What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-09 compared with 2024-11-06 · 173 added, 296 removed, 437 unchanged (52% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Certain statements in this section and elsewhere in this quarterly report on Form 10-Q are forward-looking statements.

Certain statements in this section and elsewhere in this quarterly report on Form 10-Q are forward-looking statements for purposes of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended.

Such forward-looking statements may include financial and other projections as well as statements regarding the Corporation that may include future plans, objectives, performance, revenues, growth, profits, operating expenses or the Corporation’s underlying assumptions.

Citizens & Northern Corporation and its wholly-owned subsidiaries (collectively, the Corporation) intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Reform Act of 1995.

Forward-looking statements, which are not historical facts, are based on certain assumptions and describe future plans, business objectives and expectations, and are generally identifiable by the use of words such as, "should", “likely”, "expect", “plan”, "anticipate", “target”, “forecast”, and “goal”.

These forward-looking statements are subject to risks and uncertainties that are difficult to predict, may be beyond management’s control and could cause results to differ materially from those expressed or implied by such forward-looking statements.

Factors which could have a material, adverse impact on the operations and future prospects of the Corporation include, but are not limited to, the following:

Forward-looking statements, are not statements of historical facts, are based on certain assumptions and describe future plans, business objectives and expectations, and are generally identifiable by the use of words such as, “may”, “would”, “will”, "should", “likely”, “possibly”, "expect", "anticipate", “intend”, “pro forma”, “estimate”, “target”, “potentially”, “probably”, “outlook”, “predict”, “contemplate”, “continue”, “strategic”, “objective”, “plan”, “forecast”, “project”, “believe” and “goal” or other similar words, phrases or concepts.

Persons reading this document are cautioned that such statements are only predictions, and that the Corporation’s actual future results or performance may be materially different.

.A number of factors could cause our actual results, events or developments, or industry results, to be materially different from any future results, events or developments expressed, implied or anticipated by such forward-looking statements.

In addition to factors previously disclosed in the reports filed by C&N with the SEC, including our most recent annual report on Form 10-K, and those identified elsewhere in this document, the following factors, among others, could cause actual results to differ materially from forward looking statements:

● changes in monetary and fiscal policies of the Federal Reserve Board and the U.S.

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● changes in general economic conditions

● adverse developments in the banking industry highlighted by high-profile bank failures and the potential impact of such developments on customer confidence, sources of liquidity and capital funding, and regulatory responses to these developments

● the potential for adverse developments in the banking industry that could have a negative impact on customer confidence

● the Corporation’s credit standards and its on-going credit assessment processes might not protect it from significant credit losses

● current, pending or future legislation or regulation that could have a negative effect on the Corporation’s revenue and businesses, including rules and regulations relating to capital and liquidity requirements, bank products and financial services, and the Corporation’s ability to address, and the expense related to complying, with those requirements

● legislative or regulatory changes

● downturn in demand for loan, deposit and other financial services in the Corporation’s market area

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● changes in accounting principles, or the application of generally accepted accounting principles

● failure to achieve merger-related synergies and difficulties in integrating the business and operations of acquired institutions

● fraud and cyber malfunction risks as usage of artificial intelligence continues to expand

● the execution of the transaction with SQCF may take longer than anticipated or be more costly to complete and that the anticipated benefits, including any anticipated cost savings or strategic gains, may be significantly harder to achieve or take longer than anticipated or may not be achieved;

● the banking agency approvals we require for the transaction with SQCF may not be obtained in a timely manner or at all or may be conditioned in a manner that would impair our ability to implement our business plans;

● integration efforts between the Corporation and SQCF may divert the attention of the management teams of the Corporation and SQCF and cause a loss in the momentum of their ongoing businesses;

● success of the Corporation in SQCF’s geographic market area will require the Corporation to attract and retain key personnel in the market and to differentiate the Corporation from its competitors in the market

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.

EARNINGS OVERVIEW

Third Quarter 2024 as Compared to Third Quarter 2023

Third quarter 2024 net income was $6,365,000, or $0.41 per diluted share, as compared to $7,591,000, or $0.50 per diluted share, in the third quarter 2023.

Significant variances were as follows:

● Net interest income of $20,156,000 in the third quarter 2024 was $493,000 higher than in the third quarter 2023.

Average earning assets were $106,852,000 higher in the third quarter 2024 as compared to the third quarter 2023.

Average total deposits increased $94,562,000 in the third quarter 2024 over the third quarter 2023.

The net interest margin was 3.29% in the third quarter 2024, down from 3.35% in the third quarter 2023.

The interest rate spread decreased 0.18%, as the average rate on interest-bearing liabilities increased 0.62%, while the average yield on earning assets increased 0.44%.

● For the quarter ended September 30, 2024, there was a provision for credit losses of $1,207,000, an increase of $2,432,000 in expense compared to a credit for credit losses (reduction in expense) of $1,225,000 in the third quarter 2023.

The allowance for credit losses (“ACL”) as a percentage of gross loans receivable was 1.08% at September 30, 2024 as compared to 0.99% at September 30, 2023.

All forward-looking statements and information made herein are based on management’s current beliefs and assumptions as of the date of filing of this document.

The Corporation does not undertake to update forward-looking statements.

PENDING ACQUISITION

On April 23, 2025, the Corporation announced that it had entered into an Agreement and Plan of Merger with Susquehanna Community Financial, Inc.

(“SQCF”) pursuant to which it will acquire SQCF.

SQCF is the financial holding company for Susquehanna Community Bank (“Susquehanna”), which operates 7 banking offices in Central Pennsylvania.

SQCF had assets of $598 million as of March 31, 2025.

Under the terms of the definitive agreement, each share of SQCF’s common stock issued and outstanding immediately prior to

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

● Noninterest income of $7,133,000 in the third quarter 2024 increased $644,000 from the third quarter 2023 amount.

Significant variances included the following:

Ø Earnings from the increase in cash surrender value of life insurance of $458,000 increased $298,000 from the third quarter 2023 as the average balance of Bank-Owned Life Insurance increased to $50,470,000 in the third quarter 2024 from $31,559,000 in the third quarter 2023.

Ø Brokerage and insurance revenue of $523,000 increased $129,000 due to an increase in sales volume.

Ø Net gains from sale of loans of $360,000 increased $123,000 from the third quarter 2023, reflecting an increase in volume of residential mortgage loans sold.

Ø Service charges on deposit accounts increased $103,000 from the third quarter 2024 reflecting an increase in volume of fees.

● Noninterest expense of $18,269,000 in the third quarter 2024 increased $329,000 (1.8%) from the third quarter 2023 including increases of $109,000 in net occupancy and equipment expense, $68,000 in professional fees, $60,000 in other expenses and $59,000 in data processing and telecommunications expenses.

● The income tax provision of $1,448,000, or 18.5% of pre-tax income, for the third quarter 2024 decreased $398,000 from $1,846,000 or 19.6% of pre-tax income, for the third quarter 2023 consistent with the decrease in pre-tax income.

