from January 1, 2023 included a net increase related to changes in qualitative adjustments, an increase related to the economic forecast and the net impact of an increase in loans receivable, partially offset by a decrease in the WARM method estimate.

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

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

December 31, 2022

Allowance for Loan Losses:

The following tables are disclosed related to the allowance for loan losses in prior period of 2022.

Transactions within the allowance for loan losses, summarized by segment and class were as follows:

Year Ended December 31, 2022

(In Thousands)

Allowance for Loan Losses:

Commercial loans secured by real estate

Commercial and industrial

Paycheck Protection Program - 1st Draw

Paycheck Protection Program - 2nd Draw

Political subdivisions

Commercial construction and land

10 unchanged sentences

Total residential mortgage

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

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

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

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

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

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

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

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

(In Thousands)

December 31, 2022

With no related allowance recorded:

Commercial loans secured by real estate

Commercial and industrial

Residential mortgage loans - first liens

Residential mortgage loans - junior liens

Home equity lines of credit

Loans secured by farmland

Agricultural loans

Construction and other land loans

Multi-family (5 or more) residential

Total with no related allowance recorded

With a related allowance recorded:

Commercial loans secured by real estate

Commercial and industrial

Total with a related allowance recorded

The average balance of impaired loans and interest income recognized on these impaired loans is as follows:

Total Allowance for Loan Losses

The average balance of impaired loans and interest income recognized on impaired loans is as follows:

(In Thousands)

11 unchanged sentences

Agricultural loans

Other commercial loans

Total commercial

4 unchanged sentences

Total residential mortgage

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

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

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

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

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

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

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

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

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

Modifications Made to Borrowers Experiencing Financial Difficulty

In 2023, there were two loan modifications made to borrowers experiencing financial difficulty at the time of modification, described in the following table:

The Corporation may occasionally make modifications to loans where the borrower is experiencing financial difficulty.

The following tables summarize the amortized cost basis of loans modified during the years ended December 31, 2024 and 2023:

Year Ended December 31, 2024

(Dollars in Thousands)

3 unchanged sentences

Commercial Real Estate - Non-owner Occupied

Non-owner occupied

Extended the maturity of one loan for 6 months and one loan for 5 years

Commercial Real Estate - Owner Occupied

Extended the maturity of one loan for 12 months

Year Ended December 31, 2023

(Dollars in Thousands)

Term Extension

Amortized Cost

Financial Effect

Commercial Real Estate - Non-owner Occupied

Extended the maturity of one loan for 6 months and another loan for 12 months

1 unchanged sentence

Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification.

At December 31, 2023, the amortized cost basis of the loan included in the table above where the maturity was extended for 6 months was $ 1,381,000 , with a specific allowance of $ 38,000 and the contractual payments on the loan were 117 days past due.

At December 31, 2023, the amortized cost basis of the loan where the maturity was extended for 12 months was $ 2,526,000 with a specific allowance of $ 486,000 and the contractual payments were current.

There were no commitments to lend additional funds to these two borrowers.

The following tables present the performance of such loans that have been modified in the twelve-month period preceding December 31, 2024 and the twelve-month period preceding December 31, 2023 (in thousands):

(In Thousands)

Payment Status (Amortized Cost Basis)

December 31, 2024

Current or Past Due Less than 30 Days

90+ Days Past Due

Commercial real estate - non-owner occupied

Commercial real estate - owner occupied

(In Thousands)

Payment Status (Amortized Cost Basis)

December 31, 2023

Current or Past Due Less than 30 Days

90+ Days Past Due

Commercial real estate - non-owner occupied

In the table immediately above, at December 31, 2024 the loan secured by owner occupied commercial real estate of $ 218,000 and one of the loans secured by non-owner occupied commercial real estate with an amortized cost basis of $ 1,814,000 were in nonaccrual status.

Both of the loans included in the table at December 31, 2023 were in nonaccrual status.

For the loan secured by non-owner occupied real estate with an amortized cost basis of $ 1,814,000 at December 31, 2024, the Corporation had extended the maturity for 12 months in the fourth quarter 2023.

In 2024, the borrower continued to experience financial difficulty, and the Corporation provided another six-month extension of the maturity.

The Corporation recorded a partial charge-off of $ 640,000 on this loan in 2024.

