Citizens & Northern (CZNC) 10-Q 2021 Q3 Quarterly report

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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 September 30, 2021

or

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

For the transition period from _______________ to _________________________.

Commission file number: 000-16084

CITIZENS & NORTHERN CORPORATION

(Exact name of Registrant as specified in its charter)

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

90-92 MAIN STREET, WELLSBORO, PA 16901

(Address of principal executive offices) (Zip code)

570-724-3411

(Registrant’s telephone number including area code)

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

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

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

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

Yes ⌧ No ◻

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

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

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

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

Yes ☐ No ⌧

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

Common Stock ($1.00 par value) 15,751,005 Shares Outstanding on November 3, 2021

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

CITIZENS & NORTHERN CORPORATION

Index

Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited) – September 30, 2021 and December 31, 2020	Page 3
Consolidated Statements of Income (Unaudited) – Three-month and Nine-month Periods Ended September 30, 2021 and 2020	Page 4
Consolidated Statements of Comprehensive Income (Unaudited) - Three-month and Nine-month Periods Ended September 30, 2021 and 2020	Page 5
Consolidated Statements of Cash Flows (Unaudited) – Nine-month Periods Ended September 30, 2021 and 2020	Pages 6 – 7
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) – Three-month and Nine-month Periods September 30, 2021 and 2020	Pages 8 – 9
Notes to Unaudited Consolidated Financial Statements	Pages 10 – 41
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	Pages 42 – 68
Item 4. Controls and Procedures	Page 68
Part II. Other Information	Pages 69 – 72
Signatures	Page 73

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

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

	September 30,		December 31,
	2021		2020
ASSETS
Cash and due from banks:
Noninterest-bearing	$	26,589	$	24,780
Interest-bearing		172,406		77,077
Total cash and due from banks		198,995		101,857
Available-for-sale debt securities, at fair value		437,857		349,332
Loans receivable		1,575,708		1,644,209
Allowance for loan losses		(12,700)		(11,385)
Loans, net		1,563,008		1,632,824
Bank-owned life insurance		30,530		30,096
Accrued interest receivable		7,307		8,293
Bank premises and equipment, net		20,526		21,526
Foreclosed assets held for sale		1,374		1,338
Deferred tax asset, net		5,128		2,705
Goodwill		52,505		52,505
Core deposit intangibles, net		3,450		3,851
Other assets		34,216		34,773
TOTAL ASSETS	$	2,354,896	$	2,239,100
LIABILITIES
Deposits:
Noninterest-bearing	$	521,561	$	465,332
Interest-bearing		1,418,580		1,355,137
Total deposits		1,940,141		1,820,469
Short-term borrowings		1,875		20,022
Long-term borrowings - FHLB advances		38,680		54,608
Senior notes, net		14,685		0
Subordinated debt, net		32,988		16,553
Accrued interest and other liabilities		27,125		27,692
TOTAL LIABILITIES		2,055,494		1,939,344
STOCKHOLDERS' EQUITY
Preferred stock, $1,000 par value; authorized 30,000 shares; $1,000 liquidation
preference per share; 0 shares issued		0		0
Common stock, par value $1.00 per share; authorized 20,000,000 shares;
issued 16,030,172 and outstanding 15,750,250 at September 30, 2021;
issued 15,982,815 and outstanding 15,911,984 at December 31, 2020		16,030		15,983
Paid-in capital		144,172		143,644
Retained earnings		139,715		129,703
Treasury stock, at cost; 279,922 shares at September 30, 2021 and 70,831
shares at December 31, 2020		(6,920)		(1,369)
Accumulated other comprehensive income		6,405		11,795
TOTAL STOCKHOLDERS' EQUITY		299,402		299,756
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY	$	2,354,896	$	2,239,100

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

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Consolidated Statements of Income

(In Thousands Except Per Share Data) (Unaudited)

	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
	2021		2020		2021		2020
INTEREST INCOME
Interest and fees on loans:
Taxable	$	18,529	$	19,158	$	56,095	$	47,745
Tax-exempt		450		450		1,300		1,348
Income from available-for-sale debt securities:
Taxable		1,304		1,483		3,604		4,451
Tax-exempt		668		561		1,973		1,505
Other interest and dividend income		122		99		283		252
Total interest and dividend income		21,073		21,751		63,255		55,301
INTEREST EXPENSE
Interest on deposits		1,063		1,787		3,558		5,726
Interest on short-term borrowings		0		73		22		335
Interest on long-term borrowings - FHLB advances		87		362		330		970
Interest on senior notes, net		118		0		175		0
Interest on subordinated debt, net		346		247		947		460
Total interest expense		1,614		2,469		5,032		7,491
Net interest income		19,459		19,282		58,223		47,810
Provision for loan losses		1,530		1,941		2,533		3,293
Net interest income after provision for loan losses		17,929		17,341		55,690		44,517
NONINTEREST INCOME
Trust revenue		1,821		1,595		5,254		4,639
Brokerage and insurance revenue		560		382		1,392		1,121
Service charges on deposit accounts		1,249		1,045		3,337		3,126
Interchange revenue from debit card transactions		975		828		2,854		2,277
Net gains from sale of loans		797		2,052		2,786		3,931
Loan servicing fees, net		153		(87)		547		(259)
Increase in cash surrender value of life insurance		139		159		434		361
Other noninterest income		665		996		2,837		2,583
Sub-total		6,359		6,970		19,441		17,779
Realized gains on available-for-sale debt securities, net		23		25		25		25
Total noninterest income		6,382		6,995		19,466		17,804
NONINTEREST EXPENSE
Salaries and employee benefits		9,427		8,703		27,821		23,064
Net occupancy and equipment expense		1,217		1,189		3,740		3,267
Data processing and telecommunications expense		1,475		1,482		4,342		3,959
Automated teller machine and interchange expense		357		340		1,049		912
Pennsylvania shares tax		482		422		1,463		1,267
Professional fees		538		422		1,683		1,265
Merger-related expenses		0		6,402		0		7,526
Other noninterest expense		1,850		2,090		6,356		6,100
Total noninterest expense		15,346		21,050		46,454		47,360
Income before income tax provision		8,965		3,286		28,702		14,961
Income tax provision		1,566		438		5,456		2,509
NET INCOME	$	7,399	$	2,848	$	23,246	$	12,452
EARNINGS PER COMMON SHARE - BASIC	$	0.47	$	0.18	$	1.46	$	0.86
EARNINGS PER COMMON SHARE - DILUTED	$	0.47	$	0.18	$	1.46	$	0.86

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

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Consolidated Statements of Comprehensive Income

(In Thousands) (Unaudited)

	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
	2021		2020		2021		2020
Net income	$	7,399	$	2,848	$	23,246	$	12,452
Available-for-sale debt securities:
Unrealized holding (losses) gains on available-for-sale debt securities		(3,608)		(95)		(6,781)		9,980
Reclassification adjustment for (gains) realized in income		(23)		(25)		(25)		(25)
Other comprehensive (loss) income on available-for-sale debt securities		(3,631)		(120)		(6,806)		9,955
Unfunded pension and postretirement obligations:
Changes from plan amendments and actuarial gains and losses		0		0		(5)		88
Amortization of prior service cost and net actuarial loss included in net periodic benefit cost		(5)		(8)		(13)		(22)
Other comprehensive (loss) income on unfunded retirement obligations		(5)		(8)		(18)		66
Other comprehensive (loss) income before income tax		(3,636)		(128)		(6,824)		10,021
Income tax related to other comprehensive loss (income)		765		26		1,434		(2,103)
Net other comprehensive (loss) income		(2,871)		(102)		(5,390)		7,918
Comprehensive income	$	4,528	$	2,746	$	17,856	$	20,370

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

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands) (Unaudited)