Nine Months Ended September 30, 2024 as Compared to Nine Months Ended September 30, 2023

Net income for the nine-month period ended September 30, 2024 was $17,784,000, or $1.16 per diluted share, as compared to $19,887,000, or $1.29 per diluted share, for the first nine months of 2023.

the effective time of the merger will be converted into the right to receive 0.80 shares of the Corporation’s common stock.

Holders of SQCF common stock prior to the consummation of the merger will own approximately 13% of the Corporation’s common stock outstanding immediately following the consummation of the merger.

The merger, which is expected to close in the fourth quarter of 2025, is subject to the satisfaction of customary closing conditions, including receipt of customary regulatory approvals and approval by SQCF’s shareholders.

EARNINGS OVERVIEW

First Quarter 2025 as Compared to First Quarter 2024

First quarter 2025 net income was $6,293,000, or $0.41 per diluted share, as compared to $5,306,000, or $0.35 per diluted share, in the first quarter 2024.

Significant variances were as follows:

● Net interest income totaled $58,642,000 in the nine months ended September 30, 2024, a decrease of $2,164,000 from the total for the first nine months of 2023.

The net interest margin was 3.30% for the first nine months of 2024, down from 3.53% in the corresponding period of 2023.

The interest rate spread decreased 0.39%, as the average rate on interest-bearing liabilities was higher by 0.89% while the average yield on earning assets increased 0.50%.

Average total earning assets increased $68,438,000.

Average total loans increased $99,838,000 (5.6%) and average total deposits increased $77,578,000 (4.0%).

● For the nine months ended September 30, 2024, the provision for credit losses was $2,726,000, compared to a credit for credit losses (reduction in expense) of $765,000 in the first nine months of 2023 resulting in an increase of $3,491,000.

For the nine months ended September 30, 2024, the provision related to loans receivable included the impact of increases in the ACL from an increase in qualitative adjustments related to changes in external indexes and an increase in past due and nonaccrual loans as well as net charge-offs in excess of specific allowances at December 31, 2023.

The credit related to loans receivable for the nine months ended September 30, 2023 was mainly attributable to qualitative adjustments in concentrations of credit based on loan type, lending policies and procedures and changes in external indexes, as well as a reduction in the Corporation’s average net charge-off experience, used in the calculation of the ACL.

In the first nine months of 2024, the ACL increased $1,234,000 to 1.08% of loans receivable at September 30, 2024 as compared to 1.04% at December 31, 2023.

For the nine months ended September 30, 2024, net charge-offs totaled $1,589,000, or 0.08% of average loans receivable as compared to $225,000 or 0.02% annualized for the first nine months of 2023.

● Noninterest income totaled $21,662,000 in the first nine months of 2024, up $2,923,000 from the total for the first nine months of 2023.

● Net interest income of $19,975,000 in the first quarter 2025 was $934,000 higher than in the first quarter 2024.

The net interest margin increased to 3.38% in the first quarter 2025 from 3.29% in the first quarter 2024.

The interest rate spread increased 0.07%, as the average yield on interest earning assets increased 0.13% while the average rate on interest-bearing liabilities increased 0.06%.

Average total loans receivable increased $40,187,000, or 2.2%, and average total deposits increased $59,904,000, or 3.0%.

● The provision for credit losses was $236,000 for the first quarter 2025 compared to a provision for credit losses of $954,000 in the first quarter 2024.

The provision for the first quarter 2025 included a provision related to loans receivable of $228,000 and a provision related to off-balance sheet exposures of $8,000.

The provision in the first quarter of 2025 included the impact of an increase in the allowance for credit losses (“ACL”) related to changes in qualitative factors partially offset by a decrease in the ACL from a decrease in the Corporation’s average net charge-off experience.

Net charge-offs totaled $91,000 in the first quarter of 2025 as compared to $145,000 in the first quarter 2024.

The ACL as a percentage of gross loans receivable was 1.06% at March 31, 2025 and 1.07% at March 31, 2024.

● Noninterest income of $7,008,000 in the first quarter 2025 increased $333,000 from the first quarter 2024 result.

Significant variances included the following:

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Ø Earnings from the increase in cash surrender value of life insurance of $1,372,000 increased $922,000 as the average balance of Bank-Owned Life Insurance increased to $51,647,000 in the nine months ended September 30, 2024 from $31,413,000 in the first nine months of 2023.

Ø Other noninterest income of $4,083,000 increased $641,000 as dividends on FHLB-Pittsburgh and Federal Reserve stock totaled $1,292,000, an increase of $400,000, and income from tax credits related to donations increased $120,000.

Ø Brokerage and insurance revenue of $1,589,000 increased $400,000 due to an increase in sales volume.

Ø Trust revenue of $2,102,000 increased $205,000 consistent with appreciation in the trading prices of many U.S.

equity securities and includes revenue from new business.

Ø Net gains from sale of loans of $786,000 increased $336,000, reflecting an increase in volume of residential mortgage loans sold.

equity securities in the first quarter 2025 as compared to the first quarter 2024.

Ø Service charges on deposit accounts of $1,440,000 increased $122,000 reflecting an increase in volume of fees.

● Noninterest expense totaled $55,828,000 for the first nine months of 2024, a decrease of $79,000 from the total for the first nine months of 2023.

Ø Other noninterest income of $1,132,000 increased $115,000, including an increase of $31,000 in dividends on Federal Home Loan Bank of Pittsburgh stock, $30,000 in letter of credit fees, $27,000 of fees from origination of loans under a Federal Housing Administration program with no comparable amount in 2024 and $22,000 from an increase in the fair value of a marketable equity security.

Ø Loan servicing fees, net of $138,000 decreased $92,000, including a decrease in the fair value of servicing rights of $69,000 in the first quarter 2025 as compared to an increase of $25,000 in first quarter 2024.

● Noninterest expense of $19,043,000 in the first quarter 2025 increased $739,000 from the first quarter 2024 result.

Significant variances included the following:

Ø Other noninterest expense of $7,936,000 decreased $507,000.

Within this category, significant variances included the following:

◾ For the first nine months of 2024, there was a reduction in expense of $513,000 related to the defined benefit postretirement medical benefit plan, including a curtailment of $469,000 related to plan adjustments in the first quarter 2024.

In comparison, in the first nine months of 2023, there was a reduction in expense associated with the postretirement plan of $15,000.

◾ Legal fees totaled $491,000 in the first nine months of 2024, a decrease of $209,000, mainly due to lower fees incurred related to non-litigation-related corporate matters.

Ø Professional fees of $1,625,000 decreased $363,000 as 2023 included $389,000 of conversion costs related to a change in Wealth Management platform for providing brokerage and investment advisory services.

Ø Salaries and employee benefits expense of $33,460,000 increased $378,000, including an increase in base salaries expense of $690,000, or 3.1% and an increase of $451,000 in cash and stock-based incentive compensation, while estimated contributions to the Employee Stock Ownership Plan and Supplemental Executive Retirement Plan decreased $638,000 and health insurance expense decreased $344,000.

● The income tax provision of $3,966,000, or 18.2% of pre-tax income, for the nine months ended September 30, 2024 decreased $708,000 from $4,674,000, or 19.0% of pre-tax income, for nine months ended September 30, 2023.

The decrease in income tax provision in 2024 reflected the decrease in pre-tax income of $2,811,000.

Ø Other noninterest expense of $2,354,000 increased $492,000.

Included in this category, was a reduction in expense related to the defined benefit postretirement medical plan of $16,000 in the first quarter of 2025.

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

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Ø Salaries and employee benefits expense of $11,759,000 increased $197,000, including increases of $242,000 in cash and stock-based incentive compensation, $87,000 in payroll taxes, $48,000 in Savings and Retirement Plan expenses and $31,000 in expenses related to the Employee Stock Ownership Plan while expenses related to base salaries decreased $165,000 or 2.1% and health insurance costs decreased $102,000 from first quarter 2024.

● The income tax provision of $1,411,000, or 18.3% of pre-tax income for the first quarter 2025 increased $259,000 from $1,152,000, or 17.8% of pre-tax income for the first quarter 2024.

The increase in income tax provision was consistent with the increase in pre-tax income of $1,246,000.

TABLE I – QUARTERLY FINANCIAL DATA

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September 30,

Interest income

Interest and dividend income

Interest expense

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Net income attributable to common shares

Basic earnings per common share

Diluted earnings per common share

Basic and diluted earnings per common share

NONINTEREST INCOME

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Three Months Ended

September 30,

Trust revenue

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Total noninterest income

(Dollars in Thousands)

Nine Months Ended

September 30,

Trust revenue

Brokerage and insurance revenue

Service charges on deposit accounts

Interchange revenue from debit card transactions

Net gains from sales of loans

Loan servicing fees, net

Increase in cash surrender value of life insurance

Other noninterest income

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

Total noninterest income

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

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Three Months Ended

September 30,

Salaries and employee benefits

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Total noninterest expense

(Dollars in Thousands)

Nine Months Ended

September 30,

Salaries and employee benefits

Net occupancy and equipment expense

Data processing and telecommunications expense

Automated teller machine and interchange expense

Pennsylvania shares tax

Professional fees

Other noninterest expense

Total noninterest expense

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

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Note 6 to the unaudited consolidated financial statements provides an overview of the process management uses for determining the ACL, and additional discussion of the ACL is provided in a separate section of Management’s Discussion and Analysis.

The ACL may increase or decrease due to changes in economic conditions affecting borrowers and macroeconomic variables, including new information regarding existing problem loans, identification of additional problem loans, changes in the fair value of underlying

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

collateral, unforeseen events such as natural disasters and pandemics, and other factors.

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

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

For most of the Corporation’s debt securities, the Corporation receives estimated fair values of debt securities from an independent valuation service, or from brokers.

In developing fair values, the valuation service and the brokers use estimates of cash flows, based on historical performance of similar instruments in similar interest rate environments.

Based on experience, management is aware that estimated fair values of debt securities tend to vary among brokers and other valuation services.

NET INTEREST INCOME

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

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

Tables IV, V and VI include information regarding the Corporation’s net interest income for the three-month periods ended March 31, 2025 and 2024.

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

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

A reconciliation of net interest income on a fully taxable-equivalent basis to the closest GAAP financial measure is included with Table IV.

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

Three-Month Periods Ended September 30, 2024 and 2023

For the three-month periods, fully taxable equivalent net interest income (a non-GAAP measure) of $20,361,000 in 2024 was $486,000 (2.4%) higher than in 2023 as average earning assets were $106,852,000 higher in the third quarter 2024 as compared to the third quarter 2023.

Average total deposits increased $94,562,000 in the third quarter 2024 over the third quarter 2023.

As presented in Table VI, the net impact of changes in volume of earning assets and interest-bearing liabilities increased net interest income in the third quarter 2024 as compared to third quarter 2023 by $613,000, while the net impact of changes in interest rates (primarily increases) decreased net interest income by $127,000.

As presented in Table V, the Net Interest Margin was 3.29% in the third quarter 2024 as compared to 3.35% in the third quarter 2023, and the “Interest Rate Spread” (excess of average rate of return on earning assets over average cost of funds on interest-bearing liabilities) decreased to 2.55% in 2024 from 2.73% in 2023.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Three-Month Periods Ended March 31, 2025 and 2024

Fully taxable equivalent net interest income (a non-GAAP measure) was $20,186,000 in the first quarter of 2025, $950,000 (4.9%) higher than in the first quarter of 2024.

The increase in net interest income reflected an increase in interest income of $1,389,000 and an increase in interest expense of $439,000.

As presented in Table V, the Net Interest Margin was 3.38% in the first quarter 2025 as compared to 3.29% in the first quarter 2024, and the “Interest Rate Spread” (excess of average rate of return on earning assets over average cost of funds on interest-bearing liabilities) increased to 2.69% in 2025 from 2.62% in 2024.

The average yield on earning assets of 5.35% was 0.13% higher in 2025 as compared to 2024, and the average rate on interest-bearing liabilities of 2.66% in 2025 was 0.06% higher.

Additionally , average total earning assets increased $65,203,000 as average total loans increased $40,187,000 (2.2%), and average interest-bearing due from banks increased $35,171,000 while average total deposits increased $59,904,000 (3.0%).

As presented in Table VI, the net impact of changes in interest rates increased net interest income in the first quarter 2025 as compared to first quarter 2024 by $756,000 while changes in volume of earning assets and interest-bearing liabilities increased net interest income by $194,000.

INTEREST INCOME AND EARNING ASSETS

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Interest and fees from loans receivable increased $858,000 in 2025 as compared to 2024.

The fully taxable equivalent yield on loans in 2024 increased to 6.08% from 5.72% in 2023, reflecting the effects of rising interest rates on the loan portfolio.

The fully taxable equivalent yield on loans in 2025 increased to 6.03% from 5.92% in 2024, r eflecting the effects of gradual paydowns on loans originated prior to interest rates rising in 2022 and 2023 with more recent loans originated at higher market rates.

Average outstanding loans receivable increased $40,187,000 (2.2%) to $1,899,433,000 in 2025 from $1,859,246,000 in 2024.

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Within this category, the largest asset balance in 2025 and 2024 has been interest-bearing deposits held with the Federal Reserve.

The average yield on interest-bearing due from banks was 5.38% in 2024, up from 4.31% in 2023.

The average yield on interest-bearing due from banks was 4.31% in 2025, down from 4.71% in 2024.

The average balance of interest-bearing due from banks was $67,896,000 in 2025, up $35,171,000 from $32,725,000 in 2024.