There was no specific allowance on this loan at December 31, 2024, while the specific allowance was $ 486,000 at December 31, 2023.

The loan that was past due more than 90 days at December 31, 2023 in the table above was in default with its modified terms in 2024.

The Corporation received payments totaling $ 48,000 in 2024, all of which were applied to principal.

The amortized cost basis of the loan was $ 1,333,000 at December 31, 2024.

Except as described above, the Corporation had no commitments to lend any additional funds on modified loans during the year ended December 31, 2024 and 2023, the Corporation had no loans that defaulted during the year ended December 31, 2024 and 2023 and had been modified preceding the payment default when the borrower was experiencing financial difficulty at the time of modification

The carrying amount of foreclosed residential real estate properties held as a result of obtaining physical possession (included in Foreclosed assets held for sale in the consolidated balance sheets) is as follows:

1 unchanged sentence

Foreclosed residential real estate

The recorded investment of consumer mortgage loans secured by residential real properties for which formal foreclosure proceedings were in process is as follows:

The amortized cost of consumer mortgage loans secured by residential real properties for which formal foreclosure proceedings were in process is as follows:

(In Thousands)

5 unchanged sentences

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

The allowance for credit losses for off-balance sheet exposures of

$ 690,000 at December 31, 2023 and $ 425,000 at December 31, 2022, is included in accrued interest and other liabilities on the consolidated balance sheets.

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

The allowance for credit losses for off-balance sheet exposures of $ 455,000 at December 31, 2024 and $ 690,000 at December 31, 2023, is included in accrued interest and other liabilities on the consolidated balance sheets.

The following table presents the balance and activity in the allowance for credit losses for off-balance sheet exposures for the years ended December 31, 2024 and 2023.

(In Thousands)

December 31, 2024

Beginning Balance

December 31, 2023

Balance, Beginning of Period

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

Credit for unfunded commitments

Balance, December 31, 2023

Balance, End of Period

BANK PREMISES AND EQUIPMENT

8 unchanged sentences

Data processing and telecommunications expense

GOODWILL AND OTHER INTANGIBLE ASSETS, NET

GOODWILL AND CORE DEPOSIT INTANGIBLES, NET

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

2 unchanged sentences

The Corporation did not complete any acquisitions in 2024 or 2023.

In testing goodwill for impairment at December 31, 2023, the Corporation by-passed performing a qualitative assessment and performed a quantitative assessment based on comparison of the Corporation’s market capitalization to its stockholders’ equity, resulting in the determination that the fair value of its reporting unit, its community banking operation, exceeded it’s carrying amount.

In testing goodwill for impairment at December 31, 2024, the Corporation performed a qualitative assessment based on comparison of the Corporation’s market capitalization to its stockholders’ equity, resulting in the determination that the fair value of its reporting unit, its community banking operation, exceeded its carrying amount.

Accordingly, there was no goodwill impairment at December 31, 2024.

42 unchanged sentences

At December 31, 2023, the Corporation’s total credit facility with FHLB-Pittsburgh was $ 926,845,000 , including an unused (available) amount of $ 737,824,000 .

At December 31, 2023, the short-term borrowings included an overnight borrowing from FHLB-Pittsburgh of $ 6,500,000 at an interest rate of 5.68 % and short-term advances maturing in the first quarter 2024 totaling $ 25,000,000 with a weighted average interest rate of 5.60 %.

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

At December 31, 2024, there were no outstanding short-term borrowings from FHLB-Pittsburgh.

At December 31, 2023, the overnight borrowing from FHLB-Pittsburgh was $ 6,500,000 at an interest rate of 5.68 % with short-term advances that matured in the first quarter 2024 totaling $ 25,000,000 with a weighted average interest rate of 5.60 %.

LONG-TERM BORROWINGS – FHLB ADVANCES

1 unchanged sentence

(In Thousands)

Loans matured in 2023

Loans matured in 2024 with a weighted-average rate of 3.09 %

Loans maturing in 2025 with a weighted-average rate of 4.30 %

2 unchanged sentences

Loans maturing in 2028 with a weighted-average rate of 4.30 %

Loan maturing in 2028 with a rate of 3.72 %

Loans maturing in 2029 with a weighted-average rate of 4.42 %

Total long-term FHLB-Pittsburgh borrowings

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

For loans maturing after 2024, weighted-average rates are presented as of December 31, 2024.