	Nine Months Ended
	September 30,		September 30,
	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	23,246	$	12,452
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		2,533		3,293
Realized gains on available-for-sale debt securities, net		(25)		(25)
Net amortization of securities		1,554		1,020
Increase in cash surrender value of life insurance		(434)		(361)
Depreciation and amortization of bank premises and equipment		1,602		1,429
Net accretion of purchase accounting adjustments		(1,827)		(1,547)
Stock-based compensation		970		672
Deferred income taxes		(989)		649
Decrease in fair value of servicing rights		9		617
Gains on sales of loans, net		(2,786)		(3,931)
Origination of loans held for sale		(86,428)		(123,547)
Proceeds from sales of loans held for sale		87,483		126,268
Decrease (increase) in accrued interest receivable and other assets		295		(1,194)
Decrease in accrued interest payable and other liabilities		(50)		(856)
Other		(18)		(339)
Net Cash Provided by Operating Activities		25,135		14,600
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash and cash equivalents provided by business combination		0		75,955
Purchase of certificates of deposit		(3,000)		(2,500)
Proceeds from maturities of certificates of deposit		0		250
Proceeds from sales of available-for-sale debt securities		2,027		20,535
Proceeds from calls and maturities of available-for-sale debt securities		48,262		71,009
Purchase of available-for-sale debt securities		(145,445)		(65,853)
Redemption of Federal Home Loan Bank of Pittsburgh stock		1,934		5,712
Purchase of Federal Home Loan Bank of Pittsburgh stock		(1,614)		(4,571)
Net decrease (increase) in loans		68,018		(45,564)
Proceeds from bank owned life insurance		287		0
Proceeds from sales of premises and equipment		575		0
Purchase of premises and equipment		(1,173)		(2,550)
Proceeds from sale of foreclosed assets		303		1,347
Other		176		178
Net Cash (Used in) Provided by Investing Activities		(29,650)		53,948
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits		120,386		137,543
Net decrease in short-term borrowings		(18,082)		(79,213)
Proceeds from long-term borrowings - FHLB advances		0		25,891
Repayments of long-term borrowings - FHLB advances		(15,571)		(5,136)
Proceeds from issuance of senior notes, net of issuance costs		14,663		0
Proceeds from issuance of subordinated debt, net of issuance costs		24,437		0
Redemption of subordinated debt		(8,000)		0
Sale of treasury stock		212		124
Purchases of treasury stock		(7,412)		(163)
Common dividends paid		(11,980)		(10,568)
Net Cash Provided by Financing Activities		98,653		68,478
INCREASE IN CASH AND CASH EQUIVALENTS		94,138		137,026
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		96,017		31,122
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	190,155	$	168,148

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands) (Unaudited)

(Continued)

	Nine Months Ended
	September 30,		September 30,
	2021		2020
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Increase in accrued purchase of available-for-sale debt securities	$	1,704	$	287
Accrued sale of available-for-sale securities	$	0	$	488
Accrued income from life insurance claim	$	0	$	279
Assets acquired through foreclosure of real estate loans	$	317	$	0
Leased assets obtained in exchange for new operating lease liabilities	$	739	$	167
Interest paid	$	6,063	$	7,635
Income taxes paid	$	8,076	$	2,975
NONCASH INVESTING ASSETS ACQUIRED IN BUSINESS COMBINATION:
Available-for-sale debt securities	$	0	$	10,754
Loans receivable	$	0	$	464,236
Bank-owned life insurance	$	0	$	11,170
Foreclosed assets held for sale	$	0	$	860
NONCASH FINANCING ACTIVITY RELATED TO BUSINESS COMBINATION:
Common stock issued	$	0	$	41,429
Liabilities assumed:
Deposits	$	0	$	481,796
Short-term borrowings	$	0	$	33,950
Long-term borrowings	$	0	$	30,025
Subordinated debt	$	0	$	10,091

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

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Consolidated Statements of Changes in Stockholders’ Equity

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

									Accumulated
									Other
	Common	Treasury	Common		Paid-in		Retained		Comprehensive		Treasury
Three Months Ended September 30, 2021	Shares	Shares	Stock		Capital		Earnings		Income		Stock		Total
Balance, June 30, 2021	16,030,172	72,660	$	16,030	$	143,817	$	136,756	$	9,276	$	(1,746)	$	304,133
Net income								7,399						7,399
Other comprehensive loss, net										(2,871)				(2,871)
Cash dividends declared on common stock, $.28 per share								(4,440)						(4,440)
Shares issued for dividend reinvestment plan		(16,833)				10						415		425
Shares issued from treasury and redeemed related to exercise of stock options		(7,000)										135		135
Stock-based compensation expense						345								345
Purchase of restricted stock for tax withholding		691										(17)		(17)
Treasury stock purchases		230,404										(5,707)		(5,707)
Balance, September 30, 2021	16,030,172	279,922	$	16,030	$	144,172	$	139,715	$	6,405	$	(6,920)	$	299,402
Three Months Ended September 30, 2020
Balance, June 30, 2020	13,934,996	127,839	$	13,935	$	103,954	$	128,661	$	11,711	$	(2,470)	$	255,791
Net income								2,848						2,848
Other comprehensive loss, net										(102)				(102)
Cash dividends declared on common stock, $.27 per share								(4,285)						(4,285)
Shares issued for dividend reinvestment plan		(21,949)				(36)						423		387
Restricted stock granted		(15,076)				(291)						291		0
Forfeiture of restricted stock		1,648				30						(30)		0
Stock-based compensation expense						248								248
Shares issued for acquisition of Covenant Financial, Inc., net of equity issuance costs	2,047,819			2,048		39,381								41,429
Balance, September 30, 2020	15,982,815	92,462	$	15,983	$	143,286	$	127,224	$	11,609	$	(1,786)	$	296,316

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Consolidated Statements of Changes in Stockholders’ Equity

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

(Continued)

										Accumulated
										Other
	Common	Treasury	Common		Paid-in		Retained			Comprehensive		Treasury
Nine Months Ended September 30, 2021	Shares	Shares	Stock		Capital		Earnings			Income		Stock		Total
Balance, December 31, 2020	15,982,815	70,831	$	15,983	$	143,644	$	129,703		$	11,795	$	(1,369)	$	299,756
Net income								23,246							23,246
Other comprehensive loss, net									��		(5,390)				(5,390)
Cash dividends declared on common stock, $.83 per share								(13,234)							(13,234)
Shares issued for dividend reinvestment plan	36,368	(16,833)		36		803							415		1,254
Shares issued from treasury and redeemed related to exercise of stock options		(12,414)				(28)							240		212
Restricted stock granted	10,989	(67,402)		11		(1,319)							1,308		0
Forfeiture of restricted stock		5,290				102							(102)		0
Stock-based compensation expense						970									970
Purchase of restricted stock for tax withholding		8,350											(174)		(174)
Treasury stock purchases		292,100											(7,238)		(7,238)
Balance, September 30, 2021	16,030,172	279,922	$	16,030	$	144,172	$	139,715		$	6,405	$	(6,920)	$	299,402
Nine Months Ended September 30, 2020
Balance, December 31, 2019	13,934,996	218,551	$	13,935	$	104,519	$	126,480		$	3,691	$	(4,173)	$	244,452
Net income								12,452							12,452
Other comprehensive income, net											7,918				7,918
Cash dividends declared on common stock, $.81 per share								(11,708)							(11,708)
Shares issued for dividend reinvestment plan		(56,649)				46							1,094		1,140
Shares issued from treasury and redeemed related to exercise of stock options		(9,652)				(62)							186		124
Restricted stock granted		(70,940)				(1,370)							1,370		0
Forfeiture of restricted stock		5,290				100							(100)		0
Stock-based compensation expense						672									672
Purchase of restricted stock for tax withholding		5,862											(163)		(163)
Shares issued for acquisition of Covenant Financial, Inc., net of equity issuance costs	2,047,819			2,048		39,381									41,429
Balance, September 30, 2020	15,982,815	92,462	$	15,983	$	143,286	$	127,224		$	11,609	$	(1,786)	$	296,316

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

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Notes to Unaudited Consolidated Financial Statements

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

The consolidated financial statements include the accounts of Citizens & Northern Corporation and its subsidiaries, Citizens & Northern Bank (“C&N Bank”), Bucktail Life Insurance Company and Citizens & Northern Investment Corporation (collectively, “Corporation”). The consolidated financial statements also include C&N Bank’s wholly-owned subsidiaries, C&N Financial Services Corporation and Northern Tier Holding LLC. C&N Bank is the sole member of 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, 2020, 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. Certain 2020 information has been reclassified for consistency with the 2021 presentation.

Operating results reported for the nine-month period ended September 30, 2021 might not be indicative of the results for the year ending December 31, 2021. 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 Standards Updates (ASUs) 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 financial statements issued in the near future.

Recently Issued But Not Yet Effective Accounting Pronouncements

ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), as modified by subsequent ASUs, changes accounting for credit losses on loans receivable and debt securities from an incurred loss methodology to an expected credit loss methodology. Among other things, ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Accordingly, ASU 2016-13 requires the use of forward-looking information to form credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, though the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, ASU 2016-13 amends the accounting for credit losses on debt securities and purchased financial assets with credit deterioration. The effect of implementing this ASU is recorded through a cumulative-effect adjustment to retained earnings. The Corporation has formed a cross functional management team and is working with an outside vendor assessing alternative loss estimation methodologies and the Corporation’s data and system needs to evaluate the impact that adoption of this standard will have on the Corporation’s financial condition and results of operations. In November 2019, the FASB approved a delay of the required implementation date of ASU 2016-13 for smaller reporting companies, including the Corporation, resulting in a required implementation date for the Corporation of January 1, 2023.

ASU 2020-04, Reference Rate Reform (Topic 848) provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The amendments in ASU 2020-04 are elective and apply to all entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued. The guidance includes a general principle that permits an entity to consider contract modifications due to reference rate reform to be an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. Some specific optional expedients are as follows:

● Simplifies accounting for contract modifications, including modifications to loans receivable and debt, by prospectively adjusting the effective interest rate.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

● Simplifies the assessment of hedge effectiveness and allows hedging relationships affected by reference rate reform to continue.

The amendments in ASU 2020-04 are effective as of March 12, 2020 through December 31, 2022. The Corporation has formed a cross functional management team to evaluate and implement changes to contracts with rates indexed to LIBOR and expects to apply the amendments prospectively for applicable loan and other contracts within the effective period of ASU 2020-04.

2. BUSINESS COMBINATIONS

Acquisition of Covenant Financial, Inc.

On July 1, 2020, the Corporation completed its acquisition of Covenant Financial, Inc. (“Covenant”). Covenant was the holding company for Covenant Bank, which operated banking offices in Bucks and Chester Counties of Pennsylvania. The Covenant acquisition has contributed significantly to growth in the size of the Corporation’s balance sheet and in net interest income and noninterest expenses.

In connection with the transaction, the Corporation recorded goodwill of $24.1 million and a core deposit intangible asset of $3.1 million. Total loans acquired on July 1, 2020 were valued at $464.2 million, while total deposits assumed were valued at $481.8 million, borrowings were valued at $64.0 million and subordinated debt was valued at $10.1 million. The Corporation acquired available-for-sale debt securities valued at $10.8 million and bank-owned life insurance valued at $11.2 million. The assets purchased and liabilities assumed in the merger were recorded at their estimated fair values at the time of closing, subject to refinement for up to one year after the closing date. There were no adjustments to the fair value measurements of assets acquired or liabilities assumed in the nine months ended September 30, 2021.

Merger-related expenses related to the acquisition of Covenant totaled $6,402,000 in the third quarter 2020 and $7,526,000 in the nine months ended September 30, 2020. There were 0 merger-related expenses in the nine months ended September 30, 2021.

3. PER SHARE DATA

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

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

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

(In Thousands, Except Share and Per Share Data)	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
	2021		2020		2021		2020
Basic
Net income	$	7,399	$	2,848	$	23,246	$	12,452
Less: Dividends and undistributed earnings allocated to participating securities		(63)		(18)		(189)		(74)
Net income attributable to common shares	$	7,336	$	2,830	$	23,057	$	12,378
Basic weighted-average common shares outstanding		15,703,932		15,778,391		15,806,897		14,388,797
Basic earnings per common share (a)	$	0.47	$	0.18	$	1.46	$	0.86
Diluted
Net income attributable to common shares	$	7,336	$	2,830	$	23,057	$	12,378
Basic weighted-average common shares outstanding		15,703,932		15,778,391		15,806,897		14,388,797
Dilutive effect of potential common stock arising from stock options		6,413		1,330		6,232		4,632
Diluted weighted-average common shares outstanding		15,710,345		15,779,721		15,813,129		14,393,429
Diluted earnings per common share (a)	$	0.47	$	0.18	$	1.46	$	0.86
Weighted-average nonvested restricted shares outstanding		133,053		102,629		129,456		85,611

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

Anti-dilutive stock options are excluded from earnings per share calculations. There were 0 anti-dilutive instruments in the three-month and nine month periods ended September 30, 2021. Weighted-average common shares available from anti-dilutive instruments totaled 39,012 shares in the three-month period ended September 30, 2020 and 19,506 shares in the nine-month period ended September 30, 2020.

4. COMPREHENSIVE INCOME

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

(In Thousands)	Before-Tax		Income Tax		Net-of-Tax
	Amount		Effect		Amount
Three Months Ended September 30, 2021
Available-for-sale debt securities:
Unrealized holding losses on available-for-sale debt securities	$	(3,608)	$	759	$	(2,849)
Reclassification adjustment for (gains) realized in income		(23)		5		(18)
Other comprehensive loss from available-for-sale debt securities		(3,631)		764		(2,867)
Unfunded pension and postretirement obligations,
Amortization of prior service cost and net actuarial loss included in net periodic benefit cost		(5)		1		(4)
Total other comprehensive loss	$	(3,636)	$	765	$	(2,871)

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

(In Thousands)	Before-Tax		Income Tax		Net-of-Tax
	Amount		Effect		Amount
Three Months Ended September 30, 2020
Available-for-sale debt securities:
Unrealized holding losses on available-for-sale debt securities	$	(95)	$	19	$	(76)
Reclassification adjustment for (gains) realized in income		(25)		5		(20)
Other comprehensive loss from available-for-sale debt securities		(120)		24		(96)
Unfunded pension and postretirement obligations,
Amortization of prior service cost and net actuarial loss included in net periodic benefit cost		(8)		2		(6)
Total other comprehensive loss	$	(128)	$	26	$	(102)

(In Thousands)	Before-Tax		Income Tax		Net-of-Tax
	Amount		Effect		Amount
Nine Months Ended September 30, 2021
Available-for-sale debt securities:
Unrealized holding losses on available-for-sale debt securities	$	(6,781)	$	1,425	$	(5,356)
Reclassification adjustment for (gains) realized in income		(25)		5		(20)
Other comprehensive loss from available-for-sale debt securities		(6,806)		1,430		(5,376)
Unfunded pension and postretirement obligations:
Changes from plan amendments and actuarial gains and losses		(5)		1		(4)
Amortization of prior service cost and net actuarial loss included in net periodic benefit cost		(13)		3		(10)
Other comprehensive loss on unfunded retirement obligations		(18)		4		(14)
Total other comprehensive loss	$	(6,824)	$	1,434	$	(5,390)

(In Thousands)	Before-Tax		Income Tax		Net-of-Tax
	Amount		Effect		Amount
Nine Months Ended September 30, 2020
Available-for-sale debt securities:
Unrealized holding gains on available-for-sale debt securities	$	9,980	$	(2,095)	$	7,885
Reclassification adjustment for (gains) realized in income		(25)		5		(20)
Other comprehensive income from available-for-sale debt securities		9,955		(2,090)		7,865
Unfunded pension and postretirement obligations:
Changes from plan amendments and actuarial gains and losses		88		(18)		70
Amortization of prior service cost and net actuarial loss included in net periodic benefit cost		(22)		5		(17)
Other comprehensive income on unfunded retirement obligations		66		(13)		53
Total other comprehensive income	$	10,021	$	(2,103)	$	7,918

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

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

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

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

(In Thousands)					Accumulated
	Unrealized		Unfunded		Other
	Losses		Retirement		Comprehensive
	on Securities		Obligations		Income
Three Months Ended September 30, 2021
Balance, beginning of period	$	9,167	$	109	$	9,276
Other comprehensive loss during three months ended September 30, 2021		(2,867)		(4)		(2,871)
Balance, end of period	$	6,300	$	105	$	6,405
Three Months Ended September 30, 2020
Balance, beginning of period	$	11,472	$	239	$	11,711
Other comprehensive loss during three months ended September 30, 2020		(96)		(6)		(102)
Balance, end of period	$	11,376	$	233	$	11,609

(In Thousands)	Unrealized				Accumulated
	Gains		Unfunded		Other
	(Losses)		Retirement		Comprehensive
	on Securities		Obligations		Income
Nine Months Ended September 30, 2021
Balance, beginning of period	$	11,676	$	119	$	11,795
Other comprehensive loss during nine months ended September 30, 2021		(5,376)		(14)		(5,390)
Balance, end of period	$	6,300	$	105	$	6,405
Nine Months Ended September 30, 2020
Balance, beginning of period	$	3,511	$	180	$	3,691
Other comprehensive income during nine months ended September 30, 2020		7,865		53		7,918
Balance, end of period	$	11,376	$	233	$	11,609

5. CASH AND DUE FROM BANKS

Cash and due from banks at September 30, 2021 and December 31, 2020 include the following:

(In Thousands)	September 30,		December 31,
	2021		2020
Cash and cash equivalents	$	190,155	$	96,017
Certificates of deposit		8,840		5,840
Total cash and due from banks	$	198,995	$	101,857

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.

Historically, C&N Bank has been required to maintain reserves against deposit liabilities in the form of cash and balances with the Federal Reserve Bank of Philadelphia. The reserves are based on deposit levels, account activity, and other services provided by the Federal Reserve Bank. In March 2020, the Federal Reserve Board reduced reserve requirements for U.S. banks to 0%. Accordingly, C&N Bank had 0 required reserves at September 30, 2021 and December 31, 2020.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

6. SECURITIES

Amortized cost and fair value of available-for-sale debt securities at September 30, 2021 and December 31, 2020 are summarized as follows:

(In Thousands)	September 30, 2021
			Gross		Gross
			Unrealized		Unrealized
	Amortized		Holding		Holding		Fair
	Cost		Gains		Losses		Value
Obligations of the U.S. Treasury	$	25,088	$	60	$	(80)	$	25,068
Obligations of U.S. Government agencies		23,935		666		(289)		24,312
Obligations of states and political subdivisions:
Tax-exempt		135,362		4,390		(508)		139,244
Taxable		69,426		1,516		(449)		70,493
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		59,920		978		(269)		60,629
Residential collateralized mortgage obligations		43,811		820		(38)		44,593
Commercial mortgage-backed securities		72,341		1,963		(786)		73,518
Total available-for-sale debt securities	$	429,883	$	10,393	$	(2,419)	$	437,857

(In Thousands)	December 31, 2020
			Gross		Gross
			Unrealized		Unrealized
	Amortized		Holding		Holding		Fair
	Cost		Gains		Losses		Value
Obligations of the U.S. Treasury	$	12,184	$	0	$	(2)	$	12,182
Obligations of U.S. Government agencies		25,349		1,003		(8)		26,344
Obligations of states and political subdivisions:
Tax-exempt		116,427		6,000		(26)		122,401
Taxable		45,230		2,246		(24)		47,452
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		36,853		1,323		0		38,176
Residential collateralized mortgage obligations		56,048		1,428		(9)		57,467
Commercial mortgage-backed securities		42,461		2,849		0		45,310
Total available-for-sale debt securities	$	334,552	$	14,849	$	(69)	$	349,332

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

The following table presents gross unrealized losses and fair value of available-for-sale debt securities with unrealized loss positions that are not deemed to be other-than-temporarily impaired, aggregated by length of time that individual securities have been in a continuous unrealized loss position at September 30, 2021 and December 31, 2020:

September 30, 2021	Less Than 12 Months				12 Months or More				Total
(In Thousands)	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
Obligations of the U.S. Treasury	$	11,001	$	(80)	$	0	$	0	$	11,001	$	(80)
Obligations of U.S. Government agencies		12,210		(289)		0		0		12,210		(289)
Obligations of states and political subdivisions:
Tax-exempt		41,145		(508)		0		0		41,145		(508)
Taxable		25,561		(365)		2,200		(84)		27,761		(449)
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		36,651		(269)		0		0		36,651		(269)
Residential collateralized mortgage obligations		4,745		(38)		0		0		4,745		(38)
Commercial mortgage-backed securities		34,931		(786)		0		0		34,931		(786)
Total temporarily impaired available-for-sale debt securities	$	166,244	$	(2,335)	$	2,200	$	(84)	$	168,444	$	(2,419)

December 31, 2020	Less Than 12 Months				12 Months or More				Total
(In Thousands)	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
Obligations of the U.S. Treasury	$	9,159	$	(2)	$	0	$	0	$	9,159	$	(2)
Obligations of U.S. Government agencies		4,992		(8)		0		0		4,992		(8)
Obligations of states and political subdivisions:
Tax-exempt		3,811		(26)		0		0		3,811		(26)
Taxable		5,235		(24)		0		0		5,235		(24)
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies,
Residential collateralized mortgage obligations		2,861		(9)		0		0		2,861		(9)
Total temporarily impaired available-for-sale debt securities	$	26,058	$	(69)	$	0	$	0	$	26,058	$	(69)

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

(In Thousands)	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
	2021		2020		2021		2020
Gross realized gains from sales	$	23	$	26	$	27	$	78
Gross realized losses from sales		0		(1)		(2)		(53)
Net realized gains	$	23	$	25	$	25	$	25

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

The amortized cost and fair value of available-for-sale debt securities by contractual maturity are shown in the following table as of September 30, 2021. Actual maturities may differ from contractual maturities because counterparties may have the right to call or prepay obligations with or without call or prepayment penalties.

(In Thousands)	September 30, 2021
	Amortized		Fair
	Cost		Value
Due in one year or less	$	15,531	$	15,641
Due from one year through five years		51,151		52,150
Due from five years through ten years		65,651		67,498
Due after ten years		121,478		123,828
Sub-total		253,811		259,117
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		59,920		60,629
Residential collateralized mortgage obligations		43,811		44,593
Commercial mortgage-backed securities		72,341		73,518
Total	$	429,883	$	437,857

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

Investment securities carried at $254,062,000 at September 30, 2021 and $247,373,000 at December 31, 2020 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 and Note 12 for information related to securities pledged against interest rate swap obligations.

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) whether the Corporation intends to sell the security or more likely than not will be required to sell the security before its anticipated recovery.

A summary of information management considered in evaluating debt and equity securities for OTTI at September 30, 2021 is provided below.

Debt Securities

At September 30, 2021 and December 31, 2020, management performed an assessment for possible OTTI 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. The extent of individual analysis applied to each security depended on the size of the Corporation’s investment, as well as management’s perception of the credit risk associated with each security. Based on the results of the assessment, management believes impairment of debt securities at September 30, 2021 and December 31, 2020 to be temporary.

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 $9,400,000 at September 30, 2021 and $9,720,000 at December 31, 2020. The Corporation evaluated its holding of FHLB-Pittsburgh stock for impairment and deemed the stock to not be impaired at September 30, 2021 and December 31, 2020. In making this determination, management concluded that

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

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.

The Corporation has a marketable equity security included in other assets in the consolidated balance sheets with a carrying value of $981,000 at September 30, 2021 and $1,000,000 at December 31, 2020, consisting exclusively of 1 mutual fund. There was an unrealized loss on the mutual fund of $19,000 at September 30, 2021 and 0 unrealized gain or loss on the mutual fund at December 31, 2020. Changes in the unrealized gains or losses on this security are included in other noninterest income in the consolidated statements of income.

7. LOANS

The loans receivable portfolio is segmented into commercial, residential mortgage and consumer loans. Loans outstanding at September 30, 2021 and December 31, 2020 are summarized by segment, and by classes within each segment, as follows:

Summary of Loans by Type

(In Thousands)

	September 30,		December 31,
	2021		2020
Commercial:
Commercial loans secured by real estate	$	553,389	$	531,810
Commercial and industrial		152,244		159,577
Paycheck Protection Program - 1st Draw		5,747		132,269
Paycheck Protection Program - 2nd Draw		56,981		0
Political subdivisions		73,503		53,221
Commercial construction and land		53,267		42,874
Loans secured by farmland		10,812		11,736
Multi-family (5 or more) residential		52,962		55,811
Agricultural loans		3,092		3,164
Other commercial loans		17,312		17,289
Total commercial		979,309		1,007,751
Residential mortgage:
Residential mortgage loans - first liens		494,376		532,947
Residential mortgage loans - junior liens		24,303		27,311
Home equity lines of credit		38,465		39,301
1-4 Family residential construction		21,719		20,613
Total residential mortgage		578,863		620,172
Consumer		17,536		16,286
Total		1,575,708		1,644,209
Less: allowance for loan losses		(12,700)		(11,385)
Loans, net	$	1,563,008	$	1,632,824

In the table above, outstanding loan balances are presented net of deferred loan origination fees, net, of $5,719,000 at September 30, 2021 and $6,286,000 at December 31, 2020.

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.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law. The CARES Act is a $2 trillion stimulus package designed to provide relief to U.S. businesses and consumers struggling as a result of the pandemic. A

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

provision in the CARES Act includes creation of the Paycheck Protection Program (“PPP”) through the Small Business Administration (“SBA”) and Treasury Department. Under the PPP, the Corporation, as an SBA-certified lender, provides SBA-guaranteed loans to small businesses to pay their employees, rent, mortgage interest, and utilities. PPP loans will be forgiven subject to clients’ providing documentation evidencing their compliant use of funds and otherwise complying with the terms of the program.  Information related to PPP loans advanced pursuant to the CARES Act are labeled “1st Draw” within the tables.

Section 4013 of the CARES Act provides that, from the period beginning March 1, 2020 until 60 days after the date on which the national emergency concerning the coronavirus (COVID-19) pandemic declared by the President of the United States under the National Emergencies Act terminates (the “applicable period”), the Corporation may elect to suspend U.S. GAAP for loan modifications related to the pandemic that would otherwise be categorized as troubled debt restructurings (TDRs) and suspend any determination of a loan modified as a result of the effects of the pandemic as being a TDR, including impairment for accounting purposes. The suspension is applicable for the term of the loan modification that occurs during the applicable period for a loan that was not more than 30 days past due as of December 31, 2019. The suspension is not applicable to any adverse impact on the credit of a borrower that is not related to the pandemic.

In addition, the banking regulators and other financial regulators, on March 22, 2020 and revised April 7, 2020, issued a joint interagency statement titled the “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus” that encourages financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of the COVID-19 pandemic. Pursuant to the interagency statement, loan modifications that do not meet the conditions of Section 4013 of the CARES Act may still qualify as a modification that does not need to be accounted for as a TDR. Specifically, the agencies confirmed with the FASB staff that short-term modifications made in good faith in response to the pandemic to borrowers who were current prior to any relief are not TDRs under U.S. GAAP. This includes short-term (e.g. six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented. Appropriate allowances for loan and lease losses are expected to be maintained. With regard to loans not otherwise reportable as past due, financial institutions are not expected to designate loans with deferrals granted due to the pandemic as past due because of the deferral. The interagency statement also states that during short-term pandemic-related loan modifications, these loans generally should not be reported as nonaccrual.

On December 27, 2020, the President of the United States signed into law the Consolidated Appropriations Act, 2021 (the “CAA”), which includes provisions that broadly address additional COVID-19 responses and relief.  Among the additional relief measures included are certain extensions to elements of the CARES Act, including extension of temporary relief from troubled debt restructurings established under Section 4013 of the CARES Act to the earlier of a) January 1, 2022, or b) the date that is 60 days after the date on which the national COVID-19 emergency terminates. The CAA also includes additional funding for the PPP with additional eligibility requirements for borrowers with generally the same loan terms as provided under the CARES Act. Information related to PPP loans advanced pursuant to the CAA are labeled “2nd Draw” within the tables.

The maximum term of PPP loans is five years. Most of the Corporation’s 1st Draw PPP loans have two-year terms, while 2nd Draw PPP loans have  five-year terms and the Corporation will be repaid sooner to the extent the loans are forgiven. The interest rate on PPP loans is 1%, and the Corporation has received fees from the SBA ranging between 1% and 5% per loan, depending on the size of the loan. Fees on PPP loans, net of origination costs and a market rate adjustment on PPP loans acquired from Covenant, are recognized in interest income as a yield adjustment over the term of the loans.

The Corporation began accepting and processing applications for loans under the PPP on April 3, 2020. Covenant also engaged in PPP lending starting in early April 2020. As of September 30, 2021, the recorded investment in 1st Draw PPP loans was $5,747,000, including contractual principal balances of $5,982,000, increased by a market rate adjustment on PPP loans acquired from Covenant of $2,000 and reduced by net deferred origination fees of $237,000.  The recorded investment in 2nd Draw PPP loans was $56,981,000, including contractual principal balances of $59,190,000 reduced by net deferred origination fees of $2,208,000. Accretion of fees received on PPP loans, net of amortization of the market rate adjustment on PPP loans acquired from Covenant, was $1,409,000 in the three-month period ended September 30, 2021 and $467,000 in the three-month period ended September 30, 2020. Accretion of fees received on PPP loans, net of amortization of the market rate adjustment on PPP loans acquired from Covenant, was $3,975,000 in the nine-month period ended September 30, 2021 and $804,000 in the nine-month period ended September 30, 2020.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

To work with clients impacted by COVID-19, the Corporation offers short-term loan modifications on a case-by-case basis to borrowers who were current in their payments at the inception of the loan modification program. Prior to the merger, Covenant had a similar program in place, and these modified loans have been incorporated into the Corporation’s program. These efforts have been designed to assist borrowers as they deal with the crisis and help the Corporation mitigate credit risk. For loans subject to the program, each borrower is required to resume making regularly scheduled loan payments at the end of the modification period and the deferred amounts will be moved to the end of the loan term. Consistent with Section 4013 of the CARES Act, the modified loans have not been reported as past due, nonaccrual  or as TDRs at September 30, 2021. Most of the initial modifications under the program became effective in 2020 and provided a deferral of interest or principal and interest for 90-to-180 days. At September 30, 2021, there were 0 loans in deferral status under the program. At December 31, 2020, there were 45 loans with a total recorded investment of $37,397,000, in deferral status under the program.

As described in Note 2, effective July 1, 2020, the Corporation acquired loans pursuant to its acquisition of Covenant, and effective April 1, 2019, the Corporation acquired loans pursuant to the acquisition of Monument Bancorp, Inc. (“Monument”). The acquired loans were recorded at their initial fair value, with adjustments made to the gross amortized cost of loans based on movements in interest rates (market rate adjustment) and based on credit fair value adjustments on non-impaired loans and impaired loans. Subsequent to the acquisitions, the Corporation has recognized amortization and accretion of a portion of the market rate adjustments and credit adjustments on non-impaired (performing) loans, and a partial recovery of purchased credit impaired (PCI) loans. For the three-month and nine-month periods ended September 30, 2021 and 2020, adjustments to the initial market rate and credit fair value adjustments of performing loans were recognized as follows:

(In Thousands)
	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
	2021		2020		2021		2020
Market Rate Adjustment
Adjustments to gross amortized cost of loans at beginning of period	$	(5)	$	(1,103)	$	718	$	(1,415)
Market rate adjustment recorded in acquisition		0		2,909		0		2,909
Amortization recognized in interest income		(368)		(452)		(1,091)		(140)
Adjustments to gross amortized cost of loans at end of period	$	(373)	$	1,354	$	(373)	$	1,354
Credit Adjustment on Non-impaired Loans
Adjustments to gross amortized cost of loans at beginning of period	$	(4,502)	$	(878)	$	(5,979)	$	(1,216)
Credit adjustment recorded in acquisition		0		(7,219)		0		(7,219)
Accretion recognized in interest income		666		970		2,143		1,308
Adjustments to gross amortized cost of loans at end of period	$	(3,836)	$	(7,127)	$	(3,836)	$	(7,127)

A summary of PCI loans held at September 30, 2021 and December 31, 2020 is as follows:

(In Thousands)	September 30,		December 31,
	2021		2020
Outstanding balance	$	10,064	$	10,316
Carrying amount		6,624		6,841

The Corporation maintains an allowance for loan losses that represents management’s estimate of the losses inherent in the loan portfolio as of the balance sheet date and recorded as a reduction of the investment in loans. The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs a quarterly evaluation of the adequacy of the allowance. The allowance is based on the Corporation’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available. In the process of evaluating the loan portfolio, management also considers the Corporation’s exposure to losses from unfunded loan commitments. As of September 30, 2021 and December 31, 2020, management determined that 0 allowance for credit losses related to unfunded loan commitments was required.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Transactions within the allowance for loan losses, summarized by segment and class, for the three-month and nine-month periods ended September 30, 2021 and 2020 were as follows:

Three Months Ended September 30, 2021	June 30, 2021								September 30, 2021
(In Thousands)	Balance		Charge-offs		Recoveries		Provision (Credit)		Balance
Allowance for Loan Losses:
Commercial:
Commercial loans secured by real estate	$	3,452	$	0	$	0	$	368	$	3,820
Commercial and industrial		2,781		(1,194)		6		947		2,540
Commercial construction and land		452		0		0		107		559
Loans secured by farmland		113		0		0		(1)		112
Multi-family (5 or more) residential		150		0		0		46		196
Agricultural loans		25		0		0		8		33
Other commercial loans		145		0		0		28		173
Total commercial		7,118		(1,194)		6		1,503		7,433
Residential mortgage:
Residential mortgage loans - first liens		3,536		0		1		29		3,566
Residential mortgage loans - junior liens		327		0		0		(6)		321
Home equity lines of credit		294		0		0		(11)		283
1-4 Family residential construction		198		0		0		(9)		189
Total residential mortgage		4,355		0		1		3		4,359
Consumer		231		(26)		8		24		237
Unallocated		671		0		0		0		671
Total Allowance for Loan Losses	$	12,375	$	(1,220)	$	15	$	1,530	$	12,700

Three Months Ended September 30, 2020	June 30, 2020								September 30, 2020
(In Thousands)	Balance		Charge-offs		Recoveries		Provision (Credit)		Balance
Allowance for Loan Losses:
Commercial:
Commercial loans secured by real estate	$	2,426	$	0	$	0	$	(40)	$	2,386
Commercial and industrial		2,496		(2,219)		0		1,974		2,251
Commercial construction and land		420		0		0		20		440
Loans secured by farmland		146		0		0		(25)		121
Multi-family (5 or more) residential		163		0		0		64		227
Agricultural loans		40		0		0		(3)		37
Other commercial loans		167		0		0		0		167
Total commercial		5,858		(2,219)		0		1,990		5,629
Residential mortgage:
Residential mortgage loans - first liens		3,531		0		26		(92)		3,465
Residential mortgage loans - junior liens		365		0		0		(7)		358
Home equity lines of credit		287		0		1		1		289
1-4 Family residential construction		137		0		0		32		169
Total residential mortgage		4,320		0		27		(66)		4,281
Consumer		263		(30)		8		17		258
Unallocated		585		0		0		0		585
Total Allowance for Loan Losses	$	11,026	$	(2,249)	$	35	$	1,941	$	10,753

For the three months ended September 30, 2021, the provision for loan losses was $1,530,000, a decrease in expense of $411,000 as compared to $1,941,000 for the three months ended September 30, 2020. The third quarter 2021 provision included a net charge of $611,000 related to specific loans (net charge-offs of $1,205,000 offset by a net decrease in specific allowances on loans of $594,000), and an increase of $919,000 in the collectively determined portion of the allowance. In the third quarter 2021, the Corporation recorded a partial charge-off of $1,194,000 on a commercial loan with an outstanding balance of $3,496,000 at the time of the charge-off. The

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

partial charge-off amount exceeded the specific allowance of $583,000 that had been established on this loan at June 30, 2021. The provision for loan losses in the third quarter 2020 included the net impact of a charge-off of $2,219,000 on a commercial loan of $3,500,000 for which the previously-established allowance had been $1,193,000.

	December 31,								September 30,
Nine Months Ended September 30, 2021	2020						Provision		2021
(In Thousands)	Balance		Charge-offs		Recoveries		(Credit)		Balance
Allowance for Loan Losses:
Commercial:
Commercial loans secured by real estate	$	3,051	$	0	$	2	$	767	$	3,820
Commercial and industrial		2,245		(1,194)		20		1,469		2,540
Commercial construction and land		454		0		0		105		559
Loans secured by farmland		120		0		0		(8)		112
Multi-family (5 or more) residential		236		0		0		(40)		196
Agricultural loans		34		0		0		(1)		33
Other commercial loans		168		0		0		5		173
Total commercial		6,308		(1,194)		22		2,297		7,433
Residential mortgage:
Residential mortgage loans - first liens		3,524		(11)		3		50		3,566
Residential mortgage loans - junior liens		349		0		0		(28)		321
Home equity lines of credit		281		0		2		0		283
1-4 Family residential construction		99		0		0		90		189
Total residential mortgage		4,253		(11)		5		112		4,359
Consumer		239		(73)		33		38		237
Unallocated		585		0		0		86		671
Total Allowance for Loan Losses	$	11,385	$	(1,278)	$	60	$	2,533	$	12,700

	December 31,								September 30,
Nine Months Ended September 30, 2020	2019						Provision		2020
(In Thousands)	Balance		Charge-offs		Recoveries		(Credit)		Balance
Allowance for Loan Losses:
Commercial:
Commercial loans secured by real estate	$	1,921	$	0	$	0	$	465	$	2,386
Commercial and industrial		1,391		(2,236)		0		3,096		2,251
Commercial construction and land		966		(107)		0		(419)		440
Loans secured by farmland		158		0		0		(37)		121
Multi-family (5 or more) residential		156		0		0		71		227
Agricultural loans		41		0		0		(4)		37
Other commercial loans		155		0		0		12		167
Total commercial		4,788		(2,343)		0		3,184		5,629
Residential mortgage:
Residential mortgage loans - first liens		3,405		0		28		32		3,465
Residential mortgage loans - junior liens		384		0		1		(27)		358
Home equity lines of credit		276		0		3		10		289
1-4 Family residential construction		117		0		0		52		169
Total residential mortgage		4,182		0		32		67		4,281
Consumer		281		(100)		35		42		258
Unallocated		585		0		0		0		585
Total Allowance for Loan Losses	$	9,836	$	(2,443)	$	67	$	3,293	$	10,753

22

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

For the nine months ended September 30, 2021, the provision for loan losses was $2,533,000, a decrease in expense of $760,000 as compared to $3,293,000 recorded for the nine months ended September 30, 2020. The provision for the nine months ended September 30, 2021, includes the impact of a charge-off of $1,194,000 on a commercial loan with an ouststanding balance of $3,496,000, as previously discussed. In comparison, the provision for loan losses in the first nine months of 2020 included the impact of the $2,219,000 charge-off of a commercial loan of $3,500,000.

In determining the larger loan relationships for detailed assessment under the specific allowance component, 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. 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. 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.  Risk ratings are updated any time that conditions or the situation warrants. Loans not classified are included in the “Pass” column in the table that follows.

The following tables summarize the aggregate credit quality classification of outstanding loans by risk rating as of September 30, 2021 and December 31, 2020:

September 30, 2021									Purchased
(In Thousands)			Special						Credit
	Pass		Mention		Substandard		Doubtful		Impaired		Total
Commercial:
Commercial loans secured by real estate	$	519,673	$	15,055	$	14,473	$	0	$	4,188	$	553,389
Commercial and Industrial		136,858		8,578		6,028		0		780		152,244
Paycheck Protection Program - 1st Draw		5,747		0		0		0		0		5,747
Paycheck Protection Program - 2nd Draw		56,981		0		0		0		0		56,981
Political subdivisions		73,503		0		0		0		0		73,503
Commercial construction and land		52,504		715		48		0		0		53,267
Loans secured by farmland		9,639		194		979		0		0		10,812
Multi-family (5 or more) residential		48,154		2,352		878		0		1,578		52,962
Agricultural loans		2,533		0		559		0		0		3,092
Other commercial loans		17,307		5		0		0		0		17,312
Total commercial		922,899		26,899		22,965		0		6,546		979,309
Residential Mortgage:											���
Residential mortgage loans - first liens		482,710		5,066		6,528		0		72		494,376
Residential mortgage loans - junior liens		23,676		107		514		0		6		24,303
Home equity lines of credit		37,889		59		517		0		0		38,465
1-4 Family residential construction		21,719		0		0		0		0		21,719
Total residential mortgage		565,994		5,232		7,559		0		78		578,863
Consumer		17,505		0		31		0		0		17,536
Totals	$	1,506,398	$	32,131	$	30,555	$	0	$	6,624	$	1,575,708

23

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

December 31, 2020									Purchased
(In Thousands)			Special						Credit
	Pass		Mention		Substandard		Doubtful		Impaired		Total
Commercial:
Commercial loans secured by real estate	$	494,876	$	17,374	$	15,262	$	0	$	4,298	$	531,810
Commercial and Industrial		143,500		8,025		7,268		0		784		159,577
Paycheck Protection Program - 1st Draw		132,269		0		0		0		0		132,269
Political subdivisions		53,221		0		0		0		0		53,221
Commercial construction and land		42,110		715		49		0		0		42,874
Loans secured by farmland		10,473		405		858		0		0		11,736
Multi-family (5 or more) residential		50,563		2,405		1,229		0		1,614		55,811
Agricultural loans		2,569		0		595		0		0		3,164
Other commercial loans		17,289		0		0		0		0		17,289
Total commercial		946,870		28,924		25,261		0		6,696		1,007,751
Residential Mortgage:
Residential Mortgage loans - first liens		516,685		6,192		9,994		0		76		532,947
Residential Mortgage loans - junior liens		26,480		141		621		0		69		27,311
Home equity lines of credit		38,529		59		713		0		0		39,301
1-4 Family residential construction		20,613		0		0		0		0		20,613
Total residential mortgage		602,307		6,392		11,328		0		145		620,172
Consumer		16,172		0		114		0		0		16,286
Totals	$	1,565,349	$	35,316	$	36,703	$	0	$	6,841	$	1,644,209

The following tables present a summary of loan balances and the related allowance for loan losses summarized by portfolio segment and class for each impairment method used as of September 30, 2021 and December 31, 2020.

September 30, 2021	Loans:						Allowance for Loan Losses:
(In Thousands)
	Individually		Collectively				Individually		Collectively
	Evaluated		Evaluated		Totals		Evaluated		Evaluated		Totals
Commercial:
Commercial loans secured by real estate	$	11,303	$	542,086	$	553,389	$	672	$	3,148	$	3,820
Commercial and industrial		3,598		148,646		152,244		72		2,468		2,540
Paycheck Protection Program - 1st Draw		0		5,747		5,747		0		0		0
Paycheck Protection Program - 2nd Draw		0		56,981		56,981		0		0		0
Political subdivisions		0		73,503		73,503		0		0		0
Commercial construction and land		0		53,267		53,267		0		559		559
Loans secured by farmland		84		10,728		10,812		0		112		112
Multi-family (5 or more) residential		1,578		51,384		52,962		0		196		196
Agricultural loans		0		3,092		3,092		0		33		33
Other commercial loans		0		17,312		17,312		0		173		173
Total commercial		16,563		962,746		979,309		744		6,689		7,433
Residential mortgage:
Residential mortgage loans - first liens		1,134		493,242		494,376		0		3,566		3,566
Residential mortgage loans - junior liens		317		23,986		24,303		139		182		321
Home equity lines of credit		0		38,465		38,465		0		283		283
1-4 Family residential construction		0		21,719		21,719		0		189		189
Total residential mortgage		1,451		577,412		578,863		139		4,220		4,359
Consumer		0		17,536		17,536		0		237		237
Unallocated												671
Total	$	18,014	$	1,557,694	$	1,575,708	$	883	$	11,146	$	12,700

24

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

December 31, 2020	Loans:						Allowance for Loan Losses:
(In Thousands)
	Individually		Collectively				Individually		Collectively
	Evaluated		Evaluated		Totals		Evaluated		Evaluated		Totals
Commercial:
Commercial loans secured by real estate	$	11,962	$	519,848	$	531,810	$	692	$	2,359	$	3,051
Commercial and industrial		1,359		158,218		159,577		71		2,174		2,245
Paycheck Protection Program - 1st Draw		0		132,269		132,269		0		0		0
Political subdivisions		0		53,221		53,221		0		0		0
Commercial construction and land		0		42,874		42,874		0		454		454
Loans secured by farmland		84		11,652		11,736		0		120		120
Multi-family (5 or more) residential		1,614		54,197		55,811		0		236		236
Agricultural loans		0		3,164		3,164		0		34		34
Other commercial loans		0		17,289		17,289		0		168		168
Total commercial		15,019		992,732		1,007,751		763		5,545		6,308
Residential mortgage:
Residential mortgage loans - first liens		2,385		530,562		532,947		9		3,515		3,524
Residential mortgage loans - junior liens		414		26,897		27,311		153		196		349
Home equity lines of credit		0		39,301		39,301		0		281		281
1-4 Family residential construction		0		20,613		20,613		0		99		99
Total residential mortgage		2,799		617,373		620,172		162		4,091		4,253
Consumer		0		16,286		16,286		0		239		239
Unallocated												585
Total	$	17,818	$	1,626,391	$	1,644,209	$	925	$	9,875	$	11,385

Summary information related to impaired loans at September 30, 2021 and December 31, 2020 is provided in the table immediately below.

(In Thousands)	September 30, 2021						December 31, 2020
	Unpaid						Unpaid
	Principal		Recorded		Related		Principal		Recorded		Related
	Balance		Investment		Allowance		Balance		Investment		Allowance
With no related allowance recorded:
Commercial loans secured by real estate	$	7,068	$	4,823	$	0	$	7,168	$	5,398	$	0
Commercial and industrial		5,930		3,526		0		1,781		1,287		0
Residential mortgage loans - first liens		786		760		0		1,248		1,248		0
Residential mortgage loans - junior liens		65		18		0		160		105		0
Loans secured by farmland		84		84		0		84		84		0
Multi-family (5 or more) residential		2,734		1,578		0		2,770		1,614		0
Total with no related allowance recorded		16,667		10,789		0		13,211		9,736		0
With a related allowance recorded:
Commercial loans secured by real estate		6,480		6,480		672		6,501		6,501		691
Commercial and industrial		72		72		72		72		72		72
Residential mortgage loans - first liens		374		374		0		1,200		1,200		9
Residential mortgage loans - junior liens		299		299		139		309		309		153
Total with a related allowance recorded		7,225		7,225		883		8,082		8,082		925
Total	$	23,892	$	18,014	$	883	$	21,293	$	17,818	$	925

25

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

In the table immediately above, loans to 2 borrowers are presented under the Residential mortgage loans – first liens and Residential mortgage loans – junior liens classes. Each of these loans is collateralized by 1 property, and the allowance associated with each of these loans was determined based on an analysis of the total amounts of the Corporation’s exposure in comparison to the estimated net proceeds if the Corporation were to sell the property. The total allowance related to these 2 borrowers was $139,000 at September 30, 2021 and $153,000 at December 31, 2020.

