CITIZENS & NORTHERN CORP

Previous wording

First quarter 2024 net income was $5,306,000, or $0.35 per diluted share, as compared to $6,253,000, or $0.40 per diluted share, in the first quarter 2023. Significant variances were as follows:

Current wording

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

Previous wording

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.

Current wording

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

Previous wording

The Corporation’s primary source of operating income is net interest income, which is equal to the difference between the amounts of interest income and interest expense. Tables IV, V and VI include information regarding the Corporation’s net interest income for the three-month periods ended March 31, 2024 and 2023. In each of these tables, the amounts of interest income earned on tax-exempt securities and loans have been adjusted to a fully taxable-equivalent basis. Management believes presentation of net interest income on a fully taxable-equivalent basis 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 net interest income amounts reflected in these tables exceed the amounts presented in the consolidated financial statements. The discussion that follows is based on amounts in the related tables.

Current wording

The Corporation’s primary source of operating income is net interest income, which is equal to the difference between the amounts of interest income and interest expense. Tables IV, V and VI include information regarding the Corporation’s net interest income for the three-month and six-month periods ended June 30, 2024 and 2023. In each of these tables, the amounts of interest income earned on tax-exempt securities and loans have been adjusted to a fully taxable-equivalent basis. Management believes presentation of net interest income on a fully taxable-equivalent basis, which is a non-GAAP financial measure, provides investors with meaningful information for purposes of comparing returns on tax-exempt securities and loans with returns on taxable securities and loans. Accordingly, the amount of net interest income on a fully taxable-equivalent basis reflected in these tables exceed the net interest income amounts presented in the consolidated financial statements. The discussion that follows is based on amounts in the related tables.

Previous wording

For the three-month periods, fully taxable equivalent net interest income (a non-GAAP measure) of $19,236,000 in 2024 was $1,814,000 (8.6%) lower than in 2023. The decrease in net interest income reflected an increase in interest expense of $5,937,000 (includes $5,661,000 interest on deposits and $276,000 in interest on borrowings) and an increase of $4,123,000 in total interest income. As presented in Table VI, the net impact of changes in volume of earning assets and interest-bearing liabilities increased net interest income in the first quarter 2024 as compared to first quarter 2023 by $862,000, while the net impact of changes in interest rates (primarily increases) decreased net interest income by $2,676,000. As presented in Table V, the Net Interest Margin was 3.29% in the first quarter 2024 as compared to 3.71% in the first quarter 2023, and the “Interest Rate Spread” (excess of average rate of return on earning assets

Current wording

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

Previous wording

Interest and fees from loans receivable increased $4,229,000 in 2024 as compared to 2023. The fully taxable equivalent yield on loans in 2024 increased to 5.92% from 5.44% in 2023, reflecting the effects of rising interest rates on the loan portfolio. Average outstanding loans receivable increased $133,383,000 (7.7%) to $1,859,246,000 in 2024 from $1,725,863,000 in 2023. The Corporation has experienced growth in commercial real estate and other commercial loans in 2023 and the first three months of 2024.

Current wording

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

Previous wording

Income from interest-bearing due from banks totaled $383,000 in 2024, an increase of $105,000 from the total for 2023. The average yield on interest-bearing due from banks was 4.71% in 2024, up from 3.56% in 2023. The average balance of interest-bearing due from banks was $32,725,000 in 2024, up from $31,637,000 in 2023. Within this category, the largest asset balance in 2024 and 2023 has been interest-bearing deposits held with the Federal Reserve.

Current wording

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

Previous wording

Interest income from available-for-sale debt securities, on a fully taxable-equivalent basis, totaled $2,759,000 in 2024, down $219,000 from 2023, as the average balance (at amortized cost) of available-for-sale debt securities decreased $80,254,000 as indicated in Table V. The average yield on available-for-sale debt securities was 2.41% in 2024, up from 2.23% in 2023.

Current wording

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

Previous wording

Interest expense on deposits increased $5,661,000, as the average rate on interest-bearing deposits increased to 2.35% in 2024 from 0.94% in 2023. Average total deposits (interest-bearing and noninterest-bearing) amounted to $2,001,278,000 for the first quarter 2024, up $70,152,000 (3.6%) from the first quarter 2023. Within average total deposits, average brokered deposits (primarily time and money market) were $84,318,000 with an average interest rate of 5.23% in the first quarter 2024, up from $16,179,000 with an average interest rate of 3.04% in the first quarter 2023. The deposit mix has changed as businesses and consumers have become more interest-rate sensitive in light of higher market rates. In comparing the first quarter 2024 to the first quarter 2023, average time deposits increased $116,588,000 and average interest checking deposits increased $57,628,000, while average noninterest-bearing demand deposits decreased $58,513,000 and average savings deposits decreased $43,769,000.