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

15 unchanged sentences

From June 1, 2026 to maturity or early redemption, the interest rate will reset quarterly to an interest rate per annum equal to the three-month Secured Overnight Financing Rate provided by the Federal Reserve Bank of New York plus 259 basis points.

The Corporation is entitled to redeem the Subordinated Notes, in whole or in part, at any time on or after June 1, 2026, and to redeem the Subordinated Notes at any time in whole upon certain other events.

The Corporation is entitled to redeem the Subordinated Notes, in whole or in part, at any time on or after June 1, 2026, and to

redeem the Subordinated Notes at any time in whole upon certain other events.

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

30 unchanged sentences

Plan participants' contributions

Actuarial loss (gain)

Actuarial loss

Gain from plan amendments

Benefits paid

10 unchanged sentences

Funded status at end of year

At December 31, 2023 and 2022, the following pension plan and postretirement plan asset and liability amounts were recognized in the consolidated balance sheets:

At December 31, 2024 and 2023, the following pension plan and postretirement plan liability amounts were recognized in the consolidated balance sheets:

Postretirement

7 unchanged sentences

For the defined benefit pension plan, amortization of the net actuarial loss is expected to be $ 5,000 in 2025.

For the postretirement plan, effective in January 2024, adjustments to the plan resulted in an increase of $ 413,000 in unrecognized prior service cost.

In 2024, the estimated reduction in expense related to prior service cost is $ 481,000 , including a curtailment of $ 469,000 related to the plan adjustments.

Also in 2024 for the postretirement plan, the net actuarial gain to be amortized as a reduction in expense is $ 77,000 .

For the postretirement plan, effective in 2024, amendments to the plan resulted in a decrease of $ 413,000 in unrecognized prior service cost and a related reduction in net periodic benefit costs from curtailment of $ 469,000 .

In 2025, the net actuarial gain to be amortized as a reduction in expense is $ 83,000 and the estimated reduction in expense related to prior service cost is $ 8,000 .

The accumulated benefit obligation for the defined benefit pension plan was $ 938,000 at December 31, 2024 and $ 896,000 at December 31, 2023.

6 unchanged sentences

Recognized net actuarial loss (gain)

Effect of curtailment

Settlement of plan obligation

22 unchanged sentences

C&N Bank’s Wealth Management Department manages the investment of the pension plan assets.

The Plan’s securities include mutual funds invested principally in cash and cash equivalents, debt securities, a diversified mix of large, mid- and small-capitalization U.S.

stocks, foreign stocks and alternative asset classes such as real estate, commodities, and inflation-protected securities.

The Plan’s securities include mutual funds invested principally in cash and cash equivalents.

The fair values of plan assets are determined based on Level 1 inputs (as described in Note 20).

15 unchanged sentences

Charges to operating expense for officers’ supplemental deferred compensation were $ 223,000 in 2024, $ 489,000 in 2023 and $ 391,000 in 2022.

The balance of the liability, which is included in accrued interest and other liabilities in the consolidated balance sheets, is $ 3,164,000 at December 31, 2024 and $ 3,025,000 at December 31, 2023.

In connection with an acquisition, the Corporation assumed an obligation to provide a supplemental retirement benefit to a former executive.

Under the terms of the agreement, the executive or his heirs will receive monthly payments totaling $ 1 million over a 10-year period starting in October 2025.

The Corporation recorded expense of $ 13,000 in 2023, $ 14,000 in 2022 and $ 13,000 in 2021, which is included in pensions and other employee benefits in the consolidated statements of income, representing the effective interest cost on the obligation.

The Corporation recorded expense of $ 14,000 in 2024, $ 13,000 in 2023 and $ 14,000 in 2022, which is included in salaries and employee benefits in the consolidated statements of income, representing the effective interest cost on the obligation.

The discount rate used to measure the liability is 1.5 %.

6 unchanged sentences

Awards may be made to participating employees and independent directors under the 2023 Equity Incentive Plan in the form of qualified options (“Incentive Stock Options,” as defined in the Internal Revenue Code), nonqualified options, restricted stock units or restricted stock, any or all of which can be granted with performance-based vesting conditions.

