Citizens & Northern Corp: Form 10-Q for the period ended Mar 31, 2026

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

• 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, including unfavorable conditions and trends related to costs of living, unemployment levels, inflation, tariffs and economic growth
• military conflicts including the conflict in the Middle East and the possible expansion of such conflict and the potential geopolitical and economic consequences
• the potential for adverse developments in the banking industry that could have a negative impact on customer confidence
• the possibility that the Corporation’s credit standards and its on-going credit assessment processes might not protect it from significant credit losses
• difficulties in integrating the operations of the former Susquehanna (acquired by the Corporation October 1, 2025)
• 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 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.

BUSINESS COMBINATION

On October 1, 2025, the Corporation completed its acquisition of Susquehanna Community Financial, Inc. (“Susquehanna”). Susquehanna was the parent company of Susquehanna Community Bank, with seven banking offices located in Lycoming, Northumberland, Snyder and Union Counties in Pennsylvania. In connection with the acquisition, the Corporation issued approximately 2.3 million shares of common stock to the former Susquehanna shareholders, resulting in merger consideration valued at $44.6 million and an increase in stockholders’ equity of $44.4 million, net of issuance costs. Intangible assets recorded included goodwill of $10.8 million and a core deposit intangible asset of $10.7 million. Assets acquired included loans valued at $393.6 million, securities valued at $147.6 million, bank-owned life insurance valued at $8.0 million and cash and due from banks of $6.1 million. Liabilities assumed included deposits valued at $501.5 million and short-term borrowings valued at $45.8 million. The assets purchased and liabilities assumed were recorded at their preliminary estimated fair values at the time of closing and may be adjusted for up to one year subsequent to the acquisition. There were no adjustments to the fair value measurements of assets acquired or liabilities assumed in the first quarter of 2026.

EARNINGS OVERVIEW

First Quarter 2026 as Compared to First Quarter 2025

First quarter 2026 net income was $273,000, or $0.02 per diluted share, as compared to $6,293,000, or $0.41 per diluted share, in the first quarter 2025. First quarter 2026 earnings were impacted by an elevated provision for credit losses discussed below. Significant variances were as follows:

• Net interest income of $28,454,000 in the first quarter 2026 was $8,479,000 higher than in the first quarter 2025, including the benefit of income from growth in net earning assets resulting from the Susquehanna merger. The net interest margin increased to 3.98% in the first quarter 2026 from 3.38% in the first quarter 2025. The interest rate spread increased 0.76%, as the average yield on earning assets increased 0.31% while the average rate on interest-bearing liabilities decreased 0.45%. Average total earning assets increased $505,810,000 from the first quarter 2025, as average total loans receivable increased $465,531,000, including the impact of loans acquired from Susquehanna, and average available-for-sale debt securities increased $81,543,000 while average interest-bearing due from banks decreased $42,380,000. Average total deposits increased $499,043,000, including the impact of deposits assumed from Susquehanna, while average brokered deposits decreased $24,333,000.
• The provision for credit losses was $13,602,000 in the first quarter 2026 as compared to $236,000 in the first quarter 2025. The increase in the first quarter 2026 provision was primarily driven by the impact on the allowance for credit losses (“ACL”) of an increase in net charge-offs to $10,808,000 as compared to $91,000 in the first quarter of 2025. The significant increase in charge-offs in the first quarter of 2026 is due to a non-owner occupied; commercial real estate loan originated in 2022 in the amount of $24 million of which $7,200,000 was participated with another financial institution. The loan is secured by a first lien on the leasehold interests of an approximately 190,000 square foot Class A office property with multiple buildings and tenants, located in Bucks County, PA. The loss of a large tenant as well as cash flow requirements of the borrower’s other properties (which the Corporation has not financed) caused the loan to be downgraded to substandard and placed on nonaccrual status as of March 31, 2026. The Corporation obtained an updated appraisal in April 2026 which was significantly lower than the original appraisal when the loan was originated, resulting in a charge-off of $10,056,000. At March 31, 2026, the amortized cost basis of the loan, net of the partial charge-off, is $5,836,000. Management believes the property’s location and condition provide an opportunity for recovery of value in the future. The ACL was 1.42% of gross loans receivable at March 31, 2026, up from 1.32% at December 31, 2025

and 1.06% at March 31, 2025, as the higher level of net charge-offs in the first quarter 2026 impacted the portion of the Corporation’s ACL determined based on historical loss experience.