Current wording

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

Previous wording

Interest expense on short-term borrowings decreased $500,000 to $597,000 in 2024 from $1,097,000 in 2023. The average balance of short-term borrowings decreased to $44,462,000 in 2024 from $91,767,000 in 2023. The average rate on short-term borrowings was 5.38% in 2024 compared to 4.85% in 2023.

Current wording

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

Previous wording

Interest expense on long-term borrowings (FHLB advances) increased $775,000 to $1,456,000 in 2024 from $681,000 in 2023. The average balance of long-term borrowings was $142,753,000 in 2024, up from an average balance of $80,648,000 in 2023. Borrowings are classified as long-term within the Tables based on their term at origination or assumption in business combinations. The average rate on long-term borrowings was 4.10% in 2024 compared to 3.42% in 2023.

Current wording

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

Previous wording

over average cost of funds on interest-bearing liabilities) decreased to 2.62% in 2024 from 3.30% in 2023. The average yield on earning assets of 5.22% was 0.56% higher in 2024 as compared to 2023, and the average rate on interest-bearing liabilities of 2.60% in 2024 was 1.24% higher.

Current wording

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

Previous wording

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. Due to a lower amount of pre-tax income in 2024, the income tax provision for the first quarter 2024 of $1,152,000 was $257,000 lower than the provision for the first quarter 2023. The effective tax rate (tax provision as a percentage of pre-tax income) was 17.8% in the first quarter 2024 compared to 18.4% in the first quarter 2023. The Corporation’s effective tax rates differ from the statutory rate of 21% principally because of the effects of tax-exempt interest income, nondeductible interest expense, state income taxes and other permanent differences.

Current wording

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

Previous wording

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

Current wording

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

Previous wording

As reflected in the table above, the fair value of available-for-sale securities was lower than the amortized cost basis by $51,987,000, or 11.4%, at March 31, 2024, $49,213,000, or 10.6%, at December 31, 2023 and $63,761,000, or 11.3%, at December 31, 2022 while the aggregate unrealized gain position was $6,087,000, or (1.2%) at December 31, 2021. The volatility in the fair value of the portfolio, including the reduction in fair value, resulted from changes in interest rates. As shown above, the market yield on the 5-year U.S. Treasury Note was 0.37% higher at March 31, 2024 in comparison to December 31, 2023, 0.22% higher than at December 31, 2022 and 2.95% higher than at December 31, 2021. The table also shows that the amortized cost basis of the portfolio has been reduced to $457,081,000 at March 31, 2024 from $561,794,000 at December 31, 2022 as proceeds from maturities and sales have been used to help fund loan growth.

Current wording

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

Previous wording

As described in Note 5 to the unaudited consolidated financial statements, management determined the Corporation does not have the intent to sell, nor is it more likely than not that it will be required to sell, available-for-sale debt securities in an unrealized loss position at March 31, 2024 before it is able to recover the amortized cost basis. Further, management reviewed the Corporation’s holdings as of

Current wording

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

Previous wording

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

Current wording

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

Previous wording

Also included in Table VII is additional detail regarding the composition of the non-owner occupied commercial real estate loan portfolio at March 31, 2024. The data in Table VII shows the recorded investment in non-owner occupied commercial real estate loans for which the primary purpose is utilization of office space by third parties was $93,998,000, or 5.0% of gross loans receivable. At March 31, 2024, within this segment there were two loans with a total recorded investment of $3,899,000 in nonaccrual status with specific allowances totaling $506,000. The remainder of the non-owner occupied commercial real estate loans with a primary purpose of office space utilization were in accrual status with no specific allowance at March 31, 2024. The Provision and Allowance for Credit Losses section of Management’s Discussion and Analysis provides additional related discussion.

Current wording

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

Previous wording

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 $38,252,000 at March 31, 2024 down from $38,652,000 at December 31, 2023.