As of December 31, 2023, no awards had been granted under this plan.

As of December 31, 2024, 92,860 awards had been granted under this plan.

Outstanding restricted stock awards granted prior to adoption of the 2023 Equity Incentive Plan, including awards made in 2023, are governed under the 1995 Stock Incentive Plan and the Independent Directors Stock Incentive Plan.

The restricted stock awards in 2023 under the 1995 Stock Incentive Plan and the Independent Directors Stock Incentive Plan are the final awards under these plans.

The restricted stock awards in 2023 under the 1995 Stock Incentive Plan and the Independent Directors Stock Incentive Plan were the final awards under these plans.

Total stock-based compensation expense is as follows:

20 unchanged sentences

Weighted-average fair value of options forfeited

The 646 shares of outstanding stock options at December 31, 2023 expired on January 3, 2024.

The aggregate intrinsic value of stock options outstanding was $ 1,000 at December 31, 2023.

The total intrinsic value of options exercised was $ 14,000 in 2023, $ 76,000 in 2022 and $ 97,000 in 2021.

In January 2024, the Corporation granted 53,514 shares of time-based restricted stock awards under the 2023 Equity Incentive Plan.

Of the 53,514 restricted shares, 43,514 vest ratably over three years while 10,000 issued to independent directors’ vest over one year .

In February 2024, the Corporation granted 19,346 shares of performance-based restricted stock awards.

These performance-based restricted stock awards vest ratably over three years , with vesting contingent upon meeting earnings-related conditions specified in agreements.

Total estimated stock-based compensation expense for 2024 is $ 1,500,000 .

The restricted stock awards made in January and February 2024 are not included in the tables above.

There were no shares of outstanding stock options at December 31, 2024.

The total intrinsic value of options exercised was $ 14,000 in 2023 and $ 76,000 in 2022.

In January 2025, the Corporation granted 31,113 shares of time-based restricted stock awards and 11,848 shares of performance-based restricted stock awards under the 2023 Equity Incentive Plan.

The time-based shares vest ratably over three years while the performance-based restricted stock awards vest ratably over three years , with vesting contingent upon meeting earnings-related conditions specified in agreements.

The restricted stock awards made in January 2025 are not included in the tables above.

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

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Deferred compensation

Operating leases liability

Deferred loan origination fees

Net operating loss carryforward

Operating leases liability

Accrued incentive compensation

Net operating loss carryforward

Other deferred tax assets

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Deferred tax liabilities:

BOLI surrender

Defined benefit plans - ASC 835

Bank premises and equipment

Core deposit intangibles

Right-of-use assets from operating leases

Core deposit intangibles

Bank premises and equipment

Defined benefit plans - ASC 835

BOLI surrender

Other deferred tax liabilities

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ESOP dividends

Initiated surrender of bank-owned life insurance

Surrender of bank-owned life insurance

State income tax, net of federal benefit

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The Corporation has no unrecognized tax benefits, nor pending examination issues related to tax positions taken in preparation of its income tax returns.

With limited exceptions, the Corporation is no longer subject to examination by the Internal Revenue Service for years prior to 2020.

The Corporation is generally no longer subject to examination for returns prior to 2021.

RELATED PARTY TRANSACTIONS

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Those guarantees are issued primarily to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions.

The credit risk involved in issuing letters of credit is essentially the same as that involved in extending

loan facilities to customers.

The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

Some of the standby letters of credit are collateralized by real estate or other assets, and others are unsecured.

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Operating lease expense, which is comprised of amortization of the ROU assets and the implicit interest accreted on the operating lease liability, is recognized on a straight line basis over the remaining lease term of the operating lease.

Leases with an initial term of 12 months or less are not recorded on the balance sheet and the related lease expense is recognized on a straight-line basis over the lease term.

Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet and the related lease expense is recognized on a straight-line basis over the lease term.

Certain leases include options to renew, with renewal terms that can extend the lease term from one to eight years that are reasonably certain of being exercised.

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Litigation Matters

Class Action Litigation

On March 27, 2024, a putative class action lawsuit was filed in the US District Court for the Western District of Texas by investors in a purported Ponzi scheme operated by two individuals, one of whom maintained accounts at C&N Bank.

The plaintiffs have sued C&N Bank, along with another bank, and additional law firm and accounting firm defendants.

