UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

⌧ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024

or

◻ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _________________________.

Commission file number: 000-16084

CITIZENS & NORTHERN CORPORATION

(Exact name of Registrant as specified in its charter)

PENNSYLVANIA	23-2451943
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

90-92 MAIN STREET, WELLSBORO, PA 16901

(Address of principal executive offices) (Zip code)

570-724-3411

(Registrant’s telephone number including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock Par Value $1.00	CZNC	NASDAQ Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ⌧ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ◻ Accelerated filer ⌧ Non-accelerated filer ◻ Smaller reporting company ☐ Emerging growth company ◻

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ⌧

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

Common Stock ($1.00 par value) 15,392,444 Shares Outstanding on July 31, 2024

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

CITIZENS & NORTHERN CORPORATION

Index

Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited) – June 30, 2024 and December 31, 2023	Page 3
Consolidated Statements of Income (Unaudited) – Three-month and Six-month Periods Ended June 30, 2024 and 2023	Page 4
Consolidated Statements of Comprehensive Income (Unaudited) – Three-month and Six-month Periods Ended June 30, 2024 and 2023	Page 5
Consolidated Statements of Cash Flows (Unaudited) – Six-month Periods Ended June 30, 2024 and 2023	Page 6
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) – Three-month and Six-month Periods Ended June 30, 2024 and 2023	Page 7
Notes to Unaudited Consolidated Financial Statements	Pages 8 –32
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	Pages 33 –55
Item 3. Quantitative and Qualitative Disclosures About Market Risk	Pages 56 – 58
Item 4. Controls and Procedures	Page 58
Part II. Other Information	Pages 58 – 60
Signatures	Page 61

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share and Per Share Data) (Unaudited)

	June 30,		December 31,
(In Thousands, Except Share and Per Share Data)	2024		2023
ASSETS
Cash and due from banks:
Noninterest-bearing	$	26,539	$	24,855
Interest-bearing		73,873		32,023
Total cash and due from banks		100,412		56,878
Available-for-sale debt securities, at fair value		401,145		415,755
Loans receivable		1,893,207		1,848,139
Allowance for credit losses		(20,382)		(19,208)
Loans, net		1,872,825		1,828,931
Bank-owned life insurance		50,301		63,674
Accrued interest receivable		9,165		9,140
Bank premises and equipment, net		21,966		21,632
Foreclosed assets held for sale		181		478
Deferred tax asset, net		18,375		17,441
Goodwill		52,505		52,505
Core deposit intangibles, net		2,274		2,469
Other assets		63,973		46,681
TOTAL ASSETS	$	2,593,122	$	2,515,584
LIABILITIES
Deposits:
Noninterest-bearing	$	501,774	$	490,554
Interest-bearing		1,557,535		1,524,252
Total deposits		2,059,309		2,014,806
Short-term borrowings		16,874		33,874
Long-term borrowings - FHLB advances		185,649		138,337
Senior notes, net		14,865		14,831
Subordinated debt, net		24,773		24,717
Accrued interest and other liabilities		28,431		26,638
TOTAL LIABILITIES		2,329,901		2,253,203
STOCKHOLDERS' EQUITY
Preferred stock, $1,000 par value; authorized 30,000 shares; $1,000 liquidation
preference per share; no shares issued		0		0
Common stock, par value $1.00 per share; authorized 30,000,000 shares;
issued 16,030,172 and outstanding 15,375,982 at June 30, 2024;
issued 16,030,172 and outstanding 15,295,135 at December 31, 2023		16,030		16,030
Paid-in capital		143,352		144,388
Retained earnings		159,859		157,028
Treasury stock, at cost; 654,190 shares at June 30, 2024 and 735,037
shares at December 31, 2023		(14,659)		(16,628)
Accumulated other comprehensive loss		(41,361)		(38,437)
TOTAL STOCKHOLDERS' EQUITY		263,221		262,381
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY	$	2,593,122	$	2,515,584

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Consolidated Statements of Income

(In Thousands Except Per Share Data) (Unaudited)

	Three Months Ended				Six Months Ended
	June 30,		June 30,		June 30,		June 30,
(In Thousands, Except Per Share Data)	2024		2023		2024		2023
INTEREST INCOME
Interest and fees on loans:
Taxable	$	27,490	$	24,362	$	54,193	$	46,793
Tax-exempt		594		564		1,139		1,135
Income from available-for-sale debt securities:
Taxable		2,137		2,152		4,273		4,363
Tax-exempt		560		610		1,113		1,250
Other interest and dividend income		545		323		944		609
Total interest and dividend income		31,326		28,011		61,662		54,150
INTEREST EXPENSE
Interest on deposits		9,314		5,099		18,205		8,329
Interest on short-term borrowings		360		1,144		957		2,241
Interest on long-term borrowings - FHLB advances		1,855		1,056		3,311		1,737
Interest on senior notes, net		120		119		240		239
Interest on subordinated debt, net		232		231		463		461
Total interest expense		11,881		7,649		23,176		13,007
Net interest income		19,445		20,362		38,486		41,143
Provision for credit losses		565		812		1,519		460
Net interest income after provision for credit losses		18,880		19,550		36,967		40,683
NONINTEREST INCOME
Trust revenue		2,014		1,804		3,911		3,581
Brokerage and insurance revenue		527		365		1,066		795
Service charges on deposit accounts		1,472		1,388		2,790		2,678
Interchange revenue from debit card transactions		1,089		1,010		2,102		2,017
Net gains from sale of loans		235		139		426		213
Loan servicing fees, net		130		190		360		312
Increase in cash surrender value of life insurance		444		152		914		290
Other noninterest income		1,943		1,587		2,960		2,358
Realized (losses) gains on available-for-sale debt securities, net		0		(1)		0		6
Total noninterest income		7,854		6,634		14,529		12,250
NONINTEREST EXPENSE
Salaries and employee benefits		11,023		10,777		22,585		22,204
Net occupancy and equipment expense		1,333		1,323		2,783		2,725
Data processing and telecommunications expense		2,003		1,900		3,995		3,836
Automated teller machine and interchange expense		473		395		960		870
Pennsylvania shares tax		434		404		867		807
Professional fees		552		564		1,070		1,501
Other noninterest expense		3,437		3,359		5,299		5,866
Total noninterest expense		19,255		18,722		37,559		37,809
Income before income tax provision		7,479		7,462		13,937		15,124
Income tax provision		1,366		1,419		2,518		2,828
NET INCOME	$	6,113	$	6,043	$	11,419	$	12,296
EARNINGS PER COMMON SHARE - BASIC	$	0.40	$	0.39	$	0.74	$	0.80
EARNINGS PER COMMON SHARE - DILUTED	$	0.40	$	0.39	$	0.74	$	0.80

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Consolidated Statements of Comprehensive Income

(In Thousands) (Unaudited)

	Three Months Ended				Six Months Ended
	June 30,		June 30,		June 30,		June 30,
(In Thousands)	2024		2023		2024		2023
Net income	$	6,113	$	6,043	$	11,419	$	12,296
Available-for-sale debt securities:
Unrealized holding (losses) gains on available-for-sale debt securities		(812)		(6,663)		(3,586)		2,330
Reclassification adjustment for losses (gains) realized in income		0		1		0		(6)
Other comprehensive (loss) income on available-for-sale debt securities		(812)		(6,662)		(3,586)		2,324
Unfunded pension and postretirement obligations:
Changes from plan amendments and actuarial gains and losses		0		0		394		(8)
Amortization of prior service cost and net actuarial loss and curtailment gain included in net periodic benefit cost		(20)		(14)		(510)		(28)
Other comprehensive loss on pension and postretirement obligations		(20)		(14)		(116)		(36)
Other comprehensive (loss) income before income tax		(832)		(6,676)		(3,702)		2,288
Income tax related to other comprehensive loss (income)		177		1,400		778		(483)
Net other comprehensive (loss) income		(655)		(5,276)		(2,924)		1,805
Comprehensive income	$	5,458	$	767	$	8,495	$	14,101

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands) (Unaudited)

	Six Months Ended
	June 30,		June 30,
(In Thousands)	2024		2023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	11,419	$	12,296
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses		1,519		460
Realized gains on available-for-sale debt securities, net		0		(6)
Net amortization of securities		862		1,038
Increase in cash surrender value of life insurance		(914)		(290)
Depreciation and amortization of bank premises and equipment		1,054		1,104
Net accretion of purchase accounting adjustments		(128)		(158)
Stock-based compensation		716		695
Deferred income taxes		(156)		153
Decrease in fair value of servicing rights		43		95
Net gains from sale of loans		(426)		(213)
Origination of loans held for sale		(13,829)		(6,552)
Proceeds from sales of loans held for sale		13,033		6,768
Increase in accrued interest receivable and other assets		(300)		(351)
Increase in accrued interest payable and other liabilities		1,363		2,291
Other		106		13
Net Cash Provided by Operating Activities		14,362		17,343
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of certificates of deposit		250		1,750
Proceeds from sales of available-for-sale debt securities		0		18,357
Proceeds from calls and maturities of available-for-sale debt securities		18,174		35,273
Purchase of available-for-sale debt securities		(8,012)		(2,000)
Redemption of Federal Home Loan Bank of Pittsburgh stock		5,241		12,975
Purchase of Federal Home Loan Bank of Pittsburgh stock		(6,491)		(13,577)
Purchase of Federal Reserve Bank stock		(24)		0
Net increase in loans		(45,120)		(73,725)
Purchase of premises and equipment		(1,404)		(551)
Proceeds from sale of foreclosed assets		293		0
Other		28		109
Net Cash Used in Investing Activities		(37,065)		(21,389)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits		44,507		12,545
Net decrease in short-term borrowings		(17,000)		(48,631)
Proceeds from long-term borrowings - FHLB advances		59,386		60,000
Repayments of long-term borrowings - FHLB advances		(12,055)		(7,052)
Purchases of treasury stock		(595)		(6,500)
Common dividends paid		(7,756)		(7,852)
Net Cash Provided by Financing Activities		66,487		2,510
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		43,784		(1,536)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		52,778		47,698
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	96,562	$	46,162
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Decrease in accrued purchase of available-for-sale debt securities	$	0	$	(2,000)
Assets acquired through foreclosure of real estate loans	$	0	$	184
Increase in other assets from surrender of bank-owned life insurance	$	14,289	$	0
Leased assets obtained in exchange for new operating lease liabilities	$	187		0
Interest paid	$	22,399	$	12,379
Income taxes paid	$	2,716	$	2,807

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Consolidated Statements of Changes in Stockholders’ Equity

(In Thousands Except Share and Per Share Data) (Unaudited)

									Accumulated
									Other
	Common	Treasury	Common		Paid-in		Retained		Comprehensive		Treasury
Three Months Ended June 30, 2024	Shares	Shares	Stock		Capital		Earnings		Loss		Stock		Total
Balance, March 31, 2024	16,030,172	652,107	$	16,030	$	143,016	$	158,051	$	(40,706)	$	(14,735)	$	261,656
Net income								6,113						6,113
Other comprehensive loss, net										(655)				(655)
Cash dividends declared on common stock, $.28 per share								(4,305)						(4,305)
Shares issued for dividend reinvestment plan		(21,902)				(90)						495		405
Forfeiture of restricted stock		1,489				36						(36)		0
Stock-based compensation expense						390								390
Treasury stock purchases		22,496										(383)		(383)
Balance, June 30, 2024	16,030,172	654,190	$	16,030	$	143,352	$	159,859	$	(41,361)	$	(14,659)	$	263,221
Three Months Ended June 30, 2023
Balance, March 31, 2023	16,030,172	545,137	$	16,030	$	143,395	$	151,990	$	(42,797)	$	(13,050)	$	255,568
Net income								6,043						6,043
Other comprehensive loss, net										(5,276)				(5,276)
Cash dividends declared on common stock, $.28 per share								(4,308)						(4,308)
Shares issued for dividend reinvestment plan		(22,992)				(117)						524		407
Forfeiture of restricted stock		2,744				65						(65)		0
Stock-based compensation expense						318								318
Treasury stock purchases		237,187										(4,635)		(4,635)
Balance, June 30, 2023	16,030,172	762,076	$	16,030	$	143,661	$	153,725	$	(48,073)	$	(17,226)	$	248,117

									Accumulated
									Other
	Common	Treasury	Common		Paid-in		Retained		Comprehensive		Treasury
Six Months Ended June 30, 2024	Shares	Shares	Stock		Capital		Earnings		Loss		Stock		Total
Balance, December 31, 2023	16,030,172	735,037	$	16,030	$	144,388	$	157,028	$	(38,437)	$	(16,628)	$	262,381
Net income								11,419						11,419
Other comprehensive loss, net										(2,924)				(2,924)
Cash dividends declared on common stock, $.56 per share								(8,588)						(8,588)
Shares issued for dividend reinvestment plan		(42,788)				(156)						968		812
Restricted stock granted		(72,860)				(1,646)						1,646		0
Forfeiture of restricted stock		2,076				50						(50)		0
Stock-based compensation expense						716								716
Purchase of restricted stock for tax withholding		10,229										(212)		(212)
Treasury stock purchases		22,496										(383)		(383)
Balance, June 30, 2024	16,030,172	654,190	$	16,030	$	143,352	$	159,859	$	(41,361)	$	(14,659)	$	263,221
Six Months Ended June 30, 2023
Balance, December 31, 2022	16,030,172	511,353	$	16,030	$	143,950	$	151,743	$	(49,878)	$	(12,520)	$	249,325
Adoption of ASU 2016-13 (CECL)								(1,652)						(1,652)
Net income								12,296						12,296
Other comprehensive income, net										1,805				1,805
Cash dividends declared on common stock, $.56 per share								(8,662)						(8,662)
Shares issued for dividend reinvestment plan		(40,687)				(146)						956		810
Restricted stock granted		(53,788)				(1,314)						1,314		0
Forfeiture of restricted stock		21,966				476						(476)		0
Stock-based compensation expense						695								695
Purchase of restricted stock for tax withholding		8,615										(203)		(203)
Treasury stock purchases		314,617										(6,297)		(6,297)
Balance, June 30, 2023	16,030,172	762,076	$	16,030	$	143,661	$	153,725	$	(48,073)	$	(17,226)	$	248,117

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Notes to Unaudited Consolidated Financial Statements

1. BASIS OF INTERIM PRESENTATION AND STATUS OF RECENT ACCOUNTING PRONOUNCEMENTS

The consolidated financial statements include the accounts of Citizens & Northern Corporation and its subsidiaries, Citizens & Northern Bank (“C&N Bank”), Bucktail Life Insurance Company and Citizens & Northern Investment Corporation (collectively, “Corporation”). The consolidated financial statements also include C&N Bank’s wholly-owned subsidiaries, C&N Financial Services, LLC and Northern Tier Holding LLC. C&N Bank is the sole member of C&N Financial Services, LLC and Northern Tier Holding LLC. All material intercompany balances and transactions have been eliminated in consolidation.

The consolidated financial information included herein, except the consolidated balance sheet dated December 31, 2023, is unaudited. Such information reflects all adjustments (consisting solely of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations, comprehensive income, cash flows and changes in stockholders’ equity for the interim periods; however, the information does not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for a complete set of financial statements.

Operating results reported for the six-month period ended June 30, 2024 might not be indicative of the results for the year ending December 31, 2024. The Corporation evaluates subsequent events through the date of filing with the Securities and Exchange Commission.

RECENT ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board (FASB) issues Accounting Standard Updates (ASUs) to communicate changes to the FASB Accounting Standard Codification (ASC). This section provides a summary description of recent ASUs that have significant implications (elected or required) within the consolidated financial statements, or that management expects may have a significant impact on financial statements issued in the foreseeable future.

CECL ADOPTION

On January 1, 2023, the Corporation adopted ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASC 326). This standard replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. The Corporation adopted ASC 326 using the modified retrospective approach for all financial assets measured at amortized cost and off-balance sheet credit exposures. The following table illustrates the impact on the allowance for credit losses from the adoption of ASC 326:

	As Reported
	Under		Pre-ASC 326		Impact of
	ASC 326		Adoption		ASC 326
(In Thousands)	January 1, 2023		December 31, 2022		Adoption
Loans receivable	$	1,740,846	$	1,740,040	$	806
Allowance for credit losses on loans		18,719		16,615		2,104
Allowance for credit losses on off-balance sheet exposures (included in accrued interest and other liabilities)		1,218		425		793
Deferred tax asset, net		21,323		20,884		439
Retained earnings		150,091		151,743		(1,652)

Recent Issued but Not Yet Effective Accounting Pronouncements

In December 2023, the FASB issued ASU  2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures which improves the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction.  ASU No. 2023-09 is effective for public business entities

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

for annual periods beginning after December 15, 2024.  The ASU may be adopted on a prospective or retrospective basis and early adoption is permitted. The Corporation is currently evaluating the impact the new guidance will have on disclosures related to income taxes.

2. PER SHARE DATA

Basic earnings per common share are calculated using the two-class method to determine income attributable to common shareholders. Unvested restricted stock awards that contain nonforfeitable rights to dividends are considered participating securities under the two-class method. Distributed dividends and an allocation of undistributed net income to participating securities reduce the amount of income attributable to common shareholders. Income attributable to common shareholders is then divided by weighted-average common shares outstanding for the period to determine basic earnings per common share.

Diluted earnings per common share are calculated under the more dilutive of either the treasury method or the two-class method. Diluted earnings per common share is computed using weighted-average common shares outstanding, plus weighted-average common shares available from the exercise of all dilutive stock options, less the number of shares that could be repurchased with the proceeds of stock option exercises based on the average share price of the Corporation’s common stock during the period.

(In Thousands, Except Share and Per Share Data)	Three Months Ended				Six Months Ended
	June 30,		June 30,		June 30,		June 30,
	2024		2023		2024		2023
Basic
Net income	$	6,113	$	6,043	$	11,419	$	12,296
Less: Dividends and undistributed earnings allocated to participating securities		(47)		(47)		(86)		(99)
Net income attributable to common shares	$	6,066	$	5,996	$	11,333	$	12,197
Basic weighted-average common shares outstanding		15,264,533		15,231,505		15,247,557		15,320,101
Basic earnings per common share (a)	$	0.40	$	0.39	$	0.74	$	0.80
Diluted
Net income attributable to common shares	$	6,066	$	5,996	$	11,333	$	12,197
Basic weighted-average common shares outstanding		15,264,533		15,231,505		15,247,557		15,320,101
Dilutive effect of potential common stock arising from stock options		0		0		0		265
Diluted weighted-average common shares outstanding		15,264,533		15,231,505		15,247,557		15,320,366
Diluted earnings per common share (a)	$	0.40	$	0.39	$	0.74	$	0.80
Weighted-average nonvested restricted shares outstanding		118,605		120,300		115,844		124,343

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

Anti-dilutive stock options are excluded from earnings per share calculations. There were no anti-dilutive instruments outstanding in the three-month and six-month periods ended June 30, 2024. The weighted-average number of anti-dilutive instruments outstanding was 8,988 in the three-month period ended June 30, 2023 and 0 in the six-month period ended June 30, 2023.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

3. COMPREHENSIVE INCOME

Comprehensive income is the total of (1) net income, and (2) all other changes in equity from non-stockholder sources, which are referred to as other comprehensive income (loss). The components of other comprehensive income (loss), and the related tax effects, are as follows:

(In Thousands)	Before-Tax		Income Tax		Net-of-Tax
	Amount		Effect		Amount
Three Months Ended June 30, 2024
Available-for-sale debt securities:
Unrealized holding losses on available-for-sale debt securities	$	(812)	$	173	$	(639)
Reclassification adjustment for (gains) realized in income		0		0		0
Other comprehensive loss from available-for-sale debt securities		(812)		173		(639)
Unfunded pension and postretirement obligations:
Amortization of prior service cost and net actuarial loss included in net periodic benefit cost		(20)		4		(16)
Other comprehensive loss on unfunded retirement obligations		(20)		4		(16)
Total other comprehensive loss	$	(832)	$	177	$	(655)

(In Thousands)	Before-Tax		Income Tax		Net-of-Tax
	Amount		Effect		Amount
Three Months Ended June 30, 2023
Available-for-sale debt securities:
Unrealized holding losses on available-for-sale debt securities	$	(6,663)	$	1,397	$	(5,266)
Reclassification adjustment for losses realized in income		1		0		1
Other comprehensive loss from available-for-sale debt securities		(6,662)		1,397		(5,265)
Unfunded pension and postretirement obligations:
Amortization of prior service cost and net actuarial loss included in net periodic benefit cost		(14)		3		(11)
Other comprehensive loss on unfunded retirement obligations		(14)		3		(11)
Total other comprehensive loss	$	(6,676)	$	1,400	$	(5,276)

(In Thousands)	Before-Tax		Income Tax		Net-of-Tax
	Amount		Effect		Amount
Six Months Ended June 30, 2024
Available-for-sale debt securities:
Unrealized holding losses on available-for-sale debt securities	$	(3,586)		754	$	(2,832)
Reclassification adjustment for (gains) realized in income		0		0		0
Other comprehensive loss from available-for-sale debt securities		(3,586)		754		(2,832)
Unfunded pension and postretirement obligations:
Changes from plan amendments and actuarial gains and losses		394		(83)		311
Amortization of prior service cost and net actuarial loss and curtailment gain included in net periodic benefit cost		(510)		107		(403)
Other comprehensive loss on unfunded retirement obligations		(116)		24		(92)
Total other comprehensive loss	$	(3,702)	$	778	$	(2,924)

(In Thousands)	Before-Tax		Income Tax		Net-of-Tax
	Amount		Effect		Amount
Six Months Ended June 30, 2023
Available-for-sale debt securities:
Unrealized holding gains on available-for-sale debt securities	$	2,330	$	(491)	$	1,839
Reclassification adjustment for (gains) realized in income		(6)		1		(5)
Other comprehensive income from available-for-sale debt securities		2,324		(490)		1,834
Unfunded pension and postretirement obligations:
Changes from plan amendments and actuarial gains and losses		(8)		1		(7)
Amortization of prior service cost and net actuarial loss included in net periodic benefit cost		(28)		6		(22)
Other comprehensive income on unfunded retirement obligations		(36)		7		(29)
Total other comprehensive income	$	2,288	$	(483)	$	1,805

10

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

The amounts shown in the table immediately above are included in the following line items in the consolidated statements of income:

	Affected Line Item in the
Description	Consolidated Statements of Income
Reclassification adjustment for (gains) losses realized in income (before-tax)	Realized (losses) gains on available-for-sale debt securities, net
Amortization of prior service cost and net actuarial loss and curtailment gain included in net periodic benefit cost (before-tax)	Other noninterest expense
Income tax effect	Income tax provision

Changes in the components of accumulated other comprehensive (loss) income are as follows and are presented net of tax:

(In Thousands)	Unrealized				Accumulated
	(Losses)		Unfunded		Other
	Gains		Retirement		Comprehensive
	on Securities		Obligations		(Loss) Income
Three Months Ended June 30, 2024
Balance, beginning of period	$	(41,071)	$	365	$	(40,706)
Other comprehensive loss during three months ended June 30, 2024		(639)		(16)		(655)
Balance, end of period	$	(41,710)	$	349	$	(41,361)
Three Months Ended June 30, 2023
Balance, beginning of period	$	(43,271)	$	474	$	(42,797)
Other comprehensive loss during three months ended June 30, 2023		(5,265)		(11)		(5,276)
Balance, end of period	$	(48,536)	$	463	$	(48,073)

(In Thousands)	Unrealized				Accumulated
	(Losses)		Unfunded		Other
	Gains		Retirement		Comprehensive
	on Securities		Obligations		(Loss) Income
Six Months Ended June 30, 2024
Balance, beginning of period	$	(38,878)	$	441	$	(38,437)
Other comprehensive loss during six months ended June 30, 2024		(2,832)		(92)		(2,924)
Balance, end of period	$	(41,710)	$	349	$	(41,361)
Six Months Ended June 30, 2023
Balance, beginning of period	$	(50,370)	$	492	$	(49,878)
Other comprehensive income during six months ended June 30, 2023		1,834		(29)		1,805
Balance, end of period	$	(48,536)	$	463	$	(48,073)

4. CASH AND DUE FROM BANKS

Cash and due from banks at June 30, 2024 and December 31, 2023 include the following:

(In Thousands)	June 30,		December 31,
	2024		2023
Cash and cash equivalents	$	96,562	$	52,778
Certificates of deposit		3,850		4,100
Total cash and due from banks	$	100,412	$	56,878

11

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Certificates of deposit are issues by U.S. banks with original maturities greater than three months. Each certificate of deposit is fully FDIC-insured. The Corporation maintains cash and cash equivalents with certain financial institutions in excess of the FDIC insurance limit.

5. SECURITIES

Amortized cost and fair value of available-for-sale debt securities at June 30, 2024 and December 31, 2023 are summarized as follows:

(In Thousands)	June 30, 2024
			Gross		Gross
			Unrealized		Unrealized
	Amortized		Holding		Holding		Fair
	Cost		Gains		Losses		Value
Obligations of the U.S. Treasury	$	10,323	$	0	$	(1,066)	$	9,257
Obligations of U.S. Government agencies		10,582		0		(1,232)		9,350
Bank holding company debt securities		28,955		0		(5,298)		23,657
Obligations of states and political subdivisions:
Tax-exempt		113,659		247		(11,886)		102,020
Taxable		56,294		0		(8,813)		47,481
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		104,708		0		(10,834)		93,874
Residential collateralized mortgage obligations		46,623		0		(4,058)		42,565
Commercial mortgage-backed securities		74,510		0		(9,792)		64,718
Private label commercial mortgage-backed securities		8,290		0		(67)		8,223
Total available-for-sale debt securities	$	453,944	$	247	$	(53,046)	$	401,145

(In Thousands)	December 31, 2023
			Gross		Gross
			Unrealized		Unrealized
	Amortized		Holding		Holding		Fair
	Cost		Gains		Losses		Value
Obligations of the U.S. Treasury	$	12,325	$	0	$	(1,035)	$	11,290
Obligations of U.S. Government agencies		11,119		0		(1,173)		9,946
Bank holding company debt securities		28,952		0		(5,452)		23,500
Obligations of states and political subdivisions:
Tax-exempt		113,464		311		(9,576)		104,199
Taxable		58,720		0		(8,609)		50,111
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		105,549		40		(10,184)		95,405
Residential collateralized mortgage obligations		50,212		0		(3,750)		46,462
Commercial mortgage-backed securities		76,412		0		(9,730)		66,682
Private label commercial mortgage-backed securities		8,215		0		(55)		8,160
Total available-for-sale debt securities	$	464,968	$	351	$	(49,564)	$	415,755

The following table presents gross unrealized losses and fair value of available-for-sale debt securities with unrealized loss positions aggregated by length of time that individual securities have been in a continuous unrealized loss position at June 30, 2024 and December 31, 2023 for which an allowance for credit losses has not been recorded:

12

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

June 30, 2024	Less Than 12 Months				12 Months or More				Total
(In Thousands)	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
Obligations of the U.S. Treasury	$	0	$	0	$	9,257		(1,066)	$	9,257	$	(1,066)
Obligations of U.S. Government agencies		0		0		9,350		(1,232)		9,350		(1,232)
Bank holding company debt securities		0		0		23,657		(5,298)		23,657		(5,298)
Obligations of states and political subdivisions:
Tax-exempt		1,921		(23)		95,837		(11,863)		97,758		(11,886)
Taxable		0		0		47,481		(8,813)		47,481		(8,813)
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		13,586		(111)		80,288		(10,723)		93,874		(10,834)
Residential collateralized mortgage obligations		12,945		(160)		29,620		(3,898)		42,565		(4,058)
Commercial mortgage-backed securities		0		0		64,718		(9,792)		64,718		(9,792)
Private label commercial mortgage-backed securities		0		0		8,223		(67)		8,223		(67)
Total	$	28,452	$	(294)	$	368,431	$	(52,752)	$	396,883	$	(53,046)

December 31, 2023	Less Than 12 Months				12 Months or More				Total
(In Thousands)	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
Obligations of the U.S. Treasury	$	0	$	0	$	11,290	$	(1,035)	$	11,290	$	(1,035)
Obligations of U.S. Government agencies		1,595		(9)		8,351		(1,164)		9,946		(1,173)
Bank holding company debt securities		0		0		23,500		(5,452)		23,500		(5,452)
Obligations of states and political subdivisions:
Tax-exempt		3,257		(24)		96,758		(9,552)		100,015		(9,576)
Taxable		0		0		49,961		(8,609)		49,961		(8,609)
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		3,334		(27)		84,297		(10,157)		87,631		(10,184)
Residential collateralized mortgage obligations		3,588		(2)		32,808		(3,748)		36,396		(3,750)
Commercial mortgage-backed securities		2,327		(16)		64,355		(9,714)		66,682		(9,730)
Private label commercial mortgage-backed securities		8,160		(55)		0		0		8,160		(55)
Total	$	22,261	$	(133)	$	371,320	$	(49,431)	$	393,581	$	(49,564)

Gross realized gains and losses from available-for-sale debt securities were as follows:

(In Thousands)	Three Months Ended				Six Months Ended
	June 30,		June 30,		June 30,		June 30,
	2024		2023		2024		2023
Gross realized gains from sales	$	0	$	9	$	0	$	89
Gross realized losses from sales		0		(10)		0		(83)
Net realized (losses) gains	$	0	$	(1)	$	0	$	6

13

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

The amortized cost and fair value of available-for-sale debt securities by contractual maturity are shown in the following table as of June 30, 2024. Actual maturities may differ from contractual maturities because counterparties may have the right to call or prepay obligations with or without call or prepayment penalties.

(In Thousands)	June 30, 2024
	Amortized		Fair
	Cost		Value
Due in one year or less	$	10,983	$	10,847
Due from one year through five years		29,973		27,736
Due from five years through ten years		77,475		67,081
Due after ten years		101,382		86,101
Sub-total		219,813		191,765
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		104,708		93,874
Residential collateralized mortgage obligations		46,623		42,565
Commercial mortgage-backed securities		74,510		64,718
Private label commercial mortgage-backed securities		8,290		8,223
Total	$	453,944	$	401,145

The Corporation’s mortgage-backed securities and collateralized mortgage obligations have stated maturities that may differ from actual maturities due to borrowers’ ability to prepay obligations. Cash flows from such investments are dependent upon the performance of the underlying mortgage loans and are generally influenced by the level of interest rates. In the table above, mortgage-backed securities and collateralized mortgage obligations are shown in one period.

Investment securities carried at $178,513,000 at June 30, 2024 and $232,437,000 at December 31, 2023 were pledged as collateral for public deposits, trusts and certain other deposits as provided by law. See Note 8 for information concerning securities pledged to secure borrowing arrangements.

A summary of information management considered in evaluating debt and equity securities for credit losses at June 30, 2024 and December 31, 2023 is provided below.

Debt Securities

As reflected in the table above, gross unrealized holding losses on available-for-sale debt securities totaled $53,046,000 at June 30, 2024 and $49,564,000 at December 31, 2023. At June 30, 2024, the Corporation does not have the intent to sell, nor is it more likely than not it will be required to sell, these securities before it is able to recover the amortized cost basis. The unrealized holding losses were consistent with significant increases in market interest rates that have occurred subsequent to the purchase of most of the securities.

At June 30, 2024 and December 31, 2023, management performed an assessment for possible credit losses of the Corporation’s debt securities on an issue-by-issue basis, relying on information obtained from various sources, including publicly available financial data, ratings by external agencies, brokers and other sources. At June 30, 2024 and December 31, 2023, all of the Corporation’s holdings of bank holding company debt securities, obligations of states and political subdivisions and private label commercial mortgage-backed securities were investment grade and there have been no payment defaults.

Based on the results of the assessment, there was no allowance for credit losses (“ACL”) required on available-for-sale debt securities in an unrealized loss position at June 30, 2024 and December 31, 2023.

Equity Securities

C&N Bank is a member of the Federal Home Loan Bank of Pittsburgh (FHLB-Pittsburgh), which is one of 11 regional Federal Home Loan Banks. As a member, C&N Bank is required to purchase and maintain stock in FHLB-Pittsburgh. There is no active market for

14

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

FHLB-Pittsburgh stock, and it must ordinarily be redeemed by FHLB-Pittsburgh in order to be liquidated. C&N Bank’s investment in FHLB-Pittsburgh stock, included in other assets in the consolidated balance sheets, was $16,464,000 at June 30, 2024 and $15,214,000 at December 31, 2023. The Corporation evaluated its holding of FHLB-Pittsburgh stock for impairment and deemed the stock to not be impaired at June 30, 2024 and December 31, 2023. In making this determination, management concluded that recovery of total outstanding par value, which equals the carrying value, is expected. The decision was based on review of financial information that FHLB-Pittsburgh has made publicly available.

In July 2023, C&N Bank became a member of the Federal Reserve System.  As a member, C&N Bank is required to purchase and maintain stock in the Federal Reserve Bank of Philadelphia. There is no active market for Federal Reserve Bank stock, and it must ordinarily be redeemed by the Federal Reserve Bank of Philadelphia in order to be liquidated. C&N Bank’s investment in Federal Reserve Bank stock, included in other assets in the consolidated balance sheets, was $6,276,000 at June 30, 2024 and $6,252,000 at December 31, 2023.

The Corporation has a marketable equity security included in other assets in the consolidated balance sheets with a carrying value of $858,000 at June 30, 2024 and $871,000 December 31, 2023, consisting exclusively of one mutual fund. There was an unrealized loss on the mutual fund of $142,000 at June 30, 2024 and $129,000 at December 31, 2023. Changes in the unrealized gains or losses on this security, which are included in other noninterest income in the consolidated statements of income, were a loss of $9,000 in the second quarter 2024, a loss of $14,000 in the second quarter 2023, a loss of $13,000 in the six-month period ended June 30, 2024 and no net gain or loss in the six-month period ended June 30, 2023.

6. LOANS AND ALLOWANCE FOR CREDIT LOSSES

Loans receivable at June 30, 2024 and December 31, 2023 are summarized as follows:

Summary of Loans by Type

(In Thousands)

	June 30,		December 31,
	2024		2023
Commercial real estate - non-owner occupied	$	723,964	$	737,342
Commercial real estate - owner occupied		267,169		237,246
All other commercial loans		431,106		399,693
Residential mortgage loans		409,824		413,714
Consumer loans		61,144		60,144
Total		1,893,207		1,848,139
Less: allowance for credit losses on loans		(20,382)		(19,208)
Loans, net	$	1,872,825	$	1,828,931

In the table above, outstanding loan balances are presented net of deferred loan origination fees, net, of $4,475,000 at June 30, 2024 and $4,459,000 at December 31, 2023.

The Corporation grants loans to individuals as well as commercial and tax-exempt entities. Commercial, residential and personal loans are made to customers geographically concentrated in Northcentral Pennsylvania, the Southern tier of New York State, Southeastern Pennsylvania and Southcentral Pennsylvania. Although the Corporation has a diversified loan portfolio, a significant portion of its debtors’ ability to honor their contracts is dependent on the local economic conditions within the region.

15

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

The following tables presents an analysis of past due loans as of June 30, 2024 and December 31, 2023:

(In Thousands)	As of June 30, 2024
	Past Due		Past Due
	30-89		90+		Nonaccrual		Current		Total
	Days		Days		Loans		Loans		Loans
Commercial real estate - non-owner occupied	$	0	$	0	$	8,527	$	715,437	$	723,964
Commercial real estate - owner occupied		470		0		2,506		264,193		267,169
All other commercial loans		63		0		4,147		426,896		431,106
Residential mortgage loans		1,967		0		4,077		403,780		409,824
Consumer loans		588		20		322		60,214		61,144
Total	$	3,088	$	20	$	19,579	$	1,870,520	$	1,893,207

(In Thousands)	As of December 31, 2023
	Past Due		Past Due
	30-89		90+		Nonaccrual		Current		Total
	Days		Days		Loans		Loans		Loans
Commercial real estate - non-owner occupied	$	2,215	$	126	$	8,412	$	726,589	$	737,342
Commercial real estate - owner occupied		849		0		1,575		234,822		237,246
All other commercial loans		229		2,593		1,323		395,548		399,693
Residential mortgage loans		5,365		326		3,627		404,396		413,714
Consumer loans		617		145		240		59,142		60,144
Total	$	9,275	$	3,190	$	15,177	$	1,820,497	$	1,848,139

The Corporation uses an internal risk rating system. Under the risk rating system, the Corporation classifies problem or potential problem loans as “Special Mention,” “Substandard,” or “Doubtful” on the basis of currently existing facts, conditions and values. Loans that do not currently expose the Corporation to sufficient risk to warrant classification as Substandard or Doubtful, but possess weaknesses that deserve management’s close attention, are deemed to be Special Mention. Substandard loans include those characterized by the distinct possibility that the Corporation will sustain some loss if the deficiencies are not corrected. Loans classified as Doubtful have all the weaknesses inherent in those classified as Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Risk ratings are updated any time that conditions or the situation warrants. Loans not classified are included in the “Pass” rows in the table that follows.

16

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

The following table presents the recorded investment in loans by credit quality indicators by year of origination as of June 30, 2024:

(In Thousands)	Term Loans by Year of Origination
	2024		2023		2022		2021		2020		Prior		Revolving		Total
Commercial real estate - non-owner occupied
Pass	$	22,989	$	97,139	$	158,754	$	85,497	$	54,040	$	266,691	$	0	$	685,110
Special Mention		0		0		18,656		2,388		0		5,719		0		26,763
Substandard		0		0		64		0		0		12,027		0		12,091
Doubtful		0		0		0		0		0		0		0		0
Total commercial real estate - non-owner occupied	$	22,989	$	97,139	$	177,474	$	87,885	$	54,040	$	284,437	$	0	$	723,964
Year-to-date gross charge-offs	$	0	$	0	$	0	$	0	$	0	$	117	$	0	$	117
Commercial real estate - owner occupied
Pass	$	19,381	$	34,188	$	53,368	$	50,680	$	12,129	$	85,680	$	0	$	255,426
Special Mention		0		0		0		0		0		165		0		165
Substandard		0		5,216		738		2,467		0		3,157		0		11,578
Doubtful		0		0		0		0		0		0		0		0
Total commercial real estate - owner occupied	$	19,381	$	39,404	$	54,106	$	53,147	$	12,129	$	89,002	$	0	$	267,169
Year-to-date gross charge-offs	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
All other commercial loans
Pass	$	31,494	$	66,797	$	78,764	$	51,753	$	24,537	$	29,004	$	120,166	$	402,515
Special Mention		411		0		9,039		0		31		310		392		10,183
Substandard		0		0		1,242		5,146		325		1,387		10,308		18,408
Doubtful		0		0		0		0		0		0		0		0
Total all other commercial loans	$	31,905	$	66,797	$	89,045	$	56,899	$	24,893	$	30,701	$	130,866	$	431,106
Year-to-date gross charge-offs	$	0	$	0	$	0	$	60	$	0	$	0	$	0	$	60
Residential mortgage loans
Pass	$	18,229	$	55,539	$	83,693	$	52,879	$	37,745	$	156,960	$	0	$	405,045
Special Mention		0		0		0		0		0		0		0		0
Substandard		0		0		32		0		85		4,662		0		4,779
Doubtful		0		0		0		0		0		0		0		0
Total residential mortgage loans	$	18,229	$	55,539	$	83,725	$	52,879	$	37,830	$	161,622	$	0	$	409,824
Year-to-date gross charge-offs	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Consumer loans
Pass	$	2,758	$	4,606	$	3,639	$	1,417	$	966	$	817	$	46,435	$	60,638
Special Mention		0		0		0		0		0		0		0		0
Substandard		0		0		0		7		0		56		443		506
Doubtful		0		0		0		0		0		0		0		0
Total consumer loans	$	2,758	$	4,606	$	3,639	$	1,424	$	966	$	873	$	46,878	$	61,144
Year-to-date gross charge-offs	$	0	$	67	$	115	$	0	$	8	$	0	$	49	$	239

17

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

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

	Term Loans by Year of Origination
(In Thousands)	2023		2022		2021		2020		2019		Prior		Revolving		Total
Commercial real estate - non-owner occupied
Pass	$	96,615	$	167,484	$	89,582	$	55,390	$	80,020	$	207,017		0		696,108
Special Mention		0		20,072		2,446		0		116		6,188		0		28,822
Substandard		0		0		0		18		566		11,828		0		12,412
Doubtful		0		0		0		0		0		0		0		0
Total commercial real estate - non-owner occupied	$	96,615	$	187,556	$	92,028	$	55,408	$	80,702	$	225,033	$	0	$	737,342
Year-to-date gross charge-offs	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Commercial real estate - owner occupied
Pass	$	33,761	$	37,429	$	52,090	$	12,858	$	17,505	$	71,775	$	0	$	225,418
Special Mention		104		746		0		0		0		166		0		1,016
Substandard		5,200		0		2,567		0		0		3,045		0		10,812
Doubtful		0		0		0		0		0		0		0		0
Total commercial real estate - owner occupied	$	39,065	$	38,175	$	54,657	$	12,858	$	17,505	$	74,986	$	0	$	237,246
Year-to-date gross charge-offs	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
All other commercial loans
Pass	$	58,393	$	90,560	$	51,813	$	27,718	$	16,421	$	24,326	$	107,234	$	376,465
Special Mention		0		2,690		5,043		8		0		794		301		8,836
Substandard		0		1,267		1,250		453		679		1,085		9,658		14,392
Doubtful		0		0		0		0		0		0		0		0
Total all other commercial loans	$	58,393	$	94,517	$	58,106	$	28,179	$	17,100	$	26,205	$	117,193	$	399,693
Year-to-date gross charge-offs	$	0	$	0	$	0	$	0	$	0	$	0	$	12	$	12
Residential mortgage loans
Pass	$	57,300	$	87,519	$	56,183	$	39,411	$	32,401	$	135,546	$	0	$	408,360
Special Mention		0		0		0		0		0		0		0		0
Substandard		0		0		0		285		369		4,700		0		5,354
Doubtful		0		0		0		0		0		0		0		0
Total residential mortgage loans	$	57,300	$	87,519	$	56,183	$	39,696	$	32,770	$	140,246	$	0	$	413,714
Year-to-date gross charge-offs	$	0	$	0	$	0	$	0	$	0	$	33	$	0	$	33
Consumer loans
Pass	$	6,020	$	4,664	$	1,944	$	1,205	$	175	$	913	$	44,312	$	59,233
Special Mention		0		0		0		0		0		0		0		0
Substandard		0		0		5		11		1		58		836		911
Doubtful		0		0		0		0		0		0		0		0
Total consumer loans	$	6,020	$	4,664	$	1,949	$	1,216	$	176	$	971	$	45,148	$	60,144
Year-to-date gross charge-offs	$	0	$	149	$	0	$	18	$	3	$	3	$	138	$	311

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

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

	June 30, 2024
	Nonaccrual Loans with		Nonaccrual Loans		Total Nonaccrual
(In Thousands)	No Allowance		with an Allowance		Loans
Commercial real estate - non-owner occupied	$	4,642	$	3,885	$	8,527
Commercial real estate - owner occupied		2,228		278		2,506
All other commercial loans		1,697		2,450		4,147
Residential mortgage loans		4,077		0		4,077
Consumer loans		322		0		322
Total	$	12,966	$	6,613	$	19,579

	December 31, 2023
	Nonaccrual Loans with		Nonaccrual Loans		Total Nonaccrual
(In Thousands)	No Allowance		with an Allowance		Loans
Commercial real estate - non-owner occupied	$	1,111	$	7,301	$	8,412
Commercial real estate - owner occupied		1,281		294		1,575
All other commercial loans		1,132		191		1,323
Residential mortgage loans		3,627		0		3,627
Consumer loans		240		0		240
Total	$	7,391	$	7,786	$	15,177

The Corporation recognized interest income on nonaccrual loans of $285,000 and $516,000 in the three and six months ended June 30, 2024 and $196,000 and $427,000 in the three and six months ended June 30, 2023.

The following table represents the accrued interest receivable written off by reversing interest income during the three-month and six-month periods ended June 30, 2024 and 2023:

	Three Months Ended		Three Months Ended		Six Months Ended		Six Months Ended
(In Thousands)	June 30, 2024		June 30, 2023		June 30, 2024		June 30, 2023
Commercial real estate - non-owner occupied	$	7	$	0	$	19	$	26
Commercial real estate - owner occupied		10		0		10		0
All other commercial loans		2		0		118		0
Residential mortgage loans		5		3		18		6
Consumer loans		2		0		4		2
Total	$	26	$	3	$	169	$	34

The Corporation has certain loans for which repayment is dependent upon the operation or sale of collateral, as the borrower is experiencing financial difficulty. The underlying collateral can vary based upon the type of loan. The following provides more detail about the types of collateral that secure collateral dependent loans:

● Commercial real estate loans can be secured by either owner occupied commercial real estate or non-owner occupied investment commercial real estate. Typically, owner occupied commercial real estate loans are secured by office buildings, warehouses, manufacturing facilities and other commercial and industrial properties occupied by operating companies. Non-owner occupied commercial real estate loans are generally secured by office buildings and complexes, retail facilities, multifamily complexes, land under development, industrial properties, as well as other commercial or industrial real estate.

● All other commercial loans include loans typically secured by business assets including inventory, equipment and receivables. Also within this category, commercial construction and land loans and some commercial lines of credit are secured by real estate.

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

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

● Consumer loans are generally secured by automobiles, motorcycles, recreational vehicles and other personal property. Some consumer loans are unsecured and have no underlying collateral.

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

	June 30, 2024				December 31, 2023
	Amortized				Amortized
(In Thousands)	Cost		Allowance		Cost		Allowance
Commercial real estate - non-owner occupied	$	8,526	$	493	$	8,412	$	648
Commercial real estate - owner occupied		2,507		234		1,575		5
All other commercial loans		4,147		503		1,277		90
Total	$	15,180	$	1,230	$	11,264	$	743

The following table summarizes the activity related to the allowance for credit losses for the three and six months ended June 30, 2024 and 2023.

	Commercial		Commercial		All
	real estate -		real estate -		other		Residential
	nonowner		owner		commercial		mortgage		Consumer
(In Thousands)	occupied		occupied		loans		loans		loans		Total
Balance, March 31, 2024	$	12,533	$	2,718	$	3,580	$	769	$	423	$	20,023
Charge-offs		(117)		0		0		0		(119)		(236)
Recoveries		0		0		15		0		14		29
Provision (credit) for credit losses on loans		(239)		183		83		343		196		566
Balance, June 30, 2024	$	12,177	$	2,901	$	3,678	$	1,112	$	514	$	20,382

	Commercial		Commercial		All
	real estate -		real estate -		other		Residential
	nonowner		owner		commercial		mortgage		Consumer
(In Thousands)	occupied		occupied		loans		loans		loans		Total
Balance, December 31, 2023	$	12,010	$	2,116	$	2,918	$	1,764	$	400	$	19,208
Charge-offs		(117)		0		(60)		0		(239)		(416)
Recoveries		0		0		35		3		26		64
Provision (credit) for credit losses on loans		284		785		785		(655)		327		1,526
Balance, June 30, 2024	$	12,177	$	2,901	$	3,678	$	1,112	$	514	$	20,382

	Commercial		Commercial		All
	real estate -		real estate -		other		Residential
	nonowner		owner		commercial		mortgage		Consumer
(In Thousands)	occupied		occupied		loans		loans		loans		Total
Balance, March 31, 2023	$	9,654	$	1,942	$	3,580	$	2,864	$	306	$	18,346
Charge-offs		0		0		0		(14)		(120)		(134)
Recoveries		0		0		0		1		7		8
Provision (credit) for credit losses on loans		949		83		106		(387)		85		836
Balance, June 30, 2023	$	10,603	$	2,025	$	3,686	$	2,464	$	278	$	19,056

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

	Commercial		Commercial		All
	real estate -		real estate -		other		Residential
	nonowner		owner		commercial		mortgage		Consumer
(In Thousands)	occupied		occupied		loans		loans		loans		Unallocated		Total
Balance, December 31, 2022	$	6,305	$	1,942	$	4,142	$	2,751	$	475	$	1,000	$	16,615
Adoption of ASU 2016-13 (CECL)		3,763		7		(88)		(344)		(234)		(1,000)		2,104
Charge-offs		0		0		(5)		(33)		(163)		0		(201)
Recoveries		0		0		0		2		12		0		14
Provision (credit) for credit losses on loans		535		76		(363)		88		188		0		524
Balance, June 30, 2023	$	10,603	$	2,025	$	3,686	$	2,464	$	278	$	0	$	19,056

Modifications Made to Borrowers Experiencing Financial Difficulty

The Corporation closely monitors the performance of the loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification. During the three and six months ended June 30, 2024 and June 30, 2023, the Corporation had no modifications to borrowers experiencing financial difficulty.

The Corporation closely monitors the performance of the loans modified to borrowers experiencing financial difficultly to understand the effectiveness of its modification efforts. The following table depicts the performance of two loans which were in non-accrual status at June 30, 2024 that were modified in the past twelve months:

(In Thousands)	Payment Status (Amortized Costs Basis)
June 30, 2024	Current		90+ Days Past Due		Total
Commercial real estate - non-owner occupied:
Non-owner occupied	$	2,504	$	1,381	$	3,885

The loan that was past due more than 90 days in the table above was in default with its modified terms at June 30, 2024.

At June 30, 2024 and December 31, 2023, the Corporation had no commitments to lend any additional funds on modified loans. Except as described above, at June 30, 2024 and June 30, 2023, the Corporation had no loans that defaulted during the period and had been modified preceding the payment default when the borrower was experiencing financial difficulty at the time of modification.

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

(In Thousands)	June 30,		December 31,
	2024		2023
Foreclosed residential real estate	$	25	$	47

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

(In Thousands)	June 30,		December 31,
	2024		2023
Residential real estate in process of foreclosure	$	690	$	1,227

The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. The contract amounts of these financial instruments at June 30, 2024 and December 31, 2023 are as follows:

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

	June 30,		Dec. 31,
(In Thousands)	2024		2023
Commitments to extend credit	$	387,563	$	395,997
Standby letters of credit		57,532		19,158

The Corporation maintains an allowance for off-balance sheet credit exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, commercial letters of credit and credit enhancement obligations related to residential mortgage loans sold with recourse, when there is a contractual obligation to extend credit and when this extension of credit is not unconditionally cancellable (i.e. commitment cannot be canceled at any time). The allowance for off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over their estimated lives. The allowance for credit losses for off-balance sheet exposures of $683,000 at June 30, 2024 and $690,000 at December 31, 2023, is included in accrued interest and other liabilities on the unaudited consolidated balance sheets.

The following table presents the balance and activity in the allowance for credit losses for off-balance sheet exposures for the three and six months ended June 30, 2024 and 2023:

	Three Months		Three Months		Six Months		Six Months
	Ended		Ended		Ended		Ended
(In Thousands)	June 30, 2024		June 30, 2023		June 30, 2024		June 30, 2023
Beginning Balance	$	684	$	1,178	$	690	$	425
Adjustment to allowance for off-balance sheet exposures for adoption of ASU 2016-13		0		0		0		793
Credit for unfunded commitments		(1)		(24)		(7)		(64)
Ending Balance, June 30	$	683	$	1,154	$	683	$	1,154

7. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill represents the excess of the cost of acquisitions over the fair value of the net assets acquired. At June 30, 2024 and December 31, 2023, the net carrying value of goodwill was $52,505,000.

Information related to core deposit intangibles is as follows:

(In Thousands)	June 30,		December 31,
	2024		2023
Gross amount	$	6,639	$	6,639
Accumulated amortization		(4,365)		(4,170)
Net	$	2,274	$	2,469

Amortization expense related to core deposit intangibles is included in other noninterest expense in the consolidated statements of income, as follows:

(In Thousands)	Three Months Ended				Six Months Ended
	June 30,		June 30,		June 30,		June 30,
	2024		2023		2024		2023
Amortization expense	$	98	$	102	$	195	$	204

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

8. BORROWED FUNDS

SHORT-TERM BORROWINGS

Short-term borrowings (initial maturity within one year) include the following:

(In Thousands)	June 30,		December 31,
	2024		2023
FHLB-Pittsburgh borrowings	$	15,000	$	31,500
Customer repurchase agreements		1,874		2,374
Total short-term borrowings	$	16,874	$	33,874

The Corporation had available credit with other correspondent banks totaling $75,000,000 at June 30, 2024 and December 31, 2023. These lines of credit are primarily unsecured. No amounts were outstanding at June 30, 2024 or December 31, 2023.

The Corporation has a line of credit with the Federal Reserve Bank of Philadelphia’s Discount Window. At June 30, 2024, the Corporation had available credit in the amount of $18,884,000 on this line with no outstanding advances. At December 31, 2023, the Corporation had available credit in the amount of $19,982,000 on this line with no outstanding advances. As collateral for this line, the Corporation has pledged available-for-sale securities with a carrying value of $19,718,000 at June 30, 2024 and $20,829,000 at December 31, 2023.

The Corporation engages in repurchase agreements with certain commercial customers. These agreements provide that the Corporation sells specified investment securities to the customers on an overnight basis and repurchases them on the following business day. The weighted average rate paid by the Corporation on customer repurchase agreements was 0.10% at June 30, 2024 and December 31, 2023. The carrying value of the underlying securities was $1,880,000 at June 30, 2024 and $2,400,000 at December 31, 2023.

The FHLB-Pittsburgh loan facility is collateralized by qualifying loans secured by real estate with a book value totaling $1,347,570,000 at June 30, 2024 and $1,323,008,000 at December 31, 2023. Also, the FHLB-Pittsburgh loan facility requires the Corporation to invest in established amounts of FHLB-Pittsburgh stock. The carrying values of the Corporation’s holdings of FHLB-Pittsburgh stock (included in other assets in the consolidated balance sheets) were $16,464,000 at June 30, 2024 and $15,214,000 at December 31, 2023. The Corporation’s total credit facility with FHLB-Pittsburgh was $943,575,000 at June 30, 2024, including an unused (available) amount of $719,722,000. At December 31, 2023, the Corporation’s total credit facility with FHLB-Pittsburgh was $926,845,000, including an unused (available) amount of $737,824,000.

At June 30, 2024, short-term borrowings included short-term advances maturing in the third and fourth quarters of 2024 totaling $15,000,000 with a weighted average interest rate of 5.32%. At December 31, 2023, short-term borrowings included an overnight borrowing from FHLB-Pittsburgh of $6,500,000 at an interest rate of 5.68% and short-term advances maturing in the first quarter 2024 totaling $25,000,000 with a weighted average interest rate of 5.60%.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

LONG-TERM BORROWINGS – FHLB ADVANCES

Long-term borrowings from FHLB-Pittsburgh are as follows:

(In Thousands)	June 30,		December 31,
	2024		2023
Loans maturing in 2024 with a weighted-average rate of 2.96%		20,142		32,161
Loans maturing in 2025 with a weighted-average rate of 4.30%		44,572		44,627
Loans maturing in 2026 with a weighted-average rate of 4.61%		48,018		35,518
Loans maturing in 2027 with a weighted-average rate of 4.24%		34,571		24,031
Loans maturing in 2028 with a weighted-average rate of 4.30%		26,027		2,000
Loans maturing in 2029 with a weighted-average rate of 4.42%		12,319		0
Total long-term FHLB-Pittsburgh borrowings	$	185,649	$	138,337

Note: Weighted-average rates are presented as of June 30, 2024.

SENIOR NOTES

In 2021, the Corporation issued and sold $15.0 million in aggregate principal amount of 2.75% Fixed Rate Senior Unsecured Notes due 2026 (the "Senior Notes"). The Senior Notes mature on June 1, 2026 and bear interest at a fixed annual rate of 2.75%. The Corporation is not entitled to redeem the Senior Notes, in whole or in part, at any time prior to maturity and the Senior Notes are not subject to redemption by the holders. The Senior Notes are unsecured and unsubordinated obligations of the Corporation only and are not obligations of, and are not guaranteed by, any subsidiary of the Corporation.

The Senior Notes were recorded, net of debt issuance costs of $337,000, at an initial carrying amount of $14,663,000. Debt issuance costs are amortized over the term of the Senior Notes as an adjustment of the effective interest rate. Amortization of debt issuance costs associated with the Senior Notes totaling $17,000 in the second quarter 2024 and $34,000 for the six-month ended June 30, 2024, and $17,000 in the second quarter 2023 and $33,000 for the six-month ended June 30, 2023, was included in interest expense in the unaudited consolidated statements of income.

At June 30, 2024 and December 31, 2023, outstanding Senior Notes are as follows:

(In Thousands)	June 30,		December 31,
	2024		2023
Senior Notes with an aggregate par value of $15,000,000; bearing interest at 2.75% with an effective interest rate of 3.23%; maturing in June 2026	$	14,865	$	14,831
Total carrying value	$	14,865	$	14,831

SUBORDINATED DEBT

In 2021, the Corporation issued and sold $25.0 million in aggregate principal amount of 3.25% Fixed-to-Floating Rate Subordinated Notes due 2031 (the "Subordinated Notes"). The Subordinated Notes mature on June 1, 2031 and bear interest at a fixed annual rate of 3.25%, to June 1, 2026. From June 1, 2026 to maturity or early redemption, the interest rate will reset quarterly to an interest rate per annum equal to the three-month Secured Overnight Financing Rate provided by the Federal Reserve Bank of New York plus 259 basis points. The Corporation is entitled to redeem the Subordinated Notes, in whole or in part, at any time on or after June 1, 2026, and to redeem the Subordinated Notes at any time in whole upon certain other events. Any redemption of the Subordinated Notes will be subject to prior regulatory approval to the extent required.

The Subordinated Notes are not subject to redemption at the option of the holders. The Subordinated Notes are unsecured, subordinated obligations of the Corporation only and are not obligations of, and are not guaranteed by, any subsidiary of the Corporation. The Subordinated Notes rank junior in right to payment to the Corporation's current and future senior indebtedness, including the Senior Notes (described above). The Subordinated Notes are intended to qualify as Tier 2 capital for regulatory capital purposes.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

The Subordinated Notes were recorded, net of debt issuance costs of $563,000, at an initial carrying amount of $24,437,000. Debt issuance costs are amortized through June 1, 2026 as an adjustment of the effective interest rate. Amortization of debt issuance costs associated with the Subordinated Notes totaling $28,000 in the second quarter 2024 and $56,000 for the six-month period ended June 30, 2024, and $27,000 in the second quarter 2023 and $54,000 for the six-month period ended June 30, 2023, was included in interest expense in the unaudited consolidated statements of income.

At June 30, 2024 and December 31, 2023, the carrying amounts of subordinated debt agreements are as follows:

(In Thousands)	June 30,		December 31,
	2024		2023
Agreements with a par value of $25,000,000; bearing interest at 3.25% with an effective interest rate of 3.74%; maturing in June 2031 and redeemable at par in June 2026	$	24,773	$	24,717
Total carrying value	$	24,773	$	24,717

9. STOCK-BASED COMPENSATION PLANS

The Corporation has a stock incentive plan for selected officers and the independent directors. The first quarter 2024 awards to employees vest ratably over three years, and the 2024 restricted stock awards for the independent directors vest over one year. There were no restricted stock awards granted in the three-month period ended June 30, 2024. Following is a summary of restricted stock awards granted in the six-month period ended June 30, 2024:

(Dollars in Thousands)		Aggregate
		Grant
		Date
	Number of	Fair
	Shares	Value
Six Months Ended June 30, 2024 awards:
Time-based awards to independent directors	10,000	$	214
Time-based awards to employees	43,514		931
Performance-based awards to employees	19,346		371
Total	72,860	$	1,516

Compensation cost related to restricted stock is recognized based on the fair value of the stock at the grant date over the vesting period, adjusted for estimated and actual forfeitures. Total annual stock-based compensation for the year ending December 31, 2024 is estimated to total $1,433,000. Total stock-based compensation expense attributable to restricted stock awards amounted to $390,000 in the second quarter 2024 and $318,000 in the second quarter 2023. Total stock-based compensation expense attributable to restricted stock awards amounted to $716,000 in the six-month period ended June 30, 2024 and $695,000 in the six-month period ended June 30, 2023.

10. CONTINGENCIES

Class Action Litigation

On March 27, 2024, a putative class action lawsuit was filed in the US District Court for the Western District of Texas by investors in a purported Ponzi scheme operated by two individuals, one of whom maintained accounts at C&N Bank. The plaintiffs have sued C&N Bank, along with another bank, and additional law firm and accounting firm defendants. The case is styled Goldovsky, et al. v. Rausch, et al. Plaintiffs have asserted claims against C&N Bank and the other bank for aiding and abetting alleged violations of the Texas Securities Act, and additional claims against the legal and accounting professionals for statutory fraud, common law fraud, negligent misrepresentation, and knowing participation in breach of fiduciary duty.  C&N Bank has filed motions to dismiss the case for wont of personal jurisdiction and failure to state a claim. The Plaintiffs have responded to those motions. The motions are pending.  C&N Bank believes that it has substantial defenses, and it intends to defend itself against the plaintiffs’ allegations. Based on the information available to the Corporation, the Corporation does not believe at this time that a loss is probable in this matter, nor can a range of possible losses be determined. Accordingly, no accrual or range of loss has been included in the accompanying financial statements. The Corporation’s estimate may change from time to time, and actual losses could vary.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Other Matters

In the normal course of business, the Corporation is subject to pending and threatened litigation in which claims for monetary damages are asserted. In management’s opinion, the Corporation’s financial position and results of operations would not be materially affected by the outcome of these legal proceedings.

11. DERIVATIVE FINANCIAL INSTRUMENTS

The Corporation is a party to derivative financial instruments. These financial instruments consist of interest rate swap agreements and risk participation agreements (RPAs) which contain master netting and collateral provisions designed to protect the party at risk.

Interest rate swaps with commercial loan banking customers were executed to facilitate their respective risk management strategies. Under the terms of these arrangements, the commercial banking customers effectively exchanged their floating interest rate exposures on loans into fixed interest rate exposures. Those interest rate swaps have been simultaneously economically hedged by offsetting interest rate swaps with a third party, such that the Corporation has effectively exchanged its fixed interest rate exposures for floating rate exposures. These derivatives are not designated as hedges and are not speculative. Rather, these derivatives result from a service provided to certain customers. As the interest rate swaps associated with this program do not meet the hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings.

The aggregate notional amount of interest rate swaps was $147,650,000 at June 30, 2024 and $150,028,000 at December 31, 2023. There were no interest rate swaps originated in the six-month periods ended June 30, 2024, and 2023. There were no gross amounts of interest rate swap-related assets and liabilities not offset in the consolidated balance sheets at June 30, 2024. The net impact on the consolidated statements of income from interest rate swaps was an increase in interest income on loans of $493,000 in the second quarter 2024 and $991,000 in the six-month period ended June 30, 2024 as compared to $439,000 in the second quarter 2023 and $784,000 in the six-months ended June 30, 2023.

The Corporation has entered into an RPA with another institution as a means to assume a portion of the credit risk associated with a loan structure which includes a derivative instrument, in exchange for fee income commensurate with the risk assumed.  This type of derivative is referred to as an “RPA In.” In addition, in an effort to reduce the credit risk associated with an interest rate swap agreement with a borrower for whom the Corporation has provided a loan structured with a derivative, the Corporation purchased an RPA from an institution participating in the facility in exchange for a fee commensurate with the risk shared. This type of derivative is referred to as an “RPA Out.”  The net impact on the consolidated statements of income from RPAs was an increase in other noninterest income of $1,000 in the second quarter 2024 and $2,000 in the six-month period ended June 30, 2024 as compared to $2,000 in the second quarter 2023 and $18,000 in the six months ended June 30, 2023.

The table below presents the fair value of the Corporation’s derivative financial instruments as well as their classification on the consolidated balance sheets at June 30, 2024 and December 31, 2023:

(In Thousands)	At June 30, 2024								At December 31, 2023
	Asset Derivatives				Liability Derivatives				Asset Derivatives				Liability Derivatives
	Notional		Fair		Notional		Fair		Notional		Fair		Notional		Fair
	Amount		Value (1)		Amount		Value (2)		Amount		Value (1)		Amount		Value (2)
Interest rate swap agreements	$	73,825	$	3,202	$	73,825	$	3,202	$	75,014	$	2,783	$	75,014	$	2,783
RPA Out		7,020		4		0		0		7,082		11		0		0
RPA In		0		0		10,000		4		0		0		10,000		13

(1) Included in other assets in the consolidated balance sheets.

(2) Included in accrued interest and other liabilities in the consolidated balance sheets.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

The Corporation’s agreements with its derivative counterparties provide that if the Corporation defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Corporation could also be declared in default on its derivative obligations. Further, if the Corporation were to fail to maintain its status as a well or adequately capitalized institution, then the counterparties could terminate the derivative positions and the Corporation would be required to settle its obligations under the agreements. There was interest-bearing cash pledged as collateral against the Corporation’s liability related to the interest rate swaps of $1,140,000 at June 30, 2024 and $1,360,000 at December 31, 2023.

12. FAIR VALUE MEASUREMENTS AND FAIR VALUES OF FINANCIAL INSTRUMENTS

The Corporation measures certain assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB Topic 820, “Fair Value Measurements and Disclosures” establishes a framework for measuring fair value that includes a hierarchy used to classify the inputs used in measuring fair value. The hierarchy prioritizes the inputs used in determining valuations into three levels. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The levels of the fair value hierarchy are as follows:

Level 1 – Fair value is based on unadjusted quoted prices in active markets that are accessible to the Corporation for identical assets or liabilities. These generally provide the most reliable evidence and are used to measure fair value whenever available.

Level 2 – Fair value is based on significant inputs, other than Level 1 inputs, that are observable either directly or indirectly for substantially the full term of the asset or liability through corroboration with observable market data. Level 2 inputs include quoted market prices in active markets for similar assets or liabilities, quoted market prices in markets that are not active for identical or similar assets or liabilities and other observable inputs.

Level 3 – Fair value is based on significant unobservable inputs. Examples of valuation methodologies that would result in Level 3 classification include option pricing models, discounted cash flows and other similar techniques.

The Corporation monitors and evaluates available data relating to fair value measurements on an ongoing basis and recognizes transfers among the levels of the fair value hierarchy as of the date of an event or change in circumstances that affects the valuation method chosen. Examples of such changes may include the market for a particular asset or liability becoming active or inactive, changes in the availability of quoted prices, or changes in the availability of other market data.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

At June 30, 2024 and December 31, 2023, assets and liabilities measured at fair value and the valuation methods used are as follows:

	June 30, 2024
	Quoted Prices		Other Observable		Unobservable
	in Active Markets		Inputs		Inputs		Total
(In Thousands)	(Level 1)		(Level 2)		(Level 3)		Fair Value
Recurring fair value measurements, assets:
AVAILABLE-FOR-SALE DEBT SECURITIES:
Obligations of the U.S. Treasury	$	9,257	$	0	$	0	$	9,257
Obligations of U.S. Government agencies		0		9,350		0		9,350
Bank holding company debt securities		0		23,657		0		23,657
Obligations of states and political subdivisions:
Tax-exempt		0		102,020		0		102,020
Taxable		0		47,481		0		47,481
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		0		93,874		0		93,874
Residential collateralized mortgage obligations		0		42,565		0		42,565
Commercial mortgage-backed securities		0		64,718		0		64,718
Private label commercial mortgage-backed securities		0		8,223		0		8,223
Total available-for-sale debt securities		9,257		391,888		0		401,145
Marketable equity security		858		0		0		858
Servicing rights		0		0		2,720		2,720
RPA Out		0		4		0		4
Interest rate swap agreements, assets		0		3,202		0		3,202
Total recurring fair value measurements, assets	$	10,115	$	395,094	$	2,720	$	407,929
Recurring fair value measurements, liabilities:
RPA In	$	0	$	4	$	0	$	4
Interest rate swap agreements, liabilities		0		3,202		0		3,202
Total recurring fair value measurements, liabilities	$	0	$	3,206	$	0	$	3,206
Nonrecurring fair value measurements, assets:
Loans individually evaluated for credit loss, net	$	0	$	0	$	5,383	$	5,383
Foreclosed assets held for sale		0		0		181		181
Total nonrecurring fair value measurements, assets	$	0	$	0	$	5,564	$	5,564

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

	December 31, 2023
	Quoted Prices		Other Observable		Unobservable
	in Active Markets		Inputs		Inputs		Total
(In Thousands)	(Level 1)		(Level 2)		(Level 3)		Fair Value
Recurring fair value measurements, assets:
AVAILABLE-FOR-SALE DEBT SECURITIES:
Obligations of the U.S. Treasury	$	11,290	$	0	$	0	$	11,290
Obligations of U.S. Government agencies		0		9,946		0		9,946
Bank holding company debt securities		0		23,500		0		23,500
Obligations of states and political subdivisions:
Tax-exempt		0		104,199		0		104,199
Taxable		0		50,111		0		50,111
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		0		95,405		0		95,405
Residential collateralized mortgage obligations		0		46,462		0		46,462
Commercial mortgage-backed securities		0		66,682		0		66,682
Private label commercial mortgage-backed securities		0		8,160		0		8,160
Total available-for-sale debt securities		11,290		404,465		0		415,755
Marketable equity security		871		0		0		871
Servicing rights		0		0		2,659		2,659
RPA Out		0		11		0		11
Interest rate swap agreements, assets		0		2,783		0		2,783
Total recurring fair value measurements, assets	$	12,161	$	407,259	$	2,659	$	422,079
Recurring fair value measurements, liabilities,
RPA In	$	0	$	13	$	0	$	13
Interest rate swap agreements, liabilities		0		2,783		0		2,783
Total recurring fair value measurements, liabilities	$	0	$	2,796	$	0	$	2,796
Nonrecurring fair value measurements, assets:
Impaired loans, net	$	0	$	0	$	7,043	$	7,043
Foreclosed assets held for sale		0		0		478		478
Total nonrecurring fair value measurements, assets	$	0	$	0	$	7,521	$	7,521

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

Available-for-sale debt securities - Level 2 debt securities are valued by a third-party pricing service. The pricing service uses pricing models that vary based on asset class and incorporate available market information, including quoted prices of investment securities with similar characteristics. Because many fixed income securities do not trade on a daily basis, pricing models use available information, as applicable, through processes such as benchmark yield curves, benchmarking of like securities, sector groupings and matrix pricing.

Derivative instruments - Interest rate SWAP agreements, RPA Out and RPA In- The fair value of derivatives are based on valuation models using observable market data as of the measurement date, valued by a third-party pricing service using quantitative models that utilize multiple market inputs. The inputs include prices and indices to generate continuous yield or pricing curves, estimates of current and potential future credit exposure and calculated discounted cash flow factors to value the position. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services.

Management’s evaluation and selection of valuation techniques and the unobservable inputs used in determining the fair values of assets valued using Level 3 methodologies include sensitive assumptions. Other market participants might use substantially different assumptions, which could result in calculations of fair values that would be substantially different than the amount calculated by management.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

At June 30, 2024 and December 31, 2023, quantitative information regarding valuation techniques and the significant unobservable inputs used for assets measured on a recurring basis using unobservable inputs (Level 3 methodologies) are as follows:

	Fair Value at
	6/30/2024		Valuation	Unobservable			Method or Value As of
Asset	(In Thousands)		Technique	Input(s)			6/30/2024
Servicing rights	$	2,720	Discounted cash flow	Discount rate	13.00	%	Rate used through modeling period
				Loan prepayment speeds	112.00	%	Weighted-average PSA

	Fair Value at
	12/31/2023		Valuation	Unobservable			Method or Value As of
Asset	(In Thousands)		Technique	Input(s)			12/31/2023
Servicing rights	$	2,659	Discounted cash flow	Discount rate	13.00	%	Rate used through modeling period
				Loan prepayment speeds	131.00	%	Weighted-average PSA

The fair value of servicing rights is affected by expected future interest rates. Increases (decreases) in future expected interest rates tend to increase (decrease) the fair value of the Corporation’s servicing rights because of changes in expected prepayment behavior by the borrowers on the underlying loans. Unrealized gains (losses) in fair value of servicing rights are included in Loan servicing fees, net, in the unaudited consolidated statements of income.

Following is a reconciliation of activity for Level 3 assets measured at fair value on a recurring basis:

(In Thousands)	Three Months Ended				Six Months Ended
	June 30, 2024		June 30, 2023		June 30, 2024		June 30, 2023
Servicing rights balance, beginning of period	$	2,731	$	2,585	$	2,659	$	2,653
Originations of servicing rights		57		34		104		49
Unrealized loss included in earnings		(68)		(12)		(43)		(95)
Servicing rights balance, end of period	$	2,720	$	2,607	$	2,720	$	2,607

Loans are individually evaluated for credit loss when they do not share similar risk characteristics as similar loans within its loan pool. Foreclosed assets held for sale consist of real estate acquired by foreclosure. For individually evaluated loans secured by real estate and foreclosed assets held for sale, estimated fair values are determined primarily using values from third-party appraisals. Appraised values are discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

At June 30, 2024 and December 31, 2023, quantitative information regarding valuation techniques and the significant unobservable inputs used for nonrecurring fair value measurements using Level 3 methodologies are as follows:

(Dollars In Thousands)									Range (Weighted
			Valuation						Average)
	Balance at		Allowance at		Fair Value at		Valuation	Unobservable	Discount at
Asset	6/30/2024		6/30/2024		6/30/2024		Technique	Inputs	6/30/2024
Loans individually evaluated for credit loss:
Commercial real estate - nonowner occupied	$	3,885	$	493	$	3,392	Sales comparison	Discount to appraised value	25%-30% (27)	%
Commercial real estate - owner occupied		278		234		44	Sales comparison & SBA guaranty	Discount to appraised value	99% (99)	%
All other commercial loans		2,450		503		1,947	Sales comparison	Discount to appraised value	0%- 85% (16)	%
Total loans individually evaluated for credit loss	$	6,613	$	1,230	$	5,383
Foreclosed assets held for sale - real estate:
Residential (1-4 family)	$	25	$	0	$	25	Sales comparison	Discount to appraised value	62% (62)	%
Commercial real estate		156		0		156	Sales comparison	Discount to appraised value	18%-77% (34)	%
Total foreclosed assets held for sale	$	181	$	0	$	181

(Dollars In Thousands)									Range (Weighted
			Valuation						Average)
	Balance at		Allowance at		Fair Value at		Valuation	Unobservable	Discount at
Asset	12/31/2023		12/31/2023		12/31/2023		Technique	Inputs	12/31/2023
Loans individually evaluated for credit loss:
Commercial real estate - nonowner occupied	$	7,301	$	648	$	6,653	Sales comparison	Discount to appraised value	22%-30% (25)	%
Commercial real estate - owner occupied		294		5		289	Sales comparison & SBA guaranty	Discount to appraised value	93% (93)	%
All other commercial loans		191		90		101	Liquidation & SBA guaranty	Discount to appraised value	0%-76% (17)	%
Total loans individually evaluated for credit loss	$	7,786	$	743	$	7,043
Foreclosed assets held for sale - real estate:
Residential (1-4 family)	$	47	$	0	$	47	Sales comparison	Discount to appraised value	20%-62% (50)	%
Commercial real estate		431		0		431	Sales comparison	Discount to appraised value	18%-50% (45)	%
Total foreclosed assets held for sale	$	478	$	0	$	478

Certain of the Corporation’s financial instruments are not measured at fair value in the consolidated financial statements. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. Certain financial instruments and all nonfinancial instruments are excluded from disclosure requirements. Therefore, the aggregate fair value amounts presented may not represent the underlying fair value of the Corporation.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

The estimated fair values, and related carrying amounts, of the Corporation’s financial instruments that are not recorded at fair value are as follows:

(In Thousands)	Fair Value	June 30, 2024				December 31, 2023
	Hierarchy	Carrying		Fair		Carrying		Fair
	Level	Amount		Value		Amount		Value
Financial assets:
Cash and cash equivalents	Level 1	$	96,562	$	96,562	$	52,778	$	52,778
Certificates of deposit	Level 2		3,850		3,676		4,100		3,859
Restricted equity securities (included in other assets)	Level 2		22,990		N/A		21,716		N/A
Loans, net	Level 3		1,872,825		1,784,727		1,828,931		1,750,336
Accrued interest receivable	Level 2		9,165		9,165		9,140		9,140
Financial liabilities:
Deposits with no stated maturity	Level 2		1,587,482		1,587,482		1,590,357		1,590,357
Time deposits	Level 2		471,827		470,630		424,449		423,643
Short-term borrowings	Level 2		16,874		16,874		33,874		33,874
Long-term borrowings	Level 2		185,649		184,756		138,337		137,775
Senior debt	Level 2		14,865		13,163		14,831		12,706
Subordinated debt	Level 2		24,773		22,499		24,717		22,750
Accrued interest payable	Level 2		2,235		2,235		1,525		1,525

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Certain statements in this section and elsewhere in this quarterly report on Form 10-Q are forward-looking statements. Citizens & Northern Corporation and its wholly-owned subsidiaries (collectively, the Corporation) intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Reform Act of 1995. Forward-looking statements, which are not historical facts, are based on certain assumptions and describe future plans, business objectives and expectations, and are generally identifiable by the use of words such as, "should", “likely”, "expect", “plan”, "anticipate", “target”, “forecast”, and “goal”. These forward-looking statements are subject to risks and uncertainties that are difficult to predict, may be beyond management’s control and could cause results to differ materially from those expressed or implied by such forward-looking statements. Factors which could have a material, adverse impact on the operations and future prospects of the Corporation include, but are not limited to, the following:

● changes in monetary and fiscal policies of the Federal Reserve Board and the U.S. Government, particularly related to changes in interest rates

●changes in general economic conditions

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

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

●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

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

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

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

EARNINGS OVERVIEW

Second Quarter 2024 as Compared to Second Quarter 2023

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

● Net interest income of $19,445,000 in the second quarter 2024 was $917,000 lower than the second quarter 2023. The net interest margin was 3.31% in the second quarter 2024, down from 3.53% in the second quarter 2023. The interest rate spread decreased 0.37%, as the average rate on interest-bearing liabilities increased 0.85%, while the average yield on earning assets increased 0.48%.  

● For the quarter ended June 30, 2024, the provision for credit losses was $565,000, a decrease of $247,000 compared to $812,000 in the second quarter 2023. The allowance for credit losses (“ACL”) as a percentage of gross loans receivable was 1.08% at June 30, 2024 as compared to 1.05% at June 30, 2023.

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

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

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

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

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

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

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

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

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

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

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

Ø Other noninterest expense of $3,437,000 increased $78,000 from the second quarter 2023. Within this category, significant variances included the following:

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

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

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

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

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

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

● Net interest income totaled $38,486,000 in the six months ended June 30, 2024, a decrease of $2,657,000 from the total for the first six months of 2023. The net interest margin was 3.30% for the six months of 2024, down from 3.62%

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

in the corresponding period of 2023. The interest rate spread decreased 0.52%, as the average rate on interest-bearing liabilities was higher by 1.04% while the average yield on earning assets increased 0.52%.

● For the six months ended June 30, 2024, the provision for credit losses was $1,519,000, an increase of $1,059,000 from the first six months of 2023.  In the first six months of 2024, the ACL on loans receivable increased $1,174,000 to 1.08% at June 30, 2024 as compared to 1.04% at December 31, 2023. For the six months ended June 30, 2024, net charge-offs totaled $352,000, or 0.04% (annualized) of average loans receivable.

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

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

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

Ø Trust revenue of $3,911,000 increased $330,000, consistent with recent appreciation in the trading prices of many U.S. equity securities and includes revenue from new business.

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

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

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

Ø Other noninterest expense of $5,299,000 decreased $567,000. Within this category, significant variances included the following:

◾ For the first six months of 2024, there was a reduction in expense of $498,000 related to the defined benefit postretirement medical benefit plan, including a curtailment of $469,000 related to plan adjustments in the first quarter 2024 as noted above. In comparison, in the first six months of 2023, there was a reduction in expense associated with the postretirement plan of $10,000.

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

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

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

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

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

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

TABLE I – QUARTERLY FINANCIAL DATA

(Dollars In Thousands,	For the Three Months Ended :
Except Per Share Data)	June 30,		March 31,		December 31,		September 30,		June 30,
(Unaudited)	2024		2024		2023		2023		2023
Interest income	$	31,326	$	30,336	$	30,236	$	29,118	$	28,011
Interest expense		11,881		11,295		10,642		9,455		7,649
Net interest income		19,445		19,041		19,594		19,663		20,362
Provision (credit) for credit losses		565		954		951		(1,225)		812
Net interest income after provision (credit) for credit losses		18,880		18,087		18,643		20,888		19,550
Noninterest income		7,854		6,675		5,678		6,489		6,633
Noninterest expense		19,255		18,304		18,399		17,940		18,722
Income before income tax provision		7,479		6,458		5,922		9,437		7,461
Income tax provision		1,366		1,152		1,661		1,846		1,419
Net income	$	6,113	$	5,306	$	4,261	$	7,591	$	6,042
Net income attributable to common shares	$	6,066	$	5,267	$	4,231	$	7,534	$	5,996
Basic earnings per common share	$	0.40	$	0.35	$	0.28	$	0.50	$	0.39
Diluted earnings per common share	$	0.40	$	0.35	$	0.28	$	0.50	$	0.39

NONINTEREST INCOME

TABLE II – COMPARISON OF NONINTEREST INCOME

(Dollars in Thousands)	Three Months Ended
	June 30,					$	%
	2024		2023			Change	Change
Trust revenue	$	2,014	$	1,804	$	210	11.6	%
Brokerage and insurance revenue		527		365		162	44.4	%
Service charges on deposit accounts		1,472		1,388		84	6.1	%
Interchange revenue from debit card transactions		1,089		1,010		79	7.8	%
Net gains from sales of loans		235		139		96	69.1	%
Loan servicing fees, net		130		190		(60)	(31.6)	%
Increase in cash surrender value of life insurance		444		152		292	192.1	%
Other noninterest income		1,943		1,587		356	22.4	%
Realized losses on available-for-sale debt securities, net		0		(1)		1	(100.0)	%
Total noninterest income	$	7,854	$	6,634	$	1,220	18.4	%

(Dollars in Thousands)	Six Months Ended
	June 30,					$	%
	2024		2023			Change	Change
Trust revenue	$	3,911	$	3,581	$	330	9.2	%
Brokerage and insurance revenue		1,066		795		271	34.1	%
Service charges on deposit accounts		2,790		2,678		112	4.2	%
Interchange revenue from debit card transactions		2,102		2,017		85	4.2	%
Net gains from sales of loans		426		213		213	100.0	%
Loan servicing fees, net		360		312		48	15.4
Increase in cash surrender value of life insurance		914		290		624	215.2	%
Other noninterest income		2,960		2,358		602	25.5	%
Realized gains on available-for-sale debt securities, net		0		6		(6)	(100.0)	%
Total noninterest income	$	14,529	$	12,250	$	2,279	18.6	%

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

NONINTEREST EXPENSE

TABLE III - COMPARISON OF NONINTEREST EXPENSE

(Dollars in Thousands)	Three Months Ended
	June 30,				$		%
	2024		2023		Change		Change
Salaries and employee benefits	$	11,023	$	10,777	$	246	2.3	%
Net occupancy and equipment expense		1,333		1,323		10	0.8	%
Data processing and telecommunications expense		2,003		1,900		103	5.4	%
Automated teller machine and interchange expense		473		395		78	19.7	%
Pennsylvania shares tax		434		404		30	7.4	%
Professional fees		552		564		(12)	(2.1)	%
Other noninterest expense		3,437		3,359		78	2.3	%
Total noninterest expense	$	19,255	$	18,722	$	533	2.8	%

(Dollars in Thousands)	Six Months Ended
	June 30,				$		%
	2024		2023		Change		Change
Salaries and employee benefits	$	22,585	$	22,204	$	381	1.7	%
Net occupancy and equipment expense		2,783		2,725		58	2.1	%
Data processing and telecommunications expense		3,995		3,836		159	4.1	%
Automated teller machine and interchange expense		960		870		90	10.3	%
Pennsylvania shares tax		867		807		60	7.4	%
Professional fees		1,070		1,501		(431)	(28.7)	%
Other noninterest expense		5,299		5,866		(567)	(9.7)	%
Total noninterest expense	$	37,559	$	37,809	$	(250)	(0.7)	%

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 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

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

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

Fair Value of Available-For-Sale Debt Securities – Another material estimate is the calculation of fair values of the Corporation’s debt securities. 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 six-month periods ended June 30, 2024 and 2023. In each of these tables, the amounts of interest income earned on tax-exempt securities and loans have been adjusted to a fully taxable-equivalent basis. Management believes presentation of net interest income on a fully taxable-equivalent basis, which is a non-GAAP financial measure, provides investors with meaningful information for purposes of comparing returns on tax-exempt securities and loans with returns on taxable securities and loans. Accordingly, the amount of net interest income on a fully taxable-equivalent basis reflected in these tables exceed the net interest income amounts presented in the consolidated financial statements. The discussion that follows is based on amounts in the related tables.

Three-Month Periods Ended June 30, 2024 and 2023

For the three-month periods, fully taxable equivalent net interest income (a non-GAAP measure) of $19,647,000 in 2024 was $954,000 (4.6%) lower than in 2023. The decrease in net interest income reflected an increase in interest expense of $4,232,000 and an increase in interest income of $3,278,000. As presented in Table VI, the net impact of changes in volume of earning assets and interest-bearing liabilities increased net interest income in the second quarter 2024 as compared to second quarter 2023 by $374,000, while the net impact of changes in interest rates (primarily increases) decreased net interest income by $1,328,000. As presented in Table V, the Net Interest Margin was 3.31% in the second quarter 2024 as compared to 3.53% in the second quarter 2023, and the “Interest Rate Spread” (excess of average rate of return on earning assets over average cost of funds on interest-bearing liabilities) decreased to 2.61% in 2024 from 2.98% in 2023. The average yield on earning assets of 5.32% was 0.48% higher in 2024 as compared to 2023, and the average rate on interest-bearing liabilities of 2.71% in 2024 was 0.85% higher.

INTEREST INCOME AND EARNING ASSETS

Interest income totaled $31,528,000 in 2024, an increase of $3,278,000, or 11.6% from 2023.

Interest and fees from loans receivable increased $3,158,000 in 2024 as compared to 2023. The fully taxable equivalent yield on loans in 2024 increased to 6.03% from 5.62% in 2023, reflecting the effects of rising interest rates on the loan portfolio. Average outstanding loans receivable increased $95,535,000 (5.3%) to $1,883,386,000 in 2024 from $1,787,851,000 in 2023. The increase in average loans receivable includes the impact of growth in commercial real estate and other commercial loans.

Income from interest-bearing due from banks totaled $516,000 in 2024, an increase of $207,000 from the total for 2023. The average balance of interest-bearing due from banks was $43,139,000 in 2024, up from $29,861,000 in 2023. Within this category, the largest asset balance in 2024 and 2023 has been interest-bearing deposits held with the Federal Reserve. The average yield on interest-bearing due from banks was 4.81% in 2024, up from 4.15% in 2023.

Interest income from available-for-sale debt securities, on a fully taxable-equivalent basis, totaled $2,763,000 in 2024, down $102,000 from 2023, as the average balance (at amortized cost) of available-for-sale debt securities decreased $65,672,000 as indicated in Table V. The average yield on available-for-sale debt securities was 2.43% in 2024, up from 2.20% in 2023.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

INTEREST EXPENSE AND INTEREST-BEARING LIABILITIES

Interest expense increased $4,232,000 to $11,881,000 in 2024 from $7,649,000 in 2023.

Interest expense on deposits increased $4,215,000, as the average rate on interest-bearing deposits increased to 2.46% in 2024 from 1.45% in 2023. Average total deposits (interest-bearing and noninterest-bearing) amounted to $2,016,520,000 for the second quarter 2024, up $68,115,000 (3.5%) from the second quarter 2023. Within average total deposits, average brokered deposits (primarily time and money market) were $68,311,000 with an average interest rate of 5.20% in the second quarter 2024, up from $45,230,000 with an average interest rate of 4.52% in the second quarter 2023. The deposit mix has changed as businesses and consumers have become more interest-rate sensitive in light of higher market rates.  In comparing the second quarter 2024 to the second quarter 2023, average time deposits increased $82,328,000 and average interest checking deposits increased $53,845,000, while average savings deposits decreased $39,904,000 and average noninterest-bearing demand deposits decreased $39,611,000.

Interest expense on short-term borrowings decreased $784,000 to $360,000 in 2024 from $1,144,000 in 2023. The average balance of short-term borrowings decreased to $27,732,000 in 2024 from $87,479,000 in 2023. The average rate on short-term borrowings was 5.22% in 2024 compared to 5.25% in 2023.

Interest expense on long-term borrowings (FHLB advances) increased $799,000 to $1,855,000 in 2024 from $1,056,000 in 2023. The average balance of long-term borrowings was $175,373,000 in 2024, up from an average balance of $110,982,000 in 2023. Over the last several months of 2023 and the first six months of 2024, the Corporation entered into FHLB advances maturing mainly in 2025 to 2029, effectively using the proceeds to reduce higher rate short-term borrowings. Borrowings are classified as long-term within the Tables based on their term at origination or assumption in business combinations. The average rate on long-term borrowings was 4.25% in 2024 compared to 3.82% in 2023.

Six-Month Periods Ended June 30, 2024 and 2023

For the six-month periods, fully taxable equivalent net interest income was $38,883,000 in 2024, which was $2,768,000 (6.6%) lower than in 2023. The decrease in net interest income reflected an increase in interest expense of $10,169,000 and an increase in interest income of $7,401,000. As presented in Table VI, the net impact of changes in volume of earning assets and interest-bearing liabilities increased net interest income for the six months ended June 30, 2024 over the six months ended June 30, 2023 by $1,236,000, while the net impact of changes in interest rates (primarily increases) decreased net interest income by $4,004,000. As presented in Table V, the Net Interest Margin was 3.30% in the first six months of 2024 as compared to 3.62% in the first six months of 2023, and the “Interest Rate Spread” (excess of average rate of return on earning assets over average cost of funds on interest-bearing liabilities) decreased to 2.62% in 2024 from 3.14% in 2023. The average yield on earning assets of 5.27% was 0.52% higher in 2024 as compared to 2023, while the average rate on interest-bearing liabilities of 2.65% in 2024 was 1.04% higher.

INTEREST INCOME AND EARNING ASSETS

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

Interest and fees from loans receivable increased $7,387,000 in 2024 as compared to 2023. In the six-month period ended June 30, 2024, the fully taxable equivalent yield on loans was 5.97%, up from 5.53% in the first half of 2023, reflecting the effects of rising interest rates on new loan originations and floating-rate loans. Average outstanding loans receivable increased $114,288,000 (6.5%) to $1,871,316,000 in 2024 from $1,757,028,000 in 2023. As noted above, the Corporation has experienced growth in commercial real estate and other commercial loans in 2023 and in the first six months of 2024.

Income from interest-bearing due from banks totaled $899,000 in 2024, an increase of $312,000 from 2023. The average balance of interest-bearing due from banks was $37,932,000 in 2024, up from $30,744,000 in 2023. Within this category, the largest asset balance in 2024 and 2023 has been interest-bearing deposits held with the Federal Reserve. The average yield on interest-bearing due from banks was 4.77% in 2024, up from 3.85% in 2023.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Interest income from available-for-sale debt securities decreased $321,000 in 2024 from 2023. The average balance of available-for-sale debt securities (at amortized cost) decreased to $459,070,000 in 2024 from $531,981,000 in 2023, as proceeds from maturities and sales have been used to help fund loan growth. The average yield on available-for-sale debt securities was 2.42% for 2024 as compared to 2.21% in 2023.

INTEREST EXPENSE AND INTEREST-BEARING LIABILITIES

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

Interest expense on deposits increased $9,876,000, as the average rate on interest-bearing deposits increased to 2.41% in 2024 from 1.20% in 2023. Average total deposits (interest-bearing and noninterest-bearing) amounted to $2,008,899,000 for the first six months of 2024, up $69,086,000 (3.6%) from the first six months of 2023. Within average total deposits, average brokered deposits (primarily time and money market) were $76,315,000 with an average interest rate of 5.21% in 2024, up from $30,785,000 with an average interest rate of 4.13% in 2023. Average time deposits increased $99,284,000 and average interest checking deposits increased $55,720,000, while average noninterest-bearing demand deposits decreased $49,045,000 and the average balance of savings accounts decreased $41,810,000.

Interest expense on borrowed funds increased $293,000 in 2024 as compared to 2023. Interest expense on short-term borrowings of $957,000 in 2024 was down from $2,241,000 in 2023 as the average balance of short-term borrowings decreased to $36,187,000 in 2024 from $89,611,000 in 2023. The average rate on short-term borrowings was 5.32% in 2024 compared to 5.04% in 2023. Interest expense on long-term borrowings (FHLB advances) increased $1,574,000 to $3,311,000 in 2024 from $1,737,000 in 2023. The average balance of long-term borrowings was $159,063,000 in 2024, up from an average balance of $95,899,000 in 2023. Borrowings are classified as long-term within the Tables based on their term at origination or assumption in business combinations. The average rate on long-term borrowings was 4.19% in 2024 compared to 3.65% in 2023.

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

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

TABLE IV - ANALYSIS OF INTEREST INCOME AND EXPENSE

	Three Months Ended							Six Months Ended
	June 30,				Increase/		.	June 30,				Increase/
(In Thousands)	2024		2023		(Decrease)			2024		2023		(Decrease)
INTEREST INCOME
Interest-bearing due from banks	$	516	$	309	$	207		$	899	$	587	$	312
Available-for-sale debt securities:
Taxable		2,137		2,152		(15)			4,273		4,363		(90)
Tax-exempt		626		713		(87)			1,249		1,480		(231)
Total available-for-sale debt securities		2,763		2,865		(102)			5,522		5,843		(321)
Loans receivable:
Taxable		27,490		24,362		3,128			54,193		46,793		7,400
Tax-exempt		730		700		30			1,400		1,413		(13)
Total loans receivable		28,220		25,062		3,158			55,593		48,206		7,387
Other earning assets		29		14		15			45		22		23
Total Interest Income		31,528		28,250		3,278			62,059		54,658		7,401
INTEREST EXPENSE
Interest-bearing deposits:
Interest checking		2,836		1,512		1,324			5,642		2,499		3,143
Money market		1,917		1,112		805			4,097		1,985		2,112
Savings		52		63		(11)			107		126		(19)
Time deposits		4,509		2,412		2,097			8,359		3,719		4,640
Total interest-bearing deposits		9,314		5,099		4,215			18,205		8,329		9,876
Borrowed funds:
Short-term		360		1,144		(784)			957		2,241		(1,284)
Long-term - FHLB advances		1,855		1,056		799			3,311		1,737		1,574
Senior notes, net		120		119		1			240		239		1
Subordinated debt, net		232		231		1			463		461		2
Total borrowed funds		2,567		2,550		17			4,971		4,678		293
Total Interest Expense		11,881		7,649		4,232			23,176		13,007		10,169
Net Interest Income	$	19,647	$	20,601	$	(954)		$	38,883	$	41,651	$	(2,768)

Note: Interest income from tax-exempt securities and loans has been adjusted to a fully taxable-equivalent basis (a non-GAAP measure), using the Corporation’s marginal federal income tax rate of 21%. The following table is a reconciliation of net interest income under U.S. GAAP as compared to net interest income as adjusted to a fully taxable-equivalent basis.

(In Thousands)	Three Months Ended						Six Months Ended
	June 30,				Increase/		June 30,				Increase/
	2024		2023		(Decrease)		2024		2023		(Decrease)
Net Interest Income Under U.S. GAAP	$	19,445	$	20,362	$	(917)	$	38,486	$	41,143	$	(2,657)
Add: fully taxable-equivalent interest income adjustment from tax-exempt securities		67		103		(36)		136		230		(94)
Add: fully taxable-equivalent interest income adjustment from tax-exempt loans		135		136		(1)		261		278		(17)
Net Interest Income as adjusted to a fully taxable-equivalent basis	$	19,647	$	20,601	$	(954)	$	38,883	$	41,651	$	(2,768)

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

TABLE V - Analysis of Average Daily Balances and Rates

(Dollars in Thousands)	Three Months				Three Months				Six Months				Six Months
	Ended		Rate of		Ended		Rate of		Ended		Rate of		Ended		Rate of
	6/30/2024		Return/		6/30/2023		Return/		6/30/2024		Return/		6/30/2023		Return/
	Average		Cost of		Average		Cost of		Average		Cost of		Average		Cost of
	Balance		Funds %		Balance		Funds %		Balance		Funds %		Balance		Funds %
EARNING ASSETS
Interest-bearing due from banks	$	43,139	4.81	%	$	29,861	4.15	%	$	37,932	4.77	%	$	30,744	3.85	%
Available-for-sale debt securities, at amortized cost:
Taxable		343,971	2.50	%		395,725	2.18	%		345,928	2.48	%		402,878	2.18	%
Tax-exempt		112,921	2.23	%		126,839	2.25	%		113,142	2.22	%		129,103	2.31	%
Total available-for-sale debt securities		456,892	2.43	%		522,564	2.20	%		459,070	2.42	%		531,981	2.21	%
Loans receivable:
Taxable		1,792,556	6.17	%		1,697,740	5.76	%		1,783,310	6.11	%		1,666,052	5.66	%
Tax-exempt		90,830	3.23	%		90,111	3.12	%		88,006	3.20	%		90,976	3.13	%
Total loans receivable		1,883,386	6.03	%		1,787,851	5.62	%		1,871,316	5.97	%		1,757,028	5.53	%
Other earning assets		2,176	5.36	%		1,325	4.24	%		1,780	5.08	%		1,263	3.51	%
Total Earning Assets		2,385,593	5.32	%		2,341,601	4.84	%		2,370,098	5.27	%		2,321,016	4.75	%
Cash		22,396				23,084				21,422				22,682
Unrealized loss on securities		(56,765)				(56,564)				(53,807)				(58,300)
Allowance for credit losses		(20,290)				(18,795)				(19,887)				(17,929)
Bank-owned life insurance		50,018				31,410				52,242				31,339
Bank premises and equipment		21,994				21,140				21,891				21,328
Intangible assets		54,827				55,228				54,876				55,279
Other assets		89,859				69,213				86,369				68,278
Total Assets	$	2,547,632			$	2,466,317			$	2,533,204			$	2,443,693
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
Interest checking	$	517,145	2.21	%	$	463,300	1.31	%	$	516,025	2.20	%	$	460,305	1.09	%
Money market		340,038	2.27	%		328,581	1.36	%		351,451	2.34	%		346,514	1.16	%
Savings		207,530	0.10	%		247,434	0.10	%		210,404	0.10	%		252,214	0.10	%
Time deposits		457,885	3.96	%		375,557	2.58	%		443,485	3.79	%		344,201	2.18	%
Total interest-bearing deposits		1,522,598	2.46	%		1,414,872	1.45	%		1,521,365	2.41	%		1,403,234	1.20	%
Borrowed funds:
Short-term		27,732	5.22	%		87,479	5.25	%		36,187	5.32	%		89,611	5.04	%
Long-term - FHLB advances		175,373	4.25	%		110,982	3.82	%		159,063	4.19	%		95,899	3.65	%
Senior notes, net		14,856	3.25	%		14,789	3.23	%		14,848	3.25	%		14,781	3.26	%
Subordinated debt, net		24,759	3.77	%		24,648	3.76	%		24,745	3.76	%		24,634	3.77	%
Total borrowed funds		242,720	4.25	%		237,898	4.30	%		234,843	4.26	%		224,925	4.19	%
Total Interest-bearing Liabilities		1,765,318	2.71	%		1,652,770	1.86	%		1,756,208	2.65	%		1,628,159	1.61	%
Demand deposits		493,922				533,533				487,534				536,579
Other liabilities		29,972				28,217				29,679				26,740
Total Liabilities		2,289,212				2,214,520				2,273,421				2,191,478
Stockholders' equity, excluding accumulated other comprehensive loss		302,758				296,015				301,895				297,797
Accumulated other comprehensive loss		(44,338)				(44,218)				(42,112)				(45,582)
Total Stockholders' Equity		258,420				251,797				259,783				252,215
Total Liabilities and Stockholders' Equity	$	2,547,632			$	2,466,317			$	2,533,204			$	2,443,693
Interest Rate Spread			2.61	%			2.98	%			2.62	%			3.14	%
Net Interest Income/Earning Assets			3.31	%			3.53	%			3.30	%			3.62	%
Total Deposits (Interest-bearing and Demand)	$	2,016,520			$	1,948,405			$	2,008,899			$	1,939,813

(1) Annualized rates of return on tax-exempt securities and loans are presented on a fully taxable-equivalent basis, using the Corporation’s marginal federal income tax rate of 21%.

(2) Nonaccrual loans have been included with loans for the purpose of analyzing net interest earnings.

(3) Rates of return on earning assets and costs of funds are presented on an annualized basis.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

TABLE VI - ANALYSIS OF VOLUME AND RATE CHANGES

(In Thousands)	Three Months Ended 6/30/2024 vs. 6/30/2023						.	Six Months Ended 6/30/2024 vs. 6/30/2023
	Change in		Change in		Total			Change in		Change in		Total
	Volume		Rate		Change			Volume		Rate		Change
EARNING ASSETS
Interest-bearing due from banks	$	145	$	62	$	207		$	155	$	157	$	312
Available-for-sale debt securities:
Taxable		(303)		288		(15)			(655)		565		(90)
Tax-exempt		(78)		(9)		(87)			(175)		(56)		(231)
Total available-for-sale debt securities		(381)		279		(102)			(830)		509		(321)
Loans receivable:
Taxable		1,370		1,758		3,128			3,486		3,914		7,400
Tax-exempt		3		27		30			(44)		31		(13)
Total loans receivable		1,373		1,785		3,158			3,442		3,945		7,387
Other earning assets		10		5		15			11		12		23
Total Interest Income		1,147		2,131		3,278			2,778		4,623		7,401
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
Interest checking		197		1,127		1,324			337		2,806		3,143
Money market		32		773		805			28		2,084		2,112
Savings		(10)		(1)		(11)			(18)		(1)		(19)
Time deposits		669		1,428		2,097			1,302		3,338		4,640
Total interest-bearing deposits		888		3,327		4,215			1,649		8,227		9,876
Borrowed funds:
Short-term		(789)		5		(784)			(1,401)		117		(1,284)
Long-term - FHLB advances		672		127		799			1,289		285		1,574
Senior notes, net		1		0		1			2		(1)		1
Subordinated debt, net		1		0		1			3		(1)		2
Total borrowed funds		(115)		132		17			(107)		400		293
Total Interest Expense		773		3,459		4,232			1,542		8,627		10,169
Net Interest Income	$	374	$	(1,328)	$	(954)		$	1,236	$	(4,004)	$	(2,768)

(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 second quarter 2024 of $1,366,000 was $53,000 lower than the provision for the second quarter 2023 and the provision for the six months ended June 30, 2024 of $2,518,000 was $310,000 lower than the amount for the first six months of 2023 due to a lower amount of pre-tax income in 2024. The effective tax rate (tax provision as a percentage of pre-tax income) was 18.3% in the second quarter 2024 compared to 19.0% in the second quarter 2023 and 18.1% for the first six months of 2024 as compared to 18.7% for the first six months of 2023. The Corporation’s effective tax rates differ from the statutory rate of 21% principally because of the effects of tax-exempt interest income, nondeductible interest expense, state income taxes and other permanent differences.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

The Corporation recognizes deferred tax assets and liabilities based on differences between the financial statement carrying amounts and the tax basis of assets and liabilities. The net deferred tax asset at June 30, 2024 and December 31, 2023 represents the following temporary difference components:

	June 30,		December 31,
(In Thousands)	2024		2023
Deferred tax assets:
Unrealized holding losses on securities	$	11,089	$	10,335
Allowance for credit losses on loans		4,475		4,230
Purchase accounting adjustments on loans		402		470
Deferred compensation		1,435		1,352
Operating leases liability		758		787
Deferred loan origination fees		753		731
Net operating loss carryforward		482		541
Accrued incentive compensation		319		463
Other deferred tax assets		1,312		1,316
Total deferred tax assets		21,025		20,225
Deferred tax liabilities:
BOLI surrender		950		950
Defined benefit plans - ASC 835		95		119
Bank premises and equipment		280		291
Core deposit intangibles		499		544
Right-of-use assets from operating leases		758		787
Other deferred tax liabilities		68		93
Total deferred tax liabilities		2,650		2,784
Deferred tax asset, net	$	18,375	$	17,441

The Corporation regularly reviews deferred tax assets for recoverability based on history of earnings, expectations for future earnings and expected timing of reversals of temporary differences. Realization of deferred tax assets ultimately depends on the existence of sufficient taxable income.

Management believes the recorded net deferred tax asset at June 30, 2024 is fully realizable; however, if management determines the Corporation will be unable to realize all or part of the net deferred tax asset, the Corporation would adjust the deferred tax asset, which would negatively impact earnings.

SECURITIES

Management continually evaluates several objectives in determining the size, securities mix and other characteristics of the available-for-sale debt securities (investment) portfolio. Key objectives include supporting liquidity needs and maximizing return on earning assets within reasonable risk parameters.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

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

(Dollars In Thousands)	June 30, 2024					December 31, 2023					December 31, 2022					December 31, 2021
	Amortized		Fair			Amortized		Fair			Amortized		Fair			Amortized		Fair
	Cost		Value			Cost		Value			Cost		Value			Cost		Value
Obligations of the U.S. Treasury	$	10,323		9,257		$	12,325		11,290		$	35,166	$	31,836		$	25,058	$	24,912
Obligations of U.S. Government agencies		10,582		9,350			11,119		9,946			25,938		23,430			23,936		24,091
Bank holding company debt securities		28,955		23,657			28,952		23,500			28,945		25,386			18,000		17,987
Obligations of states and political subdivisions:
Tax-exempt		113,659		102,020			113,464		104,199			146,149		132,623			143,427		148,028
Taxable		56,294		47,481			58,720		50,111			68,488		56,812			72,182		72,765
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		104,708		93,874			105,549		95,405			112,782		99,941			98,048		98,181
Residential collateralized mortgage obligations		46,623		42,565			50,212		46,462			44,868		40,296			44,015		44,247
Commercial mortgage-backed securities		74,510		64,718			76,412		66,682			91,388		79,686			86,926		87,468
Private label commercial mortgage-backed securities		8,290		8,223			8,215		8,160			8,070		8,023			0		0
Total Available-for-Sale Debt Securities	$	453,944	$	401,145		$	464,968	$	415,755		$	561,794	$	498,033		$	511,592	$	517,679
Aggregate Unrealized (Loss) Gain			$	(52,799)				$	(49,213)				$	(63,761)				$	6,087
Aggregate Unrealized (Loss) Gain as a % of Amortized Cost				(11.6)	%				(10.6)	%				(11.3)	%				1.2	%
Market Yield on 5-Year U.S. Treasury Obligations (a)				4.33	%				3.84	%				3.99	%				1.26	%

(a) Source: Treasury.gov (Daily Treasury Par Yield Curve Rates)

As reflected in the table above, the fair value of available-for-sale securities was lower than the amortized cost basis by $52,799,000, or 11.6%, at June 30, 2024, $49,213,000, or 10.6%, at December 31, 2023 and $63,761,000, or 11.3%, at December 31, 2022 while the aggregate unrealized gain position was $6,087,000, or 1.2% at December 31, 2021. The volatility in the fair value of the portfolio, including the reduction in fair value, resulted from changes in interest rates. As shown above, the market yield on the 5-year U.S. Treasury Note was 0.49% higher at June 30, 2024 in comparison to December 31, 2023, 0.34% higher than at December 31, 2022 and 3.07% higher than at December 31, 2021. The table also shows that the amortized cost basis of the portfolio has been reduced to $453,944,000 at June 30, 2024 from $561,794,000 at December 31, 2022 as proceeds from maturities and sales have been used to help fund loan growth.

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

As described in Note 5 to the unaudited consolidated financial statements, management determined the Corporation does not have the intent to sell, nor is it more likely than not that it will be required to sell, available-for-sale debt securities in an unrealized loss position at June 30, 2024 before it is able to recover the amortized cost basis. Further, management reviewed the Corporation’s holdings as of June 30, 2024 and concluded there were no credit-related declines in fair value. Additional information related to the types of securities held at June 30, 2024, other than securities issued or guaranteed by U.S. Government entities or agencies, is as follows:

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

● Bank holding company debt securities – All of the Corporation’s holdings of bank holding company debt securities were investment grade and there have been no payment defaults. 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 June 30, 2024, the securities have external ratings ranging from BBB-/Baa3 to A-.

● Obligations of states and political subdivisions (municipal bonds) – All of the Corporation’s holdings of municipal bonds were investment grade and there have been no payment defaults. Summary ratings information at June 30, 2024, based on the amortized cost basis and reflecting the lowest enhanced or underlying rating by Moody’s, Standard & Poors or Fitch, is as follows: AAA or pre-refunded – 22% of the portfolio; AA – 71%; A – 7%.

● Private label commercial mortgage-backed securities (PLCMBS) – There were two PLCMBS securities, both of which were from the most senior payment (subordination) classes of their respective issuances. These securities were investment grade (rated Aaa), and there have been no payment defaults on these securities.

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

FINANCIAL CONDITION

This section includes information regarding the Corporation’s lending activities or other significant changes or exposures that are not otherwise addressed in Management’s Discussion and Analysis. Significant changes in the average balances of the Corporation’s earning assets and interest-bearing liabilities are described in the Net Interest Income section of Management’s Discussion and Analysis. Other significant balance sheet items, including securities, the allowance for credit losses and stockholders’ equity, are discussed in separate sections of Management’s Discussion and Analysis. Management does not expect the amount of purchases of bank premises and equipment to have a material effect on the Corporation’s financial condition in 2024.

Table VII shows the composition of the loan portfolio at June 30, 2024 and at year-end from 2019 through 2023. The significant loan growth in 2020 reflects the impact of an acquisition of a bank located in Southeastern Pennsylvania. Primarily as a result of the expansion into Southeastern Pennsylvania, as well as expansion by opening two offices in Southcentral Pennsylvania, the mix of the loan portfolio has become predominantly commercial in nature. At June 30, 2024, commercial loans represented 75% of the portfolio while residential loans totaled 22% of the portfolio.

Also included in Table VII is additional detail regarding the composition of the non-owner occupied commercial real estate loan portfolio at June 30, 2024. The data in Table VII shows the recorded investment in non-owner occupied commercial real estate loans for which the primary purpose is utilization of office space by third parties was $96,642,000, or 5.1% of gross loans receivable. At June 30, 2024, within this segment there were two loans with a total recorded investment of $3,885,000 in nonaccrual status with specific allowances totaling $493,000. The remainder of the non-owner occupied commercial real estate loans with a primary purpose of office space utilization were in accrual status with no specific allowance at June 30, 2024. The Provision and Allowance for Credit Losses section of Management’s Discussion and Analysis provides additional related discussion.

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 $36,383,000 at June 30, 2024 down from $38,652,000 at December 31, 2023.

The Corporation is a party to financial instruments with off-balance risk, including commitments to extend credit and standby letters of credit. At June 30, 2024, the total contract amount of commitments to extend credit was $387,563,000 as compared to $395,997,000 at December 31, 2023, and the contract amount of standby letters of credit increased to $57,532,000 at June 30, 2024 from $19,158,000 at December 31, 2023. The increase in standby letters of credit at June 30, 2024 included a $40,000,000 letter of credit with a one-year term, subject to annual review for possible renewal, that was issued to guarantee performance on behalf of a municipal customer. This letter of credit is collateralized by the municipal customer’s investments in certificates of deposit and marketable securities.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

The Corporation maintains an allowance for off-balance sheet credit exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, commercial letters of credit and credit enhancement obligations related to residential mortgage loans sold with recourse, when there is a contractual obligation to extend credit and when this extension of credit is not unconditionally cancellable (i.e. commitment cannot be canceled at any time). The allowance for off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over their estimated lives. The allowance for credit losses for off-balance sheet exposures of $683,000 at June 30, 2024 and $690,000 at December 31, 2023, is included in accrued interest and other liabilities on the unaudited consolidated balance sheets.

The Corporation originates and sells residential mortgage loans to the secondary market through the MPF Xtra program administered by the Federal Home Loan Banks of Pittsburgh and Chicago. Residential mortgages originated and sold through the MPF Xtra program consist primarily of conforming, prime loans sold to the Federal National Mortgage Association (Fannie Mae), a quasi-government entity. The Corporation also originates and sells residential mortgage loans to the secondary market through the MPF Original program, administered by the Federal Home Loan Banks of Pittsburgh and Chicago. Residential mortgages originated and sold through the MPF Original program consist primarily of conforming, prime loans sold to the Federal Home Loan Bank of Pittsburgh.

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

At June 30, 2024, outstanding balances of loans sold and serviced through the MPF Xtra and Original programs totaled $321,136,000, including loans sold through the MPF Xtra program of $149,523,000 and loans sold through the Original program of $171,613,000. At December 31, 2023, outstanding balances of loans sold and serviced through the two programs totaled $323,298,000, including loans sold through the MPF Xtra program of $150,015,000 and loans sold through the Original Program of $173,283,000. Based on the fairly limited volume of required repurchases to date, no allowance has been established for representation and warranty exposures as of June 30, 2024 and December 31, 2023.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

TABLE VII - SUMMARY OF LOANS BY TYPE

Summary of Loans by Type

(In Thousands)		June 30,	December 31,
	2024		2023		2022		2021		2020		2019
Commercial real estate - non-owner occupied:
Non-owner occupied	$	489,514	$	499,104	$	454,386	$	358,352	$	328,662	$	208,579
Multi-family (5 or more) residential		67,154		64,076		55,406		49,054		54,893		30,474
1-4 Family - commercial purpose		167,296		174,162		165,805		175,027		198,918		147,121
Total commercial real estate - non-owner occupied		723,964		737,342		675,597		582,433		582,473		386,174
Commercial real estate - owner occupied		267,169		237,246		205,910		196,083		191,075		78,729
All other commercial loans:
Commercial and industrial		77,339		78,832		95,368		118,488		222,923		67,288
Commercial lines of credit		130,924		117,236		141,444		106,338		105,802		92,509
Political subdivisions		89,460		79,031		86,663		75,401		46,295		46,054
Commercial construction and land		114,162		104,123		60,892		59,505		41,000		32,717
Other commercial loans		19,221		20,471		25,710		26,498		29,310		28,735
Total all other commercial loans		431,106		399,693		410,077		386,230		445,330		267,303
Residential mortgage loans:
1-4 Family - residential		383,494		389,262		363,005		327,593		356,532		388,415
1-4 Family residential construction		26,330		24,452		30,577		23,151		18,736		14,640
Total residential mortgage		409,824		413,714		393,582		350,744		375,268		403,055
Consumer loans:
Consumer lines of credit (including HELOCs)		42,325		41,503		36,650		33,522		34,566		30,810
All other consumer		18,819		18,641		18,224		15,837		15,497		16,151
Total consumer		61,144		60,144		54,874		49,359		50,063		46,961
Total		1,893,207		1,848,139		1,740,040		1,564,849		1,644,209		1,182,222
Less: allowance for credit losses on loans		(20,382)		(19,208)		(16,615)		(13,537)		(11,385)		(9,836)
Loans, net	$	1,872,825	$	1,828,931	$	1,723,425	$	1,551,312	$	1,632,824	$	1,172,386

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

NON-OWNER OCCUPIED COMMERCIAL REAL ESTATE

(In Thousands)	June 30,		% of Non-owner		% of
	2024		Occupied CRE		Total Loans
Industrial	$	98,840	20.2	%	5.2	%
Office		96,642	19.7	%	5.1	%
Retail		93,552	19.1	%	4.9	%
Hotels		72,915	14.9	%	3.9	%
Mixed Use		58,891	12.0	%	3.1	%
Other		68,674	14.0	%	3.6	%
Total Non-owner Occupied CRE Loans	$	489,514
Total Gross Loans	$	1,893,207

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

PROVISION AND ALLOWANCE FOR CREDIT LOSSES

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

(In Thousands)	3 Months		3 Months		6 Months		6 Months
	Ended		Ended		Ended		Ended
	June 30,		June 30,		June 30,		June 30,
	2024		2023		2024		2023
Provision (credit) for credit losses:
Loans receivable	$	566	$	836	$	1,526	$	524
Off-balance sheet exposures		(1)		(24)		(7)		(64)
Total provision for credit losses	$	565	$	812	$	1,519	$	460

For the quarter ended June 30, 2024, there was a provision for credit losses of $565,000, a decrease of $247,000 compared to $812,000 in the second quarter 2023.  For the six months ended June 30, 2024, there was a provision for credit losses of $1,519,000, an increase of $1,059,000 compared to $460,000 in 2023. The ACL as a percentage of gross loans receivable increased to 1.08% at June 30, 2024 from 1.04% at December 31, 2023; in comparison, the ACL dropped to 1.05% of gross loans receivable at June 30, 2023 from 1.08% upon adoption of CECL on January 1, 2023.

As shown in Table IX, the ACL on loans individually evaluated increased to $1,230,000 at June 30, 2024 from $743,000 at December 31, 2023. The increase in individual ACLs is primarily related to two borrowers: (1) at June 30, 2024, an ACL of $447,000 was recorded on loans totaling $2,330,000 for land related to a planned commercial construction project, and (2) consistent with an updated collateral valuation assessment, the ACL increased $229,000 to $234,000 at June 30, 2024 on commercial loans to one borrower totaling $278,000 at June 30, 2024. A partial offset to the net increase in individual ACLs resulted from a net charge-off of $117,000 in the second quarter 2024 on a non-owner occupied commercial loan for which there was an ACL of $124,000 at December 31, 2023. At June 30, 2024, there was no ACL on the loan and the carrying value of the loan, net of the partial charge-off, was $3,276,000. At June 30, 2024, there were six commercial relationships with loans receivable totaling $6,613,000 for which individual ACLs were recorded, including two non-owner occupied office loans with total outstanding balances of $3,885,000 and individual ACLs totaling $493,000.

Table IX also shows that, at June 30, 2024 as compared to December 31, 2023, the ACL related to collectively evaluated commercial loans increased by a total of $1,225,000 and the ACL on collectively evaluated consumer loans increased $114,000, while the ACL on collectively evaluated residential mortgage loans decreased $652,000. The increase for commercial loans includes the impact of an increase in outstanding loans and a net increase in qualitative factors used in the ACL evaluation, partially offset by a reduction from the impact of an economic forecast and  the impact to the ACL valuation of lower estimated net charge-offs based on recent experience. The decrease for residential mortgage loans includes a reduction from the impact of an economic forecast, a net decrease in qualitative factors and lower net charge-offs based on recent experience.

Table X shows that total nonperforming assets as a percentage of total assets was 0.76% at June 30, 2024, up from 0.75% at December 31, 2023 but lower than at year-end 2019 through 2022. Total nonperforming assets were $19.8 million at June 30, 2024, up from $18.8 million at December 31, 2023 but lower than the totals at year-end 2020 through 2022. Nonperforming loans included increases in nonaccrual loans of $4.4 million from December 31, 2023, while loans past due 90 days or more still accruing decreased $3.2 million from December 31, 2023. In the first six months of 2024, the increase in nonaccrual loans included the commercial construction and land loans to one borrower totaling $2,330,000 noted above.

In the first six months of 2024, net charge-offs were low by historical standards, totaling $352,000, or 0.02% of average outstanding loans. Table VIII shows annual average net charge-off rates ranging from a high of 0.26% in 2022 to a low of 0.01% in 2023.

Over the period 2019-2023 and the first six months of 2024, each period includes a few large commercial relationships that have required significant monitoring and workout efforts. As a result, a limited number of relationships may significantly impact the total amount of

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

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

Management believes it has been conservative in its decisions concerning identification of loans requiring individual evaluation for credit loss, estimates of loss, and nonaccrual status; however, the actual losses realized from these relationships could vary materially from the allowances calculated as of June 30, 2024. Management continues to closely monitor its commercial loan relationships for credit losses and will adjust its estimates of loss and decisions concerning nonaccrual status, if appropriate.

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

TABLE VIII - ANALYSIS OF THE ALLOWANCE FOR CREDIT LOSSES ON LOANS

(Dollars In Thousands)	Six Months Ended
	June 30,			June 30,			Years Ended December 31,
	2024			2023			2023			2022			2021			2020			2019
Balance, beginning of year	$	19,208		$	16,615		$	16,615		$	13,537		$	11,385		$	9,836		$	9,309
Adoption of ASU 2016-13 (CECL)		0			2,104			2,104			0			0			0			0
Charge-offs		(416)			(201)			(356)			(4,245)			(1,575)			(2,465)			(379)
Recoveries		64			14			92			68			66			101			57
Net charge-offs		(352)			(187)			(264)			(4,177)			(1,509)			(2,364)			(322)
Provision for credit losses on loans		1,526			524			753			7,255			3,661			3,913			849
Balance, end of year	$	20,382		$	19,056		$	19,208		$	16,615		$	13,537		$	11,385		$	9,836
Net charge-offs as a % of average loans		0.02	%		0.01	%		0.01	%		0.26	%		0.09	%		0.16	%		0.03	%

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

(In Thousands)	June 30,		December 31,		January 1,
	2024		2023		2023
Loans individually evaluated	$	1,230	$	743	$	751
Loans collectively evaluated:
Commercial real estate - nonowner occupied		11,684		10,379		9,641
Commercial real estate - owner occupied		2,667		2,111		1,765
All other commercial loans		3,175		3,811		3,914
Residential mortgage		1,112		1,764		2,407
Consumer		514		400		241
Total Allowance	$	20,382	$	19,208	$	18,719

PRIOR TO CECL ADOPTION

(In Thousands)	As of December 31,
	2022		2021		2020		2019
ASC 310 - Impaired loans - individually evaluated	$	453	$	740	$	925	$	1,051
ASC 450 - Collectively evaluated:
Commercial		10,845		7,553		5,545		3,913
Residential mortgage		4,073		4,338		4,091		4,006
Consumer		244		235		239		281
Unallocated		1,000		671		585		585
Total Allowance	$	16,615	$	13,537	$	11,385	$	9,836

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

TABLE X - PAST DUE LOANS AND NONPERFORMING ASSETS

(Dollars In Thousands)	June 30,			As of December 31,
	2024			2023			2022			2021			2020			2019
Loans individually evaluated with a valuation allowance	$	6,613		$	7,786		$	3,460		$	6,540		$	8,082		$	3,375
Loans individually evaluated without a valuation allowance		8,567			3,478			14,871			2,636			2,895			1,670
Purchased credit impaired loans		0			0			1,027			6,558			6,841			441
Total individually evaluated loans	$	15,180		$	11,264		$	19,358		$	15,734		$	17,818		$	5,486
Total loans past due 30-89 days and still accruing	$	3,088		$	9,275		$	7,079		$	5,106		$	5,918		$	8,889
Nonperforming assets:
Purchased credit impaired loans	$	0		$	0		$	1,027		$	6,558		$	6,841		$	441
Other nonaccrual loans		19,579			15,177			22,058			12,441			14,575			8,777
Total nonaccrual loans		19,579			15,177			23,085			18,999			21,416			9,218
Total loans past due 90 days or more and still accruing		20			3,190			2,237			2,219			1,975			1,207
Total nonperforming loans		19,599			18,367			25,322			21,218			23,391			10,425
Foreclosed assets held for sale (real estate)		181			478			275			684			1,338			2,886
Total nonperforming assets	$	19,780		$	18,845		$	25,597		$	21,902		$	24,729		$	13,311
Total nonperforming loans as a % of loans		1.04	%		0.99	%		1.46	%		1.36	%		1.42	%		0.88	%
Total nonperforming assets as a % of assets		0.76	%		0.75	%		1.04	%		0.94	%		1.10	%		0.80	%
Allowance for credit losses as a % of total loans		1.08	%		1.04	%		0.95	%		0.87	%		0.69	%		0.83	%

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

LIQUIDITY

Liquidity is the ability to quickly raise cash at a reasonable cost. An adequate liquidity position permits the Corporation to pay creditors, compensate for unforeseen deposit fluctuations and fund unexpected loan demand.

The Corporation maintains overnight borrowing facilities with several correspondent banks that provide a source of day-to-day liquidity. Also, the Corporation maintains borrowing facilities with the Federal Home Loan Bank of Pittsburgh, secured by various mortgage loans.

The Corporation has a line of credit with the Federal Reserve Bank of Philadelphia’s Discount Window. Management intends to use this line of credit as a contingency funding source. As collateral for the line, the Corporation has pledged available-for-sale debt securities with a carrying value of $19,718,000 at June 30, 2024.

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

	Outstanding				Available				Total Credit
(In Thousands)	June 30,		December 31,		June 30,		December 31,		June 30,		December 31,
	2024		2023		2024		2023		2024		2023
Federal Home Loan Bank of Pittsburgh	$	223,853	$	189,021	$	719,722	$	737,824	$	943,575	$	926,845
Federal Reserve Bank Discount Window		0		0		18,884		19,982		18,884		19,982
Other correspondent banks		0		0		75,000		75,000		75,000		75,000
Total credit facilities	$	223,853	$	189,021	$	813,606	$	832,806	$	1,037,459	$	1,021,827

At June 30, 2024, the Corporation’s outstanding credit facilities with the Federal Home Loan Bank of Pittsburgh consisted of short-term advances of $15,000,000, long-term borrowings of $185,645,000 and letters of credit totaling $23,208,000. At December 31, 2023, the Corporation’s outstanding credit facilities with the Federal Home Loan Bank of Pittsburgh consisted of overnight and short-term borrowings of $31,500,000, long-term borrowings of $138,313,000 and letters of credit totaling $19,208,000. 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 June 30, 2024, the carrying value of available-for-sale securities in excess of amounts required to meet pledging or repurchase agreement obligations was $238,375,000.

Deposits totaled $2,059,309,000 at June 30, 2024, up $44,503,000 (2.2%) from $2,014,806,000 at December 31, 2023. Excluding brokered deposits, adjusted total deposits at June 30, 2024 were higher by $49,371,000 (2.5%) as compared to December 31, 2023. Brokered deposits totaled $59,501,000 at June 30, 2024, a decrease of $4,868,000 from December 31, 2023. The increase in total deposits, excluding brokered deposits, included an increase in total deposits from municipal relationships of $16,587,000 to $294,299,000 at June 30, 2024 from $277,712,000 at December 31, 2023, consistent with historic seasonal trends for the Corporation’s Pennsylvania-based municipal depositors.

As shown in the table below, at June 30, 2024, estimated uninsured deposits totaled $605.8 million, or 29.2% of total deposits, as compared to $592.2 million or 29.2% of total deposits at December 31, 2023. Included in uninsured deposits are deposits collateralized by securities (almost exclusively municipal deposits) totaling $158.3 million at June 30, 2024. As shown in the table below, total uninsured and uncollateralized deposits amounted to 21.6% of total deposits at June 30, 2024, as compared to 21.7% at December 31, 2023.

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

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Uninsured Deposits Information	June 30,			December 31,
	2024			2023
Total Deposits - C&N Bank	$	2,074,806		$	2,030,909
Estimated Total Uninsured Deposits	$	605,765		$	592,206
Portion of Uninsured Deposits that are
Collateralized		158,268			151,031
Uninsured and Uncollateralized Deposits	$	447,497		$	441,175
Uninsured and Uncollateralized Deposits as
a % of Total Deposits		21.6	%		21.7	%
Available Funding from Credit Facilities	$	813,606		$	832,806
Fair Value of Available-for-sale Debt
Securities in Excess of Pledging Obligations		238,375			256,058
Highly Liquid Available Funding	$	1,051,981		$	1,088,864
Highly Liquid Available Funding as a % of
Uninsured Deposits		173.7	%		183.9	%
Highly Liquid Available Funding as a % of
Uninsured and Uncollateralized Deposits		235.1	%		246.8	%

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

STOCKHOLDERS’ EQUITY AND CAPITAL ADEQUACY

In August 2018, the Federal Reserve Board issued an interim final rule that expanded applicability of the Board’s small bank holding company policy statement. The interim final rule raised the policy statement’s asset threshold from $1 billion to $3 billion in total consolidated assets for a bank holding company or savings and loan holding company that: (1) is not engaged in significant nonbanking activities; (2) does not conduct significant off-balance sheet activities; and (3) does not have a material amount of debt or equity securities, other than trust-preferred securities, outstanding. The interim final rule provides that, if warranted for supervisory purposes, the Federal Reserve may exclude a company from the threshold increase. Management believes the Corporation meets the conditions of the Federal Reserve’s small bank holding company policy statement and is therefore excluded from consolidated capital requirements at June 30, 2024; however, C&N Bank remains subject to regulatory capital requirements administered by the federal banking agencies.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Details concerning capital ratios at June 30, 2024 and December 31, 2023 are presented below. Management believes, as of June 30, 2024, that C&N Bank meets all capital adequacy requirements to which it is subject and maintains a capital conservation buffer (described in more detail below) that allows the Bank to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers. Further, as reflected in the table below, the Corporation’s and C&N Bank’s capital ratios at June 30, 2024 and December 31, 2023 exceed the Corporation’s Board policy threshold levels.

(Dollars in Thousands)											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
June 30, 2024:
Total capital to risk-weighted assets:
Consolidated	$	295,624	15.50	%	N/A	N/A		N/A	N/A		N/A	N/A		$	209,805	≥11	%
C&N Bank		280,826	14.75	%	152,290	≥8	%	199,881	≥10.5	%	190,363	≥10	%		209,399	≥11	%
Tier 1 capital to risk-weighted assets:
Consolidated		249,787	13.10	%	N/A	N/A		N/A	N/A		N/A	N/A			171,659	≥9	%
C&N Bank		259,762	13.65	%	114,218	≥6	%	161,808	≥8.5	%	152,290	≥8	%		171,326	≥9	%
Common equity tier 1 capital to risk-weighted assets:
Consolidated		249,787	13.10	%	N/A	N/A		N/A	N/A		N/A	N/A			143,049	≥7.5	%
C&N Bank		259,762	13.65	%	85,663	≥4.5	%	133,254	≥7.0	%	123,736	≥6.5	%		142,772	≥7.5	%
Tier 1 capital to average assets:
Consolidated		249,787	9.85	%	N/A	N/A		N/A	N/A		N/A	N/A			202,969	≥8	%
C&N Bank		259,762	10.30	%	100,919	≥4	%	N/A	N/A		126,149	≥5	%		201,838	≥8	%
December 31, 2023:
Total capital to risk-weighted assets:
Consolidated	$	290,425	15.67	%	N/A	N/A		N/A	N/A		N/A	N/A		$	203,809	≥11	%
C&N Bank		275,307	14.89	%	147,925	≥8	%	194,151	≥10.5	%	184,906	≥10	%		203,396	≥11	%
Tier 1 capital to risk-weighted assets:
Consolidated		245,810	13.27	%	N/A	N/A		N/A	N/A		N/A	N/A			166,753	≥9	%
C&N Bank		255,409	13.81	%	110,943	≥6	%	157,170	≥8.5	%	147,925	≥8	%		166,415	≥9	%
Common equity tier 1 capital to risk-weighted assets:
Consolidated		245,810	13.27	%	N/A	N/A		N/A	N/A		N/A	N/A			138,961	≥7.5	%
C&N Bank		255,409	13.81	%	83,208	≥4.5	%	129,434	≥7.0	%	120,189	≥6.5	%		138,679	≥7.5	%
Tier 1 capital to average assets:
Consolidated		245,810	9.87	%	N/A	N/A		N/A	N/A		N/A	N/A			199,151	≥8	%
C&N Bank		255,409	10.32	%	99,010	≥4	%	N/A	N/A		123,762	≥5	%		198,020	≥8	%

On September 25, 2023, the Corporation announced a new treasury stock repurchase program. Under the program, the Corporation is authorized to repurchase up to 750,000 shares of the Corporation’s common stock, or slightly less than 5% of the Corporation’s issued and outstanding shares at August 4, 2023. The new program was effective when publicly announced and will continue thereafter until suspended or terminated by the Board of Directors, in its sole discretion. All shares of common stock repurchased pursuant to the new program shall be held as treasury shares and be available for use and reissuance for purposes as and when determined by the Board of Directors including, without limitation, pursuant to the Corporation’s Dividend Reinvestment and Stock Purchase Plans and its equity compensation program. For the three and six months ended June 30, 2024, 22,496 shares were repurchased for a total cost of $383,000, at an average price of $17.01 per share. At June 30, 2024, there were 727,504 shares available to be repurchased under the program.

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

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

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

Minimum common equity tier 1 capital ratio	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 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 June 30, 2024, C&N Bank’s Capital Conservation Buffer, determined based on the minimum total capital ratio, was 6.75%.

The Corporation’s total stockholders’ equity is affected by fluctuations in the fair values of available-for-sale debt securities. 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 $41,710,000 at June 30, 2024 and $38,878,000 at December 31, 2023. The decrease in stockholders’ equity in the first six months of 2024 from the change in accumulated other comprehensive loss resulted from an increase in interest rates. Changes in accumulated other comprehensive loss are excluded from earnings and directly increase or decrease stockholders’ equity. To the extent unrealized losses on available-for-sale debt securities result from credit losses, unrealized losses are recorded as a charge against earnings. The securities section of Management’s Discussion and Analysis and Note 5 to the unaudited consolidated financial statements provide additional information concerning management’s evaluation of available-for-sale debt securities for credit losses at June 30, 2024.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET RISK

Market risk is the risk of loss arising from adverse changes in market rates and prices of the Corporation’s financial instruments. In addition to the effects of interest rates, the market prices of the Corporation’s available-for-sale debt securities are affected by fluctuations in the risk premiums (amounts of spread over risk-free rates) demanded by investors. Management attempts to limit the risk that economic conditions would force the Corporation to sell securities for realized losses by maintaining a strong capital position (discussed in the “Stockholders’ Equity and Capital Adequacy” section of Management’s Discussion and Analysis) and ample sources of liquidity (discussed in the “Liquidity” section of Management’s Discussion and Analysis).

The Corporation’s major category of market risk, interest rate risk, is discussed in the following section.

INTEREST RATE RISK

The Corporation uses a simulation model to calculate the potential effects of interest rate fluctuations on net interest income and the economic value of equity. For purposes of these calculations, the economic value of equity includes the discounted present values of financial instruments, such as securities, loans, deposits and borrowed funds, and the book values of nonfinancial assets and liabilities, such as premises and equipment and accrued expenses. The model measures and projects the amount of potential changes in net interest income, and calculates the discounted present value of anticipated cash flows of financial instruments, assuming an immediate increase or decrease in interest rates. Management ordinarily runs a variety of scenarios within a range of plus or minus 100-400 basis points of current rates.

The projected results based on the model includes the impact of estimates, at each level of interest rate change, regarding cash flows from principal repayments on loans and mortgage-backed securities and call activity on other investment securities. Further, the projected results are impacted by assumptions regarding the run-off and the extent of sensitivity to interest rate changes of deposits with no stated maturity (checking, savings and money market accounts). Actual results could vary significantly from these estimates, which could result in significant differences in the calculations of projected changes in net interest income and economic value of equity. Also, the model does not make estimates related to changes in the composition of the deposit portfolio that could occur due to rate competition, and the table does not necessarily reflect changes that management would make to realign the portfolio as a result of changes in interest rates.

The Corporation’s Board of Directors has established policy guidelines for acceptable levels of interest rate risk, based on an immediate increase or decrease in interest rates. The policy limits acceptable fluctuations in net interest income from the baseline (flat rates) one-year scenario and variances in the economic value of equity from the baseline values based on current rates.

Table XI, which follows this discussion, is based on the results of calculations performed using the simulation model as of June 30, 2024 and December 31, 2023. In the analysis based on June 30, 2024 and December 31, 2023 data, the amounts of net interest income decrease, as compared to the amounts based on current interest rates, in both the upward and downward rate scenarios. Further, at June 30, 2024 and December 31, 2023, the economic value of equity is modeled to decrease in all of the rising and falling rate scenarios. The modeling results reflect the impact of management’s assumptions that, in light of the significant increases in short-term interest rates that have occurred since early 2022, the Corporation’s deposit rates would rise in the increasing rate scenarios to a greater extent than they would fall in the decreasing rate scenarios. Further, results in the downward rate scenarios reflect limitations on the benefit of falling rates on some deposit types due to a 0% assumed floor. The Table also shows that as of the respective dates, the changes in net interest income and changes in economic value were within the policy limits in all scenarios.

In Table XI, the modeled economic value of equity is higher in all rate scenarios at June 30, 2024 as compared to December 31, 2023. The increase was mainly caused by an overall increase in the assumed lives of nonmaturity deposits used in the June 30, 2024 analysis based on an updated study completed in the second quarter 2024.

Under U.S. generally accepted accounting principles, available-for-sale debt securities are carried at fair value as of each balance sheet date. The difference between amortized cost and fair value of available-for-sale debt securities, net of deferred income tax, is included

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

in accumulated other comprehensive income (loss) within stockholders’ equity. Increases in interest rates have caused the fair value of the Corporation’s available-for-sale debt securities to decrease, resulting in an accumulated other comprehensive loss related to securities of $41.7 million at June 30, 2024. In contrast, most of the Corporation’s other financial instruments, including loans receivable (held for investment), deposits and borrowed funds are carried on the balance sheet at historical cost without adjustment for the impact of changes in interest rates.

TABLE XI – THE EFFECT OF HYPOTHETICAL CHANGES IN INTEREST RATES

June 30, 2024 Data
(In Thousands)	Period Ending June 30, 2025
Basis Point		Interest		Interest			Net Interest		NII		NII
Change in Rates		Income		Expense			Income (NII)		% Change		Risk Limit
+400	$	156,322	$	86,001		$	70,321		(15.7)	%	25.0	%
+300		150,593		75,112			75,481		(9.5)	%	20.0	%
+200		144,833		65,441			79,392		(4.8)	%	15.0	%
+100		139,020		56,989			82,031		(1.6)	%	10.0	%
0		133,160		49,756			83,404		0.0	%	0.0	%
-100		127,792		45,283			82,509		(1.1)	%	10.0	%
-200		121,714		40,862			80,852		(3.1)	%	15.0	%
-300		114,820		36,441			78,379		(6.0)	%	20.0	%
-400		107,255		32,020			75,235		(9.8)	%	25.0	%
	Economic Value of Equity at June 30, 2024
		Present		Present			Present
Basis Point		Value		Value			Value
Change in Rates		Equity		% Change			Risk Limit
+400	$	463,654		(13.1)	%		50.0	%
+300		491,821		(7.8)	%		45.0	%
+200		514,589		(3.5)	%		35.0	%
+100		529,225		(0.8)	%		25.0	%
0		533,373		0.0	%		0.0	%
-100		520,793		(2.4)	%		25.0	%
-200		501,246		(6.0)	%		35.0	%
-300		467,175		(12.4)	%		45.0	%
-400		417,753		(21.7)	%		50.0	%

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

December 31, 2023 Data
(In Thousands)	Period Ending December 31, 2024
Basis Point		Interest		Interest			Net Interest		NII		NII
Change in Rates		Income		Expense			Income (NII)		% Change		Risk Limit
+400	$	148,407	$	81,707		$	66,700		(21.5)	%	25.0	%
+300		143,333		70,165			73,168		(13.9)	%	20.0	%
+200		138,291		59,859			78,432		(7.7)	%	15.0	%
+100		133,224		50,797			82,427		(3.0)	%	10.0	%
0		127,920		42,979			84,941		0.0	%	0.0	%
-100		122,446		37,701			84,745		(0.2)	%	10.0	%
-200		116,922		32,462			84,460		(0.6)	%	15.0	%
-300		110,919		27,710			83,209		(2.0)	%	20.0	%
-400		104,495		23,067			81,428		(4.1)	%	25.0	%
	Economic Value of Equity at December 31, 2023
		Present		Present			Present
Basis Point		Value		Value			Value
Change in Rates		Equity		% Change			Risk Limit
+400	$	330,130		(21.2)	%		50.0	%
+300		359,302		(14.3)	%		45.0	%
+200		385,045		(8.1)	%		35.0	%
+100		405,178		(3.3)	%		25.0	%
0		419,199		0.0	%		0.0	%
-100		406,957		(2.9)	%		25.0	%
-200		406,145		(3.1)	%		35.0	%
-300		385,859		(8.0)	%		45.0	%
-400		363,763		(13.2)	%		50.0	%

ITEM 4. CONTROLS AND PROCEDURES

The Corporation’s management, under the supervision of and with the participation of the Corporation’s Chief Executive Officer and Chief Financial Officer, has carried out an evaluation of the design and effectiveness of the Corporation’s disclosure controls and procedures as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Securities Exchange Act of 1934 as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Corporation’s disclosure controls and procedures are effective to ensure that all material information required to be disclosed in reports the Corporation files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.

There were no significant changes made to the Corporation’s internal control over financial reporting that occurred during the period covered by this report that have materially affected, or that are reasonably likely to affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1.       Legal Proceedings

The information provided in Note 10 of the Consolidated Unaudited Financial Statements is hereby incorporated into this Part II, Item 1 by reference.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Item 1A.    Risk Factors

There have been no material changes from the risk factors previously disclosed in Item 1A of the Corporation’s Annual Report on Form 10-K filed March 11, 2024.

Item 2.      Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

On September 25, 2023, the Corporation announced a new treasury stock repurchase program. Under the newly approved 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. As of June 30, 2024, 22,496 shares had been repurchased under the repurchase program

The following table sets forth a summary of the purchases by the Corporation of its common stock during the second quarter 2024:

				Total Number of	Maximum
				Shares	Number of
				Purchased	Shares that May
				as Part of	Yet
				Publicly	be Purchased
	Total Number	Average		Announced	Under
	of Shares	Price Paid		Plans	the Plans or
Period	Purchased	per Share		or Programs	Programs
April 1 - 30, 2024	700	$	17.01	700	749,300
May 1 - 31, 2024	600	$	17.06	600	748,700
June 1 - 30, 2024	21,196	$	17.01	21,196	727,504
Total	22,496	$	17.01	22,496

Item 3.       Defaults Upon Senior Securities

None

Item 4.       Mine Safety Disclosures

Not applicable

Item 5.     Other Information

The table below details the directors or executive officers for whom a written plan for the purchase of the Corporation’s common stock that is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) became effective in the second quarter 2024.

Name	Title	Effective date	Expiration date
Katherine W. Shattuck	Director	May 1, 2024	April 30, 2025
Frank G. Pellegrino	Director	May 1, 2024	April 30, 2025
Robert G. Loughery	Director	May 1, 2024	April 30, 2025

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

The written plan provides for the directors to receive designated fees for their service as directors in the form of the Corporation’s common stock to be purchased in the open market by the Corporation’s transfer agent. Each of the directors identified above asserted they were not aware of material nonpublic information about the Corporation or its common stock at the time they adopted the written plan.

Except as noted above, during the three months ended June 30, 2024, no director or officer of the Corporation adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement”, as each term is defined in Item 408(a) of Regulation    S-K.

Item 6.       Exhibits

3.1	Articles of Incorporation	Incorporated by reference to Exhibit 3.1 of The Corporation’s Form 10-Q filed May 6, 2022
3.2	By-laws	Incorporated by reference to Exhibit 3.1 of The Corporation’s Form 8-K filed February 18, 2022
31.	Rule 13a-14(a)/15d-14(a) certifications:
31.1	Certification of Chief Executive Officer	Filed herewith
31.2	Certification of Chief Financial Officer	Filed herewith
32.	Section 1350 certifications	Filed herewith
101.INS	Inline XBRL Instance Document.	Filed herewith
101.SCH	Inline XBRL Schema Document.	Filed herewith
101.CAL	Inline XBRL Calculation Linkbase Document.	Filed herewith
101.DEF	Inline XBRL Definition Linkbase Document.	Filed herewith
101.LAB	Inline XBRL Label Linkbase Document.	Filed herewith
101.PRE	Inline XBRL Presentation Linkbase Document.	Filed herewith
104	The cover page of the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2024, formatted in Inline XBRL (contained in Exhibit 101).	Filed herewith

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	CITIZENS & NORTHERN CORPORATION
August 7, 2024	By: /s/ J. Bradley Scovill
Date	President and Chief Executive Officer
August 7, 2024	By: /s/ Mark A. Hughes
Date	Treasurer and Chief Financial Officer

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