Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain statements in this section and elsewhere in this quarterly report on Form 10-Q are forward-looking statements 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, 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. Government, particularly related to changes in interest rates
● changes in general economic conditions
● 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
● legislative or regulatory changes
● downturn in demand for loan, deposit and other financial services in the Corporation’s market area
● increased competition from other banks and non-bank providers of financial services
● technological changes and increased technology-related costs
● information security breach or other technology difficulties or failures
● changes in accounting principles, or the application of generally accepted accounting principles
● 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. 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
33
Table of Contents
CITIZENS & NORTHERN CORPORATION – FORM 10-Q
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 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:
Ø Trust revenue of $2,102,000 increased $205,000 consistent with appreciation in the trading prices of many U.S. 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.
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 $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.
34
Table of Contents
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
(Dollars In Thousands,
For the Three Months Ended :
Except Per Share Data)
March 31,
December 31,
September 30,
June 30,
March 31,
(Unaudited)
2025
2024
2024
2024
2024
Interest and dividend income
$
31,709
$
33,329
$
33,087
$
31,326
$
30,336
Interest expense
11,734
12,856
12,931
11,881
11,295
Net interest income
19,975
20,473
20,156
19,445
19,041
Provision (credit) for credit losses
236
(531)
1,207
565
954
Net interest income after provision (credit) for credit losses
19,739
21,004
18,949
18,880
18,087
Noninterest income
7,008
7,547
7,133
7,854
6,675
Noninterest expense
19,043
18,430
18,269
19,255
18,304
Income before income tax provision
7,704
10,121
7,813
7,479
6,458
Income tax provision
1,411
1,947
1,448
1,366
1,152
Net income
$
6,293
$
8,174
$
6,365
$
6,113
$
5,306
Net income attributable to common shares
$
6,242
$
8,103
$
6,311
$
6,066
$
5,267
Basic and diluted earnings per common share
$
0.41
$
0.53
$
0.41
$
0.40
$
0.35
NONINTEREST INCOME
TABLE II – COMPARISON OF NONINTEREST INCOME
(Dollars in Thousands)
Three Months Ended
March 31,
$
%
2025
2024
Change
Change
Trust revenue
$
2,102
$
1,897
$
205
10.8
%
Brokerage and insurance revenue
498
539
(41)
(7.6)
%
Service charges on deposit accounts
1,440
1,318
122
9.3
%
Interchange revenue from debit card transactions
1,036
1,013
23
2.3
%
Net gains from sales of loans
205
191
14
7.3
%
Loan servicing fees, net
138
230
(92)
(40.0)
%
Increase in cash surrender value of life insurance
457
470
(13)
(2.8)
%
Other noninterest income
1,132
1,017
115
11.3
%
Total noninterest income
$
7,008
$
6,675
$
333
5.0
%
35
Table of Contents
CITIZENS & NORTHERN CORPORATION – FORM 10-Q
NONINTEREST EXPENSE
TABLE III - COMPARISON OF NONINTEREST EXPENSE
(Dollars in Thousands)
Three Months Ended
March 31,
$
%
2025
2024
Change
Change
Salaries and employee benefits
$
11,759
$
11,562
$
197
1.7
%
Net occupancy and equipment expense
1,459
1,450
9
0.6
%
Data processing and telecommunications expense
2,071
1,992
79
4.0
%
Automated teller machine and interchange expense
387
487
(100)
(20.5)
%
Pennsylvania shares tax
496
433
63
14.5
%
Professional fees
517
518
(1)
(0.2)
%
Other noninterest expense
2,354
1,862
492
26.4
%
Total noninterest expense
$
19,043
$
18,304
$
739
4.0
%
Additional detailed information concerning fluctuations in the Corporation’s earnings results and other financial information are provided in other sections of Management’s Discussion and Analysis.
CRITICAL ACCOUNTING POLICIES
The presentation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect many of the reported amounts and disclosures. Actual results could differ from these estimates.
Allowance for Credit Losses on Loans – A material estimate that is particularly susceptible to significant change is the determination of the allowance for credit losses (ACL) on loans. The Corporation maintains an ACL on loans which represents management’s estimate of expected net charge-offs over the life of the loans. The ACL includes two primary components: (i) an allowance established on loans which share similar risk characteristics collectively evaluated for credit losses (collective basis), and (ii) an allowance established on loans which do not share similar risk characteristics with any loan segment and which are individually evaluated for credit losses (individual basis). Management considers the determination of the ACL on loans to be critical because it requires significant judgment regarding estimates of expected credit losses based on the Corporation’s historical loss experience, current conditions and economic forecasts. Management’s evaluation is based upon a continuous review of the Corporation’s loans, with consideration given to evaluations resulting from examinations performed by regulatory authorities. Note 6 to the unaudited consolidated financial statements provides an overview of the process management uses for determining the ACL, and additional discussion of the ACL is provided in a separate section of Management’s Discussion and Analysis.