The average balance of impaired loans, excluding purchased credit impaired loans, and interest income recognized on these impaired loans is as follows:

(In Thousands)									Interest Income Recognized on
	Average Investment in Impaired Loans								Impaired Loans on a Cash Basis
	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
	September 30,				September 30,				September 30,				September 30,
	2021		2020		2021		2020		2021		2020		2021		2020
Commercial:
Commercial loans secured by real estate	$	11,252	$	7,298	$	11,811	$	3,779	$	172	$	65	$	401	$	81
Commercial and industrial		3,844		2,235		2,566		3,178		4		1		25		21
Commercial construction and land		48		49		48		678		2		1		2		14
Loans secured by farmland		84		253		84		397		0		2		1		26
Multi-family (5 or more) residential		1,578		0		1,584		0		31		0		122		0
Agricultural loans		66		76		67		76		0		2		3		4
Other commercial loans		0		0		0		25		0		0		0		1
Total commercial		16,872		9,911		16,160		8,133		209		71		554		147
Residential mortgage:
Residential mortgage loans - first lien		1,322		2,159		1,830		1,579		11		27		68		70
Residential mortgage loans - junior lien		386		384		417		386		1		5		10		18
Home equity lines of credit		0		65		0		65		0		0		0		2
Total residential mortgage		1,708		2,608		2,247		2,030		12		32		78		90
Total	$	18,580	$	12,519	$	18,407	$	10,163	$	221	$	103	$	632	$	237

26

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

The breakdown by portfolio segment and class of nonaccrual loans and loans past due ninety days or more and still accruing is as follows:

(In Thousands)	September 30, 2021				December 31, 2020
	Past Due				Past Due
	90+ Days and				90+ Days and
	Accruing		Nonaccrual		Accruing		Nonaccrual
Commercial:
Commercial loans secured by real estate	$	752	$	11,205	$	395	$	11,550
Commercial and industrial		99		3,232		142		970
Commercial construction and land		0		48		0		49
Loans secured by farmland		30		84		188		84
Multi-family (5 or more) residential		0		1,578		0		1,614
Agricultural loans		66		0		0		0
Other commercial		0		0		71		0
Total commercial		947		16,147		796		14,267
Residential mortgage:
Residential mortgage loans - first liens		832		4,569		838		6,387
Residential mortgage loans - junior liens		71		305		52		378
Home equity lines of credit		64		289		233		299
Total residential mortgage		967		5,163		1,123		7,064
Consumer		10		31		56		85
Totals	$	1,924	$	21,341	$	1,975	$	21,416

The amounts shown in the table immediately above include loans classified as troubled debt restructurings (described in more detail below), if such loans are past due ninety days or more or nonaccrual. PCI loans with a total recorded investment of $6,624,000 at September 30, 2021 and $6,841,000 at December 31, 2020 are classified as nonaccrual.

27

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

The table below presents a summary of the contractual aging of loans as of September 30, 2021 and December 31, 2020. Loans modified under the Corporation’s program designed to work with clients impacted by COVID-19, as described above, are included in the current and past due less than 30 days category in the table that follows.

(In Thousands)	As of September 30, 2021								As of December 31, 2020
	Current &								Current &
	Past Due		Past Due		Past Due				Past Due		Past Due		Past Due
	Less than		30-89		90+				Less than		30-89		90+
	30 Days		Days		Days		Total		30 Days		Days		Days		Total
Commercial:
Commercial loans secured by real estate	$	547,885	$	142	$	5,362	$	553,389	$	529,998	$	66	$	1,746	$	531,810
Commercial and industrial		151,119		218		907		152,244		158,523		55		999		159,577
Paycheck Protection Program - 1st Draw		5,747		0		0		5,747		132,269		0		0		132,269
Paycheck Protection Program - 2nd Draw		56,981		0		0		56,981		0		0		0		0
Political subdivisions		73,503		0		0		73,503		53,221		0		0		53,221
Commercial construction and land		53,125		142		0		53,267		42,590		284		0		42,874
Loans secured by farmland		10,667		31		114		10,812		11,419		95		222		11,736
Multi-family (5 or more) residential		52,962		0		0		52,962		53,860		1,951		0		55,811
Agricultural loans		3,026		0		66		3,092		3,091		2		71		3,164
Other commercial loans		17,312		0		0		17,312		17,289		0		0		17,289
Total commercial		972,327		533		6,449		979,309		1,002,260		2,453		3,038		1,007,751
Residential mortgage:
Residential mortgage loans - first liens		489,339		2,212		2,825		494,376		523,191		5,703		4,053		532,947
Residential mortgage loans - junior liens		24,200		32		71		24,303		27,009		111		191		27,311
Home equity lines of credit		38,059		342		64		38,465		38,919		101		281		39,301
1-4 Family residential construction		21,719		0		0		21,719		20,457		156		0		20,613
Total residential mortgage		573,317		2,586		2,960		578,863		609,576		6,071		4,525		620,172
Consumer		17,447		48		41		17,536		16,063		83		140		16,286
Totals	$	1,563,091	$	3,167	$	9,450	$	1,575,708	$	1,627,899	$	8,607	$	7,703	$	1,644,209

28

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Nonaccrual loans are included in the contractual aging in the immediately preceding table. A summary of the contractual aging of nonaccrual loans at September 30, 2021 and December 31, 2020 is as follows:

(In Thousands)	Current &
	Past Due		Past Due		Past Due
	Less than		30-89		90+
	30 Days		Days		Days		Total
September 30, 2021 Nonaccrual Totals	$	12,787	$	1,028	$	7,526	$	21,341
December 31, 2020 Nonaccrual Totals	$	12,999	$	2,689	$	5,728	$	21,416

Loans whose terms are modified are classified as TDRs if the Corporation grants such borrowers concessions, and it is deemed that those borrowers are experiencing financial difficulty. Loans classified as TDRs are designated as impaired. The outstanding balance of loans subject to TDRs, as well as contractual aging information at September 30, 2021 and December 31, 2020 is as follows:

(In Thousands)	Current &
	Past Due		Past Due		Past Due
	Less than		30-89		90+
	30 Days		Days		Days		Nonaccrual		Total
September 30, 2021 Totals	$	144	$	88	$	134	$	5,457	$	5,823
December 31, 2020 Totals	$	166	$	0	$	418	$	6,867	$	7,451

At September 30, 2021 and December 31, 2020, there were 0 commitments to loan additional funds to borrowers whose loans have been classified as TDRs.

TDRs that occurred during the three-month and nine-month periods ended September 30, 2021 and 2020 are as follows:

(Balances in Thousands)	Three Months Ended			Three Months Ended
	September 30, 2021			September 30, 2020
		Post-			Post-
	Number	Modification		Number	Modification
	of	Recorded		of	Recorded
	Loans	Investment		Loans	Investment
Home equity lines of credit,
Reduced monthly payments for an eighteen-month period	1	$	70	0	$	0
Commercial loans secured by real estate,
Principal and interest payment deferral non-COVID related	0		0	2		4,831
Multi-family (5 or more) residential,
Principal and interest payment deferral non-COVID related	0		0	3		2,170
Total	1	$	70	5	$	7,001

29

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

(Balances in Thousands)	Nine Months Ended			Nine Months Ended
	September 30, 2021			September 30, 2020
		Post-			Post-
	Number	Modification		Number	Modification
	of	Recorded		of	Recorded
	Loans	Investment		Loans	Investment
Residential mortgage - first liens:
Reduced monthly payments and extended maturity date	1	$	12	0	$	0
Reduced monthly payments for a fifteen-month period	1		116	0		0
Residential mortgage - junior liens,
New loan at lower than risk-adjusted market rate to borrower from whom short sale of other collateral was accepted	0		0	1		30
Home equity lines of credit:
Reduced monthly payments and extended maturity date	1		24	0		0
Reduced monthly payments for an eighteen-month period	1		70	0		0
Commercial loans secured by real estate:
Interest only payments for a nine-month period	0		0	1		240
Principal and interest payment deferral non-COVID related	0		0	2		4,831
Multi-family (5 or more) residential,
Principal and interest payment deferral non-COVID related	0		0	3		2,170
Total	4	$	222	7	$	7,271

In the three-month and nine-month periods ended September 30, 2020, the Corporation recorded a specific allowance for loan losses of $134,000 related to a loan secured by commercial real estate for which a TDR concession was also made in the third quarter 2020 and included in the table above. At December 31, 2020, the Corporation increased the specific allowance for loan losses related to this credit to $416,000, where it remains at September 30, 2021. The other loans for which TDRs were granted in the three-month and nine-month periods ended September 30, 2021 and 2020 had 0 specific impact on the provision or allowance for loan losses.

In the three-month and nine-month periods ended September 30, 2021 and 2020, defaults on loans for which modifications that were considered to be TDR and were entered into within the previous 12 months are summarized as follows: