Citizens & Northern Corp: Form 10-Q for the period ended Sep 30, 2025

Certain statements in this section and elsewhere in this quarterly report on Form 10-Q are forward-looking statements for purposes of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. Such forward-looking statements may include financial and other projections as well as statements regarding the Corporation that may include future plans, objectives, performance, revenues, growth, profits, operating expenses or the Corporation’s underlying assumptions. Citizens & Northern Corporation and its wholly-owned subsidiaries (collectively, the Corporation) intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Reform Act of 1995. Forward-looking statements are not statements of historical facts, are based on certain assumptions and describe future plans, business objectives and expectations, and are generally identifiable by the use of words such as, “may”, “would”, “will”, "should", “likely”, “possibly”, "expect", "anticipate", “intend”, “pro forma”, “estimate”, “target”, “potentially”, “probably”, “outlook”, “predict”, “contemplate”, “continue”, “strategic”, “objective”, “plan”, “forecast”, “project”, “believe” and “goal” or other similar words, phrases or concepts. Persons reading this document are cautioned that such statements are only predictions, and that the Corporation’s actual future results or performance may be materially different. A number of factors could cause our actual results, events or developments, or industry results, to be materially different from any future results, events or developments expressed, implied or anticipated by such forward-looking statements. In addition to factors previously disclosed in the reports filed by the Corporation with the SEC, including our most recent annual report on Form 10-K and subsequent filings, and those identified elsewhere in this document, the following factors, among others, could cause actual results to differ materially from forward looking statements:

• changes in monetary and fiscal policies of the Federal Reserve Board and the U.S. Government, particularly related to changes in interest rates
• changes in general economic conditions
• the potential for adverse developments in the banking industry that could have a negative impact on customer confidence
• the Corporation’s credit standards and its on-going credit assessment processes might not protect it from significant credit losses
• legislative or regulatory changes
• downturn in demand for loan, deposit and other financial services in the Corporation’s market area
• increased competition from other banks and non-bank providers of financial services
• technological changes and increased technology-related costs
• information security breaches or other technology difficulties or failures
• changes in, or the application of, generally accepted accounting principles with respect to the presentation of the Corporation’s financial statements
• fraud and cyber malfunction risks as usage of artificial intelligence continues to expand
• integration efforts between the Corporation and Susquehanna Community Financial, Inc., (“Susquehanna”) may divert the attention of the management teams of the Corporation and Susquehanna and cause a loss in the momentum of their ongoing businesses
• success of the Corporation in Susquehanna’s geographic market area will require the Corporation to attract and retain key personnel in the market and to differentiate the Corporation from its competitors in the market.

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. All forward-looking statements and information made herein are based on management’s current beliefs and assumptions as of the date of filing of this document. The Corporation does not undertake to update forward-looking statements.

RECENTLY COMPLETED MERGER

On October 1, 2025, C&N completed its previously announced merger with Susquehanna. Susquehanna was the parent company of Susquehanna Community Bank, with seven banking offices located in Lycoming, Northumberland, Synder and Union counties in Pennsylvania. Pursuant to the Agreement and Plan of Merger dated April 23, 2025 between the Corporation and Susquehanna, Susquehanna merged with and into the Corporation, with the Corporation as the surviving corporation in the Merger. Immediately following the completion of the Merger, Susquehanna Community Bank, the wholly owned subsidiary of Susquehanna, merged with and into C&N Bank, with C&N Bank surviving. Upon completion of the merger, shareholders of Susquehanna became entitled to exchange each share of Susquehanna common stock owned for 0.80 shares of the Corporation’s common stock.

Based on the average of the high and low trading price of the Corporation’s common stock of $19.64 per share on October 1, 2025, the total purchase consideration in the merger is valued at approximately $44.6 million. As of September 30, 2025, Susquehanna reported total assets of $587 million, including gross loans of $400 million, total deposits of $501 million and total stockholders’ equity of $36 million. As of the date the Corporation’s September 30, 2025 financial statements are issued, some of the information required to be disclosed under U.S. GAAP was not available since, given the short period between the October 1, 2025 merger date and the financial statement issuance, the calculation of the fair value of all material Susquehanna assets acquired and liabilities assumed had not yet been completed.

In the first nine months of 2025, the Corporation incurred pre-tax merger-related expenses related to the Susquehanna transaction of $1,049,000, including expenses totaling $882,000 in the third quarter of 2025. Management estimates total pre-tax merger-related expenses associated with the Susquehanna transaction will be approximately $7.5 million, with most of the expenses expected to be incurred in the fourth quarter of 2025. Merger-related expenses will include expenses related to conversion of Susquehanna’s core customer system data into the Corporation’s core system, severance and similar expenses and legal and other professional expenses.

EARNINGS OVERVIEW

Third Quarter 2025 as Compared to Third Quarter 2024

Third quarter 2025 net income was $6,551,000, or $0.42 per diluted share, as compared to $6,365,000, or $0.41 per diluted share, in the third quarter 2024. Excluding the effects of merger-related expenses, net of taxes, of $697,000, adjusted earnings (non-GAAP) per share were $0.47 per diluted share for the third quarter 2025. See “Reconciliation of Net Income and Diluted Earnings Per Share to Non-GAAP Measure” for additional information. Other significant variances were as follows:

