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, 2026
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)
17,916,586 Shares Outstanding on May 4, 2026
X
CITIZENS & NORTHERN CORPORATION – FORM 10-Q
Index
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited) –March 31, 2026 and December 31, 2025
Page 3
Consolidated Statements of Income (Unaudited) – Three-month Periods Ended March 31, 2026 and 2025
Page 4
Consolidated Statements of Comprehensive (Loss) Income (Unaudited) – Three-month Periods Ended March 31, 2026 and 2025
Page 5
Consolidated Statements of Cash Flows (Unaudited) – Three-month Periods Ended March 31, 2026 and 2025
Page 6
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) – Three-month Periods Ended March 31, 2026 and 2025
Page 7
Notes to Unaudited Consolidated Financial Statements
Pages 8 –31
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Pages 31 – 52
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Pages 53 – 55
Item 4. Controls and Procedures
Pages 55 – 56
Part II. Other Information
Item 1. Legal Proceedings
Page 56
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Default upon Senior Securities
Item 4. Mine Safety Disclosures
Page 57
Item 5. Other Information
Item 6. Exhibits
Signatures
Page 58
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)
2026
2025
ASSETS
Cash and due from banks:
Noninterest-bearing
$
30,736
22,289
Interest-bearing
24,062
23,767
Total cash and due from banks
54,798
46,056
Available-for-sale debt securities, at fair value
497,367
506,575
Loans receivable
2,384,850
2,354,365
Allowance for credit losses
(33,832)
(31,048)
Loans, net
2,351,018
2,323,317
Bank-owned life insurance
61,609
61,094
Accrued interest receivable
11,901
11,594
Bank premises and equipment, net
27,256
27,755
Foreclosed assets held for sale
181
189
Deferred tax asset, net
18,827
17,615
Goodwill
63,311
Core deposit intangibles, net
10,758
11,573
Other assets
67,314
63,390
TOTAL ASSETS
3,164,340
3,132,469
LIABILITIES
Deposits:
568,478
531,442
2,031,575
2,033,274
Total deposits
2,600,053
2,564,716
Short-term borrowings
13,590
28,618
Long-term borrowings - FHLB advances
139,489
120,935
Senior notes, net
14,988
14,970
Subordinated debt, net
24,979
24,949
Accrued interest and other liabilities
35,677
36,567
TOTAL LIABILITIES
2,828,776
2,790,755
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 18,303,120 and outstanding 17,909,958 at March 31, 2026;
issued 18,303,120 and outstanding 17,823,444 at December 31, 2025
18,303
Paid-in capital
184,325
185,696
Retained earnings
166,476
171,214
Treasury stock, at cost; 393,162 shares at March 31, 2026 and 479,676
shares at December 31, 2025
(8,778)
(10,704)
Accumulated other comprehensive loss
(24,762)
(22,795)
TOTAL STOCKHOLDERS' EQUITY
335,564
341,714
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
35,641
27,503
Tax-exempt
619
592
Income from available-for-sale debt securities:
3,518
2,302
562
573
Other interest and dividend income
248
739
Total interest and dividend income
40,588
31,709
INTEREST EXPENSE
Interest on deposits
10,058
9,592
Interest on short-term borrowings
276
Interest on long-term borrowings - FHLB advances
1,446
1,789
Interest on senior notes, net
121
Interest on subordinated debt, net
233
232
Total interest expense
12,134
11,734
Net interest income
28,454
19,975
Provision for credit losses
13,602
236
Net interest income after provision for credit losses
14,852
19,739
NONINTEREST INCOME
Trust revenue
2,085
2,102
Brokerage and insurance revenue
588
498
Service charges on deposit accounts
1,650
1,440
Interchange revenue from debit card transactions
1,267
1,036
Net gains from sale of loans
370
205
Loan servicing fees, net
108
138
Increase in cash surrender value of life insurance
515
457
Other noninterest income
1,586
1,132
Realized gains on available-for-sale debt securities, net
26
Total noninterest income
8,195
7,008
NONINTEREST EXPENSE
Salaries and employee benefits
13,201
11,759
Net occupancy and equipment expense
1,891
1,459
Data processing and telecommunications expense
2,449
2,071
Automated teller machine and interchange expense
583
387
Pennsylvania shares tax
585
496
Professional fees
639
517
Other noninterest expense
3,364
2,354
Total noninterest expense
22,712
19,043
Income before income tax provision
335
7,704
Income tax provision
62
1,411
NET INCOME
273
6,293
EARNINGS PER COMMON SHARE - BASIC AND DILUTED
0.02
0.41
4
Consolidated Statements of Comprehensive (Loss) Income
(In Thousands) (Unaudited)
(In Thousands)
Net income
Available-for-sale debt securities:
Unrealized holding (losses) gains on available-for-sale debt securities
(2,464)
5,169
Reclassification adjustment for gains realized in income
(26)
Other comprehensive (loss) income on available-for-sale debt securities
(2,490)
Unfunded pension and postretirement obligations:
Changes from plan amendments and actuarial gains and losses
(9)
69
Amortization of prior service cost and net actuarial gain included in net periodic benefit cost
(22)
Other comprehensive (loss) income on pension and postretirement obligations
(31)
47
Other comprehensive (loss) income before income tax
(2,521)
5,216
Income tax related to other comprehensive loss (income)
554
(1,145)
Other comprehensive (loss) income, net
(1,967)
4,071
Comprehensive (loss) income
(1,694)
10,364
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
331
360
(515)
(457)
Depreciation and amortization of bank premises and equipment
687
553
Net amortization (accretion) of acquisition accounting adjustments
50
(24)
Stock-based compensation
313
325
Deferred income taxes
(658)
759
Decrease in fair value of servicing rights
172
(370)
(205)
Origination of loans held for sale
(14,962)
(5,499)
Proceeds from sales of loans held for sale
13,170
6,665
Increase in accrued interest receivable and other assets
(1,073)
(2,871)
Decrease in accrued interest payable and other liabilities
(2,363)
(4,648)
Other
23
27
Net Cash Provided by Operating Activities
8,654
1,583
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from calls and maturities of available-for-sale debt securities
15,943
7,306
Purchase of available-for-sale debt securities
(7,877)
(8,580)
Redemption of Federal Home Loan Bank of Pittsburgh stock
3,854
344
Purchase of Federal Home Loan Bank of Pittsburgh stock
(5,187)
(160)
Purchase of Federal Reserve Bank stock
(48)
(12)
Net increase in loans
(40,565)
(2,563)
Purchase of premises and equipment
(188)
(542)
32
41
Net Cash Used in Investing Activities
(34,036)
(4,166)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits
35,374
8,232
Net decrease in short-term borrowings
(15,028)
(1,917)
Proceeds from long-term borrowings - FHLB advances
27,054
Repayments of long-term borrowings - FHLB advances
(8,500)
(11,028)
Purchases of treasury stock
(180)
(208)
Common dividends paid
(4,596)
(3,932)
Net Cash Provided by (Used in) Financing Activities
34,124
(8,853)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
8,742
(11,436)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
44,706
123,574
CASH AND CASH EQUIVALENTS, END OF PERIOD
53,448
112,138
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Increase in accrued purchase of available-for-sale debt securities
1,653
Assets acquired through foreclosure of real estate loans
18
Leased assets obtained in exchange for new operating lease liabilities
1,126
Interest paid
12,076
11,282
Income taxes paid
51
4,262
6
Consolidated Statements of Changes in Stockholders’ Equity
Accumulated
Common
Treasury
Paid-in
Retained
Comprehensive
Three Months Ended March 31, 2026
Shares
Stock
Capital
Earnings
Loss
Total
Balance, December 31, 2025
18,303,120
479,676
Other comprehensive loss, net
Cash dividends declared on common stock, $.28 per share
(5,011)
Shares issued for dividend reinvestment plan
(17,886)
399
422
Restricted stock granted
(78,864)
(1,761)
1,761
Forfeiture of restricted stock
2,278
54
(54)
Stock-based compensation expense
Purchase of restricted stock for tax withholding
7,958
Balance, March 31, 2026
393,162
Three Months Ended March 31, 2025
Balance, December 31, 2024
16,030,172
596,678
16,030
143,565
165,778
(36,761)
(13,328)
275,284
Other comprehensive income, net
(4,330)
(18,391)
(15)
411
396
(42,961)
(959)
959
2,265
52
(52)
9,733
Balance, March 31, 2025
547,324
142,968
167,741
(32,690)
(12,218)
281,831
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, 2025, 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, 2026 might not be indicative of the results for the year ending December 31, 2026. 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 of 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40), which requires disclosure of certain costs and expenses in the notes to the consolidated financial statements. The amendments in this ASU will become effective for fiscal years beginning after December 15, 2026, and will be effective for interim periods with fiscal years beginning after December 15, 2027, with early adoption permitted. The amendments will be applied prospectively with the option for retrospective application. We are currently evaluating the impact of the standard to our consolidated financial statement disclosures.
2. BUSINESS COMBINATION
On October 1, 2025, the Corporation completed its acquisition of Susquehanna Community Financial, Inc. (“Susquehanna”). Susquehanna was the parent company of Susquehanna Community Bank, with seven banking offices located in Lycoming, Northumberland, Snyder and Union Counties in Pennsylvania. The Susquehanna acquisition has contributed significantly to growth in the size of the Corporation’s balance sheet and in net interest income, noninterest income and noninterest expenses.
In connection with the acquisition, the Corporation issued approximately 2.3 million shares of common stock to the former Susquehanna shareholders, resulting in merger consideration valued at $44.6 million and an increase in stockholders’ equity of $44.4 million, net of issuance costs. Intangible assets recorded included goodwill of $10.8 million and a core deposit intangible asset of $10.7 million. Assets acquired included loans valued at $393.6 million, securities valued at $147.6 million, bank-owned life insurance valued at $8.0 million and cash and due from banks of $6.1 million. Liabilities assumed included deposits valued at $501.5 million and short-term borrowings valued at $45.8 million. The assets purchased and liabilities assumed were recorded at their preliminary estimated fair values at the time of closing and may be adjusted for up to one year subsequent to the acquisition. There were no adjustments to the fair value measurements of assets acquired or liabilities assumed in the first quarter of 2026.
8
3. 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.
Less: Dividends and undistributed earnings allocated to participating securities
(51)
Net income attributable to common shares
6,242
Weighted-average common shares outstanding
17,732,537
15,338,532
Earnings per common share - Basic and Diluted
Weighted-average nonvested restricted shares outstanding
146,089
125,303
4. COMPREHENSIVE (LOSS) 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 loss on available-for-sale debt securities
542
(1,922)
Reclassification adjustment for (gains) realized in income
(20)
Other comprehensive loss from available-for-sale debt securities
548
(1,942)
(7)
Amortization of prior service cost and net actuarial gains included in net periodic benefit cost
(18)
Other comprehensive loss on unfunded retirement obligations
(25)
Total other comprehensive income
Unrealized holding gains on available-for-sale debt securities
(1,135)
4,034
Other comprehensive income from available-for-sale debt securities
(17)
Other comprehensive income on unfunded retirement obligations
(10)
37
9
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
Reclassification adjustment for (gains) realized in income (before-tax)
Amortization of prior service cost and net actuarial gain included in net periodic benefit cost (before-tax)
Income tax effect
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
(23,154)
359
Other comprehensive loss during three months ended March 31, 2026
Balance, end of period
(25,096)
334
(37,084)
323
Other comprehensive income during three months ended March 31, 2025
(33,050)
5. CASH AND DUE FROM BANKS
Cash and due from banks at March 31, 2026 and December 31, 2025 include the following:
Cash and cash equivalents
Certificates of deposit
1,350
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
6. SECURITIES
Amortized cost and fair value of available-for-sale debt securities at March 31, 2026 and December 31, 2025 are summarized as follows.
March 31, 2026
Gross
Amortized
Holding
Fair
Cost
Losses
Value
Obligations of the U.S. Treasury
8,042
(586)
7,456
Obligations of U.S. Government agencies
10,936
(727)
10,212
Bank holding company debt securities
37,631
11
(1,897)
35,745
Obligations of states and political subdivisions:
104,941
243
(8,426)
96,758
50,239
(6,284)
43,955
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities
148,471
(6,003)
142,864
Residential collateralized mortgage obligations
62,511
33
(2,450)
60,094
Commercial mortgage-backed securities
98,771
12
(6,487)
92,296
Asset-backed securities,
Collateralized loan obligations
8,000
(13)
7,987
Total available-for-sale debt securities
529,542
698
(32,873)
December 31, 2025
8,047
(565)
7,482
11,423
(677)
10,749
36,103
(2,035)
34,076
105,149
317
(7,107)
98,359
50,306
(6,158)
44,152
148,865
679
(5,623)
143,921
65,782
107
(2,182)
63,707
99,095
92,631
Private label commercial mortgage-backed securities
3,490
(1)
3,489
8,009
536,260
1,150
(30,835)
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, 2026 and December 31, 2025 for which an allowance for credit losses has not been recorded:
Less Than 12 Months
12 Months or More
8,150
7,338
(60)
23,163
(1,837)
30,501
7,954
(121)
78,402
(8,305)
86,356
2,283
(232)
41,602
(6,052)
43,885
54,011
(413)
54,799
(5,590)
108,810
30,706
(195)
19,522
(2,255)
50,228
27,518
(289)
62,404
(6,198)
89,922
137,797
(1,323)
295,498
(31,550)
433,295
8,570
2,188
(44)
23,008
(1,991)
25,196
86,724
1,324
(218)
42,027
(5,940)
43,351
20,235
57,647
(5,572)
77,882
23,194
27,643
(183)
62,605
(6,304)
90,248
54,879
(497)
311,257
(30,338)
366,136
As reflected in the table above, gross unrealized holding losses on available-for-sale debt securities totaled $32,873,000 at March 31, 2026 and $30,835,000 at December 31, 2025. At March 31, 2026, 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, 2026 and December 31, 2025, 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, 2026 and December 31, 2025, all of the Corporation’s holdings of bank holding company debt securities, obligations of states and political subdivisions, private label commercial mortgage-backed securities and collateralized loan obligations 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, 2026 and December 31, 2025.
Gross realized gains and losses from the sale of available-for-sale debt securities for the three months ended March 31, 2026 and 2025 were as follows:
Gross realized gains from sales
Gross realized losses from sales
Net realized gains (losses)
Income tax provision related to net realized gains (losses)
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, 2026. 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
5,569
5,534
Due from one year through five years
41,003
38,909
Due from five years through ten years
84,657
79,610
Due after ten years
80,560
70,073
Sub-total
211,789
194,126
The Corporation’s mortgage-backed securities, collateralized mortgage obligations and asset-backed securities 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, collateralized mortgage obligations and asset-backed securities are shown in one period.
Investment securities carried at $203,602,000 at March 31, 2026 and $215,252,000 at December 31, 2025 were pledged as collateral for public deposits, trusts and certain other deposits as provided by law. See Note 9 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 $20,057,000 at March 31, 2026 and $18,724,000 at December 31, 2025. The Corporation evaluated its holding of FHLB-Pittsburgh stock for impairment and deemed the stock to not be impaired at March 31, 2026 and December 31, 2025. 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.
13
C&N Bank is 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 $7,685,000 at March 31, 2026 and $7,637,000 at December 31, 2025.
The Corporation has a marketable equity security included in other assets in the consolidated balance sheets with a carrying value of $885,000 at March 31, 2026 and $890,000 at December 31, 2025, consisting exclusively of one mutual fund. There was an unrealized loss on the mutual fund of $115,000 at March 31, 2026 and $110,000 at December 31, 2025. Changes in the unrealized gains or losses on this security, which are included in other noninterest income in the consolidated statements of income, were a loss of $5,000 in the first quarter of 2026 and a gain of $13,000 in the first quarter of 2025.
7. LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans receivable at March 31, 2026 and December 31, 2025 are summarized as follows:
Summary of Loans by Type
Commercial real estate - non-owner occupied
925,881
927,738
Commercial real estate - owner occupied
326,210
311,792
All other commercial loans
571,916
560,537
Residential mortgage loans
445,911
443,950
Consumer loans
114,932
110,348
Less: allowance for credit losses on loans
In the table above, outstanding loan balances are presented net of deferred loan origination fees of $4,021,000 at March 31, 2026 and $4,074,000 at December 31, 2025.
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 present an analysis of past due loans as of March 31, 2026 and December 31, 2025:
As of March 31, 2026
Past Due
30-89
90+ Days
Nonaccrual
Current
Days
Still Accruing
Loans
757
18,376
906,748
357
6,652
319,201
4,120
11,203
556,539
4,597
4,830
436,484
386
15
802
113,729
10,217
41,863
2,332,701
14
As of December 31, 2025
2,619
10,766
914,353
2,453
5,955
303,330
6,287
11,102
543,148
6,365
4,324
433,261
34
689
109,040
18,309
88
32,836
2,303,132
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.
The following table presents the amortized cost of loans by credit quality indicators by year of origination as of March 31, 2026:
Term Loans by Year of Origination
2024
2023
2022
Prior
Revolving
Pass
31,510
75,489
83,651
153,039
169,174
369,499
882,362
Special Mention
30
1,388
12,717
14,460
Substandard
99
812
16,112
12,036
29,059
Doubtful
Total commercial real estate - non-owner occupied
75,814
83,780
155,239
185,286
394,252
Year-to-date gross charge-offs
10,196
256
10,452
21,451
34,336
36,397
36,727
52,569
127,719
309,199
354
272
110
5,877
6,613
455
840
9,103
10,398
Total commercial real estate - owner occupied
36,751
37,454
53,519
142,699
28,396
116,460
42,706
51,018
45,422
104,821
140,232
529,055
3,089
443
84
6,001
4,020
13,667
470
13,075
1,379
10,400
3,870
29,194
Total all other commercial loans
120,019
56,224
51,048
46,885
121,222
148,122
215
267
11,604
48,057
44,482
51,680
82,776
201,925
440,524
36
923
394
5,387
Total residential mortgage loans
44,518
52,603
83,170
205,959
1,091
2,332
1,747
1,474
1,662
2,703
102,909
113,918
151
834
1,014
Total consumer loans
2,335
1,750
1,497
2,854
103,743
105
114
Total Loans
94,052
276,674
208,983
293,938
351,603
806,667
243,141
2,275,058
3,414
827
1,690
194
24,595
34,740
473
13,213
2,213
18,725
35,724
4,704
75,052
280,561
223,023
297,841
370,522
866,986
251,865
10,248
471
10,833
16
The following table presents the amortized cost of loans by credit quality indicators by year of origination as of December 31, 2025:
2021
82,832
84,330
149,720
171,419
90,420
295,369
874,090
77
1,942
15,920
2,073
8,045
28,087
102
838
10,459
1,980
12,182
25,561
82,909
84,462
152,500
197,798
94,473
315,596
807
34,602
36,786
35,411
53,260
51,396
80,809
292,264
2,406
1,159
805
5,127
9,854
131
2,167
7,022
9,674
37,143
38,171
54,550
54,368
92,958
123,534
45,148
64,103
46,670
44,056
64,539
134,404
522,454
1,380
522
100
4,443
732
2,028
9,237
12,932
1,471
6,933
3,748
3,292
28,846
125,384
58,602
64,135
48,241
55,432
69,019
139,724
333
263
596
46,534
45,988
53,163
83,848
45,494
164,033
439,060
22
901
424
200
3,343
4,890
46,010
54,064
84,272
45,694
167,376
2,751
2,062
1,780
1,850
506
2,460
97,976
109,385
1
170
777
963
2,752
2,069
1,786
508
2,630
98,753
40
242
318
290,253
214,314
304,177
357,047
231,872
607,210
232,380
2,237,253
1,457
909
4,380
17,179
7,321
13,904
47,178
13,063
2,099
12,485
26,465
4,069
69,934
292,181
228,286
310,656
386,711
250,475
647,579
238,477
336
505
1,726
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
16,967
1,409
6,165
487
7,497
3,706
36,261
5,602
9,343
1,423
5,470
485
7,609
3,493
27,435
5,401
The Corporation recognized interest income on nonaccrual loans of $299,000 and $230,000 in the three-month periods ended March 31, 2026 and 2025, respectively.
The following table represents the accrued interest receivable written off by reversing interest income during the three-month periods ended March 31, 2026 and 2025:
March 31, 2025
118
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 discussion 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
18,485
140
10,876
7,010
6,325
266
14,657
2,252
14,551
2,366
361
350
319
326
40,832
2,655
32,428
2,772
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, 2026 and 2025.
Commercial
All
real estate -
other
Residential
nonowner
owner
commercial
mortgage
Consumer
occupied
loans
19,462
4,086
5,505
1,629
366
31,048
Charge-offs
(10,452)
(267)
(114)
(10,833)
Recoveries
24
25
Provision (credit) for credit losses on loans
(487)
1,177
1,028
115
13,592
20,769
3,599
6,416
2,657
391
33,832
11,964
2,844
3,361
1,356
510
20,035
(117)
96
(75)
(76)
228
12,060
2,769
3,594
1,281
468
20,172
The provision for credit losses on loans was $13,592,000 in the first quarter 2026 as compared to $228,000 in the first quarter 2025. The increase in the first quarter 2026 provision was primarily driven by the impact on the ACL of an increase in net charge-offs to $10,808,000 as compared to $91,000 in the first quarter 2025.
19
The significant increase in charge-offs in the first quarter of 2026 is due to a non-owner occupied, commercial real estate loan originated in 2022 in the amount of $24 million of which $7,200,000 was participated with another financial institution. The loan is secured by a first lien on the leasehold interests of an approximately 190,000 square foot Class A office property with multiple buildings and tenants, located in Bucks County, PA. The loss of a large tenant as well as cash flow requirements of the borrower’s other properties (which the Corporation has not financed) caused the loan to be downgraded to substandard and placed in nonaccrual status as of March 31, 2026. The Corporation obtained an updated appraisal in April 2026 which was significantly lower than the original appraisal when the loan was originated, resulting in a charge-off of $10,056,000. At March 31, 2026, the amortized cost basis of the loan, net of the partial charge-off, is $5,836,000.
On April 30, 2026, the Corporation entered into a forbearance agreement related to the Class A office property loan referred to in the preceding paragraph with the borrower and the surety (collectively, the “Obligors”). Unless extended, the forbearance period will end no later than July 10, 2026. The forbearance agreement provides that during the forbearance period, the Corporation will forego receipt of principal payments and will advance up to $750,000 to fund tenant improvements on the property and leasing commissions on new tenants, subject to the Corporation’s approval. The forbearance agreement also provides, in addition to other terms and conditions, that the Obligors will make all past due and current interest payments and will deliver $3 million to the Corporation which the Corporation will hold in escrow and apply as reimbursements for any tenant improvements funded by the Corporation with any remaining funds to be used for further improvements to the property or for loan payments should the borrower default.
The ACL on loans individually evaluated decreased to $2,655,000 at March 31, 2026 from $2,772,000 at December 31, 2025, including an ACL of $2,433,000 at March 31, 2026 on acquired PCD loans as part of the Susquehanna acquisition.
The ACL on loans collectively evaluated was $31,177,000 at March 31, 2026, up from $28,276,000 at December 31, 2025. The increase in the collectively evaluated portion of the ACL at March 31, 2026 as compared to December 31, 2025, included an increase in the WARM method estimate based on the Corporation’s net charge-off experience, partially offset by a net decrease related to changes in qualitative adjustments and a decrease related to 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, 2026 and March 31, 2025, 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, 2026 and the twelve-month period preceding March 31, 2025:
Payment Status (Amortized Cost Basis)
Current or Past Due Less than 30 Days
30-89 Days Past Due
90+ Days Past Due
1,717
2,601
217
2,818
The loan secured by non-owner occupied real estate with an amortized cost basis of $1,717,000 at March 31, 2026 was past its contractual maturity date, The Corporation had provided several maturity extensions of this loan, and had recorded partial charge-offs of $640,000 in 2024 and $35,000 in the fourth quarter 2025. At March 31, 2026, the borrower reported they are in process of refinancing the loan
20
with a third-party lender. Based on the most recent appraised value of the property collateralizing the loan, there was no specific allowance on this loan at March 31, 2026. At March 31, 2025, this non-owner occupied real estate loan was included in the table above with an amortized cost basis of $1,801,000. The loan was in nonaccrual status at March 31, 2026 and 2025.
The Corporation had no commitments to lend any additional funds on modified loans at March 31, 2026 and 2025. Except for the non-owner occupied real estate loan described above, the Corporation had no loans that defaulted during the three months ended March 31, 2026 and 2025 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
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
555
433
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, 2026 and December 31, 2025 are as follows:
Commitments to extend credit
489,887
506,996
Standby letters of credit
59,161
58,914
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 through the provision for credit losses. 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 $1,039,000 at March 31, 2026 and $1,029,000 at December 31, 2025, is included in accrued interest and other liabilities in 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, 2026 and 2025:
Beginning Balance
1,029
Provision for unfunded commitments
Ending Balance, March 31
1,039
463
21
8. 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, 2026 and December 31, 2025, the net carrying value of goodwill was $63,311,000. There were no changes in the carrying value of goodwill in the three-month periods ended March 31, 2026 and 2025. During the fourth quarter of 2025, $10.8 million of goodwill was added through the merger with Susquehanna.
Information related to core deposit intangibles is as follows:
Gross amount
17,329
Accumulated amortization
(6,571)
(5,756)
Net
Amortization expense related to core deposit intangibles is included in other noninterest expense in the consolidated statements of income, as follows:
Amortization expense
815
106
In the three months ended March 31, 2026, amortization expense included $716,000 related to the Susquehanna acquisition as described in Note 2 and $99,000 related to previous acquisitions. In the three months ended March 31, 2025, amortization expense was related to previous acquisitions.
9. BORROWED FUNDS
SHORT-TERM BORROWINGS
Short-term borrowings (initial maturity within one year) include the following:
FHLB-Pittsburgh borrowings
13,113
27,000
Customer repurchase agreements
477
1,618
Total short-term borrowings
At March 31, 2026, the short-term borrowing from FHLB-Pittsburgh was an overnight borrowing of $13,113,000, at an interest rate of 3.97%. At December 31, 2025, the short-term borrowing from FHLB-Pittsburgh was an overnight borrowing of $27,000,000, at an interest rate of 3.93%.
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 both March 31, 2026 and December 31, 2025. The carrying value of the underlying securities was $490,000 at March 31, 2026 and $1,630,000 at December 31, 2025.
The FHLB-Pittsburgh loan facility is collateralized by qualifying loans secured by real estate with a book value totaling $1,646,418,000 at March 31, 2026 and $1,624,412,000 at December 31, 2025. 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 $20,057,000 at March 31, 2026 and $18,724,000 at December 31, 2025. The Corporation’s total credit facility with FHLB-Pittsburgh was $1,137,639,000 at March 31, 2026, including an unused
(available) amount of $948,272,000. At December 31, 2025, the Corporation’s total credit facility with FHLB-Pittsburgh was $971,946,000, including an unused (available) amount of $785,822,000.
The Corporation had available credit with other correspondent banks totaling $75,000,000 at March 31, 2026 and December 31, 2025. These lines of credit are primarily unsecured. No amounts were outstanding at March 31, 2026 or December 31, 2025.
The Corporation has a line of credit with the Federal Reserve Bank of Philadelphia’s Discount Window. At March 31, 2026, the Corporation had available credit in the amount of $24,632,000 on this line with no outstanding advances. At December 31, 2025, the Corporation had available credit in the amount of $25,484,000 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 $26,151,000 at March 31, 2026 and $26,947,000 at December 31, 2025.
LONG-TERM BORROWINGS – FHLB ADVANCES
Long-term borrowings from FHLB-Pittsburgh are as follows:
Loans maturing in 2026 with a weighted-average rate of 4.70%
39,518
48,018
Loans maturing in 2027 with a weighted-average rate of 3.98%
55,583
34,571
Loans maturing in 2028 with a weighted-average rate of 4.15%
32,069
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, 2026.
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 2026 and $18,000 in the first quarter 2025 was included in interest expense on senior notes, net in the unaudited consolidated statements of income.
At March 31, 2026 and December 31, 2025, 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 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 $30,000 in the first quarter 2026 and $29,000 in the first quarter 2025, was included in interest expense on subordinated debt, net in the unaudited consolidated statements of income.
At March 31, 2026 and December 31, 2025, 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
10. STOCK-BASED COMPENSATION PLANS
The Corporation has a stock incentive plan for selected officers and the independent directors. The first quarter 2026 restricted stock awards to employees vest ratably over three years. Following is a summary of restricted stock awards granted in the quarter ended March 31, 2026:
(Dollars in Thousands)
Aggregate
Grant
Date
Number of
Three Months Ended March 31, 2026 awards:
Time-based awards to employees
57,618
1,260
Performance-based awards to employees
21,246
464
78,864
1,724
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 $313,000 in the first quarter 2026 and $325,000 in the first quarter 2025.
11. CONTINGENCIES
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.
12. 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 $135,598,000 at March 31, 2026 and $136,776,000 at December 31, 2025. There were no interest rate swaps originated in the three-month periods ended March 31, 2026, and 2025. There were no gross amounts of interest rate swap-related assets and liabilities not offset in the consolidated balance sheets at March 31, 2026 and December 31, 2025.
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 to the consolidated statement of income from RPAs in the first quarter of 2026 and the first quarter of 2025.
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, 2026 and December 31, 2025:
At March 31, 2026
At December 31, 2025
Asset Derivatives
Liability Derivatives
Notional
Value (1)
Value (2)
Interest rate swap agreements
67,799
1,178
68,388
1,318
RPA Out
6,787
6,823
RPA In
13,489
13,660
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 $1,400,000 at March 31, 2026 and December 31, 2025.
13. 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, 2026 and December 31, 2025, 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:
489,911
Marketable equity security
885
Servicing rights
3,813
Interest rate swap agreements, assets
Total recurring fair value measurements, assets
8,341
491,090
503,244
Recurring fair value measurements, liabilities:
Interest rate swap agreements, liabilities
Total recurring fair value measurements, liabilities
1,182
Nonrecurring fair value measurements, assets:
Loans individually evaluated for credit loss, net
2,947
Total nonrecurring fair value measurements, assets
3,128
499,093
890
3,893
8,372
500,413
512,678
Recurring fair value measurements, liabilities,
1,323
2,629
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.
At March 31, 2026 and December 31, 2025, 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
3/31/2026
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
133.00
Weighted-average PSA
12/31/2025
124.00
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
2,782
Originations of servicing rights
92
Unrealized loss included in earnings
(172)
(69)
Servicing rights balance, end of period
2,767
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).
28
At March 31, 2026 and December 31, 2025, 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:
Commercial real estate - nonowner occupied
1,269
Sales comparison
Discount to appraised value
18%-77% (66)
224
32% (32)
All other commercial Loans
1,454
0%-100% (82)
Total loans individually evaluated for credit loss
Foreclosed assets held for sale - real estate:
Residential (1-4 family)
62% (62)
Commercial real estate
156
34% (34)
Total foreclosed assets held for sale
1,283
219
1,127
62%-84% (72)
18%-77% (34)
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.
29
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
1,338
1,331
Restricted equity securities (included in other assets)
N/A
28,004
26,623
Level 3
2,291,402
2,261,934
Financial liabilities:
Deposits with no stated maturity
2,008,209
1,958,011
Time deposits
591,142
588,668
606,705
603,494
139,970
122,211
14,913
14,751
22,880
23,361
Accrued interest payable
1,791
1,744
14. 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:
8,169
Total other income
Other noninterest expense:
Other segment expenses (1)
9,511
7,284
(1 ) Other segment expenses included expenses for professional fees, data processing and telecommunications, net occupancy and equipment, automated teller machine and interchange, Pennsylvania shares tax and other noninterest expenses.
The Corporation’s segment assets represent the total assets as presented in the consolidated balance sheets at March 31, 2026 and December 31, 2025.
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 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 the Corporation with the SEC, including our most recent annual report on Form 10-K and subsequent filings, and those identified elsewhere in this document, the following factors, among others, could cause actual results to differ materially from forward looking statements:
31
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.
BUSINESS COMBINATION
On October 1, 2025, the Corporation completed its acquisition of Susquehanna Community Financial, Inc. (“Susquehanna”). Susquehanna was the parent company of Susquehanna Community Bank, with seven banking offices located in Lycoming, Northumberland, Snyder and Union Counties in Pennsylvania. In connection with the acquisition, the Corporation issued approximately 2.3 million shares of common stock to the former Susquehanna shareholders, resulting in merger consideration valued at $44.6 million and an increase in stockholders’ equity of $44.4 million, net of issuance costs. Intangible assets recorded included goodwill of $10.8 million and a core deposit intangible asset of $10.7 million. Assets acquired included loans valued at $393.6 million, securities valued at $147.6 million, bank-owned life insurance valued at $8.0 million and cash and due from banks of $6.1 million. Liabilities assumed included deposits valued at $501.5 million and short-term borrowings valued at $45.8 million. The assets purchased and liabilities assumed were recorded at their preliminary estimated fair values at the time of closing and may be adjusted for up to one year subsequent to the acquisition. There were no adjustments to the fair value measurements of assets acquired or liabilities assumed in the first quarter of 2026.
EARNINGS OVERVIEW
First Quarter 2026 as Compared to First Quarter 2025
First quarter 2026 net income was $273,000, or $0.02 per diluted share, as compared to $6,293,000, or $0.41 per diluted share, in the first quarter 2025. First quarter 2026 earnings were impacted by an elevated provision for credit losses discussed below. Significant variances were as follows:
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
41,404
33,650
32,454
12,931
11,387
11,312
28,473
22,263
21,142
Provision (credit) for credit losses
1,320
2,163
Net interest income after provision (credit) for credit losses
27,153
20,100
18,788
Noninterest income
8,398
7,304
8,142
Merger-related expenses
6,891
882
167
Other noninterest expenses
23,268
18,507
19,231
5,392
8,015
7,532
926
1,464
1,415
4,466
6,551
6,117
4,437
6,498
6,068
Basic and diluted earnings per common share
0.25
0.42
0.40
TABLE II – COMPARISON OF NONINTEREST INCOME
Change
(0.8)
90
18.1
210
14.6
231
22.3
Net gains from sales of loans
165
80.5
(30)
(21.7)
58
12.7
454
40.1
N/M
1,187
16.9
TABLE III - COMPARISON OF NONINTEREST EXPENSE
1,442
12.3
432
29.6
378
18.3
196
50.6
89
17.9
122
23.6
1,010
42.9
3,669
19.3
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.
Business Combinations – The Corporation accounts for its mergers and acquisitions using the acquisition method of accounting under the provisions of FASB ASC Topic 805 ("ASC 805"), Business Combinations. Under ASC 805, the assets acquired, including identified intangible assets such as core deposit intangibles and liabilities assumed in a business combination are recognized at their acquisition-date fair value, while transaction costs and restructuring costs associated with the business combination are expensed as incurred. The excess of the merger consideration over the fair value of assets acquired and liabilities assumed, if any, is allocated to goodwill.
The valuations are based upon management’s assumptions of future growth rates, future attrition, discount rates and other relevant factors, which involves a significant level of estimation and uncertainty. In addition, management engaged independent third-party specialists to assist in the development of the fair values of the acquired assets and assumed liabilities. The preliminary estimates of fair values may be adjusted for a period of time subsequent to the acquisition date if new information is obtained about facts and circumstances that existed as of the merger date that, if known, would have affected the measurement of the amounts recognized as of that date. Adjustments would be recorded to goodwill during the current reporting period.
Examples of the impacted acquired assets and assumed liabilities include loans, deposits, identifiable intangible assets and certain other assets and liabilities.
For acquired loans at the merger date, management evaluated and classified loans based upon whether the loans had experienced a more-than-insignificant amount of credit deteriorating since origination. To determine the fair value of the loans, significant estimates and assumptions were applied, including projected cash flows, discount rates, repayment speeds, credit loss severity rates, default rates and realizable collateral values. In November 2025, the Financial Accounting Standards Board issued Accounting Standards Update 2025-08, Financial Instruments – Credit Losses (ASU 2025-08). The Corporation adopted ASU 2025-08 in accounting for the Susquehanna acquisition. Consistent with ASU 2025-08, the Corporation recorded loans receivable at fair value plus an allowance for credit losses of $7.1 million, including allowances totaling $2.6 million on loans with more than insignificant deterioration in credit quality subsequent to origination (“PCD”) loans and an allowance of $4.5 million on non-PCD loans at acquisition.
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 7 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 below 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
35
three-month periods ended March 31, 2026 and 2025. 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.
Three-Month Periods Ended March 31, 2026 and 2025
Fully taxable equivalent net interest income (a non-GAAP measure) was $28,685,000 in the first quarter of 2026, $8,499,000 (42.1%) higher than in the first quarter of 2025, including the benefit of income from growth in net earning assets resulting from the Susquehanna merger. Table VI shows the net impact of changes in the volume increased net interest income by $5,949,000 in the first quarter 2026 as compared to first quarter 2025 and changes in interest rates increased net interest income by $2,550,000 in the first quarter 2026 as compared to first quarter 2025. The increase in net interest income reflected an increase in interest income of $8,899,000 and an increase in interest expense of $400,000. As presented in Table V, the Net Interest Margin was 3.98% in the first quarter 2026 as compared to 3.38% in the first quarter 2025, 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 3.45% in 2026 from 2.69% in 2025. The average yield on earning assets of 5.66% was 0.31% higher in 2026 compared to 2025, and the average rate on interest-bearing liabilities of 2.21% in 2026 was 0.45% lower. Accretion of acquisition accounting valuation adjustments related to the Susquehanna merger had a positive impact of $765,000 including accretion on loans of $728,000 and $37,000 on time deposits.
INTEREST INCOME AND EARNING ASSETS
Interest income totaled $40,819,000 in 2026, an increase of $8,899,000, or 27.9%, from 2025.
Interest and fees from loans receivable increased $8,175,000 in 2026 as compared to 2025. In 2026, the fully taxable equivalent yield on loans was 6.24%, up from 6.03% in 2025, reflecting the effects of loans acquired from Susquehanna and valued based on current market yields as of October 1, 2025 as well as 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 $465,531,000 (24.5%) to $2,364,964,000 in 2026 from $1,899,433,000 in 2025 including the impact of the Susquehanna acquisition as well as organic growth.
Interest income from available-for-sale debt securities, on a fully taxable-equivalent basis, totaled $4,165,000 in 2026, up $1,215,000 from 2025. The average balance (at amortized cost) increased $81,543,000 from 2025 and the average yield on the portfolio increased to 3.17% in 2026 from 2.65% in 2025. The Susquehanna merger resulted in an initial increase in available-for-sale debt securities of $147,617,000. The majority of these securities were sold, and a significant portion of the proceeds were reinvested in securities contributing to the increase in average balance and yield.
Income from interest-bearing due from banks totaled $218,000 in 2026, a decrease of $503,000 from 2025. Within this category, the largest asset balance in 2026 and 2025 has been interest-bearing deposits held with the Federal Reserve. The average yield on interest-bearing due from banks decreased to 3.46% in 2026 from 4.31% in 2025. The average balance of interest-bearing due from banks was $25,516,000 in 2026, down from $67,896,000 in 2025.
INTEREST EXPENSE AND INTEREST-BEARING LIABILITIES
Interest expense increased $400,000 to $12,134,000 in 2026 from $11,734,000 in 2025.
Interest expense on deposits increased $466,000, as the average balance of interest-bearing deposits increased $435,482,000 while the average rate decreased to 2.02% in 2026 from 2.45% in 2025. The increase in average deposit balances included the impact of the Susquehanna acquisition as well as organic growth. Within average deposits, average brokered deposits were $2,247,000 at an average rate of 3.79% in 2026 as compared to $26,580,000 at an average rate of 4.76% in 2025. In comparing 2026 to 2025, average savings deposits increased $166,089,000, average interest checking deposits increased $130,728,000, average time deposits increased
$108,224,000, average noninterest-bearing demand deposits increased $63,561,000 and average total money market accounts increased $30,441,000.
Interest expense on borrowed funds decreased $66,000 in 2026 as compared to 2025. Interest expense on short-term borrowings was $276,000 in 2026 compared to less than $1,000 in 2025 as the average balance of short-term borrowings increased to $28,203,000 in 2026 from $1,400,000 in 2025. Interest expense on long-term borrowings (FHLB advances) decreased $343,000 to $1,446,000 in 2026 from $1,789,000 in 2025. The average balance of long-term borrowings was $134,034,000 in 2026, down from an average balance of $162,392,000 in 2025. Borrowings are classified as long-term within the Tables based on their term at origination or assumption in business combinations. The average rate on long-term borrowings was 4.38% in 2026 compared to 4.47% in 2025.
More information regarding borrowed funds is provided in Note 9 to the unaudited consolidated financial statements.
TABLE IV - ANALYSIS OF INTEREST INCOME AND EXPENSE
Increase/
(Decrease)
Interest-bearing due from banks
218
721
(503)
1,216
647
648
4,165
2,950
1,215
Loans receivable:
8,138
765
728
Total loans receivable
36,406
28,231
8,175
Other earning assets
Total Interest Income
40,819
31,920
8,899
Interest-bearing deposits:
Interest checking
2,328
2,727
(399)
Money market
1,981
(131)
Savings
848
49
799
5,032
4,835
197
Total interest-bearing deposits
466
Borrowed funds:
Short-term
Long-term - FHLB advances
(343)
Total borrowed funds
2,076
2,142
(66)
Total Interest Expense
400
Net Interest Income
28,685
20,186
8,499
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
8,479
Add: fully taxable-equivalent interest income adjustment from tax-exempt securities
85
75
Add: fully taxable-equivalent interest income adjustment from tax-exempt loans
146
136
Net Interest Income as adjusted to a fully taxable-equivalent basis - Non-GAAP
38
TABLE V - Analysis of Average Daily Balances and Rates
Three Months
Ended
Rate of
Return/
3/31/2025
Average
Cost of
Balance
Funds %
EARNING ASSETS
25,516
3.46
67,896
4.31
Available-for-sale debt securities, at amortized cost:
427,531
3.34
339,557
2.75
104,712
2.51
111,143
2.36
532,243
3.17
450,700
2.65
2,271,112
6.36
1,809,045
6.17
93,852
3.31
90,388
3.27
2,364,964
6.24
1,899,433
6.03
2,893
4.21
1,777
4.11
Total Earning Assets
2,925,616
5.66
2,419,806
5.35
Cash
25,498
20,920
Unrealized loss on securities
(27,003)
(44,405)
(31,520)
(20,341)
61,275
51,383
Bank premises and equipment
27,551
21,329
Intangible assets
74,530
54,530
90,741
71,928
Total Assets
3,146,688
2,575,150
INTEREST-BEARING LIABILITIES
669,972
1.41
539,244
2.05
385,585
1.95
355,144
2.26
362,060
0.95
195,971
0.10
602,443
3.39
494,219
3.97
2,020,060
2.02
1,584,578
2.45
28,203
1,400
0.00
134,034
4.38
162,392
4.47
14,979
3.28
14,908
3.29
24,965
3.79
24,846
202,181
4.16
203,546
4.27
Total Interest-bearing Liabilities
2,222,241
2.21
1,788,124
2.66
Demand deposits (noninterest bearing)
540,165
476,604
Other liabilities
38,145
32,279
Total Liabilities
2,800,551
2,297,007
Stockholders' equity, excluding accumulated other comprehensive loss
366,848
312,427
(20,711)
(34,284)
Total Stockholders' Equity
346,137
278,143
Total Liabilities and Stockholders' Equity
Interest Rate Spread
3.45
2.69
Net Interest Income/Earning Assets (Net Interest Margin)
3.98
3.38
Total Deposits (Interest-bearing and Demand)
2,560,225
2,061,182
Brokered Deposits
2,247
26,580
4.76.
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TABLE VI - ANALYSIS OF VOLUME AND RATE CHANGES
.
Three Months Ended 3/31/2026 vs. 3/31/2025
Change in
Volume
Rate
(383)
(120)
666
550
(38)
628
587
7,226
912
7,254
921
7,511
571
(970)
161
(292)
72
727
966
(769)
1,770
(1,304)
97
179
(307)
(36)
142
1,562
(1,162)
5,949
2,550
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 2026 of $62,000 was $1,349,000 lower than the provision for the first quarter 2025. The effective tax rate (tax provision as a percentage of pre-tax income) was 18.5% in the first quarter 2026 compared to 18.3% in the first quarter 2025. 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.
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, 2026 and December 31, 2025 represents the following temporary difference components:
Deferred tax assets:
Unrealized holding losses on securities
7,079
6,531
Allowance for credit losses on loans
7,372
6,765
Acquisition accounting adjustment on loans
1,560
1,727
Deferred compensation
2,072
2,008
Deferred loan origination fees
746
712
Operating leases liability
745
780
Net operating loss carryforward
301
305
Accrued incentive compensation
735
56
Other deferred tax assets
2,225
1,708
Total deferred tax assets
22,296
21,327
Deferred tax liabilities:
Core deposit intangibles
2,344
2,522
Right-of-use assets from operating leases
Mortgage servicing rights
188
Defined benefit plans - ASC 835
91
Other deferred tax liabilities
101
103
Total deferred tax liabilities
3,469
3,712
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, 2026 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, 2026 and December 31, 2025, 2024 and 2023 is as follows:
December 31, 2024
December 31, 2023
8,067
7,118
12,325
11,290
10,154
9,025
11,119
9,946
28,958
25,246
28,952
23,500
111,995
101,302
113,464
104,199
51,147
42,506
58,720
50,111
104,378
94,414
105,549
95,405
53,389
49,894
50,212
46,462
73,470
64,501
76,412
66,682
8,365
8,374
8,215
8,160
Total Available-for-Sale Debt Securities
449,923
402,380
464,968
415,755
Aggregate Unrealized Loss
(32,175)
(29,685)
(47,543)
(49,213)
Aggregate Unrealized Loss as a % of Amortized Cost
(6.1)
(5.5)
(10.6)
As reflected in the table above, the fair value of available-for-sale securities was lower than the amortized cost basis by $32,175,000, or 6.1%, at March 31, 2026, $29,685,000, or 5.5%, at December 31, 2025, $47,543,000, or 10.6%, at December 31, 2024 and $49,213,000, or 10.6%, at December 31, 2023. The volatility in the fair value of the portfolio, including the significant reduction in fair value, resulted from changes in interest rates.
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 6 to the 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, 2026 before it is able to recover the amortized cost basis. Further, management reviewed the Corporation’s holdings as of March 31, 2026 and concluded there were no credit-related declines in fair value. Additional information related to the types of securities held at March 31, 2026, other than securities issued or guaranteed by U.S. Government entities or agencies, was as follows:
42
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, 2026.
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, 2026.
Table VII shows the composition of the loan portfolio at March 31, 2026 and at year-end from 2021 through 2025. Throughout this time period, the portfolio was primarily commercial in nature. At March 31, 2026, commercial loans represented 76% of the portfolio while residential loans totaled 19% of the portfolio. As shown in Table VII, total loans receivable were higher by $458,517,000 at December 31, 2025 as compared to December 31, 2024. On October 1, 2025, $393,587,000 of gross loans receivable, net of purchase accounting adjustments, were recorded pursuant to the acquisition of Susquehanna.
Also included in Table VII is additional detail regarding the composition of the non-owner occupied commercial real estate loan portfolio at March 31, 2026. 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 $109,404,000, or 4.6% of gross loans receivable. At March 31, 2026, within this segment there were three loans with a total recorded investment of $8,600,000 in nonaccrual status with no individual allowances, including the loan discussed in the Earnings Overview and Provision and Allowance for Credit Losses section with a partial charge-off of $10,056,000 in the first quarter 2026 and an amortized cost basis at March 31, 2026 of $5,836,000. The remainder of the non-owner occupied commercial real estate loans with a primary purpose of office space utilization were in accrual status with no individual allowance at March 31, 2026.
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 $105,610,000 at March 31, 2026, down from $107,351,000 at December 31, 2025.
The Corporation is a party to financial instruments with off-balance sheet risk, including commitments to extend credit and standby letters of credit. At March 31, 2026, the total contract amount of commitments to extend credit was $489,887,000 as compared to $506,996,000 at December 31, 2025, and the contract amount of standby letters of credit was $59,161,000 at March 31, 2026 as compared to $58,914,000 at December 31, 2025.
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
43
expected credit losses on commitments expected to be funded over their estimated lives. The allowance for credit losses for off-balance sheet exposures of $1,039,000 at March 31, 2026 and $1,029,000 at December 31, 2025, 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. The Corporation also originates and sells mortgages under the Pennsylvania Housing Finance Agency and other programs though the volume of sales has been small in comparison to the volume under the MPF programs.
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, 2026, the total outstanding balance of loans the Corporation has repurchased as a result of identified instances of noncompliance amounted to $2,562,000, and the corresponding total outstanding balance of repurchased loans at December 31, 2025 was $2,598,000.
At March 31, 2026, outstanding balances of loans sold and serviced through the MPF Xtra and Original programs totaled $451,162,000, including loans sold through the MPF Xtra program of $176,497,000 and loans sold through the Original program of $274,665,000. At December 31, 2025, outstanding balances of loans sold and serviced through the MPF Xtra and Original programs totaled $450,120,000, including loans sold through the MPF Xtra program of $177,464,000 and loans sold through the Original program of $272,656,000. 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, 2026 and December 31, 2025.
44
TABLE VII - SUMMARY OF LOANS BY TYPE
Commercial real estate - non-owner occupied:
Non-owner occupied
556,787
569,974
471,171
499,104
454,386
358,352
Multi-family (5 or more) residential
170,891
160,284
105,174
64,076
55,406
49,054
1-4 Family - commercial purpose
198,203
197,480
163,220
174,162
165,805
175,027
739,565
737,342
675,597
582,433
261,071
237,246
205,910
196,083
All other commercial loans:
Commercial and industrial
127,100
128,679
96,665
78,832
95,368
118,488
Commercial lines of credit
148,118
139,727
120,078
117,236
141,444
106,338
Political subdivisions
103,097
96,349
94,009
79,031
86,663
75,401
Commercial construction and land
123,170
123,887
92,741
104,123
60,892
59,505
Other commercial loans
70,431
71,895
19,784
20,471
25,710
26,498
423,277
399,693
410,077
386,230
Residential mortgage loans:
1-4 Family - residential
411,451
411,827
383,797
389,262
363,005
327,593
1-4 Family residential construction
34,460
32,123
24,212
24,452
30,577
23,151
Total residential mortgage
408,009
413,714
393,582
350,744
Consumer loans:
Consumer lines of credit (including HELOCs)
98,961
94,060
47,196
41,503
36,650
33,522
All other consumer
15,971
16,288
16,730
18,641
18,224
15,837
Total consumer
63,926
60,144
54,874
49,359
1,895,848
1,848,139
1,740,040
1,564,849
(20,035)
(19,208)
(16,615)
(13,537)
1,875,813
1,828,931
1,723,425
1,551,312
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, 2026 is as follows:
NON-OWNER OCCUPIED COMMERCIAL REAL ESTATE
% of Non-owner
% of
Occupied CRE
Retail
116,507
20.9
4.9
Office
109,404
19.6
4.6
Industrial
98,985
17.8
4.2
Hotels
81,638
14.7
3.4
Mixed Use
57,897
10.4
2.4
Self Storage Facilities
55,083
9.9
2.3
37,273
6.7
1.6
Total Non-owner Occupied CRE Loans
Total Gross Loans
45
PROVISION AND ALLOWANCE FOR CREDIT LOSSES
A summary of the provision for credit losses for the three-month periods ended March 31, 2026 and 2025 is as follows:
3 Months
Provision for credit losses:
Off-balance sheet exposures
Total provision for credit losses
The provision for credit losses was $13,602,000 in the first quarter 2026 as compared to $236,000 in the first quarter 2025. The increase in the first quarter 2026 provision was primarily driven by the impact on the ACL of an increase in net charge-offs to $10,808,000 as compared to $91,000 in the first quarter of 2025. As described in more detail in the Earnings Overview section, the significant increase in charge-offs in the first quarter of 2026 was mainly due to a partial charge-off of $10,056,000 on a non-owner occupied commercial real estate loan. The ACL was 1.42% of gross loans receivable at March 31, 2026, up from 1.32% at December 31, 2025 and 1.06% at March 31, 2025, as the higher level of net charge-offs in the first quarter 2026 impacted the portion of the Corporation’s ACL determined based on historical loss experience.
As shown in Table IX, the ACL on loans individually evaluated decreased to $2,655,000 at March 31, 2026 from $2,772,000 at December 31, 2025, including an ACL of $2,433,000 at March 31, 2026 on acquired PCD loans as part of the Susquehanna acquisition.
Table IX also shows that, at March 31, 2026 as compared to December 31, 2025, the ACL related to collectively evaluated commercial loans increased by a total of $1,848,000 and the ACL on collectively evaluated residential mortgage loans increased $1,028,000. The increase for commercial loans includes the impact of growth in the portfolio partially offset by a net decrease in qualitative adjustments resulting mainly from changes in external indexes and a decrease in loan concentrations. The increase for residential mortgage loans includes the impact of an increase in qualitative adjustments resulting mainly from changes in external indexes.
In the first quarter of 2026, net charge-offs totaled $10,808,000, or 1.83% (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.
Total nonperforming assets were $42,113,000 at March 31, 2026, up $9,000,000 from December 31, 2025. Nonperforming loans increased $9,008,000 from December 31, 2025. The increase in nonperforming assets and nonperforming loans in the first quarter 2026 included the impact of classifying the nonowner occupied commercial real estate loan referenced above as nonaccrual at March 31, 2026. Table X shows that total nonperforming assets as a percentage of total assets was 1.33% at March 31, 2026, up from 1.06% at December 31, 2025. Table X also shows that total nonperforming assets as a percentage of assets as of year-end 2021 through 2024, ranged from a high of 1.04% at December 31, 2021 to a low of 0.75% at December 31, 2023.
Over the period 2021-2025 and the first 3 months of 2026, 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 ACL calculated as of March 31, 2026. 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.
46
TABLE VIII - ANALYSIS OF THE ALLOWANCE FOR CREDIT LOSSES ON LOANS
Years Ended December 31
Balance, beginning of year
19,208
16,615
13,537
11,385
Adoption of ASU 2016-13 (CECL)
2,104
Allowance recorded in business combination- PCD loans
2,637
Allowance recorded in business combination- Non PCD loans
(1,726)
(1,716)
(356)
(4,245)
(1,575)
109
113
68
66
Net charge-offs
(10,808)
(91)
(1,617)
(1,603)
(264)
(4,177)
(1,509)
Provision for credit losses on loans
5,556
2,430
753
7,255
3,661
Net charge-offs as a % of average loans (annualized)
1.83
0.08
0.09
0.01
0.26
TABLE IX - COMPONENTS OF THE ALLOWANCE FOR CREDIT LOSSES ON LOANS
January 1,
Loans individually evaluated
743
751
Loans collectively evaluated:
20,629
17,171
10,379
9,641
3,336
3,820
2,722
2,111
1,765
4,164
5,290
3,811
3,914
Residential mortgage
1,764
2,407
241
Total Allowance
18,719
PRIOR TO CECL ADOPTION
As of December 31,
ASC 310 - Impaired loans - individually evaluated
453
740
ASC 450 - Collectively evaluated:
10,845
7,553
4,073
4,338
244
235
Unallocated
1,000
671
TABLE X - PAST DUE LOANS AND NONPERFORMING ASSETS
Collateral dependent loans with a valuation allowance
258
7,786
3,460
6,540
Collateral dependent loans without a valuation allowance
35,230
27,027
29,867
3,478
14,871
2,636
Purchased credit impaired loans
1,027
6,558
Total collateral dependent loans
30,125
11,264
19,358
15,734
Total loans past due 30-89 days and still accruing
5,658
9,275
5,106
Nonperforming assets:
Other nonaccrual loans
23,842
15,177
22,058
12,441
Total nonaccrual loans
23,085
18,999
Total loans past due 90 days or more and still accruing
119
3,190
2,237
2,219
Total nonperforming loans
41,932
32,924
23,961
18,367
25,322
21,218
Foreclosed assets held for sale (real estate)
478
275
684
Total nonperforming assets
42,113
33,113
24,142
18,845
25,597
21,902
Total nonperforming loans as a % of loans
1.76
1.40
1.26
0.99
1.46
1.36
Total nonperforming assets as a % of assets
1.33
1.06
0.92
0.75
1.04
0.94
Nonaccrual loans as a % of loans
1.39
0.82
1.21
Allowance for credit losses as a % of nonaccrual loans
80.82
94.55
84.03
79.01
71.97
71.25
Allowance for credit losses as a % of total loans
1.42
1.32
0.87
Included in the table above at March 31, 2026 and December 31, 2025 were loans acquired from Susquehanna with credit deterioration (“PCD loans”) totaled as follows :
PCD Loans
4,970
5,138
7,518
5,553
12,488
10,691
2,193
5,810
Nonperforming assets,
8,566
6,762
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 $26,151,000 at March 31, 2026.
The Corporation’s outstanding, available, and total credit facilities at March 31, 2026 and December 31, 2025 are as follows:
Outstanding
Available
Total Credit
Federal Home Loan Bank of Pittsburgh
174,202
170,922
948,272
785,822
1,137,639
971,946
Federal Reserve Bank Discount Window
24,632
25,484
Other correspondent banks
75,000
Total credit facilities
1,047,904
886,306
1,237,271
1,072,430
At March 31, 2026, the Corporation’s outstanding credit facilities with the Federal Home Loan Bank of consisted of overnight borrowing of $13,113,000, long-term borrowings with par values totaling $139,489,000 and letters of credit totaling $21,600,000. At December 31, 2025, the Corporation’s outstanding credit facilities with the Federal Home Loan Bank of Pittsburgh consisted of overnight borrowing of $27,000,000, long-term borrowings with par values totaling $120,935,000 and letters of credit totaling $22,987,000. Availability on the facility is also reduced by accrued interest payable on the borrowings and by the total of the Corporation’s credit enhancement obligations on residential mortgage loans sold under the MPF Original Program. Additional information regarding borrowed funds is included in Note 9 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, 2026, the carrying value of available-for-sale securities in excess of amounts required to meet pledging or repurchase agreement obligations was $315,391,000.
Deposits totaled $2,600,053,000 at March 31, 2026, up $35,337,000 from December 31, 2025. Deposits of $501,488,000 were assumed from Susquehanna, effective October 1, 2025. Average total deposits were 24.2% higher for the first quarter 2026 as compared to the first quarter 2025. Brokered deposits totaled $702,000 at March 31, 2026, a decrease of $3,148,000 from December 31, 2025.
As shown in the table below, at March 31, 2026, estimated uninsured deposits totaled $856.0 million, or 32.7%, of total deposits, as compared to $811.2 million, or 31.4% of total deposits at December 31, 2025. Included in uninsured deposits are deposits collateralized by securities (almost exclusively municipal deposits) totaling $171.3 million at March 31, 2026. As shown in the table below, total uninsured and uncollateralized deposits amounted to 26.1% of total deposits at March 31, 2026, as compared to 24.7% of total deposits at December 31, 2025.
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 $1.4 billion at March 31, 2026. Available funding from these sources totaled 159.3% of uninsured deposits and 199.1% of total uninsured and uncollateralized deposits at March 31, 2026.
Uninsured Deposits Information
Total Deposits - C&N Bank
2,620,675
2,584,952
Estimated Total Uninsured Deposits
856,022
811,209
Portion of Uninsured Deposits that are
Collateralized
171,335
172,585
Uninsured and Uncollateralized Deposits
684,687
638,624
Uninsured and Uncollateralized Deposits as
a % of Total Deposits
26.1
24.7
Available Funding from Credit Facilities
Fair Value of Available-for-sale Debt
Securities in Excess of Pledging Obligations
315,391
319,624
Highly Liquid Available Funding
1,363,295
1,205,930
Highly Liquid Available Funding as a % of
Uninsured Deposits
159.3
148.7
199.1
188.8
Based on the ample sources of highly liquid funds as described above, management believes the Corporation is well-positioned to meet its short-term and long-term funding obligations.
STOCKHOLDERS’ EQUITY AND CAPITAL ADEQUACY
Details concerning capital ratios at March 31, 2026 and December 31, 2025 are presented below. Management believes, as of March 31, 2026, that the Corporation and C&N Bank meet all capital adequacy requirements to which they are subject and maintain a capital conservation buffer (described in more detail below) that allows the Corporation and Bank to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers. Further, as reflected in the table below, the Corporation’s and C&N Bank’s capital ratios at March 31, 2026 and December 31, 2025 exceed the Corporation’s Board policy threshold levels. Management expects the Corporation and C&N Bank to maintain capital levels that exceed the regulatory standards for well-capitalized institutions for the next 12 months and for the foreseeable future.
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, 2026:
Total capital to risk-weighted assets:
Consolidated
343,649
14.12
194,756
≥8
255,617
≥10.5
243,445
≥10
267,790
≥11
C&N Bank
328,028
13.49
194,526
255,316
243,158
267,474
Tier 1 capital to risk-weighted assets:
288,210
11.84
146,067
≥6
206,928
≥8.5
219,101
≥9
297,609
12.24
145,895
206,684
218,842
Common equity tier 1 capital to risk-weighted assets:
109,550
≥4.5
170,412
≥7.0
158,239
≥6.5
182,584
≥7.5
109,421
170,211
158,053
182,368
Tier 1 capital to average assets:
9.31
123,859
≥4
154,824
≥5
247,719
9.65
123,404
154,255
246,809
December 31, 2025:
346,139
14.45
191,582
251,452
239,478
263,425
330,427
13.82
191,318
251,105
239,148
263,062
291,746
12.18
143,687
203,556
215,530
300,983
12.59
143,489
203,275
215,233
107,765
167,634
155,661
179,608
107,616
167,403
155,446
179,361
9.32
125,149
156,437
250,299
9.66
124,597
155,747
249,195
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, 2026, the minimum risk-based capital ratios, and the capital ratios including the capital conservation buffer, are as follows:
Minimum common equity tier 1 capital ratio
4.5
Minimum common equity tier 1 capital ratio plus capital conservation buffer
7.0
Minimum tier 1 capital ratio
6.0
Minimum tier 1 capital ratio plus capital conservation buffer
8.5
Minimum total capital ratio
8.0
Minimum total capital ratio plus capital conservation buffer
10.5
A banking organization with a buffer greater than 2.5% over the minimum risk-based capital ratios would not be subject to additional limits on dividend payments or discretionary bonus payments; however, a banking organization with a buffer less than 2.5% would be subject to increasingly stringent limitations as the buffer approaches zero. Also, a banking organization is prohibited from making dividend payments or discretionary bonus payments if its eligible retained income is negative in that quarter and its capital conservation buffer ratio was less than 2.5% as of the beginning of that quarter. Eligible net income is defined as net income for the four calendar quarters preceding the current calendar quarter, net of any distributions and associated tax effects not already reflected in net income. A summary of payout restrictions based on the capital conservation buffer is as follows:
Capital Conservation Buffer
Maximum Payout
(as a % of risk-weighted assets)
(as a % of eligible retained income)
Greater than 2.5%
No payout limitation applies
≤2.5% and >1.875%
60
≤1.875% and >1.25%
≤1.25% and >0.625%
≤0.625%
At March 31, 2026, the Corporation’s Capital Conservation Buffer was 5.84% and C&N Bank’s Capital Conservation Buffer was 5.49%.
On September 25, 2023, the Corporation announced a treasury stock repurchase program with no expiration that can be suspended or terminated by the Board of Directors, in its sole discretion. Under this program, the Corporation is authorized to repurchase up to 750,000 shares of its common stock. For the three ended March 31, 2026, there were no shares repurchased. At March 31, 2026, there were 723,465 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 not currently 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 the 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 $25,096,000 at March 31, 2026 and $23,154,000 at December 31, 2025. 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 6 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, 2026.
Tangible common equity is a non-GAAP measure, and tangible common book value per share and tangible common equity as a percentage of tangible assets are non-GAAP ratios. Management believes this non-GAAP information is helpful in evaluating the strength of the Corporation’s capital and in providing an alternative valuation of the Corporation’s net worth. Information at March 31, 2026 and December 31, 2025 is as follows:
(Dollars In Thousands, Except Per Share Data)
Less: Intangible Asset, Goodwill
(63,311)
Less: Intangible Asset, Core Deposit Intangibles, net
(10,758)
(11,573)
Related Tax Effect on Core Deposit Intangibles, net
2,367
2,546
Tangible Assets (1)
3,092,638
3,060,131
Tangible Common Equity (2)
263,862
269,376
Common Shares Outstanding, End of Period (3)
17,909,958
17,823,444
Tangible Common Book Value per Share = (2)/(3)
14.73
15.11
Tangible Common Equity (2) / Tangible Assets (1)
8.53
8.80
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, 2026 and December 31, 2025. 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, 2026 and December 31, 2025 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, 2026 and December 31, 2025, 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 $25.1 million at March 31, 2026. 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, 2026 Data
Period Ending March 31, 2027
Basis Point
Interest
Net Interest
NII
Change in Rates
Income
Expense
Income (NII)
% Change
Risk Limit
+400
194,374
99,684
94,690
(20.4)
25.0
+300
187,442
84,219
103,223
(13.2)
20.0
+200
180,446
70,300
110,146
(7.4)
15.0
+100
173,329
57,932
115,397
(3.0)
10.0
166,074
47,113
118,961
0.0
-100
158,354
40,461
117,893
(0.9)
-200
149,326
33,839
115,487
(2.9)
-300
139,597
27,822
111,775
(6.0)
-400
128,818
22,580
106,238
(10.7)
Economic Value of Equity at March 31, 2026
Present
Equity
614,980
(15.1)
40.0
655,946
(9.5)
30.0
689,868
(4.8)
713,490
(1.5)
724,494
697,866
(3.7)
647,136
579,295
(20.0)
496,021
(31.5)
December 31, 2025 Data
Period Ending December 31, 2026
190,241
101,840
88,401
(22.4)
183,502
86,341
97,161
(14.7)
176,675
72,323
104,352
(8.4)
169,739
59,787
109,952
(3.5)
162,684
48,733
113,951
155,164
41,661
113,503
(0.4)
146,491
34,657
111,834
(1.9)
136,961
28,400
108,561
(4.7)
126,625
23,288
103,337
(9.3)
Economic Value of Equity at December 31, 2025
572,841
(16.8)
614,522
649,738
(5.6)
675,284
688,389
665,037
(3.4)
617,865
(10.2)
553,948
(19.5)
474,663
(31.0)
ITEM 4. CONTROLS AND PROCEDURES
The Corporation’s management, under the supervision of and with the participation of the Corporation’s Chief Executive Officer and Chief Financial Officer, has carried out an evaluation of the design and effectiveness of the Corporation’s disclosure controls and procedures as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Securities Exchange Act of 1934 as of the end of the period covered by this report. This evaluation did not include an assessment of those disclosure controls and procedures that are involved in, and did not include an assessment of, internal control over financial reporting as it relates to Susquehanna Community Financial Inc. (“Susquehanna”). 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.
The Susquehanna acquisition was completed October 1, 2025, and during the fourth quarter of 2025 and the first quarter of 2026 the Corporation began the process of integrating processes and internal control over financial reporting for the former Susquehanna locations into those of the Corporation. Though significant progress has been made, at March 31, 2026, the Corporation’s management has not yet completed changes to processes, information technology systems and other components of internal control over financial reporting as part of the integration activities.
55
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
The Corporation and C&N Bank are involved in various legal proceedings incidental to their business. Management believes the aggregate liability, if any, resulting from such pending and threatened legal proceedings will not have a material, adverse effect on the Corporation’s financial condition or results of operations.
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, 2026.
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 2026. At March 31, 2026, there were 723,465 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 2026:
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, 2026
723,465
February 1 - 28, 2026
March 1 - 31, 2026
Item 3. Defaults Upon Senior Securities
None
Not applicable
During the three months ended March 31, 2026, 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.
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
3.2
By-laws
Incorporated by reference to Exhibit 3.1 of the Corporation’s Form 8-K filed February 18, 2022
31.
Rule 13a-14(a)/15d-14(a) certifications:
31.1
Certification of Chief Executive Officer
Filed herewith
31.2
Certification of Chief Financial Officer
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, 2026, formatted in Inline XBRL (contained in Exhibit 101).
57
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 8, 2026
By: /s/ J. Bradley Scovill
President and Chief Executive Officer
By: /s/ Mark A. Hughes
Treasurer and Chief Financial Officer