The ACL may increase or decrease due to changes in economic conditions affecting borrowers and macroeconomic variables, including new information regarding existing problem loans, identification of additional problem loans, changes in the fair value of underlying 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.
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 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. Management believes presentation of net interest income on a fully taxable-equivalent basis, which is a non-GAAP financial measure, provides investors with meaningful information for purposes of comparing returns on tax-exempt securities and loans with returns on taxable securities and loans. Accordingly, the amount of net interest income on a fully taxable-equivalent basis reflected in these tables exceed the net interest income amounts presented in the consolidated financial statements. 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.
36
Table of Contents
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
Interest income totaled $31,920,000 in 2025, an increase of $1,389,000, or 4.5% from 2024.
Interest and fees from loans receivable increased $858,000 in 2025 as compared to 2024. 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. The increase in average loans receivable includes the impact of growth in commercial real estate and other commercial loans.
Income from interest-bearing due from banks totaled $721,000 in 2025, an increase of $338,000 from the total for 2024. 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 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 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 $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 $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. The average rate on long-term borrowings was 4.47% in 2025 compared to 4.10% in 2024. Borrowings are classified as long-term within the Tables based on their term at origination or assumption in business combinations.
More information regarding borrowed funds is provided in Note 8 to the unaudited consolidated financial statements.
37
Table of Contents
CITIZENS & NORTHERN CORPORATION – FORM 10-Q
TABLE IV - ANALYSIS OF INTEREST INCOME AND EXPENSE
Three Months Ended
March 31,
Increase/
(In Thousands)
2025
2024
(Decrease)
INTEREST INCOME
Interest-bearing due from banks
$
721
$
383
$
338
Available-for-sale debt securities:
Taxable
2,302
2,136
166
Tax-exempt
648
623
25
Total available-for-sale debt securities
2,950
2,759
191
Loans receivable:
Taxable
27,503
26,703
800
Tax-exempt
728
670
58
Total loans receivable
28,231
27,373
858
Other earning assets
18
16
2
Total Interest Income
31,920
30,531
1,389
INTEREST EXPENSE
Interest-bearing deposits:
Interest checking
2,727
2,806
(79)
Money market
1,981
2,180
(199)
Savings
49
55
(6)
Time deposits
4,835
3,850
985
Total interest-bearing deposits
9,592
8,891
701
Borrowed funds:
Short-term
0
597
(597)
Long-term - FHLB advances
1,789
1,456
333
Senior notes, net
121
120
1
Subordinated debt, net
232
231
1
Total borrowed funds
2,142
2,404
(262)
Total Interest Expense
11,734
11,295
439
Net Interest Income
$
20,186
$
19,236
$
950
Note: Interest income from tax-exempt securities and loans has been adjusted to a fully taxable-equivalent basis (a non-GAAP measure), using the Corporation’s marginal federal income tax rate of 21%. The following table reconciles net interest income under U.S. GAAP as compared to net interest income as adjusted to a fully taxable-equivalent basis.
(In Thousands)
Three Months Ended
March 31,
Increase/
2025
2024
(Decrease)
Net Interest Income Under U.S. GAAP
$
19,975
$
19,041
$
934
Add: fully taxable-equivalent interest income adjustment from tax-exempt securities
75
69
6
Add: fully taxable-equivalent interest income adjustment from tax-exempt loans
136
126
10
Net Interest Income as adjusted to a fully taxable-equivalent basis
$
20,186
$
19,236
$
950
38
Table of Contents
CITIZENS & NORTHERN CORPORATION – FORM 10-Q
TABLE V - Analysis of Average Daily Balances and Rates
(Dollars in Thousands)
Three Months
Three Months
Ended
Rate of
Ended
Rate of
3/31/2025
Return/
3/31/2024
Return/
Average
Cost of
Average
Cost of
Balance
Funds %
Balance
Funds %
EARNING ASSETS
Interest-bearing due from banks
$
67,896
4.31
%
$
32,725
4.71
%
Available-for-sale debt securities, at amortized cost:
Taxable
339,557
2.75
%
347,885
2.47
%
Tax-exempt
111,143
2.36
%
113,363
2.21
%
Total available-for-sale debt securities
450,700
2.65
%
461,248
2.41
%
Loans receivable:
Taxable
1,809,045
6.17
%
1,774,064
6.05
%
Tax-exempt
90,388
3.27
%
85,182
3.16
%
Total loans receivable
1,899,433
6.03
%
1,859,246
5.92
%
Other earning assets
1,777
4.11
%
1,384
4.65
%
Total Earning Assets
2,419,806
5.35
%
2,354,603
5.22
%
Cash
20,920
20,448
Unrealized loss on securities
(44,405)
(50,849)
Allowance for credit losses
(20,341)
(19,484)
Bank-owned life insurance
51,383
54,466
Bank premises and equipment
21,329
21,788
Intangible assets
54,530
54,925
Other assets
71,928
82,879
Total Assets
$
2,575,150
$
2,518,776
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
Interest checking
$
539,244
2.05
%
$
514,905
2.19
%
Money market
355,144
2.26
%
362,864
2.42
%
Savings
195,971
0.10
%
213,278
0.10
%
Time deposits
494,219
3.97
%
429,085
3.61
%
Total interest-bearing deposits
1,584,578
2.45
%
1,520,132
2.35
%
Borrowed funds:
Short-term
1,400
0.00
%
44,642
5.38
%
Long-term - FHLB advances
162,392
4.47
%
142,753
4.10
%
Senior notes, net
14,908
3.29
%
14,840
3.25
%
Subordinated debt, net
24,846
3.79
%
24,731
3.76
%
Total borrowed funds
203,546
4.27
%
226,966
4.26
%
Total Interest-bearing Liabilities
1,788,124
2.66
%
1,747,098
2.60
%
Demand deposits
476,604
481,146
Other liabilities
32,279
29,386
Total Liabilities
2,297,007
2,257,630
Stockholders' equity, excluding accumulated other comprehensive loss
312,427
301,032
Accumulated other comprehensive loss
(34,284)
(39,886)
Total Stockholders' Equity
278,143
261,146
Total Liabilities and Stockholders' Equity
$
2,575,150
$
2,518,776
Interest Rate Spread
2.69
%
2.62
%
Net Interest Income/Earning Assets
3.38
%
3.29
%
Total Deposits (Interest-bearing and Demand)
$
2,061,182
$
2,001,278
(1) Annualized rates of return on tax-exempt securities and loans are presented on a fully taxable-equivalent basis, using the Corporation’s marginal federal income tax rate of 21%.
(2) Nonaccrual loans have been included with loans for the purpose of analyzing net interest earnings.
(3) Rates of return on earning assets and costs of funds are presented on an annualized basis.
39
Table of Contents
CITIZENS & NORTHERN CORPORATION – FORM 10-Q
TABLE VI - ANALYSIS OF VOLUME AND RATE CHANGES
(In Thousands)
Three Months Ended 3/31/2025 vs. 3/31/2024
Change in
Change in
Total
Volume
Rate
Change
EARNING ASSETS
Interest-bearing due from banks
$
373
$
(35)
$
338
Available-for-sale debt securities:
Taxable
(55)
221
166
Tax-exempt
(13)
38
25
Total available-for-sale debt securities
(68)
259
191
Loans receivable:
Taxable
413
387
800
Tax-exempt
38
20
58
Total loans receivable
451
407
858
Other earning assets
4
(2)
2
Total Interest Income
760
629
1,389
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
Interest checking
118
(197)
(79)
Money market
(50)
(149)
(199)
Savings
(6)
0
(6)
Time deposits
595
390
985
Total interest-bearing deposits
657
44
701
Borrowed funds:
Short-term
(294)
(303)
(597)
Long-term - FHLB advances
202
131
333
Senior notes, net
1
0
1
Subordinated debt, net
0
1
1
Total borrowed funds
(91)
(171)
(262)
Total Interest Expense
566
(127)
439
Net Interest Income
$
194
$
756
$
950
(1) Changes in income on tax-exempt securities and loans are presented on a fully taxable-equivalent basis, using the Corporation’s marginal federal income tax rate of 21%.
(2) The change in interest due to both volume and rates has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amount of the change in each.
INCOME TAXES
The income tax provision in interim periods is based on the Corporation’s estimate of the effective tax rate expected to be applicable for the full year. The income tax provision for the 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.
40
Table of Contents
CITIZENS & NORTHERN CORPORATION – FORM 10-Q
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:
March 31,
December 31,
(In Thousands)
2025
2024
Deferred tax assets:
Unrealized holding losses on securities
$
9,324
$
10,459
Allowance for credit losses on loans
4,430
4,400
Purchase accounting adjustments on loans
305
333
Deferred compensation
1,528
1,465
Operating leases liability
900
692
Deferred loan origination fees
674
697
Net operating loss carryforward
393
423
Accrued incentive compensation
150
678
Other deferred tax assets
1,240
1,520
Total deferred tax assets
18,944
20,667
Deferred tax liabilities:
Right-of-use assets from operating leases
900
692
Core deposit intangibles
434
456
Bank premises and equipment
284
290
Defined benefit plans - ASC 835
100
90
Other deferred tax liabilities
32
41
Total deferred tax liabilities
1,750
1,569
Deferred tax asset, net
$
17,194
$
19,098
The Corporation regularly reviews deferred tax assets for recoverability based on history of earnings, expectations for future earnings and expected timing of reversals of temporary differences. Realization of deferred tax assets ultimately depends on the existence of sufficient taxable income.
Management believes the recorded net deferred tax asset at 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 .
SECURITIES
Management continually evaluates several objectives in determining the size, securities mix and other characteristics of the available-for-sale debt securities (investment) portfolio. Key objectives include supporting liquidity needs and maximizing return on earning assets within reasonable risk parameters.
41
Table of Contents
CITIZENS & NORTHERN CORPORATION – FORM 10-Q
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)
March 31, 2025
December 31, 2024
December 31, 2023
December 31, 2022
Amortized
Fair
Amortized
Fair
Amortized
Fair
Amortized
Fair
Cost
Value
Cost
Value
Cost
Value
Cost
Value
Obligations of the U.S. Treasury
$
8,062
7,284
$
8,067
7,118
$
12,325
11,290
$
35,166
$
31,836
Obligations of U.S. Government agencies
9,819
8,923
10,154
9,025
11,119
9,946
25,938
23,430
Bank holding company debt securities
28,959
25,944
28,958
25,246
28,952
23,500
28,945
25,386
Obligations of states and political subdivisions:
Tax-exempt
110,721
99,148
111,995
101,302
113,464
104,199
146,149
132,623
Taxable
51,075
43,587
51,147
42,506
58,720
50,111
68,488
56,812
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities
105,642
97,477
104,378
94,414
105,549
95,405
112,782
99,941
Residential collateralized mortgage obligations
54,923
52,148
53,389
49,894
50,212
46,462
44,868
40,296
Commercial mortgage-backed securities
73,232
65,553
73,470
64,501
76,412
66,682
91,388
79,686
Private label commercial mortgage-backed securities
8,404
8,399
8,365
8,374
8,215
8,160
8,070
8,023
Total Available-for-Sale Debt Securities
$
450,837
$
408,463
$
449,923
$
402,380
$
464,968
$
415,755
$
561,794
$
498,033
Aggregate Unrealized Loss
$
(42,374)
$
(47,543)
$
(49,213)
$
(63,761)
Aggregate Unrealized Loss as a % of Amortized Cost
(9.4)
%
(10.6)
%
(10.6)
%
(11.3)
%
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. 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 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:
● Bank holding company debt securities – All of the Corporation’s holdings of bank holding company debt securities were investment grade and there have been no payment defaults. There were seven securities with face amounts ranging from $3 million to $5 million, including one senior security and six subordinated securities. All of the issuers have publicly traded common stock . At March 31, 2025, the securities have external ratings ranging from BBB-/Baa3 to A-.
42
Table of Contents
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 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; AA – 73%; A – 7%.
● Private label commercial mortgage-backed securities (PLCMBS) – There were two PLCMBS securities, both of which were from the most senior payment (subordination) classes of their respective issuances. These securities were investment grade (rated Aaa), and there have been no payment defaults on these securities.
Based on the results of management’s assessment, there was no ACL required on available-for-sale debt securities in an unrealized loss position at March 31, 2025.
FINANCIAL CONDITION
This section includes information regarding the Corporation’s lending activities or other significant changes or exposures that are not otherwise addressed in Management’s Discussion and Analysis. Significant changes in the average balances of the Corporation’s earning assets and interest-bearing liabilities are described in the Net Interest Income section of Management’s Discussion and Analysis. Other significant balance sheet items, including securities, the allowance for credit losses and stockholders’ equity, are discussed in separate sections of Management’s Discussion and Analysis. 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. Participation loans represent portions of larger commercial transactions for which other institutions are the “lead banks”. Although not the lead bank, the Corporation conducts detailed underwriting and monitoring of participation loan opportunities. Total participation loans outstanding amounted to $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 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. commitment cannot be canceled at any time). The allowance for off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over their estimated lives. The allowance for credit losses for off-balance sheet exposures of $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.
43
Table of Contents
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. Residential mortgages originated and sold through the MPF Xtra program consist primarily of conforming, prime loans sold to the Federal National Mortgage Association (Fannie Mae), a quasi-government entity. The Corporation also originates and sells residential mortgage loans to the secondary market through the MPF Original program, administered by the Federal Home Loan Banks of Pittsburgh and Chicago. Residential mortgages originated and sold through the MPF Original program consist primarily of conforming, prime loans sold to the Federal Home Loan Bank of Pittsburgh.
For loan sales originated under the MPF programs, the Corporation provides customary representations and warranties to investors that specify, among other things, that the loans have been underwritten to the standards established by the investor. The Corporation may be required to repurchase a loan and reimburse a portion of fees received or reimburse the investor for a credit loss incurred on a loan, if it is determined that the representations and warranties have not been met. Such repurchases or reimbursements generally result from an underwriting or documentation deficiency. At 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.
44
Table of Contents
CITIZENS & NORTHERN CORPORATION – FORM 10-Q
TABLE VII - SUMMARY OF LOANS BY TYPE
Summary of Loans by Type
(In Thousands)
March 31,
December 31,
2025
2024
2023
2022
2021
2020
Commercial real estate - non-owner occupied:
Non-owner occupied
$
471,351
$
471,171
$
499,104
$
454,386
$
358,352
$
328,662
Multi-family (5 or more) residential
101,061
105,174
64,076
55,406
49,054
54,893
1-4 Family - commercial purpose
161,292
163,220
174,162
165,805
175,027
198,918
Total commercial real estate - non-owner occupied
733,704
739,565
737,342
675,597
582,433
582,473
Commercial real estate - owner occupied
260,248
261,071
237,246
205,910
196,083
191,075
All other commercial loans:
Commercial and industrial
96,233
96,665
78,832
95,368
118,488
222,923
Commercial lines of credit
128,290
120,078
117,236
141,444
106,338
105,802
Political subdivisions
94,046
94,009
79,031
86,663
75,401
46,295
Commercial construction and land
96,176
92,741
104,123
60,892
59,505
41,000
Other commercial loans
21,434
19,784
20,471
25,710
26,498
29,310
Total all other commercial loans
436,179
423,277
399,693
410,077
386,230
445,330
Residential mortgage loans:
1-4 Family - residential
378,841
383,797
389,262
363,005
327,593
356,532
1-4 Family residential construction
23,407
24,212
24,452
30,577
23,151
18,736
Total residential mortgage
402,248
408,009
413,714
393,582
350,744
375,268
Consumer loans:
Consumer lines of credit (including HELOCs)
49,782
47,196
41,503
36,650
33,522
34,566
All other consumer
16,271
16,730
18,641
18,224
15,837
15,497
Total consumer
66,053
63,926
60,144
54,874
49,359
50,063
Total
1,898,432
1,895,848
1,848,139
1,740,040
1,564,849
1,644,209
Less: allowance for credit losses on loans
(20,172)
(20,035)
(19,208)
(16,615)
(13,537)
(11,385)
Loans, net
$
1,878,260
$
1,875,813
$
1,828,931
$
1,723,425
$
1,551,312
$
1,632,824
Additional details regarding the composition of the non-owner occupied commercial real estate loan portfolio, excluding multi-family (5 or more) residential and 1-4 Family-commercial purpose loans, at March 31, 2025 is as follows:
NON-OWNER OCCUPIED COMMERCIAL REAL ESTATE
(In Thousands)
March 31,
% of Non-owner
% of
2025
Occupied CRE
Total Loans
Office
$
108,625
23.0
%
5.7
%
Retail
90,247
19.1
%
4.8
%
Industrial
81,892
17.4
%
4.3
%
Hotels
69,687
14.8
%
3.7
%
Mixed Use
60,610
12.9
%
3.2
%
Other
60,290
12.8
%
3.2
%
Total Non-owner Occupied CRE Loans
$
471,351
Total Gross Loans
$
1,898,432
45
Table of Contents
CITIZENS & NORTHERN CORPORATION – FORM 10-Q
PROVISION AND ALLOWANCE FOR CREDIT LOSSES
A summary of the provision (credit) for credit losses for the three-month periods ended March 31, 2025 and 2024 is as follows:
(In Thousands)
3 Months
3 Months
Ended
Ended
March 31,
March 31,
2025
2024
Provision for credit losses:
Loans receivable
$
228
$
960
Off-balance sheet exposures
8
(6)
Total provision for credit losses
$
236
$
954
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.
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.
46
Table of Contents
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.
Tables VIII through X present historical data related to loans and the allowance for credit losses.
TABLE VIII - ANALYSIS OF THE ALLOWANCE FOR CREDIT LOSSES ON LOANS
(Dollars In Thousands)
Three Months Ended
March 31,
March 31,
Years Ended December 31,
2025
2024
2024
2023
2022
2021
2020
Balance, beginning of year
$
20,035
$
19,208
$
19,208
$
16,615
$
13,537
$
11,385
$
9,836
Adoption of ASU 2016-13 (CECL)
0
0
0
2,104
0
0
0
Charge-offs
(117)
(180)
(1,716)
(356)
(4,245)
(1,575)
(2,465)
Recoveries
26
35
113
92
68
66
101
Net charge-offs
(91)
(145)
(1,603)
(264)
(4,177)
(1,509)
(2,364)
Provision for credit losses on loans
228
960
2,430
753
7,255
3,661
3,913
Balance, end of period
$
20,172
$
20,023
$
20,035
$
19,208
$
16,615
$
13,537
$
11,385
Net charge-offs as a % of average loans (annualized)
0.02
%
0.03
%
0.09
%
0.01
%
0.26
%
0.09
%
0.16
%
TABLE IX - COMPONENTS OF THE ALLOWANCE FOR CREDIT LOSSES ON LOANS
(In Thousands)
March 31,
December 31,
December 31,
January 1,
2025
2024
2023
2023
Loans individually evaluated
$
189
$
122
$
743
$
751
Loans collectively evaluated:
Commercial real estate - nonowner occupied
12,060
11,964
10,379
9,641
Commercial real estate - owner occupied
2,722
2,722
2,111
1,765
All other commercial loans
3,452
3,361
3,811
3,914
Residential mortgage
1,281
1,356
1,764
2,407
Consumer
468
510
400
241
Total Allowance
$
20,172
$
20,035
$
19,208
$
18,719
PRIOR TO CECL ADOPTION
(In Thousands)
As of December 31,
2022
2021
2020
ASC 310 - Impaired loans - individually evaluated
$
453
$
740
$
925
ASC 450 - Collectively evaluated:
Commercial
10,845
7,553
5,545
Residential mortgage
4,073
4,338
4,091
Consumer
244
235
239
Unallocated
1,000
671
585
Total Allowance
$
16,615
$
13,537
$
11,385
47
Table of Contents
CITIZENS & NORTHERN CORPORATION – FORM 10-Q
TABLE X - PAST DUE LOANS AND NONPERFORMING ASSETS
(Dollars In Thousands)
March 31,
As of December 31,
2025
2024
2023
2022
2021
2020
Collateral dependent loans with a valuation allowance
$
945
$
258
$
7,786
$
3,460
$
6,540
$
8,082
Collateral dependent loans without a valuation allowance
29,854
29,867
3,478
14,871
2,636
2,895
Purchased credit impaired loans
0
0
0
1,027
6,558
6,841
Total collateral dependent loans
$
30,799
$
30,125
$
11,264
$
19,358
$
15,734
$
17,818
Total loans past due 30-89 days and still accruing
$
8,452
$
5,658
$
9,275
$
7,079
$
5,106
$
5,918
Nonperforming assets:
Purchased credit impaired loans
$
0
$
0
$
0
$
1,027
$
6,558
$
6,841
Other nonaccrual loans
24,106
23,842
15,177
22,058
12,441
14,575
Total nonaccrual loans
24,106
23,842
15,177
23,085
18,999
21,416
Total loans past due 90 days or more and still accruing
24
119
3,190
2,237
2,219
1,975
Total nonperforming loans
24,130
23,961
18,367
25,322
21,218
23,391
Foreclosed assets held for sale (real estate)
199
181
478
275
684
1,338
Total nonperforming assets
$
24,329
$
24,142
$
18,845
$
25,597
$
21,902
$
24,729
Total nonperforming loans as a % of loans
1.27
%
1.26
%
0.99
%
1.46
%
1.36
%
1.42
%
Total nonperforming assets as a % of assets
0.93
%
0.92
%
0.75
%
1.04
%
0.94
%
1.10
%
Nonaccrual loans as a % of loans
1.27
%
1.26
%
0.82
%
1.33
%
1.21
%
1.30
%
Allowance for credit losses as a % of nonaccrual loans
83.68
%
84.03
%
79.01
%
71.97
%
71.25
%
53.16
%
Allowance for credit losses as a % of total loans
1.06
%
1.06
%
1.04
%
0.95
%
0.87
%
0.69
%
48
Table of Contents
CITIZENS & NORTHERN CORPORATION – FORM 10-Q
LIQUIDITY
Liquidity is the ability to quickly raise cash at a reasonable cost. An adequate liquidity position permits the Corporation to pay creditors, compensate for unforeseen deposit fluctuations and fund unexpected loan demand.
The Corporation maintains 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 $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:
Outstanding
Available
Total Credit
(In Thousands)
March 31,
December 31,
March 31,
December 31,
March 31,
December 31,
2025
2024
2025
2024
2025
2024
Federal Home Loan Bank of Pittsburgh
$
176,540
$
188,692
$
772,430
$
749,999
$
948,970
$
938,691
Federal Reserve Bank Discount Window
0
0
17,431
18,093
17,431
18,093
Other correspondent banks
0
0
75,000
75,000
75,000
75,000
Total credit facilities
$
176,540
$
188,692
$
864,861
$
843,092
$
1,041,401
$
1,031,784
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.
Additionally, the Corporation uses “RepoSweep” arrangements to borrow funds from commercial banking customers on an overnight basis. If required to raise cash in an emergency situation, the Corporation could sell available-for-sale securities to meet its obligations or use repurchase agreements placed with brokers to borrow funds secured by investment assets. At 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.
As summarized in the table that immediately follows, the Corporation’s highly liquid sources of available funds described above, including unused borrowing capacity with the Federal Home Loan Bank of Pittsburgh, unused availability on the Federal Reserve Bank of Philadelphia’s discount window, available federal funds lines with other banks and unencumbered available-for-sale debt securities, totaled $1.1 billion at March 31, 2025. Available funding from these sources totaled 182.7% of uninsured deposits and 234.9% of total uninsured and uncollateralized deposits at March 31, 2025.
49
Table of Contents
CITIZENS & NORTHERN CORPORATION – FORM 10-Q
Uninsured Deposits Information
March 31,
December 31,
2025
2024
Total Deposits - C&N Bank
$
2,120,521
$
2,111,547
Estimated Total Uninsured Deposits
$
621,542
$
632,804
Portion of Uninsured Deposits that are
Collateralized
138,178
161,958
Uninsured and Uncollateralized Deposits
$
483,364
$
470,846
Uninsured and Uncollateralized Deposits as
a % of Total Deposits
22.8
%
22.3
%
Available Funding from Credit Facilities
$
864,861
$
843,092
Fair Value of Available-for-sale Debt
Securities in Excess of Pledging Obligations
270,496
236,945
Highly Liquid Available Funding
$
1,135,357
$
1,080,037
Highly Liquid Available Funding as a % of
Uninsured Deposits
182.7
%
170.7
%
Highly Liquid Available Funding as a % of
Uninsured and Uncollateralized Deposits
234.9
%
229.4
%
Based on the ample sources of highly liquid funds as described above, management believes the Corporation is well-positioned to meet its short-term and long-term funding obligations.
STOCKHOLDERS’ EQUITY AND CAPITAL ADEQUACY
In August 2018, the Federal Reserve Board issued an interim final rule that expanded applicability of the Board’s small bank holding company policy statement. The interim final rule raised the policy statement’s asset threshold from $1 billion to $3 billion in total consolidated assets for a bank holding company or savings and loan holding company that: (1) is not engaged in significant nonbanking activities; (2) does not conduct significant off-balance sheet activities; and (3) does not have a material amount of debt or equity securities, other than trust-preferred securities, outstanding. The interim final rule provides that, if warranted for supervisory purposes, the Federal Reserve may exclude a company from the threshold increase. Management believes the Corporation meets the conditions of the Federal Reserve’s small bank holding company policy statement and is therefore excluded from consolidated capital requirements at March 31, 2025; 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.
50
Table of Contents
CITIZENS & NORTHERN CORPORATION – FORM 10-Q
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 March 31, 2025 and December 31, 2024 exceed the Corporation’s Board policy threshold levels.
(Dollars in Thousands)
Minimum To Be
Minimum To Maintain
Well
Minimum
Capital Conservation
Capitalized Under
Minimum To Meet
Capital
Buffer at Reporting
Prompt Corrective
the Corporation's
Actual
Requirement
Date
Action Provisions
Policy Thresholds
Amount
Ratio
Amount
Ratio
Amount
Ratio
Amount
Ratio
Amount
Ratio
March 31, 2025:
Total capital to risk-weighted assets:
Consolidated
$
305,546
16.02
%
N/A
N/A
N/A
N/A
N/A
N/A
$
209,755
≥11
%
C&N Bank
289,916
15.23
%
152,276
≥8
%
199,863
≥10.5
%
190,346
≥10
%
209,380
≥11
%
Tier 1 capital to risk-weighted assets:
Consolidated
260,051
13.64
%
N/A
N/A
N/A
N/A
N/A
N/A
171,617
≥9
%
C&N Bank
269,281
14.15
%
114,207
≥6
%
161,794
≥8.5
%
152,276
≥8
%
171,311
≥9
%
Common equity tier 1 capital to risk-weighted assets:
Consolidated
260,051
13.64
%
N/A
N/A
N/A
N/A
N/A
N/A
143,015
≥7.5
%
C&N Bank
269,281
14.15
%
85,656
≥4.5
%
133,242
≥7.0
%
123,725
≥6.5
%
142,759
≥7.5
%
Tier 1 capital to average assets:
Consolidated
260,051
10.17
%
N/A
N/A
N/A
N/A
N/A
N/A
204,512
≥8
%
C&N Bank
269,281
10.59
%
101,711
≥4
%
N/A
N/A
127,139
≥5
%
203,423
≥8
%
December 31, 2024:
Total capital to risk-weighted assets:
Consolidated
$
302,783
15.95
%
N/A
N/A
N/A
N/A
N/A
N/A
$
208,779
≥11
%
C&N Bank
287,721
15.19
%
151,567
≥8
%
198,832
≥10.5
%
189,459
≥10
%
208,405
≥11
%
Tier 1 capital to risk-weighted assets:
Consolidated
257,462
13.56
%
N/A
N/A
N/A
N/A
N/A
N/A
170,819
≥9
%
C&N Bank
267,231
14.10
%
113,675
≥6
%
161,040
≥8.5
%
151,567
≥8
%
170,513
≥9
%
Common equity tier 1 capital to risk-weighted assets:
Consolidated
257,462
13.56
%
N/A
N/A
N/A
N/A
N/A
N/A
142,349
≥7.5
%
C&N Bank
267,231
14.10
%
85,256
≥4.5
%
132,621
≥7.0
%
123,148
≥6.5
%
142,094
≥7.5
%
Tier 1 capital to average assets:
Consolidated
257,462
9.80
%
N/A
N/A
N/A
N/A
N/A
N/A
210,160
≥8
%
C&N Bank
267,231
10.23
%
104,514
≥4
%
N/A
N/A
130,642
≥5
%
209,027
≥8
%
To avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, a banking organization subject to the rule must hold a capital conservation buffer composed of common equity tier 1 capital above its minimum risk-based capital requirements. The buffer is measured relative to risk-weighted assets. At 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
4.5
%
Minimum common equity tier 1 capital ratio plus capital conservation buffer
7.0
%
Minimum tier 1 capital ratio
6.0
%
Minimum tier 1 capital ratio plus capital conservation buffer
8.5
%
Minimum total capital ratio
8.0
%
Minimum total capital ratio plus capital conservation buffer
10.5
%
A banking organization with a buffer greater than 2.5% over the minimum risk-based capital ratios would not be subject to additional limits on dividend payments or discretionary bonus payments; however, a banking organization with a buffer less than 2.5% would be subject to increasingly stringent limitations as the buffer approaches zero. Also, a banking organization is prohibited from making dividend payments or discretionary bonus payments if its eligible retained income is negative in that quarter and its capital conservation buffer ratio was less than 2.5% as of the beginning of that quarter. Eligible net income is defined as net income for the four calendar
51
Table of Contents
CITIZENS & NORTHERN CORPORATION – FORM 10-Q
quarters preceding the current calendar quarter, net of any distributions and associated tax effects not already reflected in net income. A summary of payout restrictions based on the capital conservation buffer is as follows:
Capital Conservation Buffer
Maximum Payout
(as a % of risk-weighted assets)
(as a % of eligible retained income)
Greater than 2.5%
No payout limitation applies
≤2.5% and >1.875%
60
%
≤1.875% and >1.25%
40
%
≤1.25% and >0.625%
20
%
≤0.625%
0
%
At 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 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. In addition, the Corporation and C&N Bank are subject to restrictions on the amount of dividends that may be paid without approval of banking regulatory authorities. Further, although the Corporation is no longer subject to the specific consolidated capital requirements described herein, the Corporation’s ability to pay dividends, repurchase stock or engage in other activities may be limited by the Federal Reserve if the Corporation fails to hold capital commensurate with its overall risk profile.
The Corporation’s total stockholders’ equity is affected by fluctuations in the fair values of available-for-sale debt securities. The difference between amortized cost and fair value of available-for-sale debt securities, net of deferred income tax, is included in accumulated other comprehensive (loss) income within stockholders’ equity. Accumulated other comprehensive (loss) income is excluded from the Bank’s and Corporation’s regulatory capital ratios. The balance in accumulated other comprehensive loss related to unrealized losses on available-for-sale debt securities, net of deferred income tax, amounted to $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 March 31, 2025.
52
Table of Contents
CITIZENS & NORTHERN CORPORATION – FORM 10-Q
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.