Current wording

While the Corporation’s lending activities are primarily concentrated in its market areas, a portion of the Corporation’s commercial loan segment consists of participation loans. Participation loans represent portions of larger commercial transactions for which other institutions are the “lead banks”. Although not the lead bank, the Corporation conducts detailed underwriting and monitoring of participation loan opportunities. Total participation loans outstanding amounted to $36,383,000 at June 30, 2024 down from $38,652,000 at December 31, 2023.

Previous wording

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. In late 2019, the Corporation began to originate and sell larger-balance, nonconforming mortgages under the MPF Direct Program, which is also administered by the Federal Home Loan Banks of Pittsburgh and Chicago. The Corporation does not retain servicing rights for loans sold under the MPF Direct Program. Through March 31, 2024, the Corporation’s activity under the MPF Direct Program has been minimal.

Current wording

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.

Previous wording

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, 2024, the total outstanding balance of loans the Corporation has repurchased as a result of identified instances of noncompliance amounted to $1,322,000, and the corresponding total outstanding balance of repurchased loans at December 31, 2023 was $1,335,000.

Current wording

For loan sales originated under the MPF programs, the Corporation provides customary representations and warranties to investors that specify, among other things, that the loans have been underwritten to the standards established by the investor. The Corporation may be required to repurchase a loan and reimburse a portion of fees received or reimburse the investor for a credit loss incurred on a loan, if it is determined that the representations and warranties have not been met. Such repurchases or reimbursements generally result from an underwriting or documentation deficiency. At June 30, 2024, the total outstanding balance of loans the Corporation has repurchased as a result of identified instances of noncompliance amounted to $1,428,000, and the corresponding total outstanding balance of repurchased loans at December 31, 2023 was $1,457,000.

Previous wording

At March 31, 2024, outstanding balances of loans sold and serviced through the MPF Xtra and Original programs totaled $322,319,000, including loans sold through the MPF Xtra program of $149,219,000 and loans sold through the Original program of $173,100,000. At December 31, 2023, outstanding balances of loans sold and serviced through the two programs totaled $323,298,000, including loans sold through the MPF Xtra program of $150,015,000 and loans sold through the Original Program of $173,283,000. Based on the fairly limited volume of required repurchases to date, no allowance has been established for representation and warranty exposures as of March 31, 2024 and December 31, 2023.

Current wording

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

Previous wording

A summary of the credit for credit losses for the first quarter 2024 and 2023 is as follows:

Current wording

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

Previous wording

For the quarter ended March 31, 2024, there was a provision for credit losses of $954,000, an increase of $1,306,000 in expense compared to a credit for credit losses (reduction in expense) of $352,000 in the first quarter 2023. The ACL as a percentage of gross loans receivable increased to 1.07% at March 31, 2024 from 1.04% at December 31, 2023; in comparison, the ACL dropped to 1.05% of gross loans receivable at March 31, 2023 from 1.08% upon adoption of CECL on January 1, 2023.

Current wording

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

Previous wording

As shown in Table IX, the ACL on loans individually evaluated increased to $1,403,000 at March 31, 2024 from $743,000 at December 31, 2023. The net increase in individual ACLs is primarily related to two borrowers: (1) at March 31, 2024, an ACL of $477,000 was recorded on loans totaling $2,360,000 for land related to a planned commercial construction project, and (2) consistent with an updated collateral valuation assessment, the ACL increased $239,000 to $244,000 at March 31, 2024 on commercial loans to one borrower totaling $284,000 at March 31, 2024. At March 31, 2024, there were seven commercial relationships with loans receivable totaling $10,062,000 for which individual ACLs were recorded, including two non-owner occupied office loans with total outstanding balances of $3,899,000 and individual ACLs totaling $506,000.

Current wording

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

Previous wording

Table IX also shows that, at March 31, 2024 as compared to December 31, 2023, the ACL related to collectively evaluated commercial loans increased by a total of $1,125,000, while the ACL on collectively evaluated residential mortgage loans decreased $940,000 and the ACL on collectively evaluated consumer loans decreased $30,000. The increase for commercial loans includes the impact of an increase in outstanding loans and a net increase in qualitative factors used in the ACL evaluation, partially offset by the impact to the ACL valuation of lower estimated net charge-offs based on recent experience and a reduction from the impact of an economic forecast. The decrease for residential mortgage loans includes the impact of a net reduction in qualitative factors, lower net charge-offs based on recent experience and a reduction from the impact of an economic forecast.

Current wording

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

Previous wording

Table X shows that total nonperforming assets as a percentage of total assets was 0.78% at March 31, 2024, up from 0.75% at December 31, 2023 and lower than that at year-end 2019 through 2022. Total nonperforming assets were $19.8 million at March 31, 2024, up from $18.8 million at December 31, 2023 but lower than the totals at year-end 2020 through 2022. Nonperforming loans included increases in nonaccrual loans of $3.9 million from December 31, 2023, while loans past due 90 days or more still accruing decreased $3.0 million from December 31, 2023. In the first quarter 2024, the increase in nonaccrual loans included the commercial construction and land loans to one borrower totaling $2,360,000 noted above.

Current wording

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

Previous wording

In the first three months of 2024, net charge-offs were low by historical standards, totaling $145,000, or 0.01% of average outstanding loans. Table VIII shows annual average net charge-off rates ranging from a high of 0.26% in 2022 to a low of 0.01% in 2023.

Current wording

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

Previous wording

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

Current wording

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

Previous wording

Management believes it has been conservative in its decisions concerning identification of loans requiring individual evaluation for credit loss, estimates of loss, and nonaccrual status; however, the actual losses realized from these relationships could vary materially

Current wording

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

Previous wording

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 $20,237,000 at March 31, 2024.

Current wording

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

Previous wording

At March 31, 2024, the Corporation’s outstanding credit facilities with the Federal Home Loan Bank of Pittsburgh consisted of overnight and short-term advances of $47,000,000, long-term borrowings of $148,810,000 and letters of credit totaling $19,208,000. At December 31, 2023, the Corporation’s outstanding credit facilities with the Federal Home Loan Bank of Pittsburgh consisted of overnight and short-term borrowings of $31,500,000, long-term borrowings of $138,313,000 and letters of credit totaling $19,208,000. Additional information regarding borrowed funds is included in Note 8 to the unaudited consolidated financial statements.

Current wording

At June 30, 2024, the Corporation’s outstanding credit facilities with the Federal Home Loan Bank of Pittsburgh consisted of short-term advances of $15,000,000, long-term borrowings of $185,645,000 and letters of credit totaling $23,208,000. At December 31, 2023, the Corporation’s outstanding credit facilities with the Federal Home Loan Bank of Pittsburgh consisted of overnight and short-term borrowings of $31,500,000, long-term borrowings of $138,313,000 and letters of credit totaling $19,208,000. Additional information regarding borrowed funds is included in Note 8 to the unaudited consolidated financial statements.

Previous wording

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, 2024, the carrying value of available-for-sale securities in excess of amounts required to meet pledging or repurchase agreement obligations was $259,489,000.

Current wording

Additionally, the Corporation uses “RepoSweep” arrangements to borrow funds from commercial banking customers on an overnight basis. If required to raise cash in an emergency situation, the Corporation could sell available-for-sale securities to meet its obligations or use repurchase agreements placed with brokers to borrow funds secured by investment assets. At June 30, 2024, the carrying value of available-for-sale securities in excess of amounts required to meet pledging or repurchase agreement obligations was $238,375,000.

Previous wording

Deposits totaled $1,995,903,000 at March 31,2024, down $18,903,000 (0.9%) from $2,014,806,000 at December 31, 2023. Excluding brokered deposits, adjusted total deposits at March 31, 2024 were lower by $23,925,000 (1.2%) as compared to December 31, 2023. Brokered deposits totaled $69,391,000 at March 31, 2024, an increase of $5,522,000 from December 31, 2023. The reduction in total deposits, excluding brokered deposits, included a reduction in total deposits from municipal relationships of $20,321,000 to $257,391,000 at March 31, 2024 from $277,712,000 at December 31, 2023, consistent with historic seasonal trends for the Corporation’s Pennsylvania-based municipal depositors.

Current wording

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

Previous wording

As shown in the table below, at March 31, 2024, estimated uninsured deposits totaled $568.1 million, or 28.2% of total deposits, down from $592.2 million or 29.2% of total deposits at December 31, 2023. Included in uninsured deposits are deposits collateralized by securities (almost exclusively municipal deposits) totaling $140.1 million at March 31, 2024. As shown in the table below, total uninsured and uncollateralized deposits amounted to 21.3% of total deposits at March 31, 2024, down from 21.7% at December 31, 2023.