The increase in interest-bearing due from banks included the net impact of the increase in average total deposits of $94,562,000, a reduction in average available-for-sale debt securities (amortized cost) of $54,384,000 and an increase in average borrowed funds of $27,739,000, partially offset by the increase in the average loans receivable of $71,472,000 and the net use of cash that contributed to an increase in average Bank-Owned Life Insurance of $18,911,000.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

The net increase in average interest-bearing due from banks for 2025 as compared to 2024 reflected net sources of cash from deposit growth and a reduction in average available-for-sale debt securities, partially offset by net uses of cash for loan growth and a decrease in borrowed funds.

Interest income from available-for-sale debt securities, on a fully taxable-equivalent basis, totaled $2,950,000 in 2025, up $191,000 from 2024, as the average yield on available-for-sale debt securities was 2.65% in 2025, up from 2.41% in 2024.

The average balance (at amortized cost) of available-for-sale debt securities decreased $54,384,000.

The average balance (at amortized cost) of available-for-sale debt securities decreased $10,548,000 between periods.

INTEREST EXPENSE AND INTEREST-BEARING LIABILITIES

Interest expense increased $439,000 to $11,734,000 in 2025 from $11,295,000 in 2024.

Interest expense on deposits increased $3,148,000, as the average rate on interest-bearing deposits increased to 2.62% in 2024 from 1.93% in 2023.

Average total deposits (interest-bearing and noninterest-bearing) amounted to $2,084,654,000 for the third quarter 2024, up $94,562,000 (4.8%) from the third quarter 2023.

Within average total deposits, average brokered deposits (primarily time and money market) were $58,782,000 with an average interest rate of 5.28% in the third quarter 2024, as compared to $60,829,000 with an average interest rate of 4.98% in the third quarter 2023.

At September 30, 2024, total brokered deposits were $45,051,000.

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

In comparing the third quarter 2024 to the third quarter 2023, average time deposits increased $79,272,000, average interest checking deposits increased $31,214,000 and average total money market accounts increased $15,689,000 while average savings deposits decreased $33,928,000.

Interest expense on short-term borrowings decreased $493,000 to $184,000 in 2024 from $677,000 in 2023.

The average balance of short-term borrowings decreased to $15,038,000 in 2024 from $49,157,000 in 2023.

The average rate on short-term borrowings was 4.87% in 2024 compared to 5.46% in 2023.

Interest expense on deposits increased $701,000, as the balance of interest-bearing deposits increased $64,446,000 and the average rate increased to 2.45% in 2025 from 2.35% in 2024.

Average total deposits (interest-bearing and noninterest-bearing) increased $59,904,000 (3.0%) in the first quarter of 2025 as compared to 2024.

Within average deposits, average brokered deposits were $26,580,000 at an average rate of 4.76% in the first quarter of 2025 as compared to $84,318,000 at an average rate of 5.23% in the first quarter of 2024.

In comparing the first quarter 2025 to the first quarter 2024, average time deposits increased $65,134,000 and average interest checking deposits increased $24,339,000 while average savings deposits decreased $17,307,000, average total money market accounts decreased $7,720,000 and average noninterest-bearing demand deposits decreased $4,542,000.

Interest expense on borrowed funds decreased $262,000 in 2025 as compared to 2024.

Interest expense on short-term borrowings was less than $1,000 in 2025 compared to $597,000 in 2024 as the average balance of short-term borrowings decreased to $1,400,000 in 2025 from $44,462,000 in 2024.

Interest expense on long-term borrowings (FHLB advances) increased $333,000 to $1,789,000 in 2025 from $1,456,000 in 2024.

The average balance of long-term borrowings was $162,392,000 in 2025, up from an average balance of $142,753,000 in 2024.

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

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

The average rate on long-term borrowings was 4.47% in 2025 compared to 4.10% in 2024.

Nine-Month Periods Ended September 30, 2024 and 2023

For the nine-month periods, fully taxable equivalent net interest income (a non-GAAP measure) was $59,244,000 in 2024, which was $2,282,000 (3.7%) lower than in 2023.

The decrease in net interest income reflected an increase in interest expense of $13,645,000 and an increase in interest income of $11,363,000.

As presented in Table VI, the net impact of changes in volume of earning assets and interest-bearing liabilities increased net interest income for the nine months ended September 30, 2024 over the nine months ended September 30, 2023 by $1,849,000, while the net impact of changes in interest rates (primarily increases) decreased net interest income by $4,131,000.

As presented in Table V, the Net Interest Margin was 3.30% in the first nine months of 2024 as compared to 3.53% in the first nine months of 2023, and the “Interest Rate Spread” (excess of average rate of return on earning assets over average cost of funds on interest-bearing liabilities) decreased to 2.60% in 2024 from 2.99% in 2023.

The average yield on earning assets of 5.31% was 0.50% higher in 2024 as compared to 2023, while the average rate on interest-bearing liabilities of 2.71% in 2024 was 0.89% higher.

INTEREST INCOME AND EARNING ASSETS

Interest income totaled $95,351,000 in 2024, an increase of $11,363,000 from 2023.

Interest and fees from loans receivable increased $10,026,000 in 2024 as compared to 2023.

In the nine-month period ended September 30, 2024, t he fully taxable equivalent yield on loans was 6.01%, up from 5.60% in the first nine months of 2023, reflecting the effects of primarily rising interest rates on new loan originations and floating-rate loans.

Average outstanding loans receivable increased $99,838,000 (5.6%) to $1,877,076,000 in 2024 from $1,777,238,000 in 2023.

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

Income from interest-bearing due from banks totaled $2,521,000 in 2024, an increase of $1,589,000 from 2023.

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

The average yield on

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

interest-bearing due from banks was 5.15% in 2024, up from 4.01% in 2023.

The average balance of interest-bearing due from banks was $65,449,000 in 2024, up from $31,076,000 in 2023.

Similar to the third quarter 2024 to third quarter 2023 comparison, the net increase in average interest-bearing due from banks for the first nine months of 2024 as compared to 2023 reflected net sources of cash from deposit growth, a reduction in average available-for-sale debt securities and an increase in borrowed funds, partially offset by net uses of cash for loan growth and an increase in Bank-Owned Life Insurance.

Interest income from available-for-sale debt securities decreased $305,000 in 2024 from 2023.

The average balance of available-for-sale debt securities (at amortized cost) decreased to $455,944,000 in 2024 from $522,600,000 in 2023.

The average yield on available-for-sale debt securities increased to 2.43% for 2024 from 2.20% in 2023.

INTEREST EXPENSE AND INTEREST-BEARING LIABILITIES

For the nine-month periods, interest expense increased $13,645,000 to $36,107,000 in 2024 from $22,462,000 in 2023.

Interest expense on deposits increased $13,024,000, as the average rate on interest-bearing deposits increased to 2.48% in 2024 from 1.45% in 2023.

Average total deposits (interest-bearing and noninterest-bearing) amounted to $2,034,335,000 for the first nine months of 2024, up $77,578,000 (4.0%) from the first nine months of 2023.

Within average total deposits, average brokered deposits (primarily time and money market) were $70,428,000 with an average interest rate of 5.24% in 2024, up from $40,910,000 with an average interest rate of 4.56% in 2023.