The case is styled Goldovsky, et al.

Rauld, et al.

Plaintiffs have asserted claims against C&N Bank and the other bank for aiding and abetting alleged violations of the Texas Securities Act, and additional claims against the legal and accounting professionals for statutory fraud, common law fraud, negligent misrepresentation, and knowing participation in breach of fiduciary duty.

C&N Bank has filed motions to dismiss the case for wont of personal jurisdiction and failure to state a claim.

The Plaintiffs have responded to those motions.

Plaintiffs have filed an application for certification of the suit as a class action.

The court has stayed the motions to dismiss pending consideration of the class action certification application.

Following depositions of the four plaintiffs on issues germane to class action certification, C&N Bank and each of the other defendants have filed briefs in opposition to the plaintiff’s class certification motion.

A hearing on the motion for class certification took place on February 18, 2025.

A ruling on class certification is pending.

Based on the information available to the Corporation, the Corporation does not believe at this time that a loss is probable in this matter, nor can a range of possible losses be determined.

Accordingly, no liability has been recorded for this litigation matter in the accompanying consolidated financial statements.

The Corporation’s estimate may change from time to time, and actual losses could vary.

In the normal course of business, the Corporation is subject to pending and threatened litigation in which claims for monetary damages are asserted.

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

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

REGULATORY MATTERS

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Management believes, as of December 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.

The net unrealized loss on available-for-sale debt securities is not included in computing regulatory capital.

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 December 31, 2024 and 2023 exceed the Corporation’s Board policy threshold levels.

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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

quarters preceding the current calendar quarter, net of any distributions and associated tax effects not already reflected in net income.

Eligible net income is defined as net income for the four calendar 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:

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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

CONDENSED INCOME STATEMENT

CONDENSED INCOME STATEMENT AND COMPREHENSIVE INCOME (LOSS)

(In Thousands)

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Equity in undistributed income of subsidiaries

COMPREHENSIVE INCOME (LOSS)

CONDENSED STATEMENT OF CASH FLOWS

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Equity in undistributed income of subsidiaries

Increase in other assets

Increase (decrease) in other liabilities

Decrease (increase) in other assets

(Decrease) increase in other liabilities

Net Cash Provided by Operating Activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from issuance of senior notes and subordinated debt

Repayment of subordinated debt

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Dividends paid

Net Cash (Used in) Provided by Financing Activities

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

Net Cash Used in Financing Activities

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR

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The aggregate notional amount of interest rate swaps was $ 141,940,000 at December 31, 2024 and $ 150,028,000 at December 31, 2023.

There were no interest rate swaps originated in 2023 and one interest rate swap originated with a notional amount of $ 24,000,000 in 2022.

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

The net impact of interest rate swaps on interest income on loans was an increase of $ 1,796,000 in 2023, compared to reductions of $ 342,000 in 2022 and $ 1,347,000 in 2021.

There were no interest rate swaps originated in 2024 and 2023.

There were no gross amounts of interest rate swap-related assets and liabilities not offset in the consolidated balance sheets at December 31, 2024 and 2023.

In 2022, there was fee income on the interest swap originated of $ 290,000 included in other noninterest income in the consolidated statements of income.

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

This type of derivative is referred to as an “RPA Out.” The net impact on the consolidated statements of income from RPAs was an increase in other noninterest income of $ 18,000 in 2023 and a decrease in other noninterest income of $ 14,000 in 2022.

This type of derivative is referred to as an “RPA Out.” The net impact on the consolidated statements of income from RPAs was an increase in other noninterest income of $ 2,000 in 2024, an increase in other noninterest income of $ 18,000 in 2023 and a decrease in other noninterest income of $ 14,000 in 2022.

The Corporation did not enter into any RPAs prior to 2022.

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Further, if the Corporation were to fail to maintain its status as a well or adequately capitalized institution, then the counterparties could terminate the derivative positions and the Corporation would be required to settle its obligations under the agreements.

There was $ 1,360,000 in interest-bearing cash pledged as collateral against the Corporation’s liability related to the interest rate swaps at December 31, 2023.

There was interest-bearing cash pledged as collateral against the Corporation’s liability related to the interest rate swaps of $ 1,090,000 at December 31, 2024 and $ 1,360,000 at December 31, 2023.