Current wording

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

Previous wording

As summarized in the table that immediately follows, the Corporation’s highly liquid sources of available funds described above, including unused borrowing capacity with the Federal Home Loan Bank of Pittsburgh, unused availability on the Federal Reserve Bank of Philadelphia’s discount window, available federal funds lines with other banks and unencumbered available-for-sale debt securities totaled $1.1 billion at March 31, 2024. Available funding from these sources totaled 187.7% of uninsured deposits and 249.2% of total uninsured and uncollateralized deposits at March 31, 2024.

Current wording

As summarized in the table that immediately follows, the Corporation’s highly liquid sources of available funds described above, including unused borrowing capacity with the Federal Home Loan Bank of Pittsburgh, unused availability on the Federal Reserve Bank of Philadelphia’s discount window, available federal funds lines with other banks and unencumbered available-for-sale debt securities totaled $1.1 billion at June 30, 2024. Available funding from these sources totaled 173.7% of uninsured deposits and 235.1% of total uninsured and uncollateralized deposits at June 30, 2024.

Previous wording

Despite the reduction in deposits, excluding brokered deposits, in the first three months of 2024, 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.

Current wording

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.

Previous wording

On September 25, 2023, the Corporation announced a new treasury stock repurchase program. Under the program, the Corporation is authorized to repurchase up to 750,000 shares of the Corporation’s common stock, or slightly less than 5% of the Corporation’s issued and outstanding shares at August 4, 2023. The new program was effective when publicly announced and will continue thereafter until suspended or terminated by the Board of Directors, in its sole discretion. All shares of common stock repurchased pursuant to the new program shall be held as treasury shares and be available for use and reissuance for purposes as and when determined by the Board of Directors including, without limitation, pursuant to the Corporation’s Dividend Reinvestment and Stock Purchase Plans and its equity compensation program. Through March 31, 2024, no shares were repurchased under the new program.

Current wording

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

Previous wording

At March 31, 2024, C&N Bank’s Capital Conservation Buffer, determined based on the minimum total capital ratio, was 6.77%.

Current wording

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

Previous wording

The Corporation’s total stockholders’ equity is affected by fluctuations in the fair values of available-for-sale debt securities. The difference between amortized cost and fair value of available-for-sale debt securities, net of deferred income tax, is included in accumulated other comprehensive (loss) income within stockholders’ equity. Accumulated other comprehensive (loss) income is excluded from the Bank’s and Corporation’s regulatory capital ratios. The balance in accumulated other comprehensive loss related to unrealized losses on available-for-sale debt securities, net of deferred income tax, amounted to $41,071,000 at March 31, 2024 and $38,878,000 at December 31, 2023. The decrease in stockholders’ equity in the first three months of 2024 from the change in accumulated other comprehensive loss resulted from an increase in interest rates. Changes in accumulated other comprehensive loss are excluded from earnings and directly increase or decrease stockholders’ equity. To the extent unrealized losses on available-for-sale debt securities result from credit losses, unrealized losses are recorded as a charge against earnings. The securities section of Management’s Discussion and Analysis and Note 5 to the unaudited consolidated financial statements provide additional information concerning management’s evaluation of available-for-sale debt securities for credit losses at March 31, 2024.

Current wording

The Corporation’s total stockholders’ equity is affected by fluctuations in the fair values of available-for-sale debt securities. The difference between amortized cost and fair value of available-for-sale debt securities, net of deferred income tax, is included in accumulated other comprehensive (loss) income within stockholders’ equity. Accumulated other comprehensive (loss) income is excluded from the Bank’s and Corporation’s regulatory capital ratios. The balance in accumulated other comprehensive loss related to unrealized losses on available-for-sale debt securities, net of deferred income tax, amounted to $41,710,000 at June 30, 2024 and $38,878,000 at December 31, 2023. The decrease in stockholders’ equity in the first six months of 2024 from the change in accumulated other comprehensive loss resulted from an increase in interest rates. Changes in accumulated other comprehensive loss are excluded from earnings and directly increase or decrease stockholders’ equity. To the extent unrealized losses on available-for-sale debt securities result from credit losses, unrealized losses are recorded as a charge against earnings. The securities section of Management’s Discussion and Analysis and Note 5 to the unaudited consolidated financial statements provide additional information concerning management’sevaluation of available-for-sale debt securities for credit losses at June 30, 2024.