Average time deposits increased $92,488,000 and average interest checking deposits increased $47,428,000, while the average balance of savings accounts decreased $39,139,000 and average noninterest-bearing demand deposits decreased $31,814,000.

Interest expense on borrowed funds increased $621,000 in 2024 as compared to 2023.

Interest expense on short-term borrowings of $1,141,000 in 2024 was down from $2,918,000 in 2023 as the average balance of short-term borrowings decreased to $29,086,000 in 2024 from $75,978,000 in 2023.

The average rate on short-term borrowings was 5.24% in 2024 compared to 5.13% in 2023.

Interest expense on long-term borrowings (FHLB advances) increased $2,393,000 to $5,294,000 in 2024 from $2,901,000 in 2023.

The average balance of long-term borrowings was $166,454,000 in 2024, up from an average balance of $103,817,000 in 2023.

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

The average rate on long-term borrowings was 4.25% in 2024 compared to 3.74% in 2023.

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

2 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

(In Thousands)

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Interest income from tax-exempt securities and loans has been adjusted to a fully taxable-equivalent basis (a non-GAAP measure), using the Corporation’s marginal federal income tax rate of 21%.

The following table is a reconciliation of net interest income under U.S.

The following table reconciles net interest income under U.S.

GAAP as compared to net interest income as adjusted to a fully taxable-equivalent basis.

1 unchanged sentence

Three Months Ended

Nine Months Ended

September 30,

Net Interest Income Under U.S.

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Three Months Ended 3/31/2025 vs.

Nine Months Ended 9/30/2024 vs.

EARNING ASSETS

21 unchanged sentences

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

The income tax provision for the third quarter 2024 of $1,448,000 was $398,000 lower than the provision for the third quarter 2023 and the provision for the nine months ended September 30, 2024 of $3,966,000 was $708,000 lower than the amount for the first nine months of 2023 due to lower pre-tax income in 2024.

The effective tax rate (tax provision as a percentage of pre-tax income) was 18.5% in the third quarter 2024 compared to 19.6% in the third quarter 2023 and 18.2% for the first nine months of 2024 as compared to 19.0% for the first nine months of 2023.

The income tax provision for the first quarter of 2025 of $1,411,000 was $259,000 higher than the provision for the first quarter of 2024, consistent with the increase in pre-tax income of $1,246,000 .

The effective tax rate (tax provision as a percentage of pre-tax income) was 18.3% in the first quarter of 2025 compared to 17.8% in the first quarter of 2024.

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

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

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

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

September 30,

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

The net deferred tax asset at March 31, 2025 and December 31, 2024 represents the following temporary difference components:

(In Thousands)

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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

Other deferred tax liabilities

3 unchanged sentences

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

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

Management believes the recorded net deferred tax asset at March 31, 2025 is fully realizable;

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

2 unchanged sentences

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

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

The composition of the available-for-sale debt securities portfolio at March 31, 2025 and December 31, 2024, 2023 and 2022 is as follows:

(Dollars In Thousands)

September 30, 2024

March 31, 2025

December 31, 2024

13 unchanged sentences

Total Available-for-Sale Debt Securities

Aggregate Unrealized (Loss) Gain

Aggregate Unrealized (Loss) Gain as a % of Amortized Cost

Market Yield on 5-Year U.S.

Treasury Obligations (a)

Treasury.gov (Daily Treasury Par Yield Curve Rates)

As reflected in the table above, the fair value of available-for-sale securities was lower than the amortized cost basis by $38,970,000, or 8.7%, at September 30, 2024, $49,213,000, or 10.6%, at December 31, 2023 and $63,761,000, or 11.3%, at December 31, 2022 while the aggregate unrealized gain position was $6,087,000, or 1.2% at December 31, 2021.

Aggregate Unrealized Loss

Aggregate Unrealized Loss as a % of Amortized Cost

As reflected in the table above, the fair value of available-for-sale securities was lower than the amortized cost basis by $42,374,000, or 9.4% at March 31, 2025, $47,543,000, or 10.6%, at December 31, 2024, $49,213,000, or 10.6%, at December 31, 2023 and $63,761,000, or 11.3%, at December 31, 2022.

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

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

Treasury Note was 0.26% lower at September 30, 2024 in comparison to December 31, 2023, 0.41% lower than at December 31, 2022 and 2.32% higher than at December 31, 2021.

The table also shows that the amortized cost basis of the portfolio has been reduced to $447,392,000 at September 30, 2024 from $561,794,000 at December 31, 2022 as proceeds from maturities and sales have been used to help fund loan growth and for other purposes.

The table also shows that the amortized cost basis of the portfolio has been reduced to $450,837,000 at March 31, 2025 from $561,794,000 at December 31, 2022 as proceeds from maturities and sales have been used to help fund loan growth and for other purposes.

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

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

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

Additional information related to the types

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

of securities held at September 30, 2024, other than securities issued or guaranteed by U.S.

As described in Note 5 to the unaudited consolidated financial statements, management determined the Corporation does not have the intent to sell, nor is it more likely than not that it will be required to sell, available-for-sale debt securities in an unrealized loss position at March 31, 2025 before it is able to recover the amortized cost basis.

Further, management reviewed the Corporation’s holdings as of March 31, 2025 and concluded there were no credit-related declines in fair value.

Additional information related to the types of securities held at March 31, 2025, other than securities issued or guaranteed by U.S.

Government entities or agencies, is as follows:

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All of the issuers have publicly traded common stock .

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

At March 31, 2025, the securities have external ratings ranging from BBB-/Baa3 to A-.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

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

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

Summary ratings information at March 31, 2025, based on the amortized cost basis and reflecting the lowest enhanced or underlying rating by Moody’s, Standard & Poors or Fitch, is as follows:

AAA or pre-refunded – 20% of the portfolio;

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

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

Based on the results of management’s assessment, there was no ACL required on available-for-sale debt securities in an unrealized loss position at March 31, 2025.

FINANCIAL CONDITION

2 unchanged sentences

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

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

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

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

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

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

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

The data in Table VII shows the recorded investment in non-owner occupied commercial real estate loans for which the primary purpose is utilization of office space by third parties was $96,241,000, or 5.1% of gross loans receivable.

At September 30, 2024, within this segment there were two loans with a total recorded investment of $3,204,000 in nonaccrual status with a specific allowance of $14,000 on one loan.

During the third quarter 2024, there was a partial charge-off of $640,000 on the other office loan in nonaccrual status which had a specific allowance of $455,000 at June 30, 2024.

The charge-off resulted from a decrease in the appraised value of property which is the primary source of collateral.

At September 30, 2024, the carrying value of this loan was $1,846,000.

At September 30, 2024, there was no specific allowance on this loan though it remained in nonaccrual status.

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

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

There are no significant concerns that have arisen related to the Corporation’s off-balance sheet loan commitments or outstanding letters of credit at March 31, 2025.

Table VII shows the composition of the loan portfolio at March 31, 2025 and at year-end from 2020 through 2024.

Throughout this time period, the portfolio was primarily commercial in nature.

At March 31, 2025, commercial loans represented 75% of the portfolio while residential loans totaled 21% of the portfolio.

Also included in Table VII is additional detail regarding the composition of the non-owner occupied commercial real estate loan portfolio at March 31, 2025.

As shown in Table VII, the amortized cost of non-owner occupied commercial real estate loans for which the primary purpose is utilization of office space by third parties was $108,625,000, or 5.7% of gross loans receivable.

At March 31, 2025, within this segment there were two loans with a total amortized cost of $2,954,000 in nonaccrual status with no individual ACL on either loan.

The remainder of the non-owner occupied commercial real estate loans with a primary purpose of office space utilization were in accrual status with no specific allowance at March 31, 2025.

While the Corporation’s lending activities are primarily concentrated in its market areas, a portion of the Corporation’s commercial loan segment consists of participation loans.

1 unchanged sentence

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

Total participation loans outstanding amounted to $35,652,000 at September 30, 2024 down from $38,652,000 at December 31, 2023.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Total participation loans outstanding amounted to $34,901,000 at March 31, 2025 down from $35,129,000 at December 31, 2024.

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

At September 30, 2024, the total contract amount of commitments to extend credit was $378,535,000 as compared to $395,997,000 at December 31, 2023, and the contract amount of standby letters of credit increased to $64,938,000 at September 30, 2024 from $19,158,000 at December 31, 2023.

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

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

At March 31, 2025, the total contract amount of commitments to extend credit was $379,125,000 as compared to $380,003,000 at December 31, 2024, and the contract amount of standby letters of credit was $64,001,000 at March 31, 2025 as compared to $64,586,000 at December 31, 2024.

The Corporation maintains an allowance for off-balance sheet credit exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, commercial letters of credit and credit enhancement obligations related to residential mortgage loans sold with recourse, when there is a contractual obligation to extend credit and when this extension of credit is not unconditionally cancellable (i.e.

2 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 $593,000 at September 30, 2024 and $690,000 at December 31, 2023, is included in accrued interest and other liabilities on the unaudited consolidated balance sheets.

The allowance for credit losses for off-balance sheet exposures of $463,000 at March 31, 2025 and $455,000 at December 31, 2024, is included in accrued interest and other liabilities in the unaudited consolidated balance sheets.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

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

5 unchanged sentences

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

At September 30, 2024, the total outstanding balance of loans the Corporation has repurchased as a result of identified instances of noncompliance amounted to $2,698,000, and the corresponding total outstanding balance of repurchased loans at December 31, 2023 was $2,839,000.

At September 30, 2024, outstanding balances of loans sold and serviced through the MPF Xtra and Original programs totaled $325,004,000, including loans sold through the MPF Xtra program of $152,880,000 and loans sold through the Original program of $172,124,000.

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

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

At March 31, 2025, the total outstanding balance of loans the Corporation has repurchased as a result of identified instances of noncompliance amounted to $2,513,000, and the corresponding total outstanding balance of repurchased loans at December 31, 2024 was $2,671,000.

At March 31, 2025, outstanding balances of loans sold and serviced through the MPF Xtra and Original programs totaled $329,761,000, including loans sold through the MPF Xtra program of $156,703,000 and loans sold through the Original program of $173,058,000.

At December 31, 2024, outstanding balances of loans sold and serviced through the MPF Xtra and Original programs totaled $329,766,000, including loans sold through the MPF Xtra program of $158,302,000 and loans sold through the Original program of $171,464,000.

Based on the fairly limited volume of required repurchases to date, no allowance has been established for representation and warranty exposures as of March 31, 2025 and December 31, 2024.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

2 unchanged sentences

(In Thousands)

September 30,

Commercial real estate - non-owner occupied:

20 unchanged sentences

allowance for credit losses on loans

Additional details regarding the composition of the non-owner occupied commercial real estate loan portfolio, excluding multi-family (5 or more) residential and 1-4 Family-commercial purpose loans, at September 30, 2024 is as follows:

NON-OWNER OCCUPIED COMMERCIAL REAL ESTATE

(In Thousands)

September 30,

% of Non-owner

3 unchanged sentences

PROVISION AND ALLOWANCE FOR CREDIT LOSSES

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

A summary of the provision (credit) for credit losses for the three-month periods ended March 31, 2025 and 2024 is as follows:

(In Thousands)

September 30,

Provision (credit) for credit losses:

Provision for credit losses:

Loans receivable

Off-balance sheet exposures

Total provision (credit) for credit losses

For the quarter ended September 30, 2024, there was a provision for credit losses of $1,207,000, an increase of $2,432,000 compared to a credit for credit losses (reduction in expense) of $1,225,000 in third quarter 2023.

For the nine months ended September 30, 2024, there was a provision for credit losses of $2,726,000, an increase of $3,491,000 compared to a credit for credit losses of $765,000 in 2023.

For the nine months ended September 30, 2024, the provision related to loans receivable included the impact of increases in the ACL from an increase in qualitative adjustments resulting mainly from changes in external indexes and an increase in past due and nonaccrual loans as well as net charge-offs in excess of specific allowances .

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

in comparison, the ACL dropped to 0.99% of gross loans receivable at September 30, 2023 from 1.08% upon adoption of CECL on January 1, 2023.

As shown in Table IX, the ACL on loans individually evaluated decreased to $173,000 at September 30, 2024 from $743,000 at December 31, 2023, primarily from partial charge-offs on two loans with individual ACLs at December 31, 2023.

In the third quarter 2024, there was a partial charge-off of $640,000 on a non-owner occupied commercial real estate office loan with a specific allowance of $455,000 at June 30, 2024 and $486,000 at December 31, 2023.

At September 30, 2024, the carrying value of this loan was $1,846,000 with no specific allowance on the loan.

In the second quarter 2024, there was a partial charge-off of $117,000 on a non-owner occupied commercial real estate loan for which there was an ACL of $124,000 at December 31, 2023.

At September 30, 2024, there was no ACL on the loan and the carrying value of the loan was $3,276,000 .

At September 30, 2024, there were two commercial relationships with loans receivable totaling $1,622,000 for which individual ACLs were recorded, including one non-owner occupied office loan with an outstanding balance of $1,357,000 and an individual ACL of $14,000.

Table IX also shows that, at September 30, 2024 as compared to December 31, 2023, the ACL related to collectively evaluated commercial loans increased by a total of $1,741,000 and the ACL on collectively evaluated consumer loans increased $67,000, while the ACL on collectively evaluated residential mortgage loans decreased $4,000.

The increase for commercial loans includes the impact of an increase in qualitative adjustments resulting mainly from changes in external indexes and an increase in past due and nonaccrual loans.

In the first nine months of 2024, net charge-offs totaled $1,589,000, or 0.08% (0.11% annualized) of average outstanding loans.