FAIR VALUE MEASUREMENTS AND FAIR VALUES OF FINANCIAL INSTRUMENTS

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Fair value is defined as the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date.

FASB ASC Topic 820, “Fair Value Measurements and Disclosures” establishes a framework for measuring fair value that includes a hierarchy used to classify the inputs used in measuring fair value.

FASB ASC Topic 820, “Fair Value Measurements and

Disclosures” establishes a framework for measuring fair value that includes a hierarchy used to classify the inputs used in measuring fair value.

The hierarchy prioritizes the inputs used in determining valuations into three levels.

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Nonrecurring fair value measurements, assets:

Impaired loans, net

Loans individually evaluated for credit loss, net

Foreclosed assets held for sale

Total nonrecurring fair value measurements, assets

Level 2 valuation techniques used to measure fair value for the financial instruments in the preceding tables are as follows:

Available-for-sale debt securities - Level 2 debt securities are valued by a third-party pricing service.

The pricing service uses pricing models that vary based on asset class and incorporate available market information, including quoted prices of investment securities with similar characteristics.

Because many fixed income securities do not trade on a daily basis, pricing models use available information, as applicable, through processes such as benchmark yield curves, benchmarking of like securities, sector groupings and matrix pricing.

Derivative instruments - Interest rate SWAP agreements, RPA Out and RPA In - The fair value of derivatives are based on valuation models using observable market data as of the measurement date, valued by a third-party pricing service using quantitative models that utilize multiple market inputs.

The inputs include prices and indices to generate continuous yield or pricing curves, estimates of current and potential future credit exposure and calculated discounted cash flow factors to value the position.

The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services.

Management’s evaluation and selection of valuation techniques and the unobservable inputs used in determining the fair values of assets valued using Level 3 methodologies include sensitive assumptions.

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Weighted-average PSA

Servicing fees

of loan balances

of payments are late

late fees assessed

Miscellaneous fees per account per month

Servicing costs

Monthly servicing cost per account

Additional monthly servicing cost per loan on loans more than 30 days delinquent

of loans more than 30 days delinquent

annual increase in servicing costs

Fair Value at

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Weighted-average PSA

Servicing fees

of loan balances

of payments are late

late fees assessed

Miscellaneous fees per account per month

Servicing costs

Monthly servicing cost per account

Additional monthly servicing cost per loan on loans more than 30 days delinquent

of loans more than 30 days delinquent

annual increase in servicing costs

The fair value of servicing rights is affected by expected future interest rates.

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The discounts also include estimated costs to sell the property.

The estimated fair value determined for individually evaluated loans secured by real estate and foreclosed assets held for sale used unobservable inputs (Level 3 methodologies).

At December 31, 2024 and 2023, quantitative information regarding significant techniques and inputs used for nonrecurring fair value measurements using unobservable inputs (Level 3 methodologies) are as follows:

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Loans individually evaluated for credit loss:

Commercial real estate - nonowner occupied

Sales comparison

Discount to appraised value

22 %- 30 % ( 25 )

Commercial real estate - owner occupied

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Discount to appraised value

0 %- 93 % ( 57 )

All other commercial loans

Liquidation & SBA guaranty

Discount to appraised value

0 %- 76 % ( 17 )

Total loans individually evaluated for credit loss

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Discount to appraised value

20 %- 62 % ( 50 )

Commercial real estate

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Fair Value at

Impaired loans:

Commercial loans secured by real estate

Loans individually evaluated for credit loss:

Commercial real estate - non-owner occupied

Sales comparison

Discount to appraised value

Commercial and industrial

Liquidation of assets

22 %- 30 % ( 25 )

Commercial real estate - owner occupied

Sales comparison & SBA guaranty

Discount to appraised value

Total impaired loans

All other commercial loans

Liquidation & SBA guaranty

Discount to appraised value

0 %- 76 % ( 17 )

Total loans individually evaluated for credit loss

Foreclosed assets held for sale - real estate:

Residential (1-4 family)

Sales comparison

Discount to appraised value

20 %- 62 % ( 50 )

Commercial real estate

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Discount to appraised value

18 %- 50 % ( 45 )

Total foreclosed assets held for sale

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Short-term borrowings

Long-term borrowings

Subordinated debt

Long-term borrowings - FHLB advances

Senior notes, net

Subordinated debt, net

Accrued interest payable

SEGMENT REPORTING

The Corporation’s one reportable segment is determined by the President and Chief Executive Officer, who is the designated chief operating decision maker, based upon information provided about the Corporation’s products and services offered, primarily community banking operations.