• Net interest income of $22,263,000 in the third quarter 2025 was $2,107,000 higher than in the third quarter 2024. The net interest margin increased to 3.62% in the third quarter 2025 from 3.29% in the third quarter 2024. The interest rate spread increased 0.39%, as the average yield on earning assets increased 0.08% while the average rate on interest-bearing liabilities decreased 0.31%. Average total deposits increased $41,554,000 despite a decrease in average brokered deposits of $53,846,000 and average total borrowed funds decreased $56,519,000. Average total earning assets increased $1,585,000 from the third quarter 2024, as average total loans receivable increased $37,761,000, or 2.0%, while average interest-bearing due from banks decreased $31,228,000 or 26.0%.
• The provision for credit losses was $2,163,000 for the third quarter 2025, compared to a provision for credit losses of $1,207,000 in the third quarter 2024. The provision for the third quarter 2025 included a provision related to loans receivable of $1,869,000 and a provision related to off-balance sheet exposures of $294,000. The provision in the third quarter of 2025 mainly resulted from increases in the allowance for credit losses (“ACL”) related to changes in qualitative factors partially offset by a decrease resulting from changes in an economic forecast. Net charge-offs totaled $94,000, or 0.02% (annualized) of average loans receivable, in the third quarter of 2025 as compared to $1,237,000, or 0.26% (annualized) of average loans receivable, in the third quarter of 2024. The ACL as a percentage of gross loans receivable was 1.21% at September 30, 2025, an increase from 1.08% at September 30, 2024.
• Noninterest income of $7,304,000 in the third quarter 2025 increased $171,000 from the third quarter 2024 result, including trust revenue of $2,056,000 which increased $110,000, or 5.7%, reflecting an increase in estate and pension fees.
• Noninterest expense totaled $19,389,000 in the third quarter of 2025, an increase of $1,120,000 from $18,269,000 in third quarter of 2024. Excluding merger-related expenses of $882,000, non-interest expense totaled $18,507,000 in the third quarter of 2025, an increase of $238,000 from the third quarter of 2024 result. Significant variances included the following:
• Salaries and employee benefits expense of $11,293,000 increased $418,000 from the third quarter of 2024 including increases of $172,000 in health insurance expense, $150,000 in cash and stock-based compensation and an increase in base salaries expense of $77,000, or 1.0%.
• Other noninterest expense of $2,496,000 decreased $141,000 from the third quarter 2024 as legal fees and expenses totaled $60,000, a decrease of $158,000 from $218,000 in the third quarter of 2024.

Nine Months Ended September 30, 2025 as Compared to Nine Months Ended September 30, 2024

Net income for the nine-month period ended September 30, 2025 was $18,961,000, or $1.22 per diluted share, as compared to $17,784,000, or $1.16 per diluted share, for the first nine months of 2024. Excluding the impact of merger-related expenses, net of taxes of $850,000, adjusted earnings (non-GAAP) for the first nine months of 2025 were $19,811,000, or $1.28 per diluted share. See “Reconciliation of Net Income and Diluted Earnings Per Share to Non-GAAP Measure” for additional information Other significant variances were as follows:

• Net interest income totaled $63,380,000 in the nine months ended September 30, 2025, an increase of $4,738,000 from the total for the first nine months of 2024. The net interest margin was 3.51% for the first nine months of 2025, up from 3.30% in the corresponding period of 2024. The interest rate spread increased 0.23%, as the average rate on interest-bearing liabilities was 0.14% lower while the average yield on earning assets increased 0.09%. Average total earning assets increased $37,834,000, including an increase in average loans receivable of $32,050,000, or 1.7%, and an increase in interest-bearing due from banks of $13,434,000. Average total deposits increased $58,280,000, or 2.9%, despite a $57,141,000 reduction in average brokered deposits to $13,287,000 for the first nine months of 2025 as compared to $70,428,000 for the first nine months of 2024, while average total borrowed funds decreased $44,150,000.
• For the nine months ended September 30, 2025, the provision for credit losses was $4,753,000, an increase of $2,027,000 from the provision for the first nine months of 2024. The provision in the nine months ended September 30, 2025 included the impact of increases in the ACL related to changes in qualitative factors partially offset by a reduction related to changes in the Corporation’s average net charge-off experience. In the first nine months of 2025, the ACL on loans receivable increased $3,439,000 to 1.21% at September 30, 2025 as compared to 1.06% at December 31, 2024. Net charge-offs totaled $733,000, or 0.05% (annualized) of average loans receivable for the nine months ended September 30, 2025 compared to $1,589,000, or 0.11% (annualized) of average loans receivable for the first nine months of 2024.
• Noninterest income totaled $22,454,000 in the first nine months of 2025, up $792,000 from the total for the first nine months of 2024. Significant variances included the following:
• Trust revenue of $6,125,000 increased $268,000, consistent with appreciation in the trading prices of many U.S. equity securities and included an increase in estate fees.
• Other noninterest income of $4,320,000 increased $237,000, including increases in credit enhancement fees of $69,000, income from merchant services of $55,000, income from tax credits related to donations of $51,000 and letter of credit fees of $50,000.
• Interchange revenue from debit card transactions of $3,391,000 increased $186,000, including an increase in volume-related incentive income.
• Net gains from sale of loans of $925,000 increased $139,000, reflecting an increase in volume of residential mortgage loans sold.
• Noninterest expense totaled $57,830,000 for the first nine months of 2025, an increase of $2,002,000 from $55,828,000for the first nine months of 2024. Excluding merger-related expenses of $1,049,000, non-interest expense

totaled $56,781,000 for the first nine months of 2025, an increase of $953,000 from the total for the first nine months of 2024. Significant variances included the following:

• Salaries and employee benefits expense of $34,119,000 increased $659,000, including increases of $548,000 in cash-and stock-based incentive compensation and $137,000 in wealth management-related commissions, while base salaries decreased $52,000.
• Other noninterest expense of $8,251,000 increased $315,000. Within this category, significant variances included the following:
• In 2025, there was a reduction in expense associated with the defined benefit postretirement medical benefit plan of $49,000. In comparison, in 2024, there was a reduction in expense of $513,000 related to the defined benefit postretirement medical benefit plan, including a curtailment gain of $469,000. In addition, pension costs from a frozen defined benefit plan increased $93,000 to $109,000 in 2025 from $14,000 in 2024, primarily from a settlement charge of $87,000 in 2025, and net collection expense increased $60,000 to $38,000 in 2025 as compared to net recoveries of $22,000 in 2024.
• Legal fees totaled $199,000 in the first nine months of 2025, a decrease of $292,000 from 2024.
• The income tax provision of $4,290,000, or 18.5% of pre-tax income for 2025 increased $324,000 from $3,966,000, or 18.2% of pre-tax income, for 2024. The increase in income tax provision was consistent with the increase in pre-tax income of $1,501,000.

The following table provides a reconciliation of the Corporation’s third quarter and September 30, 2025 year-to-date unaudited earnings results under U.S. generally accepted accounting principles (U.S. GAAP) to comparative non-U.S. GAAP results excluding merger-related expenses. Management believes disclosure of unaudited third quarter and September 30, 2025 earnings results, adjusted to exclude the impact of merger-related expenses, provides useful information for comparative purposes.

RECONCILIATION OF NET INCOME AND DILUTED EARNINGS PER SHARE TO NON-GAAP MEASURE:

(Dollars In Thousands, Except Per Share Data)

(Unaudited)

TABLE I – QUARTERLY FINANCIAL DATA

(Dollars In Thousands,

Except Per Share Data)

(Unaudited)

NONINTEREST INCOME

TABLE II – COMPARISON OF NONINTEREST INCOME

(Dollars in Thousands)

(Dollars in Thousands)

NONINTEREST EXPENSE

TABLE III - COMPARISON OF NONINTEREST EXPENSE

(Dollars in Thousands)

(Dollars in Thousands)

Additional detailed information concerning fluctuations in the Corporation’s earnings results and other financial information are provided in other sections of Management’s Discussion and Analysis.

CRITICAL ACCOUNTING POLICIES

The presentation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect many of the reported amounts and disclosures. Actual results could differ from these estimates.

Allowance for Credit Losses on Loans – A material estimate that is particularly susceptible to significant change is the determination of the allowance for credit losses (ACL) on loans. The Corporation maintains an ACL on loans which represents management’s estimate of expected net charge-offs over the life of the loans. The ACL includes two primary components: (i) an allowance established on loans which share similar risk characteristics collectively evaluated for credit losses (collective basis), and (ii) an allowance established on loans which do not share similar risk characteristics with any loan segment and which are individually evaluated for credit losses (individual basis). Management considers the determination of the ACL on loans to be critical because it requires significant judgment regarding estimates of expected credit losses based on the Corporation’s historical loss experience, current conditions and economic forecasts. Management’s evaluation is based upon a continuous review of the Corporation’s loans, with consideration given to evaluations resulting from examinations performed by regulatory authorities. Note 6 to the unaudited consolidated financial statements provides an overview of the process management uses for determining the ACL, and additional discussion of the ACL is provided in a separate section below of Management’s Discussion and Analysis.

The ACL may increase or decrease due to changes in economic conditions affecting borrowers and macroeconomic variables, including new information regarding existing problem loans, identification of additional problem loans, changes in the fair value of underlying collateral, unforeseen events such as natural disasters and pandemics, and other factors. Because current economic conditions and forecasts can change and future events are inherently difficult to predict, the anticipated amount of estimated credit losses on loans, and therefore the appropriateness of the ACL, could change significantly.

NET INTEREST INCOME

The Corporation’s primary source of operating income is net interest income, which is equal to the difference between the amounts of interest income and interest expense. Tables IV, V and VI include information regarding the Corporation’s net interest income for the three-month and nine-month periods ended September 30, 2025 and 2024. In each of these tables, the amounts of interest income earned on tax-exempt securities and loans have been adjusted to a fully taxable-equivalent basis. Management believes presentation of net interest income on a fully taxable-equivalent basis, which is a non-GAAP financial measure, provides investors with meaningful information for purposes of comparing returns on tax-exempt securities and loans with returns on taxable securities and loans. Accordingly, the amount of net interest income on a fully taxable-equivalent basis reflected in these tables exceed the net interest income amounts presented in the consolidated financial statements. A reconciliation of net interest income on a fully taxable-equivalent basis to the closest GAAP financial measure is included with Table IV. The discussion that follows is based on amounts in the related tables.

Three-Month Periods Ended September 30, 2025 and 2024

Fully taxable equivalent net interest income (a non-GAAP measure) was $22,481,000 in the third quarter of 2025, $2,120,000 (10.4%) higher than in the third quarter of 2024. The increase in net interest income reflected an increase in interest income of $576,000 and a decrease in interest expense of $1,544,000. As presented in Table V, the Net Interest Margin was 3.62% in the third quarter 2025 as compared to 3.29% in the third quarter 2024, and the “Interest Rate Spread” (excess of average rate of return on earning assets over average cost of funds on interest-bearing liabilities) increased to 2.94% in 2025 from 2.55% in 2024. The average yield on earning assets of 5.46% was 0.08% higher in 2025 compared to 2024, and the average rate on interest-bearing liabilities of 2.52% in 2025 was 0.31% lower. Additionally, average total deposits increased $41,554,000 despite a decrease in average brokered deposits of $53,846,000 and total average borrowed funds decreased $56,519,000. Average total earning assets increased $1,585,000 from the third quarter 2024, as average total loans receivable increased $37,761,000 while average interest-bearing due from banks decreased $31,228,000. As presented in Table VI, the net impact of changes in interest rates increased net interest income in the third quarter 2025 as compared to third quarter 2024 by $1,483,000 and changes in volume of earning assets and interest-bearing liabilities increased net interest income by $637,000.

INTEREST INCOME AND EARNING ASSETS

Interest income totaled $33,868,000 in 2025, an increase of $576,000, or 1.7%, from 2024.

Interest and fees from loans receivable increased $964,000 in 2025 as compared to 2024. The fully taxable equivalent yield on loans in 2025 increased to 6.14% from 6.08% in 2024, reflecting the effects of gradual paydowns on loans originated prior to interest rates rising in 2022 and 2023 with more recent loans originated at higher market rates. Average outstanding loans receivable increased $37,761,000, or 2.0% to $1,926,231,000 in 2025 from $1,888,470,000 in 2024.

Income from interest-bearing due from banks totaled $982,000 in 2025, a decrease of $640,000 from the total for 2024. Within this category, the largest asset balance in 2025 and 2024 has been interest-bearing deposits held with the Federal Reserve. The average yield on interest-bearing due from banks was 4.39% in 2025, down from 5.38% in 2024. The average balance of interest-bearing due from banks was $88,657,000 in 2025, down $31,228,000 from $119,885,000 in 2024. The net decrease in average interest-bearing due from banks for 2025 as compared to 2024 reflected net uses of cash for loan growth and a decrease in borrowed funds partially offset by net sources of cash from deposit growth and a reduction in average available-for-sale debt securities.

Interest income from available-for-sale debt securities, on a fully taxable-equivalent basis, totaled $3,039,000 in 2025, up $265,000 from 2024, as the average yield on available-for-sale debt securities was 2.71% in 2025, up from 2.45% in 2024. The average balance (at amortized cost) of available-for-sale debt securities decreased $4,681,000 between periods.

INTEREST EXPENSE AND INTEREST-BEARING LIABILITIES

Interest expense decreased $1,544,000 to $11,387,000 in 2025 from $12,931,000 in 2024.

Interest expense on deposits decreased $956,000, as the average rate decreased to 2.32% in 2025 from 2.62% in 2024 while the average balance of interest-bearing deposits increased $31,611,000. Average total deposits (interest-bearing and noninterest-bearing) increased $41,554,000 or 2.0% in the third quarter of 2025 as compared to 2024. Within average deposits, average brokered deposits were $4,936,000 at an average rate of 4.18% in the third quarter of 2025 as compared to $58,782,000 at an average rate of 5.28% in the third quarter of 2024. In comparing the third quarter 2025 to the third quarter 2024, average total money market accounts increased $20,274,000, average time deposits increased $13,341,000, average noninterest-bearing demand deposits increased $9,943,000 and average interest checking deposits increased $1,716,000 while average savings deposits decreased $3,720,000.

Interest expense on borrowed funds decreased $588,000 in 2025 as compared to 2024. Interest expense on short-term borrowings was less than $1,000 in the third quarter 2025 compared to $184,000 in the third quarter 2024 as the average balance of short-term borrowings decreased to $658,000 in 2025 from $15,038,000 in 2024. Interest expense on long-term borrowings (FHLB advances) decreased $406,000 to $1,577,000 in 2025 from $1,983,000 in 2024. The average balance of long-term borrowings was $138,749,000 in 2025, down from an average balance of $181,075,000 in 2024. The average rate on long-term borrowings was 4.51% in 2025 compared to 4.36% in 2024. Borrowings are classified as long-term within the Tables based on their term at origination or assumption in business combinations.

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

Nine Month Periods Ended September 30, 2025 and 2024

For the nine-month periods, fully taxable equivalent net interest income was $64,029,000 in 2025, which was $4,785,000 or 8.1% higher than in 2024. The increase in net interest income reflected an increase in interest income of $3,111,000 and a decrease in interest expense of $1,674,000. As presented in Table VI, the net impact of changes in interest rates increased net interest income for the nine months ended September 30, 2025 over the nine months ended September 30, 2024 by $3,362,000 and the net impact of changes in volume of earning assets and interest-bearing liabilities increased net interest income by $1,423,000. As presented in Table V, the Net Interest Margin was 3.51% in the first nine months of 2025 as compared to 3.30% in the first nine months of 2024, and the “Interest Rate Spread” (excess of average rate of return on earning assets over average cost of funds on interest-bearing liabilities) increased to 2.83% in 2025 from 2.60% in 2024. The average yield on earning assets of 5.40% was 0.09% higher in 2025 as compared to 2024, while the average rate on interest-bearing liabilities of 2.57% in 2025 was 0.14% lower compared to 2024.

INTEREST INCOME AND EARNING ASSETS

Interest income totaled $98,462,000 in 2025, an increase of $3,111,000 from 2024.

Interest and fees from loans receivable increased $2,396,000 in 2025 as compared to 2024. In the nine-month period ended September 30, 2025, the fully taxable equivalent yield on loans was 6.08%, up from 6.01% in the first nine months of 2024, reflecting the effects of gradual paydowns on loans originated prior to interest rates rising in 2022 and 2023 with more recent loans originated at higher market rates. Average outstanding loans receivable increased $32,050,000 or 1.7% to $1,909,126,000 in 2025 from $1,877,076,000 in 2024.

Income from interest-bearing due from banks totaled $2,558,000 in 2025, an increase of $37,000 from 2024. The average balance of interest-bearing due from banks was $78,883,000 in 2025, up from $65,449,000 in 2024. Within this category, the largest asset balance in 2025 and 2024 has been interest-bearing deposits held with the Federal Reserve. The average yield on interest-bearing due from banks was 4.34% in 2025, down from 5.15% in 2024.

Interest income from available-for-sale debt securities, on a fully taxable-equivalent basis, totaled $8,976,000 in 2025, up $680,000 from 2024, as the average yield on available-for-sale debt securities was 2.68% in 2025, up from 2.43% in 2024. The average balance (at amortized cost) of available-for-sale debt securities decreased to $448,032,000 in 2025 from $455,944,000 in 2024.

INTEREST EXPENSE AND INTEREST-BEARING LIABILITIES

For the nine-month periods, interest expense decreased $1,674,000 to $34,433,000 in 2025 from $36,107,000 in 2024.

Interest expense on deposits decreased $285,000, as the average rate on interest-bearing deposits was 2.37% in 2025 and 2.48% in 2024. The average balance of interest-bearing deposits increased $54,971,000. Average total deposits (interest-bearing and noninterest-bearing) amounted to $2,092,615,000 for the first nine months of 2025, up $58,280,000 or 2.9% from the first nine months of 2024. Within average total deposits, average brokered deposits (primarily time and money market) were $13,287,000 with an average interest rate of 4.63% in 2025, down from $70,428,000 with an average interest rate of 5.24% in 2024. Average time deposits increased $35,528,000, average interest checking deposits increased $17,102,000, average money market accounts increased $12,318,000 and average noninterest-bearing demand deposits increased $3,309,000, while average balance of savings accounts decreased $9,977,000.

Interest expense on borrowed funds decreased $1,389,000 in 2025 as compared to 2024. Interest expense on short-term borrowings of $1,000 in 2025 was down from $1,141,000 in 2024 as the average balance of short-term borrowings decreased to $1,010,000 in 2025 from $29,086,000 in 2024. The average rate on short-term borrowings was 0.13% in 2025 compared to 5.24% in 2024. Interest expense on long-term borrowings (FHLB advances) decreased $254,000 to $5,040,000 in 2025 from $5,294,000 in 2024. The average rate on long-term borrowings was 4.49% in 2025 compared to 4.25% in 2024 while the average balance of long-term borrowings decreased to $150,195,000 in 2025 from $166,454,000 in 2024. Borrowings are classified as long-term within the Tables based on their term at origination or assumption in business combinations.

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

TABLE IV - ANALYSIS OF INTEREST INCOME AND EXPENSE

(In Thousands)

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

(In Thousands)

43

TABLE V - Analysis of Average Daily Balances and Rates

(Dollars in Thousands)

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

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

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

TABLE VI - ANALYSIS OF VOLUME AND RATE CHANGES

(In Thousands)

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

(2) The change in interest due to both volume and rates has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amount of the change in each.

INCOME TAXES

The income tax provision in interim periods is based on the Corporation’s estimate of the effective tax rate expected to be applicable for the full year. The income tax provision for the third quarter 2025 of $1,464,000 was $16,000 higher than the provision for the third quarter 2024, and the provision for the nine months ended September 30, 2025 of $4,290,000 was $324,000 higher than the amount for the first nine months of 2025 due to a higher amount of pre-tax income in 2025. The effective tax rate (tax provision as a percentage of pre-tax income) was 18.3% in the third quarter 2025 compared to 18.5% in the third quarter 2024 and 18.5% for the first nine months of 2025 as compared to 18.2% for the first nine months of 2024. The Corporation’s effective tax rates differ from the statutory federal rate of 21% principally because of the effects of tax-exempt interest income, nondeductible interest expense, state income taxes and other permanent differences.

The Corporation recognizes deferred tax assets and liabilities based on differences between the consolidated financial statement carrying amounts and the tax basis of assets and liabilities. The net deferred tax asset at September 30, 2025 and December 31, 2024 represents the following temporary difference components:

(In Thousands)

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

Management believes the recorded net deferred tax asset at September 30, 2025 is fully realizable; however, if management determines the Corporation will be unable to realize all or part of the net deferred tax asset, the Corporation would adjust the deferred tax asset, which would negatively impact earnings.

SECURITIES

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

The composition of the available-for-sale debt securities portfolio at September 30, 2025 and December 31, 2024, 2023 and 2022 is as follows:

(Dollars In Thousands)

As reflected in the table above, the fair value of available-for-sale securities was lower than the amortized cost basis by $33,786,000, or 7.5% at September 30, 2025, $47,543,000, or 10.6%, at December 31, 2024, $49,213,000, or 10.6%, at December 31, 2023 and $63,761,000, or 11.3%, at December 31, 2022. The volatility in the fair value of the portfolio, including the reduction in fair value, resulted from changes in interest rates. The table also shows that the amortized cost basis of the portfolio has been reduced to $449,099,000 at September 30, 2025 from $561,794,000 at December 31, 2022 as proceeds from maturities and sales have been used to help fund loan growth and for other purposes.

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

As described in Note 5 to the unaudited consolidated financial statements, management determined the Corporation does not have the intent to sell, nor is it more likely than not that it will be required to sell, available-for-sale debt securities in an unrealized loss position at September 30, 2025 before it is able to recover the amortized cost basis. Further, management reviewed the Corporation’s holdings as of September 30, 2025 and concluded there were no credit-related declines in fair value. Additional information related to the types of securities held at September 30, 2025, other than securities issued or guaranteed by U.S. Government entities or agencies, is as follows:

• Bank holding company debt securities – All of the Corporation’s holdings of bank holding company debt securities were investment grade and there have been no payment defaults. There were seven securities with face amounts ranging from $3 million to $5 million, including one senior security and six subordinated securities. All of the issuers have publicly traded common stock. At September 30, 2025, the securities have external ratings ranging from BBB-/Baa3 to A-.
• Obligations of states and political subdivisions (municipal bonds) –Most of the Corporation’s holdings of municipal bonds were investment grade and there have been no payment defaults. Summary ratings information at September 30, 2025, based on the amortized cost basis and reflecting the lowest enhanced or underlying rating by Moody’s, Standard & Poors or Fitch, is as follows: AAA or pre-refunded – 19% of the portfolio; AA – 73%; A – 8%.
• Private label commercial mortgage-backed security (PLCMBS) – There was one PLCMBS security which was from the most senior payment (subordination) class. This security was investment grade (rated Aaa), and there have been no payment defaults on this security.
• Collateralized loan obligations (CLOs) – There were three CLOs securities, all of which were from the most senior payment (subordination) classes of their respective issuances. These securities were investment grade (rated Aaa), and there have been no payment defaults on these securities.

Based on the results of management’s assessment, there was no ACL required on available-for-sale debt securities in an unrealized loss position at September 30, 2025.

FINANCIAL CONDITION

This section includes information regarding the Corporation’s lending activities or other significant changes or exposures that are not otherwise addressed in Management’s Discussion and Analysis. Significant changes in the average balances of the Corporation’s earning assets and interest-bearing liabilities are described in the Net Interest Income section of Management’s Discussion and Analysis. Other significant balance sheet items, including securities, the allowance for credit losses and stockholders’ equity, are discussed in separate sections of Management’s Discussion and Analysis. There are no significant concerns that have arisen related to the Corporation’s off-balance sheet loan commitments or outstanding letters of credit at September 30, 2025.

Table VII shows the composition of the loan portfolio at September 30, 2025 and at year-end from 2020 through 2024. Throughout this time period, the portfolio was primarily commercial in nature. At September 30, 2025, commercial loans represented 76% of the portfolio while residential loans totaled 20% of the portfolio.

Also included in Table VII is additional detail regarding the composition of the non-owner occupied commercial real estate loan portfolio at September 30, 2025. As shown in Table VII, the amortized cost of non-owner occupied commercial real estate loans for which the primary purpose is utilization of office space by third parties was $117,046,000, or 6.0% of gross loans receivable. Within this segment there were two loans with a total amortized cost basis of $2,874,000 in nonaccrual status with no individual allowances and the remainder of the non-owner occupied commercial real estate loans with a primary purpose of office space utilization were in accrual status with no individual allowance at September 30, 2025.

While the Corporation’s lending activities are primarily concentrated in its market areas, a portion of the Corporation’s commercial loan segment consists of participation loans. Participation loans represent portions of larger commercial transactions for which other institutions are the “lead banks”. Although not the lead bank, the Corporation conducts detailed underwriting and monitoring of participation loan opportunities. Total participation loans outstanding amounted to $33,518,000 at September 30, 2025, down from $35,129,000 at December 31, 2024.

The Corporation is a party to financial instruments with off-balance sheet risk, including commitments to extend credit and standby letters of credit. At September 30, 2025, the total contract amount of commitments to extend credit was $426,396,000 as compared to $380,003,000 at December 31, 2024, and the contract amount of standby letters of credit was $58,653,000 at September 30, 2025 as compared to $64,586,000 at December 31, 2024.

The Corporation maintains an allowance for off-balance sheet credit exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, commercial letters of credit and credit enhancement obligations related to residential mortgage loans sold with recourse, when there is a contractual obligation to extend credit and when this extension of credit is not unconditionally cancellable (i.e. commitment cannot be canceled at any time). The allowance for off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over their estimated lives. The allowance for credit losses for off-balance sheet exposures of $1,036,000 at September 30, 2025 and $455,000 at December 31, 2024, is included in accrued interest and other liabilities in the unaudited consolidated balance sheets.

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

For loan sales originated under the MPF programs, the Corporation provides customary representations and warranties to investors that specify, among other things, that the loans have been underwritten to the standards established by the investor. The Corporation may be required to repurchase a loan and reimburse a portion of fees received or reimburse the investor for a credit loss incurred on a loan, if it is determined that the representations and warranties have not been met. Such repurchases or reimbursements generally result from an underwriting or documentation deficiency. At September 30, 2025, the total outstanding balance of loans the Corporation has repurchased as a result of identified instances of noncompliance amounted to $2,635,000, and the corresponding total outstanding balance of repurchased loans at December 31, 2024 was $3,029,000.

At September 30, 2025, outstanding balances of loans sold and serviced through the MPF Xtra and Original programs totaled $335,330,000, including loans sold through the MPF Xtra program of $153,657,000 and loans sold through the Original program of $181,673,000. At December 31, 2024, outstanding balances of loans sold and serviced through the MPF Xtra and Original programs totaled $329,766,000, including loans sold through the MPF Xtra program of $158,302,000 and loans sold through the Original program of $171,464,000. Based on the fairly limited volume of required repurchases to date, no allowance has been established for representation and warranty exposures as of September 30, 2025 and December 31, 2024.

TABLE VII - SUMMARY OF LOANS BY TYPE

Summary of Loans by Type

(In Thousands)

Additional details regarding the composition of the non-owner occupied commercial real estate loan portfolio, excluding multi-family (5 or more) residential and 1-4 Family-commercial purpose loans, at September 30, 2025 is as follows:

NON-OWNER OCCUPIED COMMERCIAL REAL ESTATE

(In Thousands)

PROVISION AND ALLOWANCE FOR CREDIT LOSSES

A summary of the provision for credit losses for the three-month and nine-month periods ended September 30, 2025 and 2024 is as follows:

(In Thousands)

For the quarter ended September 30, 2025, there was a provision for credit losses of $2,163,000, an increase of $956,000 from a provision for credit losses of $1,207,000 in the third quarter 2024. For the nine months ended September 30, 2025, there was a provision for credit losses of $4,753,000, an increase of $2,027,000 compared to $2,726,000 in 2024. The provision in the nine months ended September 30, 2025 included the impact of increases in the ACL related to changes in qualitative factors partially offset by a reduction in the portion of the ACL based on the Corporation’s WARM method estimated losses resulting partially from a reduction in the estimated average life of the portfolio. The ACL was 1.21% of gross loans receivable at September 30, 2025, up from 1.13% at June 30, 2025 and 1.06% at December 31, 2024.

As shown in Table IX, the ACL on loans individually evaluated decreased to $51,000 at September 30, 2025 from $122,000 at December 31, 2024. At September 30, 2025, there was a loan to one borrower with an amortized cost basis of $263,000 for which an individual ACL was recorded. At December 21, 2024, there were loans to one borrower with a total amortized cost basis of $258,000 for which individual ACLs were recorded.

Table IX also shows that, at September 30, 2025 as compared to December 31, 2024, the ACL related to collectively evaluated commercial loans increased by a total of $3,332,000 and the ACL on collectively evaluated residential mortgage loans increased $353,000 while the ACL on collectively evaluated consumer loans decreased $175,000. The net increase in the collectively determined portion of the ACL included the impact of an aggregate increase from changes in qualitative adjustments, partially offset by a decrease in WARM method estimated losses resulting partially from a reduction in the estimated average life of the portfolio. The increase in the ACL at September 30, 2025 from December 31, 2024 related to changes in qualitative adjustments included increases in estimates based on: the volume and severity of past due, nonaccrual and criticized or adversely classified loans; regional and local economic conditions; and regional values of residential housing.

In the first nine months of 2025, net charge-offs totaled $733,000, or 0.05% (annualized) of average outstanding loans. Table VIII shows annual average net charge-off rates over the prior five calendar years ranging from a high of 0.26% in 2022 to a low of 0.01% in 2023.

As presented in Table X, collateral dependent loans totaled $21,437,000 at September 30, 2025, down from $30,125,000 at December 31, 2024. The decrease from December 31, 2024 included two loans related to one relationship with a total amortized cost basis of $11,023,000 at December 31, 2024 that were paid off in April 2025.

Total nonperforming assets were $27,189,000 at September 30, 2025, up $3,047,000 from December 31, 2024. Nonperforming loans increased $2,826,000 from December 31, 2024. Nonperforming loans included an increase in nonaccrual loans of $1,920,000 from December 31, 2024 and an increase of $906,000 in loans past due 90 days or more still accruing from December 31, 2024. Table X shows that total nonperforming assets as a percentage of total assets was 1.02% at September 30, 2025, up from 0.92% at December 31,

2024. Table X also shows that total nonperforming assets as a percentage of assets as of year-end 2020 through 2024, ranged from a high of 1.10% at December 31, 2020 to a low of 0.75% at December 31, 2023.

Table X also shows that loans past due 30-89 days totaled $2,509,000 at September 30, 2025, down from $5,658,000 at December 31, 2024 as there was a net decrease of $3,656,000 in 1-4 Family residential loans past due 30-89 days from December 31, 2024.

Over the period 2020-2024 and the first 9 months of 2025, each period includes a few large commercial relationships that have required significant monitoring and workout efforts. As a result, a limited number of relationships may significantly impact the total amount of allowance required on individual loans and may significantly impact the provision for credit losses and the amount of total charge-offs reported in any one period.

Management believes it has been prudent in its decisions concerning identification of loans requiring individual evaluation for credit loss, estimates of loss, and nonaccrual status; however, the actual losses realized from these relationships could vary materially from the ACL calculated as of September 30, 2025. Management continues to closely monitor its commercial loan relationships for credit losses and will adjust its estimates of loss and decisions concerning nonaccrual status, if appropriate.

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

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

(Dollars In Thousands)

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

(In Thousands)

PRIOR TO CECL ADOPTION

(In Thousands)

TABLE X - PAST DUE LOANS AND NONPERFORMING ASSETS

(Dollars In Thousands)

LIQUIDITY

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

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

The Corporation has a line of credit with the Federal Reserve Bank of Philadelphia’s Discount Window. Management intends to use this line of credit as a contingency funding source. As collateral for the line, the Corporation has pledged available-for-sale debt securities with a carrying value of $26,732,000 at September 30, 2025.

The Corporation’s outstanding, available, and total credit facilities at September 30, 2025 and December 31, 2024 are as follows:

(In Thousands)

At September 30, 2025, the Corporation’s outstanding credit facilities with the Federal Home Loan Bank of Pittsburgh consisted of long-term borrowings with par values totaling $132,894,000 and letters of credit totaling $22,987,000. At December 31, 2024, the Corporation’s outstanding credit facilities with the Federal Home Loan Bank of Pittsburgh consisted of long-term borrowings with par values totaling $165,451,000 and letters of credit totaling $23,241,000. Availability on the facility is also reduced by accrued interest payable on the borrowings and by the total of the Corporation’s credit enhancement obligations on residential mortgage loans sold under the MPF Original Program. Additional information regarding borrowed funds is included in Note 8 to the unaudited consolidated financial statements.

Additionally, the Corporation uses “RepoSweep” arrangements to borrow funds from commercial banking customers on an overnight basis. If required to raise cash in an emergency situation, the Corporation could sell available-for-sale securities to meet its obligations or use repurchase agreements placed with brokers to borrow funds secured by investment assets. At September 30, 2025, the carrying value of available-for-sale securities in excess of amounts required to meet pledging or repurchase agreement obligations was $244,348,000.

Deposits totaled $2,165,735,000 at September 30, 2025, up $71,826,000 or 3.4% from $2,093,909,000 at December 31, 2024. Average total deposits were $58,280,000 or 2.9% higher for the nine months ended September 30, 2025 as compared to the first nine months of 2024 despite a reduction in average brokered deposits of $57,141,000. Brokered deposits, consisting of short-term certificates of deposit and money market funds, totaled $5,004,000 at September 30, 2025, a decrease of $19,017,000 from December 31, 2024.

As shown in the table below, at September 30, 2025, estimated uninsured deposits totaled $696.5 million, or 31.9%, of total deposits, as compared to $632.8 million, or 30.0% of total deposits at December 31, 2024. Included in uninsured deposits are deposits collateralized by securities (almost exclusively municipal deposits) totaling $178.5 million at September 30, 2025. As shown in the table below, total uninsured and uncollateralized deposits amounted to 23.7% of total deposits at September 30, 2025, as compared to 22.3% at December 31, 2024.

As summarized in the table that immediately follows, the Corporation’s highly liquid sources of available funds described above, including unused borrowing capacity with the Federal Home Loan Bank of Pittsburgh, unused availability on the Federal Reserve Bank of Philadelphia’s discount window, available federal funds lines with other banks and unencumbered available-for-sale debt securities, totaled $1.1 billion at September 30, 2025. Available funding from these sources totaled 164.6% of uninsured deposits and 221.4% of total uninsured and uncollateralized deposits at September 30, 2025.

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

STOCKHOLDERS’ EQUITY AND CAPITAL ADEQUACY

In August 2018, the Federal Reserve Board issued an interim final rule that expanded applicability of the Board’s small bank holding company capital adequacy policy statement. The interim final rule raised the policy statement’s asset threshold from $1 billion to $3 billion in total consolidated assets for a bank holding company or savings and loan holding company that: (1) is not engaged in significant nonbanking activities; (2) does not conduct significant off-balance sheet activities; and (3) does not have a material amount of debt or equity securities, other than trust-preferred securities, outstanding. The interim final rule provides that, if warranted for supervisory purposes, the Federal Reserve may exclude a company from the threshold increase. Management believes the Corporation meets the conditions of the Federal Reserve’s small bank holding company policy statement and is therefore excluded from consolidated capital requirements at September 30, 2025; however, management believes the Corporation will likely be subject to the consolidated capital requirements in future periods due to the completion of the previously described acquisition of Susquehanna. Further, at September 30, 2025, C&N Bank remains subject to regulatory capital requirements administered by the federal banking agencies.

Details concerning capital ratios at September 30, 2025 and December 31, 2024 are presented below. Management believes, as of September 30, 2025, that C&N Bank meets all capital adequacy requirements to which it is subject and maintains a capital conservation buffer (described in more detail below) that allows C&N Bank to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers. For comparison purposes, the Corporation’s capital ratios are presented along with those of C&N Bank in the table below. Further, as reflected in the table below, the Corporation’s and C&N Bank’s capital ratios at September 30, 2025 and December 31, 2024 exceed the Corporation’s Board policy threshold levels.

(Dollars in Thousands)

To avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, a banking organization subject to the rule must hold a capital conservation buffer composed of common equity tier 1 capital above its minimum risk-based capital requirements. The buffer is measured relative to risk-weighted assets. At September 30, 2025, the minimum risk-based capital ratios, and the capital ratios including the capital conservation buffer, are as follows:

A banking organization with a buffer greater than 2.5% over the minimum risk-based capital ratios would not be subject to additional limits on dividend payments or discretionary bonus payments; however, a banking organization with a buffer less than 2.5% would be subject to increasingly stringent limitations as the buffer approaches zero. Also, a banking organization is prohibited from making dividend payments or discretionary bonus payments if its eligible retained income is negative in that quarter and its capital conservation buffer ratio was less than 2.5% as of the beginning of that quarter. Eligible net income is defined as net income for the four calendar quarters preceding the current calendar quarter, net of any distributions and associated tax effects not already reflected in net income. A summary of payout restrictions based on the capital conservation buffer is as follows:

At September 30, 2025, C&N Bank’s Capital Conservation Buffer, determined based on the minimum total capital ratio, was 7.23%.

On September 25, 2023, the Corporation announced a treasury stock repurchase program. Under the program, the Corporation is authorized to repurchase up to 750,000 shares of the Corporation’s common stock, or slightly less than 5% of the Corporation’s issued and outstanding shares at August 4, 2023. The program was effective when publicly announced and has no stated expiration date; it will continue until suspended or terminated by the Board of Directors, in its sole discretion. All shares of common stock repurchased pursuant to the program will be held as treasury shares and be available for use and reissuance for purposes as and when determined by the Board of Directors including, without limitation, pursuant to the Corporation’s Dividend Reinvestment and Stock Purchase and Sale Plan and its equity compensation program. For the three and nine months ended September 30, 2025, there were no shares repurchased. At September 30, 2025, there were 723,966 shares available to be repurchased under the program.

Future dividend payments and repurchases of common stock will depend upon maintenance of a strong financial condition, future earnings and capital and regulatory requirements. In addition, the Corporation and C&N Bank are subject to restrictions on the amount of dividends that may be paid without approval of banking regulatory authorities. Further, although the Corporation is not currently subject to the specific consolidated capital requirements described herein, the Corporation’s ability to pay dividends, repurchase stock or engage in other activities may be limited by the Federal Reserve if the Corporation fails to hold capital commensurate with its overall risk profile.

The Corporation’s total stockholders’ equity is affected by fluctuations in the fair values of available-for-sale debt securities. The difference between amortized cost and fair value of available-for-sale debt securities, net of deferred income tax, is included in accumulated other comprehensive (loss) income within stockholders’ equity. Accumulated other comprehensive (loss) income is excluded from the Bank’s and the Corporation’s regulatory capital ratios. The balance in accumulated other comprehensive loss related to unrealized losses on available-for-sale debt securities, net of deferred income tax, amounted to $26,352,000 at September 30, 2025 and $37,084,000 at December 31, 2024. Changes in accumulated other comprehensive loss are excluded from earnings and directly increase or decrease stockholders’ equity. To the extent unrealized losses on available-for-sale debt securities result from credit losses, unrealized losses are recorded as a charge against earnings. The securities section of Management’s Discussion and Analysis and Note 5 to the unaudited consolidated financial statements provide additional information concerning management’s evaluation of available-for-sale debt securities for credit losses at September 30, 2025.

MARKET RISK

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

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

INTEREST RATE RISK

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

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

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

Table XI, which follows this discussion, is based on the results of calculations performed using the simulation model as of September 30, 2025 and December 31, 2024. The Table shows that as of the respective dates, the changes in net interest income and changes in economic value of equity were within the policy limits in all scenarios.

Based on September 30, 2025 and December 31, 2024 data, the amounts of net interest income decrease, as compared to the amounts based on current interest rates, in both the upward and downward rate scenarios. Similarly, at September 30, 2025 and December 31, 2024, EVE is modeled to decrease compared to the 0 basis point scenario in all of the rising and falling rate scenarios The modeling results reflect the impact of management’s assumptions that the Corporation’s deposit rates would rise in the increasing rate scenarios to a greater extent than they would fall in the decreasing rate scenarios. Further, results in the downward rate scenarios reflect limitations on the benefit of falling rates on some deposit types due to a 0% assumed floor.

Under U.S. generally accepted accounting principles, available-for-sale debt securities are carried at fair value as of each balance sheet date. The difference between amortized cost and fair value of available-for-sale debt securities, net of deferred income tax, is included in accumulated other comprehensive income (loss) within stockholders’ equity. Increases in interest rates have caused the fair value of the Corporation’s available-for-sale debt securities to decrease, resulting in an accumulated other comprehensive loss related to securities of $26.0 million at September 30, 2025. In contrast, most of the Corporation’s other financial instruments, including loans receivable (held for investment), deposits and borrowed funds are carried on the balance sheet at historical cost without adjustment for the impact of changes in interest rates.

TABLE XI – THE EFFECT OF HYPOTHETICAL CHANGES IN INTEREST RATES

(In Thousands)

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

(In Thousands)

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

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

Except for the risk factor described immediately below, there have been no material changes from the risk factors previously disclosed in Item 1A of the Corporation’s Annual Report on Form 10-K filed March 6, 2025.

Risk Related to Recent Acquisition of Susquehanna - The success of the acquisition will depend, in part, on the Corporation’s ability to realize the anticipated benefits and cost savings from successfully combining the businesses of the Corporation and Susquehanna within the Corporation’s projected timeframe. If the Corporation is not able to achieve these objectives, the anticipated benefits and cost savings of the acquisition may not be realized fully or at all, or may take longer to realize than expected. It is possible that the integration process could result in the loss of key employees, the disruption of ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the Corporation’s ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits of the acquisition. Integration efforts between the two companies will also divert management attention and resources. These integration matters could have an adverse effect on the Corporation during the transition period. Additionally, the Corporation’s business may be adversely impacted by the failure to pursue other beneficial opportunities due to the focus of management on the acquisition, without realizing any of the anticipated benefits of completing the acquisition.

The acquisition may not be accretive, and may be dilutive, to the Corporation’s earnings per share, which may negatively affect the market price of the Corporation’s common stock.

The Corporation currently expects the acquisition to be accretive to earnings per share beginning in the first year after closing (excluding one-time charges). This expectation, however, is based on preliminary estimates which may materially change. The Corporation may encounter additional transaction and integration related costs or other factors, such as failure to realize all of the benefits anticipated in the acquisition or other factors that affect preliminary estimates or the Corporation’s ability to realize operational efficiencies. Any of these factors could cause a decrease in the Corporation’s earnings per share or decrease or delay the expected accretive effect of the acquisition and contribute to a decrease in the price of the Corporation’s common stock.