• Noninterest income of $8,195,000 in the first quarter 2026 increased $1,187,000 from the first quarter 2025 result. Significant variances included the following:
• Other noninterest income of $1,586,000 increased $454,000, including a conversion assistance payment of $241,000 received related to the merger integration of the wealth management platform, an increase of $94,000 in tax credit income and an increase of $78,000 in dividends on Federal Home Loan Bank of Pittsburgh stock.
• Interchange revenue from debit card transactions of $1,267,000 increased $231,000, including an increase in volume-related incentive income.
• Service charges on deposit accounts of $1,650,000 increased $210,000, reflecting an increase in volume of fees.
• Net gains from sale of loans of $370,000 increased $165,000, reflecting an increase in volume of residential mortgage loans sold and includes the impact of $133,000 in net gains from sale of loans resulting from the Susquehanna acquisition.
• Noninterest expense of $22,712,000 in the first quarter 2026 increased $3,669,000 from the first quarter 2025 result, reflecting the impact of the Susquehanna acquisition. Other significant variances included the following:
• Salaries and employee benefits expense of $13,201,000 increased $1,442,000, including the impact of the Susquehanna acquisition, while cash and stock-based incentive compensation decreased $219,000.
• Other noninterest expense of $3,364,000 increased $1,010,000 from the first quarter 2025. Within this category, significant variances included the following:
• Core deposit intangible amortization expense increased $708,000, related to core deposits assumed from Susquehanna.
• FDIC insurance expense increased $243,000 from the first quarter of 2025, reflecting the impact of the Susquehanna acquisition.
• Legal fees unrelated to merger activity decreased $104,000 from the first quarter of 2025.
• Net occupancy and equipment expense was $432,000 higher than in first quarter 2025, including $337,000 related to the Susquehanna acquisition and increases in snow removal, light and power and repairs and maintenance expenses.
• Data processing and telecommunications expenses were $378,000 higher than in the first quarter 2025, reflecting higher software license expense of $179,000 and higher internet banking expenses of $170,000, related to the Susquehanna acquisition.
• The income tax provision of $62,000, or 18.5% of pre-tax income, for the first quarter 2026 decreased $1,349,000 from $1,411,000, or 18.3% of pre-tax income, for the first quarter 2025 reflecting a decrease in pre-tax income for the quarter.

TABLE I – QUARTERLY FINANCIAL DATA

(Dollars In Thousands,

Except Per Share Data)

(Unaudited)

NONINTEREST INCOME

TABLE II – COMPARISON OF NONINTEREST INCOME

(Dollars in Thousands)

NONINTEREST EXPENSE

TABLE III - COMPARISON OF NONINTEREST EXPENSE

(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.

Business Combinations – The Corporation accounts for its mergers and acquisitions using the acquisition method of accounting under the provisions of FASB ASC Topic 805 ("ASC 805"), Business Combinations. Under ASC 805, the assets acquired, including identified intangible assets such as core deposit intangibles and liabilities assumed in a business combination are recognized at their acquisition-date fair value, while transaction costs and restructuring costs associated with the business combination are expensed as incurred. The excess of the merger consideration over the fair value of assets acquired and liabilities assumed, if any, is allocated to goodwill.

The valuations are based upon management’s assumptions of future growth rates, future attrition, discount rates and other relevant factors, which involves a significant level of estimation and uncertainty. In addition, management engaged independent third-party specialists to assist in the development of the fair values of the acquired assets and assumed liabilities. The preliminary estimates of fair values may be adjusted for a period of time subsequent to the acquisition date if new information is obtained about facts and circumstances that existed as of the merger date that, if known, would have affected the measurement of the amounts recognized as of that date. Adjustments would be recorded to goodwill during the current reporting period.

Examples of the impacted acquired assets and assumed liabilities include loans, deposits, identifiable intangible assets and certain other assets and liabilities.

For acquired loans at the merger date, management evaluated and classified loans based upon whether the loans had experienced a more-than-insignificant amount of credit deteriorating since origination. To determine the fair value of the loans, significant estimates and assumptions were applied, including projected cash flows, discount rates, repayment speeds, credit loss severity rates, default rates and realizable collateral values. In November 2025, the Financial Accounting Standards Board issued Accounting Standards Update 2025-08, Financial Instruments – Credit Losses (ASU 2025-08). The Corporation adopted ASU 2025-08 in accounting for the Susquehanna acquisition. Consistent with ASU 2025-08, the Corporation recorded loans receivable at fair value plus an allowance for credit losses of $7.1 million, including allowances totaling $2.6 million on loans with more than insignificant deterioration in credit quality subsequent to origination (“PCD”) loans and an allowance of $4.5 million on non-PCD loans at acquisition.

Allowance for Credit Losses on Loans – A material estimate that is particularly susceptible to significant change is the determination of the allowance for credit losses (ACL) on loans. The Corporation maintains an ACL on loans which represents management’s estimate of expected net charge-offs over the life of the loans. The ACL includes two primary components: (i) an allowance established on loans which share similar risk characteristics collectively evaluated for credit losses (collective basis), and (ii) an allowance established on loans which do not share similar risk characteristics with any loan segment and which are individually evaluated for credit losses (individual basis). Management considers the determination of the ACL on loans to be critical because it requires significant judgment regarding estimates of expected credit losses based on the Corporation’s historical loss experience, current conditions and economic forecasts. Management’s evaluation is based upon a continuous review of the Corporation’s loans, with consideration given to evaluations resulting from examinations performed by regulatory authorities. Note 7 to the unaudited consolidated financial statements provides an overview of the process management uses for determining the ACL, and additional discussion of the ACL is provided in a separate section below of Management’s Discussion and Analysis.

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

NET INTEREST INCOME

The Corporation’s primary source of operating income is net interest income, which is equal to the difference between the amounts of interest income and interest expense. Tables IV, V and VI include information regarding the Corporation’s net interest income for the three-month periods ended March 31, 2026 and 2025. In each of these tables, the amounts of interest income earned on tax-exempt securities and loans have been adjusted to a fully taxable-equivalent basis. Management believes presentation of net interest income on a fully taxable-equivalent basis, which is a non-GAAP financial measure, provides investors with meaningful information for purposes of comparing returns on tax-exempt securities and loans with returns on taxable securities and loans. Accordingly, the amount of net interest income on a fully taxable-equivalent basis reflected in these tables exceed the net interest income amounts presented in the consolidated financial statements. A reconciliation of net interest income on a fully taxable-equivalent basis to the closest GAAP financial measure is included with Table IV. The discussion that follows is based on amounts in the related tables.

Three-Month Periods Ended March 31, 2026 and 2025

Fully taxable equivalent net interest income (a non-GAAP measure) was $28,685,000 in the first quarter of 2026, $8,499,000 (42.1%) higher than in the first quarter of 2025, including the benefit of income from growth in net earning assets resulting from the Susquehanna merger. Table VI shows the net impact of changes in the volume increased net interest income by $5,949,000 in the first quarter 2026 as compared to first quarter 2025 and changes in interest rates increased net interest income by $2,550,000 in the first quarter 2026 as compared to first quarter 2025. The increase in net interest income reflected an increase in interest income of $8,899,000 and an increase in interest expense of $400,000. As presented in Table V, the Net Interest Margin was 3.98% in the first quarter 2026 as compared to 3.38% in the first quarter 2025, and the “Interest Rate Spread” (excess of average rate of return on earning assets over average cost of funds on interest-bearing liabilities) increased to 3.45% in 2026 from 2.69% in 2025. The average yield on earning assets of 5.66% was 0.31% higher in 2026 compared to 2025, and the average rate on interest-bearing liabilities of 2.21% in 2026 was 0.45% lower. Accretion of acquisition accounting valuation adjustments related to the Susquehanna merger had a positive impact of $765,000 including accretion on loans of $728,000 and $37,000 on time deposits.

INTEREST INCOME AND EARNING ASSETS

Interest income totaled $40,819,000 in 2026, an increase of $8,899,000, or 27.9%, from 2025.

Interest and fees from loans receivable increased $8,175,000 in 2026 as compared to 2025. In 2026, the fully taxable equivalent yield on loans was 6.24%, up from 6.03% in 2025, reflecting the effects of loans acquired from Susquehanna and valued based on current market yields as of October 1, 2025 as well as gradual paydowns on loans originated prior to interest rates rising in 2022 and 2023 with more recent loans originated at higher market rates. Average outstanding loans receivable increased $465,531,000 (24.5%) to $2,364,964,000 in 2026 from $1,899,433,000 in 2025 including the impact of the Susquehanna acquisition as well as organic growth.

Interest income from available-for-sale debt securities, on a fully taxable-equivalent basis, totaled $4,165,000 in 2026, up $1,215,000 from 2025. The average balance (at amortized cost) increased $81,543,000 from 2025 and the average yield on the portfolio increased to 3.17% in 2026 from 2.65% in 2025. The Susquehanna merger resulted in an initial increase in available-for-sale debt securities of $147,617,000. The majority of these securities were sold, and a significant portion of the proceeds were reinvested in securities contributing to the increase in average balance and yield.

Income from interest-bearing due from banks totaled $218,000 in 2026, a decrease of $503,000 from 2025. Within this category, the largest asset balance in 2026 and 2025 has been interest-bearing deposits held with the Federal Reserve. The average yield on interest-bearing due from banks decreased to 3.46% in 2026 from 4.31% in 2025. The average balance of interest-bearing due from banks was $25,516,000 in 2026, down from $67,896,000 in 2025.

INTEREST EXPENSE AND INTEREST-BEARING LIABILITIES

Interest expense increased $400,000 to $12,134,000 in 2026 from $11,734,000 in 2025.

Interest expense on deposits increased $466,000, as the average balance of interest-bearing deposits increased $435,482,000 while the average rate decreased to 2.02% in 2026 from 2.45% in 2025. The increase in average deposit balances included the impact of the Susquehanna acquisition as well as organic growth. Within average deposits, average brokered deposits were $2,247,000 at an average rate of 3.79% in 2026 as compared to $26,580,000 at an average rate of 4.76% in 2025. In comparing 2026 to 2025, average savings deposits increased $166,089,000, average interest checking deposits increased $130,728,000, average time deposits increased

$108,224,000, average noninterest-bearing demand deposits increased $63,561,000 and average total money market accounts increased $30,441,000.

Interest expense on borrowed funds decreased $66,000 in 2026 as compared to 2025. Interest expense on short-term borrowings was $276,000 in 2026 compared to less than $1,000 in 2025 as the average balance of short-term borrowings increased to $28,203,000 in 2026 from $1,400,000 in 2025. Interest expense on long-term borrowings (FHLB advances) decreased $343,000 to $1,446,000 in 2026 from $1,789,000 in 2025. The average balance of long-term borrowings was $134,034,000 in 2026, down from an average balance of $162,392,000 in 2025. Borrowings are classified as long-term within the Tables based on their term at origination or assumption in business combinations. The average rate on long-term borrowings was 4.38% in 2026 compared to 4.47% in 2025.

More information regarding borrowed funds is provided in Note 9 to the unaudited consolidated financial statements.

TABLE IV - ANALYSIS OF INTEREST INCOME AND EXPENSE

(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)

38

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 first quarter 2026 of $62,000 was $1,349,000 lower than the provision for the first quarter 2025. The effective tax rate (tax provision as a percentage of pre-tax income) was 18.5% in the first quarter 2026 compared to 18.3% in the first quarter 2025. The Corporation’s effective tax rates differ from the statutory federal rate of 21% principally because of the effects of tax-exempt interest income, nondeductible interest expense, state income taxes and other permanent differences.

The Corporation recognizes deferred tax assets and liabilities based on differences between the consolidated financial statement carrying amounts and the tax basis of assets and liabilities. The net deferred tax asset at March 31, 2026 and December 31, 2025 represents the following temporary difference components:

(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 March 31, 2026 is fully realizable; however, if management determines the Corporation will be unable to realize all or part of the net deferred tax asset, the Corporation would adjust the deferred tax asset, which would negatively impact earnings.

SECURITIES

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

The composition of the available-for-sale debt securities portfolio at March 31, 2026 and December 31, 2025, 2024 and 2023 is as follows:

(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 $32,175,000, or 6.1%, at March 31, 2026, $29,685,000, or 5.5%, at December 31, 2025, $47,543,000, or 10.6%, at December 31, 2024 and $49,213,000, or 10.6%, at December 31, 2023. The volatility in the fair value of the portfolio, including the significant reduction in fair value, resulted from changes in interest rates.

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

As described in Note 6 to the consolidated financial statements, management determined the Corporation does not have the intent to sell, nor is it more likely than not that it will be required to sell, available-for-sale debt securities in an unrealized loss position at March 31, 2026 before it is able to recover the amortized cost basis. Further, management reviewed the Corporation’s holdings as of March 31, 2026 and concluded there were no credit-related declines in fair value. Additional information related to the types of securities held at March 31, 2026, other than securities issued or guaranteed by U.S. Government entities or agencies, was as follows:

• Bank holding company debt securities – The Corporation’s holdings of bank holding company debt securities included one senior and eleven subordinated securities with face amounts ranging from $250,000 to $5 million. There have been no payment defaults on the securities. Eleven of the issuers have publicly traded common stock. At March 31, 2026, one of the securities with a face amount of $400,000 is unrated, and the rest of securities have external ratings ranging from BBB-/Baa3 to A-.
• Obligations of states and political subdivisions (municipal bonds) – All of the Corporation’s holdings of municipal bonds were investment grade and there have been no payment defaults. Summary ratings information at March 31, 2026, 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 – 20% of the portfolio; AA – 72%; A – 8%.
• 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 March 31, 2026.

FINANCIAL CONDITION

This section includes information regarding the Corporation’s lending activities or other significant changes or exposures that are not otherwise addressed in Management’s Discussion and Analysis. Significant changes in the average balances of the Corporation’s earning assets and interest-bearing liabilities are described in the Net Interest Income section of Management’s Discussion and Analysis. Other significant balance sheet items, including securities, the allowance for credit losses and stockholders’ equity, are discussed in separate sections of Management’s Discussion and Analysis. There are no significant concerns that have arisen related to the Corporation’s off-balance sheet loan commitments or outstanding letters of credit at March 31, 2026.

Table VII shows the composition of the loan portfolio at March 31, 2026 and at year-end from 2021 through 2025. Throughout this time period, the portfolio was primarily commercial in nature. At March 31, 2026, commercial loans represented 76% of the portfolio while residential loans totaled 19% of the portfolio. As shown in Table VII, total loans receivable were higher by $458,517,000 at December 31, 2025 as compared to December 31, 2024. On October 1, 2025, $393,587,000 of gross loans receivable, net of purchase accounting adjustments, were recorded pursuant to the acquisition of Susquehanna.

Also included in Table VII is additional detail regarding the composition of the non-owner occupied commercial real estate loan portfolio at March 31, 2026. As shown in Table VII, the amortized cost of non-owner occupied commercial real estate loans for which the primary purpose is utilization of office space by third parties was $109,404,000, or 4.6% of gross loans receivable. At March 31, 2026, within this segment there were three loans with a total recorded investment of $8,600,000 in nonaccrual status with no individual allowances, including the loan discussed in the Earnings Overview and Provision and Allowance for Credit Losses section with a partial charge-off of $10,056,000 in the first quarter 2026 and an amortized cost basis at March 31, 2026 of $5,836,000. The remainder of the non-owner occupied commercial real estate loans with a primary purpose of office space utilization were in accrual status with no individual allowance at March 31, 2026.

While the Corporation’s lending activities are primarily concentrated in its market areas, a portion of the Corporation’s commercial loan segment consists of participation loans. Participation loans represent portions of larger commercial transactions for which other institutions are the “lead banks”. Although not the lead bank, the Corporation conducts detailed underwriting and monitoring of participation loan opportunities. Total participation loans outstanding amounted to $105,610,000 at March 31, 2026, down from $107,351,000 at December 31, 2025.

The Corporation is a party to financial instruments with off-balance sheet risk, including commitments to extend credit and standby letters of credit. At March 31, 2026, the total contract amount of commitments to extend credit was $489,887,000 as compared to $506,996,000 at December 31, 2025, and the contract amount of standby letters of credit was $59,161,000 at March 31, 2026 as compared to $58,914,000 at December 31, 2025.

The Corporation maintains an allowance for off-balance sheet credit exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, commercial letters of credit and credit enhancement obligations related to residential mortgage loans sold with recourse, when there is a contractual obligation to extend credit and when this extension of credit is not unconditionally cancellable (i.e. commitment cannot be canceled at any time). The allowance for off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over their estimated lives. The allowance for credit losses for off-balance sheet exposures of $1,039,000 at March 31, 2026 and $1,029,000 at December 31, 2025, is included in accrued interest and other liabilities in the unaudited consolidated balance sheets.

The Corporation originates and sells residential mortgage loans to the secondary market through the MPF Xtra program administered by the Federal Home Loan Banks of Pittsburgh and Chicago. Residential mortgages originated and sold through the MPF Xtra program consist primarily of conforming, prime loans sold to the Federal National Mortgage Association (Fannie Mae), a quasi-government entity. The Corporation also originates and sells residential mortgage loans to the secondary market through the MPF Original program, administered by the Federal Home Loan Banks of Pittsburgh and Chicago. Residential mortgages originated and sold through the MPF Original program consist primarily of conforming, prime loans sold to the Federal Home Loan Bank of Pittsburgh. The Corporation also originates and sells mortgages under the Pennsylvania Housing Finance Agency and other programs though the volume of sales has been small in comparison to the volume under the MPF programs.

For loan sales originated under the MPF programs, the Corporation provides customary representations and warranties to investors that specify, among other things, that the loans have been underwritten to the standards established by the investor. The Corporation may be required to repurchase a loan and reimburse a portion of fees received or reimburse the investor for a credit loss incurred on a loan, if it is determined that the representations and warranties have not been met. Such repurchases or reimbursements generally result from an underwriting or documentation deficiency. At March 31, 2026, the total outstanding balance of loans the Corporation has repurchased as a result of identified instances of noncompliance amounted to $2,562,000, and the corresponding total outstanding balance of repurchased loans at December 31, 2025 was $2,598,000.

At March 31, 2026, outstanding balances of loans sold and serviced through the MPF Xtra and Original programs totaled $451,162,000, including loans sold through the MPF Xtra program of $176,497,000 and loans sold through the Original program of $274,665,000. At December 31, 2025, outstanding balances of loans sold and serviced through the MPF Xtra and Original programs totaled $450,120,000, including loans sold through the MPF Xtra program of $177,464,000 and loans sold through the Original program of $272,656,000. Based on the fairly limited volume of required repurchases to date, no allowance has been established for representation and warranty exposures as of March 31, 2026 and December 31, 2025.

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 March 31, 2026 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 periods ended March 31, 2026 and 2025 is as follows:

(In Thousands)

The provision for credit losses was $13,602,000 in the first quarter 2026 as compared to $236,000 in the first quarter 2025. The increase in the first quarter 2026 provision was primarily driven by the impact on the ACL of an increase in net charge-offs to $10,808,000 as compared to $91,000 in the first quarter of 2025. As described in more detail in the Earnings Overview section, the significant increase in charge-offs in the first quarter of 2026 was mainly due to a partial charge-off of $10,056,000 on a non-owner occupied commercial real estate loan. The ACL was 1.42% of gross loans receivable at March 31, 2026, up from 1.32% at December 31, 2025 and 1.06% at March 31, 2025, as the higher level of net charge-offs in the first quarter 2026 impacted the portion of the Corporation’s ACL determined based on historical loss experience.

As shown in Table IX, the ACL on loans individually evaluated decreased to $2,655,000 at March 31, 2026 from $2,772,000 at December 31, 2025, including an ACL of $2,433,000 at March 31, 2026 on acquired PCD loans as part of the Susquehanna acquisition.

Table IX also shows that, at March 31, 2026 as compared to December 31, 2025, the ACL related to collectively evaluated commercial loans increased by a total of $1,848,000 and the ACL on collectively evaluated residential mortgage loans increased $1,028,000. The increase for commercial loans includes the impact of growth in the portfolio partially offset by a net decrease in qualitative adjustments resulting mainly from changes in external indexes and a decrease in loan concentrations. The increase for residential mortgage loans includes the impact of an increase in qualitative adjustments resulting mainly from changes in external indexes.

In the first quarter of 2026, net charge-offs totaled $10,808,000, or 1.83% (annualized) of average outstanding loans. Table VIII shows annual average net charge-off rates over the prior five calendar years ranging from a high of 0.26% in 2022 to a low of 0.01% in 2023.

Total nonperforming assets were $42,113,000 at March 31, 2026, up $9,000,000 from December 31, 2025. Nonperforming loans increased $9,008,000 from December 31, 2025. The increase in nonperforming assets and nonperforming loans in the first quarter 2026 included the impact of classifying the nonowner occupied commercial real estate loan referenced above as nonaccrual at March 31, 2026. Table X shows that total nonperforming assets as a percentage of total assets was 1.33% at March 31, 2026, up from 1.06% at December 31, 2025. Table X also shows that total nonperforming assets as a percentage of assets as of year-end 2021 through 2024, ranged from a high of 1.04% at December 31, 2021 to a low of 0.75% at December 31, 2023.

Over the period 2021-2025 and the first 3 months of 2026, each period includes a few large commercial relationships that have required significant monitoring and workout efforts. As a result, a limited number of relationships may significantly impact the total amount of allowance required on individual loans and may significantly impact the provision for credit losses and the amount of total charge-offs reported in any one period.

Management believes it has been prudent in its decisions concerning identification of loans requiring individual evaluation for credit loss, estimates of loss, and nonaccrual status; however, the actual losses realized from these relationships could vary materially from the ACL calculated as of March 31, 2026. Management continues to closely monitor its commercial loan relationships for credit losses and will adjust its estimates of loss and decisions concerning nonaccrual status, if appropriate.

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

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)

Included in the table above at March 31, 2026 and December 31, 2025 were loans acquired from Susquehanna with credit deterioration (“PCD loans”) totaled as follows :

(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 $26,151,000 at March 31, 2026.

The Corporation’s outstanding, available, and total credit facilities at March 31, 2026 and December 31, 2025 are as follows:

(In Thousands)

At March 31, 2026, the Corporation’s outstanding credit facilities with the Federal Home Loan Bank of consisted of overnight borrowing of $13,113,000, long-term borrowings with par values totaling $139,489,000 and letters of credit totaling $21,600,000. At December 31, 2025, the Corporation’s outstanding credit facilities with the Federal Home Loan Bank of Pittsburgh consisted of overnight borrowing of $27,000,000, long-term borrowings with par values totaling $120,935,000 and letters of credit totaling $22,987,000. Availability on the facility is also reduced by accrued interest payable on the borrowings and by the total of the Corporation’s credit enhancement obligations on residential mortgage loans sold under the MPF Original Program. Additional information regarding borrowed funds is included in Note 9 to the unaudited consolidated financial statements.

Additionally, the Corporation uses “RepoSweep” arrangements to borrow funds from commercial banking customers on an overnight basis. If required to raise cash in an emergency situation, the Corporation could sell available-for-sale securities to meet its obligations or use repurchase agreements placed with brokers to borrow funds secured by investment assets. At March 31, 2026, the carrying value of available-for-sale securities in excess of amounts required to meet pledging or repurchase agreement obligations was $315,391,000.

Deposits totaled $2,600,053,000 at March 31, 2026, up $35,337,000 from December 31, 2025. Deposits of $501,488,000 were assumed from Susquehanna, effective October 1, 2025. Average total deposits were 24.2% higher for the first quarter 2026 as compared to the first quarter 2025. Brokered deposits totaled $702,000 at March 31, 2026, a decrease of $3,148,000 from December 31, 2025.

As shown in the table below, at March 31, 2026, estimated uninsured deposits totaled $856.0 million, or 32.7%, of total deposits, as compared to $811.2 million, or 31.4% of total deposits at December 31, 2025. Included in uninsured deposits are deposits collateralized by securities (almost exclusively municipal deposits) totaling $171.3 million at March 31, 2026. As shown in the table below, total uninsured and uncollateralized deposits amounted to 26.1% of total deposits at March 31, 2026, as compared to 24.7% of total deposits at December 31, 2025.

As summarized in the table that immediately follows, the Corporation’s highly liquid sources of available funds described above, including unused borrowing capacity with the Federal Home Loan Bank of Pittsburgh, unused availability on the Federal Reserve Bank of Philadelphia’s discount window, available federal funds lines with other banks and unencumbered available-for-sale debt securities, totaled $1.4 billion at March 31, 2026. Available funding from these sources totaled 159.3% of uninsured deposits and 199.1% of total uninsured and uncollateralized deposits at March 31, 2026.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

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

STOCKHOLDERS’ EQUITY AND CAPITAL ADEQUACY

Details concerning capital ratios at March 31, 2026 and December 31, 2025 are presented below. Management believes, as of March 31, 2026, that the Corporation and C&N Bank meet all capital adequacy requirements to which they are subject and maintain a capital conservation buffer (described in more detail below) that allows the Corporation and Bank to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers. Further, as reflected in the table below, the Corporation’s and C&N Bank’s capital ratios at March 31, 2026 and December 31, 2025 exceed the Corporation’s Board policy threshold levels. Management expects the Corporation and C&N Bank to maintain capital levels that exceed the regulatory standards for well-capitalized institutions for the next 12 months and for the foreseeable future.

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

(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 March 31, 2026, 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:

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

At March 31, 2026, the Corporation’s Capital Conservation Buffer was 5.84% and C&N Bank’s Capital Conservation Buffer was 5.49%.

On September 25, 2023, the Corporation announced a treasury stock repurchase program with no expiration that can be suspended or terminated by the Board of Directors, in its sole discretion. Under this program, the Corporation is authorized to repurchase up to 750,000 shares of its common stock. For the three ended March 31, 2026, there were no shares repurchased. At March 31, 2026, there were 723,465 shares available to be repurchased under the program.

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

The Corporation’s total stockholders’ equity is affected by fluctuations in the fair values of available-for-sale debt securities. The difference between amortized cost and fair value of available-for-sale debt securities, net of deferred income tax, is included in accumulated other comprehensive (loss) income within stockholders’ equity. Accumulated other comprehensive (loss) income is excluded from the Bank’s and the Corporation’s regulatory capital ratios. The balance in accumulated other comprehensive loss related to unrealized losses on available-for-sale debt securities, net of deferred income tax, amounted to $25,096,000 at March 31, 2026 and $23,154,000 at December 31, 2025. Changes in accumulated other comprehensive loss are excluded from earnings and directly increase or decrease stockholders’ equity. To the extent unrealized losses on available-for-sale debt securities result from credit losses, unrealized losses are recorded as a charge against earnings. The securities section of Management’s Discussion and Analysis and Note 6 to the unaudited consolidated financial statements provide additional information concerning management’s evaluation of available-for-sale debt securities for credit losses at March 31, 2026.

Tangible common equity is a non-GAAP measure, and tangible common book value per share and tangible common equity as a percentage of tangible assets are non-GAAP ratios. Management believes this non-GAAP information is helpful in evaluating the strength of the Corporation’s capital and in providing an alternative valuation of the Corporation’s net worth. Information at March 31, 2026 and December 31, 2025 is as follows:

(Dollars In Thousands, Except Per Share Data)

MARKET RISK

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

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

INTEREST RATE RISK

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

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

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

Table XI, which follows this discussion, is based on the results of calculations performed using the simulation model as of March 31, 2026 and December 31, 2025. The Table shows that as of the respective dates, the changes in net interest income and changes in economic value of equity were within the policy limits in all scenarios.

Based on March 31, 2026 and December 31, 2025 data, the amounts of net interest income decrease, as compared to the amounts based on current interest rates, in both the upward and downward rate scenarios. Similarly, at March 31, 2026 and December 31, 2025, EVE is modeled to decrease compared to the 0 basis point scenario in all of the rising and falling rate scenarios The modeling results reflect the impact of management’s assumptions that the Corporation’s deposit rates would rise in the increasing rate scenarios to a greater extent than they would fall in the decreasing rate scenarios. Further, results in the downward rate scenarios reflect limitations on the benefit of falling rates on some deposit types due to a 0% assumed floor.

Under U.S. generally accepted accounting principles, available-for-sale debt securities are carried at fair value as of each balance sheet date. The difference between amortized cost and fair value of available-for-sale debt securities, net of deferred income tax, is included in accumulated other comprehensive income (loss) within stockholders’ equity. Increases in interest rates have caused the fair value of the Corporation’s available-for-sale debt securities to decrease, resulting in an accumulated other comprehensive loss related to securities of $25.1 million at March 31, 2026. In contrast, most of the Corporation’s other financial instruments, including loans receivable (held for investment), deposits and borrowed funds are carried on the balance sheet at historical cost without adjustment for the impact of changes in interest rates.

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. This evaluation did not include an assessment of those disclosure controls and procedures that are involved in, and did not include an assessment of, internal control over financial reporting as it relates to Susquehanna Community Financial Inc. (“Susquehanna”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Corporation’s disclosure controls and procedures are effective to ensure that all material information required to be disclosed in reports the Corporation files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.

The Susquehanna acquisition was completed October 1, 2025, and during the fourth quarter of 2025 and the first quarter of 2026 the Corporation began the process of integrating processes and internal control over financial reporting for the former Susquehanna locations into those of the Corporation. Though significant progress has been made, at March 31, 2026, the Corporation’s management has not yet completed changes to processes, information technology systems and other components of internal control over financial reporting as part of the integration activities.

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.

There have been no material changes from the risk factors previously disclosed in Item 1A of the Corporation’s Annual Report on Form 10-K filed March 6, 2026.