The chief operating decision maker uses consolidated net income to assess performance by comparing to and monitoring against budget and prior year results.

In addition, the chief operating decision maker uses the consolidated net income to benchmark the Corporation against its competitors.

This information is used to manage resources to drive business and net earnings growth, including investment in key strategic priorities, as well as determine the Corporation's ability to return capital to shareholders.

Loans, investments, deposits and assets held in a fiduciary or custodial capacity provide the revenues in the banking operation.

Interest expense, provisions for credit losses, and payroll provide the significant expenses in the banking operation.

All operations are domestic.

Accounting policies for segments are the same as those described in Note 1.

Segment performance is evaluated using consolidated net income.

Years Ended December 31,

(In Thousands)

Interest income

Interest expense

Net interest income

Provision for credit losses

Net interest income after provision for credit losses

Other income:

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

Total other income

Other Expense:

Salaries and employee benefits

Other segment expenses (1)

Total noninterest expense

Income before income tax provision

Income tax provision

(1) Other segment expenses included expenses for professional fees, data processing and telecommunicates, occupancy and Pennsylvania shares tax.

The Corporation’s segment assets represent the total assets as presented on the Consolidated Balance Sheets at December 31, 2024 and 2023.

Report of Independent R egistered Public Accounting Firm

Stockholders and Board of Directors of

Citizens & Northern Corporation

Shareholders and Board of Directors of Citizens & Northern Corporation

Wellsboro, Pennsylvania

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Citizens & Northern Corporation and subsidiaries (the "Corporation") as of December 31, 2023 and 2022, and the related consolidated statements of income, comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the "consolidated financial statements").

We also have audited the Corporation’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Corporation as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by COSO.

Change in Accounting Principle

As described in Notes 1 and 2 to the consolidated financial statements, the Corporation has changed its method of accounting for the recognition and measurement of the allowance for credit losses effective January 1, 2023 due to the adoption of ASC 326, Financial Instruments – Credit Losses.

We have audited the accompanying consolidated balance sheet of Citizens & Northern Corporation (the "Corporation") as of December 31, 2024, the related consolidated statements of income, comprehensive income (loss), stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the "financial statements").

We also have audited the Corporation’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated Framework:

(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Corporation as of December 31, 2024, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated Framework:

(2013) issued by COSO.

Basis for Opinions

The Corporation’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Corporation's consolidated financial statements and an opinion on the Corporation’s internal control over financial reporting based on our audits.

The Corporation’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting.

Our responsibility is to express an opinion on the Corporation’s financial statements and an opinion on the Corporation’s internal control over financial reporting based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Corporation in accordance with the U.S.

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We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audits also included performing such other procedures as we considered necessary in the circumstances.

Our audits also included performing such other procedures as we considered

necessary in the circumstances.

We believe that our audits provide a reasonable basis for our opinions.

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A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the

maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Credit Losses – Qualitative Factors

Critical Audit Matter Description

As disclosed in Note 1 and Note 7 to the Corporation’s consolidated financial statements, the allowance for credit losses as calculated under the current expected credit loss (CECL) methodology consists of two primary components:

(1) an allowance established on loans with similar risk characteristics collectively evaluated for credit losses (collective basis), and (2) an allowance established on loans which do not share similar risk characteristics with any loan segment and which are individually evaluated for credit losses (individually evaluated).

The allowance for loans evaluated on a collective basis is comprised of the following components:

(1) an allowance determined by the weighted-average remaining maturity method (WARM), (2) qualitative factors and (3) an economic forecast calculated using third party economic data.

The allowance determined by the WARM method represents a calculated average annual net loss rate applied over the remaining life of the loans.

The qualitative factors are applied to each loan pool evaluated on a collective basis and represent management’s adjustments for changes not reflected in historical loss rates or other quantitative components.

Qualitative factors can include adjustments related to 1) the nature and volume of portfolio changes, including loan growth, 2) concentrations of credit based on loan type or industry, 3) the volume and severity of past due, nonaccrual or adversely classified loans, 4) trends in real estate or collateral values, 5) lending policies and procedures, 6) credit review function, 7) lending, credit and other relevant management experience and risk tolerance and 8) external factors and economic conditions not already captured.

The qualitative factor component requires significant estimates and subjective assumptions which require a high degree of judgment relating to how those assumptions impact the estimated credit losses for the remaining average life of the loan portfolio.

Changes in these assumptions could have a material effect on the Corporation’s financial results.

We identified auditing the qualitative factor component of the allowance for credit losses on loans evaluated on a collective basis as a critical audit matter as auditing the underlying qualitative factors requires significant auditor judgment as amounts determined by management involve a high degree of subjectivity.

How We Addressed the Matter in Our Audit

The primary procedures we performed to address this critical audit matter included, among others:

● Obtaining an understanding, evaluating the design, and testing the operating effectiveness of the Corporation’s internal controls over the allowance for credit losses process, including controls addressing:

● Management’s review of qualitative factors

● Review of the relevance and reliability of data used to determine the estimates

● Information technology general controls and applications

● Substantively testing management’s process including evaluating their judgments and assumptions for developing the allowance for credit losses on loans on a collective basis.

This included:

● Evaluating the appropriateness of the Corporation’s methodology and accounting policies involved in the application of its CECL methodology

● Evaluating the reasonableness of management’s judgments related to qualitative factor adjustments to determine if they are calculated in accordance with management’s policies and consistently applied

● Testing the completeness, accuracy, relevance and reliability of the underlying data used to estimate the qualitative factors

● Testing the mathematical accuracy of the calculation, including the qualitative factor component

/s/ Baker Tilly US, LLP

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Credit Losses on Loans – Qualitative Factors

The allowance for credit losses (the “ACL”) as described in Notes 1 and 7 is an accounting estimate of expected credit losses over the estimated life of loans.

The Corporation’s loan portfolio, measured at amortized cost, is presented at the net amount expected to be collected.

Estimates of expected credit losses for loans are based on historical experience, current conditions and reasonable and supportable forecasts over the life of the loans.

The Corporation measures expected credit losses on pooled loans when similar risk characteristics exist using the weighted-average remaining maturity model, which includes an additional expected credit loss based on reasonable and supportable forecast.

The Corporation adjusts its quantitative model for certain qualitative factors that are deemed likely to cause estimated credit losses to differ from the conditions that existed for the period over which historical information was evaluated.

Auditing the qualitative factors included in the allowance for credit losses on loans was identified by us as a critical audit matter because of the extent of auditor judgment and significant audit effort to evaluate the significant subjective and complex judgments made by management related to the determination of the qualitative factors used in the calculation.

The primary procedures performed to address the critical audit matter included:

o Testing the effectiveness of management's controls addressing the evaluation and reasonableness of the qualitative framework and its inclusion in the appropriateness of the overall calculation.

o Testing of the effectiveness of management’s controls addressing the evaluation of the appropriateness of significant assumptions and judgements used in the determination of qualitative factors and the relevance and reliability of data used in the qualitative factors.

o Substantive testing of the appropriateness of the qualitative framework, including evaluation of the reasonableness of the significant assumptions and judgments applied in developing the qualitative factors as well as the relevance and reliability of data used in the qualitative factors.

o Substantive testing of the appropriateness of the calculation of qualitative factors.

/s/ Crowe LLP

We have served as the Corporation’s auditor since 2024.

Columbus, Ohio

March 6, 2025

Report of Independe nt Registered Public Accounting Firm

To Stockholders and Board of Directors of

Citizens & Northern Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Citizens & Northern Corporation and subsidiaries (the "Corporation") as of December 31, 2023, and the related consolidated statements of income, comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2023, and the related notes (collectively referred to as the "consolidated financial statements").

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Corporation as of December 31, 2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Corporation's management.

Our responsibility is to express an opinion on the Corporation's consolidated financial statements based on our audits.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

/s/ Baker Tilly US, LLP

We have served as the Corporation’s auditor from 1979 to 2024.

Pittsburgh, Pennsylvania

March 11, 2024,

Except for Note 21, as to which the date is

March 6, 2025

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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-K

Item 8. Financial Statements and Supplementary Data