In addition to the two charge-offs described above, in the third quarter 2024 there was a partial charge-off of $427,000 on two commercial construction and land loans to one borrower with a specific ACL of $447,000 at June 30, 2024 and no specific ACL at December 31, 2023.

At September 30, 2024, the carrying value of these loans totaled $1,883,000 with no specific allowance on the loans.

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

Table X shows that total nonperforming assets as a percentage of total assets was 0.92% at September 30, 2024, up from 0.75% at December 31, 2023 but lower than at year-end 2020 through 2022.

Total nonperforming assets were $24,638,000 at September 30, 2024, up from $18,845,000 at December 31, 2023.

Total provision for credit losses

For the quarter ended March 31, 2025, there was a provision for credit losses of $236,000, a decrease of $718,000 from a provision for credit losses of $954,000 in first quarter 2024.

For the quarter ended March 31, 2025, the provision related to loans receivable included the impact of an increase in the ACL related to changes in qualitative factors partially offset by a decrease in the ACL from a decrease in average net charge-off experience.

The ACL as a percentage of gross loans receivable was 1.06% at March 31, 2025 and December 31, 2024 compared to 1.07% at March 31, 2024.

As shown in Table IX, the ACL on loans individually evaluated increased to $189,000 at March 31, 2025 from $122,000 at December 31, 2024.

At March 31, 2025, there were loans to two borrowers with a total amortized cost basis of $945,000 for which individual ACLs were recorded.

At December 21, 2024, there were loans to one borrower with a total amortized cost basis of $258,000 for which individual ACLs were recorded.

Table IX also shows that, at March 31, 2025 as compared to December 31, 2024, the ACL related to collectively evaluated commercial loans increased by a total of $187,000 while the ACL on collectively evaluated residential mortgage loans decreased $75,000 and the ACL on collectively evaluated consumer loans decreased $42,000.

The net increase in qualitative adjustments for commercial loans included an increase in a factor related to past due and nonaccrual loans offset by a decrease in a factor related to non-owner occupied commercial real estate and construction and land loan concentrations.

In the first quarter of 2025, net charge-offs totaled $91,000, or 0.02% (annualized) of average outstanding loans.

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

As presented in Table X, collateral dependent loans totaled $30,799,000 at March 31, 2025, up from $30,125,000 at December 31, 2024 and up significantly from year-end 2020-2023 amounts.

The increase included two loans related to one relationship with a total amortized cost basis of $10,975,000 at March 31, 2025 and $11,023,000 at December 31, 2024.

There were no individually evaluated ACLs on these loans at March 31, 2025 and December 31, 2024.

The loans were paid off in April 2025.

Table X shows that total nonperforming assets as a percentage of total assets was 0.93% at March 31, 2025, up from 0.92% at December 31, 2024 and 0.75% at December 31, 2023 but lower than at year-end 2020 through 2022.

Total nonperforming assets were $24,329,000 at March 31, 2025, up from $24,142,000 at December 31, 2024.

Nonperforming loans included an increase in nonaccrual loans of $264,000 from December 31, 2024, while loans past due 90 days or more still accruing decreased $95,000 from December 31, 2024.

In the first nine

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

months of 2024, the net increase in nonaccrual loans included an increase in nonaccrual commercial construction and land loans, primarily to three borrowers.

Table X also shows that loans past due 30-89 days totaled $15,906,000 at September 30, 2024, up from $9,275,000 at December 31, 2023.

The net increase includes a multi-family residential loan with a carrying value of $7,650,000 that was 60 days past due at September 30, 2024.

The property that collateralizes this loan is a newly-built apartment complex for which construction was completed to the point of allowing tenants to begin occupying the units in the summer of 2024.

Based on management’s assessment of appraisal and market information, and support provided by a guarantor, there was no individual ACL on this loan at September 30, 2024.

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

Table X also shows that loans past due 30-89 days totaled $8,452,000 at March 31, 2025, up from $5,658,000 at December 31, 2024.

The net increase included an owner-occupied commercial loan with a carrying value of $2,753,000 that was 89 days past due at March 31, 2025.

Over the period 2020-2024 and the first quarter of 2025, each period includes a few large commercial relationships that have required significant monitoring and workout efforts.

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

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

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

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

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

however, the actual losses realized from these relationships could vary materially from the allowances calculated as of March 31, 2025.

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

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(Dollars In Thousands)

Nine Months Ended

September 30,

Three Months Ended

Years Ended December 31,

2 unchanged sentences

Net charge-offs

Provision (credit) for credit losses on loans

Balance, end of year

Net charge-offs (annualized) as a % of average loans

Provision for credit losses on loans

Balance, end of period

Net charge-offs as a % of average loans (annualized)

TABLE IX - COMPONENTS OF THE ALLOWANCE FOR CREDIT LOSSES ON LOANS

(In Thousands)

September 30,

Loans individually evaluated

5 unchanged sentences

Total Allowance

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

PRIOR TO CECL ADOPTION

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Total Allowance

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

TABLE X - PAST DUE LOANS AND NONPERFORMING ASSETS

(Dollars In Thousands)

September 30,

As of December 31,

Loans individually evaluated with a valuation allowance

Loans individually evaluated without a valuation allowance

Collateral dependent loans with a valuation allowance

Collateral dependent loans without a valuation allowance

Purchased credit impaired loans

Total individually evaluated loans

Total collateral dependent loans

Total loans past due 30-89 days and still accruing

9 unchanged sentences

Total nonperforming assets as a % of assets

Nonaccrual loans as a % of loans

Allowance for credit losses as a % of nonaccrual loans

Allowance for credit losses as a % of total loans

2 unchanged sentences

An adequate liquidity position permits the Corporation to pay creditors, compensate for unforeseen deposit fluctuations and fund unexpected loan demand.

The Corporation maintains overnight borrowing facilities with several correspondent banks that provide a source of day-to-day liquidity.

Also, the Corporation maintains borrowing facilities with the Federal Home Loan Bank of Pittsburgh, secured by various mortgage loans.

The Corporation maintains borrowing facilities with the Federal Home Loan Bank of Pittsburgh, secured by various mortgage loans.

In addition, the Corporation maintains overnight borrowing facilities with several correspondent banks that provide a source of day-to-day liquidity.

The Corporation has a line of credit with the Federal Reserve Bank of Philadelphia’s Discount Window.

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

As collateral for the line, the Corporation has pledged available-for-sale debt securities with a carrying value of $19,387,000 at September 30, 2024.

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

As collateral for the line, the Corporation has pledged available-for-sale debt securities with a carrying value of $18,236,000 at March 31, 2025.

The Corporation’s outstanding, available, and total credit facilities at March 31, 2025 and December 31, 2024 are as follows:

(In Thousands)

September 30,

Federal Home Loan Bank of Pittsburgh

2 unchanged sentences

Total credit facilities

At September 30, 2024, the Corporation’s outstanding credit facilities with the Federal Home Loan Bank of Pittsburgh consisted of short-term advances of $10,000,000, long-term borrowings of $174,617,000 and letters of credit totaling $23,241,000.

