Table of Contents
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 March 31, 2025
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)
15,494,591 Shares Outstanding on May 7, 2025
CITIZENS & NORTHERN CORPORATION – FORM 10-Q
Index
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited) –March 31, 2025 and December 31, 2024
Page 3
Consolidated Statements of Income (Unaudited) – Three-month Periods Ended March 31, 2025 and 2024
Page 4
Consolidated Statements of Comprehensive Income (Unaudited) – Three-month Periods Ended March 31, 2025 and 2024
Page 5
Consolidated Statements of Cash Flows (Unaudited) – Three-month Periods Ended March 31, 2025 and 2024
Page 6
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) – Three-month Periods Ended March 31, 2025 and 2024
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 – 52
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Pages 53 – 55
Item 4. Controls and Procedures
Page 55
Part II. Other Information
Pages 56 – 58
Signatures
Page 59
2
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data) (Unaudited)
March 31,
December 31,
(In Thousands, Except Share and Per Share Data)
2025
2024
ASSETS
Cash and due from banks:
Noninterest-bearing
$
36,185
21,110
Interest-bearing
78,553
105,064
Total cash and due from banks
114,738
126,174
Available-for-sale debt securities, at fair value
408,463
402,380
Loans receivable
1,898,432
1,895,848
Allowance for credit losses
(20,172)
(20,035)
Loans, net
1,878,260
1,875,813
Bank-owned life insurance
51,671
51,214
Accrued interest receivable
9,281
8,735
Bank premises and equipment, net
21,304
21,338
Foreclosed assets held for sale
199
181
Deferred tax asset, net
17,194
19,098
Goodwill
52,505
Core deposit intangibles, net
1,974
2,080
Other assets
53,639
51,135
TOTAL ASSETS
2,609,228
2,610,653
LIABILITIES
Deposits:
489,444
486,566
1,612,697
1,607,343
Total deposits
2,102,141
2,093,909
Short-term borrowings
571
2,488
Long-term borrowings - FHLB advances
154,423
165,451
Senior notes, net
14,917
14,899
Subordinated debt, net
24,860
24,831
Accrued interest and other liabilities
30,485
33,791
TOTAL LIABILITIES
2,327,397
2,335,369
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY
Preferred stock, $1,000 par value; authorized 30,000 shares; $1,000 liquidation
preference per share; no shares issued
0
Common stock, par value $1.00 per share; authorized 30,000,000 shares;
issued 16,030,172 and outstanding 15,482,848 at March 31, 2025;
issued 16,030,172 and outstanding 15,433,494 at December 31, 2024
16,030
Paid-in capital
142,968
143,565
Retained earnings
167,741
165,778
Treasury stock, at cost; 547,324 shares at March 31, 2025 and 596,678
shares at December 31, 2024
(12,218)
(13,328)
Accumulated other comprehensive loss
(32,690)
(36,761)
TOTAL STOCKHOLDERS' EQUITY
281,831
275,284
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY
The accompanying notes are an integral part of these unaudited consolidated financial statements.
3
Consolidated Statements of Income
(In Thousands Except Per Share Data) (Unaudited)
Three Months Ended
(In Thousands, Except Per Share Data)
INTEREST INCOME
Interest and fees on loans:
Taxable
27,503
26,703
Tax-exempt
592
545
Income from available-for-sale debt securities:
2,302
2,136
573
553
Other interest and dividend income
739
399
Total interest and dividend income
31,709
30,336
INTEREST EXPENSE
Interest on deposits
9,592
8,891
Interest on short-term borrowings
597
Interest on long-term borrowings - FHLB advances
1,789
1,456
Interest on senior notes, net
121
120
Interest on subordinated debt, net
232
231
Total interest expense
11,734
11,295
Net interest income
19,975
19,041
Provision for credit losses
236
954
Net interest income after provision for credit losses
19,739
18,087
NONINTEREST INCOME
Trust revenue
2,102
1,897
Brokerage and insurance revenue
498
539
Service charges on deposit accounts
1,440
1,318
Interchange revenue from debit card transactions
1,036
1,013
Net gains from sale of loans
205
191
Loan servicing fees, net
138
230
Increase in cash surrender value of life insurance
457
470
Other noninterest income
1,132
1,017
Total noninterest income
7,008
6,675
NONINTEREST EXPENSE
Salaries and employee benefits
11,759
11,562
Net occupancy and equipment expense
1,459
1,450
Data processing and telecommunications expense
2,071
1,992
Automated teller machine and interchange expense
387
487
Pennsylvania shares tax
496
433
Professional fees
517
518
Other noninterest expense
2,354
1,862
Total noninterest expense
19,043
18,304
Income before income tax provision
7,704
6,458
Income tax provision
1,411
1,152
NET INCOME
6,293
5,306
EARNINGS PER COMMON SHARE - BASIC AND DILUTED
0.41
0.35
4
Consolidated Statements of Comprehensive Income
(In Thousands) (Unaudited)
(In Thousands)
Net income
Available-for-sale debt securities:
Unrealized holding gains (losses) on available-for-sale debt securities
5,169
(2,774)
Reclassification adjustment for losses (gains) realized in income
Other comprehensive income (loss) on available-for-sale debt securities
Unfunded pension and postretirement obligations:
Changes from plan amendments and actuarial gains and losses
69
394
Amortization of prior service cost, net actuarial gain and curtailment gain included in net periodic benefit cost
(22)
(490)
Other comprehensive income (loss) on pension and postretirement obligations
47
(96)
Other comprehensive income (loss) before income tax
5,216
(2,870)
Income tax related to other comprehensive (income) loss
(1,145)
601
Net other comprehensive income (loss)
4,071
(2,269)
Comprehensive income
10,364
3,037
5
CONSOLIDATED STATEMENTS OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES:
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization of securities
360
434
(457)
(470)
Depreciation and amortization of bank premises and equipment
509
Net accretion of purchase accounting adjustments
(24)
(56)
Stock-based compensation
325
326
Deferred income taxes
759
339
Decrease (increase) in fair value of servicing rights
(25)
(205)
(191)
Origination of loans held for sale
(5,499)
(5,663)
Proceeds from sales of loans held for sale
6,665
5,771
Increase in accrued interest receivable and other assets
(2,871)
(1,273)
Decrease in accrued interest payable and other liabilities
(4,648)
(290)
Other
27
58
Net Cash Provided by Operating Activities
1,583
5,729
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from calls and maturities of available-for-sale debt securities
7,306
7,453
Purchase of available-for-sale debt securities
(8,580)
Redemption of Federal Home Loan Bank of Pittsburgh stock
344
2,704
Purchase of Federal Home Loan Bank of Pittsburgh stock
(160)
(3,756)
Purchase of Federal Reserve Bank stock
(12)
(14)
Net increase in loans
(2,563)
(24,313)
Purchase of premises and equipment
(542)
(744)
Proceeds from sale of foreclosed assets
22
41
25
Net Cash Used in Investing Activities
(4,166)
(18,623)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits
8,232
(18,902)
Net (decrease) increase in short-term borrowings
(1,917)
14,957
Proceeds from long-term borrowings - FHLB advances
16,524
Repayments of long-term borrowings - FHLB advances
(11,028)
(6,027)
Purchases of treasury stock
(208)
(212)
Common dividends paid
(3,932)
(3,876)
Net Cash (Used in) Provided by Financing Activities
(8,853)
2,464
DECREASE IN CASH AND CASH EQUIVALENTS
(11,436)
(10,430)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
123,574
52,778
CASH AND CASH EQUIVALENTS, END OF PERIOD
112,138
42,348
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Assets acquired through foreclosure of real estate loans
18
Increase in other assets from surrender of bank-owned life insurance
14,289
Leased assets obtained in exchange for new operating lease liabilities
1,126
Interest paid
11,282
10,662
Income taxes paid
4,262
46
6
Consolidated Statements of Changes in Stockholders’ Equity
Accumulated
Common
Treasury
Paid-in
Retained
Comprehensive
Three Months Ended March 31, 2025
Shares
Stock
Capital
Earnings
Loss
Total
Balance, December 31, 2024
16,030,172
596,678
Other comprehensive income, net
Cash dividends declared on common stock, $.28 per share
(4,330)
Shares issued for dividend reinvestment plan
(18,391)
(15)
411
396
Restricted stock granted
(42,961)
(959)
959
Forfeiture of restricted stock
2,265
52
(52)
Stock-based compensation expense
Purchase of restricted stock for tax withholding
9,733
Balance, March 31, 2025
547,324
Three Months Ended March 31, 2024
Balance, December 31, 2023
735,037
144,388
157,028
(38,437)
(16,628)
262,381
Other comprehensive loss, net
(4,283)
(20,886)
(66)
473
407
(72,860)
(1,646)
1,646
587
14
10,229
Balance, March 31, 2024
652,107
143,016
158,051
(40,706)
(14,735)
261,656
7
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, 2024, 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 three-month period ended March 31, 2025 might not be indicative of the results for the year ending December 31, 2025. 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 Standards 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 consolidated financial statements issued in the foreseeable future.
Recently 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 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.
In December 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40), which requires disclosure of certain costs and expenses in the notes to the consolidated financial statements. The amendments in this ASU will become effective for fiscal years beginning after December 15, 2026, and will be effective for interim periods with fiscal years beginning after December 15, 2027, with early adoption permitted. The amendments will be applied prospectively with the option for retrospective application. The Corporation is currently evaluating the impact of the standard to our consolidated financial statement disclosures.
2. PER SHARE DATA
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. The Corporation’s basic and diluted earnings per share are the same because there are no potential dilutive shares of common stock outstanding.
8
Less: Dividends and undistributed earnings allocated to participating securities
(51)
(39)
Net income attributable to common shares
6,242
5,267
Weighted-average common shares outstanding
15,338,532
15,230,580
Earnings per common share - Basic and Diluted
Weighted-average nonvested restricted shares outstanding
125,303
113,084
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:
Before-Tax
Income Tax
Net-of-Tax
Amount
Effect
Unrealized holding gains on available-for-sale debt securities
(1,135)
4,034
Reclassification adjustment for (gains) realized in income
Other comprehensive income from available-for-sale debt securities
54
Amortization of prior service cost and net actuarial gain included in net periodic benefit cost
(17)
Other comprehensive income on unfunded retirement obligations
(10)
37
Total other comprehensive income
Unrealized holding losses on available-for-sale debt securities
581
(2,193)
Other comprehensive loss from available-for-sale debt securities
(83)
311
103
(387)
Other comprehensive loss on unfunded retirement obligations
20
(76)
Total other comprehensive loss
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
Amortization of prior service cost and net actuarial gain and curtailment gain included in net periodic benefit cost (before-tax)
Income tax effect
9
Changes in the components of accumulated other comprehensive (loss) income are as follows and are presented net of tax:
Unrealized
(Losses)
Unfunded
Gains
Retirement
on Securities
Obligations
(Loss) Income
Balance, beginning of period
(37,084)
323
Other comprehensive income during three months ended March 31, 2025
Balance, end of period
(33,050)
(38,878)
441
Other comprehensive loss during three months ended March 31, 2024
(41,071)
365
4. CASH AND DUE FROM BANKS
Cash and due from banks at March 31, 2025 and December 31, 2024 include the following:
Cash and cash equivalents
Certificates of deposit
2,600
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.
10
5. SECURITIES
Amortized cost and fair value of available-for-sale debt securities at March 31, 2025 and December 31, 2024 are summarized as follows. No allowance for credit losses was recorded at March 31, 2025 and December 31, 2024.
March 31, 2025
Gross
Amortized
Holding
Fair
Cost
Losses
Value
Obligations of the U.S. Treasury
8,062
(778)
7,284
Obligations of U.S. Government agencies
9,819
(896)
8,923
Bank holding company debt securities
28,959
(3,015)
25,944
Obligations of states and political subdivisions:
110,721
197
(11,770)
99,148
51,075
(7,488)
43,587
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities
105,642
112
(8,277)
97,477
Residential collateralized mortgage obligations
54,923
136
(2,911)
52,148
Commercial mortgage-backed securities
73,232
(7,679)
65,553
Private label commercial mortgage-backed securities
8,404
(5)
8,399
Total available-for-sale debt securities
450,837
445
(42,819)
December 31, 2024
8,067
(949)
7,118
10,154
(1,129)
9,025
28,958
(3,712)
25,246
111,995
238
(10,931)
101,302
51,147
(8,641)
42,506
104,378
(9,970)
94,414
53,389
(3,505)
49,894
73,470
(8,969)
64,501
8,365
8,374
449,923
263
(47,806)
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 March 31, 2025 and December 31, 2024 for which an allowance for credit losses has not been recorded:
11
Less Than 12 Months
12 Months or More
5,264
(116)
89,557
(11,654)
94,821
13,759
(143)
67,595
(8,134)
81,354
6,656
(33)
26,274
(2,878)
32,930
2,341
(13)
63,212
(7,666)
36,419
(310)
332,376
(42,509)
368,795
6,581
(58)
91,316
(10,873)
97,897
22,777
(375)
69,282
(9,595)
92,059
19,586
(156)
27,157
(3,349)
46,743
2,314
(38)
62,187
(8,931)
51,258
(627)
333,837
(47,179)
385,095
As reflected in the table above, gross unrealized holding losses on available-for-sale debt securities totaled $42,819,000 at March 31, 2025 and $47,806,000 at December 31, 2024. At March 31, 2025, the Corporation did 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 increases in market interest rates that have occurred subsequent to the purchase of most of the securities.
At March 31, 2025 and December 31, 2024, 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 March 31, 2025 and December 31, 2024, all of the Corporation’s holdings of bank holding company debt securities, obligations of states and political subdivisions and private label commercial mortgage-backed securities were investment grade and there have been no payment defaults.
Based on the results of the assessment, there was no ACL required on available-for-sale debt securities in an unrealized loss position at March 31, 2025 and December 31, 2024.
12
There were no gross realized gains and losses from the sale of available-for-sale debt securities for the three months ended March 31, 2025 and 2024.
The amortized cost and fair value of available-for-sale debt securities by contractual maturity are shown in the following table as of March 31, 2025. 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.
Due in one year or less
5,690
5,645
Due from one year through five years
33,390
31,400
Due from five years through ten years
80,940
73,151
Due after ten years
88,616
74,690
Sub-total
208,636
184,886
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 $168,981,000 at March 31, 2025 and $190,949,000 at December 31, 2024 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.
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 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 $14,834,000 at March 31, 2025 and $15,018,000 at December 31, 2024. The Corporation evaluated its holding of FHLB-Pittsburgh stock for impairment and deemed the stock to not be impaired at March 31, 2025 and December 31, 2024. 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 $6,311,000 at March 31, 2025 and $6,299,000 at December 31, 2024.
The Corporation has a marketable equity security included in other assets in the consolidated balance sheets with a carrying value of $876,000 at March 31, 2025 and $863,000 December 31, 2024, consisting exclusively of one mutual fund. There was an unrealized loss on the mutual fund of $124,000 at March 31, 2025 and $137,000 at December 31, 2024. Changes in the unrealized gains or losses on
13
this security, which are included in other noninterest income in the consolidated statements of income, were a gain of $13,000 in the first quarter 2025 and a loss of $9,000 in the first quarter 2024.
6. LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans receivable at March 31, 2025 and December 31, 2024 are summarized as follows:
Summary of Loans by Type
Commercial real estate - non-owner occupied
733,704
739,565
Commercial real estate - owner occupied
260,248
261,071
All other commercial loans
436,179
423,277
Residential mortgage loans
402,248
408,009
Consumer loans
66,053
63,926
Less: allowance for credit losses on loans
In the table above, outstanding loan balances are presented net of deferred loan origination fees, net, of $4,005,000 at March 31, 2025 and $4,136,000 at December 31, 2024.
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.
The following tables presents an analysis of past due loans as of March 31, 2025 and December 31, 2024:
As of March 31, 2025
Past Due
30-89
90+ Days
Nonaccrual
Current
Days
Still Accruing
Loans
327
7,140
726,237
3,320
1,711
255,217
227
10,645
425,307
4,365
4,205
393,678
213
24
405
65,411
8,452
24,106
1,865,850
As of December 31, 2024
266
7,370
731,929
62
1,725
259,284
296
10,006
412,975
4,934
4,310
398,765
162
57
431
63,276
5,658
119
23,842
1,866,229
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.
15
The following table presents the amortized cost of loans by credit quality indicators by year of origination as of March 31, 2025:
Term Loans by Year of Origination
2023
2022
2021
Prior
Revolving
Pass
13,398
59,550
101,706
153,717
78,043
283,941
690,355
Special Mention
16,155
1,347
7,896
25,398
Substandard
114
9,916
7,921
17,951
Doubtful
Total commercial real estate - non-owner occupied
59,664
179,788
79,390
299,758
Year-to-date gross charge-offs
6,420
25,077
37,455
51,486
48,563
80,579
249,580
265
283
115
3,708
4,371
100
725
2,317
3,155
6,297
Total commercial real estate - owner occupied
25,342
37,838
52,326
50,880
87,442
18,905
68,270
73,255
42,871
43,186
50,640
123,239
420,366
241
280
39
1
366
2,236
3,163
44
3,478
5,229
1,120
2,779
12,650
Total all other commercial loans
19,146
68,594
73,294
46,349
48,416
52,126
128,254
4,092
42,440
47,626
78,590
49,493
175,134
397,375
379
97
4,397
4,873
Total residential mortgage loans
48,005
49,590
179,531
846
3,347
2,942
2,506
837
53,897
65,495
481
558
Total consumer loans
2,945
2,511
1,189
54,378
38
55
117
Total Loans
43,661
198,684
262,984
329,170
220,122
591,414
177,136
1,823,171
322
16,270
1,348
11,970
32,932
158
482
14,124
7,643
16,662
3,260
42,329
43,902
199,387
263,788
359,564
229,113
620,046
182,632
16
The following table presents the amortized cost of loans by credit quality indicators by year of origination as of December 31, 2024:
2020
59,708
99,900
161,497
78,884
51,851
243,578
695,418
16,233
1,371
8,188
25,792
116
9,928
8,311
18,355
59,824
187,658
80,255
260,077
757
25,552
33,533
52,207
49,410
11,444
76,558
248,704
961
5,125
729
2,367
3,185
11,406
38,658
52,936
51,777
80,704
73,812
74,301
44,245
44,367
23,084
30,656
109,121
399,586
533
2,306
2,147
4,988
109
1,078
8,765
18,703
74,389
50,029
49,598
23,193
31,734
120,033
427
60
21
122
630
41,450
48,937
80,789
50,108
35,601
146,231
403,116
380
85
82
4,346
4,893
49,317
50,193
35,683
150,577
3,859
3,441
2,848
599
679
50,860
63,299
71
544
627
3,449
2,852
750
51,404
130
329
204,381
260,112
341,586
223,782
122,579
497,702
159,981
1,810,123
18,539
1,373
9,149
31,741
160
5,513
14,139
7,681
16,991
9,309
53,984
205,074
265,625
374,264
232,836
122,770
523,842
171,437
557
67
29
880
1,716
17
The following tables are a summary of the Corporation’s nonaccrual loans by major categories for the periods indicated.
Nonaccrual Loans with
Nonaccrual Loans
Total Nonaccrual
No Allowance
with an Allowance
1,466
245
9,945
700
23,161
945
1,467
258
23,584
The Corporation recognized interest income on nonaccrual loans of $230,000 in the three months ended March 31, 2025 and $231,000 in the three months ended March 31, 2024.
The following table represents the accrued interest receivable written off by reversing interest income during the three-month periods ended March 31, 2025 and 2024:
March 31, 2024
143
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:
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 allocated to these loans:
Allowance
7,141
6,685
6,749
16,645
142
16,006
328
30,799
189
30,125
Allowance for Credit Losses
The allowance for credit losses (“ACL”) on loans represents management’s estimate of lifetime credit losses inherent in loans as of the consolidated balance sheet date. The ACL on loans includes two primary components: (i) an allowance established on loans which share similar risk characteristics which are collectively evaluated for credit losses, 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.
Management determines the ACL on loans that are collectively evaluated by considering the following: (a) the weighted-average remaining maturity (WARM) method is used to estimate credit losses, based on the Corporation’s historical loss experience, for pools of loans with similar risk and cash flow characteristics; (b) subjective adjustments are made, generally increasing the ACL, for qualitative risk factors that are deemed likely to cause estimated credit losses to differ from historical experience; and (c) an additional adjustment to expected credit losses is made, based on an economic forecast, and applied for the first 2 years of the weighted-average remaining life of the portfolio.
The following table summarizes the activity related to the allowance for credit losses for the three months ended March 31, 2025 and 2024.
Commercial
All
real estate -
other
Residential
nonowner
owner
commercial
mortgage
Consumer
occupied
loans
11,964
2,844
3,361
1,356
510
20,035
Charge-offs
(117)
Recoveries
26
Provision (credit) for credit losses on loans
96
(75)
51
228
12,060
2,769
3,594
1,281
468
20,172
19
12,010
2,116
2,918
1,764
400
19,208
(60)
(120)
(180)
35
523
602
702
(998)
131
960
12,533
2,718
3,580
769
423
20,023
The ACL on loans individually evaluated increased to $189,000 at March 31, 2025 from $122,000 at December 31, 2024. At March 31,2025, there were loans to two borrowers with a total amortized cost basis of $945,000 for which individual ACLs were recorded. At December 31, 2024, there were loans to one borrower with a total amortized cost basis of $258,000 for which an individual ACL was recorded.
The ACL on loans collectively evaluated was $19,983,000 at March 31, 2025, up from $19,913,000 at December 31, 2024. The increase in the collectively evaluated portion of the ACL at March 31, 2025 as compared to December 31, 2024 included a net increase related to changes in qualitative adjustments partially offset by decreases in the WARM method estimate based on the Corporation’s net charge-off experience and in the economic forecast.
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 months ended March 31, 2025 and March 31, 2024, the Corporation made no modifications of loans to borrowers experiencing financial difficulty.
The following table presents the performance of such loans that have been modified in the twelve-month period preceding March 31, 2025 and the twelve-month period preceding March 31, 2024 (in thousands):
Payment Status (Amortized Cost Basis)
Current or Past Due Less than 30 Days
90+ Days Past Due
2,601
217
2,818
2,518
1,381
3,899
As shown, in the table immediately above, at March 31, 2025 one loan secured by owner occupied commercial real estate with an amortized cost of $217,000 and one of the loans secured by non-owner occupied commercial real estate with an amortized cost basis of $1,801,000 were in nonaccrual status.
For the loan secured by non-owner occupied real estate with an amortized cost basis of $1,801,000 at March 31, 2025, the Corporation had extended the maturity for 12 months in the fourth quarter 2023. In 2024, the borrower continued to experience financial difficulty, and the Corporation provided another six-month extension of the maturity. The Corporation recorded a partial charge-off of $640,000 on this loan in 2024. There was no specific ACL on this loan at March 31, 2025 and December 31, 2024.
The loan that was past due more than 90 days at March 31, 2024 in the table above was in default with its modified terms at March 31, 2025 and March 31, 2024. The Corporation received payments totaling $228,000 in the twelve-month period ended March 31, 2025, all of which were applied to principal. The amortized cost basis of the loan was $1,153,000 at March 31, 2025.
Except as described above, the Corporation had no commitments to lend any additional funds on modified loans during the three months ended March 31, 2025 and 2024, and the Corporation had no loans that defaulted during the three months ended March 31, 2025 and 2024 that 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:
Foreclosed residential real estate
43
The amortized cost of consumer mortgage loans secured by residential real properties for which formal foreclosure proceedings were in process is as follows:
Residential real estate in process of foreclosure
588
717
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 March 31, 2025 and December 31, 2024 are as follows:
Commitments to extend credit
379,125
380,003
Standby letters of credit
64,001
64,586
The Corporation maintains an allowance for off-balance sheet credit exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, commercial letters of credit and credit enhancement obligations related to residential mortgage loans sold with recourse, when there is a contractual obligation to extend credit and when this extension of credit is not unconditionally cancellable (i.e. commitment cannot be canceled at any time). The allowance for off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over their estimated lives. The allowance for credit losses for off-balance sheet exposures of $463,000 at March 31, 2025 and $455,000 at December 31, 2024, is included in accrued interest and other liabilities 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 months ended March 31, 2025 and 2024:
Beginning Balance
455
690
Provision (credit) for unfunded commitments
(6)
Ending Balance, March 31
463
684
7. GOODWILL AND CORE DEPOSIT INTANGIBLES, NET
Goodwill represents the excess of the cost of acquisitions over the fair value of the net assets acquired. At March 31, 2025 and December 31, 2024, the net carrying value of goodwill was $52,505,000.
Information related to core deposit intangibles is as follows:
Gross amount
6,639
Accumulated amortization
(4,665)
(4,559)
Net
Amortization expense related to core deposit intangibles is included in other noninterest expense in the consolidated statements of income, as follows:
Amortization expense
106
8. BORROWED FUNDS
SHORT-TERM BORROWINGS
Short-term borrowings (initial maturity within one year) include the following:
FHLB-Pittsburgh borrowings
Customer repurchase agreements
Total short-term borrowings
The weighted average interest rate on total short-term borrowings outstanding was 0.10% at March 31, 2025 and December 31, 2024.
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 March 31, 2025 and December 31, 2024. The carrying value of the underlying securities was $580,000 at March 31, 2025 and $2,500,000 at December 31, 2024.
The FHLB-Pittsburgh loan facility is collateralized by qualifying loans secured by real estate with a book value totaling $1,347,840,000 at March 31, 2025 and $1,351,770,000 at December 31, 2024. 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 $14,834,000 at March 31, 2025 and $15,018,000 at December 31, 2024. The Corporation’s total credit facility with FHLB-Pittsburgh was $948,970,000 at March 31, 2025, including an unused (available) amount of $772,430,000. At December 31, 2024, the Corporation’s total credit facility with FHLB-Pittsburgh was $938,691,000, including an unused (available) amount of $749,999,000.
The Corporation had available credit with other correspondent banks totaling $75,000,000 at March 31, 2025 and December 31, 2024. These lines of credit are primarily unsecured. No amounts were outstanding at March 31, 2025 or December 31, 2024.
The Corporation has a line of credit with the Federal Reserve Bank of Philadelphia’s Discount Window. At March 31, 2025, the Corporation had available credit in the amount of $17,431,000 on this line with no outstanding advances. At December 31, 2024, the Corporation had available credit in the amount of $18,093,000 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 $18,236,000 at March 31, 2025 and $18,881,000 at December 31, 2024.
LONG-TERM BORROWINGS – FHLB ADVANCES
Long-term borrowings from FHLB-Pittsburgh are as follows:
Loans maturing in 2025 with a weighted-average rate of 4.38%
33,488
44,516
Loans maturing in 2026 with a weighted-average rate of 4.61%
48,018
Loans maturing in 2027 with a weighted-average rate of 4.24%
34,571
Loans maturing in 2028 with a weighted-average rate of 4.30%
26,027
Loans maturing in 2029 with a weighted-average rate of 4.42%
12,319
Total long-term FHLB-Pittsburgh borrowings
Note: Weighted-average rates are presented as of March 31, 2025.
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 $18,000 in the first quarter 2025 and $17,000 in the first quarter 2024 was included in interest expense in the unaudited consolidated statements of income.
At March 31, 2025 and December 31, 2024, outstanding Senior Notes are as follows:
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
Total carrying value
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
23
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.
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 $29,000 in the first quarter 2025 and $28,000 in the first quarter 2024, was included in interest expense in the unaudited consolidated statements of income.
At March 31, 2025 and December 31, 2024, the carrying amounts of subordinated debt agreements are as follows:
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
9. STOCK-BASED COMPENSATION PLANS
The Corporation has a stock incentive plan for selected officers and the independent directors. The Corporation made first quarter 2025 restricted stock awards to employees that vest ratably over three years. Following is a summary of restricted stock awards granted in the three-month period ended March 31, 2025:
(Dollars in Thousands)
Aggregate
Grant
Date
Number of
Three Months Ended March 31, 2025 awards:
Time-based awards to employees
31,113
Performance-based awards to employees
11,848
261
42,961
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 stock-based compensation expense attributable to restricted stock awards amounted to $325,000 in the first quarter 2025 and $326,000 in the first quarter 2024.
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, an additional law firm and accounting firm defendants. The case is styled Goldovsky, et al. v. Rauld, et al. Plaintiffs have asserted claims against C&N Bank and the other bank for aiding and abetting alleged violations of the Texas Securities Act, and additional claims against the legal and accounting professionals for statutory fraud, common law fraud, negligent misrepresentation, and knowing participation in breach of fiduciary duty.
C&N Bank has filed motions to dismiss the case for wont of personal jurisdiction and failure to state a claim. The Plaintiffs have responded to those motions. Plaintiffs have filed an application for certification of the suit as a class action. The court has stayed the motions to dismiss pending consideration of the class action certification application. Following depositions of the four plaintiffs on issues germane to class action certification, C&N Bank and each of the other defendants have filed briefs in opposition to the plaintiffs’ class certification motion. A hearing on the motion for class certification took place on February 18, 2025. By order of the District Court judge dated March 27, 2025, C&N Bank’s motion to dismiss for wont of personal jurisdiction was granted. To date, the plaintiffs have not petitioned the Court of Appeals for leave to appeal the order to dismiss.
C&N Bank believes that it has substantial defenses against the action, 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 liability has been recorded for this litigation matter in the accompanying consolidated financial statements. The Corporation’s estimate may change from time to time, and actual losses could vary.
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 $140,772,000 at March 31, 2025 and $141,940,000 at December 31, 2024. There were no interest rate swaps originated in the three-month periods ended March 31, 2025, and 2024. There were no gross amounts of interest rate swap-related assets and liabilities not offset in the consolidated balance sheets at March 31, 2025 and December 31, 2024.
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.” There was no net impact on the consolidated statements of income from RPAs in the first quarter 2025 as compared to an increase of $1,000, included in other noninterest income, in the first quarter 2024.
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 March 31, 2025 and December 31, 2024:
At March 31, 2025
At December 31, 2024
Asset Derivatives
Liability Derivatives
Notional
Value (1)
Value (2)
Interest rate swap agreements
70,386
1,882
70,970
2,385
RPA Out
6,924
6,957
RPA In
9,874
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 $1,090,000 at March 31, 2025 and at December 31, 2024.
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.
At March 31, 2025 and December 31, 2024, assets and liabilities measured at fair value and the valuation methods used are as follows:
Quoted Prices
Other Observable
Unobservable
in Active Markets
Inputs
(Level 1)
(Level 2)
(Level 3)
Fair Value
Recurring fair value measurements, assets:
AVAILABLE-FOR-SALE DEBT SECURITIES:
401,179
Marketable equity security
876
Servicing rights
2,767
Interest rate swap agreements, assets
Total recurring fair value measurements, assets
8,160
403,064
413,991
Recurring fair value measurements, liabilities:
Interest rate swap agreements, liabilities
Total recurring fair value measurements, liabilities
1,885
Nonrecurring fair value measurements, assets:
Loans individually evaluated for credit loss, net
756
Total nonrecurring fair value measurements, assets
955
395,262
863
2,782
7,981
397,649
408,412
Recurring fair value measurements, liabilities,
2,387
317
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.
28
At March 31, 2025 and December 31, 2024, 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
3/31/2025
Valuation
Method or Value As of
Asset
Technique
Input(s)
Discounted cash flow
Discount rate
13.00
%
Rate used through modeling period
Loan prepayment speeds
118.00
Weighted-average PSA
12/31/2024
116.00
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.
Following is a reconciliation of activity for Level 3 assets measured at fair value on a recurring basis:
Servicing rights balance, beginning of period
2,659
Originations of servicing rights
Unrealized (loss) gain included in earnings
(69)
Servicing rights balance, end of period
2,731
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. The estimated fair value determined for individually evaluated loans secured by real estate and foreclosed assets held for sale used unobservable inputs (Level 3 methodologies).
At March 31, 2025 and December 31, 2024, 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
Average)
Balance at
Allowance at
Discount at
Loans individually evaluated for credit loss:
198
Sales comparison & SBA guaranty
Discount to appraised value
93% (93)
All other commercial Loans
Liquidation of accounts receivable
Discount to borrower's financial statement value
35% (35)
Total loans individually evaluated for credit loss
Foreclosed assets held for sale - real estate:
Residential (1-4 family)
Sales comparison
62%-84% (76)
Commercial real estate
156
18%-77% (34)
Total foreclosed assets held for sale
95% (95)
62% (62)
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.
30
The estimated fair values, and related carrying amounts, of the Corporation’s financial instruments that are not recorded at fair value are as follows:
Hierarchy
Carrying
Level
Financial assets:
Level 1
Level 2
2,532
2,513
Restricted equity securities (included in other assets)
N/A
21,395
21,567
Level 3
1,800,194
1,789,044
Financial liabilities:
Deposits with no stated maturity
1,604,109
1,609,552
Time deposits
498,032
498,739
484,357
484,900
155,640
165,616
14,207
13,579
22,984
21,051
Accrued interest payable
2,175
1,771
13. SEGMENT REPORTING
The Corporation’s one reportable segment is determined by the President and Chief Executive Officer, who is the designated chief operating decision maker, based upon information provided about the Corporation’s products and services offered, primarily community banking operations. The chief operating decision maker uses consolidated net income to assess performance by comparing it to and monitoring it against budget and prior year results. In addition, the chief operating decision maker uses the consolidated net income to benchmark the Corporation against its competitors. This information is used to manage resources to drive business and net earnings growth, including investment in key strategic priorities, as well as determine the Corporation's ability to return capital to shareholders. Loans, investments, deposits and assets held in a fiduciary or custodial capacity provide the revenues in the banking operation. Interest expense, provisions for credit losses, and payroll provide the significant expenses in the banking operation. All operations are domestic.
Segment performance is evaluated using consolidated net income.
Interest income
Interest expense
Other income:
Other income
Total other income
Other Expense:
Other segment expenses (1)
6,742
(1 ) Other segment expenses included expenses for professional fees, data processing and telecommunications, occupancy and Pennsylvania shares tax.
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The Corporation’s segment assets represent the total assets as presented in the consolidated balance sheets at March 31, 2025 and December 31, 2024.
14. SUBSEQUENT EVENTS
On April 23, 2025, the Corporation announced that it had entered into an Agreement and Plan of Merger with Susquehanna Community Financial, Inc. (“SQCF”) pursuant to which it will acquire SQCF. SQCF is the financial holding company for Susquehanna Community Bank (“Susquehanna”), which operates 7 banking offices in Central Pennsylvania. SQCF had assets of $598 million as of March 31, 2025. Under the terms of the definitive agreement, each share of SQCF’s common stock issued and outstanding immediately prior to the effective time of the merger will be converted into the right to receive 0.80 shares of the Corporation’s common stock. Holders of SQCF common stock prior to the consummation of the merger will own approximately 13% of the Corporation’s common stock outstanding immediately following the consummation of the merger. The merger, which is expected to close in the fourth quarter of 2025, is subject to the satisfaction of customary closing conditions, including receipt of customary regulatory approvals and approval by SQCF’s shareholders.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain statements in this section and elsewhere in this quarterly report on Form 10-Q are forward-looking statements for purposes of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. Such forward-looking statements may include financial and other projections as well as statements regarding the Corporation that may include future plans, objectives, performance, revenues, growth, profits, operating expenses or the Corporation’s underlying assumptions. Citizens & Northern Corporation and its wholly-owned subsidiaries (collectively, the Corporation) intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Reform Act of 1995. Forward-looking statements, are not statements of historical facts, are based on certain assumptions and describe future plans, business objectives and expectations, and are generally identifiable by the use of words such as, “may”, “would”, “will”, "should", “likely”, “possibly”, "expect", "anticipate", “intend”, “pro forma”, “estimate”, “target”, “potentially”, “probably”, “outlook”, “predict”, “contemplate”, “continue”, “strategic”, “objective”, “plan”, “forecast”, “project”, “believe” and “goal” or other similar words, phrases or concepts. Persons reading this document are cautioned that such statements are only predictions, and that the Corporation’s actual future results or performance may be materially different. .A number of factors could cause our actual results, events or developments, or industry results, to be materially different from any future results, events or developments expressed, implied or anticipated by such forward-looking statements. In addition to factors previously disclosed in the reports filed by C&N with the SEC, including our most recent annual report on Form 10-K, and those identified elsewhere in this document, the following factors, among others, could cause actual results to differ materially from forward looking statements:
These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. All forward-looking statements and information made herein are based on management’s current beliefs and assumptions as of the date of filing of this document. The Corporation does not undertake to update forward-looking statements.
PENDING ACQUISITION
On April 23, 2025, the Corporation announced that it had entered into an Agreement and Plan of Merger with Susquehanna Community Financial, Inc. (“SQCF”) pursuant to which it will acquire SQCF. SQCF is the financial holding company for Susquehanna Community Bank (“Susquehanna”), which operates 7 banking offices in Central Pennsylvania. SQCF had assets of $598 million as of March 31, 2025. Under the terms of the definitive agreement, each share of SQCF’s common stock issued and outstanding immediately prior to
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the effective time of the merger will be converted into the right to receive 0.80 shares of the Corporation’s common stock. Holders of SQCF common stock prior to the consummation of the merger will own approximately 13% of the Corporation’s common stock outstanding immediately following the consummation of the merger. The merger, which is expected to close in the fourth quarter of 2025, is subject to the satisfaction of customary closing conditions, including receipt of customary regulatory approvals and approval by SQCF’s shareholders.
EARNINGS OVERVIEW
First Quarter 2025 as Compared to First Quarter 2024
First quarter 2025 net income was $6,293,000, or $0.41 per diluted share, as compared to $5,306,000, or $0.35 per diluted share, in the first quarter 2024. Significant variances were as follows:
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TABLE I – QUARTERLY FINANCIAL DATA
(Dollars In Thousands,
For the Three Months Ended :
Except Per Share Data)
September 30,
June 30,
(Unaudited)
Interest and dividend income
33,329
33,087
31,326
12,856
12,931
11,881
20,473
20,156
19,445
Provision (credit) for credit losses
(531)
1,207
565
Net interest income after provision (credit) for credit losses
21,004
18,949
18,880
Noninterest income
7,547
7,133
7,854
Noninterest expense
18,430
18,269
19,255
10,121
7,813
7,479
1,947
1,448
1,366
8,174
6,365
6,113
8,103
6,311
6,066
Basic and diluted earnings per common share
0.53
0.40
TABLE II – COMPARISON OF NONINTEREST INCOME
Change
10.8
(41)
(7.6)
9.3
2.3
Net gains from sales of loans
7.3
(92)
(40.0)
(2.8)
11.3
333
5.0
TABLE III - COMPARISON OF NONINTEREST EXPENSE
1.7
0.6
79
4.0
(100)
(20.5)
63
14.5
(1)
(0.2)
492
26.4
Additional detailed information concerning fluctuations in the Corporation’s earnings results and other financial information are provided in other sections of Management’s Discussion and Analysis.
CRITICAL ACCOUNTING POLICIES
The presentation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect many of the reported amounts and disclosures. Actual results could differ from these estimates.
Allowance for Credit Losses on Loans – A material estimate that is particularly susceptible to significant change is the determination of the allowance for credit losses (ACL) on loans. The Corporation maintains an ACL on loans which represents management’s estimate of expected net charge-offs over the life of the loans. The ACL includes two primary components: (i) an allowance established on loans which share similar risk characteristics collectively evaluated for credit losses (collective basis), and (ii) an allowance established on loans which do not share similar risk characteristics with any loan segment and which are individually evaluated for credit losses (individual basis). Management considers the determination of the ACL on loans to be critical because it requires significant judgment regarding estimates of expected credit losses based on the Corporation’s historical loss experience, current conditions and economic forecasts. Management’s evaluation is based upon a continuous review of the Corporation’s loans, with consideration given to evaluations resulting from examinations performed by regulatory authorities. Note 6 to the unaudited consolidated financial statements provides an overview of the process management uses for determining the ACL, and additional discussion of the ACL is provided in a separate section of Management’s Discussion and Analysis.
The ACL may increase or decrease due to changes in economic conditions affecting borrowers and macroeconomic variables, including new information regarding existing problem loans, identification of additional problem loans, changes in the fair value of underlying collateral, unforeseen events such as natural disasters and pandemics, and other factors. Because current economic conditions and forecasts can change and future events are inherently difficult to predict, the anticipated amount of estimated credit losses on loans, and therefore the appropriateness of the ACL, could change significantly.
NET INTEREST INCOME
The Corporation’s primary source of operating income is net interest income, which is equal to the difference between the amounts of interest income and interest expense. Tables IV, V and VI include information regarding the Corporation’s net interest income for the three-month periods ended March 31, 2025 and 2024. In each of these tables, the amounts of interest income earned on tax-exempt securities and loans have been adjusted to a fully taxable-equivalent basis. Management believes presentation of net interest income on a fully taxable-equivalent basis, which is a non-GAAP financial measure, provides investors with meaningful information for purposes of comparing returns on tax-exempt securities and loans with returns on taxable securities and loans. Accordingly, the amount of net interest income on a fully taxable-equivalent basis reflected in these tables exceed the net interest income amounts presented in the consolidated financial statements. A reconciliation of net interest income on a fully taxable-equivalent basis to the closest GAAP financial measure is included with Table IV. The discussion that follows is based on amounts in the related tables.
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Three-Month Periods Ended March 31, 2025 and 2024
Fully taxable equivalent net interest income (a non-GAAP measure) was $20,186,000 in the first quarter of 2025, $950,000 (4.9%) higher than in the first quarter of 2024. The increase in net interest income reflected an increase in interest income of $1,389,000 and an increase in interest expense of $439,000. As presented in Table V, the Net Interest Margin was 3.38% in the first quarter 2025 as compared to 3.29% in the first quarter 2024, and the “Interest Rate Spread” (excess of average rate of return on earning assets over average cost of funds on interest-bearing liabilities) increased to 2.69% in 2025 from 2.62% in 2024. The average yield on earning assets of 5.35% was 0.13% higher in 2025 as compared to 2024, and the average rate on interest-bearing liabilities of 2.66% in 2025 was 0.06% higher. Additionally, average total earning assets increased $65,203,000 as average total loans increased $40,187,000 (2.2%), and average interest-bearing due from banks increased $35,171,000 while average total deposits increased $59,904,000 (3.0%). As presented in Table VI, the net impact of changes in interest rates increased net interest income in the first quarter 2025 as compared to first quarter 2024 by $756,000 while changes in volume of earning assets and interest-bearing liabilities increased net interest income by $194,000.
INTEREST INCOME AND EARNING ASSETS
Interest income totaled $31,920,000 in 2025, an increase of $1,389,000, or 4.5% from 2024.
Interest and fees from loans receivable increased $858,000 in 2025 as compared to 2024. The fully taxable equivalent yield on loans in 2025 increased to 6.03% from 5.92% in 2024, reflecting the effects of gradual paydowns on loans originated prior to interest rates rising in 2022 and 2023 with more recent loans originated at higher market rates. Average outstanding loans receivable increased $40,187,000 (2.2%) to $1,899,433,000 in 2025 from $1,859,246,000 in 2024. The increase in average loans receivable includes the impact of growth in commercial real estate and other commercial loans.
Income from interest-bearing due from banks totaled $721,000 in 2025, an increase of $338,000 from the total for 2024. Within this category, the largest asset balance in 2025 and 2024 has been interest-bearing deposits held with the Federal Reserve. The average yield on interest-bearing due from banks was 4.31% in 2025, down from 4.71% in 2024. The average balance of interest-bearing due from banks was $67,896,000 in 2025, up $35,171,000 from $32,725,000 in 2024. The net increase in average interest-bearing due from banks for 2025 as compared to 2024 reflected net sources of cash from deposit growth and a reduction in average available-for-sale debt securities, partially offset by net uses of cash for loan growth and a decrease in borrowed funds.
Interest income from available-for-sale debt securities, on a fully taxable-equivalent basis, totaled $2,950,000 in 2025, up $191,000 from 2024, as the average yield on available-for-sale debt securities was 2.65% in 2025, up from 2.41% in 2024. The average balance (at amortized cost) of available-for-sale debt securities decreased $10,548,000 between periods.
INTEREST EXPENSE AND INTEREST-BEARING LIABILITIES
Interest expense increased $439,000 to $11,734,000 in 2025 from $11,295,000 in 2024.
Interest expense on deposits increased $701,000, as the balance of interest-bearing deposits increased $64,446,000 and the average rate increased to 2.45% in 2025 from 2.35% in 2024. Average total deposits (interest-bearing and noninterest-bearing) increased $59,904,000 (3.0%) in the first quarter of 2025 as compared to 2024. Within average deposits, average brokered deposits were $26,580,000 at an average rate of 4.76% in the first quarter of 2025 as compared to $84,318,000 at an average rate of 5.23% in the first quarter of 2024. In comparing the first quarter 2025 to the first quarter 2024, average time deposits increased $65,134,000 and average interest checking deposits increased $24,339,000 while average savings deposits decreased $17,307,000, average total money market accounts decreased $7,720,000 and average noninterest-bearing demand deposits decreased $4,542,000.
Interest expense on borrowed funds decreased $262,000 in 2025 as compared to 2024. Interest expense on short-term borrowings was less than $1,000 in 2025 compared to $597,000 in 2024 as the average balance of short-term borrowings decreased to $1,400,000 in 2025 from $44,462,000 in 2024. Interest expense on long-term borrowings (FHLB advances) increased $333,000 to $1,789,000 in 2025 from $1,456,000 in 2024. The average balance of long-term borrowings was $162,392,000 in 2025, up from an average balance of $142,753,000 in 2024. The average rate on long-term borrowings was 4.47% in 2025 compared to 4.10% in 2024. Borrowings are classified as long-term within the Tables based on their term at origination or assumption in business combinations.
More information regarding borrowed funds is provided in Note 8 to the unaudited consolidated financial statements.
TABLE IV - ANALYSIS OF INTEREST INCOME AND EXPENSE
Increase/
(Decrease)
Interest-bearing due from banks
721
383
338
166
648
623
2,950
2,759
Loans receivable:
800
728
670
Total loans receivable
28,231
27,373
858
Other earning assets
Total Interest Income
31,920
30,531
1,389
Interest-bearing deposits:
Interest checking
2,727
2,806
(79)
Money market
1,981
2,180
(199)
Savings
49
4,835
3,850
985
Total interest-bearing deposits
701
Borrowed funds:
Short-term
(597)
Long-term - FHLB advances
Total borrowed funds
2,142
2,404
(262)
Total Interest Expense
439
Net Interest Income
20,186
19,236
950
Note: Interest income from tax-exempt securities and loans has been adjusted to a fully taxable-equivalent basis (a non-GAAP measure), using the Corporation’s marginal federal income tax rate of 21%. The following table reconciles net interest income under U.S. GAAP as compared to net interest income as adjusted to a fully taxable-equivalent basis.
Net Interest Income Under U.S. GAAP
934
Add: fully taxable-equivalent interest income adjustment from tax-exempt securities
75
Add: fully taxable-equivalent interest income adjustment from tax-exempt loans
126
Net Interest Income as adjusted to a fully taxable-equivalent basis
TABLE V - Analysis of Average Daily Balances and Rates
Three Months
Ended
Rate of
Return/
3/31/2024
Average
Cost of
Balance
Funds %
EARNING ASSETS
67,896
4.31
32,725
4.71
Available-for-sale debt securities, at amortized cost:
339,557
2.75
347,885
2.47
111,143
2.36
113,363
2.21
450,700
2.65
461,248
2.41
1,809,045
6.17
1,774,064
6.05
90,388
3.27
85,182
3.16
1,899,433
6.03
1,859,246
5.92
1,777
4.11
1,384
4.65
Total Earning Assets
2,419,806
5.35
2,354,603
5.22
Cash
20,920
20,448
Unrealized loss on securities
(44,405)
(50,849)
(20,341)
(19,484)
51,383
54,466
Bank premises and equipment
21,329
21,788
Intangible assets
54,530
54,925
71,928
82,879
Total Assets
2,575,150
2,518,776
INTEREST-BEARING LIABILITIES
539,244
2.05
514,905
2.19
355,144
2.26
362,864
2.42
195,971
0.10
213,278
494,219
3.97
429,085
3.61
1,584,578
2.45
1,520,132
2.35
1,400
0.00
44,642
5.38
162,392
4.47
142,753
4.10
14,908
3.29
14,840
3.25
24,846
3.79
24,731
3.76
203,546
4.27
226,966
4.26
Total Interest-bearing Liabilities
1,788,124
2.66
1,747,098
2.60
Demand deposits
476,604
481,146
Other liabilities
32,279
29,386
Total Liabilities
2,297,007
2,257,630
Stockholders' equity, excluding accumulated other comprehensive loss
312,427
301,032
(34,284)
(39,886)
Total Stockholders' Equity
278,143
261,146
Total Liabilities and Stockholders' Equity
Interest Rate Spread
2.69
2.62
Net Interest Income/Earning Assets
3.38
Total Deposits (Interest-bearing and Demand)
2,061,182
2,001,278
TABLE VI - ANALYSIS OF VOLUME AND RATE CHANGES
Three Months Ended 3/31/2025 vs. 3/31/2024
Change in
Volume
Rate
373
(35)
(55)
221
(68)
259
413
451
(2)
760
629
118
(197)
(50)
(149)
595
390
657
(294)
(303)
202
(91)
(171)
566
(127)
194
INCOME TAXES
The income tax provision in interim periods is based on the Corporation’s estimate of the effective tax rate expected to be applicable for the full year. The income tax provision for the first quarter of 2025 of $1,411,000 was $259,000 higher than the provision for the first quarter of 2024, consistent with the increase in pre-tax income of $1,246,000. The effective tax rate (tax provision as a percentage of pre-tax income) was 18.3% in the first quarter of 2025 compared to 17.8% in the first quarter of 2024. The Corporation’s effective tax rates differ from the statutory federal rate of 21% principally because of the effects of tax-exempt interest income, nondeductible interest expense, state income taxes and other permanent differences.
40
The Corporation recognizes deferred tax assets and liabilities based on differences between the consolidated financial statement carrying amounts and the tax basis of assets and liabilities. The net deferred tax asset at March 31, 2025 and December 31, 2024 represents the following temporary difference components:
Deferred tax assets:
Unrealized holding losses on securities
9,324
10,459
Allowance for credit losses on loans
4,430
4,400
Purchase accounting adjustments on loans
305
Deferred compensation
1,528
1,465
Operating leases liability
900
692
Deferred loan origination fees
674
697
Net operating loss carryforward
393
Accrued incentive compensation
150
678
Other deferred tax assets
1,240
1,520
Total deferred tax assets
18,944
20,667
Deferred tax liabilities:
Right-of-use assets from operating leases
Core deposit intangibles
456
284
290
Defined benefit plans - ASC 835
90
Other deferred tax liabilities
Total deferred tax liabilities
1,750
1,569
The Corporation regularly reviews deferred tax assets for recoverability based on history of earnings, expectations for future earnings and expected timing of reversals of temporary differences. Realization of deferred tax assets ultimately depends on the existence of sufficient taxable income.
Management believes the recorded net deferred tax asset at March 31, 2025 is fully realizable; however, if management determines the Corporation will be unable to realize all or part of the net deferred tax asset, the Corporation would adjust the deferred tax asset, which would negatively impact earnings.
SECURITIES
Management continually evaluates several objectives in determining the size, securities mix and other characteristics of the available-for-sale debt securities (investment) portfolio. Key objectives include supporting liquidity needs and maximizing return on earning assets within reasonable risk parameters.
The composition of the available-for-sale debt securities portfolio at March 31, 2025 and December 31, 2024, 2023 and 2022 is as follows:
December 31, 2023
December 31, 2022
12,325
11,290
35,166
31,836
11,119
9,946
25,938
23,430
28,952
23,500
28,945
25,386
113,464
104,199
146,149
132,623
58,720
50,111
68,488
56,812
105,549
95,405
112,782
99,941
50,212
46,462
44,868
40,296
76,412
66,682
91,388
79,686
8,215
8,070
8,023
Total Available-for-Sale Debt Securities
464,968
415,755
561,794
498,033
Aggregate Unrealized Loss
(42,374)
(47,543)
(49,213)
(63,761)
Aggregate Unrealized Loss as a % of Amortized Cost
(9.4)
(10.6)
(11.3)
As reflected in the table above, the fair value of available-for-sale securities was lower than the amortized cost basis by $42,374,000, or 9.4% at March 31, 2025, $47,543,000, or 10.6%, at December 31, 2024, $49,213,000, or 10.6%, at December 31, 2023 and $63,761,000, or 11.3%, at December 31, 2022. The volatility in the fair value of the portfolio, including the reduction in fair value, resulted from changes in interest rates. The table also shows that the amortized cost basis of the portfolio has been reduced to $450,837,000 at March 31, 2025 from $561,794,000 at December 31, 2022 as proceeds from maturities and sales have been used to help fund loan growth and for other purposes.
Additional information regarding the potential impact of interest rate changes on all of the Corporation’s financial instruments is provided in Item 3, Quantitative and Qualitative Disclosures about Market Risk.
As described in Note 5 to the unaudited consolidated financial statements, management determined the Corporation does not have the intent to sell, nor is it more likely than not that it will be required to sell, available-for-sale debt securities in an unrealized loss position at March 31, 2025 before it is able to recover the amortized cost basis. Further, management reviewed the Corporation’s holdings as of March 31, 2025 and concluded there were no credit-related declines in fair value. Additional information related to the types of securities held at March 31, 2025, other than securities issued or guaranteed by U.S. Government entities or agencies, is as follows:
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Based on the results of management’s assessment, there was no ACL required on available-for-sale debt securities in an unrealized loss position at March 31, 2025.
FINANCIAL CONDITION
This section includes information regarding the Corporation’s lending activities or other significant changes or exposures that are not otherwise addressed in Management’s Discussion and Analysis. Significant changes in the average balances of the Corporation’s earning assets and interest-bearing liabilities are described in the Net Interest Income section of Management’s Discussion and Analysis. Other significant balance sheet items, including securities, the allowance for credit losses and stockholders’ equity, are discussed in separate sections of Management’s Discussion and Analysis. There are no significant concerns that have arisen related to the Corporation’s off-balance sheet loan commitments or outstanding letters of credit at March 31, 2025.
Table VII shows the composition of the loan portfolio at March 31, 2025 and at year-end from 2020 through 2024. Throughout this time period, the portfolio was primarily commercial in nature. At March 31, 2025, commercial loans represented 75% of the portfolio while residential loans totaled 21% of the portfolio.
Also included in Table VII is additional detail regarding the composition of the non-owner occupied commercial real estate loan portfolio at March 31, 2025. As shown in Table VII, the amortized cost of non-owner occupied commercial real estate loans for which the primary purpose is utilization of office space by third parties was $108,625,000, or 5.7% of gross loans receivable. At March 31, 2025, within this segment there were two loans with a total amortized cost of $2,954,000 in nonaccrual status with no individual ACL on either loan. The remainder of the non-owner occupied commercial real estate loans with a primary purpose of office space utilization were in accrual status with no specific allowance at March 31, 2025.
While the Corporation’s lending activities are primarily concentrated in its market areas, a portion of the Corporation’s commercial loan segment consists of participation loans. Participation loans represent portions of larger commercial transactions for which other institutions are the “lead banks”. Although not the lead bank, the Corporation conducts detailed underwriting and monitoring of participation loan opportunities. Total participation loans outstanding amounted to $34,901,000 at March 31, 2025 down from $35,129,000 at December 31, 2024.
The Corporation is a party to financial instruments with off-balance risk, including commitments to extend credit and standby letters of credit. At March 31, 2025, the total contract amount of commitments to extend credit was $379,125,000 as compared to $380,003,000 at December 31, 2024, and the contract amount of standby letters of credit was $64,001,000 at March 31, 2025 as compared to $64,586,000 at December 31, 2024.
The Corporation maintains an allowance for off-balance sheet credit exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, commercial letters of credit and credit enhancement obligations related to residential mortgage loans sold with recourse, when there is a contractual obligation to extend credit and when this extension of credit is not unconditionally cancellable (i.e. commitment cannot be canceled at any time). The allowance for off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over their estimated lives. The allowance for credit losses for off-balance sheet exposures of $463,000 at March 31, 2025 and $455,000 at December 31, 2024, is included in accrued interest and other liabilities in the unaudited consolidated balance sheets.
The Corporation originates and sells residential mortgage loans to the secondary market through the MPF Xtra program administered by the Federal Home Loan Banks of Pittsburgh and Chicago. Residential mortgages originated and sold through the MPF Xtra program consist primarily of conforming, prime loans sold to the Federal National Mortgage Association (Fannie Mae), a quasi-government entity. The Corporation also originates and sells residential mortgage loans to the secondary market through the MPF Original program, administered by the Federal Home Loan Banks of Pittsburgh and Chicago. Residential mortgages originated and sold through the MPF Original program consist primarily of conforming, prime loans sold to the Federal Home Loan Bank of Pittsburgh.
For loan sales originated under the MPF programs, the Corporation provides customary representations and warranties to investors that specify, among other things, that the loans have been underwritten to the standards established by the investor. The Corporation may be required to repurchase a loan and reimburse a portion of fees received or reimburse the investor for a credit loss incurred on a loan, if it is determined that the representations and warranties have not been met. Such repurchases or reimbursements generally result from an underwriting or documentation deficiency. At March 31, 2025, the total outstanding balance of loans the Corporation has repurchased as a result of identified instances of noncompliance amounted to $2,513,000, and the corresponding total outstanding balance of repurchased loans at December 31, 2024 was $2,671,000.
At March 31, 2025, outstanding balances of loans sold and serviced through the MPF Xtra and Original programs totaled $329,761,000, including loans sold through the MPF Xtra program of $156,703,000 and loans sold through the Original program of $173,058,000. At December 31, 2024, outstanding balances of loans sold and serviced through the MPF Xtra and Original programs totaled $329,766,000, including loans sold through the MPF Xtra program of $158,302,000 and loans sold through the Original program of $171,464,000. Based on the fairly limited volume of required repurchases to date, no allowance has been established for representation and warranty exposures as of March 31, 2025 and December 31, 2024.
TABLE VII - SUMMARY OF LOANS BY TYPE
Commercial real estate - non-owner occupied:
Non-owner occupied
471,351
471,171
499,104
454,386
358,352
328,662
Multi-family (5 or more) residential
101,061
105,174
64,076
55,406
49,054
54,893
1-4 Family - commercial purpose
161,292
163,220
174,162
165,805
175,027
198,918
737,342
675,597
582,433
582,473
237,246
205,910
196,083
191,075
All other commercial loans:
Commercial and industrial
96,233
96,665
78,832
95,368
118,488
222,923
Commercial lines of credit
128,290
120,078
117,236
141,444
106,338
105,802
Political subdivisions
94,046
94,009
79,031
86,663
75,401
46,295
Commercial construction and land
96,176
92,741
104,123
60,892
59,505
41,000
Other commercial loans
21,434
19,784
20,471
25,710
26,498
29,310
399,693
410,077
386,230
445,330
Residential mortgage loans:
1-4 Family - residential
378,841
383,797
389,262
363,005
327,593
356,532
1-4 Family residential construction
23,407
24,212
24,452
30,577
23,151
18,736
Total residential mortgage
413,714
393,582
350,744
375,268
Consumer loans:
Consumer lines of credit (including HELOCs)
49,782
47,196
41,503
36,650
33,522
34,566
All other consumer
16,271
16,730
18,641
18,224
15,837
15,497
Total consumer
60,144
54,874
49,359
50,063
1,848,139
1,740,040
1,564,849
1,644,209
(19,208)
(16,615)
(13,537)
(11,385)
1,828,931
1,723,425
1,551,312
1,632,824
Additional details regarding the composition of the non-owner occupied commercial real estate loan portfolio, excluding multi-family (5 or more) residential and 1-4 Family-commercial purpose loans, at March 31, 2025 is as follows:
NON-OWNER OCCUPIED COMMERCIAL REAL ESTATE
% of Non-owner
% of
Occupied CRE
Office
108,625
23.0
5.7
Retail
90,247
19.1
4.8
Industrial
81,892
17.4
4.3
Hotels
69,687
14.8
3.7
Mixed Use
60,610
12.9
3.2
60,290
12.8
Total Non-owner Occupied CRE Loans
Total Gross Loans
45
PROVISION AND ALLOWANCE FOR CREDIT LOSSES
A summary of the provision (credit) for credit losses for the three-month periods ended March 31, 2025 and 2024 is as follows:
3 Months
Provision for credit losses:
Off-balance sheet exposures
Total provision for credit losses
For the quarter ended March 31, 2025, there was a provision for credit losses of $236,000, a decrease of $718,000 from a provision for credit losses of $954,000 in first quarter 2024. For the quarter ended March 31, 2025, the provision related to loans receivable included the impact of an increase in the ACL related to changes in qualitative factors partially offset by a decrease in the ACL from a decrease in average net charge-off experience. The ACL as a percentage of gross loans receivable was 1.06% at March 31, 2025 and December 31, 2024 compared to 1.07% at March 31, 2024.
As shown in Table IX, the ACL on loans individually evaluated increased to $189,000 at March 31, 2025 from $122,000 at December 31, 2024. At March 31, 2025, there were loans to two borrowers with a total amortized cost basis of $945,000 for which individual ACLs were recorded. At December 21, 2024, there were loans to one borrower with a total amortized cost basis of $258,000 for which individual ACLs were recorded.
Table IX also shows that, at March 31, 2025 as compared to December 31, 2024, the ACL related to collectively evaluated commercial loans increased by a total of $187,000 while the ACL on collectively evaluated residential mortgage loans decreased $75,000 and the ACL on collectively evaluated consumer loans decreased $42,000. The net increase in qualitative adjustments for commercial loans included an increase in a factor related to past due and nonaccrual loans offset by a decrease in a factor related to non-owner occupied commercial real estate and construction and land loan concentrations.
In the first quarter of 2025, net charge-offs totaled $91,000, or 0.02% (annualized) of average outstanding loans. Table VIII shows annual average net charge-off rates over the prior five calendar years ranging from a high of 0.26% in 2022 to a low of 0.01% in 2023.
As presented in Table X, collateral dependent loans totaled $30,799,000 at March 31, 2025, up from $30,125,000 at December 31, 2024 and up significantly from year-end 2020-2023 amounts. The increase included two loans related to one relationship with a total amortized cost basis of $10,975,000 at March 31, 2025 and $11,023,000 at December 31, 2024. There were no individually evaluated ACLs on these loans at March 31, 2025 and December 31, 2024. The loans were paid off in April 2025.
Table X shows that total nonperforming assets as a percentage of total assets was 0.93% at March 31, 2025, up from 0.92% at December 31, 2024 and 0.75% at December 31, 2023 but lower than at year-end 2020 through 2022. Total nonperforming assets were $24,329,000 at March 31, 2025, up from $24,142,000 at December 31, 2024. Nonperforming loans included an increase in nonaccrual loans of $264,000 from December 31, 2024, while loans past due 90 days or more still accruing decreased $95,000 from December 31, 2024.
Table X also shows that loans past due 30-89 days totaled $8,452,000 at March 31, 2025, up from $5,658,000 at December 31, 2024. The net increase included an owner-occupied commercial loan with a carrying value of $2,753,000 that was 89 days past due at March 31, 2025.
Over the period 2020-2024 and the first quarter of 2025, each period includes a few large commercial relationships that have required significant monitoring and workout efforts. As a result, a limited number of relationships may significantly impact the total amount of allowance required on individual loans and may significantly impact the provision for credit losses and the amount of total charge-offs reported in any one period.
Management believes it has been prudent in its decisions concerning identification of loans requiring individual evaluation for credit loss, estimates of loss, and nonaccrual status; however, the actual losses realized from these relationships could vary materially from the allowances calculated as of March 31, 2025. Management continues to closely monitor its commercial loan relationships for credit losses and will adjust its estimates of loss and decisions concerning nonaccrual status, if appropriate.
Tables VIII through X present historical data related to loans and the allowance for credit losses.
TABLE VIII - ANALYSIS OF THE ALLOWANCE FOR CREDIT LOSSES ON LOANS
Years Ended December 31,
Balance, beginning of year
16,615
13,537
11,385
9,836
Adoption of ASU 2016-13 (CECL)
2,104
(1,716)
(356)
(4,245)
(1,575)
(2,465)
113
92
68
66
101
Net charge-offs
(145)
(1,603)
(264)
(4,177)
(1,509)
(2,364)
Provision for credit losses on loans
2,430
753
7,255
3,661
3,913
Net charge-offs as a % of average loans (annualized)
0.02
0.03
0.09
0.01
0.26
0.16
TABLE IX - COMPONENTS OF THE ALLOWANCE FOR CREDIT LOSSES ON LOANS
January 1,
Loans individually evaluated
743
751
Loans collectively evaluated:
Commercial real estate - nonowner occupied
10,379
9,641
2,722
2,111
1,765
3,452
3,811
3,914
Residential mortgage
2,407
Total Allowance
18,719
PRIOR TO CECL ADOPTION
As of December 31,
ASC 310 - Impaired loans - individually evaluated
453
740
925
ASC 450 - Collectively evaluated:
10,845
7,553
5,545
4,073
4,338
4,091
244
235
239
Unallocated
1,000
671
585
TABLE X - PAST DUE LOANS AND NONPERFORMING ASSETS
Collateral dependent loans with a valuation allowance
7,786
3,460
6,540
8,082
Collateral dependent loans without a valuation allowance
29,854
29,867
14,871
2,636
2,895
Purchased credit impaired loans
1,027
6,558
6,841
Total collateral dependent loans
11,264
19,358
15,734
17,818
Total loans past due 30-89 days and still accruing
9,275
7,079
5,106
5,918
Nonperforming assets:
Other nonaccrual loans
15,177
22,058
12,441
14,575
Total nonaccrual loans
23,085
18,999
21,416
Total loans past due 90 days or more and still accruing
3,190
2,237
2,219
1,975
Total nonperforming loans
24,130
23,961
18,367
25,322
21,218
23,391
Foreclosed assets held for sale (real estate)
478
275
1,338
Total nonperforming assets
24,329
24,142
18,845
25,597
21,902
24,729
Total nonperforming loans as a % of loans
1.27
1.26
0.99
1.46
1.36
1.42
Total nonperforming assets as a % of assets
0.93
0.92
0.75
1.04
0.94
1.10
Nonaccrual loans as a % of loans
0.82
1.33
1.21
1.30
Allowance for credit losses as a % of nonaccrual loans
83.68
84.03
79.01
71.97
71.25
53.16
Allowance for credit losses as a % of total loans
1.06
0.95
0.87
0.69
48
LIQUIDITY
Liquidity is the ability to quickly raise cash at a reasonable cost. An adequate liquidity position permits the Corporation to pay creditors, compensate for unforeseen deposit fluctuations and fund unexpected loan demand.
The Corporation maintains borrowing facilities with the Federal Home Loan Bank of Pittsburgh, secured by various mortgage loans. In addition, the Corporation maintains overnight borrowing facilities with several correspondent banks that provide a source of day-to-day liquidity.
The Corporation has a line of credit with the Federal Reserve Bank of Philadelphia’s Discount Window. Management intends to use this line of credit as a contingency funding source. As collateral for the line, the Corporation has pledged available-for-sale debt securities with a carrying value of $18,236,000 at March 31, 2025.
The Corporation’s outstanding, available, and total credit facilities at March 31, 2025 and December 31, 2024 are as follows:
Outstanding
Available
Total Credit
Federal Home Loan Bank of Pittsburgh
176,540
188,692
772,430
749,999
948,970
938,691
Federal Reserve Bank Discount Window
17,431
18,093
Other correspondent banks
75,000
Total credit facilities
864,861
843,092
1,041,401
1,031,784
At March 31, 2025, the Corporation’s outstanding credit facilities with the Federal Home Loan Bank of Pittsburgh consisted of long-term borrowings with par values totaling $154,423,000 and letters of credit totaling $22,117,000. At December 31, 2024, the Corporation’s outstanding credit facilities with the Federal Home Loan Bank of Pittsburgh consisted of long-term borrowings with par values totaling $165,451,000 and letters of credit totaling $23,241,000. Additional information regarding borrowed funds is included in Note 8 to the unaudited consolidated financial statements.
Additionally, the Corporation uses “RepoSweep” arrangements to borrow funds from commercial banking customers on an overnight basis. If required to raise cash in an emergency situation, the Corporation could sell available-for-sale securities to meet its obligations or use repurchase agreements placed with brokers to borrow funds secured by investment assets. At March 31, 2025, the carrying value of available-for-sale securities in excess of amounts required to meet pledging or repurchase agreement obligations was $270,496,000.
Deposits totaled $2,102,141,000 at March 31, 2025, up $8,232,000 (0.4%) from $2,093,909,000 at December 31, 2024. Average total deposits of $2,061,182,000 were 3.0% higher for the first quarter 2025, as compared to $2,001,278,000 for the first quarter 2024. Brokered deposits, consisting mainly of short-term certificates of deposit, totaled $22,022,000 at March 31, 2025, a decrease of $1,999,000 from December 31, 2024.
As shown in the table below, at March 31, 2025, estimated uninsured deposits totaled $621.5 million, or 29.3% of total deposits, as compared to $632.8 million, or 30.0% of total deposits at December 31, 2024. Included in uninsured deposits are deposits collateralized by securities (almost exclusively municipal deposits) totaling $138.2 million at March 31, 2025. As shown in the table below, total uninsured and uncollateralized deposits amounted to 22.8% of total deposits at March 31, 2025, as compared to 22.3% at December 31, 2024.
As summarized in the table that immediately follows, the Corporation’s highly liquid sources of available funds described above, including unused borrowing capacity with the Federal Home Loan Bank of Pittsburgh, unused availability on the Federal Reserve Bank of Philadelphia’s discount window, available federal funds lines with other banks and unencumbered available-for-sale debt securities, totaled $1.1 billion at March 31, 2025. Available funding from these sources totaled 182.7% of uninsured deposits and 234.9% of total uninsured and uncollateralized deposits at March 31, 2025.
Uninsured Deposits Information
Total Deposits - C&N Bank
2,120,521
2,111,547
Estimated Total Uninsured Deposits
621,542
632,804
Portion of Uninsured Deposits that are
Collateralized
138,178
161,958
Uninsured and Uncollateralized Deposits
483,364
470,846
Uninsured and Uncollateralized Deposits as
a % of Total Deposits
22.8
22.3
Available Funding from Credit Facilities
Fair Value of Available-for-sale Debt
Securities in Excess of Pledging Obligations
270,496
236,945
Highly Liquid Available Funding
1,135,357
1,080,037
Highly Liquid Available Funding as a % of
Uninsured Deposits
182.7
170.7
234.9
229.4
Based on the ample sources of highly liquid funds as described above, management believes the Corporation is well-positioned to meet its short-term and long-term funding obligations.
STOCKHOLDERS’ EQUITY AND CAPITAL ADEQUACY
In August 2018, the Federal Reserve Board issued an interim final rule that expanded applicability of the Board’s small bank holding company policy statement. The interim final rule raised the policy statement’s asset threshold from $1 billion to $3 billion in total consolidated assets for a bank holding company or savings and loan holding company that: (1) is not engaged in significant nonbanking activities; (2) does not conduct significant off-balance sheet activities; and (3) does not have a material amount of debt or equity securities, other than trust-preferred securities, outstanding. The interim final rule provides that, if warranted for supervisory purposes, the Federal Reserve may exclude a company from the threshold increase. Management believes the Corporation meets the conditions of the Federal Reserve’s small bank holding company policy statement and is therefore excluded from consolidated capital requirements at March 31, 2025; however, management believes the Corporation will probably be subject to the consolidated capital requirements upon completion of the previously described acquisition of SQCF. Further, at March 31, 2025, C&N Bank remains subject to regulatory capital requirements administered by the federal banking agencies.
50
Details concerning capital ratios at March 31, 2025 and December 31, 2024 are presented below. Management believes, as of March 31, 2025, that C&N Bank meets all capital adequacy requirements to which it is subject and maintains a capital conservation buffer (described in more detail below) that allows C&N Bank to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers. For comparison purposes, the Corporation’s capital ratios are presented along with those of C&N Bank in the table below. Further, as reflected in the table below, the Corporation’s and C&N Bank’s capital ratios at March 31, 2025 and December 31, 2024 exceed the Corporation’s Board policy threshold levels.
Minimum To Be
Minimum To Maintain
Well
Minimum
Capital Conservation
Capitalized Under
Minimum To Meet
Buffer at Reporting
Prompt Corrective
the Corporation's
Actual
Requirement
Action Provisions
Policy Thresholds
Ratio
March 31, 2025:
Total capital to risk-weighted assets:
Consolidated
305,546
16.02
209,755
≥11
C&N Bank
289,916
15.23
152,276
≥8
199,863
≥10.5
190,346
≥10
209,380
Tier 1 capital to risk-weighted assets:
260,051
13.64
171,617
≥9
269,281
14.15
114,207
≥6
161,794
≥8.5
171,311
Common equity tier 1 capital to risk-weighted assets:
143,015
≥7.5
85,656
≥4.5
133,242
≥7.0
123,725
≥6.5
142,759
Tier 1 capital to average assets:
10.17
204,512
10.59
101,711
≥4
127,139
≥5
203,423
December 31, 2024:
302,783
15.95
208,779
287,721
15.19
151,567
198,832
189,459
208,405
257,462
13.56
170,819
267,231
14.10
113,675
161,040
170,513
142,349
85,256
132,621
123,148
142,094
9.80
210,160
10.23
104,514
130,642
209,027
To avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, a banking organization subject to the rule must hold a capital conservation buffer composed of common equity tier 1 capital above its minimum risk-based capital requirements. The buffer is measured relative to risk-weighted assets. At March 31, 2025, the minimum risk-based capital ratios, and the capital ratios including the capital conservation buffer, are as follows:
Minimum common equity tier 1 capital ratio
4.5
Minimum common equity tier 1 capital ratio plus capital conservation buffer
7.0
Minimum tier 1 capital ratio
6.0
Minimum tier 1 capital ratio plus capital conservation buffer
8.5
Minimum total capital ratio
8.0
Minimum total capital ratio plus capital conservation buffer
10.5
A banking organization with a buffer greater than 2.5% over the minimum risk-based capital ratios would not be subject to additional limits on dividend payments or discretionary bonus payments; however, a banking organization with a buffer less than 2.5% would be subject to increasingly stringent limitations as the buffer approaches zero. Also, a banking organization is prohibited from making dividend payments or discretionary bonus payments if its eligible retained income is negative in that quarter and its capital conservation buffer ratio was less than 2.5% as of the beginning of that quarter. Eligible net income is defined as net income for the four calendar
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%
≤1.875% and >1.25%
≤1.25% and >0.625%
≤0.625%
At March 31, 2025, C&N Bank’s Capital Conservation Buffer, determined based on the minimum total capital ratio, was 7.23%.
On September 25, 2023, the Corporation announced a treasury stock repurchase program. Under the program, the Corporation is authorized to repurchase up to 750,000 shares of the Corporation’s common stock, or slightly less than 5% of the Corporation’s issued and outstanding shares at August 4, 2023. The program was effective when publicly announced and will continue thereafter until suspended or terminated by the Board of Directors, in its sole discretion. All shares of common stock repurchased pursuant to the program shall be held as treasury shares and be available for use and reissuance for purposes as and when determined by the Board of Directors including, without limitation, pursuant to the Corporation’s Dividend Reinvestment and Stock Purchase and Sale Plan and its equity compensation program. For the three months ended March 31, 2025, there were no shares repurchased. At March 31, 2025, there were 723,966 shares available to be repurchased under the program.
Future dividend payments and repurchases of common stock will depend upon maintenance of a strong financial condition, future earnings and capital and regulatory requirements. In addition, the Corporation and C&N Bank are subject to restrictions on the amount of dividends that may be paid without approval of banking regulatory authorities. Further, although the Corporation is no longer subject to the specific consolidated capital requirements described herein, the Corporation’s ability to pay dividends, repurchase stock or engage in other activities may be limited by the Federal Reserve if the Corporation fails to hold capital commensurate with its overall risk profile.
The Corporation’s total stockholders’ equity is affected by fluctuations in the fair values of available-for-sale debt securities. The difference between amortized cost and fair value of available-for-sale debt securities, net of deferred income tax, is included in accumulated other comprehensive (loss) income within stockholders’ equity. Accumulated other comprehensive (loss) income is excluded from the Bank’s and Corporation’s regulatory capital ratios. The balance in accumulated other comprehensive loss related to unrealized losses on available-for-sale debt securities, net of deferred income tax, amounted to $33,050,000 at March 31, 2025 and $37,084,000 at December 31, 2024. Changes in accumulated other comprehensive loss are excluded from earnings and directly increase or decrease stockholders’ equity. To the extent unrealized losses on available-for-sale debt securities result from credit losses, unrealized losses are recorded as a charge against earnings. The securities section of Management’s Discussion and Analysis and Note 5 to the unaudited consolidated financial statements provide additional information concerning management’s evaluation of available-for-sale debt securities for credit losses at March 31, 2025.
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 (“EVE”). For purposes of these calculations, EVE 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 include 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 EVE. 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 EVE 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 March 31, 2025 and December 31, 2024. The Table shows that as of the respective dates, the changes in net interest income and changes in economic value of equity were within the policy limits in all scenarios.
Based on March 31, 2025 and December 31, 2024 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. Similarly, at March 31, 2025 and December 31, 2024, EVE is modeled to decrease compared to the 0 basis point scenario in all of the rising and falling rate scenarios The modeling results reflect the impact of management’s assumptions that 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.
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 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 $33.1 million at March 31, 2025. 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.
53
TABLE XI – THE EFFECT OF HYPOTHETICAL CHANGES IN INTEREST RATES
March 31, 2025 Data
Period Ending March 31, 2026
Basis Point
Interest
Net Interest
NII
Change in Rates
Income
Expense
Income (NII)
% Change
Risk Limit
+400
158,316
85,157
73,159
(16.3)
25.0
+300
152,142
73,512
78,630
(10.1)
20.0
+200
145,918
63,072
82,846
(5.3)
15.0
+100
139,622
53,839
85,783
(1.9)
10.0
133,249
45,809
87,440
0.0
-100
126,989
41,382
85,607
(2.1)
-200
119,859
36,999
82,860
(5.2)
-300
111,887
32,616
79,271
(9.3)
-400
103,322
28,255
75,067
(14.2)
Economic Value of Equity at March 31, 2025
Present
Equity
491,315
(13.3)
50.0
520,468
(8.2)
45.0
544,566
(4.0)
35.0
561,089
(1.0)
566,981
542,103
(4.4)
503,101
445,902
(21.4)
375,315
(33.8)
December 31, 2024 Data
Period Ending December 31, 2025
157,710
87,489
70,221
(17.4)
151,610
75,796
75,814
(10.8)
145,458
65,308
80,150
(5.7)
139,233
56,023
83,210
132,939
47,942
84,997
126,757
42,671
84,086
(1.1)
119,814
37,450
82,364
(3.1)
111,964
32,229
79,735
(6.2)
103,390
27,650
75,740
(10.9)
Economic Value of Equity at December 31, 2024
475,112
(16.1)
507,221
(10.4)
534,636
(5.6)
555,058
(2.0)
566,339
552,813
(2.4)
520,196
(8.1)
470,155
(17.0)
403,255
(28.8)
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 materially 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.
Item 1A. Risk Factors
Except for the risk factor described immediately below, 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 6, 2025.
Risk Related to Pending Acquisition of SQCF - The success of the acquisition will depend, in part, on the Corporation’s ability to realize the anticipated benefits and cost savings from successfully combining the businesses of the Corporation and SQCF within the Corporation’s projected timeframe. If the Corporation is not able to achieve these objectives, the anticipated benefits and cost savings of the acquisition may not be realized fully or at all, or may take longer to realize than expected. The Corporation and SQCF have operated and, until the completion of the merger, will continue to operate, independently. It is possible that the integration process could result in the loss of key employees, the disruption of ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the Corporation’s ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits of the acquisition. Integration efforts between the two companies will also divert management attention and resources. These integration matters could have an adverse effect on the Corporation during the transition period.
The Corporation expects to incur substantial expenses in connection with the acquisition, including computer system conversion costs, severance, professional fees and other expenses. The Corporation cannot identify the timing, nature and amount of all such charges as of the date of this filing. The completion of the acquisition depends on the satisfaction of specified conditions, many of which are outside of the Corporation’s control, including the receipt of regulatory approvals, approval of the transaction by SQCF shareholders and declaration by the SEC of the effectiveness of the registration statement for the Corporation’s common stock that is part of the Merger Consideration. If the acquisition is not completed, these expenses would have been expended or would be recognized currently and not capitalized, and the Corporation would not have realized the expected benefits of the acquisition. Additionally, the Corporation’s business may be adversely impacted by the failure to pursue other beneficial opportunities due to the focus of management on the acquisition, without realizing any of the anticipated benefits of completing the acquisition.
The acquisition may not be accretive, and may be dilutive, to the Corporation’s earnings per share, which may negatively affect the market price of the Corporation’s common stock.
The Corporation currently expects the acquisition to be accretive to earnings per share beginning in the first year after closing (excluding one-time charges). This expectation, however, is based on preliminary estimates which may materially change, including the currently expected timing of the acquisition. The Corporation may encounter additional transaction and integration related costs or other factors, such as a delay in the closing of the acquisition, failure to realize all of the benefits anticipated in the acquisition or other factors that affect preliminary estimates or the Corporation’s ability to realize operational efficiencies. Any of these factors could cause a decrease in the Corporation’s earnings per share or decrease or delay the expected accretive effect of the acquisition and contribute to a decrease in the price of the Corporation’s common stock.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
On September 25, 2023, the Corporation announced a treasury stock repurchase program. Under the 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 program was effective when publicly announced and will continue thereafter until suspended or terminated by the Board of Directors, in its sole discretion. All shares of common stock repurchased pursuant to the program shall be held as treasury shares and be available for use and reissuance for purposes as and when determined by the Board of Directors including, without limitation, pursuant to the Corporation’s Dividend Reinvestment and Stock Purchase and Sale Plan and its equity compensation program. There were no shares repurchased under the repurchase program during the first quarter 2025. At March 31, 2025, there were 723,966 shares available to be repurchased under the program.
The following table sets forth a summary of purchases by the Corporation, in the open market, of its equity securities during the first quarter 2025:
Total Number of
Maximum
Purchased
Shares that May
as Part of
Yet
Publicly
be Purchased
Total Number
Announced
Under
of Shares
Price Paid
Plans
the Plans or
Period
per Share
or Programs
Programs
January 1 - 31, 2025
723,966
February 1 - 28, 2025
March 1 - 31, 2025
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
Not applicable
Item 5. Other Information
During the three months ended March 31, 2025, 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
Agreement and Plan of Merger dated April 23, 2025 between Susquehanna Community Financial, Inc. and Citizens & Northern Corporation
2.1
Incorporated by reference to Exhibit 2.1 of the Corporation’s Form 8-K filed April 23, 2025
3.1
Articles of Incorporation
Incorporated by reference to Exhibit 3.1 of the Corporation’s Form 10-Q filed May 6, 2022
By-laws
Incorporated by reference to Exhibit 3.1 of the Corporation’s Form 8-K filed February 18, 2022
10.1
Form of Time-Based Restricted Stock agreement dated April 24, 2025 between the Corporation and its independent directors pursuant to the Citizens & Northern Corporation 2023 Equity Incentive Plan
Filed herewith
31.
Rule 13a-14(a)/15d-14(a) certifications:
31.1
Certification of Chief Executive Officer
31.2
Certification of Chief Financial Officer
32.
Section 1350 certifications
101.INS
Inline XBRL Instance Document.
101.SCH
Inline XBRL Schema Document.
101.CAL
Inline XBRL Calculation Linkbase Document.
101.DEF
Inline XBRL Definition Linkbase Document.
101.LAB
Inline XBRL Label Linkbase Document.
101.PRE
Inline XBRL Presentation Linkbase Document.
104
The cover page of the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2025, formatted in Inline XBRL (contained in Exhibit 101).
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.
May 9, 2025
By: /s/ J. Bradley Scovill
President and Chief Executive Officer
By: /s/ Mark A. Hughes
Treasurer and Chief Financial Officer
59