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

At March 31, 2025, the Corporation’s outstanding credit facilities with the Federal Home Loan Bank of Pittsburgh consisted of long-term borrowings with par values totaling $154,423,000 and letters of credit totaling $22,117,000.

At December 31, 2024, the Corporation’s outstanding credit facilities with the Federal Home Loan Bank of Pittsburgh consisted of long-term borrowings with par values totaling $165,451,000 and letters of credit totaling $23,241,000.

Additional information regarding borrowed funds is included in Note 8 to the unaudited consolidated financial statements.

1 unchanged sentence

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

At September 30, 2024, the carrying value of available-for-sale securities in excess of amounts required to meet pledging or repurchase agreement obligations was $223,060,000.

Deposits totaled $2,135,879,000 at September 30, 2024, up $121,073,000 (6.0%) from $2,014,806,000 at December 31, 2023.

Excluding brokered deposits, adjusted total deposits at September 30, 2024 were higher by $140,391,000 (7.2%) as compared to December 31, 2023.

Brokered deposits totaled $45,051,000 at September 30, 2024, a decrease of $19,318,000 from December 31, 2023.

The increase in total deposits, excluding brokered deposits, included an increase in total deposits from municipal relationships of $64,829,000 to $342,541,000 at September 30, 2024 from $277,712,000 at December 31, 2023, consistent with historic seasonal trends for the Corporation’s Pennsylvania-based municipal depositors.

As shown in the table below, at September 30, 2024, estimated uninsured deposits totaled $655.6 million, or 30.5% of total deposits, as compared to $592.2 million or 29.2% of total deposits at December 31, 2023.

Included in uninsured deposits are deposits collateralized by securities (almost exclusively municipal deposits) totaling $183.3 million at September 30, 2024.

As shown in the table below, total uninsured and uncollateralized deposits amounted to 21.9% of total deposits at September 30, 2024, as compared to 21.7% at December 31, 2023.

As summarized in the table that immediately follows, the Corporation’s highly liquid sources of available funds described above, including unused borrowing capacity with the Federal Home Loan Bank of Pittsburgh, unused availability on the Federal Reserve Bank of Philadelphia’s discount window, available federal funds lines with other banks and unencumbered available-for-sale debt securities totaled $1.1 billion at September 30, 2024.

Available funding from these sources totaled 160.8% of uninsured deposits and 223.2% of total uninsured and uncollateralized deposits at September 30, 2024.

At March 31, 2025, the carrying value of available-for-sale securities in excess of amounts required to meet pledging or repurchase agreement obligations was $270,496,000.

Deposits totaled $2,102,141,000 at March 31, 2025, up $8,232,000 (0.4%) from $2,093,909,000 at December 31, 2024.

Average total deposits of $2,061,182,000 were 3.0% higher for the first quarter 2025, as compared to $2,001,278,000 for the first quarter 2024.

Brokered deposits, consisting mainly of short-term certificates of deposit, totaled $22,022,000 at March 31, 2025, a decrease of $1,999,000 from December 31, 2024.

As shown in the table below, at March 31, 2025, estimated uninsured deposits totaled $621.5 million, or 29.3% of total deposits, as compared to $632.8 million, or 30.0% of total deposits at December 31, 2024.

Included in uninsured deposits are deposits collateralized by securities (almost exclusively municipal deposits) totaling $138.2 million at March 31, 2025.

As shown in the table below, total uninsured and uncollateralized deposits amounted to 22.8% of total deposits at March 31, 2025, as compared to 22.3% at December 31, 2024.

Available funding from these sources totaled 182.7% of uninsured deposits and 234.9% of total uninsured and uncollateralized deposits at March 31, 2025.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Uninsured Deposits Information

September 30,

Total Deposits - C&N Bank

21 unchanged sentences

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

Management believes the Corporation meets the conditions of the Federal Reserve’s small bank holding company policy statement and is therefore excluded from consolidated capital requirements at September 30, 2024;

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

however, management believes the Corporation will probably be subject to the consolidated capital requirements upon completion of the previously described acquisition of SQCF.

Further, at March 31, 2025, C&N Bank remains subject to regulatory capital requirements administered by the federal banking agencies.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

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

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

Details concerning capital ratios at March 31, 2025 and December 31, 2024 are presented below.

Management believes, as of March 31, 2025, that C&N Bank meets all capital adequacy requirements to which it is subject and maintains a capital conservation buffer (described in more detail below) that allows C&N Bank to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers.

For comparison purposes, the Corporation’s capital ratios are presented along with those of C&N Bank in the table below.

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

Further, as reflected in the table below, the Corporation’s and C&N Bank’s capital ratios at March 31, 2025 and December 31, 2024 exceed the Corporation’s Board policy threshold levels.

(Dollars in Thousands)

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Policy Thresholds

September 30, 2024:

March 31, 2025:

Total capital to risk-weighted assets:

9 unchanged sentences

The buffer is measured relative to risk-weighted assets.

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

At March 31, 2025, the minimum risk-based capital ratios, and the capital ratios including the capital conservation buffer, are as follows:

Minimum common equity tier 1 capital ratio

20 unchanged sentences

≤1.25% and >0.625%

At September 30, 2024 , C&N Bank’s Capital Conservation Buffer, determined based on the minimum total capital ratio, was 6.96%.

On September 25, 2023, the Corporation announced a new treasury stock repurchase program.

At March 31, 2025 , C&N Bank’s Capital Conservation Buffer, determined based on the minimum total capital ratio, was 7.23%.

On September 25, 2023, the Corporation announced a treasury stock repurchase program.

Under the program, the Corporation is authorized to repurchase up to 750,000 shares of the Corporation’s common stock, or slightly less than 5% of the Corporation’s issued and outstanding shares at August 4, 2023.

The new program was effective when publicly announced and will continue thereafter until suspended or terminated by the Board of Directors, in its sole discretion.

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

For the three and nine months ended September 30, 2024, 26,034 shares were repurchased for a total cost of $443,000, at an average price of $17.02 per share.

At September 30, 2024, there were 723,966 shares available to be repurchased under the program.

The program was effective when publicly announced and will continue thereafter until suspended or terminated by the Board of Directors, in its sole discretion.

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

For the three months ended March 31, 2025, there were no shares repurchased.

At March 31, 2025, there were 723,966 shares available to be repurchased under the program.

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

4 unchanged sentences

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

The balance in accumulated other comprehensive loss related to unrealized losses on available-for-sale debt securities, net of deferred income tax, amounted to $30,396,000 at September 30, 2024 and $38,878,000 at December 31, 2023.

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

The balance in accumulated other comprehensive loss related to unrealized losses on available-for-sale debt securities, net of deferred income tax, amounted to $33,050,000 at March 31, 2025 and $37,084,000 at December 31, 2024 .

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

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

The securities section of Management’s Discussion and Analysis and Note 5 to the unaudited consolidated financial statements provide additional information concerning management’s evaluation of available-for-sale debt securities for credit losses at September 30, 2024.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis