10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2023

or

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

For the transition period from _______________ to _________________________.

Commission file number: 000-16084

CITIZENS & NORTHERN CORPORATION

(Exact name of Registrant as specified in its charter)

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

90-92 MAIN STREET, WELLSBORO, PA 16901

(Address of principal executive offices) (Zip code)

570-724-3411

(Registrant’s telephone number including area code)

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

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

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

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

Yes ⌧ No ◻

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

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

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

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

Yes ☐ No ⌧

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

Common Stock ($1.00 par value) 15,274,766 Shares Outstanding on November 2, 2023

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

CITIZENS & NORTHERN CORPORATION

Index

Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited) –September 30, 2023 and December 31, 2022	Page 3
Consolidated Statements of Income (Unaudited) – Three-month and Nine-month Periods Ended September 30, 2023 and 2022	Page 4
Consolidated Statements of Comprehensive Income (Loss) (Unaudited) – Three-month and Nine-month Periods Ended September 30, 2023 and 2022	Page 5
Consolidated Statements of Cash Flows (Unaudited) – Nine-month Periods Ended September 30, 2023 and 2022	Page 6
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) – Three-month and Nine-month Periods Ended September 30, 2023 and 2022	Page 7
Notes to Unaudited Consolidated Financial Statements	Pages 8 – 39
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	Pages 40 – 65
Item 3. Quantitative and Qualitative Disclosures About Market Risk	Pages 66 – 68
Item 4. Controls and Procedures	Page 68
Part II. Other Information	Pages 69 – 71
Signatures	Page 72

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

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

	September 30,		December 31,
	2023		2022
ASSETS
Cash and due from banks:
Noninterest-bearing	$	25,775	$	25,811
Interest-bearing		26,883		29,237
Total cash and due from banks		52,658		55,048
Available-for-sale debt securities, at fair value		429,138		498,033
Loans receivable		1,830,670		1,740,040
Allowance for credit losses on loans		(18,085)		(16,615)
Loans, net		1,812,585		1,723,425
Bank-owned life insurance		31,557		31,214
Accrued interest receivable		9,311		8,653
Bank premises and equipment, net		21,267		21,574
Foreclosed assets held for sale		633		275
Deferred tax asset, net		23,731		20,884
Goodwill		52,505		52,505
Core deposit intangibles, net		2,571		2,877
Other assets		47,993		39,819
TOTAL ASSETS	$	2,483,949	$	2,454,307
LIABILITIES
Deposits:
Noninterest-bearing	$	495,829	$	563,843
Interest-bearing		1,529,168		1,433,750
Total deposits		2,024,997		1,997,593
Short-term borrowings		23,253		80,062
Long-term borrowings - FHLB advances		125,276		62,347
Senior notes, net		14,814		14,765
Subordinated debt, net		24,689		24,607
Accrued interest and other liabilities		30,715		25,608
TOTAL LIABILITIES		2,243,744		2,204,982
STOCKHOLDERS' EQUITY
Preferred stock, $1,000 par value; authorized 30,000 shares; $1,000 liquidation
preference per share; no shares issued		0		0
Common stock, par value $1.00 per share; authorized 30,000,000 shares;
issued 16,030,172 and outstanding 15,275,686 at September 30, 2023;
issued 16,030,172 and outstanding 15,518,819 at December 31, 2022		16,030		16,030
Paid-in capital		143,972		143,950
Retained earnings		157,044		151,743
Treasury stock, at cost; 754,486 shares at September 30, 2023 and 511,353
shares at December 31, 2022		(17,015)		(12,520)
Accumulated other comprehensive loss		(59,826)		(49,878)
TOTAL STOCKHOLDERS' EQUITY		240,205		249,325
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY	$	2,483,949	$	2,454,307

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

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Consolidated Statements of Income

(In Thousands Except Per Share Data) (Unaudited)

	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
	2023		2022		2023		2022
INTEREST INCOME
Interest and fees on loans:
Taxable	$	25,529	$	20,085	$	72,322	$	56,561
Tax-exempt		552		505		1,687		1,426
Income from available-for-sale debt securities:
Taxable		2,077		2,138		6,440		6,143
Tax-exempt		597		768		1,847		2,258
Other interest and dividend income		363		214		972		404
Total interest and dividend income		29,118		23,710		83,268		66,792
INTEREST EXPENSE
Interest on deposits		7,264		1,972		15,593		4,012
Interest on short-term borrowings		677		179		2,918		302
Interest on long-term borrowings - FHLB advances		1,164		332		2,901		436
Interest on senior notes, net		120		119		359		357
Interest on subordinated debt, net		230		229		691		849
Total interest expense		9,455		2,831		22,462		5,956
Net interest income		19,663		20,879		60,806		60,836
(Credit) provision for credit losses		(1,225)		3,794		(765)		4,993
Net interest income after (credit) provision for credit losses		20,888		17,085		61,571		55,843
NONINTEREST INCOME
Trust revenue		1,919		1,744		5,500		5,245
Brokerage and insurance revenue		394		696		1,189		1,784
Service charges on deposit accounts		1,443		1,105		4,121		3,662
Interchange revenue from debit card transactions		1,098		1,031		3,115		3,050
Net gains from sale of loans		237		131		450		733
Loan servicing fees, net		154		189		466		757
Increase in cash surrender value of life insurance		160		133		450		405
Other noninterest income		1,084		622		3,442		2,666
Realized gains on available-for-sale debt securities, net		0		20		6		21
Total noninterest income		6,489		5,671		18,739		18,323
NONINTEREST EXPENSE
Salaries and employee benefits		10,878		10,826		33,082		31,698
Net occupancy and equipment expense		1,268		1,498		3,993		4,217
Data processing and telecommunications expense		1,823		1,719		5,659		5,062
Automated teller machine and interchange expense		504		397		1,374		1,128
Pennsylvania shares tax		403		487		1,210		1,463
Professional fees		487		521		1,988		1,490
Other noninterest expense		2,577		1,995		8,443		6,310
Total noninterest expense		17,940		17,443		55,749		51,368
Income before income tax provision		9,437		5,313		24,561		22,798
Income tax provision		1,846		858		4,674		3,959
NET INCOME	$	7,591	$	4,455	$	19,887	$	18,839
EARNINGS PER COMMON SHARE - BASIC	$	0.50	$	0.29	$	1.29	$	1.21
EARNINGS PER COMMON SHARE - DILUTED	$	0.50	$	0.29	$	1.29	$	1.21

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

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Consolidated Statements of Comprehensive Income (Loss)

(In Thousands) (Unaudited)

	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
	2023		2022		2023		2022
Net income	$	7,591	$	4,455	$	19,887	$	18,839
Available-for-sale debt securities:
Unrealized holding losses on available-for-sale debt securities		(14,865)		(25,880)		(12,535)		(77,923)
Reclassification adjustment for gains realized in income		0		(20)		(6)		(21)
Other comprehensive loss on available-for-sale debt securities		(14,865)		(25,900)		(12,541)		(77,944)
Unfunded pension and postretirement obligations:
Changes from plan amendments and actuarial gains and losses		0		0		(8)		133
Amortization of prior service cost and net actuarial loss included in net periodic benefit cost		(14)		(9)		(42)		(31)
Other comprehensive (loss) income on pension and postretirement obligations		(14)		(9)		(50)		102
Other comprehensive loss before income tax		(14,879)		(25,909)		(12,591)		(77,842)
Income tax related to other comprehensive loss		3,126		5,442		2,643		16,347
Net other comprehensive loss		(11,753)		(20,467)		(9,948)		(61,495)
Comprehensive (loss) income	$	(4,162)	$	(16,012)	$	9,939	$	(42,656)

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

5

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands) (Unaudited)

	Nine Months Ended
	September 30,		September 30,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	19,887	$	18,839
Adjustments to reconcile net income to net cash provided by operating activities:
(Credit) provision for credit losses		(765)		4,993
Realized gains on available-for-sale debt securities, net		(6)		(21)
Net amortization of securities		1,556		2,174
Increase in cash surrender value of life insurance		(450)		(405)
Depreciation and amortization of bank premises and equipment		1,633		1,780
Net accretion of purchase accounting adjustments		(198)		(1,017)
Stock-based compensation		1,015		1,169
Deferred income taxes		235		(93)
Decrease (increase) in fair value of servicing rights		136		(128)
Gains on sales of loans, net		(450)		(733)
Origination of loans held for sale		(14,568)		(25,003)
Proceeds from sales of loans held for sale		14,341		26,752
Increase in accrued interest receivable and other assets		(1,175)		(1,562)
Increase (decrease) in accrued interest payable and other liabilities		4,588		(352)
Other		22		148
Net Cash Provided by Operating Activities		25,801		26,541
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of certificates of deposit		0		(250)
Proceeds from maturities of certificates of deposit		3,000		750
Proceeds from sales of available-for-sale debt securities		18,357		4,100
Proceeds from calls and maturities of available-for-sale debt securities		44,208		50,263
Purchase of available-for-sale debt securities		(8,215)		(104,601)
Redemption of Federal Home Loan Bank of Pittsburgh stock		19,503		10,765
Purchase of Federal Home Loan Bank of Pittsburgh stock		(19,905)		(12,009)
Purchase of Federal Reserve Bank stock		(6,243)		0
Net increase in loans		(89,998)		(126,792)
Proceeds from bank owned life insurance		147		0
Purchase of premises and equipment		(1,381)		(2,986)
Proceeds from sale of foreclosed assets		62		351
Other		109		161
Net Cash Used in Investing Activities		(40,356)		(180,248)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits		27,425		114,667
Net (decrease) increase in short-term borrowings		(56,809)		654
Proceeds from long-term borrowings - FHLB advances		70,049		39,041
Repayments of long-term borrowings - FHLB advances		(7,078)		(11,430)
Redemption of subordinated debt		0		(8,500)
Sale of treasury stock		0		141
Purchases of treasury stock		(6,719)		(9,349)
Common dividends paid		(11,703)		(11,921)
Net Cash Provided by Financing Activities		15,165		113,303
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		610		(40,404)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		47,698		95,848
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	48,308	$	55,444
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
(Decrease) increase in accrued purchase of available-for-sale debt securities	$	(454)	$	160
Assets acquired through foreclosure of real estate loans	$	390	$	51
Leased assets obtained in exchange for new operating lease liabilities	$	0	$	904
Interest paid	$	21,392	$	5,729
Income taxes paid	$	4,667	$	3,835

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

6

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Consolidated Statements of Changes in Stockholders’ Equity

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

									Accumulated
									Other
	Common	Treasury	Common		Paid-in		Retained		Comprehensive		Treasury
Three Months Ended September 30, 2023	Shares	Shares	Stock		Capital		Earnings		Loss		Stock		Total
Balance, June 30, 2023	16,030,172	762,076	$	16,030	$	143,661	$	153,725	$	(48,073)	$	(17,226)	$	248,117
Net income								7,591						7,591
Other comprehensive loss, net										(11,753)				(11,753)
Cash dividends declared on common stock, $.28 per share								(4,272)						(4,272)
Shares issued for dividend reinvestment plan		(20,184)				(36)						457		421
Forfeiture of restricted stock		1,073				27						(27)		0
Stock-based compensation expense						320								320
Purchase of restricted stock for tax withholding		838										(16)		(16)
Treasury stock purchases		10,683										(203)		(203)
Balance, September 30, 2023	16,030,172	754,486	$	16,030	$	143,972	$	157,044	$	(59,826)	$	(17,015)	$	240,205
Three Months Ended September 30, 2022
Balance, June 30, 2022	16,030,172	530,958	$	16,030	$	143,417	$	148,187	$	(36,002)	$	(13,013)	$	258,619
Net income								4,455						4,455
Other comprehensive loss, net										(20,467)				(20,467)
Cash dividends declared on common stock, $.28 per share								(4,338)						(4,338)
Shares issued for dividend reinvestment plan		(16,019)				8						392		400
Forfeiture of restricted stock		3,638				81						(81)		0
Stock-based compensation expense						388								388
Purchase of restricted stock for tax withholding		910										(22)		(22)
Treasury stock purchases		10,269										(246)		(246)
Balance, September 30, 2022	16,030,172	529,756	$	16,030	$	143,894	$	148,304	$	(56,469)	$	(12,970)	$	238,789

									Accumulated
									Other
	Common	Treasury	Common		Paid-in		Retained		Comprehensive		Treasury
Nine Months Ended September 30, 2023	Shares	Shares	Stock		Capital		Earnings		(Loss) Income		Stock		Total
Balance, December 31, 2022	16,030,172	511,353	$	16,030	$	143,950	$	151,743	$	(49,878)	$	(12,520)	$	249,325
Adoption of ASU 2016-13 (CECL)								(1,652)						(1,652)
Net income								19,887						19,887
Other comprehensive loss, net										(9,948)				(9,948)
Cash dividends declared on common stock, $.84 per share								(12,934)						(12,934)
Shares issued for dividend reinvestment plan		(60,871)				(182)						1,413		1,231
Restricted stock granted		(53,788)				(1,314)						1,314		0
Forfeiture of restricted stock		23,039				503						(503)		0
Stock-based compensation expense						1,015								1,015
Purchase of restricted stock for tax withholding		9,453										(219)		(219)
Treasury stock purchases		325,300										(6,500)		(6,500)
Balance, September 30, 2023	16,030,172	754,486	$	16,030	$	143,972	$	157,044	$	(59,826)	$	(17,015)	$	240,205
Nine Months Ended September 30, 2022
Balance, December 31, 2021	16,030,172	271,082	$	16,030	$	144,453	$	142,612	$	5,026	$	(6,716)	$	301,405
Net income								18,839						18,839
Other comprehensive loss, net										(61,495)				(61,495)
Cash dividends declared on common stock, $.84 per share								(13,147)						(13,147)
Shares issued for dividend reinvestment plan		(49,221)				10						1,216		1,226
Shares issued from treasury related to exercise of stock options		(7,024)				(34)						175		141
Restricted stock granted		(78,243)				(1,932)						1,932		0
Forfeiture of restricted stock		10,782				228						(228)		0
Stock-based compensation expense						1,169								1,169
Purchase of restricted stock for tax withholding		6,964										(175)		(175)
Treasury stock purchases		375,416										(9,174)		(9,174)
Balance, September 30, 2022	16,030,172	529,756	$	16,030	$	143,894	$	148,304	$	(56,469)	$	(12,970)	$	238,789

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

7

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Notes to Unaudited Consolidated Financial Statements

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

The consolidated financial statements include the accounts of Citizens & Northern Corporation and its subsidiaries, Citizens & Northern Bank (“C&N Bank”), Bucktail Life Insurance Company and Citizens & Northern Investment Corporation (collectively, “Corporation”). The consolidated financial statements also include C&N Bank’s wholly-owned subsidiaries, C&N Financial Services, LLC and Northern Tier Holding LLC. C&N Bank is the sole member of C&N Financial Services, LLC and Northern Tier Holding LLC. All material intercompany balances and transactions have been eliminated in consolidation.

The consolidated financial information included herein, except the consolidated balance sheet dated December 31, 2022, is unaudited. Such information reflects all adjustments (consisting solely of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations, comprehensive income, cash flows and changes in stockholders’ equity for the interim periods; however, the information does not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for a complete set of financial statements. Certain 2022 information has been reclassified for consistency with the 2023 presentation.

Operating results reported for the nine-month period ended September 30, 2023 might not be indicative of the results for the year ending December 31, 2023. The Corporation evaluates subsequent events through the date of filing with the Securities and Exchange Commission.

RECENT ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board (FASB) issues Accounting Standards Updates (ASUs) to the FASB Accounting Standards Codification (ASC). This section provides a summary description of recent ASUs that have significant implications (elected or required) within the consolidated financial statements, or that management expects may have a significant impact on the consolidated financial statements issued in the near future.

Recent Accounting Pronouncements - Adopted

On January 1, 2023, the Corporation adopted ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASC 326). This standard replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. CECL requires an estimate of credit losses for the remaining estimated life of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts and generally applies to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities, and some off-balance sheet credit exposures such as unfunded commitments to extend credit. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses. Purchased credit deteriorated (“PCD”) loans will receive an initial allowance at the acquisition date that represents an adjustment to the amortized cost basis of the loan, with no impact to earnings.

In addition, CECL made changes to the accounting for available for sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available for sale debt securities if management does not intend to sell and does not believe that it is more likely than not, they will be required to sell. The Corporation adopted ASC 326 using the prospective transition approach for debt securities for which other-than-temporary impairment had been recognized prior to January 1, 2023. As of December 31, 2022, the Company did not have any other-than-temporarily impaired investment securities. Therefore, upon adoption of ASC 326, the Company determined that an allowance for credit losses on available for sale debt securities was not necessary.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Effective January 1, 2023, the Corporation adopted ASC 326 using the modified retrospective approach for all financial assets measured at amortized cost and off-balance sheet credit exposures. Results for reporting periods beginning after January 1, 2023 are presented under CECL while prior period amounts continue to be reported in accordance with previously applicable accounting standards (“Incurred Loss”). The following table illustrates the impact from the adoption of ASC 326:

	As Reported
	Under		Pre-ASC 326		Impact of
	ASC 326		Adoption		ASC 326
(In Thousands)	January 1, 2023		December 31, 2022		Adoption
Loans receivable	$	1,740,846	$	1,740,040	$	806
Allowance for credit losses on loans	$	18,719	$	16,615	$	2,104
Allowance for credit losses on off-balance sheet exposures (included in accrued interest and other liabilities)		1,218		425		793
Deferred tax asset, net		21,323		20,884		439
Retained earnings		150,091		151,743		(1,652)

The Corporation adopted ASC 326 using the prospective transition approach for PCD assets that were previously classified as purchased credit impaired (“PCI”) under ASC 310-30. In accordance with the standard, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. On January 1, 2023, the amortized cost basis of PCD assets was adjusted to establish the allowance for credit losses. Essentially all of the PCD loans were reported as nonaccrual loans at January 1, 2023 and September 30, 2023.

ASU 2022-02, Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. This update reduces the complexity of accounting for Troubled Debt Restructurings (“TDRs”) by eliminating certain accounting guidance, enhancing disclosures and improving the consistency of vintage disclosures. The Corporation adopted ASU 2022-02 on January 1, 2023. Changes in disclosure requirements in accordance with ASU 2022-02 are reflected in Note 6. The adoption of ASU 2022-02 did not have a material impact on the consolidated financial statements.

Accounting Policies

The Corporation’s significant accounting policies followed in the preparation of the unaudited consolidated financial statements are disclosed in Note 1 of the audited consolidated financial statements and notes for the year ended December 31, 2022 and are contained in the Corporation’s Annual Report on Form 10-K. There have been no significant changes to the application of significant accounting policies since December 31, 2022, except for the following:

Allowance for Credit Losses – Available-for-Sale Debt Securities

For available-for-sale debt securities, management evaluates all investments in an unrealized loss position on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. If the Corporation has the intent to sell the security or it is more likely than not that the Corporation will be required to sell the security, the security is written down to fair value and the entire loss is recorded in earnings.

If either of the above criteria is not met, the Corporation evaluates whether the decline in fair value is the result of credit losses or other factors. The Corporation has elected the practical expedient of zero credit loss estimates for securities issued or guaranteed by U.S. Government entities or agencies. In making the credit loss assessment of securities not issued or guaranteed by U.S. Government entities or agencies, the Corporation may consider various factors including the extent to which fair value is less than amortized cost, performance on any underlying collateral, downgrades in the ratings of the security by a rating agency, the failure of the issuer to make scheduled interest or principal payments and adverse conditions specifically related to the security. If the assessment indicates that a credit loss exists, the present value of cash flows expected to be collected are compared to the amortized cost basis of the security and any excess is recorded as an allowance for credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any amount of unrealized loss that has not been recorded through an allowance for credit loss is recognized in other comprehensive income (loss).

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance for credit losses when management believes an available-for-sale debt security is confirmed to be uncollectible or when either of the criteria regarding intent or requirement to sell is met. At September 30, 2023, there was no allowance for credit losses related to the available-for-sale portfolio.

Accrued interest receivable on available-for-sale debt securities totaled $2,688,000 at September 30, 2023 and was excluded from the estimate of credit losses.

Allowance for Credit Losses on Loans

The allowance for credit losses is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

The allowance for credit losses represents management’s estimate of lifetime credit losses inherent in loans as of the balance sheet date. The allowance for credit losses is estimated by management using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.

Accrued interest receivable on loans totaled $6,590,000 at September 30, 2023 and was excluded from the estimate of credit losses.

The allowance for credit losses (“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).

Evaluation of Expected Losses on Individual Loans

Loans evaluated on an individual basis are identified based on a detailed assessment of certain larger loan relationships, and their related credit risk ratings, by a management committee referred to as the Watch List Committee. The allowance will be determined on an individual basis using the present value of expected cash flows or, for collateral-dependent loans, the fair value of the collateral as of the reporting date, less estimated selling costs, as applicable. If the fair value of the collateral is less than the amortized cost basis of the loan, the Corporation will charge off the difference between the fair value of the collateral, less costs to sell at the reporting date and the amortized cost basis of the loan.

The scope of loans reviewed individually for credit loss each quarter includes all commercial loan relationships greater than $200,000 and any residential mortgage or consumer loans of $400,000 or more for which there is at least one extension of credit graded Special Mention, Substandard or Doubtful. Additionally, all PCD loans are evaluated individually for credit loss.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Collective Evaluation of Expected Losses – Pool Basis

The Corporation measures expected credit losses for loans on a pooled basis when similar risk characteristics exist. The Corporation has identified the following portfolio segments and calculates the allowance for credit losses for each using the weighted-average remaining maturity (“WARM”) method:

Commercial real estate - nonowner occupied, further broken down into the following classes:

Nonowner occupied

Multi-family (5 or more) residential

1-4 Family - commercial purpose

Commercial real estate - owner occupied

All other commercial loans, further broken down into the following classes:

Commercial and industrial

Commercial lines of credit

Political subdivisions

Commercial construction and land

Other commercial loans

Residential mortgage loans, further broken down into the following classes:

1-4 Family – residential

1-4 Family residential construction and land

Consumer loans, further broken down into the following classes:

Consumer lines of credit (including HELOCs)

All other consumer

In determining the pools for collective evaluation, management uses a combination of loan purpose, collateral and payment type (for example, lines of credit vs. amortizing). The pools identified are similar to the loan classes used in the Corporation’s financial reporting for several years, with several exceptions including the following which are of the most significance:

● Commercial real estate secured loans are broken out between non-owner occupied and owner-occupied

● Loans secured by 1-4 family residential mortgages are broken out between consumer-purpose and commercial-purpose

● Commercial lines of credit are broken out as an individual category

Each of these changes was made to better sort loans into pools with similar risk and cash flow characteristics.

Estimation Method - WARM (Weighted-Average Remaining Maturity Method)

In applying the WARM method, for each pool identified above, the Corporation determined the annual net charge-offs as a percentage of average total loan balances (net charge-off percentage). In the January 1, 2023 calculation, the Corporation used the annualized net charge-off percentage over the prior 5 calendar years. In the September 30, 2023 calculation, the Corporation used the net charge-off percentage for the 5.75-year period ended September 30, 2023. For each loan pool, the average annualized net charge-off percentage was multiplied by the estimated weighted-average remaining average life of the loans to calculate the loss rate.

The calculation of the estimated weighted-average remaining life of each loan pool was based on instrument-level data, with contractual principal payments adjusted for the estimated impact of prepayments. Commercial lines of credit and other revolving credit facilities were generally assumed to be repaid after 1 year. The estimated weighted-average remaining life of the entire portfolio was calculated to be 4.16 years at September 30, 2023 and 4.36 years at January 1, 2023. Management determined that use of the Corporation’s net charge-off experience over a 5.75-year period at September 30, 2023 and 5-year period at January 1, 2023 would provide a reasonable time period to include in the WARM expected loss rate calculations in relationship to the weighted-average life of the portfolio overall and to each of the pools.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Qualitative Factors

The allowance for credit losses calculation includes subjective adjustments for qualitative risk factors that are deemed likely to cause estimated credit losses to differ from historical experience. These qualitative adjustments generally increase allowance levels and include adjustments for factors deemed relevant, including: the nature and volume of portfolio changes, including loan portfolio growth; concentrations of credit based on loan type (such as non-owner occupied commercial real estate) or industry; the volume and severity of past due, nonaccrual or adversely classified loans; trends in real estate or other collateral values; lending policies and procedures, including changes in underwriting and collections practices; credit review function; lending, credit and other relevant management experience and risk tolerance; external factors and economic conditions not already captured.

Economic Forecast

ASC Topic 326 requires management to consider forward-looking information that is both reasonable and supportable and relevant to the collectability of cash flows. Reasonable and supportable forecasts may extend over the entire contractual term of a financial asset or a period shorter than the contractual term. In that regard, management has selected a forecast period of 2 years, which is shorter than the estimated weighted-average remaining life of the loan portfolio.

The Corporation calculated an additional expected credit loss based on establishing a correlation between past loss experience and an economic statistic. This additional credit loss is added to the allowance calculation, conceptually for the first 2 years of the weighted-average remaining life of the portfolio after which time the credit loss for each pool is determined based on the WARM historical loss rate as adjusted for qualitative factors.

Allowance for Credit Losses on Off-Balance Sheet Exposures

Financial instruments include off-balance sheet credit instruments, such as commitments to make loans, commercial letters of credit and credit enhancement obligations related to residential mortgage loans sold with recourse. The Corporation’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded.

The Corporation records an allowance for credit losses on off-balance sheet credit exposures, unless the commitments to extend credit are unconditionally cancelable, through a charge to provision for unfunded commitments in the Corporation’s statements of income. The allowance for credit losses on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date under the current expected credit loss model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur as well as any third-party guarantees. The allowance for off-balance sheet exposures is included in accrued interest and other liabilities in the Corporation’s unaudited consolidated balance sheets and the related credit expense is recorded in the provision for credit losses in the unaudited consolidated statements of income.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

2. PER SHARE DATA

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

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

(In Thousands, Except Share and Per Share Data)	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
	2023		2022		2023		2022
Basic
Net income	$	7,591	$	4,455	$	19,887	$	18,839
Less: Dividends and undistributed earnings allocated to participating securities		(57)		(39)		(156)		(169)
Net income attributable to common shares	$	7,534	$	4,416	$	19,731	$	18,670
Basic weighted-average common shares outstanding		15,154,797		15,364,075		15,264,391		15,482,672
Basic earnings per common share (a)	$	0.50	$	0.29	$	1.29	$	1.21
Diluted
Net income attributable to common shares	$	7,534	$	4,416	$	19,731	$	18,670
Basic weighted-average common shares outstanding		15,154,797		15,364,075		15,264,391		15,482,672
Dilutive effect of potential common stock arising from stock options		0		3,114		4		3,276
Diluted weighted-average common shares outstanding		15,154,797		15,367,189		15,264,395		15,485,948
Diluted earnings per common share (a)	$	0.50	$	0.29	$	1.29	$	1.21
Weighted-average nonvested restricted shares outstanding		113,328		136,040		120,632		139,761

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

Anti-dilutive stock options are excluded from earnings per share calculations. The weighted-average number of anti-dilutive instruments outstanding was 8,934 in the three-month period ended September 30, 2023 and 0 in the nine-month period ended September 30, 2023. There were no anti-dilutive instruments outstanding in the three-month and nine-month periods ended September 30, 2022.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

3. COMPREHENSIVE INCOME (LOSS)

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

(In Thousands)	Before-Tax		Income Tax		Net-of-Tax
	Amount		Effect		Amount
Three Months Ended September 30, 2023
Available-for-sale debt securities:
Unrealized holding losses on available-for-sale debt securities	$	(14,865)	$	3,123	$	(11,742)
Reclassification adjustment for gains realized in income		0		0		0
Other comprehensive loss from available-for-sale debt securities		(14,865)		3,123		(11,742)
Unfunded pension and postretirement obligations:
Amortization of prior service cost and net actuarial loss included in net periodic benefit cost		(14)		3		(11)
Other comprehensive loss on unfunded retirement obligations		(14)		3		(11)
Total other comprehensive loss	$	(14,879)	$	3,126	$	(11,753)

(In Thousands)	Before-Tax		Income Tax		Net-of-Tax
	Amount		Effect		Amount
Three Months Ended September 30, 2022
Available-for-sale debt securities:
Unrealized holding losses on available-for-sale debt securities	$	(25,880)	$	5,437	$	(20,443)
Reclassification adjustment for (gains) realized in income		(20)		4		(16)
Other comprehensive loss from available-for-sale debt securities		(25,900)		5,441		(20,459)
Unfunded pension and postretirement obligations:
Amortization of prior service cost and net actuarial loss included in net periodic benefit cost		(9)		1		(8)
Other comprehensive loss on unfunded retirement obligations		(9)		1		(8)
Total other comprehensive loss	$	(25,909)	$	5,442	$	(20,467)

(In Thousands)	Before-Tax		Income Tax		Net-of-Tax
	Amount		Effect		Amount
Nine Months Ended September 30, 2023
Available-for-sale debt securities:
Unrealized holding losses on available-for-sale debt securities	$	(12,535)	$	2,632	$	(9,903)
Reclassification adjustment for (gains) realized in income		(6)		1		(5)
Other comprehensive loss from available-for-sale debt securities		(12,541)		2,633		(9,908)
Unfunded pension and postretirement obligations:
Changes from plan amendments and actuarial gains and losses		(8)		1		(7)
Amortization of prior service cost and net actuarial loss included in net periodic benefit cost		(42)		9		(33)
Other comprehensive loss on unfunded retirement obligations		(50)		10		(40)
Total other comprehensive loss	$	(12,591)	$	2,643	$	(9,948)

(In Thousands)	Before-Tax		Income Tax		Net-of-Tax
	Amount		Effect		Amount
Nine Months Ended September 30, 2022
Available-for-sale debt securities:
Unrealized holding losses on available-for-sale debt securities	$	(77,923)	$	16,365	$	(61,558)
Reclassification adjustment for (gains) realized in income		(21)		4		(17)
Other comprehensive loss from available-for-sale debt securities		(77,944)		16,369		(61,575)
Unfunded pension and postretirement obligations:
Changes from plan amendments and actuarial gains and losses		133		(27)		106
Amortization of prior service cost and net actuarial loss included in net periodic benefit cost		(31)		5		(26)
Other comprehensive income on unfunded retirement obligations		102		(22)		80
Total other comprehensive loss	$	(77,842)	$	16,347	$	(61,495)

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

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

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

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

(In Thousands)	Unrealized				Accumulated
	(Losses)		Unfunded		Other
	Gains		Retirement		Comprehensive
	on Securities		Obligations		(Loss) Income
Three Months Ended September 30, 2023
Balance, beginning of period	$	(48,536)		463	$	(48,073)
Other comprehensive loss during three months ended September 30, 2023		(11,742)		(11)		(11,753)
Balance, end of period	$	(60,278)	$	452	$	(59,826)
Three Months Ended September 30, 2022
Balance, beginning of period	$	(36,307)	$	305	$	(36,002)
Other comprehensive loss during three months ended September 30, 2022		(20,459)		(8)		(20,467)
Balance, end of period	$	(56,766)	$	297	$	(56,469)

(In Thousands)	Unrealized				Accumulated
	(Losses)		Unfunded		Other
	Gains		Retirement		Comprehensive
	on Securities		Obligations		(Loss) Income
Nine Months Ended September 30, 2023
Balance, beginning of period	$	(50,370)	$	492	$	(49,878)
Other comprehensive loss during nine months ended September 30, 2023		(9,908)		(40)		(9,948)
Balance, end of period	$	(60,278)	$	452	$	(59,826)
Nine Months Ended September 30, 2022
Balance, beginning of period	$	4,809	$	217	$	5,026
Other comprehensive loss during nine months ended September 30, 2022		(61,575)		80		(61,495)
Balance, end of period	$	(56,766)	$	297	$	(56,469)

4. CASH AND DUE FROM BANKS

Cash and due from banks at September 30, 2023 and December 31, 2022 include the following:

(In Thousands)	September 30,		December 31,
	2023		2022
Cash and cash equivalents	$	48,308	$	47,698
Certificates of deposit		4,350		7,350
Total cash and due from banks	$	52,658	$	55,048

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Certificates of deposit are issues by U.S. banks with original maturities greater than three months. Each certificate of deposit is fully FDIC-insured. The Corporation maintains cash and cash equivalents with certain financial institutions in excess of the FDIC insurance limit.

5. SECURITIES

Amortized cost and fair value of available-for-sale debt securities at September 30, 2023 and December 31, 2022 are summarized as follows:

(In Thousands)	September 30, 2023
			Gross		Gross
			Unrealized		Unrealized
	Amortized		Holding		Holding		Fair
	Cost		Gains		Losses		Value
Obligations of the U.S. Treasury	$	33,938	$	0	$	(3,381)	$	30,557
Obligations of U.S. Government agencies		21,372		0		(2,576)		18,796
Bank holding company debt securities		28,950		0		(6,639)		22,311
Obligations of states and political subdivisions:
Tax-exempt		123,598		114		(19,259)		104,453
Taxable		65,408		0		(11,951)		53,457
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		109,102		0		(14,633)		94,469
Residential collateralized mortgage obligations		38,267		0		(4,870)		33,397
Commercial mortgage-backed securities		76,627		0		(12,955)		63,672
Private label commercial mortgage-backed securities		8,178		0		(152)		8,026
Total available-for-sale debt securities	$	505,440	$	114	$	(76,416)	$	429,138

(In Thousands)	December 31, 2022
			Gross		Gross
			Unrealized		Unrealized
	Amortized		Holding		Holding		Fair
	Cost		Gains		Losses		Value
Obligations of the U.S. Treasury	$	35,166	$	0	$	(3,330)	$	31,836
Obligations of U.S. Government agencies		25,938		0		(2,508)		23,430
Bank holding company debt securities		28,945		0		(3,559)		25,386
Obligations of states and political subdivisions:
Tax-exempt		146,149		319		(13,845)		132,623
Taxable		68,488		0		(11,676)		56,812
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		112,782		0		(12,841)		99,941
Residential collateralized mortgage obligations		44,868		0		(4,572)		40,296
Commercial mortgage-backed securities		91,388		0		(11,702)		79,686
Private label commercial mortgage-backed securities		8,070		2		(49)		8,023
Total available-for-sale debt securities	$	561,794	$	321	$	(64,082)	$	498,033

The following table presents gross unrealized losses and fair value of available-for-sale debt securities with unrealized loss positions aggregated by length of time that individual securities have been in a continuous unrealized loss position at September 30, 2023 and December 31, 2022:

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

September 30, 2023	Less Than 12 Months				12 Months or More				Total
(In Thousands)	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
Obligations of the U.S. Treasury	$	0		0	$	30,557		(3,381)	$	30,557	$	(3,381)
Obligations of U.S. Government agencies		1,850		(8)		16,946		(2,568)		18,796		(2,576)
Bank holding company debt securities		0		0		22,311		(6,639)		22,311		(6,639)
Obligations of states and political subdivisions:
Tax-exempt		4,172		(268)		96,600		(18,991)		100,772		(19,259)
Taxable		0		0		53,457		(11,951)		53,457		(11,951)
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		9,304		(412)		83,619		(14,221)		92,923		(14,633)
Residential collateralized mortgage obligations		2,662		(130)		30,735		(4,740)		33,397		(4,870)
Commercial mortgage-backed securities		2,211		(130)		61,461		(12,825)		63,672		(12,955)
Private label commercial mortgage-backed securities		8,026		(152)		0		0		8,026		(152)
Total temporarily impaired available-for-sale debt securities	$	28,225	$	(1,100)	$	395,686	$	(75,316)	$	423,911	$	(76,416)

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

December 31, 2022	Less Than 12 Months				12 Months or More				Total
(In Thousands)	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
Obligations of the U.S. Treasury	$	20,192	$	(1,939)	$	11,644	$	(1,391)	$	31,836	$	(3,330)
Obligations of U.S. Government agencies		8,509		(430)		12,921		(2,078)		21,430		(2,508)
Bank holding company debt securities		14,248		(1,697)		11,138		(1,862)		25,386		(3,559)
Obligations of states and political subdivisions:
Tax-exempt		106,204		(11,023)		15,153		(2,822)		121,357		(13,845)
Taxable		28,901		(4,739)		27,761		(6,937)		56,662		(11,676)
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		45,410		(4,226)		54,531		(8,615)		99,941		(12,841)
Residential collateralized mortgage obligations		28,670		(2,042)		11,626		(2,530)		40,296		(4,572)
Commercial mortgage-backed securities		40,408		(2,585)		39,278		(9,117)		79,686		(11,702)
Private label commercial mortgage-backed securities		4,762		(49)		0		0		4,762		(49)
Total temporarily impaired available-for-sale debt securities	$	297,304	$	(28,730)	$	184,052	$	(35,352)	$	481,356	$	(64,082)

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

(In Thousands)	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
	2023		2022		2023		2022
Gross realized gains from sales	$	0	$	44	$	89	$	48
Gross realized losses from sales		0		(24)		(83)		(27)
Net realized gains	$	0	$	20	$	6	$	21

The amortized cost and fair value of available-for-sale debt securities by contractual maturity are shown in the following table as of September 30, 2023. Actual maturities may differ from contractual maturities because counterparties may have the right to call or prepay obligations with or without call or prepayment penalties.

(In Thousands)	September 30, 2023
	Amortized		Fair
	Cost		Value
Due in one year or less	$	10,899	$	10,672
Due from one year through five years		70,095		64,235
Due from five years through ten years		80,423		66,554
Due after ten years		111,849		88,113
Sub-total		273,266		229,574
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		109,102		94,469
Residential collateralized mortgage obligations		38,267		33,397
Commercial mortgage-backed securities		76,627		63,672
Private label commercial mortgage-backed securities		8,178		8,026
Total	$	505,440	$	429,138

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

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Investment securities carried at $242,190,000 at September 30, 2023 and $277,302,000 at December 31, 2022 were pledged as collateral for public deposits, trusts and certain other deposits as provided by law. See Note 8 for information concerning securities pledged to secure borrowing arrangements and Note 11 for information related to securities pledged against interest rate swap obligations.

A summary of information management considered in evaluating debt and equity securities for credit losses at September 30, 2023 and December 31, 2022 is provided below.

Debt Securities

As reflected in the table above, gross unrealized holding losses on available-for-sale debt securities totaled $76,416,000 at September 30, 2023 and $64,082,000 at December 31, 2022. At September 30, 2023, the Corporation does not have the intent to sell, nor is it more likely than not it will be required to sell, these securities before it is able to recover the amortized cost basis. The unrealized holding losses were consistent with significant increases in market interest rates that occurred in 2022 and 2023.

At September 30, 2023 and December 31, 2022, management performed an assessment for possible credit losses of the Corporation’s debt securities on an issue-by-issue basis, relying on information obtained from various sources, including publicly available financial data, ratings by external agencies, brokers and other sources. At September 30, 2023 and December 31, 2022, all of the Corporation’s holdings of bank holding company debt securities, obligations of states and political subdivisions and private label commercial mortgage-backed securities were investment grade and there have been no payment defaults.

Based on the results of the assessment, there was no ACL required on available-for-sale debt securities in an unrealized loss position at September 30, 2023 and December 31, 2022.

Equity Securities

C&N Bank is a member of the Federal Home Loan Bank of Pittsburgh (FHLB-Pittsburgh), which is one of 11 regional Federal Home Loan Banks. As a member, C&N Bank is required to purchase and maintain stock in FHLB-Pittsburgh. There is no active market for FHLB-Pittsburgh stock, and it must ordinarily be redeemed by FHLB-Pittsburgh in order to be liquidated. C&N Bank’s investment in FHLB-Pittsburgh stock, included in other assets in the consolidated balance sheets, was $14,570,000 at September 30, 2023 and $14,168,000 at December 31, 2022. The Corporation evaluated its holding of FHLB-Pittsburgh stock for impairment and deemed the stock to not be impaired at September 30, 2023 and December 31, 2022. In making this determination, management concluded that recovery of total outstanding par value, which equals the carrying value, is expected. The decision was based on review of financial information that FHLB-Pittsburgh has made publicly available.

In July 2023, C&N Bank became a member of the Federal Reserve System.  As a member, C&N Bank is required to purchase and maintain stock in the Federal Reserve Bank of Philadelphia. There is no active market for Federal Reserve Bank stock, and it must ordinarily be redeemed by the Federal Reserve Bank of Philadelphia in order to be liquidated. C&N Bank’s investment in Federal Reserve Bank stock, included in other assets in the consolidated balance sheets, was $6,243,000 at September 30, 2023.

The Corporation has a marketable equity security included in other assets in the consolidated balance sheets with a carrying value of $832,000 at September 30, 2023 and $859,000 December 31, 2022, consisting exclusively of one mutual fund. There was an unrealized loss on the mutual fund of $168,000 at September 30, 2023 and $141,000 at December 31, 2022. Changes in the unrealized gains or losses on this security, which are included in other noninterest income in the consolidated statements of income, were a loss of $27,000 in the third quarter 2023 and for the nine-month period ended September 30, 2023, a loss of $38,000 in the third quarter 2022 and a loss of $114,000 in the nine-month period ended September 30, 2022.

19

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

6. LOANS AND ALLOWANCE FOR CREDIT LOSSES

Loans receivable at September 30, 2023 and December 31, 2022 are summarized as follows:

Summary of Loans by Type

(In Thousands)

	September 30,		December 31,
	2023		2022 (1)
Commercial real estate - non-owner occupied	$	737,287	$	675,597
Commercial real estate - owner occupied		231,112		205,910
All other commercial loans		395,703		410,077
Residential mortgage loans		410,013		393,582
Consumer loans		56,555		54,874
Total		1,830,670		1,740,040
Less: allowance for credit losses on loans		(18,085)		(16,615)
Loans, net	$	1,812,585	$	1,723,425

(1) Total loans at December 31, 2022 include purchased credit impaired loans of $1,027,000.

In the table above, outstanding loan balances are presented net of deferred loan origination fees, net, of $4,456,000 at September 30, 2023 and $4,725,000 at December 31, 2022.

The Corporation grants loans to individuals as well as commercial and tax-exempt entities. Commercial, residential and personal loans are made to customers geographically concentrated in Northcentral Pennsylvania, the Southern tier of New York State, Southeastern Pennsylvania and Southcentral Pennsylvania. Although the Corporation has a diversified loan portfolio, a significant portion of its debtors’ ability to honor their contracts is dependent on the local economic conditions within the region.

Acquired loans were initially recorded at fair value, with adjustments made to gross amortized cost based on movements in interest rates (market rate adjustment) and based on credit fair value adjustments on non-impaired loans and impaired loans. Subsequently, the Corporation has recognized amortization and accretion of a portion of the market rate adjustments and credit adjustments on performing loans. For the three-month and nine-month periods ended September 30, 2023 and 2022, adjustments to the initial market rate and credit fair value adjustments of performing loans were recognized as follows:

(In Thousands)	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
	2023		2022		2023		2022
Market Rate Adjustment
Adjustments to gross amortized cost of loans at beginning of period	$	(1,000)	$	(866)	$	(916)	$	(637)
(Amortization) accretion recognized in interest income		(16)		5		(100)		(224)
Adjustments to gross amortized cost of loans at end of period	$	(1,016)	$	(861)	$	(1,016)	$	(861)
Credit Adjustment on Non-impaired Loans
Adjustments to gross amortized cost of loans at beginning of period	$	(1,446)	$	(2,403)	$	(1,840)	$	(3,335)
Accretion recognized in interest income		147		308		541		1,240
Adjustments to gross amortized cost of loans at end of period	$	(1,299)	$	(2,095)	$	(1,299)	$	(2,095)

20

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

The following table presents an analysis of past due loans as of September 30, 2023:

(In Thousands)	As of September 30, 2023
	Past Due		Past Due
	30-89		90+		Nonaccrual		Current		Total
	Days		Days		Loans		Loans		Loans
Commercial real estate - non-owner occupied	$	4	$	132	$	9,031	$	728,120	$	737,287
Commercial real estate - owner occupied		151		0		1,586		229,375		231,112
All other commercial loans		1,438		162		1,390		392,713		395,703
Residential mortgage loans		1,569		892		3,244		404,308		410,013
Consumer loans		513		106		250		55,686		56,555
Total	$	3,675	$	1,292	$	15,501	$	1,810,202	$	1,830,670

The following table presents an analysis of past due loans as of December 31, 2022:

(In Thousands)	As of December 31, 2022
	Past Due		Past Due
	30-89		90+		Nonaccrual		Current		Total
	Days		Days		Loans		Loans		Loans
Commercial real estate - non-owner occupied	$	644	$	947	$	6,350	$	667,656	$	675,597
Commercial real estate - owner occupied		723		141		19		204,099		204,982
All other commercial loans		537		151		11,528		397,762		409,978
Residential mortgage loans		4,540		866		3,974		384,202		393,582
Consumer loans		635		132		187		53,920		54,874
Purchased credit impaired		0		0		1,027		0		1,027
Total	$	7,079	$	2,237	$	23,085	$	1,707,639	$	1,740,040

In determining the larger loan relationships for detailed assessment under the specific allowance component, the Corporation uses an internal risk rating system. Under the risk rating system, the Corporation classifies problem or potential problem loans as “Special Mention,” “Substandard,” or “Doubtful” on the basis of currently existing facts, conditions and values. Substandard loans include those characterized by the distinct possibility that the Corporation will sustain some loss if the deficiencies are not corrected. Loans classified as Doubtful have all the weaknesses inherent in those classified as Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Loans that do not currently expose the Corporation to sufficient risk to warrant classification as Substandard or Doubtful, but possess weaknesses that deserve management’s close attention, are deemed to be Special Mention. Risk ratings are updated any time that conditions or the situation warrants. Loans not classified are included in the “Pass” rows in the table that follows.

21

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

The following table presents the recorded investment in loans by credit quality indicators by year of origination as of September 30, 2023:

(In Thousands)	Term Loans by Year of Origination
	2023		2022		2021		2020		2019		Prior		Revolving		Total
Commercial real estate - non-owner occupied
Pass	$	83,002	$	188,426	$	91,246	$	55,618	$	80,858	$	211,778	$	0	$	710,928
Special Mention		0		0		2,475		0		119		8,147		0		10,741
Substandard		0		0		0		2,577		610		12,431		0		15,618
Doubtful		0		0		0		0		0		0		0		0
Total commercial real estate - non-owner occupied	$	83,002	$	188,426	$	93,721	$	58,195	$	81,587	$	232,356	$	0	$	737,287
Year-to-date gross charge-offs	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Commercial real estate - owner occupied
Pass	$	28,058	$	37,306	$	52,680	$	13,245	$	17,722	$	75,113	$	0	$	224,124
Special Mention		0		0		2,617		0		0		1,301		0		3,918
Substandard		0		0		0		0		0		3,070		0		3,070
Doubtful		0		0		0		0		0		0		0		0
Total commercial real estate - owner occupied	$	28,058	$	37,306	$	55,297	$	13,245	$	17,722	$	79,484	$	0	$	231,112
Year-to-date gross charge-offs	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
All other commercial loans
Pass	$	39,638	$	94,942	$	53,556	$	29,097	$	17,364	$	25,489	$	112,698	$	372,784
Special Mention		0		0		4,642		0		0		805		400		5,847
Substandard		0		3,091		1,250		435		2,151		1,121		9,024		17,072
Doubtful		0		0		0		0		0		0		0		0
Total all other commercial loans	$	39,638	$	98,033	$	59,448	$	29,532	$	19,515	$	27,415	$	122,122	$	395,703
Year-to-date gross charge-offs	$	0	$	0	$	0	$	0	$	0	$	0	$	12	$	12
Residential mortgage loans
Pass	$	44,449	$	88,378	$	57,166	$	40,943	$	33,257	$	140,684	$	0	$	404,877
Special Mention		0		0		0		0		0		0		0		0
Substandard		0		0		0		289		369		4,478		0		5,136
Doubtful		0		0		0		0		0		0		0		0
Total residential mortgage loans	$	44,449	$	88,378	$	57,166	$	41,232	$	33,626	$	145,162	$	0	$	410,013
Year-to-date gross charge-offs	$	0	$	0	$	0	$	0	$	0	$	33	$	0	$	33
Consumer loans
Pass	$	5,216	$	5,070	$	2,227	$	1,372	$	238	$	991	$	40,512	$	55,626
Special Mention		0		0		0		0		0		0		0		0
Substandard		0		0		1		12		5		78		833		929
Doubtful		0		0		0		0		0		0		0		0
Total consumer loans	$	5,216	$	5,070	$	2,228	$	1,384	$	243	$	1,069	$	41,345	$	56,555
Year-to-date gross charge-offs	$	0	$	134	$	0	$	18	$	3	$	3	$	96	$	254

22

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

The following table presents the recorded investment in loans by credit quality indicators as of December 31, 2022:

			Special
(In Thousands)	Pass		Mention		Substandard		Doubtful		Total
Commercial real estate - non-owner occupied	$	654,430	$	9,486	$	11,681	$	0	$	675,597
Commercial real estate - owner occupied		202,702		1,909		371		0		204,982
All other commercial loans		383,846		2,516		23,616		0		409,978
Residential mortgage loans		387,944		0		5,638		0		393,582
Consumer loans		54,353		0		521		0		54,874
Purchased credit impaired		0		0		1,027		0		1,027
Total	$	1,683,275	$	13,911	$	42,854	$	0	$	1,740,040

The following table is a summary of the Corporation’s nonaccrual loans by major categories for the periods indicated.

	September 30, 2023						December 31, 2022
	Nonaccrual Loans with		Nonaccrual Loans		Total Nonaccrual
(In Thousands)	No Allowance		with an Allowance		Loans		Nonaccrual Loans
Commercial real estate - non-owner occupied	$	1,669	$	7,362	$	9,031	$	6,350
Commercial real estate - owner occupied		1,283		303		1,586		19
All other commercial loans		1,194		196		1,390		11,528
Residential mortgage loans		3,244		0		3,244		3,974
Consumer loans		250		0		250		187
Purchased credit impaired		0		0		0		1,027
Total	$	7,640	$	7,861	$	15,501	$	23,085

The Corporation recognized $317,000 and $744,000 of interest income on nonaccrual loans during the three months and nine months ended September 30, 2023, respectively.

The following table represents the accrued interest receivable written off by reversing interest income during the three-month and nine-month periods ended September 30, 2023:

	Three Months Ended		Nine Months Ended
(In Thousands)	September 30, 2023		September 30, 2023
Commercial real estate - non-owner occupied	$	22	$	48
Residential mortgage loans		11		17
Consumer loans		0		2
Total	$	33	$	67

23

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

The Corporation has certain loans for which repayment is dependent upon the operation or sale of collateral, as the borrower is experiencing financial difficulty. The underlying collateral can vary based upon the type of loan. The following provides more detail about the types of collateral that secure collateral dependent loans:

● Commercial real estate loans can be secured by either owner occupied commercial real estate or non-owner occupied investment commercial real estate. Typically, owner occupied commercial real estate loans are secured by office buildings, warehouses, manufacturing facilities and other commercial and industrial properties occupied by operating companies. Non-owner occupied commercial real estate loans are generally secured by office buildings and complexes, retail facilities, multifamily complexes, land under development, industrial properties, as well as other commercial or industrial real estate.

● All other commercial loans are typically secured by business assets including inventory, equipment and receivables.

● Residential mortgage loans are typically secured by first mortgages, and in some cases could be secured by a second mortgage.

● Consumer loans are generally secured by automobiles, motorcycles, recreational vehicles and other personal property. Some consumer loans are unsecured and have no underlying collateral.

The following table details the amortized cost of collateral dependent loans, which are individually evaluated to determine expected credit losses, and the related allowance for credit losses on loans allocated to these loans:

	September 30, 2023
	Amortized
(In Thousands)	Cost		Allowance
Commercial real estate - non-owner occupied	$	9,031	$	664
Commercial real estate - owner occupied		1,586		61
All other commercial loans		1,390		95
Total	$	12,007	$	820

The following table summarizes the activity related to the ACL for the three and nine months ended September 30, 2023 under the CECL methodology.

	Commercial		Commercial		All
	real estate -		real estate -		other		Residential
	nonowner		owner		commercial		mortgage		Consumer
(In Thousands)	occupied		occupied		loans		loans		loans		Unallocated		Total
Balance, June 30, 2023	$	10,603	$	2,025	$	3,686	$	2,464	$	278	$	0	$	19,056
Charge-offs		0		0		(7)		0		(91)		0		(98)
Recoveries		0		0		34		8		18		0		60
(Credit) provision for credit losses on loans		(268)		(161)		(161)		(479)		136		0		(933)
Balance, September 30, 2023	$	10,335	$	1,864	$	3,552	$	1,993	$	341	$	0	$	18,085

	Commercial		Commercial		All
	real estate -		real estate -		other		Residential
	nonowner		owner		commercial		mortgage		Consumer
(In Thousands)	occupied		occupied		loans		loans		loans		Unallocated		Total
Balance, December 31, 2022	$	6,305	$	1,942	$	4,142	$	2,751	$	475	$	1,000	$	16,615
Adoption of ASU 2016-13 (CECL)		3,763		7		(88)		(344)		(234)		(1,000)		2,104
Charge-offs		0		0		(12)		(33)		(254)		0		(299)
Recoveries		0		0		34		10		30		0		74
(Credit) provision for credit losses on loans		267		(85)		(524)		(391)		324		0		(409)
Balance, September 30, 2023	$	10,335	$	1,864	$	3,552	$	1,993	$	341	$	0	$	18,085

24

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Prior to the adoption of ASC 326 on January 1, 2023, the Corporation calculated the allowance for loan losses under the incurred loss methodology. The following tables are disclosed related to the allowance for loan losses in prior periods.

Three Months Ended September 30, 2022	June 30, 2022								September 30, 2022
(In Thousands)	Balance		Charge-offs		Recoveries		Provision (Credit)		Balance
Allowance for Loan Losses:
Commercial:
Commercial loans secured by real estate	$	4,982	$	(2,160)	$	0	$	3,225	$	6,047
Commercial and industrial		2,792		0		0		31		2,823
Commercial construction and land		515		0		0		169		684
Loans secured by farmland		112		0		0		1		113
Multi-family (5 or more) residential		339		0		0		88		427
Agricultural loans		23		0		0		(1)		22
Other commercial loans		131		0		0		(9)		122
Total commercial		8,894		(2,160)		0		3,504		10,238
Residential mortgage:
Residential mortgage loans - first liens		3,689		0		1		229		3,919
Residential mortgage loans - junior liens		180		0		0		14		194
Home equity lines of credit		308		0		0		25		333
1-4 Family residential construction		215		0		0		36		251
Total residential mortgage		4,392		0		1		304		4,697
Consumer		261		(36)		24		(14)		235
Unallocated		1,000		0		0		0		1,000
Total Allowance for Loan Losses	$	14,547	$	(2,196)	$	25	$	3,794	$	16,170

Nine Months Ended September 30, 2022	December 31, 2021								September 30, 2022
(In Thousands)	Balance		Charge-offs		Recoveries		Provision (Credit)		Balance
Allowance for Loan Losses:
Commercial:
Commercial loans secured by real estate	$	4,405	$	(2,160)	$	0	$	3,802	$	6,047
Commercial and industrial		2,723		(150)		0		250		2,823
Commercial construction and land		637		0		0		47		684
Loans secured by farmland		115		0		0		(2)		113
Multi-family (5 or more) residential		215		0		0		212		427
Agricultural loans		25		0		0		(3)		22
Other commercial loans		173		0		0		(51)		122
Total commercial		8,293		(2,310)		0		4,255		10,238
Residential mortgage:
Residential mortgage loans - first liens		3,650		0		3		266		3,919
Residential mortgage loans - junior liens		184		0		0		10		194
Home equity lines of credit		302		0		15		16		333
1-4 Family residential construction		202		0		0		49		251
Total residential mortgage		4,338		0		18		341		4,697
Consumer		235		(107)		39		68		235
Unallocated		671		0		0		329		1,000
Total Allowance for Loan Losses	$	13,537	$	(2,417)	$	57	$	4,993	$	16,170

25

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

The following tables present a summary of loan balances and the related allowance for loan losses summarized by portfolio segment and class for each impairment method used as of December 31, 2022.

December 31, 2022	Loans:						Allowance for Loan Losses:
(In Thousands)
	Individually		Collectively				Individually		Collectively
	Evaluated		Evaluated		Totals		Evaluated		Evaluated		Totals
Commercial:
Commercial loans secured by real estate	$	7,154	$	675,095	$	682,249	$	427	$	6,647	$	7,074
Commercial and industrial		11,223		167,048		178,271		26		2,883		2,909
Paycheck Protection Program - 1st Draw		0		5		5		0		0		0
Paycheck Protection Program - 2nd Draw		0		163		163		0		0		0
Political subdivisions		0		90,719		90,719		0		0		0
Commercial construction and land		244		73,719		73,963		0		647		647
Loans secured by farmland		76		12,874		12,950		0		112		112
Multi-family (5 or more) residential		0		55,886		55,886		0		411		411
Agricultural loans		57		2,378		2,435		0		21		21
Other commercial loans		0		14,857		14,857		0		124		124
Total commercial		18,754		1,092,744		1,111,498		453		10,845		11,298
Residential mortgage:
Residential mortgage loans - first liens		506		509,276		509,782		0		3,413		3,413
Residential mortgage loans - junior liens		30		24,919		24,949		0		167		167
Home equity lines of credit		68		43,730		43,798		0		282		282
1-4 Family residential construction		0		30,577		30,577		0		211		211
Total residential mortgage		604		608,502		609,106		0		4,073		4,073
Consumer		0		19,436		19,436		0		244		244
Unallocated												1,000
Total	$	19,358	$	1,720,682	$	1,740,040	$	453	$	15,162	$	16,615

Prior to the adoption of ASU 2016-13, loans were classified as impaired when, based on current information and events, it was probable that the Corporation would be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment included payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experienced insignificant payment delays and payment shortfalls generally were not classified as impaired. Management determined the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of shortfall in relation to the principal and interest owed. Impairment was measured on a loan-by-loan basis for commercial loans by the fair value of the collateral (if the loan is collateral dependent), by future cash flows discounted at the loan’s effective rate or by the loan’s observable market price.

The scope of loans reviewed individually each quarter to determine if they were impaired included all commercial loan relationships greater than $200,000 and any residential mortgage or consumer loans of $400,000 or more for which there was at least one extension of credit graded Special Mention, Substandard or Doubtful. All loans classified as troubled debt restructurings and all commercial loan relationships less than $200,000 or other loan relationships less than $400,000 in the aggregate, but with an estimated loss of $100,000 or more, were individually evaluated for impairment.

26

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Summary information related to impaired loans at December 31, 2022 is provided in the table immediately below.

(In Thousands)	December 31, 2022
	Unpaid
	Principal		Recorded		Related
	Balance		Investment		Allowance
With no related allowance recorded:
Commercial loans secured by real estate	$	8,563	$	3,754	$	0
Commercial and industrial		12,926		11,163		0
Residential mortgage loans - first liens		506		506		0
Residential mortgage loans - junior liens		68		30		0
Home equity lines of credit		68		68		0
Loans secured by farmland		76		76		0
Agricultural loans		57		57		0
Construction and other land loans		244		244		0
Total with no related allowance recorded		22,508		15,898		0
With a related allowance recorded:
Commercial loans secured by real estate		3,400		3,400		427
Commercial and industrial		60		60		26
Total with a related allowance recorded		3,460		3,460		453
Total	$	25,968	$	19,358	$	453

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

(In Thousands)					Interest Income Recognized on
	Average Investment in Impaired Loans				Impaired Loans on a Cash Basis
	Three Months Ended		Nine Months Ended		Three Months Ended		Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
	2022		2022		2022		2022
Commercial:
Commercial loans secured by real estate	$	9,710	$	9,804	$	143	$	483
Commercial and industrial		371		839		4		207
Commercial construction and land		47		47		0		1
Loans secured by farmland		79		81		0		0
Multi-family (5 or more) residential		0		263		0		1,156
Agricultural loans		59		61		0		2
Total commercial		10,266		11,095		147		1,849
Residential mortgage:
Residential mortgage loans - first lien		612		587		5		17
Residential mortgage loans - junior lien		31		33		0		6
Home equity lines of credit		68		34		1		3
Total residential mortgage		711		654		6		26
Total	$	10,977	$	11,749	$	153	$	1,875

The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon asset origination or acquisition. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification.

Because the effect of most modifications made to borrowers experiencing financial difficulty, such as extensions of terms, insignificant payment delays and interest rate reductions, is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Occasionally, the Corporation modifies loans by providing principal forgiveness on certain of its real estate loans. When principal forgiveness is provided, the amortized cost basis of the asset is written off against the allowance for credit losses. The amount of the principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses.

There were no loans modified to borrowers experiencing financial difficulty in the three-month and nine-month periods ended September 30, 2023.

The carrying amount of foreclosed residential real estate properties held as a result of obtaining physical possession (included in foreclosed assets held for sale in the unaudited consolidated balance sheets) is as follows:

(In Thousands)	September 30,		December 31,
	2023		2022
Foreclosed residential real estate	$	202	$	0

The recorded investment of consumer mortgage loans secured by residential real properties for which formal foreclosure proceedings were in process is as follows:

(In Thousands)	September 30,		December 31,
	2023		2022
Residential real estate in process of foreclosure	$	1,049	$	1,229

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 $900,000 at September 30, 2023 and $425,000 at December 31, 2022, is included in accrued interest and other liabilities on the unaudited consolidated balance sheets.

The following table presents the balance and activity in the allowance for credit losses for off-balance sheet exposures for the three and nine months ended September 30, 2023.

	Three Months		Nine Months
	Ended		Ended
(In Thousands)	September 30, 2023		September 30, 2023
Beginning Balance	$	1,154	$	425
Adjustment to allowance for off-balance sheet exposures for adoption of ASU 2016-13		0		793
Recoveries		38		38
Credit for unfunded commitments		(292)		(356)
Balance, September 30, 2023	$	900	$	900

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

7. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill represents the excess of the cost of acquisitions over the fair value of the net assets acquired. At September 30, 2023 and December 31, 2022, the net carrying value of goodwill was $52,505,000.

Information related to core deposit intangibles is as follows:

(In Thousands)	September 30,		December 31,
	2023		2022
Gross amount	$	6,639	$	6,639
Accumulated amortization		(4,068)		(3,762)
Net	$	2,571	$	2,877

Amortization expense related to core deposit intangibles is included in other noninterest expense in the consolidated statements of income, as follows:

(In Thousands)	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
	2023		2022		2023		2022
Amortization expense	$	102	$	110	$	306	$	329

8. BORROWED FUNDS

SHORT-TERM BORROWINGS

Short-term borrowings (initial maturity within one year) include the following:

(In Thousands)	September 30,		December 31,
	2023		2022
FHLB-Pittsburgh borrowings	$	21,500	$	77,000
Customer repurchase agreements		1,753		3,062
Total short-term borrowings	$	23,253	$	80,062

The Corporation had available credit with other correspondent banks totaling $95,000,000 at September 30, 2023 and December 31, 2022. These lines of credit are primarily unsecured. No amounts were outstanding at September 30, 2023 or December 31, 2022.

The Corporation has a line of credit with the Federal Reserve Bank of Philadelphia’s Discount Window. At September 30, 2023, the Corporation had available credit in the amount of $20,766,000 on this line with no outstanding advances. At December 31, 2022, the Corporation had available credit in the amount of $23,107,000 on this line with no outstanding advances. As collateral for this line, the Corporation has pledged available-for-sale securities with a carrying value of $21,731,000 at September 30, 2023 and $24,113,000 at December 31, 2022.

The Corporation engages in repurchase agreements with certain commercial customers. These agreements provide that the Corporation sells specified investment securities to the customers on an overnight basis and repurchases them on the following business day. The weighted average rate paid by the Corporation on customer repurchase agreements was 0.10% at September 30, 2023 and December 31, 2022. The carrying value of the underlying securities was $1,770,000 at September 30, 2023 and $3,080,000 at December 31, 2022.

The FHLB-Pittsburgh loan facility is collateralized by qualifying loans secured by real estate with a book value totaling $1,321,417,000 at September 30, 2023 and $1,209,179,000 at December 31, 2022. Also, the FHLB-Pittsburgh loan facility requires the Corporation to invest in established amounts of FHLB-Pittsburgh stock. The carrying values of the Corporation’s holdings of FHLB-Pittsburgh stock (included in other assets in the consolidated balance sheets) were $14,570,000 at September 30, 2023 and $14,168,000 at December 31, 2022. The Corporation’s total credit facility with FHLB-Pittsburgh was $918,798,000 at September 30, 2023, including an unused

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

(available) amount of $752,847,000. At December 31, 2022, the Corporation’s total credit facility with FHLB-Pittsburgh was $839,378,000, including an unused (available) amount of $689,279,000.

At September 30, 2023, short-term borrowings included an overnight borrowing from FHLB-Pittsburgh of $6,500,000 at an interest rate of 5.68% and an advance of $15,000,000 maturing in October 2023 with an interest rate of 5.61%. At December 31, 2022, the overnight borrowing from FHLB-Pittsburgh was $77,000,000 at an interest rate of 4.45% with no other short-term advances.

LONG-TERM BORROWINGS – FHLB ADVANCES

Long-term borrowings from FHLB-Pittsburgh are as follows:

(In Thousands)	September 30,		December 31,
	2023		2022
Loan maturing in 2023 with a rate of 3.25%	$	2,290	$	9,303
Loans maturing in 2024 with a weighted-average rate of 2.89%		29,784		29,813
Loans maturing in 2025 with a weighted-average rate of 4.12%		35,653		23,231
Loans maturing in 2026 with a weighted-average rate of 4.44%		31,518		0
Loans maturing in 2027 with a weighted-average rate of 4.00%		24,031		0
Loan maturing in 2028 with a rate of 3.72%		2,000		0
Total long-term FHLB-Pittsburgh borrowings	$	125,276	$	62,347

Note: Weighted-average rates are presented as of September 30, 2023.

SENIOR NOTES

In 2021, the Corporation issued and sold $15.0 million in aggregate principal amount of 2.75% Fixed Rate Senior Unsecured Notes due 2026 (the "Senior Notes"). The Senior Notes mature on June 1, 2026 and bear interest at a fixed annual rate of 2.75%. The Corporation is not entitled to redeem the Senior Notes, in whole or in part, at any time prior to maturity and the Senior Notes are not subject to redemption by the holders. The Senior Notes are unsecured and unsubordinated obligations of the Corporation only and are not obligations of, and are not guaranteed by, any subsidiary of the Corporation.

The Senior Notes were recorded, net of debt issuance costs of $337,000, at an initial carrying amount of $14,663,000. Debt issuance costs are amortized over the term of the Senior Notes as an adjustment of the effective interest rate. Amortization of debt issuance costs associated with the Senior Notes totaling $16,000 in the third quarter 2023 and $49,000 in the nine-month period ended September 30, 2023, and $16,000 in the third quarter 2022 and $48,000 in the nine month-period ended September 30, 2022, was included in interest expense in the unaudited consolidated statements of income.

At September 30, 2023 and December 31, 2022, outstanding Senior Notes are as follows:

(In Thousands)	September 30,		December 31,
	2023		2022
Senior Notes with an aggregate par value of $15,000,000; bearing interest at 2.75% with an effective interest rate of 3.23%; maturing in June 2026	$	14,814	$	14,765
Total carrying value	$	14,814	$	14,765

SUBORDINATED DEBT

In 2021, the Corporation issued and sold $25.0 million in aggregate principal amount of 3.25% Fixed-to-Floating Rate Subordinated Notes due 2031 (the "Subordinated Notes"). The Subordinated Notes mature on June 1, 2031 and bear interest at a fixed annual rate of 3.25%, to June 1, 2026. From June 1, 2026 to maturity or early redemption, the interest rate will reset quarterly to an interest rate per annum equal to the three-month Secured Overnight Financing Rate provided by the Federal Reserve Bank of New York plus 259 basis points. The Corporation is entitled to redeem the Subordinated Notes, in whole or in part, at any time on or after June 1, 2026, and to redeem the Subordinated Notes at any time in whole upon certain other events. Any redemption of the Subordinated Notes will be subject to prior regulatory approval to the extent required.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

The Subordinated Notes are not subject to redemption at the option of the holders. The Subordinated Notes are unsecured, subordinated obligations of the Corporation only and are not obligations of, and are not guaranteed by, any subsidiary of the Corporation. The Subordinated Notes rank junior in right to payment to the Corporation's current and future senior indebtedness, including the Senior Notes (described above). The Subordinated Notes are intended to qualify as Tier 2 capital for regulatory capital purposes.

The Subordinated Notes were recorded, net of debt issuance costs of $563,000, at an initial carrying amount of $24,437,000. Debt issuance costs are amortized through June 1, 2026 as an adjustment of the effective interest rate. Amortization of debt issuance costs associated with the Subordinated Notes totaling $28,000 in the third quarter 2023 and $82,000 in the nine-month period ended September 30, 2023, and $27,000 in the third quarter 2022 and $79,000 in the nine-month period ended September 30, 2022, was included in interest expense in the unaudited consolidated statements of income.

At September 30, 2023 and December 31, 2022, the carrying amounts of subordinated debt agreements are as follows:

(In Thousands)	September 30,		December 31,
	2023		2022
Agreements with a par value of $25,000,000; bearing interest at 3.25% with an effective interest rate of 3.74%; maturing in June 2031 and redeemable at par in June 2026	$	24,689	$	24,607
Total carrying value	$	24,689	$	24,607

9. STOCK-BASED COMPENSATION PLANS

The Corporation had a Stock Incentive Plan for a selected group of officers and an Independent Directors Stock Incentive Plan. The 2023 restricted stock awards under the Stock Incentive Plan vest ratably over three years, and the 2023 restricted stock issued under the Independent Directors Stock Incentive Plan vests over one year. There were no restricted stock awards granted in the three-month periods ended September 30, 2023 and June 30, 2023. Following is a summary of restricted stock awards granted in the three-month period ended March 31, 2023:

(Dollars in Thousands)		Aggregate
		Grant
		Date
	Number of	Fair
	Shares	Value
1st quarter 2023 awards:
Time-based awards to independent directors	11,000	$	257
Time-based awards to employees	31,684		740
Performance-based awards to employees	11,104		259
Total	53,788	$	1,256

Effective April 20, 2023, the Corporation’s shareholders approved a new plan, the Citizens & Northern Corporation 2023 Equity Incentive Plan (the “2023 Equity Incentive Plan”). New awards to employees and independent directors will be governed under the 2023 Equity Incentive Plan, while outstanding awards under the prior plans (including the awards made in the first quarter 2023) will be governed under the prior plans.

Compensation cost related to restricted stock is recognized based on the fair value of the stock at the grant date over the vesting period, adjusted for estimated and actual forfeitures. Total annual stock-based compensation for the year ending December 31, 2023 is estimated to total $1,340,000. Total stock-based compensation expense attributable to restricted stock awards amounted to $320,000 in the third quarter 2023 and $388,000 in the third quarter 2022. Total stock-based compensation expense attributable to restricted stock awards amount to $1,015,000 in the nine-month period ended September 30, 2023 and $1,169,000 in the nine-month period ended September 30, 2022.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

10. CONTINGENCIES

In the normal course of business, the Corporation is subject to pending and threatened litigation in which claims for monetary damages are asserted. In management’s opinion, the Corporation’s financial position and results of operations would not be materially affected by the outcome of these legal proceedings.

11. DERIVATIVE FINANCIAL INSTRUMENTS

The Corporation is a party to derivative financial instruments. These financial instruments consist of interest rate swap agreements and risk participation agreements (RPAs) which contain master netting and collateral provisions designed to protect the party at risk.

Interest rate swaps with commercial loan banking customers were executed to facilitate their respective risk management strategies. Under the terms of these arrangements, the commercial banking customers effectively exchanged their floating interest rate exposures on loans into fixed interest rate exposures. Those interest rate swaps have been simultaneously economically hedged by offsetting interest rate swaps with a third party, such that the Corporation has effectively exchanged its fixed interest rate exposures for floating rate exposures. These derivatives are not designated as hedges and are not speculative. Rather, these derivatives result from a service provided to certain customers. As the interest rate swaps associated with this program do not meet the hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings.

The aggregate notional amount of interest rate swaps was $152,536,000 at September 30, 2023 and $155,214,000 at December 31, 2022. There were no interest rate swaps originated in the three or nine-month periods ended September 30, 2023 and 2022. There were no gross amounts of interest rate swap-related assets and liabilities not offset in the consolidated balance sheets at September 30, 2023. The net impact on the consolidated statements of income from interest rate swaps was an increase in interest income on loans of $502,000 in the third quarter 2023 and $1,286,000 in the nine-month period ended September 30, 2023 as compared to a reduction in interest income on loans of $4,000 in third quarter 2022 and $541,000 in the nine months ended September 30, 2022.

The Corporation has entered into an RPA with another institution as a means to assume a portion of the credit risk associated with a loan structure which includes a derivative instrument, in exchange for fee income commensurate with the risk assumed.  This type of derivative is referred to as an “RPA In.” In addition, in an effort to reduce the credit risk associated with an interest rate swap agreement with a borrower for whom the Corporation has provided a loan structured with a derivative, the Corporation purchased an RPA from an institution participating in the facility in exchange for a fee commensurate with the risk shared. This type of derivative is referred to as an “RPA Out.”  The net impact on the consolidated statements of income from RPAs was an increase in other noninterest income of $1,000 in the third quarter 2023 and $19,000 in the nine-month period ended September 30, 2023 with no comparable amount in the third quarter 2022 and in the nine months ended September 30, 2022.

The table below presents the fair value of the Corporation’s derivative financial instruments as well as their classification on the consolidated balance sheets at September 30, 2023 and December 31, 2022:

(In Thousands)	At September 30, 2023								At December 31, 2022
	Asset Derivatives				Liability Derivatives				Asset Derivatives				Liability Derivatives
	Notional		Fair		Notional		Fair		Notional		Fair		Notional		Fair
	Amount		Value (1)		Amount		Value (2)		Amount		Value (1)		Amount		Value (2)
Interest rate swap agreements	$	76,268	$	4,545	$	76,268	$	4,545	$	77,607	$	3,638	$	77,607	$	3,638
RPA Out		7,111		6		0		0		7,200		0		0		0
RPA In		0		0		10,000		6		0		0		10,000		19

(1) Included in other assets in the consolidated balance sheets.

(2) Included in accrued interest and other liabilities in the consolidated balance sheets.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

The Corporation’s agreements with its derivative counterparties provide that if the Corporation defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Corporation could also be declared in default on its derivative obligations. Further, if the Corporation were to fail to maintain its status as a well or adequately capitalized institution, then the counterparties could terminate the derivative positions and the Corporation would be required to settle its obligations under the agreements. Available-for-sale securities with a carrying value of $2,251,000 were pledged as collateral against the Corporation’s obligations related to the interest rate swaps at September 30, 2023.

12. FAIR VALUE MEASUREMENTS AND FAIR VALUES OF FINANCIAL INSTRUMENTS

The Corporation measures certain assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB topic 820, “Fair Value Measurements and Disclosures” establishes a framework for measuring fair value that includes a hierarchy used to classify the inputs used in measuring fair value. The hierarchy prioritizes the inputs used in determining valuations into three levels. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The levels of the fair value hierarchy are as follows:

Level 1 – Fair value is based on unadjusted quoted prices in active markets that are accessible to the Corporation for identical assets or liabilities. These generally provide the most reliable evidence and are used to measure fair value whenever available.

Level 2 – Fair value is based on significant inputs, other than Level 1 inputs, that are observable either directly or indirectly for substantially the full term of the asset or liability through corroboration with observable market data. Level 2 inputs include quoted market prices in active markets for similar assets or liabilities, quoted market prices in markets that are not active for identical or similar assets or liabilities and other observable inputs.

Level 3 – Fair value is based on significant unobservable inputs. Examples of valuation methodologies that would result in Level 3 classification include option pricing models, discounted cash flows and other similar techniques.

The Corporation monitors and evaluates available data relating to fair value measurements on an ongoing basis and recognizes transfers among the levels of the fair value hierarchy as of the date of an event or change in circumstances that affects the valuation method chosen. Examples of such changes may include the market for a particular asset or liability becoming active or inactive, changes in the availability of quoted prices, or changes in the availability of other market data.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

At September 30, 2023 and December 31, 2022, assets and liabilities measured at fair value and the valuation methods used are as follows:

	September 30, 2023
	Quoted
	Prices		Other
	in Active		Observable		Unobservable		Total
	Markets		Inputs		Inputs		Fair
(In Thousands)	(Level 1)		(Level 2)		(Level 3)		Value
Recurring fair value measurements, assets:
AVAILABLE-FOR-SALE DEBT SECURITIES:
Obligations of the U.S. Treasury	$	30,557	$	0	$	0	$	30,557
Obligations of U.S. Government agencies		0		18,796		0		18,796
Bank holding company debt securities		0		22,311		0		22,311
Obligations of states and political subdivisions:
Tax-exempt		0		104,453		0		104,453
Taxable		0		53,457		0		53,457
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		0		94,469		0		94,469
Residential collateralized mortgage obligations		0		33,397		0		33,397
Commercial mortgage-backed securities		0		63,672		0		63,672
Private label commercial mortgage-backed securities		0		8,026		0		8,026
Total available-for-sale debt securities		30,557		398,581		0		429,138
Marketable equity security		832		0		0		832
Servicing rights		0		0		2,630		2,630
RPA Out		0		6		0		6
Interest rate swap agreements, assets		0		4,545		0		4,545
Total recurring fair value measurements, assets	$	31,389	$	403,132	$	2,630	$	437,151
Recurring fair value measurements, liabilities,
Interest rate swap agreements, liabilities	$	0	$	4,545	$	0	$	4,545
Nonrecurring fair value measurements, assets:
Loans individually evaluated for credit loss, net	$	0	$	0	$	7,041	$	7,041
Foreclosed assets held for sale		0		0		633		633
Total nonrecurring fair value measurements, assets	$	0	$	0	$	7,674	$	7,674

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

	December 31, 2022
	Quoted
	Prices		Other
	in Active		Observable		Unobservable		Total
	Markets		Inputs		Inputs		Fair
(In Thousands)	(Level 1)		(Level 2)		(Level 3)		Value
Recurring fair value measurements, assets:
AVAILABLE-FOR-SALE DEBT SECURITIES:
Obligations of the U.S. Treasury	$	31,836	$	0	$	0	$	31,836
Obligations of U.S. Government agencies		0		23,430		0		23,430
Bank holding company debt securities		0		25,386		0		25,386
Obligations of states and political subdivisions:
Tax-exempt		0		132,623		0		132,623
Taxable		0		56,812		0		56,812
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		0		99,941		0		99,941
Residential collateralized mortgage obligations		0		40,296		0		40,296
Commercial mortgage-backed securities		0		79,686		0		79,686
Private label commercial mortgage-backed securities		0		8,023		0		8,023
Total available-for-sale debt securities		31,836		466,197		0		498,033
Marketable equity security		859		0		0		859
Servicing rights		0		0		2,653		2,653
Interest rate swap agreements, assets		0		3,638		0		3,638
Total recurring fair value measurements, assets	$	32,695	$	469,835	$	2,653	$	505,183
Recurring fair value measurements, liabilities,
Interest rate swap agreements, liabilities	$	0	$	3,638	$	0	$	3,638
Nonrecurring fair value measurements, assets:
Impaired loans, net	$	0	$	0	$	3,007	$	3,007
Foreclosed assets held for sale		0		0		275		275
Total nonrecurring fair value measurements, assets	$	0	$	0	$	3,282	$	3,282

Management’s evaluation and selection of valuation techniques and the unobservable inputs used in determining the fair values of assets valued using Level 3 methodologies include sensitive assumptions. Other market participants might use substantially different assumptions, which could result in calculations of fair values that would be substantially different than the amount calculated by management.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

At September 30, 2023 and December 31, 2022, quantitative information regarding valuation techniques and the significant unobservable inputs used for assets measured on a recurring basis using unobservable inputs (Level 3 methodologies) are as follows:

	Fair Value at
	9/30/2023		Valuation	Unobservable				Method or Value As of
Asset	(In Thousands)		Technique	Input(s)				9/30/2023
Servicing rights	$	2,630	Discounted cash flow	Discount rate		13.00	%	Rate used through modeling period
				Loan prepayment speeds		129.00	%	Weighted-average PSA
				Servicing fees		0.25	%	of loan balances
						4.00	%	of payments are late
						5.00	%	late fees assessed
					$	1.94		Miscellaneous fees per account per month
				Servicing costs	$	6.00		Monthly servicing cost per account
					$	24.00		Additional monthly servicing cost per loan on loans more than 30 days delinquent
						1.50	%	of loans more than 30 days delinquent
						3.00	%	annual increase in servicing costs

	Fair Value at
	12/31/2022		Valuation	Unobservable				Method or Value As of
Asset	(In Thousands)		Technique	Input(s)				12/31/2022
Servicing rights	$	2,653	Discounted cash flow	Discount rate		13.00	%	Rate used through modeling period
				Loan prepayment speeds		133.00	%	Weighted-average PSA
				Servicing fees		0.25	%	of loan balances
						4.00	%	of payments are late
						5.00	%	late fees assessed
					$	1.94		Miscellaneous fees per account per month
				Servicing costs	$	6.00		Monthly servicing cost per account
					$	24.00		Additional monthly servicing cost per loan on loans more than 30 days delinquent
						1.50	%	of loans more than 30 days delinquent
						3.00	%	annual increase in servicing costs

The fair value of servicing rights is affected by expected future interest rates. Increases (decreases) in future expected interest rates tend to increase (decrease) the fair value of the Corporation’s servicing rights because of changes in expected prepayment behavior by the borrowers on the underlying loans. Unrealized gains (losses) in fair value of servicing rights are included in Loan servicing fees, net, in the unaudited consolidated statements of income.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Following is a reconciliation of activity for Level 3 assets measured at fair value on a recurring basis:

(In Thousands)	Three Months Ended				Nine Months Ended
	September 30, 2023		September 30, 2022		September 30, 2023		September 30, 2022
Servicing rights balance, beginning of period	$	2,607	$	2,640	$	2,653	$	2,329
Originations of servicing rights		64		33		113		192
Unrealized (loss) gain included in earnings		(41)		(24)		(136)		128
Servicing rights balance, end of period	$	2,630	$	2,649	$	2,630	$	2,649

Loans are individually evaluated for credit loss when, based on current information and events, it is probable that the Corporation will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Foreclosed assets held for sale consist of real estate acquired by foreclosure. For individually evaluated commercial loans secured by real estate and foreclosed assets held for sale, estimated fair values are determined primarily using values from third-party appraisals. Appraised values are discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

At September 30, 2023 and December 31, 2022, quantitative information regarding valuation techniques and the significant unobservable inputs used for nonrecurring fair value measurements using Level 3 methodologies are as follows:

(Dollars In Thousands)									Weighted
			Valuation						Average
	Balance at		Allowance at		Fair Value at		Valuation	Unobservable	Discount at
Asset	9/30/2023		9/30/2023		9/30/2023		Technique	Inputs	9/30/2023
Loans individually evaluated for credit loss:
Commercial real estate - nonowner occupied	$	7,362	$	664	$	6,698	Sales comparison	Discount to appraised value	25	%
Commercial real estate - owner occupied		303		61		242	Sales comparison & SBA guaranty	Discount to appraised value	57	%
All other commercial loans		196		95		101	Liquidation & SBA guaranty	Discount to appraised value	18	%
Total loans individually evaluated for credit loss	$	7,861	$	820	$	7,041
Foreclosed assets held for sale - real estate:
Residential (1-4 family)	$	202	$	0	$	202	Sales comparison	Discount to appraised value	38	%
Commercial real estate		431		0		431	Sales comparison	Discount to appraised value	45	%
Total foreclosed assets held for sale	$	633	$	0	$	633

(Dollars In Thousands)									Weighted
			Valuation						Average
	Balance at		Allowance at		Fair Value at		Valuation	Unobservable	Discount at
Asset	12/31/2022		12/31/2022		12/31/2022		Technique	Inputs	12/31/2022
Impaired loans:
Commercial:
Commercial loans secured by real estate	$	3,400	$	427	$	2,973	Sales comparison	Discount to appraised value	25	%
Commercial and industrial		60		26		34	Liquidation of assets	Discount to appraised value	33	%
Total impaired loans	$	3,460	$	453	$	3,007
Foreclosed assets held for sale - real estate:
Commercial real estate	$	275	$	0	$	275	Sales comparison	Discount to appraised value	50	%
Total foreclosed assets held for sale	$	275	$	0	$	275

Certain of the Corporation’s financial instruments are not measured at fair value in the consolidated financial statements. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. Certain financial instruments and all nonfinancial instruments are excluded from disclosure requirements. Therefore, the aggregate fair value amounts presented may not represent the underlying fair value of the Corporation.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

The estimated fair values, and related carrying amounts, of the Corporation’s financial instruments that are not recorded at fair value are as follows:

(In Thousands)	Fair Value	September 30, 2023				December 31, 2022
	Hierarchy	Carrying		Fair		Carrying		Fair
	Level	Amount		Value		Amount		Value
Financial assets:
Cash and cash equivalents	Level 1	$	48,308	$	48,308	$	47,698	$	47,698
Certificates of deposit	Level 2		4,350		4,033		7,350		6,956
Restricted equity securities (included in other assets)	Level 2		21,062		21,062		14,418		14,418
Loans, net	Level 3		1,812,585		1,732,232		1,723,425		1,674,002
Accrued interest receivable	Level 2		9,311		9,311		8,653		8,653
Financial liabilities:
Deposits with no stated maturity	Level 2		1,603,033		1,603,033		1,702,404		1,702,404
Time deposits	Level 2		421,964		419,686		295,189		293,814
Short-term borrowings	Level 2		23,253		23,253		80,062		80,062
Long-term borrowings	Level 2		125,276		123,056		62,347		60,944
Senior debt	Level 2		14,814		12,870		14,765		9,712
Subordinated debt	Level 2		24,689		20,184		24,607		16,186
Accrued interest payable	Level 2		1,464		1,464		461		461

The Corporation has commitments to extend credit and has issued standby letters of credit. Standby letters of credit are conditional guarantees of performance by a customer to a third party. Estimates of the fair value of these off-balance sheet items were not made because of the short-term nature of these arrangements and the credit standing of the counterparties.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Certain statements in this section and elsewhere in this quarterly report on Form 10-Q are forward-looking statements. 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, which 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, "should", “likely”, "expect", “plan”, "anticipate", “target”, “forecast”, and “goal”. These forward-looking statements are subject to risks and uncertainties that are difficult to predict, may be beyond management’s control and could cause results to differ materially from those expressed or implied by such forward-looking statements. Factors which could have a material, adverse impact on the operations and future prospects of the Corporation include, but are not limited to, the following:

● 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

● recent adverse developments in the banking industry highlighted by high-profile bank failures and the potential impact of such developments on customer confidence, sources of liquidity and capital funding, and regulatory responses to these developments (including potential increases in the cost of deposit insurance assessments)

● 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 breach or other technology difficulties or failures

● changes in accounting principles, or the application of generally accepted accounting principles

● failure to achieve merger-related synergies and difficulties in integrating the business and operations of acquired institutions

● the effect of the novel coronavirus (COVID-19) and related events

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.

EARNINGS OVERVIEW

Third Quarter 2023 as Compared to Third Quarter 2022

Third quarter 2023 net income was $7,591,000, or $0.50 per diluted share, as compared to $4,455,000, or $0.29 per diluted share, in the third quarter 2022. Significant variances were as follows:

● Net interest income of $19,663,000 in the third quarter 2023 was $1,216,000 lower than the third quarter 2022 reflecting an increase in interest expense of $6,624,000 (includes $5,292,000 interest on deposits and $1,332,000 interest on borrowings) and an increase of $5,408,000 in interest and dividend income. The interest rate spread decreased 0.73%, as the average rate on interest-bearing liabilities increased 1.49%, while the average yield on earning assets increased 0.76%. The net interest margin was 3.35% in the third quarter 2023, down from 3.69% in the third quarter 2022.  

● The credit for credit losses was $1,225,000 in the third quarter 2023, as compared to a provision for credit losses of $3,794,000 in the third quarter 2022. The credit in the third quarter 2023 included the impact of reductions in the allowance for credit losses (ACL) from a reduction in estimated future net charge-offs related to an economic forecast, qualitative adjustments in concentrations of credit based on loan type, lending policies and procedures and changes in external indexes, and a reduction in the Corporation’s average net charge-off experience. The third quarter 2022

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

provision included the impact of recognizing a partial charge-off of $2,160,000 on a commercial real estate secured participation loan.

● Noninterest income of $6,489,000 in the third quarter 2023 increased $818,000 from the third quarter 2022 amount. Significant variances included the following:

o Other noninterest income of $1,084,000 increased $462,000 from the third quarter 2022, including dividends on FHLB-Pittsburgh stock totaling $323,000, an increase of $163,000 from the third quarter 2022 and dividends on Federal Reserve Bank stock of $63,000 with no comparable amount in 2022. Additionally, in the third quarter 2023, the Corporation recognized income of $64,000, with no comparable amount in 2022, from a conversion assistance payment received related to a change in wealth management platform for providing brokerage and investment advisory services.

o Service charges on deposit accounts of $1,443,000 increased $338,000 from the third quarter 2022. In the third quarter 2022, income was reduced by $290,000 related to refunds of consumer overdraft fees as the result of updated regulatory guidance on certain overdraft fees with no comparable amount in 2023.

o Trust revenue of $1,919,000 increased $175,000, consistent with recent appreciation in the trading prices of many U.S. equity securities and includes an increase in fees from services provided to estates.

o Net gains from sale of loans of $237,000 increased $106,000 from the third quarter 2022, reflecting an increase in the volume of residential mortgage loans sold.

o Brokerage and insurance revenue of $394,000 decreased $302,000 from the third quarter 2022, due to a reduction in sales volume.

● Noninterest expense of $17,940,000 in the third quarter 2023 increased $497,000 from the third quarter 2022 amount. Significant variances included the following:  

o Other noninterest expense of $2,577,000 increased $582,000 from the third quarter 2022. Within this category, significant variances included the following:

● Other operational losses included $127,000 of expenses related to check fraud in the third quarter 2023 with no comparable amount in the third quarter 2022.

● FDIC insurance expense increased $124,000 from the third quarter of 2022, reflecting the impact of an increase in base deposit insurance assessment rate applicable to all FDIC-insured banks.

● In the third quarter 2023, there was no adjustment to the allowance for disallowed SBA claims compared to a decrease of $77,000 in the allowance for disallowed SBA claims in third quarter of 2022, resulting in a net increase in expense of $77,000.

● Legal fees totaled $187,000 in the third quarter 2023, an increase of $66,000 over the third quarter 2022 total, mainly due to fees incurred related to non-litigation-related corporate matters.

● Net recoveries of previously incurred collection expenses were $70,000 in the third quarter 2023 as compared to net collection expense of $16,000 in the third quarter 2022, a net decrease in expense of $86,000.

o Automated teller machine and interchange expense of $504,000 increased $107,000 from the third quarter 2022, mainly due to a higher volume of interchange transactions processed.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

o Data processing and telecommunications expense of $1,823,000 increased $104,000 from the third quarter 2022, including the impact of increases in software licensing and maintenance costs as well as costs related to enhancements of data management capabilities.

o Pennsylvania shares tax expense of $403,000 is lower by $84,000 from the third quarter 2022, consistent with a reduction in C&N Bank’s equity that provides the base for determining the annual tax.

o Net occupancy and equipment expense of $1,268,000 decreased $230,000 from the third quarter 2022 total, as 2022 included accelerated depreciation expense of $205,000 related to planned closures of two branches in November 2022.

● The income tax provision of $1,846,000, or 19.6% of pre-tax income for the third quarter 2023 increased $988,000 from $858,000, or 16.1% of pre-tax income for the third quarter 2022. The higher provision in 2023 reflects the increase in pre-tax income of $4,124,000. The higher effective tax rate in the third quarter 2023 as compared to the third quarter 2022 reflects the impact of an increase in nondeductible interest expense associated with funding for tax-exempt securities and loans.

Nine Months Ended September 30, 2023 as Compared to Nine Months Ended September 30, 2022

Net income for the nine-month period ended September 30, 2023 was $19,887,000, or $1.29 per diluted share, as compared to $18,839,000, or $1.21 per diluted share, for the first nine months of 2022. Significant variances were as follows:

● Net interest income totaled $60,806,000 in the nine months ended September 30, 2023, $30,000 lower than 2022, reflecting an increase in interest expense of $16,506,000 (includes $11,581,000 interest on deposits and $4,925,000 interest on borrowings) and an increase of $16,476,000 in interest and dividend income (includes $16,022,000 in interest and fees on loans). The interest rate spread decreased 0.56%, as the average rate on interest-bearing liabilities was higher by 1.29% while the average yield on earning assets increased 0.73%. The net interest margin was 3.53% for the first nine months of 2023, down from 3.72% in the corresponding period of 2022.

● For the nine months ended September 30, 2023, there was a credit for credit losses (reduction in expense) of $765,000 compared to a provision of $4,993,000 for the first nine months of 2022, resulting in a net decrease in expense of $5,758,000. The credit for the first nine months of 2023 included a credit related to loans receivable of $409,000 and a credit related to off-balance sheet exposures of $356,000. The credit related to loans receivable and off-balance sheet exposures was mainly attributable to qualitative adjustments in concentrations of credit based on loan type, lending policies and procedures and changes in external indexes, as well as a reduction in  the Corporation’s average net charge-off experience, used in the calculation of the ACL. The ACL as a percentage of gross loans receivable was 0.99% at September 30, 2023 as compared to 1.08% at January 1, 2023 upon the initial adoption of CECL.

● Noninterest income totaled $18,739,000 in the first nine months of 2023, up $416,000 from the total for the first nine months of 2022. Significant variances included the following:

o Other noninterest income of $3,442,000 increased $776,000 as dividends on FHLB-Pittsburgh stock totaled $830,000, an increase of $442,000. Additionally, in the first nine months of 2023, the Corporation recognized income of $63,000 from dividends on Federal Reserve Bank stock with no comparable amount in 2022 and income of $160,000, with no comparable amount in 2022, from a conversion assistance payment received related to a change in wealth management platform for providing brokerage and investment advisory services.

o Service charges on deposit accounts of $4,121,000 increased $459,000 as the volume of consumer and business overdraft activity increased and included in first nine months of 2022 there was a reduction in income of $290,000 related to refunds of consumer overdraft fees as the result of updated regulatory guidance on certain overdraft fees.

o Trust revenue of $5,500,000 increased $255,000 reflecting an increase consistent with recent appreciation in the trading prices of many U.S. equity securities and an increase in fees from services provided to estates.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

o Brokerage and insurance revenue of $1,189,000 decreased $595,000 due to a reduction in sales volume.

o Loan servicing fees, net, of $466,000 decreased $291,000, as the fair value of servicing rights decreased $136,000 in the first nine months of 2023 as compared to an increase of $128,000 in the first nine months of 2022.

o Net gains from sale of loans of $450,000 decreased $283,000, reflecting a reduction in volume of residential mortgage loans sold.

● Noninterest expense totaled $55,749,000 for the first nine months of 2023, an increase of $4,381,000 from the total for the first nine months of 2022. Significant variances included the following:  

o Other noninterest expense of $8,443,000 increased $2,133,000. Within this category, significant variances included the following:

● Other operational losses included $168,000 of expense related to check fraud losses in 2023 with no corresponding amount in 2022 as well as a net increase in expense of $263,000 to $32,000 in other losses in the first month nine months of 2023 from a net reduction in expense of $231,000 in the first nine months of 2022. Most of the reduction in other losses in 2022 was from recoveries or reversals of previously recorded charges related to Trust Department tax compliance matters.

● FDIC insurance expense increased $366,000, reflecting the impact of the increase in base deposit insurance assessment rate previously described.

● Legal fees totaled $700,000 in the first nine months of 2023, an increase of $359,000, mainly due to fees incurred related to non-litigation-related corporate matters.

● In the nine-month period ended September 30, 2023, the allowance for disallowed SBA claims decreased $35,000, resulting in a reduction in expense of the same amount, reflecting better than previously estimated claims experience. In comparison, the reduction in expense in the first nine months of 2022 was $367,000. At September 30, 2023, the allowance for disallowed SBA claims, which was included in other liabilities, was $55,000.

o Salaries and employee benefits expense of $33,082,000 increased $1,384,000, including an increase in base salaries expense of $1,363,000, or 6.5%.

o Data processing and telecommunications expense of $5,659,000 increased $597,000, including the impact of increases in software licensing and maintenance costs as well as costs related to enhancements of data management capabilities.

o Professional fees of $1,988,000 increased $498,000, including $389,000 of conversion costs related to a change in wealth management platform for providing brokerage and investment advisory services.

o Pennsylvania shares tax expense of $1,210,000 for the first nine months of 2023 is lower by $253,000, consistent with a reduction in C&N Bank’s equity that provides the base for determining the annual tax.

● The income tax provision of $4,674,000, or 19.0% of pre-tax income for the nine months ended September 30, 2023 increased $715,000 from $3,959,000, or 17.4% of pre-tax income for the nine months ended September 30, 2022. The higher provision in 2023 reflects the increase in pre-tax income of $1,763,000. The higher effective rate in 2023 includes: (1) the impact of the permanent difference related to stock-based compensation resulting in an increase in taxable income in 2023 as compared to a deduction in 2022 due to the reduction in the Corporation’s stock price; and (2) an increase in nondeductible interest expense.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

TABLE I – QUARTERLY FINANCIAL DATA

(Dollars In Thousands,	For the Three Months Ended :
Except Per Share Data)	September 30,		June 30,		March 31,		December 31,		September 30,
(Unaudited)	2023		2023		2023		2022		2022
Interest income	$	29,118	$	28,011	$	26,139	$	25,855	$	23,710
Interest expense		9,455		7,649		5,358		3,563		2,831
Net interest income		19,663		20,362		20,781		22,292		20,879
(Credit) provision for credit losses		(1,225)		812		(352)		2,262		3,794
Net interest income after (credit) provision for credit losses		20,888		19,550		21,133		20,030		17,085
Noninterest income		6,489		6,634		5,616		6,109		5,671
Noninterest expense		17,940		18,722		19,087		16,587		17,443
Income before income tax provision		9,437		7,462		7,662		9,552		5,313
Income tax provision		1,846		1,419		1,409		1,773		858
Net income	$	7,591	$	6,043	$	6,253	$	7,779	$	4,455
Net income attributable to common shares	$	7,534	$	5,996	$	6,201	$	7,711	$	4,416
Basic earnings per common share	$	0.50	$	0.39	$	0.40	$	0.50	$	0.29
Diluted earnings per common share	$	0.50	$	0.39	$	0.40	$	0.50	$	0.29

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

NONINTEREST INCOME

TABLE II – COMPARISON OF NONINTEREST INCOME

(Dollars in Thousands)	Three Months Ended
	September 30,					$	%
	2023		2022			Change	Change
Trust revenue	$	1,919	$	1,744	$	175	10.0	%
Brokerage and insurance revenue		394		696		(302)	(43.4)	%
Service charges on deposit accounts		1,443		1,105		338	30.6	%
Interchange revenue from debit card transactions		1,098		1,031		67	6.5	%
Net gains from sales of loans		237		131		106	80.9	%
Loan servicing fees, net		154		189		(35)	(18.5)	%
Increase in cash surrender value of life insurance		160		133		27	20.3	%
Other noninterest income		1,084		622		462	74.3	%
Realized gains on available-for-sale debt securities, net		0		20		(20)	(100.0)	%
Total noninterest income	$	6,489	$	5,671	$	818	14.4	%

(Dollars in Thousands)	Nine Months Ended
	September 30,					$	%
	2023		2022			Change	Change
Trust revenue	$	5,500	$	5,245	$	255	4.9	%
Brokerage and insurance revenue		1,189		1,784		(595)	(33.4)	%
Service charges on deposit accounts		4,121		3,662		459	12.5	%
Interchange revenue from debit card transactions		3,115		3,050		65	2.1	%
Net gains from sales of loans		450		733		(283)	(38.6)	%
Loan servicing fees, net		466		757		(291)	(38.4)	%
Increase in cash surrender value of life insurance		450		405		45	11.1	%
Other noninterest income		3,442		2,666		776	29.1	%
Realized gains on available-for-sale debt securities, net		6		21		(15)	(71.4)	%
Total noninterest income	$	18,739	$	18,323	$	416	2.3	%

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

NONINTEREST EXPENSE

TABLE III - COMPARISON OF NONINTEREST EXPENSE

(Dollars in Thousands)	Three Months Ended
	September 30,				$		%
	2023		2022		Change		Change
Salaries and employee benefits	$	10,878	$	10,826	$	52	0.5	%
Net occupancy and equipment expense		1,268		1,498		(230)	(15.4)	%
Data processing and telecommunications expense		1,823		1,719		104	6.1	%
Automated teller machine and interchange expense		504		397		107	27.0	%
Pennsylvania shares tax		403		487		(84)	(17.2)	%
Professional fees		487		521		(34)	(6.5)	%
Other noninterest expense		2,577		1,995		582	29.2	%
Total noninterest expense	$	17,940	$	17,443	$	497	2.8	%

(Dollars in Thousands)	Nine Months Ended
	September 30,				$		%
	2023		2022		Change		Change
Salaries and employee benefits	$	33,082	$	31,698	$	1,384	4.4	%
Net occupancy and equipment expense		3,993		4,217		(224)	(5.3)	%
Data processing and telecommunications expense		5,659		5,062		597	11.8	%
Automated teller machine and interchange expense		1,374		1,128		246	21.8	%
Pennsylvania shares tax		1,210		1,463		(253)	(17.3)	%
Professional fees		1,988		1,490		498	33.4	%
Other noninterest expense		8,443		6,310		2,133	33.8	%
Total noninterest expense	$	55,749	$	51,368	$	4,381	8.5	%

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 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 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

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

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.

Fair Value of Available-For-Sale Debt Securities – Another material estimate is the calculation of fair values of the Corporation’s debt securities. For most of the Corporation’s debt securities, the Corporation receives estimated fair values of debt securities from an independent valuation service, or from brokers. In developing fair values, the valuation service and the brokers use estimates of cash flows, based on historical performance of similar instruments in similar interest rate environments. Based on experience, management is aware that estimated fair values of debt securities tend to vary among brokers and other valuation services.

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, 2023 and 2022. 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. The Corporation believes presentation of net interest income on a fully taxable-equivalent basis provides investors with meaningful information for purposes of comparing returns on tax-exempt securities and loans with returns on taxable securities and loans. Accordingly, the net interest income amounts reflected in these tables exceed the amounts presented in the consolidated financial statements. The discussion that follows is based on amounts in the related Tables.

Three-Month Periods Ended September 30, 2023 and 2022

For the three-month periods, fully taxable equivalent net interest income (a non-GAAP measure) of $19,875,000 in 2023 was $1,313,000 (6.2%) lower than in 2022. The decrease in net interest income reflected an increase in interest expense of $6,624,000 (includes $5,292,000 interest on deposits and $1,332,000 in interest on borrowings) and an increase of $5,311,000 in total interest income. As presented in Table VI, the net impact of changes in volume of earning assets and interest-bearing liabilities increased net interest income in the third quarter 2023 as compared to third quarter 2022 by $255,000, while the net impact of changes in interest rates (primarily increases) decreased net interest income by $1,568,000. As presented in Table V, the Net Interest Margin was 3.35% in the third quarter 2023 as compared to 3.69% in the third quarter 2022, and the “Interest Rate Spread” (excess of average rate of return on earning assets over average cost of funds on interest-bearing liabilities) decreased to 2.73% in 2023 from 3.46% in 2022. The average yield on earning assets of 4.94% was 0.76% higher in 2023 as compared to 2022, and the average rate on interest-bearing liabilities of 2.21% in 2023 was 1.49% higher.

INTEREST INCOME AND EARNING ASSETS

Interest income totaled $29,330,000 in 2023, an increase of $5,311,000, or 22.1% from 2022.

Interest and fees from loans receivable increased $5,489,000 in 2023 as compared to 2022. The fully taxable equivalent yield on loans in 2023 increased to 5.72% from 4.91% in 2022, reflecting the effects of rising interest rates on the loan portfolio. Average outstanding loans receivable increased $142,728,000 (8.5%) to $1,816,998,000 in 2023 from $1,674,270,000 in 2022. The Corporation has experienced growth in commercial real estate and residential mortgage loans over the last three quarters of 2022 and first nine months of 2023.

Income from interest-bearing due from banks totaled $345,000 in 2023, an increase of $169,000 from the total for 2022. The average yield on interest-bearing due from banks was 4.31% in 2023, up from 2.03% in 2022. The average balance of interest-bearing due from banks was $31,729,000 in 2023, down from $34,465,000 in 2022. Within this category, the largest asset balance in 2023 and 2022 has been interest-bearing deposits held with the Federal Reserve.

Interest income from available-for-sale debt securities, on a fully taxable-equivalent basis, totaled $2,758,000 in 2023, down $327,000 from 2022, as the average balance (at amortized cost) of available-for-sale debt securities decreased $60,776,000. The average yield on available-for-sale debt securities was 2.17% in 2023 and 2022.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

INTEREST EXPENSE AND INTEREST-BEARING LIABILITIES

Interest expense increased $6,624,000 to $9,455,000 in 2023 from $2,831,000 in 2022.

Interest expense on deposits increased $5,292,000, as the average rate on interest-bearing deposits increased to 1.93% in 2023 from 0.54% in 2022. Average total deposits (interest-bearing and noninterest-bearing) amounted to $1,990,092,000 for the third quarter 2023, down $8,491,000 (0.4%) from the third quarter 2022. Within average total deposits, average brokered deposits (primarily time and money market) were $60,829,000 with an average interest rate of 4.98% in the third quarter 2023, up from $39,074,000 with an average interest rate of 2.51% in the third quarter 2022. The deposit mix has changed significantly over the past several months as businesses and consumers have become more interest-rate sensitive in light of higher market rates.  Average time deposits increased $107,808,000 and average interest checking deposits increased $69,427,000, while the average total balance of money market accounts decreased $98,152,000, average noninterest-bearing demand deposits decreased $58,392,000 and average savings deposits decreased $29,182,000.

Interest expense on borrowed funds increased $1,332,000 in 2023 as compared to 2022, as the Corporation utilized higher levels of short-term and long-term FHLB borrowings to help provide funding for loan growth. Interest expense on short-term borrowings was $677,000 in 2023, up from $179,000 in 2022. The average balance of short-term borrowings increased to $49,157,000 in 2023 from $33,970,000 in 2022. The average rate on short-term borrowings was 5.46% in 2023 compared to 2.09% in 2022. Interest expense on long-term borrowings (FHLB advances) increased $832,000 to $1,164,000 in 2023 from $332,000 in 2022. The average balance of long-term borrowings was $119,395,000 at an average rate of 3.87% in 2023, up from an average balance of $51,628,000 at an average rate of 2.55% in 2022. Borrowings are classified as long-term within the Tables based on their term at origination or assumption in business combinations. The average rate on total borrowed funds was 4.18% in 2023 compared to 2.73% in 2022.

Nine-Month Periods Ended September 30, 2023 and 2022

For the nine-month periods, fully taxable equivalent net interest income was $61,526,000 in 2023, which was $233,000 (0.4%) lower than in 2022. Similar to the discussion for the third quarter 2023, the decrease in net interest income reflected an increase in interest expense of $16,506,000 (includes $11,581,000 interest on deposits and $4,925,000 in interest on borrowings) and an increase of $16,273,000 in total interest income. As presented in Table VI, the net impact of changes in volume of earning assets and interest-bearing liabilities increased net interest income for the nine months ended September 30, 2023 over the nine months ended September 30, 2022 by $2,482,000, while the net impact of changes in interest rates (primarily increases) decreased net interest income by $2,715,000. As presented in Table V, the Net Interest Margin was 3.53% in the first nine months of 2023 as compared to 3.72% in the first nine months of 2022, and the “Interest Rate Spread” (excess of average rate of return on earning assets over average cost of funds on interest-bearing liabilities) decreased to 2.99% in 2023 from 3.55% in 2022. The average yield on earning assets of 4.81% was 0.73% higher in 2023 as compared to 2022, while the average rate on interest-bearing liabilities of 1.82% in 2023 was 1.29% higher as compared to 2022.

INTEREST INCOME AND EARNING ASSETS

Interest income totaled $83,988,000 in 2023, an increase of $16,273,000 from 2022.

Interest and fees from loans receivable increased $16,058,000 in 2023 as compared to 2022. In the nine-month period ended September 30, 2023, the fully taxable equivalent yield on loans was 5.60%, up from 4.86% in the first nine months of 2022, reflecting the effects of rising interest rates on the loan portfolio. Average outstanding loans receivable increased $173,103,000 (10.8%) to $1,777,238,000 in 2023 from $1,604,135,000 in 2022. As noted above, the Corporation has experienced growth in outstanding commercial real estate and residential mortgage loans over the last three quarters of 2022 and first nine months of 2023.

Income from interest-bearing due from banks was $932,000 in 2023, an increase of $597,000 from 2022. The average yield on interest-bearing due from banks was 4.01% in 2023, up from 0.81% in 2022. The average balance of interest-bearing due from banks was $31,076,000 in 2023, down from $55,154,000 in 2022. The reduction in interest-bearing due from bank balances reflects the use of funds to help support loan growth. Within this category, the largest asset balance in 2023 and 2022 has been interest-bearing deposits held with the Federal Reserve.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Interest income from available-for-sale debt securities decreased $353,000 in 2023 from 2022. The average balance of available-for-sale debt securities (at amortized cost) decreased to $522,600,000 in 2023 from $557,155,000 in 2022, as net proceeds from maturities and sales of securities have been used to help fund loan growth. The average yield on available-for-sale debt securities was 2.20% for 2023 as compared to 2.15% in 2022.

INTEREST EXPENSE AND INTEREST-BEARING LIABILITIES

For the nine-month periods, interest expense increased $16,506,000 to $22,462,000 in 2023 from $5,956,000 in 2022.

Interest expense on deposits increased $11,581,000, as the average rate on interest-bearing deposits increased to 1.45% in 2023 from 0.38% in 2022. Average total deposits (interest-bearing and noninterest-bearing) amounted to $1,956,757,000 for the first nine months of 2023, down $7,906,000 (0.4%) from the first nine months of 2022. Within average deposits, average brokered deposits were $40,910,000 at an average rate of 4.56% for the first nine months of 2023 as compared to $35,423,000 at an average rate of 1.36% in the first nine months of 2022.  As noted above, the deposit mix has changed significantly over the last several months.  Average time deposits increased $83,501,000 and average interest checking deposits increased $46,407,000, while the average total balance of money market accounts decreased $103,850,000, the average balances of noninterest bearing demand deposits decreased $24,014,000 and average savings deposits decreased $9,950,000.

Interest expense on borrowed funds increased $4,925,000 in 2023 as compared to 2022. Interest expense on short-term borrowings of $2,918,000 in 2023 was up from $302,000 in 2022 as the average balance of short-term borrowings increased to $75,978,000 in 2023 from $24,306,000 in 2022. The average rate on short-term borrowings was 5.13% in 2023 compared to 1.66% in 2022. Interest expense on long-term borrowings (FHLB advances) increased $2,465,000 to $2,901,000 in 2023 from $436,000 in 2022. The average balance of long-term borrowings was $103,817,000 in 2023, up from an average balance of $32,509,000 in 2022. 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 3.74% in 2023 compared to 1.79% in 2022. Interest expense on subordinated debt decreased $158,000 to $691,000 in 2023 from $849,000 in 2022. The average balance of subordinated debt decreased to $24,648,000 in 2023 from $27,966,000 in 2022, and the average rate on subordinated debt decreased to 3.75% in 2023 from 4.06% in 2022.

49

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

TABLE IV - ANALYSIS OF INTEREST INCOME AND EXPENSE

	Three Months Ended							Nine Months Ended
	September 30,				Increase/		.	September 30,				Increase/
(In Thousands)	2023		2022		(Decrease)			2023		2022		(Decrease)
INTEREST INCOME
Interest-bearing due from banks	$	345	$	176	$	169		$	932	$	335	$	597
Available-for-sale debt securities:
Taxable		2,077		2,138		(61)			6,440		6,143		297
Tax-exempt		681		947		(266)			2,161		2,811		(650)
Total available-for-sale debt securities		2,758		3,085		(327)			8,601		8,954		(353)
Loans receivable:
Taxable		25,526		19,967		5,559			72,314		55,662		16,652
Paycheck Protection Program		3		118		(115)			8		899		(891)
Tax-exempt		680		635		45			2,093		1,796		297
Total loans receivable		26,209		20,720		5,489			74,415		58,357		16,058
Other earning assets		18		38		(20)			40		69		(29)
Total Interest Income		29,330		24,019		5,311			83,988		67,715		16,273
INTEREST EXPENSE
Interest-bearing deposits:
Interest checking		2,360		487		1,873			4,859		989		3,870
Money market		1,669		639		1,030			3,654		1,270		2,384
Savings		60		66		(6)			186		191		(5)
Time deposits		3,175		780		2,395			6,894		1,562		5,332
Total interest-bearing deposits		7,264		1,972		5,292			15,593		4,012		11,581
Borrowed funds:
Short-term		677		179		498			2,918		302		2,616
Long-term - FHLB advances		1,164		332		832			2,901		436		2,465
Senior notes, net		120		119		1			359		357		2
Subordinated debt, net		230		229		1			691		849		(158)
Total borrowed funds		2,191		859		1,332			6,869		1,944		4,925
Total Interest Expense		9,455		2,831		6,624			22,462		5,956		16,506
Net Interest Income	$	19,875	$	21,188	$	(1,313)		$	61,526	$	61,759	$	(233)

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 is a reconciliation of net interest income under U.S. GAAP as compared to net interest income as adjusted to a fully taxable-equivalent basis.

(In Thousands)	Three Months Ended						Nine Months Ended
	September 30,				Increase/		September 30,				Increase/
	2023		2022		(Decrease)		2023		2022		(Decrease)
Net Interest Income Under U.S. GAAP	$	19,663	$	20,879	$	(1,216)	$	60,806	$	60,836	$	(30)
Add: fully taxable-equivalent interest income adjustment from tax-exempt securities		84		179		(95)		314		553		(239)
Add: fully taxable-equivalent interest income adjustment from tax-exempt loans		128		130		(2)		406		370		36
Net Interest Income as adjusted to a fully taxable-equivalent basis	$	19,875	$	21,188	$	(1,313)	$	61,526	$	61,759	$	(233)

50

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

TABLE V - Analysis of Average Daily Balances and Rates

(Dollars in Thousands)	Three Months				Three Months				Nine Months				Nine Months
	Ended		Rate of		Ended		Rate of		Ended		Rate of		Ended		Rate of
	9/30/2023		Return/		9/30/2022		Return/		9/30/2023		Return/		9/30/2022		Return/
	Average		Cost of		Average		Cost of		Average		Cost of		Average		Cost of
	Balance		Funds %		Balance		Funds %		Balance		Funds %		Balance		Funds %
EARNING ASSETS
Interest-bearing due from banks	$	31,729	4.31	%	$	34,465	2.03	%	$	31,076	4.01	%	$	55,154	0.81	%
Available-for-sale debt securities, at amortized cost:
Taxable		379,709	2.17	%		414,147	2.05	%		395,070	2.18	%		408,178	2.01	%
Tax-exempt		124,435	2.17	%		150,773	2.49	%		127,530	2.27	%		148,977	2.52	%
Total available-for-sale debt securities		504,144	2.17	%		564,920	2.17	%		522,600	2.20	%		557,155	2.15	%
Loans receivable:
Taxable		1,729,835	5.85	%		1,582,245	5.01	%		1,687,444	5.73	%		1,507,756	4.94	%
Paycheck Protection Program		137	8.69	%		4,695	9.97	%		149	7.18	%		10,887	11.04	%
Tax-exempt		87,026	3.10	%		87,330	2.88	%		89,645	3.12	%		85,492	2.81	%
Total loans receivable		1,816,998	5.72	%		1,674,270	4.91	%		1,777,238	5.60	%		1,604,135	4.86	%
Other earning assets		1,468	4.86	%		3,925	3.84	%		1,332	4.02	%		2,750	3.35	%
Total Earning Assets		2,354,339	4.94	%		2,277,580	4.18	%		2,332,246	4.81	%		2,219,194	4.08	%
Cash		22,068				23,731				22,475				22,527
Unrealized loss on securities		(63,110)				(44,559)				(59,921)				(28,068)
Allowance for credit losses		(19,540)				(14,914)				(18,472)				(14,406)
Bank-owned life insurance		31,559				30,991				31,413				30,857
Bank premises and equipment		21,132				21,874				21,262				21,494
Intangible assets		55,125				55,547				55,227				55,655
Other assets		74,483				57,012				70,369				52,610
Total Assets	$	2,476,056			$	2,407,262			$	2,454,599			$	2,359,863
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
Interest checking	$	512,074	1.83	%	$	442,647	0.44	%	$	477,751	1.36	%	$	431,344	0.31	%
Money market		340,618	1.94	%		438,770	0.58	%		344,527	1.42	%		448,377	0.38	%
Savings		232,240	0.10	%		261,422	0.10	%		245,483	0.10	%		255,433	0.10	%
Time deposits		406,436	3.10	%		298,628	1.04	%		365,174	2.52	%		281,673	0.74	%
Total interest-bearing deposits		1,491,368	1.93	%		1,441,467	0.54	%		1,432,935	1.45	%		1,416,827	0.38	%
Borrowed funds:
Short-term		49,157	5.46	%		33,970	2.09	%		75,978	5.13	%		24,306	1.66	%
Long-term - FHLB advances		119,395	3.87	%		51,628	2.55	%		103,817	3.74	%		32,509	1.79	%
Senior notes, net		14,808	3.22	%		14,741	3.20	%		14,790	3.25	%		14,725	3.24	%
Subordinated debt, net		24,676	3.70	%		24,566	3.70	%		24,648	3.75	%		27,966	4.06	%
Total borrowed funds		208,036	4.18	%		124,905	2.73	%		219,233	4.19	%		99,506	2.61	%
Total Interest-bearing Liabilities		1,699,404	2.21	%		1,566,372	0.72	%		1,652,168	1.82	%		1,516,333	0.53	%
Demand deposits		498,724				557,116				523,822				547,836
Other liabilities		30,749				23,588				28,091				22,565
Total Liabilities		2,228,877				2,147,076				2,204,081				2,086,734
Stockholders' equity, excluding accumulated other comprehensive loss		296,577				295,086				297,386				295,019
Accumulated other comprehensive loss		(49,398)				(34,900)				(46,868)				(21,890)
Total Stockholders' Equity		247,179				260,186				250,518				273,129
Total Liabilities and Stockholders' Equity	$	2,476,056			$	2,407,262			$	2,454,599			$	2,359,863
Interest Rate Spread			2.73	%			3.46	%			2.99	%			3.55	%
Net Interest Income/Earning Assets			3.35	%			3.69	%			3.53	%			3.72	%
Total Deposits (Interest-bearing and Demand)	$	1,990,092			$	1,998,583			$	1,956,757			$	1,964,663

(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.

51

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

TABLE VI - ANALYSIS OF VOLUME AND RATE CHANGES

(In Thousands)	Three Months Ended 9/30/2023 vs. 9/30/2022						.	Nine Months Ended 9/30/2023 vs. 9/30/2022
	Change in		Change in		Total			Change in		Change in		Total
	Volume		Rate		Change			Volume		Rate		Change
EARNING ASSETS
Interest-bearing due from banks	$	(76)	$	245	$	169		$	(203)	$	800	$	597
Available-for-sale debt securities:
Taxable		(180)		119		(61)			(202)		499		297
Tax-exempt		(154)		(112)		(266)			(380)		(270)		(650)
Total available-for-sale debt securities		(334)		7		(327)			(582)		229		(353)
Loans receivable:
Taxable		1,985		3,574		5,559			7,088		9,564		16,652
Paycheck Protection Program		(113)		(2)		(115)			(658)		(233)		(891)
Tax-exempt		(2)		47		45			90		207		297
Total loans receivable		1,870		3,619		5,489			6,520		9,538		16,058
Other earning assets		(26)		6		(20)			(41)		12		(29)
Total Interest Income		1,434		3,877		5,311			5,694		10,579		16,273
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
Interest checking		73		1,800		1,873			117		3,753		3,870
Money market		(175)		1,205		1,030			(357)		2,741		2,384
Savings		(8)		2		(6)			(8)		3		(5)
Time deposits		332		2,063		2,395			585		4,747		5,332
Total interest-bearing deposits		222		5,070		5,292			337		11,244		11,581
Borrowed funds:
Short-term		151		347		498			1,319		1,297		2,616
Long-term - FHLB advances		802		30		832			1,650		815		2,465
Senior notes, net		1		0		1			2		0		2
Subordinated debt, net		3		(2)		1			(96)		(62)		(158)
Total borrowed funds		957		375		1,332			2,875		2,050		4,925
Total Interest Expense		1,179		5,445		6,624			3,212		13,294		16,506
Net Interest Income	$	255	$	(1,568)	$	(1,313)		$	2,482	$	(2,715)	$	(233)

(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. Due to higher levels of pre-tax income in 2023, the income tax provision for the third quarter 2023 of $1,846,000 was $988,000 higher than the provision for the third quarter 2022 and the provision for the nine months ended September 30, 2023 of $4,674,000 was $715,000 higher than the amount for the first nine months of 2022. The effective tax rate (tax provision as a percentage of pre-tax income) was 19.6% in the third quarter 2023 compared to 16.1% in the third quarter 2022 and 19.0% for the first nine months of 2023 as compared to 17.4% for the first nine months of 2022. The Corporation’s effective tax rates differ from the statutory rate of 21% principally because of the effects of tax-exempt interest income, nondeductible interest expense, state income taxes and other permanent differences.

52

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

The Corporation recognizes deferred tax assets and liabilities based on differences between the financial statement carrying amounts and the tax basis of assets and liabilities. The net deferred tax asset at September 30, 2023 and December 31, 2022 represents the following temporary difference components:

	September 30,		December 31,
(In Thousands)	2023		2022
Deferred tax assets:
Unrealized holding losses on securities	$	16,024	$	13,391
Allowance for credit losses on loans		3,982		3,648
Purchase accounting adjustments on loans		510		938
Deferred compensation		1,300		1,149
Operating leases liability		818		907
Deferred loan origination fees		715		779
Net operating loss carryforward		571		659
Accrued incentive compensation		390		354
Other deferred tax assets		1,308		1,115
Total deferred tax assets		25,618		22,940
Deferred tax liabilities:
Defined benefit plans - ASC 835		119		129
Bank premises and equipment		280		298
Core deposit intangibles		566		633
Right-of-use assets from operating leases		818		907
Other deferred tax liabilities		104		89
Total deferred tax liabilities		1,887		2,056
Deferred tax asset, net	$	23,731	$	20,884

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, 2023 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.

53

CITIZENS & NORTHERN CORPORATION – FORM 10-Q

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

(Dollars In Thousands)	September 30, 2023					December 31, 2022					December 31, 2021
	Amortized		Fair			Amortized		Fair			Amortized		Fair
	Cost		Value			Cost		Value			Cost		Value
Obligations of the U.S. Treasury	$	33,938	$	30,557		$	35,166	$	31,836		$	25,058	$	24,912
Obligations of U.S. Government agencies		21,372		18,796			25,938		23,430			23,936		24,091
Bank holding company debt securities		28,950		22,311			28,945		25,386			18,000		17,987
Obligations of states and political subdivisions:
Tax-exempt		123,598		104,453			146,149		132,623			143,427		148,028
Taxable		65,408		53,457			68,488		56,812			72,182		72,765
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		109,102		94,469			112,782		99,941			98,048		98,181
Residential collateralized mortgage obligations		38,267		33,397			44,868		40,296			44,015		44,247
Commercial mortgage-backed securities		76,627		63,672			91,388		79,686			86,926		87,468
Private label commercial mortgage-backed securities		8,178		8,026			8,070		8,023			0		0
Total Available-for-Sale Debt Securities	$	505,440	$	429,138		$	561,794	$	498,033		$	511,592	$	517,679
Aggregate Unrealized (Loss) Gain			$	(76,302)				$	(63,761)				$	6,087
Aggregate Unrealized (Loss) Gain as a % of Amortized Cost				(15.1)	%				(11.3)	%				1.2	%
Market Yield on 5-Year U.S. Treasury Obligations (a)				4.60	%				3.99	%				1.26	%

(a) Source: Treasury.gov (Daily Treasury Par Yield Curve Rates)

As reflected in the table above, the fair value of available-for-sale securities was lower than the amortized cost basis by $76,302,000, or 15.1% at September 30, 2023 and $63,761,000 (11.3%) at December 31, 2022. In comparison, the aggregate unrealized gain position was $6,087,000 (1.2%) at December 31, 2021. The volatility in the fair value of the portfolio, including the significant reduction in fair value, resulted from changes in interest rates. As shown above, the market yield on the 5-year U.S. Treasury Note was 0.61% higher at September 30, 2023 in comparison to December 31, 2022, and 3.34% higher than at December 31, 2021.

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, 2023 before it is able to recover the amortized cost basis. Further, management reviewed the Corporation’s holdings as of September 30, 2023 and concluded there were no credit-related declines in fair value. Additional information related to the types of securities held at September 30, 2023, other than securities issued or guaranteed by U.S. Government entities or agencies, is as follows:

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● 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, 2023, the 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 September 30, 2023, 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 – 23% of the portfolio; AA – 71%; A – 6%.

● Private label commercial mortgage-backed securities (PLCMBS) – There were two PLCMBS securities, both 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, 2023.

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. Management does not expect the amount of purchases of bank premises and equipment to have a material, detrimental effect on the Corporation’s financial condition in 2023.

Table VII shows the composition of the loan portfolio at September 30, 2023 and at year-end from 2018 through 2022. The segments presented in Table VII have been revised from those used in prior year disclosures to be consistent with the pools used in determining the collectively evaluated portion of the allowance for credit losses based on the CECL methodology in 2023.

As presented in Table VII, total loans outstanding at September 30, 2023 of $1,830,670,000 was more than double the corresponding total at December 31, 2018. The increase in loans outstanding includes the impact of acquisitions of banks located in Southeastern Pennsylvania in 2019 and 2020. Primarily as a result of the acquisitions, as well as expansion by opening two offices in Southcentral Pennsylvania, the mix of the loan portfolio has changed to become predominantly commercial in nature. At September 30, 2023, commercial loans represented 75% of the portfolio while residential loans totaled 22% of the portfolio; in comparison, commercial loans totaled 48% and residential loans totaled 47% of the portfolio at December 31, 2018.

Table VII shows an increase in commercial and industrial loans to $222,923,000 at December 31, 2020 followed by reductions in 2021, 2022 and the first nine months of 2023. The elevated balance of commercial and industrial loans at December 31, 2020 included Paycheck Protection Program (PPP) loans of $132,269,000, a substantial portion of which were subsequently repaid. The outstanding balance of PPP loans was $130,000 at September 30, 2023.

At September 30, 2023, gross loans outstanding increased $90,630,000 from December 31, 2022. Gross loans outstanding at December 31, 2022 increased $175,191,000, or 11.2%, from the total at December 31, 2021. The pace of loan growth in the fourth quarter of 2023 and in future periods will depend on the impact of the increases in interest rates that have occurred in 2022 and 2023, potential further increases in interest rates, potential deterioration in economic conditions and other factors.

While the Corporation’s lending activities are primarily concentrated in its market areas, a portion of the Corporation’s commercial loan segment consists of participation loans. Participation loans represent portions of larger commercial transactions for which other institutions are the “lead banks”. Although not the lead bank, the Corporation conducts detailed underwriting and monitoring of participation loan opportunities. Total participation loans outstanding amounted to $38,995,000 at September 30, 2023, down from $44,723,000 at December 31, 2022.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

At September 30, 2023, the total recorded investment in non-owner occupied commercial real estate loans for which the primary purpose is utilization of office space by third parties was $94,729,000, or 5.2% of total gross loans receivable. Within this segment, at September 30, 2023, there were two loans with a recorded investment of $3,963,000 risk rated as substandard and nonaccrual with specific allowance for credit losses totaling  $540,000. The remainder of the non-owner occupied commercial real estate loans for the primary purpose of office space utilization totaling $90,766,000 were accruing interest and risk rated Pass at September 30, 2023.

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. In late 2019, the Corporation began to originate and sell larger-balance, nonconforming mortgages under the MPF Direct Program, which is also administered by the Federal Home Loan Banks of Pittsburgh and Chicago. The Corporation does not retain servicing rights for loans sold under the MPF Direct Program. Through September 30, 2023, the Corporation’s activity under the MPF Direct Program has been minimal.

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, 2023, the total outstanding balance of loans the Corporation has repurchased as a result of identified instances of noncompliance amounted to $1,472,000, and the corresponding total outstanding balance of repurchased loans at December 31, 2022 was $1,515,000.

At September 30, 2023, outstanding balances of loans sold and serviced through the MPF Xtra and Original programs totaled $318,526,000, including loans sold through the MPF Xtra program of $151,094,000 and loans sold through the Original program of $167,432,000. At December 31, 2022, outstanding balances of loans sold and serviced through the two programs totaled $325,677,000, including loans sold through the MPF Xtra program of $155,506,000 and loans sold through the Original Program of $170,171,000. 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, 2023 and December 31, 2022.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

TABLE VII - SUMMARY OF LOANS BY TYPE

Summary of Loans by Type

(In Thousands)	September 30,		December 31,
	2023		2022		2021		2020		2019		2018
Commercial real estate - non-owner occupied:
Non-owner occupied	$	503,434	$	454,386	$	358,352	$	328,662	$	208,579	$	115,128
Multi-family (5 or more) residential		61,061		55,406		49,054		54,893		30,474		7,104
1-4 Family - commercial purpose		172,792		165,805		175,027		198,918		147,121		35,176
Total commercial real estate - non-owner occupied		737,287		675,597		582,433		582,473		386,174		157,408
Commercial real estate - owner occupied		231,112		205,910		196,083		191,075		78,729		38,478
All other commercial loans:
Commercial and industrial		80,960		95,368		118,488		222,923		67,288		49,947
Commercial lines of credit		122,189		141,444		106,338		105,802		92,509		65,492
Political subdivisions		80,415		86,663		75,401		46,295		46,054		49,037
Commercial construction and land		91,014		60,892		59,505		41,000		32,717		11,126
Other commercial loans		21,125		25,710		26,498		29,310		28,735		23,130
Total all other commercial loans		395,703		410,077		386,230		445,330		267,303		198,732
Residential mortgage loans:
1-4 Family - residential		385,777		363,005		327,593		356,532		388,415		360,195
1-4 Family residential construction		24,236		30,577		23,151		18,736		14,640		24,698
Total residential mortgage		410,013		393,582		350,744		375,268		403,055		384,893
Consumer loans:
Consumer lines of credit (including HELOCs)		37,736		36,650		33,522		34,566		30,810		31,955
All other consumer		18,819		18,224		15,837		15,497		16,151		16,097
Total consumer		56,555		54,874		49,359		50,063		46,961		48,052
Total		1,830,670		1,740,040		1,564,849		1,644,209		1,182,222		827,563
Less: allowance for credit losses on loans		(18,085)		(16,615)		(13,537)		(11,385)		(9,836)		(9,309)
Loans, net	$	1,812,585	$	1,723,425	$	1,551,312	$	1,632,824	$	1,172,386	$	818,254

Additional details regarding the composition of the non-owner occupied commercial real estate loan portfolio at September 30, 2023 is as follows:

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NON-OWNER OCCUPIED COMMERCIAL REAL ESTATE

(In Thousands)	September 30,		% of Non-owner		% of
	2023		Occupied CRE		Total Loans
Industrial	$	107,268	21.3	%	5.9	%
Office		94,729	18.8	%	5.2	%
Retail		94,542	18.8	%	5.2	%
Hotels		73,511	14.6	%	4.0	%
Mixed Use		59,702	11.9	%	3.3	%
Other		73,682	14.6	%	4.0	%
Total Non-owner Occupied CRE Loans	$	503,434
Total Gross Loans	$	1,830,670

PROVISION AND ALLOWANCE FOR CREDIT LOSSES

On January 1, 2023, the Corporation adopted ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASC 326). This standard replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (CECL) methodology. CECL requires an estimate of credit losses for the remaining estimated life of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts. Note 1 to the unaudited consolidated financial statements provides a detailed explanation of the Corporation’s adopted accounting policies related to the application of CECL.

Effective January 1, 2023, the Corporation adopted ASC 326 using the modified retrospective approach for all financial assets measured at amortized cost and off-balance sheet credit exposures. Results for reporting periods beginning after January 1, 2023 are presented under CECL while prior period amounts continue to be reported in accordance with previously applicable accounting standards (“Incurred Loss”). At January 1, 2023, the impact of adopting CECL included an increase in gross loans receivable of $806,000 as compared to December 31, 2022 and an increase in the allowance for credit losses of $2,104,000 as compared to the allowance for loan losses determined under the Incurred Loss method at December 31, 2022.

A summary of the credit for credit losses for the third quarter 2023 and for the nine-month period ended September 30, 2023 is as follows:

(In Thousands)	3 Months		9 Months
	Ended		Ended
	September 30,		September 30,
	2023		2023
(Credit) for credit losses:
Loans receivable	$	(933)	$	(409)
Off-balance sheet exposures (1)		(292)		(356)
Total (credit) for credit losses	$	(1,225)	$	(765)

(1) The (credit) provision for credit losses on off-balance sheet exposures prior to January 1, 2023 was included in other noninterest expense in the consolidated statements of income.

In the third quarter 2023, the credit for credit losses included the impact of reductions in the ACL from a reduction in estimated future net charge-offs related to an economic forecast, qualitative adjustments in concentrations of credit based on loan type, lending policies and procedures and changes in external indexes, and a reduction in the Corporation’s average net charge-off experience.  Similarly, the credit for credit losses for the first nine months of 2023 included the impact of reductions in the ACL related to the qualitative adjustments described above and a reduction in the Corporation’s average net charge-off experience; however, the net impact of changes in the economic forecast was not significant. The ACL as a percentage of gross loans receivable was 0.99% at September 30, 2023 and 1.05% at June 30, 2023 as compared to 1.08% at January 1, 2023 upon initial adoption of CECL. Within the credit for

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

credit losses on loans in the first nine months of 2023, the net provision related to specific loans was $294,000, including net charge-offs of $225,000 and a net increase in specific allowances on loans of $69,000. In comparison, the provision for loan losses in the first nine months of 2022 included $2,047,000 related to specific loans (net decrease in specific allowances on loans of $313,000 and net charge-offs of $2,360,000), an increase of $2,617,000 in the collectively determined portion of the allowance and a $329,000 increase in the unallocated portion.

Table X shows that total nonperforming assets as a percentage of total assets was 0.70% at September 30, 2023, down from 1.04% at December 31, 2022 and lower than that at year-end 2018 through 2021. Total nonperforming assets were $17.4 million at September 30, 2023, down from $25.6 million at December 31, 2022. Similarly, total loans individually evaluated for credit loss decreased to $12.0 million at September 30, 2023 from $19.4 million at December 31, 2022. The net decrease in nonperforming assets at September 30, 2023 compared to December 31, 2022 included the impact of a $10.0 million payoff in the first quarter 2023 on a commercial loan relationship that was classified as nonaccrual at December 31, 2022. The reduction also included paydowns totaling $2,262,000 in the first nine months of 2023 on a commercial loan for which partial charge-offs totaling $3,942,000 were recorded in 2022. The remaining carrying value of this loan was $392,000 at September 30, 2023. These reductions were partially offset by the addition to nonaccrual of two commercial loan relationships totaling $4,512,000, including two commercial real estate loans with a primary purpose of office space utilization totaling $3,963,000, at September 30, 2023.

In the first nine months of 2023, net charge-offs were low by historical standards, totaling $225,000, or 0.01% of average outstanding loans. Table VIII shows annual average net charge-off rates ranging from a high of 0.26% in 2022 to a low of 0.02% in 2018.

Over the period 2018-2022 and the first nine months of 2023, 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 conservative in its decisions concerning identification of loans requiring individual evaluation for credit loss, estimates of loss, and nonaccrual status; however, the actual losses realized from these relationships could vary materially from the allowances calculated as of September 30, 2023. Management continues to closely monitor its commercial loan relationships for possible 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

(Dollars In Thousands)	Nine Months Ended
	September 30,			September 30,			Years Ended December 31,
	2023			2022			2022			2021			2020			2019			2018
Balance, beginning of year	$	16,615		$	13,537		$	13,537		$	11,385		$	9,836		$	9,309		$	8,856
Increase due to adoption of CECL		2,104			0			0			0			0			0			0
Charge-offs		(299)			(2,417)			(4,245)			(1,575)			(2,465)			(379)			(497)
Recoveries		74			57			68			66			101			57			366
Net charge-offs		(225)			(2,360)			(4,177)			(1,509)			(2,364)			(322)			(131)
(Credit) provision for credit losses		(409)			4,993			7,255			3,661			3,913			849			584
Balance, end of period	$	18,085		$	16,170		$	16,615		$	13,537		$	11,385		$	9,836		$	9,309
Net charge-offs as a % of average loans		0.01	%		0.15	%		0.26	%		0.09	%		0.16	%		0.03	%		0.02	%

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

TABLE IX - COMPONENTS OF THE ALLOWANCE FOR CREDIT LOSSES

UPON ADOPTION OF CECL

(In Thousands)	September 30,		January 1,
	2023		2023
Loans individually evaluated	$	820	$	751
Loans collectively evaluated:
Commercial real estate - nonowner occupied		9,671		9,641
Commercial real estate - owner occupied		1,803		1,765
All other commercial loans		3,457		3,914
Residential mortgage		1,993		2,407
Consumer		341		241
Total Allowance	$	18,085	$	18,719

PRIOR TO CECL ADOPTION

(In Thousands)	As of December 31,
	2022		2021		2020		2019		2018
ASC 310 - Impaired loans - individually evaluated	$	453	$	740	$	925	$	1,051	$	1,605
ASC 450 - Collectively evaluated:
Commercial		10,845		7,553		5,545		3,913		3,102
Residential mortgage		4,073		4,338		4,091		4,006		3,870
Consumer		244		235		239		281		233
Unallocated		1,000		671		585		585		499
Total Allowance	$	16,615	$	13,537	$	11,385	$	9,836	$	9,309

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

TABLE X - PAST DUE LOANS AND NONPERFORMING ASSETS

(Dollars In Thousands)	September 30,			As of December 31,
	2023			2022			2021			2020			2019			2018
Loans individually evaluated with a valuation allowance	$	7,861		$	3,460		$	6,540		$	8,082		$	3,375		$	4,851
Loans individually evaluated without a valuation allowance		4,146			14,871			2,636			2,895			1,670			4,923
Purchased credit impaired loans		0			1,027			6,558			6,841			441			0
Total individually evaluated loans	$	12,007		$	19,358		$	15,734		$	17,818		$	5,486		$	9,774
Total loans past due 30-89 days and still accruing	$	3,675		$	7,079		$	5,106		$	5,918		$	8,889		$	7,142
Nonperforming assets:
Purchased credit impaired loans	$	0		$	1,027		$	6,558		$	6,841		$	441		$	0
Other nonaccrual loans		15,501			22,058			12,441			14,575			8,777			13,113
Total nonaccrual loans		15,501			23,085			18,999			21,416			9,218			13,113
Total loans past due 90 days or more and still accruing		1,292			2,237			2,219			1,975			1,207			2,906
Total nonperforming loans		16,793			25,322			21,218			23,391			10,425			16,019
Foreclosed assets held for sale (real estate)		633			275			684			1,338			2,886			1,703
Total nonperforming assets	$	17,426		$	25,597		$	21,902		$	24,729		$	13,311		$	17,722
Total nonperforming loans as a % of loans		0.92	%		1.46	%		1.36	%		1.42	%		0.88	%		1.94	%
Total nonperforming assets as a % of assets		0.70	%		1.04	%		0.94	%		1.10	%		0.80	%		1.37	%
Allowance for credit losses as a % of total loans		0.99	%		0.95	%		0.87	%		0.69	%		0.83	%		1.12	%

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

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

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 $21,731,000 at September 30, 2023.

The Corporation’s outstanding, available, and total credit facilities at September 30, 2023 and December 31, 2022 are as follows:

	Outstanding				Available				Total Credit
(In Thousands)	September 30,		December 31,		September 30,		December 31,		September 30,		December 31,
	2023		2022		2023		2022		2023		2022
Federal Home Loan Bank of Pittsburgh	$	165,951	$	150,099	$	752,847	$	689,279	$	918,798	$	839,378
Federal Reserve Bank Discount Window		0		0		20,766		23,107		20,766		23,107
Other correspondent banks		0		0		95,000		95,000		95,000		95,000
Total credit facilities	$	165,951	$	150,099	$	868,613	$	807,386	$	1,034,564	$	957,485

At September 30, 2023, the Corporation’s outstanding credit facilities with the Federal Home Loan Bank of Pittsburgh consisted of overnight and short-term advances of $21,500,000, long-term borrowings of $125,243,000 and letters of credit totaling $19,208,000. At December 31, 2022, the Corporation’s outstanding credit facilities with the Federal Home Loan Bank of Pittsburgh consisted of overnight borrowing of $77,000,000, long-term borrowings of $62,272,000 and letters of credit totaling $10,827,000. 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. In light of the unrealized loss at September 30, 2023 resulting from increases in interest rates, as described in more detail in the Securities section of Management’s Discussion and Analysis, management would be more likely in the near term to utilize securities as collateral for borrowings than to sell securities in such an emergency situation. At September 30, 2023, the carrying value of available-for-sale securities in excess of amounts required to meet pledging or repurchase agreement obligations was $227,667,000.

Deposits totaled $2,024,997,000 at September 30, 2023, up $27,404,000 (1.4%) from $1,997,593,000 at December 31, 2022. Excluding brokered deposits, adjusted total deposits at September 30, 2023 were lower by $14,125,000 (0.7%) as compared to December 31, 2022. Brokered deposits, consisting mainly of short-term certificates of deposit, totaled $62,512,000 at September 30, 2023, an increase of $41,529,000 from December 31, 2022. The reduction in total deposits, excluding brokered deposits, included a reduction in the estimated amount of deposits in excess of FDIC insurance levels (uninsured deposit balances) of $86.4 million as compared to December 31, 2022. The net reduction in uninsured deposits resulted from several factors, including the impact of customer funds transferred to higher-yielding investment alternatives and increased use of reciprocal deposits that allow C&N Bank to place customer funds in excess of the FDIC insurance limit with other financial institutions through a deposit placement network in exchange for a matching amount of deposits from other network financial institutions. Reciprocal deposits totaled $220.6 million at September 30, 2023, up $120.8 million from December 31, 2022.

As shown in the table below, at September 30, 2023, estimated uninsured deposits totaled $603.0 million, or 29.5% of total deposits, down from $689.4 million or 34.2% of total deposits at December 31, 2022. Included in uninsured deposits are deposits collateralized by securities (almost exclusively municipal deposits) totaling $188.9 million at September 30, 2023. As shown in the table below, total

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

uninsured and uncollateralized deposits amounted to 20.3% of total deposits at September 30, 2023, down from 24.0% at December 31, 2022.

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, 2023. Available funding from these sources totaled 181.8% of uninsured deposits and 264.8% of total uninsured and uncollateralized deposits at September 30, 2023.

Uninsured Deposits Information	September 30,			December 31,
	2023			2022
Total Deposits - C&N Bank	$	2,040,506		$	2,016,666
Estimated Total Uninsured Deposits	$	602,957		$	689,435
Portion of Uninsured Deposits that are
Collateralized		188,927			205,886
Uninsured and Uncollateralized Deposits	$	414,030		$	483,549
Uninsured and Uncollateralized Deposits as
a % of Total Deposits		20.3	%		24.0	%
Available Funding from Credit Facilities	$	868,613		$	807,386
Fair Value of Available-for-sale Debt
Securities in Excess of Pledging Obligations		227,667			272,475
Highly Liquid Available Funding	$	1,096,280		$	1,079,861
Highly Liquid Available Funding as a % of
Uninsured Deposits		181.8	%		156.6	%
Highly Liquid Available Funding as a % of
Uninsured and Uncollateralized Deposits		264.8	%		223.3	%

Despite the reduction in deposits, excluding brokered deposits, in the first nine months of 2023, 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 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, 2023; however, C&N Bank remains subject to regulatory capital requirements administered by the federal banking agencies.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Details concerning capital ratios at September 30, 2023 and December 31, 2022 are presented below. Management believes, as of September 30, 2023, 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 the 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 September 30, 2023 and December 31, 2022 exceed the Corporation’s Board policy threshold levels.

(Dollars in Thousands)											Minimum To Be
								Minimum To Maintain			Well
					Minimum			Capital Conservation			Capitalized Under			Minimum To Meet
					Capital			Buffer at Reporting			Prompt Corrective			the Corporation's
	Actual				Requirement			Date			Action Provisions			Policy Thresholds
	Amount		Ratio		Amount	Ratio		Amount	Ratio		Amount	Ratio		Amount		Ratio
September 30, 2023:
Total capital to risk-weighted assets:
Consolidated	$	288,587	15.81	%	N/A	N/A		N/A	N/A		N/A	N/A		$	200,756	≥11	%
C&N Bank		274,474	15.07	%	145,695	≥8	%	191,225	≥10.5	%	182,119	≥10	%		200,331	≥11	%
Tier 1 capital to risk-weighted assets:
Consolidated		244,913	13.42	%	N/A	N/A		N/A	N/A		N/A	N/A			164,255	≥9	%
C&N Bank		255,489	14.03	%	109,271	≥6	%	154,801	≥8.5	%	145,695	≥8	%		163,907	≥9	%
Common equity tier 1 capital to risk-weighted assets:
Consolidated		244,913	13.42	%	N/A	N/A		N/A	N/A		N/A	N/A			136,879	≥7.5	%
C&N Bank		255,489	14.03	%	81,954	≥4.5	%	127,483	≥7.0	%	118,377	≥6.5	%		136,589	≥7.5	%
Tier 1 capital to average assets:
Consolidated		244,913	9.91	%	N/A	N/A		N/A	N/A		N/A	N/A			197,691	≥8	%
C&N Bank		255,489	10.40	%	98,244	≥4	%	N/A	N/A		122,805	≥5	%		196,488	≥8	%
December 31, 2022:
Total capital to risk-weighted assets:
Consolidated	$	285,397	15.72	%	N/A	N/A		N/A	N/A		N/A	N/A		$	190,590	≥10.5	%
C&N Bank		265,784	14.68	%	144,873	≥8	%	190,145	≥10.5	%	181,091	≥10	%		190,145	≥10.5	%
Tier 1 capital to risk-weighted assets:
Consolidated		243,750	13.43	%	N/A	N/A		N/A	N/A		N/A	N/A			154,287	≥8.5	%
C&N Bank		248,744	13.74	%	108,654	≥6	%	153,927	≥8.5	%	144,873	≥8	%		153,927	≥8.5	%
Common equity tier 1 capital to risk-weighted assets:
Consolidated		243,750	13.43	%	N/A	N/A		N/A	N/A		N/A	N/A			127,060	≥7	%
C&N Bank		248,744	13.74	%	81,491	≥4.5	%	126,764	≥7.0	%	117,709	≥6.5	%		126,764	≥7	%
Tier 1 capital to average assets:
Consolidated		243,750	10.11	%	N/A	N/A		N/A	N/A		N/A	N/A			192,941	≥8	%
C&N Bank		248,744	10.38	%	95,826	≥4	%	N/A	N/A		119,783	≥5	%		191,652	≥8	%

In February 2021, the Corporation amended its treasury stock repurchase program. Under the amended program, the Corporation was authorized to repurchase up to 1,000,000 shares of its common stock. On July 11, 2023, C&N announced that it had completed the treasury stock repurchase program that began in February 2021. Cumulatively, C&N repurchased 1,000,000 shares of common stock for a total cost of $23,086,000, at an average price of $23.09 per share. For the three months ended September 30, 2023, 10,683 shares were repurchased for a total cost of $203,000, at an average price of $19.01 per share. For the nine months ended September 30, 2023, 325,300 shares were repurchased for a total cost of $6,500,000, at an average price of $19.98 per share.

On September 25, 2023, the Corporation announced a new treasury stock repurchase program. Under the newly approved program, the Corporation is authorized to repurchase up to 750,000 shares of the Corporation’s common stock, or slightly less than 5% of the Corporation’s issued and outstanding shares at August 4, 2023. The new program was effective when publicly announced and will continue thereafter until suspended or terminated by the Board of Directors, in its sole discretion. All shares of common stock repurchased pursuant to the new program shall be held as treasury shares and be available for use and reissuance for purposes as and when determined by the Board of Directors including, without limitation, pursuant to the Corporation’s Dividend Reinvestment and Stock Purchase Plans and its equity compensation program. Through September 30, 2023, no shares were repurchased under the new program.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

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 no longer 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.

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, 2023, the minimum risk-based capital ratios, and the capital ratios including the capital conservation buffer, are as follows:

Minimum common equity tier 1 capital ratio	4.5	%
Minimum common equity tier 1 capital ratio plus capital conservation buffer	7.0	%
Minimum tier 1 capital ratio	6.0	%
Minimum tier 1 capital ratio plus capital conservation buffer	8.5	%
Minimum total capital ratio	8.0	%
Minimum total capital ratio plus capital conservation buffer	10.5	%

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

Capital Conservation Buffer	Maximum Payout
(as a % of risk-weighted assets)	(as a % of eligible retained income)
Greater than 2.5%	No payout limitation applies
≤2.5% and >1.875%	60	%
≤1.875% and >1.25%	40	%
≤1.25% and >0.625%	20	%
≤0.625%	0	%

At September 30, 2023, C&N Bank’s Capital Conservation Buffer, determined based on the minimum total capital ratio, was 7.07%.

The Corporation’s total stockholders’ equity is affected by fluctuations in the fair values of available-for-sale debt securities. The difference between amortized cost and fair value of available-for-sale debt securities, net of deferred income tax, is included in accumulated other comprehensive (loss) income within stockholders’ equity. Accumulated other comprehensive (loss) income is excluded from the Bank’s and Corporation’s regulatory capital ratios. The balance in accumulated other comprehensive loss related to unrealized losses on available-for-sale debt securities, net of deferred income tax, amounted to $60,278,000 at September 30, 2023 and $50,370,000 at December 31, 2022. The decrease in stockholders’ equity in the first nine months of 2023 from the change in accumulated other comprehensive loss resulted from an increase in interest rates. Changes in accumulated other comprehensive loss are excluded from earnings and directly increase or decrease stockholders’ equity. To the extent unrealized losses on available-for-sale debt securities result from credit losses, unrealized losses are recorded as a charge against earnings. The securities section of Management’s Discussion and Analysis and Notes 1 and 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, 2023.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET RISK

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

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

INTEREST RATE RISK

The Corporation uses a simulation model to calculate the potential effects of interest rate fluctuations on net interest income and the economic value of equity. For purposes of these calculations, the economic value of equity 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 includes 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 economic value of equity. 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 the economic value of equity 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, 2023 and December 31, 2022. In the analysis based on September 30, 2023 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. Further, the economic value of equity is modeled to decrease in the rising rate scenarios and in all of the falling rate scenarios except -200 basis points for which the economic value of equity is modeled to increase 0.2%. The results based on September 30, 2023 data as presented in Table XI are significantly different from the results based on the modeling performed using December 31, 2022 data which showed the net interest income profile to be asset-sensitive. In the analysis based on September 30, 2023 data, management assumed that, in rising rate scenarios, the average rate to be paid on interest checking, savings and money market accounts would increase by a higher percentage of the baseline scenario as compared to the assumptions used in the December 31, 2022 analysis. This change reflects management’s assessment that, in light of significant increases in short-term interest rates that have occurred over the course of 2022 and year-to-date in 2023, the Corporation’s deposit rates would increase to a greater extent if such scenarios would occur. The change in results also reflects changes in deposit mix, as the carrying amount of total deposits without stated maturities was $99.4 million lower at September 30, 2023 as compared to December 31, 2022, while time deposits were higher by $126.8 million. 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. The Table also shows that as of the respective dates, despite the impact of the modeling changes and changes in deposit mix, the changes in net interest income and changes in economic value were within the policy limits in all scenarios.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

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 of $60.3 million at September 30, 2023. 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

September 30, 2023 Data
(In Thousands)	Period Ending September 30, 2024
Basis Point		Interest		Interest			Net Interest		NII		NII
Change in Rates		Income		Expense			Income (NII)		% Change		Risk Limit
+400	$	145,051	$	78,526		$	66,525		(21.1)	%	25.0	%
+300		140,116		67,183			72,933		(13.5)	%	20.0	%
+200		135,219		57,108			78,111		(7.4)	%	15.0	%
+100		130,286		48,302			81,984		(2.8)	%	10.0	%
0		125,123		40,771			84,352		0.0	%	0.0	%
-100		119,799		35,837			83,962		(0.5)	%	10.0	%
-200		114,410		30,942			83,468		(1.0)	%	15.0	%
-300		108,555		26,543			82,012		(2.8)	%	20.0	%
-400		102,316		22,255			80,061		(5.1)	%	25.0	%
	Economic Value of Equity at September 30, 2023
		Present		Present			Present
Basis Point		Value		Value			Value
Change in Rates		Equity		% Change			Risk Limit
+400	$	346,292		(23.8)	%		50.0	%
+300		379,784		(16.5)	%		45.0	%
+200		410,450		(9.7)	%		35.0	%
+100		436,196		(4.1)	%		25.0	%
0		454,742		0.0	%		0.0	%
-100		453,578		(0.3)	%		25.0	%
-200		455,691		0.2	%		35.0	%
-300		443,816		(2.4)	%		45.0	%
-400		428,885		(5.7)	%		50.0	%

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

December 31, 2022 Data
(In Thousands)	Period Ending December 31, 2023
Basis Point		Interest		Interest			Net Interest		NII		NII
Change in Rates		Income		Expense			Income (NII)		% Change		Risk Limit
+400	$	131,145	$	34,767		$	96,378		8.9	%	25.0	%
+300		125,127		30,816			94,311		6.6	%	20.0	%
+200		119,561		26,864			92,697		4.8	%	15.0	%
+100		113,703		22,912			90,791		2.6	%	10.0	%
0		107,451		18,961			88,490		0.0	%	0.0	%
-100		101,048		15,516			85,532		(3.3)	%	10.0	%
-200		94,854		13,240			81,614		(7.8)	%	15.0	%
-300		89,405		11,325			78,080		(11.8)	%	20.0	%
-400		85,076		9,439			75,637		(14.5)	%	25.0	%
	Economic Value of Equity at December 31, 2022
		Present		Present			Present
Basis Point		Value		Value			Value
Change in Rates		Equity		% Change			Risk Limit
+400	$	498,368		0.3	%		50.0	%
+300		496,186		(0.1)	%		45.0	%
+200		501,422		1.0	%		35.0	%
+100		501,991		1.1	%		25.0	%
0		496,650		0.0	%		0.0	%
-100		485,332		(2.3)	%		25.0	%
-200		468,195		(5.7)	%		35.0	%
-300		445,129		(10.4)	%		45.0	%
-400		417,505		(15.9)	%		50.0	%

ITEM 4. CONTROLS AND PROCEDURES

The Corporation’s management, under the supervision of and with the participation of the Corporation’s Chief Executive Officer and Chief Financial Officer, has carried out an evaluation of the design and effectiveness of the Corporation’s disclosure controls and procedures as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Securities Exchange Act of 1934 as of the end of the period covered by this report. 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 affect, our internal control over financial reporting.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

PART II – OTHER INFORMATION

Item 1.       Legal Proceedings

The Corporation and C&N Bank are involved in various legal proceedings incidental to their business. Management believes the aggregate liability, if any, resulting from such pending and threatened legal proceedings will not have a material, adverse effect on the Corporation’s financial condition or results of operations.

Item 1A.    Risk Factors

There have been no material changes from the risk factors previously disclosed in Item 1A of the Corporation’s Form 10-K filed March 16, 2023 except for the following:

Risks Related to Recent Banking Industry Turmoil

The Corporation is exposed to the risk that when a bank or other financial institution experiences financial difficulties, there could be an adverse “contagion” impact on other banking institutions. The recent failures of Silicon Valley Bank in California, Signature Bank in New York and First Republic Bank in California during the first and second quarters of 2023 have caused an element of panic and uncertainty in the investor community and among bank customers generally, including, specifically, deposit customers. While the Corporation does not believe that the circumstances of these three failures are necessarily indicators of broader issues for concern with all other banks or with the banking system itself, the failures are likely to reduce customer confidence, affect sources of funding and liquidity, increase regulatory requirements and costs, adversely affect financial markets and/or have negative reputational ramifications for institutions in the banking industry, including, possibly, the Corporation. The Corporation will continue to closely monitor the ongoing events and volatility in the financial services industry, together with any responsive measures taken by the banking regulators to mitigate or manage the turmoil.

Item 2.      Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

Effective February 18, 2021, the Corporation amended its treasury stock repurchase program. Under the amended program, the Corporation was authorized to repurchase up to 1,000,000 shares of the Corporation’s common stock, or 6.25% of the Corporation’s issued and outstanding shares at February 18, 2021. On July 11, 2023, the Corporation announced that 1,000,000 shares had been repurchased and that it had completed the treasury stock repurchase program.

On September 25, 2023, the Corporation announced a new treasury stock repurchase program. Under the newly approved program, the Corporation is authorized to repurchase up to 750,000 shares of the Corporation’s common stock, or slightly less than 5% of the Corporation’s issued and outstanding shares at August 4, 2023. The new program was effective when publicly announced and will continue thereafter until suspended or terminated by the Board of Directors, in its sole discretion. All shares of common stock repurchased pursuant to the new program shall be held as treasury shares and be available for use and reissuance for purposes as and when determined by the Board of Directors including, without limitation, pursuant to the Corporation’s Dividend Reinvestment and Stock Purchase Plans and its equity compensation program. As of September 30, 2023, no shares had been repurchased under this repurchase program.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

The following table sets forth a summary of the purchases by the Corporation of its common stock during the third quarter 2023.

				Total Number of	Maximum
				Shares	Number of
				Purchased	Shares that May
				as Part of	Yet
				Publicly	be Purchased
	Total Number	Average		Announced	Under
	of Shares	Price Paid		Plans	the Plans or
Period	Purchased	per Share		or Programs	Programs
July 1 - 31, 2023	10,683	$	19.01	1,000,000	0
August 1 - 31, 2023	0	$	0.00	0	0
September 1 - 30, 2023	0	$	0.00	0	750,000

Item 3.       Defaults Upon Senior Securities

None

Item 4.       Mine Safety Disclosures

Not applicable

Item 5.     Other Information

During the three months ended September 30, 2023, no director or officer of the Corporation adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement”, as each term is defined in Item 408(a) of Regulation S-K.

On September 25, 2023, the Corporation entered into Rule 10b5-1 Issuer Repurchase Plan with a registered broker to effect repurchases of the Corporation’s common stock under the Corporation’s treasury stock repurchase program, which was announced on September 25, 2023 and which is described under Item 2 of this Form 10-Q. The 10b5-1 issuer repurchase plan will terminate upon the earlier of all 750,000 shares of common stock authorized for repurchase having been repurchased or September 22, 2026.

.

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

Item 6.       Exhibits

3.1	Articles of Incorporation	Incorporated by reference to Exhibit 3.1 of The Corporation’s Form 10-Q filed May 6, 2022
3.2	By-laws	Incorporated by reference to Exhibit 3.1 of The Corporation’s Form 8-K filed February 18, 2022
4.	Instruments defining the rights of Security holders, including Indentures
4.1	Indenture, dated May 19, 2021 between Citizens & Northern Corporation and UMB Bank, National Association, as trustee	Incorporated by reference to Exhibit 4.1 of the Corporation’s Form 8-K filed May 19, 2021
4.2	Form of Subordinated Note	Incorporated by reference to Exhibit A-2 to Exhibit 4.1 of the Corporation’s Form 8-K filed May 19, 2021
4.3	Form of Senior Note	Incorporated by reference to Exhibit 4.3 of the Corporation’s Form 8-K filed May 19, 2021
31.	Rule 13a-14(a)/15d-14(a) certifications:
31.1	Certification of Chief Executive Officer	Filed herewith
31.2	Certification of Chief Financial Officer	Filed herewith
32.	Section 1350 certifications	Filed herewith
101.INS	Inline XBRL Instance Document.	Filed herewith
101.SCH	Inline XBRL Schema Document.	Filed herewith
101.CAL	Inline XBRL Calculation Linkbase Document.	Filed herewith
101.DEF	Inline XBRL Definition Linkbase Document.	Filed herewith
101.LAB	Inline XBRL Label Linkbase Document.	Filed herewith
101.PRE	Inline XBRL Presentation Linkbase Document.	Filed herewith
104	The cover page of the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, formatted in Inline XBRL (contained in Exhibit 101).	Filed herewith

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CITIZENS & NORTHERN CORPORATION – FORM 10-Q

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	CITIZENS & NORTHERN CORPORATION
November 6, 2023	By: /s/ J. Bradley Scovill
Date	President and Chief Executive Officer
November 6, 2023	By: /s/ Mark A. Hughes
Date	Treasurer and Chief Financial Officer

72

EX-31.1

Exhibit 31.1

CERTIFICATION

I, J. Bradley Scovill, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Citizens & Northern Corporation;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

November 6, 2023	By:	/s/ J. Bradley Scovill
Date		President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Mark A. Hughes, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Citizens & Northern Corporation;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

November 6, 2023	By:	/s/ Mark A. Hughes
Date		Treasurer and Chief Financial Officer

EX-32

Exhibit 32

SECTION 1350 CERTIFICATIONS

In connection with the Quarterly Report of Citizens & Northern Corporation (the “Corporation”) on Form 10-Q for the quarterly period ended September 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned hereby certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to each of the undersigned’s best knowledge and belief:

(a) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 as amended; and

(b) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

November 6, 2023	By:	/s/ J. Bradley Scovill
Date		President and Chief Executive Officer
November 6, 2023	By:	/s/ Mark A. Hughes
Date		Treasurer and Chief Financial Officer

These certifications accompany this report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Corporation for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  Such certifications will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Corporation specifically incorporates them by reference.

A signed original of this written statement required by Section 906 has been provided to the Corporation and will be retained by the Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Document And Entity Information - shares	9 Months Ended
	Sep. 30, 2023	Nov. 03, 2023
Document And Entity Information
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2023
Document Transition Report	false
Entity File Number	000-16084
Entity Registrant Name	CITIZENS & NORTHERN CORPORATION
Entity Incorporation, State or Country Code	PA
Entity Tax Identification Number	23-2451943
Entity Address, Address Line One	90-92 MAIN STREET
Entity Address, City or Town	WELLSBORO
Entity Address, State or Province	PA
Entity Address, Postal Zip Code	16901
City Area Code	570
Local Phone Number	724-3411
Title of 12(b) Security	Common Stock Par Value $1.00
Trading Symbol	CZNC
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding (in shares)		15,274,766
Entity Central Index Key	0000810958
Document Fiscal Year Focus	2023
Document Fiscal Period Focus	Q3
Amendment Flag	false
Current Fiscal Year End Date	--12-31

XML

CONSOLIDATED BALANCE SHEETS - USD ($)	Sep. 30, 2023	Dec. 31, 2022
Cash and due from banks:
Noninterest-bearing	$ 25,775,000	$ 25,811,000
Interest-bearing	26,883,000	29,237,000
Total cash and due from banks	52,658,000	55,048,000
Available-for-sale debt securities, at fair value	429,138,000	498,033,000
Loans receivable	1,830,670,000	1,740,040,000
Allowance for credit losses on loans	(18,085,000)	(16,615,000)
Loans, net	1,812,585,000	1,723,425,000
Bank-owned life insurance	31,557,000	31,214,000
Accrued interest receivable	9,311,000	8,653,000
Bank premises and equipment, net	21,267,000	21,574,000
Foreclosed assets held for sale	633,000	275,000
Deferred tax asset, net	23,731,000	20,884,000
Goodwill	52,505,000	52,505,000
Core deposit intangibles, net	2,571,000	2,877,000
Other assets	47,993,000	39,819,000
TOTAL ASSETS	2,483,949,000	2,454,307,000
Deposits:
Noninterest-bearing	495,829,000	563,843,000
Interest-bearing	1,529,168,000	1,433,750,000
Total deposits	2,024,997,000	1,997,593,000
Short-term borrowings	23,253,000	80,062,000
Long-term borrowings - FHLB advances	125,276,000	62,347,000
Senior notes, net	14,814,000	14,765,000
Subordinated debt, net	24,689,000	24,607,000
Accrued interest and other liabilities	30,715,000	25,608,000
TOTAL LIABILITIES	2,243,744,000	2,204,982,000
STOCKHOLDERS' EQUITY
Preferred stock, $1,000 par value; authorized 30,000 shares; $1,000 liquidation preference per share; no shares issued	0	0
Common stock, par value $1.00 per share; authorized 30,000,000 shares; issued 16,030,172 and outstanding 15,275,686 at September 30, 2023; issued 16,030,172 and outstanding 15,518,819 at December 31, 2022	16,030,000	16,030,000
Paid-in capital	143,972,000	143,950,000
Retained earnings	157,044,000	151,743,000
Treasury stock, at cost; 754,486 shares at September 30, 2023 and 511,353 shares at December 31, 2022	(17,015,000)	(12,520,000)
Accumulated other comprehensive loss	(59,826,000)	(49,878,000)
TOTAL STOCKHOLDERS' EQUITY	240,205,000	249,325,000
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY	$ 2,483,949,000	$ 2,454,307,000

XML

CONSOLIDATED BALANCE SHEETS (Parentheticals) - $ / shares	Sep. 30, 2023	Dec. 31, 2022
CONSOLIDATED BALANCE SHEETS
Preferred stock, par value (in dollars per share)	$ 1,000	$ 1,000
Preferred stock, authorized shares (in shares)	30,000	30,000
Preferred stock, liquidation preference per share (in dollars per share)	$ 1,000	$ 1,000
Preferred stock, shares issued (in shares)	0	0
Common stock, par value (in dollars per share)	$ 1.00	$ 1.00
Common stock, shares authorized (in shares)	30,000,000	30,000,000
Common stock, shares issued (in shares)	16,030,172	16,030,172
Common stock, shares outstanding (in shares)	15,275,686	15,518,819
Treasury stock, shares (in shares)	754,486	511,353

XML

Consolidated Statements of Income - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Interest and fees on loans:
Taxable	$ 25,529	$ 20,085	$ 72,322	$ 56,561
Tax-exempt	552	505	1,687	1,426
Income from available-for-sale debt securities:
Taxable	2,077	2,138	6,440	6,143
Tax-exempt	597	768	1,847	2,258
Other interest and dividend income	363	214	972	404
Total interest and dividend income	29,118	23,710	83,268	66,792
INTEREST EXPENSE
Interest on deposits	7,264	1,972	15,593	4,012
Interest on short-term borrowings	677	179	2,918	302
Interest on long-term borrowings - FHLB advances	1,164	332	2,901	436
Interest on senior notes, net	120	119	359	357
Interest on subordinated debt, net	230	229	691	849
Total interest expense	9,455	2,831	22,462	5,956
Net interest income	19,663	20,879	60,806	60,836
(Credit) provision for credit losses	(1,225)	3,794	(765)	4,993
Net interest income after (credit) provision for credit losses	20,888	17,085	61,571	55,843
NONINTEREST INCOME
Brokerage and insurance revenue	394	696	1,189	1,784
Net gains from sale of loans	237	131	450	733
Increase in cash surrender value of life insurance	160	133	450	405
Other noninterest income	1,084	622	3,442	2,666
Realized gains on available-for-sale debt securities, net	0	20	6	21
Total noninterest income	6,489	5,671	18,739	18,323
NONINTEREST EXPENSE
Salaries and employee benefits	10,878	10,826	33,082	31,698
Net occupancy and equipment expense	1,268	1,498	3,993	4,217
Data processing and telecommunications expense	1,823	1,719	5,659	5,062
Automated teller machine and interchange expense	504	397	1,374	1,128
Pennsylvania shares tax	403	487	1,210	1,463
Professional fees	487	521	1,988	1,490
Other noninterest expense	2,577	1,995	8,443	6,310
Total noninterest expense	17,940	17,443	55,749	51,368
Income before income tax provision	9,437	5,313	24,561	22,798
Income tax provision	1,846	858	4,674	3,959
NET INCOME	$ 7,591	$ 4,455	$ 19,887	$ 18,839
EARNINGS PER COMMON SHARE - BASIC (in dollars per share)	$ 0.50	$ 0.29	$ 1.29	$ 1.21
EARNINGS PER COMMON SHARE - DILUTED (in dollars per share)	$ 0.50	$ 0.29	$ 1.29	$ 1.21
Trust revenue
NONINTEREST INCOME
Revenue	$ 1,919	$ 1,744	$ 5,500	$ 5,245
Service charges on deposit accounts
NONINTEREST INCOME
Revenue	1,443	1,105	4,121	3,662
Interchange revenue from debit card transactions
NONINTEREST INCOME
Revenue	1,098	1,031	3,115	3,050
Loan servicing fees, net
NONINTEREST INCOME
Revenue	$ 154	$ 189	$ 466	$ 757

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Consolidated Statements of Comprehensive Income (Loss) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Consolidated Statements of Comprehensive Income (Loss)
Net Income (Loss)	$ 7,591	$ 4,455	$ 19,887	$ 18,839
Available-for-sale debt securities:
Unrealized holding losses on available-for-sale debt securities	(14,865)	(25,880)	(12,535)	(77,923)
Reclassification adjustment for gains realized in income	0	(20)	(6)	(21)
Other comprehensive loss on available-for-sale debt securities	(14,865)	(25,900)	(12,541)	(77,944)
Unfunded pension and postretirement obligations:
Changes from plan amendments and actuarial gains and losses	0	0	(8)	133
Amortization of prior service cost and net actuarial loss included in net periodic benefit cost	(14)	(9)	(42)	(31)
Other comprehensive (loss) income on pension and postretirement obligations	(14)	(9)	(50)	102
Other comprehensive loss before income tax	(14,879)	(25,909)	(12,591)	(77,842)
Income tax related to other comprehensive loss	3,126	5,442	2,643	16,347
Net other comprehensive loss	(11,753)	(20,467)	(9,948)	(61,495)
Comprehensive (loss) income	$ (4,162)	$ (16,012)	$ 9,939	$ (42,656)

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CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 19,887	$ 18,839
Adjustments to reconcile net income to net cash provided by operating activities:
Credit (provision) for credit losses	(765)	4,993
Realized gains on available-for-sale debt securities, net	(6)	(21)
Net amortization of securities	1,556	2,174
Increase in cash surrender value of life insurance	(450)	(405)
Depreciation and amortization of bank premises and equipment	1,633	1,780
Net accretion of purchase accounting adjustments	(198)	(1,017)
Stock-based compensation	1,015	1,169
Deferred income taxes	235	(93)
Decrease (increase) in fair value of servicing rights	136	(128)
Gains on sales of loans, net	(450)	(733)
Origination of loans held for sale	(14,568)	(25,003)
Proceeds from sales of loans held for sale	14,341	26,752
Increase in accrued interest receivable and other assets	(1,175)	(1,562)
Increase (decrease) in accrued interest payable and other liabilities	4,588	(352)
Other	22	148
Net Cash Provided by Operating Activities	25,801	26,541
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of certificates of deposit	0	(250)
Proceeds from maturities of certificates of deposit	3,000	750
Proceeds from sales of available-for-sale debt securities	18,357	4,100
Proceeds from calls and maturities of available-for-sale debt securities	44,208	50,263
Purchase of available-for-sale debt securities	(8,215)	(104,601)
Redemption of Federal Home Loan Bank of Pittsburgh stock	19,503	10,765
Purchase of Federal Home Loan Bank of Pittsburgh stock	(19,905)	(12,009)
Purchase of Federal Reserve Bank stock	(6,243)	0
Net increase in loans	(89,998)	(126,792)
Proceeds from bank owned life insurance	147	0
Purchase of premises and equipment	(1,381)	(2,986)
Proceeds from sale of foreclosed assets	62	351
Other	109	161
Net Cash Used in Investing Activities	(40,356)	(180,248)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits	27,425	114,667
Net (decrease) increase in short-term borrowings	(56,809)	654
Proceeds from long-term borrowings - FHLB advances	70,049	39,041
Repayments of long-term borrowings - FHLB advances	(7,078)	(11,430)
Redemption of subordinated debt	0	(8,500)
Sale of treasury stock	0	141
Purchases of treasury stock	(6,719)	(9,349)
Common dividends paid	(11,703)	(11,921)
Net Cash Provided by Financing Activities	15,165	113,303
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	610	(40,404)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	47,698	95,848
CASH AND CASH EQUIVALENTS, END OF PERIOD	$ 48,308	$ 55,444

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CONSOLIDATED STATEMENTS OF CASH FLOWS (Parentheticals) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
(Decrease) increase in accrued purchase of available-for-sale debt securities	$ (454)	$ 160
Assets acquired through foreclosure of real estate loans	390	51
Leased assets obtained in exchange for new operating lease liabilities	0	904
Interest paid	21,392	5,729
Income taxes paid	$ 4,667	$ 3,835

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Consolidated Statements of Changes in Stockholders' Equity - USD ($) $ in Thousands	Common Stock	Treasury Shares	Paid-in Capital	Retained Earnings Adoption of ASU 2016-13 (CECL)	Retained Earnings	Accumulated Other Comprehensive (Loss) Income	Adoption of ASU 2016-13 (CECL)	Total
Balance, beginning of period at Dec. 31, 2021	$ 16,030	$ (6,716)	$ 144,453		$ 142,612	$ 5,026		$ 301,405
Balance (in shares) at Dec. 31, 2021	16,030,172
Balance (in shares) at Dec. 31, 2021		271,082
Net Income (Loss)					18,839			18,839
Other comprehensive loss, net						(61,495)		(61,495)
Cash dividends declared on common stock					(13,147)			(13,147)
Shares issued for dividend reinvestment plan		$ 1,216	10					1,226
Shares issued for dividend reinvestment plan (in shares)		(49,221)
Shares issued from treasury related to exercise of stock options		$ 175	(34)					141
Shares issued from treasury related to exercise of stock options (in shares)		(7,024)
Restricted stock granted		$ 1,932	(1,932)					0
Restricted stock granted (in shares)		(78,243)
Forfeiture of restricted stock		$ (228)	228					0
Forfeiture of restricted stock (in shares)		10,782
Stock-based compensation expense			1,169					1,169
Purchase of restricted stock for tax withholding		$ (175)						(175)
Purchase of restricted stock for tax withholding (in shares)		6,964
Treasury stock purchases		$ (9,174)						(9,174)
Treasury stock purchases (in shares)		375,416
Balance, end of period at Sep. 30, 2022	$ 16,030	$ (12,970)	143,894		148,304	(56,469)		238,789
Balance (in shares) at Sep. 30, 2022	16,030,172
Balance (in shares) at Sep. 30, 2022		529,756
Balance, beginning of period at Jun. 30, 2022	$ 16,030	$ (13,013)	143,417		148,187	(36,002)		258,619
Balance (in shares) at Jun. 30, 2022	16,030,172
Balance (in shares) at Jun. 30, 2022		530,958
Net Income (Loss)					4,455			4,455
Other comprehensive loss, net						(20,467)		(20,467)
Cash dividends declared on common stock					(4,338)			(4,338)
Shares issued for dividend reinvestment plan		$ 392	8					400
Shares issued for dividend reinvestment plan (in shares)		(16,019)
Forfeiture of restricted stock		$ (81)	81					0
Forfeiture of restricted stock (in shares)		3,638
Stock-based compensation expense			388					388
Purchase of restricted stock for tax withholding		$ (22)						(22)
Purchase of restricted stock for tax withholding (in shares)		910
Treasury stock purchases		$ (246)						(246)
Treasury stock purchases (in shares)		10,269
Balance, end of period at Sep. 30, 2022	$ 16,030	$ (12,970)	143,894		148,304	(56,469)		238,789
Balance (in shares) at Sep. 30, 2022	16,030,172
Balance (in shares) at Sep. 30, 2022		529,756
Balance, beginning of period at Dec. 31, 2022	$ 16,030	$ (12,520)	143,950	$ (1,652)	151,743	(49,878)	$ (1,652)	$ 249,325
Balance (in shares) at Dec. 31, 2022	16,030,172
Balance (in shares) at Dec. 31, 2022		511,353						511,353
Net Income (Loss)					19,887			$ 19,887
Other comprehensive loss, net						(9,948)		(9,948)
Cash dividends declared on common stock					(12,934)			(12,934)
Shares issued for dividend reinvestment plan		$ 1,413	(182)					1,231
Shares issued for dividend reinvestment plan (in shares)		(60,871)
Restricted stock granted		$ 1,314	(1,314)					0
Restricted stock granted (in shares)		(53,788)
Forfeiture of restricted stock		$ (503)	503					0
Forfeiture of restricted stock (in shares)		23,039
Stock-based compensation expense			1,015					1,015
Purchase of restricted stock for tax withholding		$ (219)						(219)
Purchase of restricted stock for tax withholding (in shares)		9,453
Treasury stock purchases		$ (6,500)						(6,500)
Treasury stock purchases (in shares)		325,300
Balance, end of period at Sep. 30, 2023	$ 16,030	$ (17,015)	143,972		157,044	(59,826)		$ 240,205
Balance (in shares) at Sep. 30, 2023	16,030,172
Balance (in shares) at Sep. 30, 2023		754,486						754,486
Balance, beginning of period at Jun. 30, 2023	$ 16,030	$ (17,226)	143,661		153,725	(48,073)		$ 248,117
Balance (in shares) at Jun. 30, 2023	16,030,172
Balance (in shares) at Jun. 30, 2023		762,076
Net Income (Loss)					7,591			7,591
Other comprehensive loss, net						(11,753)		(11,753)
Cash dividends declared on common stock					(4,272)			(4,272)
Shares issued for dividend reinvestment plan		$ 457	(36)					421
Shares issued for dividend reinvestment plan (in shares)		(20,184)
Forfeiture of restricted stock		$ (27)	27					0
Forfeiture of restricted stock (in shares)		1,073
Stock-based compensation expense			320					320
Purchase of restricted stock for tax withholding		$ (16)						(16)
Purchase of restricted stock for tax withholding (in shares)		838
Treasury stock purchases		$ (203)						(203)
Treasury stock purchases (in shares)		10,683
Balance, end of period at Sep. 30, 2023	$ 16,030	$ (17,015)	$ 143,972		$ 157,044	$ (59,826)		$ 240,205
Balance (in shares) at Sep. 30, 2023	16,030,172
Balance (in shares) at Sep. 30, 2023		754,486						754,486

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Consolidated Statements of Changes in Stockholders' Equity (Parentheticals) - $ / shares	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Consolidated Statements of Changes in Stockholders' Equity
Common stock, dividends, per share (in dollars per share)	$ 0.28	$ 0.28	$ 0.84	$ 0.84

XML

BASIS OF INTERIM PRESENTATION AND STATUS OF RECENT ACCOUNTING PRONOUNCEMENTS

9 Months Ended

Sep. 30, 2023

BASIS OF INTERIM PRESENTATION AND STATUS OF RECENT ACCOUNTING PRONOUNCEMENTS

BASIS OF INTERIM PRESENTATION AND STATUS OF RECENT ACCOUNTING PRONOUNCEMENTS

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

The consolidated financial statements include the accounts of Citizens & Northern Corporation and its subsidiaries, Citizens & Northern Bank (“C&N Bank”), Bucktail Life Insurance Company and Citizens & Northern Investment Corporation (collectively, “Corporation”). The consolidated financial statements also include C&N Bank’s wholly-owned subsidiaries, C&N Financial Services, LLC and Northern Tier Holding LLC. C&N Bank is the sole member of C&N Financial Services, LLC and Northern Tier Holding LLC. All material intercompany balances and transactions have been eliminated in consolidation.

The consolidated financial information included herein, except the consolidated balance sheet dated December 31, 2022, is unaudited. Such information reflects all adjustments (consisting solely of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations, comprehensive income, cash flows and changes in stockholders’ equity for the interim periods; however, the information does not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for a complete set of financial statements. Certain 2022 information has been reclassified for consistency with the 2023 presentation.

Operating results reported for the nine-month period ended September 30, 2023 might not be indicative of the results for the year ending December 31, 2023. The Corporation evaluates subsequent events through the date of filing with the Securities and Exchange Commission.

RECENT ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board (FASB) issues Accounting Standards Updates (ASUs) to the FASB Accounting Standards Codification (ASC). This section provides a summary description of recent ASUs that have significant implications (elected or required) within the consolidated financial statements, or that management expects may have a significant impact on the consolidated financial statements issued in the near future.

Recent Accounting Pronouncements - Adopted

On January 1, 2023, the Corporation adopted ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASC 326). This standard replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. CECL requires an estimate of credit losses for the remaining estimated life of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts and generally applies to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities, and some off-balance sheet credit exposures such as unfunded commitments to extend credit. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses. Purchased credit deteriorated (“PCD”) loans will receive an initial allowance at the acquisition date that represents an adjustment to the amortized cost basis of the loan, with no impact to earnings.

In addition, CECL made changes to the accounting for available for sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available for sale debt securities if management does not intend to sell and does not believe that it is more likely than not, they will be required to sell. The Corporation adopted ASC 326 using the prospective transition approach for debt securities for which other-than-temporary impairment had been recognized prior to January 1, 2023. As of December 31, 2022, the Company did not have any other-than-temporarily impaired investment securities. Therefore, upon adoption of ASC 326, the Company determined that an allowance for credit losses on available for sale debt securities was not necessary.

Effective January 1, 2023, the Corporation adopted ASC 326 using the modified retrospective approach for all financial assets measured at amortized cost and off-balance sheet credit exposures. Results for reporting periods beginning after January 1, 2023 are presented under CECL while prior period amounts continue to be reported in accordance with previously applicable accounting standards (“Incurred Loss”). The following table illustrates the impact from the adoption of ASC 326:

	As Reported
	Under		Pre-ASC 326		Impact of
	ASC 326		Adoption		ASC 326
(In Thousands)	January 1, 2023		December 31, 2022		Adoption
Loans receivable	$	1,740,846	$	1,740,040	$	806
Allowance for credit losses on loans	$	18,719	$	16,615	$	2,104
Allowance for credit losses on off-balance sheet exposures (included in accrued interest and other liabilities)		1,218		425		793
Deferred tax asset, net		21,323		20,884		439
Retained earnings		150,091		151,743		(1,652)

The Corporation adopted ASC 326 using the prospective transition approach for PCD assets that were previously classified as purchased credit impaired (“PCI”) under ASC 310-30. In accordance with the standard, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. On January 1, 2023, the amortized cost basis of PCD assets was adjusted to establish the allowance for credit losses. Essentially all of the PCD loans were reported as nonaccrual loans at January 1, 2023 and September 30, 2023.

ASU 2022-02, Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. This update reduces the complexity of accounting for Troubled Debt Restructurings (“TDRs”) by eliminating certain accounting guidance, enhancing disclosures and improving the consistency of vintage disclosures. The Corporation adopted ASU 2022-02 on January 1, 2023. Changes in disclosure requirements in accordance with ASU 2022-02 are reflected in Note 6. The adoption of ASU 2022-02 did not have a material impact on the consolidated financial statements.

Accounting Policies

The Corporation’s significant accounting policies followed in the preparation of the unaudited consolidated financial statements are disclosed in Note 1 of the audited consolidated financial statements and notes for the year ended December 31, 2022 and are contained in the Corporation’s Annual Report on Form 10-K. There have been no significant changes to the application of significant accounting policies since December 31, 2022, except for the following:

Allowance for Credit Losses – Available-for-Sale Debt Securities

For available-for-sale debt securities, management evaluates all investments in an unrealized loss position on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. If the Corporation has the intent to sell the security or it is more likely than not that the Corporation will be required to sell the security, the security is written down to fair value and the entire loss is recorded in earnings.

If either of the above criteria is not met, the Corporation evaluates whether the decline in fair value is the result of credit losses or other factors. The Corporation has elected the practical expedient of zero credit loss estimates for securities issued or guaranteed by U.S. Government entities or agencies. In making the credit loss assessment of securities not issued or guaranteed by U.S. Government entities or agencies, the Corporation may consider various factors including the extent to which fair value is less than amortized cost, performance on any underlying collateral, downgrades in the ratings of the security by a rating agency, the failure of the issuer to make scheduled interest or principal payments and adverse conditions specifically related to the security. If the assessment indicates that a credit loss exists, the present value of cash flows expected to be collected are compared to the amortized cost basis of the security and any excess is recorded as an allowance for credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any amount of unrealized loss that has not been recorded through an allowance for credit loss is recognized in other comprehensive income (loss).

Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance for credit losses when management believes an available-for-sale debt security is confirmed to be uncollectible or when either of the criteria regarding intent or requirement to sell is met. At September 30, 2023, there was no allowance for credit losses related to the available-for-sale portfolio.

Accrued interest receivable on available-for-sale debt securities totaled $2,688,000 at September 30, 2023 and was excluded from the estimate of credit losses.

Allowance for Credit Losses on Loans

The allowance for credit losses is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

The allowance for credit losses represents management’s estimate of lifetime credit losses inherent in loans as of the balance sheet date. The allowance for credit losses is estimated by management using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.

Accrued interest receivable on loans totaled $6,590,000 at September 30, 2023 and was excluded from the estimate of credit losses.

The allowance for credit losses (“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).

Evaluation of Expected Losses on Individual Loans

Loans evaluated on an individual basis are identified based on a detailed assessment of certain larger loan relationships, and their related credit risk ratings, by a management committee referred to as the Watch List Committee. The allowance will be determined on an individual basis using the present value of expected cash flows or, for collateral-dependent loans, the fair value of the collateral as of the reporting date, less estimated selling costs, as applicable. If the fair value of the collateral is less than the amortized cost basis of the loan, the Corporation will charge off the difference between the fair value of the collateral, less costs to sell at the reporting date and the amortized cost basis of the loan.

The scope of loans reviewed individually for credit loss each quarter includes all commercial loan relationships greater than $200,000 and any residential mortgage or consumer loans of $400,000 or more for which there is at least one extension of credit graded Special Mention, Substandard or Doubtful. Additionally, all PCD loans are evaluated individually for credit loss.

Collective Evaluation of Expected Losses – Pool Basis

The Corporation measures expected credit losses for loans on a pooled basis when similar risk characteristics exist. The Corporation has identified the following portfolio segments and calculates the allowance for credit losses for each using the weighted-average remaining maturity (“WARM”) method:

Commercial real estate - nonowner occupied, further broken down into the following classes:

Nonowner occupied

Multi-family (5 or more) residential

1-4 Family - commercial purpose

Commercial real estate - owner occupied

All other commercial loans, further broken down into the following classes:

Commercial and industrial

Commercial lines of credit

Political subdivisions

Commercial construction and land

Other commercial loans

Residential mortgage loans, further broken down into the following classes:

1-4 Family – residential

1-4 Family residential construction and land

Consumer loans, further broken down into the following classes:

Consumer lines of credit (including HELOCs)

All other consumer

In determining the pools for collective evaluation, management uses a combination of loan purpose, collateral and payment type (for example, lines of credit vs. amortizing). The pools identified are similar to the loan classes used in the Corporation’s financial reporting for several years, with several exceptions including the following which are of the most significance:

● Commercial real estate secured loans are broken out between non-owner occupied and owner-occupied

● Loans secured by 1-4 family residential mortgages are broken out between consumer-purpose and commercial-purpose

● Commercial lines of credit are broken out as an individual category

Each of these changes was made to better sort loans into pools with similar risk and cash flow characteristics.

Estimation Method - WARM (Weighted-Average Remaining Maturity Method)

In applying the WARM method, for each pool identified above, the Corporation determined the annual net charge-offs as a percentage of average total loan balances (net charge-off percentage). In the January 1, 2023 calculation, the Corporation used the annualized net charge-off percentage over the prior 5 calendar years. In the September 30, 2023 calculation, the Corporation used the net charge-off percentage for the 5.75-year period ended September 30, 2023. For each loan pool, the average annualized net charge-off percentage was multiplied by the estimated weighted-average remaining average life of the loans to calculate the loss rate.

The calculation of the estimated weighted-average remaining life of each loan pool was based on instrument-level data, with contractual principal payments adjusted for the estimated impact of prepayments. Commercial lines of credit and other revolving credit facilities were generally assumed to be repaid after 1 year. The estimated weighted-average remaining life of the entire portfolio was calculated to be 4.16 years at September 30, 2023 and 4.36 years at January 1, 2023. Management determined that use of the Corporation’s net charge-off experience over a 5.75-year period at September 30, 2023 and 5-year period at January 1, 2023 would provide a reasonable time period to include in the WARM expected loss rate calculations in relationship to the weighted-average life of the portfolio overall and to each of the pools.

Qualitative Factors

The allowance for credit losses calculation includes subjective adjustments for qualitative risk factors that are deemed likely to cause estimated credit losses to differ from historical experience. These qualitative adjustments generally increase allowance levels and include adjustments for factors deemed relevant, including: the nature and volume of portfolio changes, including loan portfolio growth; concentrations of credit based on loan type (such as non-owner occupied commercial real estate) or industry; the volume and severity of past due, nonaccrual or adversely classified loans; trends in real estate or other collateral values; lending policies and procedures, including changes in underwriting and collections practices; credit review function; lending, credit and other relevant management experience and risk tolerance; external factors and economic conditions not already captured.

Economic Forecast

ASC Topic 326 requires management to consider forward-looking information that is both reasonable and supportable and relevant to the collectability of cash flows. Reasonable and supportable forecasts may extend over the entire contractual term of a financial asset or a period shorter than the contractual term. In that regard, management has selected a forecast period of 2 years, which is shorter than the estimated weighted-average remaining life of the loan portfolio.

The Corporation calculated an additional expected credit loss based on establishing a correlation between past loss experience and an economic statistic. This additional credit loss is added to the allowance calculation, conceptually for the first 2 years of the weighted-average remaining life of the portfolio after which time the credit loss for each pool is determined based on the WARM historical loss rate as adjusted for qualitative factors.

Allowance for Credit Losses on Off-Balance Sheet Exposures

Financial instruments include off-balance sheet credit instruments, such as commitments to make loans, commercial letters of credit and credit enhancement obligations related to residential mortgage loans sold with recourse. The Corporation’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded.

The Corporation records an allowance for credit losses on off-balance sheet credit exposures, unless the commitments to extend credit are unconditionally cancelable, through a charge to provision for unfunded commitments in the Corporation’s statements of income. The allowance for credit losses on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date under the current expected credit loss model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur as well as any third-party guarantees. The allowance for off-balance sheet exposures is included in accrued interest and other liabilities in the Corporation’s unaudited consolidated balance sheets and the related credit expense is recorded in the provision for credit losses in the unaudited consolidated statements of income.

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PER SHARE DATA

9 Months Ended

Sep. 30, 2023

PER SHARE DATA

PER SHARE DATA

2. PER SHARE DATA

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

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

(In Thousands, Except Share and Per Share Data)	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
	2023		2022		2023		2022
Basic
Net income	$	7,591	$	4,455	$	19,887	$	18,839
Less: Dividends and undistributed earnings allocated to participating securities		(57)		(39)		(156)		(169)
Net income attributable to common shares	$	7,534	$	4,416	$	19,731	$	18,670
Basic weighted-average common shares outstanding		15,154,797		15,364,075		15,264,391		15,482,672
Basic earnings per common share (a)	$	0.50	$	0.29	$	1.29	$	1.21
Diluted
Net income attributable to common shares	$	7,534	$	4,416	$	19,731	$	18,670
Basic weighted-average common shares outstanding		15,154,797		15,364,075		15,264,391		15,482,672
Dilutive effect of potential common stock arising from stock options		0		3,114		4		3,276
Diluted weighted-average common shares outstanding		15,154,797		15,367,189		15,264,395		15,485,948
Diluted earnings per common share (a)	$	0.50	$	0.29	$	1.29	$	1.21
Weighted-average nonvested restricted shares outstanding		113,328		136,040		120,632		139,761

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

Anti-dilutive stock options are excluded from earnings per share calculations. The weighted-average number of anti-dilutive instruments outstanding was 8,934 in the three-month period ended September 30, 2023 and 0 in the nine-month period ended September 30, 2023. There were no anti-dilutive instruments outstanding in the three-month and nine-month periods ended September 30, 2022.

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COMPREHENSIVE INCOME (LOSS)

9 Months Ended

Sep. 30, 2023

COMPREHENSIVE INCOME (LOSS)

COMPREHENSIVE INCOME (LOSS)

3. COMPREHENSIVE INCOME (LOSS)

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

(In Thousands)	Before-Tax		Income Tax		Net-of-Tax
	Amount		Effect		Amount
Three Months Ended September 30, 2023
Available-for-sale debt securities:
Unrealized holding losses on available-for-sale debt securities	$	(14,865)	$	3,123	$	(11,742)
Reclassification adjustment for gains realized in income		0		0		0
Other comprehensive loss from available-for-sale debt securities		(14,865)		3,123		(11,742)
Unfunded pension and postretirement obligations:
Amortization of prior service cost and net actuarial loss included in net periodic benefit cost		(14)		3		(11)
Other comprehensive loss on unfunded retirement obligations		(14)		3		(11)
Total other comprehensive loss	$	(14,879)	$	3,126	$	(11,753)

(In Thousands)	Before-Tax		Income Tax		Net-of-Tax
	Amount		Effect		Amount
Three Months Ended September 30, 2022
Available-for-sale debt securities:
Unrealized holding losses on available-for-sale debt securities	$	(25,880)	$	5,437	$	(20,443)
Reclassification adjustment for (gains) realized in income		(20)		4		(16)
Other comprehensive loss from available-for-sale debt securities		(25,900)		5,441		(20,459)
Unfunded pension and postretirement obligations:
Amortization of prior service cost and net actuarial loss included in net periodic benefit cost		(9)		1		(8)
Other comprehensive loss on unfunded retirement obligations		(9)		1		(8)
Total other comprehensive loss	$	(25,909)	$	5,442	$	(20,467)

(In Thousands)	Before-Tax		Income Tax		Net-of-Tax
	Amount		Effect		Amount
Nine Months Ended September 30, 2023
Available-for-sale debt securities:
Unrealized holding losses on available-for-sale debt securities	$	(12,535)	$	2,632	$	(9,903)
Reclassification adjustment for (gains) realized in income		(6)		1		(5)
Other comprehensive loss from available-for-sale debt securities		(12,541)		2,633		(9,908)
Unfunded pension and postretirement obligations:
Changes from plan amendments and actuarial gains and losses		(8)		1		(7)
Amortization of prior service cost and net actuarial loss included in net periodic benefit cost		(42)		9		(33)
Other comprehensive loss on unfunded retirement obligations		(50)		10		(40)
Total other comprehensive loss	$	(12,591)	$	2,643	$	(9,948)

(In Thousands)	Before-Tax		Income Tax		Net-of-Tax
	Amount		Effect		Amount
Nine Months Ended September 30, 2022
Available-for-sale debt securities:
Unrealized holding losses on available-for-sale debt securities	$	(77,923)	$	16,365	$	(61,558)
Reclassification adjustment for (gains) realized in income		(21)		4		(17)
Other comprehensive loss from available-for-sale debt securities		(77,944)		16,369		(61,575)
Unfunded pension and postretirement obligations:
Changes from plan amendments and actuarial gains and losses		133		(27)		106
Amortization of prior service cost and net actuarial loss included in net periodic benefit cost		(31)		5		(26)
Other comprehensive income on unfunded retirement obligations		102		(22)		80
Total other comprehensive loss	$	(77,842)	$	16,347	$	(61,495)

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

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

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

(In Thousands)	Unrealized				Accumulated
	(Losses)		Unfunded		Other
	Gains		Retirement		Comprehensive
	on Securities		Obligations		(Loss) Income
Three Months Ended September 30, 2023
Balance, beginning of period	$	(48,536)		463	$	(48,073)
Other comprehensive loss during three months ended September 30, 2023		(11,742)		(11)		(11,753)
Balance, end of period	$	(60,278)	$	452	$	(59,826)
Three Months Ended September 30, 2022
Balance, beginning of period	$	(36,307)	$	305	$	(36,002)
Other comprehensive loss during three months ended September 30, 2022		(20,459)		(8)		(20,467)
Balance, end of period	$	(56,766)	$	297	$	(56,469)

(In Thousands)	Unrealized				Accumulated
	(Losses)		Unfunded		Other
	Gains		Retirement		Comprehensive
	on Securities		Obligations		(Loss) Income
Nine Months Ended September 30, 2023
Balance, beginning of period	$	(50,370)	$	492	$	(49,878)
Other comprehensive loss during nine months ended September 30, 2023		(9,908)		(40)		(9,948)
Balance, end of period	$	(60,278)	$	452	$	(59,826)
Nine Months Ended September 30, 2022
Balance, beginning of period	$	4,809	$	217	$	5,026
Other comprehensive loss during nine months ended September 30, 2022		(61,575)		80		(61,495)
Balance, end of period	$	(56,766)	$	297	$	(56,469)

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CASH AND DUE FROM BANKS

9 Months Ended

Sep. 30, 2023

CASH AND DUE FROM BANKS

CASH AND DUE FROM BANKS

4. CASH AND DUE FROM BANKS

Cash and due from banks at September 30, 2023 and December 31, 2022 include the following:

(In Thousands)	September 30,		December 31,
	2023		2022
Cash and cash equivalents	$	48,308	$	47,698
Certificates of deposit		4,350		7,350
Total cash and due from banks	$	52,658	$	55,048

Certificates of deposit are issues by U.S. banks with original maturities greater than three months. Each certificate of deposit is fully FDIC-insured. The Corporation maintains cash and cash equivalents with certain financial institutions in excess of the FDIC insurance limit.

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SECURITIES

9 Months Ended

Sep. 30, 2023

SECURITIES

SECURITIES

5. SECURITIES

Amortized cost and fair value of available-for-sale debt securities at September 30, 2023 and December 31, 2022 are summarized as follows:

(In Thousands)	September 30, 2023
			Gross		Gross
			Unrealized		Unrealized
	Amortized		Holding		Holding		Fair
	Cost		Gains		Losses		Value
Obligations of the U.S. Treasury	$	33,938	$	0	$	(3,381)	$	30,557
Obligations of U.S. Government agencies		21,372		0		(2,576)		18,796
Bank holding company debt securities		28,950		0		(6,639)		22,311
Obligations of states and political subdivisions:
Tax-exempt		123,598		114		(19,259)		104,453
Taxable		65,408		0		(11,951)		53,457
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		109,102		0		(14,633)		94,469
Residential collateralized mortgage obligations		38,267		0		(4,870)		33,397
Commercial mortgage-backed securities		76,627		0		(12,955)		63,672
Private label commercial mortgage-backed securities		8,178		0		(152)		8,026
Total available-for-sale debt securities	$	505,440	$	114	$	(76,416)	$	429,138

(In Thousands)	December 31, 2022
			Gross		Gross
			Unrealized		Unrealized
	Amortized		Holding		Holding		Fair
	Cost		Gains		Losses		Value
Obligations of the U.S. Treasury	$	35,166	$	0	$	(3,330)	$	31,836
Obligations of U.S. Government agencies		25,938		0		(2,508)		23,430
Bank holding company debt securities		28,945		0		(3,559)		25,386
Obligations of states and political subdivisions:
Tax-exempt		146,149		319		(13,845)		132,623
Taxable		68,488		0		(11,676)		56,812
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		112,782		0		(12,841)		99,941
Residential collateralized mortgage obligations		44,868		0		(4,572)		40,296
Commercial mortgage-backed securities		91,388		0		(11,702)		79,686
Private label commercial mortgage-backed securities		8,070		2		(49)		8,023
Total available-for-sale debt securities	$	561,794	$	321	$	(64,082)	$	498,033

The following table presents gross unrealized losses and fair value of available-for-sale debt securities with unrealized loss positions aggregated by length of time that individual securities have been in a continuous unrealized loss position at September 30, 2023 and December 31, 2022:

September 30, 2023	Less Than 12 Months				12 Months or More				Total
(In Thousands)	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
Obligations of the U.S. Treasury	$	0		0	$	30,557		(3,381)	$	30,557	$	(3,381)
Obligations of U.S. Government agencies		1,850		(8)		16,946		(2,568)		18,796		(2,576)
Bank holding company debt securities		0		0		22,311		(6,639)		22,311		(6,639)
Obligations of states and political subdivisions:
Tax-exempt		4,172		(268)		96,600		(18,991)		100,772		(19,259)
Taxable		0		0		53,457		(11,951)		53,457		(11,951)
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		9,304		(412)		83,619		(14,221)		92,923		(14,633)
Residential collateralized mortgage obligations		2,662		(130)		30,735		(4,740)		33,397		(4,870)
Commercial mortgage-backed securities		2,211		(130)		61,461		(12,825)		63,672		(12,955)
Private label commercial mortgage-backed securities		8,026		(152)		0		0		8,026		(152)
Total temporarily impaired available-for-sale debt securities	$	28,225	$	(1,100)	$	395,686	$	(75,316)	$	423,911	$	(76,416)

December 31, 2022	Less Than 12 Months				12 Months or More				Total
(In Thousands)	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
Obligations of the U.S. Treasury	$	20,192	$	(1,939)	$	11,644	$	(1,391)	$	31,836	$	(3,330)
Obligations of U.S. Government agencies		8,509		(430)		12,921		(2,078)		21,430		(2,508)
Bank holding company debt securities		14,248		(1,697)		11,138		(1,862)		25,386		(3,559)
Obligations of states and political subdivisions:
Tax-exempt		106,204		(11,023)		15,153		(2,822)		121,357		(13,845)
Taxable		28,901		(4,739)		27,761		(6,937)		56,662		(11,676)
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		45,410		(4,226)		54,531		(8,615)		99,941		(12,841)
Residential collateralized mortgage obligations		28,670		(2,042)		11,626		(2,530)		40,296		(4,572)
Commercial mortgage-backed securities		40,408		(2,585)		39,278		(9,117)		79,686		(11,702)
Private label commercial mortgage-backed securities		4,762		(49)		0		0		4,762		(49)
Total temporarily impaired available-for-sale debt securities	$	297,304	$	(28,730)	$	184,052	$	(35,352)	$	481,356	$	(64,082)

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

(In Thousands)	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
	2023		2022		2023		2022
Gross realized gains from sales	$	0	$	44	$	89	$	48
Gross realized losses from sales		0		(24)		(83)		(27)
Net realized gains	$	0	$	20	$	6	$	21

The amortized cost and fair value of available-for-sale debt securities by contractual maturity are shown in the following table as of September 30, 2023. Actual maturities may differ from contractual maturities because counterparties may have the right to call or prepay obligations with or without call or prepayment penalties.

(In Thousands)	September 30, 2023
	Amortized		Fair
	Cost		Value
Due in one year or less	$	10,899	$	10,672
Due from one year through five years		70,095		64,235
Due from five years through ten years		80,423		66,554
Due after ten years		111,849		88,113
Sub-total		273,266		229,574
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		109,102		94,469
Residential collateralized mortgage obligations		38,267		33,397
Commercial mortgage-backed securities		76,627		63,672
Private label commercial mortgage-backed securities		8,178		8,026
Total	$	505,440	$	429,138

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

Investment securities carried at $242,190,000 at September 30, 2023 and $277,302,000 at December 31, 2022 were pledged as collateral for public deposits, trusts and certain other deposits as provided by law. See Note 8 for information concerning securities pledged to secure borrowing arrangements and Note 11 for information related to securities pledged against interest rate swap obligations.

A summary of information management considered in evaluating debt and equity securities for credit losses at September 30, 2023 and December 31, 2022 is provided below.

Debt Securities

As reflected in the table above, gross unrealized holding losses on available-for-sale debt securities totaled $76,416,000 at September 30, 2023 and $64,082,000 at December 31, 2022. At September 30, 2023, the Corporation does not have the intent to sell, nor is it more likely than not it will be required to sell, these securities before it is able to recover the amortized cost basis. The unrealized holding losses were consistent with significant increases in market interest rates that occurred in 2022 and 2023.

At September 30, 2023 and December 31, 2022, management performed an assessment for possible credit losses of the Corporation’s debt securities on an issue-by-issue basis, relying on information obtained from various sources, including publicly available financial data, ratings by external agencies, brokers and other sources. At September 30, 2023 and December 31, 2022, all of the Corporation’s holdings of bank holding company debt securities, obligations of states and political subdivisions and private label commercial mortgage-backed securities were investment grade and there have been no payment defaults.

Based on the results of the assessment, there was no ACL required on available-for-sale debt securities in an unrealized loss position at September 30, 2023 and December 31, 2022.

Equity Securities

C&N Bank is a member of the Federal Home Loan Bank of Pittsburgh (FHLB-Pittsburgh), which is one of 11 regional Federal Home Loan Banks. As a member, C&N Bank is required to purchase and maintain stock in FHLB-Pittsburgh. There is no active market for FHLB-Pittsburgh stock, and it must ordinarily be redeemed by FHLB-Pittsburgh in order to be liquidated. C&N Bank’s investment in FHLB-Pittsburgh stock, included in other assets in the consolidated balance sheets, was $14,570,000 at September 30, 2023 and $14,168,000 at December 31, 2022. The Corporation evaluated its holding of FHLB-Pittsburgh stock for impairment and deemed the stock to not be impaired at September 30, 2023 and December 31, 2022. In making this determination, management concluded that recovery of total outstanding par value, which equals the carrying value, is expected. The decision was based on review of financial information that FHLB-Pittsburgh has made publicly available.

In July 2023, C&N Bank became a member of the Federal Reserve System.  As a member, C&N Bank is required to purchase and maintain stock in the Federal Reserve Bank of Philadelphia. There is no active market for Federal Reserve Bank stock, and it must ordinarily be redeemed by the Federal Reserve Bank of Philadelphia in order to be liquidated. C&N Bank’s investment in Federal Reserve Bank stock, included in other assets in the consolidated balance sheets, was $6,243,000 at September 30, 2023.

The Corporation has a marketable equity security included in other assets in the consolidated balance sheets with a carrying value of $832,000 at September 30, 2023 and $859,000 December 31, 2022, consisting exclusively of one mutual fund. There was an unrealized loss on the mutual fund of $168,000 at September 30, 2023 and $141,000 at December 31, 2022. Changes in the unrealized gains or losses on this security, which are included in other noninterest income in the consolidated statements of income, were a loss of $27,000 in the third quarter 2023 and for the nine-month period ended September 30, 2023, a loss of $38,000 in the third quarter 2022 and a loss of $114,000 in the nine-month period ended September 30, 2022.

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LOANS AND ALLOWANCE FOR CREDIT LOSSES

9 Months Ended

Sep. 30, 2023

LOANS AND ALLOWANCE FOR CREDIT LOSSES

LOANS AND ALLOWANCE FOR CREDIT LOSSES

6. LOANS AND ALLOWANCE FOR CREDIT LOSSES

Loans receivable at September 30, 2023 and December 31, 2022 are summarized as follows:

Summary of Loans by Type

(In Thousands)

	September 30,		December 31,
	2023		2022 (1)
Commercial real estate - non-owner occupied	$	737,287	$	675,597
Commercial real estate - owner occupied		231,112		205,910
All other commercial loans		395,703		410,077
Residential mortgage loans		410,013		393,582
Consumer loans		56,555		54,874
Total		1,830,670		1,740,040
Less: allowance for credit losses on loans		(18,085)		(16,615)
Loans, net	$	1,812,585	$	1,723,425

(1) Total loans at December 31, 2022 include purchased credit impaired loans of $1,027,000.

In the table above, outstanding loan balances are presented net of deferred loan origination fees, net, of $4,456,000 at September 30, 2023 and $4,725,000 at December 31, 2022.

The Corporation grants loans to individuals as well as commercial and tax-exempt entities. Commercial, residential and personal loans are made to customers geographically concentrated in Northcentral Pennsylvania, the Southern tier of New York State, Southeastern Pennsylvania and Southcentral Pennsylvania. Although the Corporation has a diversified loan portfolio, a significant portion of its debtors’ ability to honor their contracts is dependent on the local economic conditions within the region.

Acquired loans were initially recorded at fair value, with adjustments made to gross amortized cost based on movements in interest rates (market rate adjustment) and based on credit fair value adjustments on non-impaired loans and impaired loans. Subsequently, the Corporation has recognized amortization and accretion of a portion of the market rate adjustments and credit adjustments on performing loans. For the three-month and nine-month periods ended September 30, 2023 and 2022, adjustments to the initial market rate and credit fair value adjustments of performing loans were recognized as follows:

(In Thousands)	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
	2023		2022		2023		2022
Market Rate Adjustment
Adjustments to gross amortized cost of loans at beginning of period	$	(1,000)	$	(866)	$	(916)	$	(637)
(Amortization) accretion recognized in interest income		(16)		5		(100)		(224)
Adjustments to gross amortized cost of loans at end of period	$	(1,016)	$	(861)	$	(1,016)	$	(861)
Credit Adjustment on Non-impaired Loans
Adjustments to gross amortized cost of loans at beginning of period	$	(1,446)	$	(2,403)	$	(1,840)	$	(3,335)
Accretion recognized in interest income		147		308		541		1,240
Adjustments to gross amortized cost of loans at end of period	$	(1,299)	$	(2,095)	$	(1,299)	$	(2,095)

The following table presents an analysis of past due loans as of September 30, 2023:

(In Thousands)	As of September 30, 2023
	Past Due		Past Due
	30-89		90+		Nonaccrual		Current		Total
	Days		Days		Loans		Loans		Loans
Commercial real estate - non-owner occupied	$	4	$	132	$	9,031	$	728,120	$	737,287
Commercial real estate - owner occupied		151		0		1,586		229,375		231,112
All other commercial loans		1,438		162		1,390		392,713		395,703
Residential mortgage loans		1,569		892		3,244		404,308		410,013
Consumer loans		513		106		250		55,686		56,555
Total	$	3,675	$	1,292	$	15,501	$	1,810,202	$	1,830,670

The following table presents an analysis of past due loans as of December 31, 2022:

(In Thousands)	As of December 31, 2022
	Past Due		Past Due
	30-89		90+		Nonaccrual		Current		Total
	Days		Days		Loans		Loans		Loans
Commercial real estate - non-owner occupied	$	644	$	947	$	6,350	$	667,656	$	675,597
Commercial real estate - owner occupied		723		141		19		204,099		204,982
All other commercial loans		537		151		11,528		397,762		409,978
Residential mortgage loans		4,540		866		3,974		384,202		393,582
Consumer loans		635		132		187		53,920		54,874
Purchased credit impaired		0		0		1,027		0		1,027
Total	$	7,079	$	2,237	$	23,085	$	1,707,639	$	1,740,040

In determining the larger loan relationships for detailed assessment under the specific allowance component, the Corporation uses an internal risk rating system. Under the risk rating system, the Corporation classifies problem or potential problem loans as “Special Mention,” “Substandard,” or “Doubtful” on the basis of currently existing facts, conditions and values. Substandard loans include those characterized by the distinct possibility that the Corporation will sustain some loss if the deficiencies are not corrected. Loans classified as Doubtful have all the weaknesses inherent in those classified as Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Loans that do not currently expose the Corporation to sufficient risk to warrant classification as Substandard or Doubtful, but possess weaknesses that deserve management’s close attention, are deemed to be Special Mention. Risk ratings are updated any time that conditions or the situation warrants. Loans not classified are included in the “Pass” rows in the table that follows.

The following table presents the recorded investment in loans by credit quality indicators by year of origination as of September 30, 2023:

(In Thousands)	Term Loans by Year of Origination
	2023		2022		2021		2020		2019		Prior		Revolving		Total
Commercial real estate - non-owner occupied
Pass	$	83,002	$	188,426	$	91,246	$	55,618	$	80,858	$	211,778	$	0	$	710,928
Special Mention		0		0		2,475		0		119		8,147		0		10,741
Substandard		0		0		0		2,577		610		12,431		0		15,618
Doubtful		0		0		0		0		0		0		0		0
Total commercial real estate - non-owner occupied	$	83,002	$	188,426	$	93,721	$	58,195	$	81,587	$	232,356	$	0	$	737,287
Year-to-date gross charge-offs	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Commercial real estate - owner occupied
Pass	$	28,058	$	37,306	$	52,680	$	13,245	$	17,722	$	75,113	$	0	$	224,124
Special Mention		0		0		2,617		0		0		1,301		0		3,918
Substandard		0		0		0		0		0		3,070		0		3,070
Doubtful		0		0		0		0		0		0		0		0
Total commercial real estate - owner occupied	$	28,058	$	37,306	$	55,297	$	13,245	$	17,722	$	79,484	$	0	$	231,112
Year-to-date gross charge-offs	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
All other commercial loans
Pass	$	39,638	$	94,942	$	53,556	$	29,097	$	17,364	$	25,489	$	112,698	$	372,784
Special Mention		0		0		4,642		0		0		805		400		5,847
Substandard		0		3,091		1,250		435		2,151		1,121		9,024		17,072
Doubtful		0		0		0		0		0		0		0		0
Total all other commercial loans	$	39,638	$	98,033	$	59,448	$	29,532	$	19,515	$	27,415	$	122,122	$	395,703
Year-to-date gross charge-offs	$	0	$	0	$	0	$	0	$	0	$	0	$	12	$	12
Residential mortgage loans
Pass	$	44,449	$	88,378	$	57,166	$	40,943	$	33,257	$	140,684	$	0	$	404,877
Special Mention		0		0		0		0		0		0		0		0
Substandard		0		0		0		289		369		4,478		0		5,136
Doubtful		0		0		0		0		0		0		0		0
Total residential mortgage loans	$	44,449	$	88,378	$	57,166	$	41,232	$	33,626	$	145,162	$	0	$	410,013
Year-to-date gross charge-offs	$	0	$	0	$	0	$	0	$	0	$	33	$	0	$	33
Consumer loans
Pass	$	5,216	$	5,070	$	2,227	$	1,372	$	238	$	991	$	40,512	$	55,626
Special Mention		0		0		0		0		0		0		0		0
Substandard		0		0		1		12		5		78		833		929
Doubtful		0		0		0		0		0		0		0		0
Total consumer loans	$	5,216	$	5,070	$	2,228	$	1,384	$	243	$	1,069	$	41,345	$	56,555
Year-to-date gross charge-offs	$	0	$	134	$	0	$	18	$	3	$	3	$	96	$	254

The following table presents the recorded investment in loans by credit quality indicators as of December 31, 2022:

			Special
(In Thousands)	Pass		Mention		Substandard		Doubtful		Total
Commercial real estate - non-owner occupied	$	654,430	$	9,486	$	11,681	$	0	$	675,597
Commercial real estate - owner occupied		202,702		1,909		371		0		204,982
All other commercial loans		383,846		2,516		23,616		0		409,978
Residential mortgage loans		387,944		0		5,638		0		393,582
Consumer loans		54,353		0		521		0		54,874
Purchased credit impaired		0		0		1,027		0		1,027
Total	$	1,683,275	$	13,911	$	42,854	$	0	$	1,740,040

The following table is a summary of the Corporation’s nonaccrual loans by major categories for the periods indicated.

	September 30, 2023						December 31, 2022
	Nonaccrual Loans with		Nonaccrual Loans		Total Nonaccrual
(In Thousands)	No Allowance		with an Allowance		Loans		Nonaccrual Loans
Commercial real estate - non-owner occupied	$	1,669	$	7,362	$	9,031	$	6,350
Commercial real estate - owner occupied		1,283		303		1,586		19
All other commercial loans		1,194		196		1,390		11,528
Residential mortgage loans		3,244		0		3,244		3,974
Consumer loans		250		0		250		187
Purchased credit impaired		0		0		0		1,027
Total	$	7,640	$	7,861	$	15,501	$	23,085

The Corporation recognized $317,000 and $744,000 of interest income on nonaccrual loans during the three months and nine months ended September 30, 2023, respectively.

The following table represents the accrued interest receivable written off by reversing interest income during the three-month and nine-month periods ended September 30, 2023:

	Three Months Ended		Nine Months Ended
(In Thousands)	September 30, 2023		September 30, 2023
Commercial real estate - non-owner occupied	$	22	$	48
Residential mortgage loans		11		17
Consumer loans		0		2
Total	$	33	$	67

The Corporation has certain loans for which repayment is dependent upon the operation or sale of collateral, as the borrower is experiencing financial difficulty. The underlying collateral can vary based upon the type of loan. The following provides more detail about the types of collateral that secure collateral dependent loans:

● Commercial real estate loans can be secured by either owner occupied commercial real estate or non-owner occupied investment commercial real estate. Typically, owner occupied commercial real estate loans are secured by office buildings, warehouses, manufacturing facilities and other commercial and industrial properties occupied by operating companies. Non-owner occupied commercial real estate loans are generally secured by office buildings and complexes, retail facilities, multifamily complexes, land under development, industrial properties, as well as other commercial or industrial real estate.

● All other commercial loans are typically secured by business assets including inventory, equipment and receivables.

● Residential mortgage loans are typically secured by first mortgages, and in some cases could be secured by a second mortgage.

● Consumer loans are generally secured by automobiles, motorcycles, recreational vehicles and other personal property. Some consumer loans are unsecured and have no underlying collateral.

The following table details the amortized cost of collateral dependent loans, which are individually evaluated to determine expected credit losses, and the related allowance for credit losses on loans allocated to these loans:

	September 30, 2023
	Amortized
(In Thousands)	Cost		Allowance
Commercial real estate - non-owner occupied	$	9,031	$	664
Commercial real estate - owner occupied		1,586		61
All other commercial loans		1,390		95
Total	$	12,007	$	820

The following table summarizes the activity related to the ACL for the three and nine months ended September 30, 2023 under the CECL methodology.

	Commercial		Commercial		All
	real estate -		real estate -		other		Residential
	nonowner		owner		commercial		mortgage		Consumer
(In Thousands)	occupied		occupied		loans		loans		loans		Unallocated		Total
Balance, June 30, 2023	$	10,603	$	2,025	$	3,686	$	2,464	$	278	$	0	$	19,056
Charge-offs		0		0		(7)		0		(91)		0		(98)
Recoveries		0		0		34		8		18		0		60
(Credit) provision for credit losses on loans		(268)		(161)		(161)		(479)		136		0		(933)
Balance, September 30, 2023	$	10,335	$	1,864	$	3,552	$	1,993	$	341	$	0	$	18,085

	Commercial		Commercial		All
	real estate -		real estate -		other		Residential
	nonowner		owner		commercial		mortgage		Consumer
(In Thousands)	occupied		occupied		loans		loans		loans		Unallocated		Total
Balance, December 31, 2022	$	6,305	$	1,942	$	4,142	$	2,751	$	475	$	1,000	$	16,615
Adoption of ASU 2016-13 (CECL)		3,763		7		(88)		(344)		(234)		(1,000)		2,104
Charge-offs		0		0		(12)		(33)		(254)		0		(299)
Recoveries		0		0		34		10		30		0		74
(Credit) provision for credit losses on loans		267		(85)		(524)		(391)		324		0		(409)
Balance, September 30, 2023	$	10,335	$	1,864	$	3,552	$	1,993	$	341	$	0	$	18,085

Prior to the adoption of ASC 326 on January 1, 2023, the Corporation calculated the allowance for loan losses under the incurred loss methodology. The following tables are disclosed related to the allowance for loan losses in prior periods.

Three Months Ended September 30, 2022	June 30, 2022								September 30, 2022
(In Thousands)	Balance		Charge-offs		Recoveries		Provision (Credit)		Balance
Allowance for Loan Losses:
Commercial:
Commercial loans secured by real estate	$	4,982	$	(2,160)	$	0	$	3,225	$	6,047
Commercial and industrial		2,792		0		0		31		2,823
Commercial construction and land		515		0		0		169		684
Loans secured by farmland		112		0		0		1		113
Multi-family (5 or more) residential		339		0		0		88		427
Agricultural loans		23		0		0		(1)		22
Other commercial loans		131		0		0		(9)		122
Total commercial		8,894		(2,160)		0		3,504		10,238
Residential mortgage:
Residential mortgage loans - first liens		3,689		0		1		229		3,919
Residential mortgage loans - junior liens		180		0		0		14		194
Home equity lines of credit		308		0		0		25		333
1-4 Family residential construction		215		0		0		36		251
Total residential mortgage		4,392		0		1		304		4,697
Consumer		261		(36)		24		(14)		235
Unallocated		1,000		0		0		0		1,000
Total Allowance for Loan Losses	$	14,547	$	(2,196)	$	25	$	3,794	$	16,170

Nine Months Ended September 30, 2022	December 31, 2021								September 30, 2022
(In Thousands)	Balance		Charge-offs		Recoveries		Provision (Credit)		Balance
Allowance for Loan Losses:
Commercial:
Commercial loans secured by real estate	$	4,405	$	(2,160)	$	0	$	3,802	$	6,047
Commercial and industrial		2,723		(150)		0		250		2,823
Commercial construction and land		637		0		0		47		684
Loans secured by farmland		115		0		0		(2)		113
Multi-family (5 or more) residential		215		0		0		212		427
Agricultural loans		25		0		0		(3)		22
Other commercial loans		173		0		0		(51)		122
Total commercial		8,293		(2,310)		0		4,255		10,238
Residential mortgage:
Residential mortgage loans - first liens		3,650		0		3		266		3,919
Residential mortgage loans - junior liens		184		0		0		10		194
Home equity lines of credit		302		0		15		16		333
1-4 Family residential construction		202		0		0		49		251
Total residential mortgage		4,338		0		18		341		4,697
Consumer		235		(107)		39		68		235
Unallocated		671		0		0		329		1,000
Total Allowance for Loan Losses	$	13,537	$	(2,417)	$	57	$	4,993	$	16,170

The following tables present a summary of loan balances and the related allowance for loan losses summarized by portfolio segment and class for each impairment method used as of December 31, 2022.

December 31, 2022	Loans:						Allowance for Loan Losses:
(In Thousands)
	Individually		Collectively				Individually		Collectively
	Evaluated		Evaluated		Totals		Evaluated		Evaluated		Totals
Commercial:
Commercial loans secured by real estate	$	7,154	$	675,095	$	682,249	$	427	$	6,647	$	7,074
Commercial and industrial		11,223		167,048		178,271		26		2,883		2,909
Paycheck Protection Program - 1st Draw		0		5		5		0		0		0
Paycheck Protection Program - 2nd Draw		0		163		163		0		0		0
Political subdivisions		0		90,719		90,719		0		0		0
Commercial construction and land		244		73,719		73,963		0		647		647
Loans secured by farmland		76		12,874		12,950		0		112		112
Multi-family (5 or more) residential		0		55,886		55,886		0		411		411
Agricultural loans		57		2,378		2,435		0		21		21
Other commercial loans		0		14,857		14,857		0		124		124
Total commercial		18,754		1,092,744		1,111,498		453		10,845		11,298
Residential mortgage:
Residential mortgage loans - first liens		506		509,276		509,782		0		3,413		3,413
Residential mortgage loans - junior liens		30		24,919		24,949		0		167		167
Home equity lines of credit		68		43,730		43,798		0		282		282
1-4 Family residential construction		0		30,577		30,577		0		211		211
Total residential mortgage		604		608,502		609,106		0		4,073		4,073
Consumer		0		19,436		19,436		0		244		244
Unallocated												1,000
Total	$	19,358	$	1,720,682	$	1,740,040	$	453	$	15,162	$	16,615

Prior to the adoption of ASU 2016-13, loans were classified as impaired when, based on current information and events, it was probable that the Corporation would be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment included payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experienced insignificant payment delays and payment shortfalls generally were not classified as impaired. Management determined the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of shortfall in relation to the principal and interest owed. Impairment was measured on a loan-by-loan basis for commercial loans by the fair value of the collateral (if the loan is collateral dependent), by future cash flows discounted at the loan’s effective rate or by the loan’s observable market price.

The scope of loans reviewed individually each quarter to determine if they were impaired included all commercial loan relationships greater than $200,000 and any residential mortgage or consumer loans of $400,000 or more for which there was at least one extension of credit graded Special Mention, Substandard or Doubtful. All loans classified as troubled debt restructurings and all commercial loan relationships less than $200,000 or other loan relationships less than $400,000 in the aggregate, but with an estimated loss of $100,000 or more, were individually evaluated for impairment.

Summary information related to impaired loans at December 31, 2022 is provided in the table immediately below.

(In Thousands)	December 31, 2022
	Unpaid
	Principal		Recorded		Related
	Balance		Investment		Allowance
With no related allowance recorded:
Commercial loans secured by real estate	$	8,563	$	3,754	$	0
Commercial and industrial		12,926		11,163		0
Residential mortgage loans - first liens		506		506		0
Residential mortgage loans - junior liens		68		30		0
Home equity lines of credit		68		68		0
Loans secured by farmland		76		76		0
Agricultural loans		57		57		0
Construction and other land loans		244		244		0
Total with no related allowance recorded		22,508		15,898		0
With a related allowance recorded:
Commercial loans secured by real estate		3,400		3,400		427
Commercial and industrial		60		60		26
Total with a related allowance recorded		3,460		3,460		453
Total	$	25,968	$	19,358	$	453

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

(In Thousands)					Interest Income Recognized on
	Average Investment in Impaired Loans				Impaired Loans on a Cash Basis
	Three Months Ended		Nine Months Ended		Three Months Ended		Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
	2022		2022		2022		2022
Commercial:
Commercial loans secured by real estate	$	9,710	$	9,804	$	143	$	483
Commercial and industrial		371		839		4		207
Commercial construction and land		47		47		0		1
Loans secured by farmland		79		81		0		0
Multi-family (5 or more) residential		0		263		0		1,156
Agricultural loans		59		61		0		2
Total commercial		10,266		11,095		147		1,849
Residential mortgage:
Residential mortgage loans - first lien		612		587		5		17
Residential mortgage loans - junior lien		31		33		0		6
Home equity lines of credit		68		34		1		3
Total residential mortgage		711		654		6		26
Total	$	10,977	$	11,749	$	153	$	1,875

The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon asset origination or acquisition. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification.

Because the effect of most modifications made to borrowers experiencing financial difficulty, such as extensions of terms, insignificant payment delays and interest rate reductions, is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification.

Occasionally, the Corporation modifies loans by providing principal forgiveness on certain of its real estate loans. When principal forgiveness is provided, the amortized cost basis of the asset is written off against the allowance for credit losses. The amount of the principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses.

There were no loans modified to borrowers experiencing financial difficulty in the three-month and nine-month periods ended September 30, 2023.

The carrying amount of foreclosed residential real estate properties held as a result of obtaining physical possession (included in foreclosed assets held for sale in the unaudited consolidated balance sheets) is as follows:

(In Thousands)	September 30,		December 31,
	2023		2022
Foreclosed residential real estate	$	202	$	0

The recorded investment of consumer mortgage loans secured by residential real properties for which formal foreclosure proceedings were in process is as follows:

(In Thousands)	September 30,		December 31,
	2023		2022
Residential real estate in process of foreclosure	$	1,049	$	1,229

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 $900,000 at September 30, 2023 and $425,000 at December 31, 2022, is included in accrued interest and other liabilities on the unaudited consolidated balance sheets.

The following table presents the balance and activity in the allowance for credit losses for off-balance sheet exposures for the three and nine months ended September 30, 2023.

	Three Months		Nine Months
	Ended		Ended
(In Thousands)	September 30, 2023		September 30, 2023
Beginning Balance	$	1,154	$	425
Adjustment to allowance for off-balance sheet exposures for adoption of ASU 2016-13		0		793
Recoveries		38		38
Credit for unfunded commitments		(292)		(356)
Balance, September 30, 2023	$	900	$	900

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GOODWILL AND OTHER INTANGIBLE ASSETS

9 Months Ended

Sep. 30, 2023

GOODWILL AND OTHER INTANGIBLE ASSETS

GOODWILL AND OTHER INTANGIBLE ASSETS

7. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill represents the excess of the cost of acquisitions over the fair value of the net assets acquired. At September 30, 2023 and December 31, 2022, the net carrying value of goodwill was $52,505,000.

Information related to core deposit intangibles is as follows:

(In Thousands)	September 30,		December 31,
	2023		2022
Gross amount	$	6,639	$	6,639
Accumulated amortization		(4,068)		(3,762)
Net	$	2,571	$	2,877

Amortization expense related to core deposit intangibles is included in other noninterest expense in the consolidated statements of income, as follows:

(In Thousands)	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
	2023		2022		2023		2022
Amortization expense	$	102	$	110	$	306	$	329

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BORROWED FUNDS

9 Months Ended

Sep. 30, 2023

BORROWED FUNDS

BORROWED FUNDS

8. BORROWED FUNDS

SHORT-TERM BORROWINGS

Short-term borrowings (initial maturity within one year) include the following:

(In Thousands)	September 30,		December 31,
	2023		2022
FHLB-Pittsburgh borrowings	$	21,500	$	77,000
Customer repurchase agreements		1,753		3,062
Total short-term borrowings	$	23,253	$	80,062

The Corporation had available credit with other correspondent banks totaling $95,000,000 at September 30, 2023 and December 31, 2022. These lines of credit are primarily unsecured. No amounts were outstanding at September 30, 2023 or December 31, 2022.

The Corporation has a line of credit with the Federal Reserve Bank of Philadelphia’s Discount Window. At September 30, 2023, the Corporation had available credit in the amount of $20,766,000 on this line with no outstanding advances. At December 31, 2022, the Corporation had available credit in the amount of $23,107,000 on this line with no outstanding advances. As collateral for this line, the Corporation has pledged available-for-sale securities with a carrying value of $21,731,000 at September 30, 2023 and $24,113,000 at December 31, 2022.

The Corporation engages in repurchase agreements with certain commercial customers. These agreements provide that the Corporation sells specified investment securities to the customers on an overnight basis and repurchases them on the following business day. The weighted average rate paid by the Corporation on customer repurchase agreements was 0.10% at September 30, 2023 and December 31, 2022. The carrying value of the underlying securities was $1,770,000 at September 30, 2023 and $3,080,000 at December 31, 2022.

The FHLB-Pittsburgh loan facility is collateralized by qualifying loans secured by real estate with a book value totaling $1,321,417,000 at September 30, 2023 and $1,209,179,000 at December 31, 2022. Also, the FHLB-Pittsburgh loan facility requires the Corporation to invest in established amounts of FHLB-Pittsburgh stock. The carrying values of the Corporation’s holdings of FHLB-Pittsburgh stock (included in other assets in the consolidated balance sheets) were $14,570,000 at September 30, 2023 and $14,168,000 at December 31, 2022. The Corporation’s total credit facility with FHLB-Pittsburgh was $918,798,000 at September 30, 2023, including an unused

(available) amount of $752,847,000. At December 31, 2022, the Corporation’s total credit facility with FHLB-Pittsburgh was $839,378,000, including an unused (available) amount of $689,279,000.

At September 30, 2023, short-term borrowings included an overnight borrowing from FHLB-Pittsburgh of $6,500,000 at an interest rate of 5.68% and an advance of $15,000,000 maturing in October 2023 with an interest rate of 5.61%. At December 31, 2022, the overnight borrowing from FHLB-Pittsburgh was $77,000,000 at an interest rate of 4.45% with no other short-term advances.

LONG-TERM BORROWINGS – FHLB ADVANCES

Long-term borrowings from FHLB-Pittsburgh are as follows:

(In Thousands)	September 30,		December 31,
	2023		2022
Loan maturing in 2023 with a rate of 3.25%	$	2,290	$	9,303
Loans maturing in 2024 with a weighted-average rate of 2.89%		29,784		29,813
Loans maturing in 2025 with a weighted-average rate of 4.12%		35,653		23,231
Loans maturing in 2026 with a weighted-average rate of 4.44%		31,518		0
Loans maturing in 2027 with a weighted-average rate of 4.00%		24,031		0
Loan maturing in 2028 with a rate of 3.72%		2,000		0
Total long-term FHLB-Pittsburgh borrowings	$	125,276	$	62,347

Note: Weighted-average rates are presented as of September 30, 2023.

SENIOR NOTES

In 2021, the Corporation issued and sold $15.0 million in aggregate principal amount of 2.75% Fixed Rate Senior Unsecured Notes due 2026 (the "Senior Notes"). The Senior Notes mature on June 1, 2026 and bear interest at a fixed annual rate of 2.75%. The Corporation is not entitled to redeem the Senior Notes, in whole or in part, at any time prior to maturity and the Senior Notes are not subject to redemption by the holders. The Senior Notes are unsecured and unsubordinated obligations of the Corporation only and are not obligations of, and are not guaranteed by, any subsidiary of the Corporation.

The Senior Notes were recorded, net of debt issuance costs of $337,000, at an initial carrying amount of $14,663,000. Debt issuance costs are amortized over the term of the Senior Notes as an adjustment of the effective interest rate. Amortization of debt issuance costs associated with the Senior Notes totaling $16,000 in the third quarter 2023 and $49,000 in the nine-month period ended September 30, 2023, and $16,000 in the third quarter 2022 and $48,000 in the nine month-period ended September 30, 2022, was included in interest expense in the unaudited consolidated statements of income.

At September 30, 2023 and December 31, 2022, outstanding Senior Notes are as follows:

(In Thousands)	September 30,		December 31,
	2023		2022
Senior Notes with an aggregate par value of $15,000,000; bearing interest at 2.75% with an effective interest rate of 3.23%; maturing in June 2026	$	14,814	$	14,765
Total carrying value	$	14,814	$	14,765

SUBORDINATED DEBT

In 2021, the Corporation issued and sold $25.0 million in aggregate principal amount of 3.25% Fixed-to-Floating Rate Subordinated Notes due 2031 (the "Subordinated Notes"). The Subordinated Notes mature on June 1, 2031 and bear interest at a fixed annual rate of 3.25%, to June 1, 2026. From June 1, 2026 to maturity or early redemption, the interest rate will reset quarterly to an interest rate per annum equal to the three-month Secured Overnight Financing Rate provided by the Federal Reserve Bank of New York plus 259 basis points. The Corporation is entitled to redeem the Subordinated Notes, in whole or in part, at any time on or after June 1, 2026, and to redeem the Subordinated Notes at any time in whole upon certain other events. Any redemption of the Subordinated Notes will be subject to prior regulatory approval to the extent required.

The Subordinated Notes are not subject to redemption at the option of the holders. The Subordinated Notes are unsecured, subordinated obligations of the Corporation only and are not obligations of, and are not guaranteed by, any subsidiary of the Corporation. The Subordinated Notes rank junior in right to payment to the Corporation's current and future senior indebtedness, including the Senior Notes (described above). The Subordinated Notes are intended to qualify as Tier 2 capital for regulatory capital purposes.

The Subordinated Notes were recorded, net of debt issuance costs of $563,000, at an initial carrying amount of $24,437,000. Debt issuance costs are amortized through June 1, 2026 as an adjustment of the effective interest rate. Amortization of debt issuance costs associated with the Subordinated Notes totaling $28,000 in the third quarter 2023 and $82,000 in the nine-month period ended September 30, 2023, and $27,000 in the third quarter 2022 and $79,000 in the nine-month period ended September 30, 2022, was included in interest expense in the unaudited consolidated statements of income.

At September 30, 2023 and December 31, 2022, the carrying amounts of subordinated debt agreements are as follows:

(In Thousands)	September 30,		December 31,
	2023		2022
Agreements with a par value of $25,000,000; bearing interest at 3.25% with an effective interest rate of 3.74%; maturing in June 2031 and redeemable at par in June 2026	$	24,689	$	24,607
Total carrying value	$	24,689	$	24,607

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STOCK-BASED COMPENSATION PLANS

9 Months Ended

Sep. 30, 2023

STOCK-BASED COMPENSATION PLANS

STOCK-BASED COMPENSATION PLANS

9. STOCK-BASED COMPENSATION PLANS

The Corporation had a Stock Incentive Plan for a selected group of officers and an Independent Directors Stock Incentive Plan. The 2023 restricted stock awards under the Stock Incentive Plan vest ratably over three years, and the 2023 restricted stock issued under the Independent Directors Stock Incentive Plan vests over one year. There were no restricted stock awards granted in the three-month periods ended September 30, 2023 and June 30, 2023. Following is a summary of restricted stock awards granted in the three-month period ended March 31, 2023:

(Dollars in Thousands)		Aggregate
		Grant
		Date
	Number of	Fair
	Shares	Value
1st quarter 2023 awards:
Time-based awards to independent directors	11,000	$	257
Time-based awards to employees	31,684		740
Performance-based awards to employees	11,104		259
Total	53,788	$	1,256

Effective April 20, 2023, the Corporation’s shareholders approved a new plan, the Citizens & Northern Corporation 2023 Equity Incentive Plan (the “2023 Equity Incentive Plan”). New awards to employees and independent directors will be governed under the 2023 Equity Incentive Plan, while outstanding awards under the prior plans (including the awards made in the first quarter 2023) will be governed under the prior plans.

Compensation cost related to restricted stock is recognized based on the fair value of the stock at the grant date over the vesting period, adjusted for estimated and actual forfeitures. Total annual stock-based compensation for the year ending December 31, 2023 is estimated to total $1,340,000. Total stock-based compensation expense attributable to restricted stock awards amounted to $320,000 in the third quarter 2023 and $388,000 in the third quarter 2022. Total stock-based compensation expense attributable to restricted stock awards amount to $1,015,000 in the nine-month period ended September 30, 2023 and $1,169,000 in the nine-month period ended September 30, 2022.

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CONTINGENCIES

9 Months Ended

Sep. 30, 2023

CONTINGENCIES

CONTINGENCIES

10. CONTINGENCIES

In the normal course of business, the Corporation is subject to pending and threatened litigation in which claims for monetary damages are asserted. In management’s opinion, the Corporation’s financial position and results of operations would not be materially affected by the outcome of these legal proceedings.

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DERIVATIVE FINANCIAL INSTRUMENTS

9 Months Ended

Sep. 30, 2023

DERIVATIVE FINANCIAL INSTRUMENTS

DERIVATIVE FINANCIAL INSTRUMENTS

11. DERIVATIVE FINANCIAL INSTRUMENTS

The Corporation is a party to derivative financial instruments. These financial instruments consist of interest rate swap agreements and risk participation agreements (RPAs) which contain master netting and collateral provisions designed to protect the party at risk.

Interest rate swaps with commercial loan banking customers were executed to facilitate their respective risk management strategies. Under the terms of these arrangements, the commercial banking customers effectively exchanged their floating interest rate exposures on loans into fixed interest rate exposures. Those interest rate swaps have been simultaneously economically hedged by offsetting interest rate swaps with a third party, such that the Corporation has effectively exchanged its fixed interest rate exposures for floating rate exposures. These derivatives are not designated as hedges and are not speculative. Rather, these derivatives result from a service provided to certain customers. As the interest rate swaps associated with this program do not meet the hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings.

The aggregate notional amount of interest rate swaps was $152,536,000 at September 30, 2023 and $155,214,000 at December 31, 2022. There were no interest rate swaps originated in the three or nine-month periods ended September 30, 2023 and 2022. There were no gross amounts of interest rate swap-related assets and liabilities not offset in the consolidated balance sheets at September 30, 2023. The net impact on the consolidated statements of income from interest rate swaps was an increase in interest income on loans of $502,000 in the third quarter 2023 and $1,286,000 in the nine-month period ended September 30, 2023 as compared to a reduction in interest income on loans of $4,000 in third quarter 2022 and $541,000 in the nine months ended September 30, 2022.

The Corporation has entered into an RPA with another institution as a means to assume a portion of the credit risk associated with a loan structure which includes a derivative instrument, in exchange for fee income commensurate with the risk assumed.  This type of derivative is referred to as an “RPA In.” In addition, in an effort to reduce the credit risk associated with an interest rate swap agreement with a borrower for whom the Corporation has provided a loan structured with a derivative, the Corporation purchased an RPA from an institution participating in the facility in exchange for a fee commensurate with the risk shared. This type of derivative is referred to as an “RPA Out.”  The net impact on the consolidated statements of income from RPAs was an increase in other noninterest income of $1,000 in the third quarter 2023 and $19,000 in the nine-month period ended September 30, 2023 with no comparable amount in the third quarter 2022 and in the nine months ended September 30, 2022.

The table below presents the fair value of the Corporation’s derivative financial instruments as well as their classification on the consolidated balance sheets at September 30, 2023 and December 31, 2022:

(In Thousands)	At September 30, 2023								At December 31, 2022
	Asset Derivatives				Liability Derivatives				Asset Derivatives				Liability Derivatives
	Notional		Fair		Notional		Fair		Notional		Fair		Notional		Fair
	Amount		Value (1)		Amount		Value (2)		Amount		Value (1)		Amount		Value (2)
Interest rate swap agreements	$	76,268	$	4,545	$	76,268	$	4,545	$	77,607	$	3,638	$	77,607	$	3,638
RPA Out		7,111		6		0		0		7,200		0		0		0
RPA In		0		0		10,000		6		0		0		10,000		19

(1) Included in other assets in the consolidated balance sheets.

(2) Included in accrued interest and other liabilities in the consolidated balance sheets.

The Corporation’s agreements with its derivative counterparties provide that if the Corporation defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Corporation could also be declared in default on its derivative obligations. Further, if the Corporation were to fail to maintain its status as a well or adequately capitalized institution, then the counterparties could terminate the derivative positions and the Corporation would be required to settle its obligations under the agreements. Available-for-sale securities with a carrying value of $2,251,000 were pledged as collateral against the Corporation’s obligations related to the interest rate swaps at September 30, 2023.

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FAIR VALUE MEASUREMENTS AND FAIR VALUES OF FINANCIAL INSTRUMENTS

9 Months Ended

Sep. 30, 2023

FAIR VALUE MEASUREMENTS AND FAIR VALUES OF FINANCIAL INSTRUMENTS

FAIR VALUE MEASUREMENTS AND FAIR VALUES OF FINANCIAL INSTRUMENTS

12. FAIR VALUE MEASUREMENTS AND FAIR VALUES OF FINANCIAL INSTRUMENTS

The Corporation measures certain assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB topic 820, “Fair Value Measurements and Disclosures” establishes a framework for measuring fair value that includes a hierarchy used to classify the inputs used in measuring fair value. The hierarchy prioritizes the inputs used in determining valuations into three levels. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The levels of the fair value hierarchy are as follows:

Level 1 – Fair value is based on unadjusted quoted prices in active markets that are accessible to the Corporation for identical assets or liabilities. These generally provide the most reliable evidence and are used to measure fair value whenever available.

Level 2 – Fair value is based on significant inputs, other than Level 1 inputs, that are observable either directly or indirectly for substantially the full term of the asset or liability through corroboration with observable market data. Level 2 inputs include quoted market prices in active markets for similar assets or liabilities, quoted market prices in markets that are not active for identical or similar assets or liabilities and other observable inputs.

Level 3 – Fair value is based on significant unobservable inputs. Examples of valuation methodologies that would result in Level 3 classification include option pricing models, discounted cash flows and other similar techniques.

The Corporation monitors and evaluates available data relating to fair value measurements on an ongoing basis and recognizes transfers among the levels of the fair value hierarchy as of the date of an event or change in circumstances that affects the valuation method chosen. Examples of such changes may include the market for a particular asset or liability becoming active or inactive, changes in the availability of quoted prices, or changes in the availability of other market data.

At September 30, 2023 and December 31, 2022, assets and liabilities measured at fair value and the valuation methods used are as follows:

	September 30, 2023
	Quoted
	Prices		Other
	in Active		Observable		Unobservable		Total
	Markets		Inputs		Inputs		Fair
(In Thousands)	(Level 1)		(Level 2)		(Level 3)		Value
Recurring fair value measurements, assets:
AVAILABLE-FOR-SALE DEBT SECURITIES:
Obligations of the U.S. Treasury	$	30,557	$	0	$	0	$	30,557
Obligations of U.S. Government agencies		0		18,796		0		18,796
Bank holding company debt securities		0		22,311		0		22,311
Obligations of states and political subdivisions:
Tax-exempt		0		104,453		0		104,453
Taxable		0		53,457		0		53,457
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		0		94,469		0		94,469
Residential collateralized mortgage obligations		0		33,397		0		33,397
Commercial mortgage-backed securities		0		63,672		0		63,672
Private label commercial mortgage-backed securities		0		8,026		0		8,026
Total available-for-sale debt securities		30,557		398,581		0		429,138
Marketable equity security		832		0		0		832
Servicing rights		0		0		2,630		2,630
RPA Out		0		6		0		6
Interest rate swap agreements, assets		0		4,545		0		4,545
Total recurring fair value measurements, assets	$	31,389	$	403,132	$	2,630	$	437,151
Recurring fair value measurements, liabilities,
Interest rate swap agreements, liabilities	$	0	$	4,545	$	0	$	4,545
Nonrecurring fair value measurements, assets:
Loans individually evaluated for credit loss, net	$	0	$	0	$	7,041	$	7,041
Foreclosed assets held for sale		0		0		633		633
Total nonrecurring fair value measurements, assets	$	0	$	0	$	7,674	$	7,674

	December 31, 2022
	Quoted
	Prices		Other
	in Active		Observable		Unobservable		Total
	Markets		Inputs		Inputs		Fair
(In Thousands)	(Level 1)		(Level 2)		(Level 3)		Value
Recurring fair value measurements, assets:
AVAILABLE-FOR-SALE DEBT SECURITIES:
Obligations of the U.S. Treasury	$	31,836	$	0	$	0	$	31,836
Obligations of U.S. Government agencies		0		23,430		0		23,430
Bank holding company debt securities		0		25,386		0		25,386
Obligations of states and political subdivisions:
Tax-exempt		0		132,623		0		132,623
Taxable		0		56,812		0		56,812
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		0		99,941		0		99,941
Residential collateralized mortgage obligations		0		40,296		0		40,296
Commercial mortgage-backed securities		0		79,686		0		79,686
Private label commercial mortgage-backed securities		0		8,023		0		8,023
Total available-for-sale debt securities		31,836		466,197		0		498,033
Marketable equity security		859		0		0		859
Servicing rights		0		0		2,653		2,653
Interest rate swap agreements, assets		0		3,638		0		3,638
Total recurring fair value measurements, assets	$	32,695	$	469,835	$	2,653	$	505,183
Recurring fair value measurements, liabilities,
Interest rate swap agreements, liabilities	$	0	$	3,638	$	0	$	3,638
Nonrecurring fair value measurements, assets:
Impaired loans, net	$	0	$	0	$	3,007	$	3,007
Foreclosed assets held for sale		0		0		275		275
Total nonrecurring fair value measurements, assets	$	0	$	0	$	3,282	$	3,282

Management’s evaluation and selection of valuation techniques and the unobservable inputs used in determining the fair values of assets valued using Level 3 methodologies include sensitive assumptions. Other market participants might use substantially different assumptions, which could result in calculations of fair values that would be substantially different than the amount calculated by management.

At September 30, 2023 and December 31, 2022, quantitative information regarding valuation techniques and the significant unobservable inputs used for assets measured on a recurring basis using unobservable inputs (Level 3 methodologies) are as follows:

	Fair Value at
	9/30/2023		Valuation	Unobservable				Method or Value As of
Asset	(In Thousands)		Technique	Input(s)				9/30/2023
Servicing rights	$	2,630	Discounted cash flow	Discount rate		13.00	%	Rate used through modeling period
				Loan prepayment speeds		129.00	%	Weighted-average PSA
				Servicing fees		0.25	%	of loan balances
						4.00	%	of payments are late
						5.00	%	late fees assessed
					$	1.94		Miscellaneous fees per account per month
				Servicing costs	$	6.00		Monthly servicing cost per account
					$	24.00		Additional monthly servicing cost per loan on loans more than 30 days delinquent
						1.50	%	of loans more than 30 days delinquent
						3.00	%	annual increase in servicing costs

	Fair Value at
	12/31/2022		Valuation	Unobservable				Method or Value As of
Asset	(In Thousands)		Technique	Input(s)				12/31/2022
Servicing rights	$	2,653	Discounted cash flow	Discount rate		13.00	%	Rate used through modeling period
				Loan prepayment speeds		133.00	%	Weighted-average PSA
				Servicing fees		0.25	%	of loan balances
						4.00	%	of payments are late
						5.00	%	late fees assessed
					$	1.94		Miscellaneous fees per account per month
				Servicing costs	$	6.00		Monthly servicing cost per account
					$	24.00		Additional monthly servicing cost per loan on loans more than 30 days delinquent
						1.50	%	of loans more than 30 days delinquent
						3.00	%	annual increase in servicing costs

The fair value of servicing rights is affected by expected future interest rates. Increases (decreases) in future expected interest rates tend to increase (decrease) the fair value of the Corporation’s servicing rights because of changes in expected prepayment behavior by the borrowers on the underlying loans. Unrealized gains (losses) in fair value of servicing rights are included in Loan servicing fees, net, in the unaudited consolidated statements of income.

Following is a reconciliation of activity for Level 3 assets measured at fair value on a recurring basis:

(In Thousands)	Three Months Ended				Nine Months Ended
	September 30, 2023		September 30, 2022		September 30, 2023		September 30, 2022
Servicing rights balance, beginning of period	$	2,607	$	2,640	$	2,653	$	2,329
Originations of servicing rights		64		33		113		192
Unrealized (loss) gain included in earnings		(41)		(24)		(136)		128
Servicing rights balance, end of period	$	2,630	$	2,649	$	2,630	$	2,649

Loans are individually evaluated for credit loss when, based on current information and events, it is probable that the Corporation will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Foreclosed assets held for sale consist of real estate acquired by foreclosure. For individually evaluated commercial loans secured by real estate and foreclosed assets held for sale, estimated fair values are determined primarily using values from third-party appraisals. Appraised values are discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property.

At September 30, 2023 and December 31, 2022, quantitative information regarding valuation techniques and the significant unobservable inputs used for nonrecurring fair value measurements using Level 3 methodologies are as follows:

(Dollars In Thousands)									Weighted
			Valuation						Average
	Balance at		Allowance at		Fair Value at		Valuation	Unobservable	Discount at
Asset	9/30/2023		9/30/2023		9/30/2023		Technique	Inputs	9/30/2023
Loans individually evaluated for credit loss:
Commercial real estate - nonowner occupied	$	7,362	$	664	$	6,698	Sales comparison	Discount to appraised value	25	%
Commercial real estate - owner occupied		303		61		242	Sales comparison & SBA guaranty	Discount to appraised value	57	%
All other commercial loans		196		95		101	Liquidation & SBA guaranty	Discount to appraised value	18	%
Total loans individually evaluated for credit loss	$	7,861	$	820	$	7,041
Foreclosed assets held for sale - real estate:
Residential (1-4 family)	$	202	$	0	$	202	Sales comparison	Discount to appraised value	38	%
Commercial real estate		431		0		431	Sales comparison	Discount to appraised value	45	%
Total foreclosed assets held for sale	$	633	$	0	$	633

(Dollars In Thousands)									Weighted
			Valuation						Average
	Balance at		Allowance at		Fair Value at		Valuation	Unobservable	Discount at
Asset	12/31/2022		12/31/2022		12/31/2022		Technique	Inputs	12/31/2022
Impaired loans:
Commercial:
Commercial loans secured by real estate	$	3,400	$	427	$	2,973	Sales comparison	Discount to appraised value	25	%
Commercial and industrial		60		26		34	Liquidation of assets	Discount to appraised value	33	%
Total impaired loans	$	3,460	$	453	$	3,007
Foreclosed assets held for sale - real estate:
Commercial real estate	$	275	$	0	$	275	Sales comparison	Discount to appraised value	50	%
Total foreclosed assets held for sale	$	275	$	0	$	275

Certain of the Corporation’s financial instruments are not measured at fair value in the consolidated financial statements. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. Certain financial instruments and all nonfinancial instruments are excluded from disclosure requirements. Therefore, the aggregate fair value amounts presented may not represent the underlying fair value of the Corporation.

The estimated fair values, and related carrying amounts, of the Corporation’s financial instruments that are not recorded at fair value are as follows:

(In Thousands)	Fair Value	September 30, 2023				December 31, 2022
	Hierarchy	Carrying		Fair		Carrying		Fair
	Level	Amount		Value		Amount		Value
Financial assets:
Cash and cash equivalents	Level 1	$	48,308	$	48,308	$	47,698	$	47,698
Certificates of deposit	Level 2		4,350		4,033		7,350		6,956
Restricted equity securities (included in other assets)	Level 2		21,062		21,062		14,418		14,418
Loans, net	Level 3		1,812,585		1,732,232		1,723,425		1,674,002
Accrued interest receivable	Level 2		9,311		9,311		8,653		8,653
Financial liabilities:
Deposits with no stated maturity	Level 2		1,603,033		1,603,033		1,702,404		1,702,404
Time deposits	Level 2		421,964		419,686		295,189		293,814
Short-term borrowings	Level 2		23,253		23,253		80,062		80,062
Long-term borrowings	Level 2		125,276		123,056		62,347		60,944
Senior debt	Level 2		14,814		12,870		14,765		9,712
Subordinated debt	Level 2		24,689		20,184		24,607		16,186
Accrued interest payable	Level 2		1,464		1,464		461		461

The Corporation has commitments to extend credit and has issued standby letters of credit. Standby letters of credit are conditional guarantees of performance by a customer to a third party. Estimates of the fair value of these off-balance sheet items were not made because of the short-term nature of these arrangements and the credit standing of the counterparties.

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BASIS OF INTERIM PRESENTATION AND STATUS OF RECENT ACCOUNTING PRONOUNCEMENTS (Policies)

9 Months Ended

Sep. 30, 2023

BASIS OF INTERIM PRESENTATION AND STATUS OF RECENT ACCOUNTING PRONOUNCEMENTS

Recent Accounting Pronouncements - Adopted

Recent Accounting Pronouncements - Adopted

On January 1, 2023, the Corporation adopted ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASC 326). This standard replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. CECL requires an estimate of credit losses for the remaining estimated life of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts and generally applies to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities, and some off-balance sheet credit exposures such as unfunded commitments to extend credit. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses. Purchased credit deteriorated (“PCD”) loans will receive an initial allowance at the acquisition date that represents an adjustment to the amortized cost basis of the loan, with no impact to earnings.

In addition, CECL made changes to the accounting for available for sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available for sale debt securities if management does not intend to sell and does not believe that it is more likely than not, they will be required to sell. The Corporation adopted ASC 326 using the prospective transition approach for debt securities for which other-than-temporary impairment had been recognized prior to January 1, 2023. As of December 31, 2022, the Company did not have any other-than-temporarily impaired investment securities. Therefore, upon adoption of ASC 326, the Company determined that an allowance for credit losses on available for sale debt securities was not necessary.

Effective January 1, 2023, the Corporation adopted ASC 326 using the modified retrospective approach for all financial assets measured at amortized cost and off-balance sheet credit exposures. Results for reporting periods beginning after January 1, 2023 are presented under CECL while prior period amounts continue to be reported in accordance with previously applicable accounting standards (“Incurred Loss”). The following table illustrates the impact from the adoption of ASC 326:

	As Reported
	Under		Pre-ASC 326		Impact of
	ASC 326		Adoption		ASC 326
(In Thousands)	January 1, 2023		December 31, 2022		Adoption
Loans receivable	$	1,740,846	$	1,740,040	$	806
Allowance for credit losses on loans	$	18,719	$	16,615	$	2,104
Allowance for credit losses on off-balance sheet exposures (included in accrued interest and other liabilities)		1,218		425		793
Deferred tax asset, net		21,323		20,884		439
Retained earnings		150,091		151,743		(1,652)

The Corporation adopted ASC 326 using the prospective transition approach for PCD assets that were previously classified as purchased credit impaired (“PCI”) under ASC 310-30. In accordance with the standard, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. On January 1, 2023, the amortized cost basis of PCD assets was adjusted to establish the allowance for credit losses. Essentially all of the PCD loans were reported as nonaccrual loans at January 1, 2023 and September 30, 2023.

ASU 2022-02, Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. This update reduces the complexity of accounting for Troubled Debt Restructurings (“TDRs”) by eliminating certain accounting guidance, enhancing disclosures and improving the consistency of vintage disclosures. The Corporation adopted ASU 2022-02 on January 1, 2023. Changes in disclosure requirements in accordance with ASU 2022-02 are reflected in Note 6. The adoption of ASU 2022-02 did not have a material impact on the consolidated financial statements.

Allowance for Credit Losses - Available-for-Sale Debt Securities

Allowance for Credit Losses – Available-for-Sale Debt Securities

For available-for-sale debt securities, management evaluates all investments in an unrealized loss position on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. If the Corporation has the intent to sell the security or it is more likely than not that the Corporation will be required to sell the security, the security is written down to fair value and the entire loss is recorded in earnings.

If either of the above criteria is not met, the Corporation evaluates whether the decline in fair value is the result of credit losses or other factors. The Corporation has elected the practical expedient of zero credit loss estimates for securities issued or guaranteed by U.S. Government entities or agencies. In making the credit loss assessment of securities not issued or guaranteed by U.S. Government entities or agencies, the Corporation may consider various factors including the extent to which fair value is less than amortized cost, performance on any underlying collateral, downgrades in the ratings of the security by a rating agency, the failure of the issuer to make scheduled interest or principal payments and adverse conditions specifically related to the security. If the assessment indicates that a credit loss exists, the present value of cash flows expected to be collected are compared to the amortized cost basis of the security and any excess is recorded as an allowance for credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any amount of unrealized loss that has not been recorded through an allowance for credit loss is recognized in other comprehensive income (loss).

Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance for credit losses when management believes an available-for-sale debt security is confirmed to be uncollectible or when either of the criteria regarding intent or requirement to sell is met. At September 30, 2023, there was no allowance for credit losses related to the available-for-sale portfolio.

Accrued interest receivable on available-for-sale debt securities totaled $2,688,000 at September 30, 2023 and was excluded from the estimate of credit losses.

Allowance for Credit Losses on Loans

Allowance for Credit Losses on Loans

The allowance for credit losses is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

The allowance for credit losses represents management’s estimate of lifetime credit losses inherent in loans as of the balance sheet date. The allowance for credit losses is estimated by management using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.

Accrued interest receivable on loans totaled $6,590,000 at September 30, 2023 and was excluded from the estimate of credit losses.

The allowance for credit losses (“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).

Evaluation of Expected Losses on Individual Loans

Loans evaluated on an individual basis are identified based on a detailed assessment of certain larger loan relationships, and their related credit risk ratings, by a management committee referred to as the Watch List Committee. The allowance will be determined on an individual basis using the present value of expected cash flows or, for collateral-dependent loans, the fair value of the collateral as of the reporting date, less estimated selling costs, as applicable. If the fair value of the collateral is less than the amortized cost basis of the loan, the Corporation will charge off the difference between the fair value of the collateral, less costs to sell at the reporting date and the amortized cost basis of the loan.

The scope of loans reviewed individually for credit loss each quarter includes all commercial loan relationships greater than $200,000 and any residential mortgage or consumer loans of $400,000 or more for which there is at least one extension of credit graded Special Mention, Substandard or Doubtful. Additionally, all PCD loans are evaluated individually for credit loss.

Collective Evaluation of Expected Losses – Pool Basis

The Corporation measures expected credit losses for loans on a pooled basis when similar risk characteristics exist. The Corporation has identified the following portfolio segments and calculates the allowance for credit losses for each using the weighted-average remaining maturity (“WARM”) method:

Commercial real estate - nonowner occupied, further broken down into the following classes:

Nonowner occupied

Multi-family (5 or more) residential

1-4 Family - commercial purpose

Commercial real estate - owner occupied

All other commercial loans, further broken down into the following classes:

Commercial and industrial

Commercial lines of credit

Political subdivisions

Commercial construction and land

Other commercial loans

Residential mortgage loans, further broken down into the following classes:

1-4 Family – residential

1-4 Family residential construction and land

Consumer loans, further broken down into the following classes:

Consumer lines of credit (including HELOCs)

All other consumer

In determining the pools for collective evaluation, management uses a combination of loan purpose, collateral and payment type (for example, lines of credit vs. amortizing). The pools identified are similar to the loan classes used in the Corporation’s financial reporting for several years, with several exceptions including the following which are of the most significance:

● Commercial real estate secured loans are broken out between non-owner occupied and owner-occupied

● Loans secured by 1-4 family residential mortgages are broken out between consumer-purpose and commercial-purpose

● Commercial lines of credit are broken out as an individual category

Each of these changes was made to better sort loans into pools with similar risk and cash flow characteristics.

Estimation Method - WARM (Weighted-Average Remaining Maturity Method)

In applying the WARM method, for each pool identified above, the Corporation determined the annual net charge-offs as a percentage of average total loan balances (net charge-off percentage). In the January 1, 2023 calculation, the Corporation used the annualized net charge-off percentage over the prior 5 calendar years. In the September 30, 2023 calculation, the Corporation used the net charge-off percentage for the 5.75-year period ended September 30, 2023. For each loan pool, the average annualized net charge-off percentage was multiplied by the estimated weighted-average remaining average life of the loans to calculate the loss rate.

The calculation of the estimated weighted-average remaining life of each loan pool was based on instrument-level data, with contractual principal payments adjusted for the estimated impact of prepayments. Commercial lines of credit and other revolving credit facilities were generally assumed to be repaid after 1 year. The estimated weighted-average remaining life of the entire portfolio was calculated to be 4.16 years at September 30, 2023 and 4.36 years at January 1, 2023. Management determined that use of the Corporation’s net charge-off experience over a 5.75-year period at September 30, 2023 and 5-year period at January 1, 2023 would provide a reasonable time period to include in the WARM expected loss rate calculations in relationship to the weighted-average life of the portfolio overall and to each of the pools.

Qualitative Factors

The allowance for credit losses calculation includes subjective adjustments for qualitative risk factors that are deemed likely to cause estimated credit losses to differ from historical experience. These qualitative adjustments generally increase allowance levels and include adjustments for factors deemed relevant, including: the nature and volume of portfolio changes, including loan portfolio growth; concentrations of credit based on loan type (such as non-owner occupied commercial real estate) or industry; the volume and severity of past due, nonaccrual or adversely classified loans; trends in real estate or other collateral values; lending policies and procedures, including changes in underwriting and collections practices; credit review function; lending, credit and other relevant management experience and risk tolerance; external factors and economic conditions not already captured.

Economic Forecast

ASC Topic 326 requires management to consider forward-looking information that is both reasonable and supportable and relevant to the collectability of cash flows. Reasonable and supportable forecasts may extend over the entire contractual term of a financial asset or a period shorter than the contractual term. In that regard, management has selected a forecast period of 2 years, which is shorter than the estimated weighted-average remaining life of the loan portfolio.

The Corporation calculated an additional expected credit loss based on establishing a correlation between past loss experience and an economic statistic. This additional credit loss is added to the allowance calculation, conceptually for the first 2 years of the weighted-average remaining life of the portfolio after which time the credit loss for each pool is determined based on the WARM historical loss rate as adjusted for qualitative factors.

Allowance for Credit Losses on Off-Balance Sheet Exposures

Allowance for Credit Losses on Off-Balance Sheet Exposures

Financial instruments include off-balance sheet credit instruments, such as commitments to make loans, commercial letters of credit and credit enhancement obligations related to residential mortgage loans sold with recourse. The Corporation’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded.

The Corporation records an allowance for credit losses on off-balance sheet credit exposures, unless the commitments to extend credit are unconditionally cancelable, through a charge to provision for unfunded commitments in the Corporation’s statements of income. The allowance for credit losses on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date under the current expected credit loss model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur as well as any third-party guarantees. The allowance for off-balance sheet exposures is included in accrued interest and other liabilities in the Corporation’s unaudited consolidated balance sheets and the related credit expense is recorded in the provision for credit losses in the unaudited consolidated statements of income.

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BASIS OF INTERIM PRESENTATION AND STATUS OF RECENT ACCOUNTING PRONOUNCEMENTS (Tables)

9 Months Ended

Sep. 30, 2023

BASIS OF INTERIM PRESENTATION AND STATUS OF RECENT ACCOUNTING PRONOUNCEMENTS

Schedule of impact on the allowance for credit losses from the adoption of ASC 326

	As Reported
	Under		Pre-ASC 326		Impact of
	ASC 326		Adoption		ASC 326
(In Thousands)	January 1, 2023		December 31, 2022		Adoption
Loans receivable	$	1,740,846	$	1,740,040	$	806
Allowance for credit losses on loans	$	18,719	$	16,615	$	2,104
Allowance for credit losses on off-balance sheet exposures (included in accrued interest and other liabilities)		1,218		425		793
Deferred tax asset, net		21,323		20,884		439
Retained earnings		150,091		151,743		(1,652)

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PER SHARE DATA (Tables)

9 Months Ended

Sep. 30, 2023

PER SHARE DATA

Schedule of Basic and Diluted earnings per share

(In Thousands, Except Share and Per Share Data)	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
	2023		2022		2023		2022
Basic
Net income	$	7,591	$	4,455	$	19,887	$	18,839
Less: Dividends and undistributed earnings allocated to participating securities		(57)		(39)		(156)		(169)
Net income attributable to common shares	$	7,534	$	4,416	$	19,731	$	18,670
Basic weighted-average common shares outstanding		15,154,797		15,364,075		15,264,391		15,482,672
Basic earnings per common share (a)	$	0.50	$	0.29	$	1.29	$	1.21
Diluted
Net income attributable to common shares	$	7,534	$	4,416	$	19,731	$	18,670
Basic weighted-average common shares outstanding		15,154,797		15,364,075		15,264,391		15,482,672
Dilutive effect of potential common stock arising from stock options		0		3,114		4		3,276
Diluted weighted-average common shares outstanding		15,154,797		15,367,189		15,264,395		15,485,948
Diluted earnings per common share (a)	$	0.50	$	0.29	$	1.29	$	1.21
Weighted-average nonvested restricted shares outstanding		113,328		136,040		120,632		139,761

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

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COMPREHENSIVE INCOME (LOSS) (Tables)

9 Months Ended

Sep. 30, 2023

COMPREHENSIVE INCOME (LOSS)

Schedule of the components of other comprehensive income (loss), and the related tax effects

(In Thousands)	Before-Tax		Income Tax		Net-of-Tax
	Amount		Effect		Amount
Three Months Ended September 30, 2023
Available-for-sale debt securities:
Unrealized holding losses on available-for-sale debt securities	$	(14,865)	$	3,123	$	(11,742)
Reclassification adjustment for gains realized in income		0		0		0
Other comprehensive loss from available-for-sale debt securities		(14,865)		3,123		(11,742)
Unfunded pension and postretirement obligations:
Amortization of prior service cost and net actuarial loss included in net periodic benefit cost		(14)		3		(11)
Other comprehensive loss on unfunded retirement obligations		(14)		3		(11)
Total other comprehensive loss	$	(14,879)	$	3,126	$	(11,753)

(In Thousands)	Before-Tax		Income Tax		Net-of-Tax
	Amount		Effect		Amount
Three Months Ended September 30, 2022
Available-for-sale debt securities:
Unrealized holding losses on available-for-sale debt securities	$	(25,880)	$	5,437	$	(20,443)
Reclassification adjustment for (gains) realized in income		(20)		4		(16)
Other comprehensive loss from available-for-sale debt securities		(25,900)		5,441		(20,459)
Unfunded pension and postretirement obligations:
Amortization of prior service cost and net actuarial loss included in net periodic benefit cost		(9)		1		(8)
Other comprehensive loss on unfunded retirement obligations		(9)		1		(8)
Total other comprehensive loss	$	(25,909)	$	5,442	$	(20,467)

(In Thousands)	Before-Tax		Income Tax		Net-of-Tax
	Amount		Effect		Amount
Nine Months Ended September 30, 2023
Available-for-sale debt securities:
Unrealized holding losses on available-for-sale debt securities	$	(12,535)	$	2,632	$	(9,903)
Reclassification adjustment for (gains) realized in income		(6)		1		(5)
Other comprehensive loss from available-for-sale debt securities		(12,541)		2,633		(9,908)
Unfunded pension and postretirement obligations:
Changes from plan amendments and actuarial gains and losses		(8)		1		(7)
Amortization of prior service cost and net actuarial loss included in net periodic benefit cost		(42)		9		(33)
Other comprehensive loss on unfunded retirement obligations		(50)		10		(40)
Total other comprehensive loss	$	(12,591)	$	2,643	$	(9,948)

(In Thousands)	Before-Tax		Income Tax		Net-of-Tax
	Amount		Effect		Amount
Nine Months Ended September 30, 2022
Available-for-sale debt securities:
Unrealized holding losses on available-for-sale debt securities	$	(77,923)	$	16,365	$	(61,558)
Reclassification adjustment for (gains) realized in income		(21)		4		(17)
Other comprehensive loss from available-for-sale debt securities		(77,944)		16,369		(61,575)
Unfunded pension and postretirement obligations:
Changes from plan amendments and actuarial gains and losses		133		(27)		106
Amortization of prior service cost and net actuarial loss included in net periodic benefit cost		(31)		5		(26)
Other comprehensive income on unfunded retirement obligations		102		(22)		80
Total other comprehensive loss	$	(77,842)	$	16,347	$	(61,495)

Schedule of components of other comprehensive income (loss) and affected line item in the consolidated statements of income

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

Schedule of changes in the components of accumulated other comprehensive income (loss)

(In Thousands)	Unrealized				Accumulated
	(Losses)		Unfunded		Other
	Gains		Retirement		Comprehensive
	on Securities		Obligations		(Loss) Income
Three Months Ended September 30, 2023
Balance, beginning of period	$	(48,536)		463	$	(48,073)
Other comprehensive loss during three months ended September 30, 2023		(11,742)		(11)		(11,753)
Balance, end of period	$	(60,278)	$	452	$	(59,826)
Three Months Ended September 30, 2022
Balance, beginning of period	$	(36,307)	$	305	$	(36,002)
Other comprehensive loss during three months ended September 30, 2022		(20,459)		(8)		(20,467)
Balance, end of period	$	(56,766)	$	297	$	(56,469)

(In Thousands)	Unrealized				Accumulated
	(Losses)		Unfunded		Other
	Gains		Retirement		Comprehensive
	on Securities		Obligations		(Loss) Income
Nine Months Ended September 30, 2023
Balance, beginning of period	$	(50,370)	$	492	$	(49,878)
Other comprehensive loss during nine months ended September 30, 2023		(9,908)		(40)		(9,948)
Balance, end of period	$	(60,278)	$	452	$	(59,826)
Nine Months Ended September 30, 2022
Balance, beginning of period	$	4,809	$	217	$	5,026
Other comprehensive loss during nine months ended September 30, 2022		(61,575)		80		(61,495)
Balance, end of period	$	(56,766)	$	297	$	(56,469)

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CASH AND DUE FROM BANKS (Tables)

9 Months Ended

Sep. 30, 2023

CASH AND DUE FROM BANKS

Schedule of cash and due from banks

(In Thousands)	September 30,		December 31,
	2023		2022
Cash and cash equivalents	$	48,308	$	47,698
Certificates of deposit		4,350		7,350
Total cash and due from banks	$	52,658	$	55,048

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SECURITIES (Tables)

9 Months Ended

Sep. 30, 2023

SECURITIES

Schedule of amortized cost and fair value of available-for-sale debt securities

(In Thousands)	September 30, 2023
			Gross		Gross
			Unrealized		Unrealized
	Amortized		Holding		Holding		Fair
	Cost		Gains		Losses		Value
Obligations of the U.S. Treasury	$	33,938	$	0	$	(3,381)	$	30,557
Obligations of U.S. Government agencies		21,372		0		(2,576)		18,796
Bank holding company debt securities		28,950		0		(6,639)		22,311
Obligations of states and political subdivisions:
Tax-exempt		123,598		114		(19,259)		104,453
Taxable		65,408		0		(11,951)		53,457
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		109,102		0		(14,633)		94,469
Residential collateralized mortgage obligations		38,267		0		(4,870)		33,397
Commercial mortgage-backed securities		76,627		0		(12,955)		63,672
Private label commercial mortgage-backed securities		8,178		0		(152)		8,026
Total available-for-sale debt securities	$	505,440	$	114	$	(76,416)	$	429,138

(In Thousands)	December 31, 2022
			Gross		Gross
			Unrealized		Unrealized
	Amortized		Holding		Holding		Fair
	Cost		Gains		Losses		Value
Obligations of the U.S. Treasury	$	35,166	$	0	$	(3,330)	$	31,836
Obligations of U.S. Government agencies		25,938		0		(2,508)		23,430
Bank holding company debt securities		28,945		0		(3,559)		25,386
Obligations of states and political subdivisions:
Tax-exempt		146,149		319		(13,845)		132,623
Taxable		68,488		0		(11,676)		56,812
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		112,782		0		(12,841)		99,941
Residential collateralized mortgage obligations		44,868		0		(4,572)		40,296
Commercial mortgage-backed securities		91,388		0		(11,702)		79,686
Private label commercial mortgage-backed securities		8,070		2		(49)		8,023
Total available-for-sale debt securities	$	561,794	$	321	$	(64,082)	$	498,033

Schedule of gross unrealized losses and fair value of available-for-sale debt securities

September 30, 2023	Less Than 12 Months				12 Months or More				Total
(In Thousands)	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
Obligations of the U.S. Treasury	$	0		0	$	30,557		(3,381)	$	30,557	$	(3,381)
Obligations of U.S. Government agencies		1,850		(8)		16,946		(2,568)		18,796		(2,576)
Bank holding company debt securities		0		0		22,311		(6,639)		22,311		(6,639)
Obligations of states and political subdivisions:
Tax-exempt		4,172		(268)		96,600		(18,991)		100,772		(19,259)
Taxable		0		0		53,457		(11,951)		53,457		(11,951)
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		9,304		(412)		83,619		(14,221)		92,923		(14,633)
Residential collateralized mortgage obligations		2,662		(130)		30,735		(4,740)		33,397		(4,870)
Commercial mortgage-backed securities		2,211		(130)		61,461		(12,825)		63,672		(12,955)
Private label commercial mortgage-backed securities		8,026		(152)		0		0		8,026		(152)
Total temporarily impaired available-for-sale debt securities	$	28,225	$	(1,100)	$	395,686	$	(75,316)	$	423,911	$	(76,416)

December 31, 2022	Less Than 12 Months				12 Months or More				Total
(In Thousands)	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
Obligations of the U.S. Treasury	$	20,192	$	(1,939)	$	11,644	$	(1,391)	$	31,836	$	(3,330)
Obligations of U.S. Government agencies		8,509		(430)		12,921		(2,078)		21,430		(2,508)
Bank holding company debt securities		14,248		(1,697)		11,138		(1,862)		25,386		(3,559)
Obligations of states and political subdivisions:
Tax-exempt		106,204		(11,023)		15,153		(2,822)		121,357		(13,845)
Taxable		28,901		(4,739)		27,761		(6,937)		56,662		(11,676)
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		45,410		(4,226)		54,531		(8,615)		99,941		(12,841)
Residential collateralized mortgage obligations		28,670		(2,042)		11,626		(2,530)		40,296		(4,572)
Commercial mortgage-backed securities		40,408		(2,585)		39,278		(9,117)		79,686		(11,702)
Private label commercial mortgage-backed securities		4,762		(49)		0		0		4,762		(49)
Total temporarily impaired available-for-sale debt securities	$	297,304	$	(28,730)	$	184,052	$	(35,352)	$	481,356	$	(64,082)

Schedule of gross realized gains and losses from available-for-sale

(In Thousands)	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
	2023		2022		2023		2022
Gross realized gains from sales	$	0	$	44	$	89	$	48
Gross realized losses from sales		0		(24)		(83)		(27)
Net realized gains	$	0	$	20	$	6	$	21

Schedule of the amortized cost and fair value of available-for-sale debt securities by contractual maturity

(In Thousands)	September 30, 2023
	Amortized		Fair
	Cost		Value
Due in one year or less	$	10,899	$	10,672
Due from one year through five years		70,095		64,235
Due from five years through ten years		80,423		66,554
Due after ten years		111,849		88,113
Sub-total		273,266		229,574
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		109,102		94,469
Residential collateralized mortgage obligations		38,267		33,397
Commercial mortgage-backed securities		76,627		63,672
Private label commercial mortgage-backed securities		8,178		8,026
Total	$	505,440	$	429,138

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LOANS AND ALLOWANCE FOR CREDIT LOSSES (Tables)

9 Months Ended

Sep. 30, 2023

LOANS AND ALLOWANCE FOR CREDIT LOSSES

Summary of loans outstanding

Summary of Loans by Type

(In Thousands)

	September 30,		December 31,
	2023		2022 (1)
Commercial real estate - non-owner occupied	$	737,287	$	675,597
Commercial real estate - owner occupied		231,112		205,910
All other commercial loans		395,703		410,077
Residential mortgage loans		410,013		393,582
Consumer loans		56,555		54,874
Total		1,830,670		1,740,040
Less: allowance for credit losses on loans		(18,085)		(16,615)
Loans, net	$	1,812,585	$	1,723,425

(1) Total loans at December 31, 2022 include purchased credit impaired loans of $1,027,000.

Schedule of adjustments to the initial market rate and credit fair value adjustments recognized

(In Thousands)	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
	2023		2022		2023		2022
Market Rate Adjustment
Adjustments to gross amortized cost of loans at beginning of period	$	(1,000)	$	(866)	$	(916)	$	(637)
(Amortization) accretion recognized in interest income		(16)		5		(100)		(224)
Adjustments to gross amortized cost of loans at end of period	$	(1,016)	$	(861)	$	(1,016)	$	(861)
Credit Adjustment on Non-impaired Loans
Adjustments to gross amortized cost of loans at beginning of period	$	(1,446)	$	(2,403)	$	(1,840)	$	(3,335)
Accretion recognized in interest income		147		308		541		1,240
Adjustments to gross amortized cost of loans at end of period	$	(1,299)	$	(2,095)	$	(1,299)	$	(2,095)

Summary of the past due loans

(In Thousands)	As of September 30, 2023
	Past Due		Past Due
	30-89		90+		Nonaccrual		Current		Total
	Days		Days		Loans		Loans		Loans
Commercial real estate - non-owner occupied	$	4	$	132	$	9,031	$	728,120	$	737,287
Commercial real estate - owner occupied		151		0		1,586		229,375		231,112
All other commercial loans		1,438		162		1,390		392,713		395,703
Residential mortgage loans		1,569		892		3,244		404,308		410,013
Consumer loans		513		106		250		55,686		56,555
Total	$	3,675	$	1,292	$	15,501	$	1,810,202	$	1,830,670

The following table presents an analysis of past due loans as of December 31, 2022:

(In Thousands)	As of December 31, 2022
	Past Due		Past Due
	30-89		90+		Nonaccrual		Current		Total
	Days		Days		Loans		Loans		Loans
Commercial real estate - non-owner occupied	$	644	$	947	$	6,350	$	667,656	$	675,597
Commercial real estate - owner occupied		723		141		19		204,099		204,982
All other commercial loans		537		151		11,528		397,762		409,978
Residential mortgage loans		4,540		866		3,974		384,202		393,582
Consumer loans		635		132		187		53,920		54,874
Purchased credit impaired		0		0		1,027		0		1,027
Total	$	7,079	$	2,237	$	23,085	$	1,707,639	$	1,740,040

Schedule of aggregate credit quality classification of outstanding loans by risk

(In Thousands)	Term Loans by Year of Origination
	2023		2022		2021		2020		2019		Prior		Revolving		Total
Commercial real estate - non-owner occupied
Pass	$	83,002	$	188,426	$	91,246	$	55,618	$	80,858	$	211,778	$	0	$	710,928
Special Mention		0		0		2,475		0		119		8,147		0		10,741
Substandard		0		0		0		2,577		610		12,431		0		15,618
Doubtful		0		0		0		0		0		0		0		0
Total commercial real estate - non-owner occupied	$	83,002	$	188,426	$	93,721	$	58,195	$	81,587	$	232,356	$	0	$	737,287
Year-to-date gross charge-offs	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Commercial real estate - owner occupied
Pass	$	28,058	$	37,306	$	52,680	$	13,245	$	17,722	$	75,113	$	0	$	224,124
Special Mention		0		0		2,617		0		0		1,301		0		3,918
Substandard		0		0		0		0		0		3,070		0		3,070
Doubtful		0		0		0		0		0		0		0		0
Total commercial real estate - owner occupied	$	28,058	$	37,306	$	55,297	$	13,245	$	17,722	$	79,484	$	0	$	231,112
Year-to-date gross charge-offs	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
All other commercial loans
Pass	$	39,638	$	94,942	$	53,556	$	29,097	$	17,364	$	25,489	$	112,698	$	372,784
Special Mention		0		0		4,642		0		0		805		400		5,847
Substandard		0		3,091		1,250		435		2,151		1,121		9,024		17,072
Doubtful		0		0		0		0		0		0		0		0
Total all other commercial loans	$	39,638	$	98,033	$	59,448	$	29,532	$	19,515	$	27,415	$	122,122	$	395,703
Year-to-date gross charge-offs	$	0	$	0	$	0	$	0	$	0	$	0	$	12	$	12
Residential mortgage loans
Pass	$	44,449	$	88,378	$	57,166	$	40,943	$	33,257	$	140,684	$	0	$	404,877
Special Mention		0		0		0		0		0		0		0		0
Substandard		0		0		0		289		369		4,478		0		5,136
Doubtful		0		0		0		0		0		0		0		0
Total residential mortgage loans	$	44,449	$	88,378	$	57,166	$	41,232	$	33,626	$	145,162	$	0	$	410,013
Year-to-date gross charge-offs	$	0	$	0	$	0	$	0	$	0	$	33	$	0	$	33
Consumer loans
Pass	$	5,216	$	5,070	$	2,227	$	1,372	$	238	$	991	$	40,512	$	55,626
Special Mention		0		0		0		0		0		0		0		0
Substandard		0		0		1		12		5		78		833		929
Doubtful		0		0		0		0		0		0		0		0
Total consumer loans	$	5,216	$	5,070	$	2,228	$	1,384	$	243	$	1,069	$	41,345	$	56,555
Year-to-date gross charge-offs	$	0	$	134	$	0	$	18	$	3	$	3	$	96	$	254

The following table presents the recorded investment in loans by credit quality indicators as of December 31, 2022:

			Special
(In Thousands)	Pass		Mention		Substandard		Doubtful		Total
Commercial real estate - non-owner occupied	$	654,430	$	9,486	$	11,681	$	0	$	675,597
Commercial real estate - owner occupied		202,702		1,909		371		0		204,982
All other commercial loans		383,846		2,516		23,616		0		409,978
Residential mortgage loans		387,944		0		5,638		0		393,582
Consumer loans		54,353		0		521		0		54,874
Purchased credit impaired		0		0		1,027		0		1,027
Total	$	1,683,275	$	13,911	$	42,854	$	0	$	1,740,040

Schedule of nonaccrual loans by major categories for the periods

	September 30, 2023						December 31, 2022
	Nonaccrual Loans with		Nonaccrual Loans		Total Nonaccrual
(In Thousands)	No Allowance		with an Allowance		Loans		Nonaccrual Loans
Commercial real estate - non-owner occupied	$	1,669	$	7,362	$	9,031	$	6,350
Commercial real estate - owner occupied		1,283		303		1,586		19
All other commercial loans		1,194		196		1,390		11,528
Residential mortgage loans		3,244		0		3,244		3,974
Consumer loans		250		0		250		187
Purchased credit impaired		0		0		0		1,027
Total	$	7,640	$	7,861	$	15,501	$	23,085

Schedule of accrued Interest receivables written off

	Three Months Ended		Nine Months Ended
(In Thousands)	September 30, 2023		September 30, 2023
Commercial real estate - non-owner occupied	$	22	$	48
Residential mortgage loans		11		17
Consumer loans		0		2
Total	$	33	$	67

Schedule of collateral dependent loans

	September 30, 2023
	Amortized
(In Thousands)	Cost		Allowance
Commercial real estate - non-owner occupied	$	9,031	$	664
Commercial real estate - owner occupied		1,586		61
All other commercial loans		1,390		95
Total	$	12,007	$	820

Schedule of transactions within the allowance for loan losses

	Commercial		Commercial		All
	real estate -		real estate -		other		Residential
	nonowner		owner		commercial		mortgage		Consumer
(In Thousands)	occupied		occupied		loans		loans		loans		Unallocated		Total
Balance, June 30, 2023	$	10,603	$	2,025	$	3,686	$	2,464	$	278	$	0	$	19,056
Charge-offs		0		0		(7)		0		(91)		0		(98)
Recoveries		0		0		34		8		18		0		60
(Credit) provision for credit losses on loans		(268)		(161)		(161)		(479)		136		0		(933)
Balance, September 30, 2023	$	10,335	$	1,864	$	3,552	$	1,993	$	341	$	0	$	18,085

	Commercial		Commercial		All
	real estate -		real estate -		other		Residential
	nonowner		owner		commercial		mortgage		Consumer
(In Thousands)	occupied		occupied		loans		loans		loans		Unallocated		Total
Balance, December 31, 2022	$	6,305	$	1,942	$	4,142	$	2,751	$	475	$	1,000	$	16,615
Adoption of ASU 2016-13 (CECL)		3,763		7		(88)		(344)		(234)		(1,000)		2,104
Charge-offs		0		0		(12)		(33)		(254)		0		(299)
Recoveries		0		0		34		10		30		0		74
(Credit) provision for credit losses on loans		267		(85)		(524)		(391)		324		0		(409)
Balance, September 30, 2023	$	10,335	$	1,864	$	3,552	$	1,993	$	341	$	0	$	18,085

Three Months Ended September 30, 2022	June 30, 2022								September 30, 2022
(In Thousands)	Balance		Charge-offs		Recoveries		Provision (Credit)		Balance
Allowance for Loan Losses:
Commercial:
Commercial loans secured by real estate	$	4,982	$	(2,160)	$	0	$	3,225	$	6,047
Commercial and industrial		2,792		0		0		31		2,823
Commercial construction and land		515		0		0		169		684
Loans secured by farmland		112		0		0		1		113
Multi-family (5 or more) residential		339		0		0		88		427
Agricultural loans		23		0		0		(1)		22
Other commercial loans		131		0		0		(9)		122
Total commercial		8,894		(2,160)		0		3,504		10,238
Residential mortgage:
Residential mortgage loans - first liens		3,689		0		1		229		3,919
Residential mortgage loans - junior liens		180		0		0		14		194
Home equity lines of credit		308		0		0		25		333
1-4 Family residential construction		215		0		0		36		251
Total residential mortgage		4,392		0		1		304		4,697
Consumer		261		(36)		24		(14)		235
Unallocated		1,000		0		0		0		1,000
Total Allowance for Loan Losses	$	14,547	$	(2,196)	$	25	$	3,794	$	16,170

Nine Months Ended September 30, 2022	December 31, 2021								September 30, 2022
(In Thousands)	Balance		Charge-offs		Recoveries		Provision (Credit)		Balance
Allowance for Loan Losses:
Commercial:
Commercial loans secured by real estate	$	4,405	$	(2,160)	$	0	$	3,802	$	6,047
Commercial and industrial		2,723		(150)		0		250		2,823
Commercial construction and land		637		0		0		47		684
Loans secured by farmland		115		0		0		(2)		113
Multi-family (5 or more) residential		215		0		0		212		427
Agricultural loans		25		0		0		(3)		22
Other commercial loans		173		0		0		(51)		122
Total commercial		8,293		(2,310)		0		4,255		10,238
Residential mortgage:
Residential mortgage loans - first liens		3,650		0		3		266		3,919
Residential mortgage loans - junior liens		184		0		0		10		194
Home equity lines of credit		302		0		15		16		333
1-4 Family residential construction		202		0		0		49		251
Total residential mortgage		4,338		0		18		341		4,697
Consumer		235		(107)		39		68		235
Unallocated		671		0		0		329		1,000
Total Allowance for Loan Losses	$	13,537	$	(2,417)	$	57	$	4,993	$	16,170

Summary of loan balances and the related allowance for loan losses

December 31, 2022	Loans:						Allowance for Loan Losses:
(In Thousands)
	Individually		Collectively				Individually		Collectively
	Evaluated		Evaluated		Totals		Evaluated		Evaluated		Totals
Commercial:
Commercial loans secured by real estate	$	7,154	$	675,095	$	682,249	$	427	$	6,647	$	7,074
Commercial and industrial		11,223		167,048		178,271		26		2,883		2,909
Paycheck Protection Program - 1st Draw		0		5		5		0		0		0
Paycheck Protection Program - 2nd Draw		0		163		163		0		0		0
Political subdivisions		0		90,719		90,719		0		0		0
Commercial construction and land		244		73,719		73,963		0		647		647
Loans secured by farmland		76		12,874		12,950		0		112		112
Multi-family (5 or more) residential		0		55,886		55,886		0		411		411
Agricultural loans		57		2,378		2,435		0		21		21
Other commercial loans		0		14,857		14,857		0		124		124
Total commercial		18,754		1,092,744		1,111,498		453		10,845		11,298
Residential mortgage:
Residential mortgage loans - first liens		506		509,276		509,782		0		3,413		3,413
Residential mortgage loans - junior liens		30		24,919		24,949		0		167		167
Home equity lines of credit		68		43,730		43,798		0		282		282
1-4 Family residential construction		0		30,577		30,577		0		211		211
Total residential mortgage		604		608,502		609,106		0		4,073		4,073
Consumer		0		19,436		19,436		0		244		244
Unallocated												1,000
Total	$	19,358	$	1,720,682	$	1,740,040	$	453	$	15,162	$	16,615

Summary of information related to impaired loans

(In Thousands)	December 31, 2022
	Unpaid
	Principal		Recorded		Related
	Balance		Investment		Allowance
With no related allowance recorded:
Commercial loans secured by real estate	$	8,563	$	3,754	$	0
Commercial and industrial		12,926		11,163		0
Residential mortgage loans - first liens		506		506		0
Residential mortgage loans - junior liens		68		30		0
Home equity lines of credit		68		68		0
Loans secured by farmland		76		76		0
Agricultural loans		57		57		0
Construction and other land loans		244		244		0
Total with no related allowance recorded		22,508		15,898		0
With a related allowance recorded:
Commercial loans secured by real estate		3,400		3,400		427
Commercial and industrial		60		60		26
Total with a related allowance recorded		3,460		3,460		453
Total	$	25,968	$	19,358	$	453

Schedule of average balance of impaired loans and interest income recognized on impaired loans

(In Thousands)					Interest Income Recognized on
	Average Investment in Impaired Loans				Impaired Loans on a Cash Basis
	Three Months Ended		Nine Months Ended		Three Months Ended		Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
	2022		2022		2022		2022
Commercial:
Commercial loans secured by real estate	$	9,710	$	9,804	$	143	$	483
Commercial and industrial		371		839		4		207
Commercial construction and land		47		47		0		1
Loans secured by farmland		79		81		0		0
Multi-family (5 or more) residential		0		263		0		1,156
Agricultural loans		59		61		0		2
Total commercial		10,266		11,095		147		1,849
Residential mortgage:
Residential mortgage loans - first lien		612		587		5		17
Residential mortgage loans - junior lien		31		33		0		6
Home equity lines of credit		68		34		1		3
Total residential mortgage		711		654		6		26
Total	$	10,977	$	11,749	$	153	$	1,875

Schedule of carrying amount of foreclosed residential real estate properties

(In Thousands)	September 30,		December 31,
	2023		2022
Foreclosed residential real estate	$	202	$	0

Schedule of mortgage loans secured by residential real properties

(In Thousands)	September 30,		December 31,
	2023		2022
Residential real estate in process of foreclosure	$	1,049	$	1,229

Schedule of Off-Balance-Sheet

	Three Months		Nine Months
	Ended		Ended
(In Thousands)	September 30, 2023		September 30, 2023
Beginning Balance	$	1,154	$	425
Adjustment to allowance for off-balance sheet exposures for adoption of ASU 2016-13		0		793
Recoveries		38		38
Credit for unfunded commitments		(292)		(356)
Balance, September 30, 2023	$	900	$	900

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GOODWILL AND OTHER INTANGIBLE ASSETS (Tables)

9 Months Ended

Sep. 30, 2023

GOODWILL AND OTHER INTANGIBLE ASSETS

Schedule of core deposit intangibles

(In Thousands)	September 30,		December 31,
	2023		2022
Gross amount	$	6,639	$	6,639
Accumulated amortization		(4,068)		(3,762)
Net	$	2,571	$	2,877

Schedule of amortization expense related to core deposit intangibles is included in other noninterest expense in the consolidated statements of income

(In Thousands)	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
	2023		2022		2023		2022
Amortization expense	$	102	$	110	$	306	$	329

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BORROWED FUNDS (Tables)

9 Months Ended

Sep. 30, 2023

BORROWED FUNDS

Schedule of short term borrowings

(In Thousands)	September 30,		December 31,
	2023		2022
FHLB-Pittsburgh borrowings	$	21,500	$	77,000
Customer repurchase agreements		1,753		3,062
Total short-term borrowings	$	23,253	$	80,062

Schedule of long term borrowings

(In Thousands)	September 30,		December 31,
	2023		2022
Loan maturing in 2023 with a rate of 3.25%	$	2,290	$	9,303
Loans maturing in 2024 with a weighted-average rate of 2.89%		29,784		29,813
Loans maturing in 2025 with a weighted-average rate of 4.12%		35,653		23,231
Loans maturing in 2026 with a weighted-average rate of 4.44%		31,518		0
Loans maturing in 2027 with a weighted-average rate of 4.00%		24,031		0
Loan maturing in 2028 with a rate of 3.72%		2,000		0
Total long-term FHLB-Pittsburgh borrowings	$	125,276	$	62,347

Senior Notes with an aggregate par value of $15,000,000; bearing interest at 2.75% with an effective interest rate of 3.23%; maturing in June 2026

BORROWED FUNDS

Schedule of outstanding debt

(In Thousands)	September 30,		December 31,
	2023		2022
Senior Notes with an aggregate par value of $15,000,000; bearing interest at 2.75% with an effective interest rate of 3.23%; maturing in June 2026	$	14,814	$	14,765
Total carrying value	$	14,814	$	14,765

3.25% maturing in June 2031 and redeemable at par in June 2026

BORROWED FUNDS

Schedule of outstanding debt

(In Thousands)	September 30,		December 31,
	2023		2022
Agreements with a par value of $25,000,000; bearing interest at 3.25% with an effective interest rate of 3.74%; maturing in June 2031 and redeemable at par in June 2026	$	24,689	$	24,607
Total carrying value	$	24,689	$	24,607

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STOCK-BASED COMPENSATION PLANS (Tables)

9 Months Ended

Sep. 30, 2023

STOCK-BASED COMPENSATION PLANS

Summary of restricted stock awards granted

(Dollars in Thousands)		Aggregate
		Grant
		Date
	Number of	Fair
	Shares	Value
1st quarter 2023 awards:
Time-based awards to independent directors	11,000	$	257
Time-based awards to employees	31,684		740
Performance-based awards to employees	11,104		259
Total	53,788	$	1,256

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DERIVATIVE FINANCIAL INSTRUMENTS (Tables)

9 Months Ended

Sep. 30, 2023

DERIVATIVE FINANCIAL INSTRUMENTS

Summary of fair value of the Corporation's derivative financial instruments as well as their classification on the consolidated balance sheet

(In Thousands)	At September 30, 2023								At December 31, 2022
	Asset Derivatives				Liability Derivatives				Asset Derivatives				Liability Derivatives
	Notional		Fair		Notional		Fair		Notional		Fair		Notional		Fair
	Amount		Value (1)		Amount		Value (2)		Amount		Value (1)		Amount		Value (2)
Interest rate swap agreements	$	76,268	$	4,545	$	76,268	$	4,545	$	77,607	$	3,638	$	77,607	$	3,638
RPA Out		7,111		6		0		0		7,200		0		0		0
RPA In		0		0		10,000		6		0		0		10,000		19

(1) Included in other assets in the consolidated balance sheets.

(2) Included in accrued interest and other liabilities in the consolidated balance sheets.

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FAIR VALUE MEASUREMENTS AND FAIR VALUES OF FINANCIAL INSTRUMENTS (Tables)

9 Months Ended

Sep. 30, 2023

FAIR VALUE MEASUREMENTS AND FAIR VALUES OF FINANCIAL INSTRUMENTS

Schedule of assets measured at fair value and the valuation methods used

	September 30, 2023
	Quoted
	Prices		Other
	in Active		Observable		Unobservable		Total
	Markets		Inputs		Inputs		Fair
(In Thousands)	(Level 1)		(Level 2)		(Level 3)		Value
Recurring fair value measurements, assets:
AVAILABLE-FOR-SALE DEBT SECURITIES:
Obligations of the U.S. Treasury	$	30,557	$	0	$	0	$	30,557
Obligations of U.S. Government agencies		0		18,796		0		18,796
Bank holding company debt securities		0		22,311		0		22,311
Obligations of states and political subdivisions:
Tax-exempt		0		104,453		0		104,453
Taxable		0		53,457		0		53,457
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		0		94,469		0		94,469
Residential collateralized mortgage obligations		0		33,397		0		33,397
Commercial mortgage-backed securities		0		63,672		0		63,672
Private label commercial mortgage-backed securities		0		8,026		0		8,026
Total available-for-sale debt securities		30,557		398,581		0		429,138
Marketable equity security		832		0		0		832
Servicing rights		0		0		2,630		2,630
RPA Out		0		6		0		6
Interest rate swap agreements, assets		0		4,545		0		4,545
Total recurring fair value measurements, assets	$	31,389	$	403,132	$	2,630	$	437,151
Recurring fair value measurements, liabilities,
Interest rate swap agreements, liabilities	$	0	$	4,545	$	0	$	4,545
Nonrecurring fair value measurements, assets:
Loans individually evaluated for credit loss, net	$	0	$	0	$	7,041	$	7,041
Foreclosed assets held for sale		0		0		633		633
Total nonrecurring fair value measurements, assets	$	0	$	0	$	7,674	$	7,674

	December 31, 2022
	Quoted
	Prices		Other
	in Active		Observable		Unobservable		Total
	Markets		Inputs		Inputs		Fair
(In Thousands)	(Level 1)		(Level 2)		(Level 3)		Value
Recurring fair value measurements, assets:
AVAILABLE-FOR-SALE DEBT SECURITIES:
Obligations of the U.S. Treasury	$	31,836	$	0	$	0	$	31,836
Obligations of U.S. Government agencies		0		23,430		0		23,430
Bank holding company debt securities		0		25,386		0		25,386
Obligations of states and political subdivisions:
Tax-exempt		0		132,623		0		132,623
Taxable		0		56,812		0		56,812
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies:
Residential pass-through securities		0		99,941		0		99,941
Residential collateralized mortgage obligations		0		40,296		0		40,296
Commercial mortgage-backed securities		0		79,686		0		79,686
Private label commercial mortgage-backed securities		0		8,023		0		8,023
Total available-for-sale debt securities		31,836		466,197		0		498,033
Marketable equity security		859		0		0		859
Servicing rights		0		0		2,653		2,653
Interest rate swap agreements, assets		0		3,638		0		3,638
Total recurring fair value measurements, assets	$	32,695	$	469,835	$	2,653	$	505,183
Recurring fair value measurements, liabilities,
Interest rate swap agreements, liabilities	$	0	$	3,638	$	0	$	3,638
Nonrecurring fair value measurements, assets:
Impaired loans, net	$	0	$	0	$	3,007	$	3,007
Foreclosed assets held for sale		0		0		275		275
Total nonrecurring fair value measurements, assets	$	0	$	0	$	3,282	$	3,282

Schedule of reconciliation of level 3 activity

(In Thousands)	Three Months Ended				Nine Months Ended
	September 30, 2023		September 30, 2022		September 30, 2023		September 30, 2022
Servicing rights balance, beginning of period	$	2,607	$	2,640	$	2,653	$	2,329
Originations of servicing rights		64		33		113		192
Unrealized (loss) gain included in earnings		(41)		(24)		(136)		128
Servicing rights balance, end of period	$	2,630	$	2,649	$	2,630	$	2,649

Schedule of estimated fair values, and carrying amounts of financial instruments not recorded at fair value

(In Thousands)	Fair Value	September 30, 2023				December 31, 2022
	Hierarchy	Carrying		Fair		Carrying		Fair
	Level	Amount		Value		Amount		Value
Financial assets:
Cash and cash equivalents	Level 1	$	48,308	$	48,308	$	47,698	$	47,698
Certificates of deposit	Level 2		4,350		4,033		7,350		6,956
Restricted equity securities (included in other assets)	Level 2		21,062		21,062		14,418		14,418
Loans, net	Level 3		1,812,585		1,732,232		1,723,425		1,674,002
Accrued interest receivable	Level 2		9,311		9,311		8,653		8,653
Financial liabilities:
Deposits with no stated maturity	Level 2		1,603,033		1,603,033		1,702,404		1,702,404
Time deposits	Level 2		421,964		419,686		295,189		293,814
Short-term borrowings	Level 2		23,253		23,253		80,062		80,062
Long-term borrowings	Level 2		125,276		123,056		62,347		60,944
Senior debt	Level 2		14,814		12,870		14,765		9,712
Subordinated debt	Level 2		24,689		20,184		24,607		16,186
Accrued interest payable	Level 2		1,464		1,464		461		461

Recurring fair value measurements

FAIR VALUE MEASUREMENTS AND FAIR VALUES OF FINANCIAL INSTRUMENTS

Schedule of inputs and valuation techniques

	Fair Value at
	9/30/2023		Valuation	Unobservable				Method or Value As of
Asset	(In Thousands)		Technique	Input(s)				9/30/2023
Servicing rights	$	2,630	Discounted cash flow	Discount rate		13.00	%	Rate used through modeling period
				Loan prepayment speeds		129.00	%	Weighted-average PSA
				Servicing fees		0.25	%	of loan balances
						4.00	%	of payments are late
						5.00	%	late fees assessed
					$	1.94		Miscellaneous fees per account per month
				Servicing costs	$	6.00		Monthly servicing cost per account
					$	24.00		Additional monthly servicing cost per loan on loans more than 30 days delinquent
						1.50	%	of loans more than 30 days delinquent
						3.00	%	annual increase in servicing costs

	Fair Value at
	12/31/2022		Valuation	Unobservable				Method or Value As of
Asset	(In Thousands)		Technique	Input(s)				12/31/2022
Servicing rights	$	2,653	Discounted cash flow	Discount rate		13.00	%	Rate used through modeling period
				Loan prepayment speeds		133.00	%	Weighted-average PSA
				Servicing fees		0.25	%	of loan balances
						4.00	%	of payments are late
						5.00	%	late fees assessed
					$	1.94		Miscellaneous fees per account per month
				Servicing costs	$	6.00		Monthly servicing cost per account
					$	24.00		Additional monthly servicing cost per loan on loans more than 30 days delinquent
						1.50	%	of loans more than 30 days delinquent
						3.00	%	annual increase in servicing costs

Nonrecurring fair value measurements

FAIR VALUE MEASUREMENTS AND FAIR VALUES OF FINANCIAL INSTRUMENTS

Schedule of inputs and valuation techniques

(Dollars In Thousands)									Weighted
			Valuation						Average
	Balance at		Allowance at		Fair Value at		Valuation	Unobservable	Discount at
Asset	9/30/2023		9/30/2023		9/30/2023		Technique	Inputs	9/30/2023
Loans individually evaluated for credit loss:
Commercial real estate - nonowner occupied	$	7,362	$	664	$	6,698	Sales comparison	Discount to appraised value	25	%
Commercial real estate - owner occupied		303		61		242	Sales comparison & SBA guaranty	Discount to appraised value	57	%
All other commercial loans		196		95		101	Liquidation & SBA guaranty	Discount to appraised value	18	%
Total loans individually evaluated for credit loss	$	7,861	$	820	$	7,041
Foreclosed assets held for sale - real estate:
Residential (1-4 family)	$	202	$	0	$	202	Sales comparison	Discount to appraised value	38	%
Commercial real estate		431		0		431	Sales comparison	Discount to appraised value	45	%
Total foreclosed assets held for sale	$	633	$	0	$	633

(Dollars In Thousands)									Weighted
			Valuation						Average
	Balance at		Allowance at		Fair Value at		Valuation	Unobservable	Discount at
Asset	12/31/2022		12/31/2022		12/31/2022		Technique	Inputs	12/31/2022
Impaired loans:
Commercial:
Commercial loans secured by real estate	$	3,400	$	427	$	2,973	Sales comparison	Discount to appraised value	25	%
Commercial and industrial		60		26		34	Liquidation of assets	Discount to appraised value	33	%
Total impaired loans	$	3,460	$	453	$	3,007
Foreclosed assets held for sale - real estate:
Commercial real estate	$	275	$	0	$	275	Sales comparison	Discount to appraised value	50	%
Total foreclosed assets held for sale	$	275	$	0	$	275

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BASIS OF INTERIM PRESENTATION AND STATUS OF RECENT ACCOUNTING PRONOUNCEMENTS - Recent Accounting Pronouncements (Details) - USD ($)	Sep. 30, 2023	Jun. 30, 2023	Dec. 31, 2022
BASIS OF INTERIM PRESENTATION AND STATUS OF RECENT ACCOUNTING PRONOUNCEMENTS
Loans receivable			$ 1,740,040,000
Allowance for credit losses	$ 18,085,000		16,615,000
Allowance for credit losses on off-balance sheet exposures (included in accrued interest and other liabilities)	900,000	$ 1,154,000	425,000
Deferred tax asset, net	23,731,000		20,884,000
Retained earnings	$ 157,044,000		151,743,000
Accounting Standards Update 2022-02 [Member] | Adjustment
BASIS OF INTERIM PRESENTATION AND STATUS OF RECENT ACCOUNTING PRONOUNCEMENTS
Loans receivable			806,000
Allowance for credit losses			2,104,000
Allowance for credit losses on off-balance sheet exposures (included in accrued interest and other liabilities)		$ 0	793,000
Deferred tax asset, net			439,000
Retained earnings			(1,652,000)
Accounting Standards Update 2022-02 [Member] | Adoption under ASC 326
BASIS OF INTERIM PRESENTATION AND STATUS OF RECENT ACCOUNTING PRONOUNCEMENTS
Loans receivable			1,740,846,000
Allowance for credit losses			18,719,000
Allowance for credit losses on off-balance sheet exposures (included in accrued interest and other liabilities)			1,218,000
Deferred tax asset, net			21,323,000
Retained earnings			$ 150,091,000

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BASIS OF INTERIM PRESENTATION AND STATUS OF RECENT ACCOUNTING PRONOUNCEMENTS - ACL Debt Securities (Details) - USD ($)	Sep. 30, 2023	Dec. 31, 2022
RECENT ACCOUNTING PRONOUNCEMENTS
Allowance for credit loss available for sale debt securities	$ 0	$ 0
Interest receivable	$ 2,688,000

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BASIS OF INTERIM PRESENTATION AND STATUS OF RECENT ACCOUNTING PRONOUNCEMENTS - ACL on Loans (Details) - USD ($)		9 Months Ended
	Jan. 01, 2023	Sep. 30, 2023
BASIS OF INTERIM PRESENTATION AND STATUS OF RECENT ACCOUNTING PRONOUNCEMENTS
Interest receivable excluded from the estimate of credit losses		$ 6,590,000
Financing Receivable, Estimated Weighted Average Remaining Maturity Average Life	4 years 4 months 9 days	4 years 1 month 28 days
Past period charge offs used to calculate current charge offs	5 years	5 years 9 months
Forecast relevant to collectability of cash flows		2 years
Weighted-average remaining life of portfolio allowance calculation to which loss based on correlation between past loss and economic statistic is added		2 years
Commercial
BASIS OF INTERIM PRESENTATION AND STATUS OF RECENT ACCOUNTING PRONOUNCEMENTS
Threshold amount of financing receivables for credit losses		$ 200,000
Residential mortgage loans
BASIS OF INTERIM PRESENTATION AND STATUS OF RECENT ACCOUNTING PRONOUNCEMENTS
Threshold amount of financing receivables for credit losses		400,000
Consumer loans
BASIS OF INTERIM PRESENTATION AND STATUS OF RECENT ACCOUNTING PRONOUNCEMENTS
Threshold amount of financing receivables for credit losses		$ 400,000

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PER SHARE DATA (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Basic
Net Income (Loss)	$ 7,591	$ 4,455	$ 19,887	$ 18,839
Less: Dividends and undistributed earnings allocated to participating securities	(57)	(39)	(156)	(169)
Net income attributable to common shares	$ 7,534	$ 4,416	$ 19,731	$ 18,670
Basic weighted-average common shares outstanding (in shares)	15,154,797	15,364,075	15,264,391	15,482,672
EARNINGS PER COMMON SHARE - BASIC (in dollars per share)	$ 0.50	$ 0.29	$ 1.29	$ 1.21
Diluted
Net income attributable to common shares	$ 7,534	$ 4,416	$ 19,731	$ 18,670
Basic weighted-average common shares outstanding (in shares)	15,154,797	15,364,075	15,264,391	15,482,672
Dilutive effect of potential common stock arising from stock options (in shares)	0	3,114	4	3,276
Diluted weighted-average common shares outstanding (in shares)	15,154,797	15,367,189	15,264,395	15,485,948
EARNINGS PER COMMON SHARE - DILUTED (in dollars per share)	$ 0.50	$ 0.29	$ 1.29	$ 1.21
Weighted-average nonvested restricted shares outstanding (in shares)	113,328	136,040	120,632	139,761
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in shares)	8,934	0	0	0

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COMPREHENSIVE INCOME (LOSS) - Components (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
COMPREHENSIVE INCOME (LOSS)
Unrealized holding losses on available-for-sale debt securities	$ (14,865)	$ (25,880)	$ (12,535)	$ (77,923)
Unrealized holding losses on available-for-sale debt securities, Income Tax Effect	3,123	5,437	2,632	16,365
Unrealized holding gains (losses) on available-for-sale debt securities, Net of Tax Amount	(11,742)	(20,443)	(9,903)	(61,558)
Reclassification adjustment for gains realized in income	0	(20)	(6)	(21)
Reclassification adjustment for gains realized in income, Income Tax Effect	0	4	1	4
Reclassification adjustment for gains realized in income. Net of Tax Amount	0	(16)	(5)	(17)
Other comprehensive loss from available-for-sale debt securities, Before-Tax Amount	(14,865)	(25,900)	(12,541)	(77,944)
Other comprehensive loss on available-for-sale debt securities, Income tax effect	3,123	5,441	2,633	16,369
Other comprehensive loss from available-for-sale debt securities, Net-of-Tax Amount	(11,742)	(20,459)	(9,908)	(61,575)
Changes from plan amendments and actuarial gains and losses, Before-Tax Amount	0	0	(8)	133
Changes from plan amendments and actuarial gains and losses, Income Tax Effect			1	(27)
Changes from plan amendments and actuarial gains and losses, Net-of-Tax Amount			(7)	106
Amortization of prior service cost and net actuarial loss included in net periodic benefit cost, Before-Tax Amount	(14)	(9)	(42)	(31)
Amortization of prior service cost and net actuarial loss included in net periodic benefit cost, Income Tax Effect	3	1	9	5
Amortization of prior service cost and net actuarial loss included in net periodic benefit cost, Net-of-Tax Amount	(11)	(8)	(33)	(26)
Other comprehensive (loss) income on pension and postretirement obligations	(14)	(9)	(50)	102
Other comprehensive income (loss) on unfunded retirement obligations, Income Tax Effect	3	1	10	(22)
Other comprehensive income (loss) on unfunded retirement obligations, Net-of-Tax Amount	(11)	(8)	(40)	80
Other comprehensive loss before income tax	(14,879)	(25,909)	(12,591)	(77,842)
Total other comprehensive loss, Income Tax Effect	3,126	5,442	2,643	16,347
Total other comprehensive loss, Net-of-Tax Amount	$ (11,753)	$ (20,467)	$ (9,948)	$ (61,495)

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COMPREHENSIVE INCOME (LOSS) - Changes of AOCI (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Balance, beginning of period	$ 248,117	$ 258,619	$ 249,325	$ 301,405
Other comprehensive loss	(11,753)	(20,467)	(9,948)	(61,495)
Balance, end of period	240,205	238,789	240,205	238,789
AOCI, Accumulated Gain (Loss), Debt Securities, Available-for-sale, Parent
Balance, beginning of period	(48,536)	(36,307)	(50,370)	4,809
Other comprehensive loss	(11,742)	(20,459)	(9,908)	(61,575)
Balance, end of period	(60,278)	(56,766)	(60,278)	(56,766)
Accumulated Defined Benefit Plans Adjustment Attributable to Parent
Balance, beginning of period	463	305	492	217
Other comprehensive loss	(11)	(8)	(40)	80
Balance, end of period	452	297	452	297
Accumulated Other Comprehensive (Loss) Income
Balance, beginning of period	(48,073)	(36,002)	(49,878)	5,026
Other comprehensive loss	(11,753)	(20,467)	(9,948)	(61,495)
Balance, end of period	$ (59,826)	$ (56,469)	$ (59,826)	$ (56,469)

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CASH AND DUE FROM BANKS (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
CASH AND DUE FROM BANKS
Cash and cash equivalents	$ 48,308	$ 47,698
Certificates of deposit	4,350	7,350
Total cash and due from banks	$ 52,658	$ 55,048

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SECURITIES - Available-for-sale Securities (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Available-for-sale Securities
Available-for-sale securities, amortized cost	$ 505,440	$ 561,794
Available-for-sale securities, gross unrealized holding gains	114	321
Available-for-sale securities, gross unrealized holding losses	(76,416)	(64,082)
Available-for-sale debt securities, at fair value	429,138	498,033
Obligations of the U.S. Treasury
Available-for-sale Securities
Available-for-sale securities, amortized cost	33,938	35,166
Available-for-sale securities, gross unrealized holding gains	0	0
Available-for-sale securities, gross unrealized holding losses	(3,381)	(3,330)
Available-for-sale debt securities, at fair value	30,557	31,836
Obligations of U.S. Government agencies
Available-for-sale Securities
Available-for-sale securities, amortized cost	21,372	25,938
Available-for-sale securities, gross unrealized holding gains	0	0
Available-for-sale securities, gross unrealized holding losses	(2,576)	(2,508)
Available-for-sale debt securities, at fair value	18,796	23,430
Bank holding company debt securities
Available-for-sale Securities
Available-for-sale securities, amortized cost	28,950	28,945
Available-for-sale securities, gross unrealized holding gains	0	0
Available-for-sale securities, gross unrealized holding losses	(6,639)	(3,559)
Available-for-sale debt securities, at fair value	22,311	25,386
Obligations Of States And Political Subdivisions Tax Exempt
Available-for-sale Securities
Available-for-sale securities, amortized cost	123,598	146,149
Available-for-sale securities, gross unrealized holding gains	114	319
Available-for-sale securities, gross unrealized holding losses	(19,259)	(13,845)
Available-for-sale debt securities, at fair value	104,453	132,623
Obligations Of States And Political Subdivisions Taxable
Available-for-sale Securities
Available-for-sale securities, amortized cost	65,408	68,488
Available-for-sale securities, gross unrealized holding gains	0	0
Available-for-sale securities, gross unrealized holding losses	(11,951)	(11,676)
Available-for-sale debt securities, at fair value	53,457	56,812
Residential Passthrough Securities
Available-for-sale Securities
Available-for-sale securities, amortized cost	109,102	112,782
Available-for-sale securities, gross unrealized holding gains	0	0
Available-for-sale securities, gross unrealized holding losses	(14,633)	(12,841)
Available-for-sale debt securities, at fair value	94,469	99,941
Residential Collateralized Mortgage Obligations
Available-for-sale Securities
Available-for-sale securities, amortized cost	38,267	44,868
Available-for-sale securities, gross unrealized holding gains	0	0
Available-for-sale securities, gross unrealized holding losses	(4,870)	(4,572)
Available-for-sale debt securities, at fair value	33,397	40,296
Commercial Mortgage Backed Securities
Available-for-sale Securities
Available-for-sale securities, amortized cost	76,627	91,388
Available-for-sale securities, gross unrealized holding gains	0	0
Available-for-sale securities, gross unrealized holding losses	(12,955)	(11,702)
Available-for-sale debt securities, at fair value	63,672	79,686
Private label commercial mortgage-backed securities
Available-for-sale Securities
Available-for-sale securities, amortized cost	8,178	8,070
Available-for-sale securities, gross unrealized holding gains	0	2
Available-for-sale securities, gross unrealized holding losses	(152)	(49)
Available-for-sale debt securities, at fair value	$ 8,026	$ 8,023

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SECURITIES - Available-for-sale Securities With Unrealized Loss Positions (Details) - USD ($)	Sep. 30, 2023	Dec. 31, 2022
Available-for-sale Securities With Unrealized Loss Positions
Available-for-sale securities with unrealized loss positions, less than 12 months, fair value	$ 28,225,000	$ 297,304,000
Available-for-sale securities with unrealized loss positions, less than 12 months, unrealized losses	(1,100,000)	(28,730,000)
Available-for-sale securities with unrealized loss positions, 12 months or more, fair value	395,686,000	184,052,000
Available-for-sale securities with unrealized loss positions, 12 months or more, unrealized losses	(75,316,000)	(35,352,000)
Available-for-sale securities with unrealized loss positions, fair value	423,911,000	481,356,000
Available-for-sale securities, with unrealized loss positions, unrealized losses	(76,416,000)	(64,082,000)
Obligations of the U.S. Treasury
Available-for-sale Securities With Unrealized Loss Positions
Available-for-sale securities with unrealized loss positions, less than 12 months, fair value	0	20,192,000
Available-for-sale securities with unrealized loss positions, less than 12 months, unrealized losses	0	(1,939,000)
Available-for-sale securities with unrealized loss positions, 12 months or more, fair value	30,557,000	11,644,000
Available-for-sale securities with unrealized loss positions, 12 months or more, unrealized losses	(3,381,000)	(1,391,000)
Available-for-sale securities with unrealized loss positions, fair value	30,557,000	31,836,000
Available-for-sale securities, with unrealized loss positions, unrealized losses	(3,381,000)	(3,330,000)
Obligations of U.S. Government agencies
Available-for-sale Securities With Unrealized Loss Positions
Available-for-sale securities with unrealized loss positions, less than 12 months, fair value	1,850,000	8,509,000
Available-for-sale securities with unrealized loss positions, less than 12 months, unrealized losses	(8,000)	(430,000)
Available-for-sale securities with unrealized loss positions, 12 months or more, fair value	16,946,000	12,921,000
Available-for-sale securities with unrealized loss positions, 12 months or more, unrealized losses	(2,568,000)	(2,078,000)
Available-for-sale securities with unrealized loss positions, fair value	18,796,000	21,430,000
Available-for-sale securities, with unrealized loss positions, unrealized losses	(2,576,000)	(2,508,000)
Bank holding company debt securities
Available-for-sale Securities With Unrealized Loss Positions
Available-for-sale securities with unrealized loss positions, less than 12 months, fair value	0	14,248,000
Available-for-sale securities with unrealized loss positions, less than 12 months, unrealized losses	0	(1,697,000)
Available-for-sale securities with unrealized loss positions, 12 months or more, fair value	22,311,000	11,138,000
Available-for-sale securities with unrealized loss positions, 12 months or more, unrealized losses	(6,639,000)	(1,862,000)
Available-for-sale securities with unrealized loss positions, fair value	22,311,000	25,386,000
Available-for-sale securities, with unrealized loss positions, unrealized losses	(6,639,000)	(3,559,000)
Obligations Of States And Political Subdivisions Tax Exempt
Available-for-sale Securities With Unrealized Loss Positions
Available-for-sale securities with unrealized loss positions, less than 12 months, fair value	4,172,000	106,204,000
Available-for-sale securities with unrealized loss positions, less than 12 months, unrealized losses	(268,000)	(11,023,000)
Available-for-sale securities with unrealized loss positions, 12 months or more, fair value	96,600,000	15,153,000
Available-for-sale securities with unrealized loss positions, 12 months or more, unrealized losses	(18,991,000)	(2,822,000)
Available-for-sale securities with unrealized loss positions, fair value	100,772,000	121,357,000
Available-for-sale securities, with unrealized loss positions, unrealized losses	(19,259,000)	(13,845,000)
Obligations Of States And Political Subdivisions Taxable
Available-for-sale Securities With Unrealized Loss Positions
Available-for-sale securities with unrealized loss positions, less than 12 months, fair value	0	28,901,000
Available-for-sale securities with unrealized loss positions, less than 12 months, unrealized losses	0	(4,739,000)
Available-for-sale securities with unrealized loss positions, 12 months or more, fair value	53,457,000	27,761,000
Available-for-sale securities with unrealized loss positions, 12 months or more, unrealized losses	(11,951,000)	(6,937,000)
Available-for-sale securities with unrealized loss positions, fair value	53,457,000	56,662,000
Available-for-sale securities, with unrealized loss positions, unrealized losses	(11,951,000)	(11,676,000)
Residential Passthrough Securities
Available-for-sale Securities With Unrealized Loss Positions
Available-for-sale securities with unrealized loss positions, less than 12 months, fair value	9,304,000	45,410,000
Available-for-sale securities with unrealized loss positions, less than 12 months, unrealized losses	(412,000)	(4,226,000)
Available-for-sale securities with unrealized loss positions, 12 months or more, fair value	83,619,000	54,531,000
Available-for-sale securities with unrealized loss positions, 12 months or more, unrealized losses	(14,221,000)	(8,615,000)
Available-for-sale securities with unrealized loss positions, fair value	92,923,000	99,941,000
Available-for-sale securities, with unrealized loss positions, unrealized losses	(14,633,000)	(12,841,000)
Residential Collateralized Mortgage Obligations
Available-for-sale Securities With Unrealized Loss Positions
Available-for-sale securities with unrealized loss positions, less than 12 months, fair value	2,662,000	28,670,000
Available-for-sale securities with unrealized loss positions, less than 12 months, unrealized losses	(130,000)	(2,042,000)
Available-for-sale securities with unrealized loss positions, 12 months or more, fair value	30,735,000	11,626,000
Available-for-sale securities with unrealized loss positions, 12 months or more, unrealized losses	(4,740,000)	(2,530,000)
Available-for-sale securities with unrealized loss positions, fair value	33,397,000	40,296,000
Available-for-sale securities, with unrealized loss positions, unrealized losses	(4,870,000)	(4,572,000)
Commercial Mortgage Backed Securities
Available-for-sale Securities With Unrealized Loss Positions
Available-for-sale securities with unrealized loss positions, less than 12 months, fair value	2,211,000	40,408,000
Available-for-sale securities with unrealized loss positions, less than 12 months, unrealized losses	(130,000)	(2,585,000)
Available-for-sale securities with unrealized loss positions, 12 months or more, fair value	61,461,000	39,278,000
Available-for-sale securities with unrealized loss positions, 12 months or more, unrealized losses	(12,825,000)	(9,117,000)
Available-for-sale securities with unrealized loss positions, fair value	63,672,000	79,686,000
Available-for-sale securities, with unrealized loss positions, unrealized losses	(12,955,000)	(11,702,000)
Private label commercial mortgage-backed securities
Available-for-sale Securities With Unrealized Loss Positions
Available-for-sale securities with unrealized loss positions, less than 12 months, fair value	8,026,000	4,762,000
Available-for-sale securities with unrealized loss positions, less than 12 months, unrealized losses	(152,000)	(49,000)
Available-for-sale securities with unrealized loss positions, 12 months or more, fair value	0	0
Available-for-sale securities with unrealized loss positions, 12 months or more, unrealized losses	0	0
Available-for-sale securities with unrealized loss positions, fair value	8,026,000	4,762,000
Available-for-sale securities, with unrealized loss positions, unrealized losses	$ (152,000)	$ (49,000)

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SECURITIES - Gross Realized Gains and Losses From Available-for-sale Debt Securities (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
SECURITIES
Gross realized gains from sales	$ 0	$ 44	$ 89	$ 48
Gross realized losses from sales	0	(24)	(83)	(27)
Net realized gains	$ 0	$ 20	$ 6	$ 21

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SECURITIES - Available-for-sale Debt Securities by Contractual Maturity (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Available-for-sale Securities
Due in one year or less, amortized cost	$ 10,899
Due in one year or less, fair value	10,672
Due from one year through five years. amortized cost	70,095
Due from one year through five years, fair value	64,235
Due from five years through ten years, amortized cost	80,423
Due from five years through ten years, fair value	66,554
Due after ten years, amortized cost	111,849
Due after ten years, fair value	88,113
Sub-total, amortized cost	273,266
Sub-total, fair value	229,574
Total, amortized cost	505,440	$ 561,794
Total, fair value	429,138	498,033
Residential Passthrough Securities
Available-for-sale Securities
Total, amortized cost	109,102	112,782
Total, fair value	94,469	99,941
Residential Collateralized Mortgage Obligations
Available-for-sale Securities
Total, amortized cost	38,267	44,868
Total, fair value	33,397	40,296
Commercial Mortgage Backed Securities
Available-for-sale Securities
Total, amortized cost	76,627	91,388
Total, fair value	63,672	79,686
Private label commercial mortgage-backed securities
Available-for-sale Securities
Total, amortized cost	8,178	8,070
Total, fair value	$ 8,026	$ 8,023

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SECURITIES - Collateral (Details) - USD ($)	Sep. 30, 2023	Dec. 31, 2022
Investment Securities [Member]
SECURITIES
Investment pledged as collateral	$ 242,190,000	$ 277,302,000

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SECURITIES - Debt Securities (Details) - USD ($)	Sep. 30, 2023	Dec. 31, 2022
SECURITIES
Gross unrealized holding losses on available-for-sale debt securities	$ 76,416,000	$ 64,082,000
Allowance for credit loss	$ 0	$ 0

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SECURITIES - Equity Securities (Details)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2023 USD ($) security	Sep. 30, 2022 USD ($)	Sep. 30, 2023 USD ($) security	Sep. 30, 2022 USD ($)	Dec. 31, 2022 USD ($) security
Equity Securities
Equity Securities, FV-NI, Unrealized Gain (Loss)	$ (27,000)	$ (38,000)	$ (27,000)	$ (114,000)
Mutual Fund
Equity Securities
Number of mutual funds | security	1		1		1
Net gains recognized during the period on equity securities			$ 168,000		$ (141,000)
Other assets
Equity Securities
Federal Home Loan Bank Stock	$ 6,243,000		6,243,000
Marketable equity security	832,000		832,000		859,000
Other assets | Federal Home Loan Bank of Pittsburgh
Equity Securities
Federal Home Loan Bank Stock	$ 14,570,000		$ 14,570,000		$ 14,168,000

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LOANS AND ALLOWANCE FOR CREDIT LOSSES - Summary of Loans by Type (Details) - USD ($)	Sep. 30, 2023	Jun. 30, 2023	Dec. 31, 2022	Sep. 30, 2022	Jun. 30, 2022	Dec. 31, 2021
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans and Leases Receivable, Gross, Total	$ 1,830,670,000		$ 1,740,040,000
Allowance for credit losses on loans	(18,085,000)	$ (19,056,000)	(16,615,000)	$ (16,170,000)	$ (14,547,000)	$ (13,537,000)
Purchased credit impaired loans			1,027,000
Loans, net	1,812,585,000		1,723,425,000
Commercial
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans and Leases Receivable, Gross, Total			1,111,498,000
Allowance for credit losses on loans			(11,298,000)	$ (10,238,000)	$ (8,894,000)	$ (8,293,000)
Commercial | Commercial real estate - non-owner occupied
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans and Leases Receivable, Gross, Total	737,287,000		675,597,000
Allowance for credit losses on loans	(10,335,000)	(10,603,000)	(6,305,000)
Commercial | Commercial real estate - owner occupied
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans and Leases Receivable, Gross, Total	231,112,000		205,910,000
Allowance for credit losses on loans	(1,864,000)	(2,025,000)	(1,942,000)
Commercial | All other commercial loans
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans and Leases Receivable, Gross, Total	395,703,000		410,077,000
Allowance for credit losses on loans	(3,552,000)	(3,686,000)	(4,142,000)
Residential mortgage loans
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans and Leases Receivable, Gross, Total	410,013,000		393,582,000
Allowance for credit losses on loans	(1,993,000)	(2,464,000)	(2,751,000)
Consumer loans
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans and Leases Receivable, Gross, Total	56,555,000		54,874,000
Allowance for credit losses on loans	$ (341,000)	$ (278,000)	$ (475,000)

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LOANS AND ALLOWANCE FOR CREDIT LOSSES - Adjustments to Initial Discounts and Carrying Amounts of Loans (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Market Rate Adjustment
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Adjustments to gross amortized cost of loans at beginning of period	$ (1,000)	$ (866)	$ (916)	$ (637)
Accretion (amortization) recognized in interest income	(16)	5	(100)	(224)
Adjustments to gross amortized cost of loans at end of period	(1,016)	(861)	(1,016)	(861)
Credit Adjustment on Non-impaired Loans
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Adjustments to gross amortized cost of loans at beginning of period	(1,446)	(2,403)	(1,840)	(3,335)
Accretion (amortization) recognized in interest income	147	308	541	1,240
Adjustments to gross amortized cost of loans at end of period	$ (1,299)	$ (2,095)	$ (1,299)	$ (2,095)

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LOANS AND ALLOWANCE FOR CREDIT LOSSES - Analysis of past due loans (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Nonaccrual loans	$ 15,501	$ 23,085
Loans and Leases Receivable, Gross, Total	1,830,670	1,740,040
Past Due 30-89 Days
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Nonaccrual loans	3,675	7,079
Past Due 90+ Days
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Nonaccrual loans	1,292	2,237
Financial Asset, Not Past Due [Member]
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans and Leases Receivable, Gross, Total	1,810,202	1,707,639
Purchased Credit Impaired
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Nonaccrual loans		1,027
Loans and Leases Receivable, Gross, Total		1,027
Purchased Credit Impaired | Past Due 30-89 Days
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Nonaccrual loans		0
Purchased Credit Impaired | Past Due 90+ Days
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Nonaccrual loans		0
Purchased Credit Impaired | Financial Asset, Not Past Due [Member]
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans and Leases Receivable, Gross, Total		0
Commercial
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans and Leases Receivable, Gross, Total		1,111,498
Commercial | Commercial real estate - non-owner occupied
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Nonaccrual loans	9,031	6,350
Loans and Leases Receivable, Gross, Total	737,287	675,597
Commercial | Commercial real estate - non-owner occupied | Past Due 30-89 Days
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Nonaccrual loans	4	644
Commercial | Commercial real estate - non-owner occupied | Past Due 90+ Days
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Nonaccrual loans	132	947
Commercial | Commercial real estate - non-owner occupied | Financial Asset, Not Past Due [Member]
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans and Leases Receivable, Gross, Total	728,120	667,656
Commercial | Commercial real estate - owner occupied
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Nonaccrual loans	1,586	19
Loans and Leases Receivable, Gross, Total	231,112	204,982
Commercial | Commercial real estate - owner occupied | Past Due 30-89 Days
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Nonaccrual loans	151	723
Commercial | Commercial real estate - owner occupied | Past Due 90+ Days
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Nonaccrual loans	0	141
Commercial | Commercial real estate - owner occupied | Financial Asset, Not Past Due [Member]
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans and Leases Receivable, Gross, Total	229,375	204,099
Commercial | All other commercial loans
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Nonaccrual loans	1,390	11,528
Loans and Leases Receivable, Gross, Total	395,703	409,978
Commercial | All other commercial loans | Past Due 30-89 Days
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Nonaccrual loans	1,438	537
Commercial | All other commercial loans | Past Due 90+ Days
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Nonaccrual loans	162	151
Commercial | All other commercial loans | Financial Asset, Not Past Due [Member]
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans and Leases Receivable, Gross, Total	392,713	397,762
Residential mortgage loans
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Nonaccrual loans	3,244	3,974
Loans and Leases Receivable, Gross, Total	410,013	393,582
Residential mortgage loans | Past Due 30-89 Days
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Nonaccrual loans	1,569	4,540
Residential mortgage loans | Past Due 90+ Days
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Nonaccrual loans	892	866
Residential mortgage loans | Financial Asset, Not Past Due [Member]
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans and Leases Receivable, Gross, Total	404,308	384,202
Consumer loans
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Nonaccrual loans	250	187
Loans and Leases Receivable, Gross, Total	56,555	54,874
Consumer loans | Past Due 30-89 Days
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Nonaccrual loans	513	635
Consumer loans | Past Due 90+ Days
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Nonaccrual loans	106	132
Consumer loans | Financial Asset, Not Past Due [Member]
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans and Leases Receivable, Gross, Total	$ 55,686	$ 53,920

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LOANS AND ALLOWANCE FOR CREDIT LOSSES - Loans By Credit Quality Indicators and Origination Year (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2023	Dec. 31, 2022
LOANS
Loans receivable	$ 1,830,670	$ 1,740,040
Pass
LOANS
Loans receivable		1,683,275
Special Mention
LOANS
Loans receivable		13,911
Substandard
LOANS
Loans receivable		42,854
Doubtful
LOANS
Loans receivable		0
Purchased Credit Impaired
LOANS
Loans receivable		1,027
Purchased Credit Impaired | Pass
LOANS
Loans receivable		0
Purchased Credit Impaired | Special Mention
LOANS
Loans receivable		0
Purchased Credit Impaired | Substandard
LOANS
Loans receivable		1,027
Purchased Credit Impaired | Doubtful
LOANS
Loans receivable		0
Commercial
LOANS
Loans receivable		1,111,498
Commercial | Commercial real estate - non-owner occupied
LOANS
2023	83,002
2022	188,426
2021	93,721
2020	58,195
2019	81,587
Prior	232,356
Revolving	0
Loans receivable	737,287	675,597
Current period gross charge-offs
2023	0
2022	0
2021	0
2020	0
2019	0
Prior	0
Revolving	0
Total	0
Commercial | Commercial real estate - non-owner occupied | Pass
LOANS
2023	83,002
2022	188,426
2021	91,246
2020	55,618
2019	80,858
Prior	211,778
Revolving	0
Loans receivable	710,928	654,430
Commercial | Commercial real estate - non-owner occupied | Special Mention
LOANS
2023	0
2022	0
2021	2,475
2020	0
2019	119
Prior	8,147
Revolving	0
Loans receivable	10,741	9,486
Commercial | Commercial real estate - non-owner occupied | Substandard
LOANS
2023	0
2022	0
2021	0
2020	2,577
2019	610
Prior	12,431
Revolving	0
Loans receivable	15,618	11,681
Commercial | Commercial real estate - non-owner occupied | Doubtful
LOANS
2023	0
2022	0
2021	0
2020	0
2019	0
Prior	0
Revolving	0
Loans receivable	0	0
Commercial | Commercial Real Estate Loans Owner Occupied, Excluding Purchased Credit Impaired [ Member]
LOANS
Loans receivable	231,112	204,982
Commercial | Commercial Real Estate Loans Owner Occupied, Excluding Purchased Credit Impaired [ Member] | Pass
LOANS
Loans receivable		202,702
Commercial | Commercial Real Estate Loans Owner Occupied, Excluding Purchased Credit Impaired [ Member] | Special Mention
LOANS
Loans receivable		1,909
Commercial | Commercial Real Estate Loans Owner Occupied, Excluding Purchased Credit Impaired [ Member] | Substandard
LOANS
Loans receivable		371
Commercial | Commercial Real Estate Loans Owner Occupied, Excluding Purchased Credit Impaired [ Member] | Doubtful
LOANS
Loans receivable		0
Commercial | Commercial real estate - owner occupied
LOANS
2023	28,058
2022	37,306
2021	55,297
2020	13,245
2019	17,722
Prior	79,484
Revolving	0
Loans receivable	231,112	205,910
Current period gross charge-offs
2023	0
2022	0
2021	0
2020	0
2019	0
Prior	0
Revolving	0
Total	0
Commercial | Commercial real estate - owner occupied | Pass
LOANS
2023	28,058
2022	37,306
2021	52,680
2020	13,245
2019	17,722
Prior	75,113
Revolving	0
Loans receivable	224,124
Commercial | Commercial real estate - owner occupied | Special Mention
LOANS
2023	0
2022	0
2021	2,617
2020	0
2019	0
Prior	1,301
Revolving	0
Loans receivable	3,918
Commercial | Commercial real estate - owner occupied | Substandard
LOANS
2023	0
2022	0
2021	0
2020	0
2019	0
Prior	3,070
Revolving	0
Loans receivable	3,070
Commercial | Commercial real estate - owner occupied | Doubtful
LOANS
2023	0
2022	0
2021	0
2020	0
2019	0
Prior	0
Revolving	0
Loans receivable	0
Commercial | Commercial Loans Other Than Nonowner Occupied And Owner Occupied, Excluding Purchased Credit Impaired [Member]
LOANS
Loans receivable	395,703	409,978
Commercial | Commercial Loans Other Than Nonowner Occupied And Owner Occupied, Excluding Purchased Credit Impaired [Member] | Pass
LOANS
Loans receivable		383,846
Commercial | Commercial Loans Other Than Nonowner Occupied And Owner Occupied, Excluding Purchased Credit Impaired [Member] | Special Mention
LOANS
Loans receivable		2,516
Commercial | Commercial Loans Other Than Nonowner Occupied And Owner Occupied, Excluding Purchased Credit Impaired [Member] | Substandard
LOANS
Loans receivable		23,616
Commercial | Commercial Loans Other Than Nonowner Occupied And Owner Occupied, Excluding Purchased Credit Impaired [Member] | Doubtful
LOANS
Loans receivable		0
Commercial | All other commercial loans
LOANS
Loans receivable	395,703	410,077
Commercial | Other commercial loans
LOANS
2023	39,638
2022	98,033
2021	59,448
2020	29,532
2019	19,515
Prior	27,415
Revolving	122,122
Loans receivable	395,703	14,857
Current period gross charge-offs
2023	0
2022	0
2021	0
2020	0
2019	0
Prior	0
Revolving	12
Total	12
Commercial | Other commercial loans | Pass
LOANS
2023	39,638
2022	94,942
2021	53,556
2020	29,097
2019	17,364
Prior	25,489
Revolving	112,698
Loans receivable	372,784
Commercial | Other commercial loans | Special Mention
LOANS
2023	0
2022	0
2021	4,642
2020	0
2019	0
Prior	805
Revolving	400
Loans receivable	5,847
Commercial | Other commercial loans | Substandard
LOANS
2023	0
2022	3,091
2021	1,250
2020	435
2019	2,151
Prior	1,121
Revolving	9,024
Loans receivable	17,072
Commercial | Other commercial loans | Doubtful
LOANS
2023	0
2022	0
2021	0
2020	0
2019	0
Prior	0
Revolving	0
Loans receivable	0
Residential mortgage
LOANS
2023	44,449
2022	88,378
2021	57,166
2020	41,232
2019	33,626
Prior	145,162
Revolving	0
Loans receivable	410,013	609,106
Current period gross charge-offs
2023	0
2022	0
2021	0
2020	0
2019	0
Prior	33
Revolving	0
Total	33
Residential mortgage | Pass
LOANS
2023	44,449
2022	88,378
2021	57,166
2020	40,943
2019	33,257
Prior	140,684
Revolving	0
Loans receivable	404,877
Residential mortgage | Special Mention
LOANS
2023	0
2022	0
2021	0
2020	0
2019	0
Prior	0
Revolving	0
Loans receivable	0
Residential mortgage | Substandard
LOANS
2023	0
2022	0
2021	0
2020	289
2019	369
Prior	4,478
Revolving	0
Loans receivable	5,136
Residential mortgage | Doubtful
LOANS
2023	0
2022	0
2021	0
2020	0
2019	0
Prior	0
Revolving	0
Loans receivable	0
Consumer
LOANS
2023	5,216
2022	5,070
2021	2,228
2020	1,384
2019	243
Prior	1,069
Revolving	41,345
Loans receivable	56,555	$ 19,436
Current period gross charge-offs
2023	0
2022	134
2021	0
2020	18
2019	3
Prior	3
Revolving	96
Total	254
Consumer | Pass
LOANS
2023	5,216
2022	5,070
2021	2,227
2020	1,372
2019	238
Prior	991
Revolving	40,512
Loans receivable	55,626
Consumer | Special Mention
LOANS
2023	0
2022	0
2021	0
2020	0
2019	0
Prior	0
Revolving	0
Loans receivable	0
Consumer | Substandard
LOANS
2023	0
2022	0
2021	1
2020	12
2019	5
Prior	78
Revolving	833
Loans receivable	929
Consumer | Doubtful
LOANS
2023	0
2022	0
2021	0
2020	0
2019	0
Prior	0
Revolving	0
Loans receivable	$ 0

XML

LOANS AND ALLOWANCE FOR CREDIT LOSSES - Loans By Credit Quality Indicators (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable	$ 1,830,670	$ 1,740,040
Pass
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable		1,683,275
Special Mention
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable		13,911
Substandard
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable		42,854
Doubtful
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable		0
Purchased Credit Impaired
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable		1,027
Purchased Credit Impaired | Pass
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable		0
Purchased Credit Impaired | Special Mention
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable		0
Purchased Credit Impaired | Substandard
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable		1,027
Purchased Credit Impaired | Doubtful
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable		0
Commercial
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable		1,111,498
Commercial | Commercial real estate - non-owner occupied
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable	737,287	675,597
Commercial | Commercial real estate - non-owner occupied | Pass
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable	710,928	654,430
Commercial | Commercial real estate - non-owner occupied | Special Mention
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable	10,741	9,486
Commercial | Commercial real estate - non-owner occupied | Substandard
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable	15,618	11,681
Commercial | Commercial real estate - non-owner occupied | Doubtful
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable	0	0
Commercial | Commercial Real Estate Loans Owner Occupied, Excluding Purchased Credit Impaired [ Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable	231,112	204,982
Commercial | Commercial Real Estate Loans Owner Occupied, Excluding Purchased Credit Impaired [ Member] | Pass
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable		202,702
Commercial | Commercial Real Estate Loans Owner Occupied, Excluding Purchased Credit Impaired [ Member] | Special Mention
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable		1,909
Commercial | Commercial Real Estate Loans Owner Occupied, Excluding Purchased Credit Impaired [ Member] | Substandard
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable		371
Commercial | Commercial Real Estate Loans Owner Occupied, Excluding Purchased Credit Impaired [ Member] | Doubtful
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable		0
Commercial | Commercial real estate - owner occupied
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable	231,112	205,910
Commercial | Commercial real estate - owner occupied | Pass
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable	224,124
Commercial | Commercial real estate - owner occupied | Special Mention
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable	3,918
Commercial | Commercial real estate - owner occupied | Substandard
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable	3,070
Commercial | Commercial real estate - owner occupied | Doubtful
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable	0
Commercial | Commercial Loans Other Than Nonowner Occupied And Owner Occupied, Excluding Purchased Credit Impaired [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable	395,703	409,978
Commercial | Commercial Loans Other Than Nonowner Occupied And Owner Occupied, Excluding Purchased Credit Impaired [Member] | Pass
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable		383,846
Commercial | Commercial Loans Other Than Nonowner Occupied And Owner Occupied, Excluding Purchased Credit Impaired [Member] | Special Mention
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable		2,516
Commercial | Commercial Loans Other Than Nonowner Occupied And Owner Occupied, Excluding Purchased Credit Impaired [Member] | Substandard
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable		23,616
Commercial | Commercial Loans Other Than Nonowner Occupied And Owner Occupied, Excluding Purchased Credit Impaired [Member] | Doubtful
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable		0
Commercial | All other commercial loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable	395,703	410,077
Commercial | Other commercial loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable	395,703	14,857
Commercial | Other commercial loans | Pass
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable	372,784
Commercial | Other commercial loans | Special Mention
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable	5,847
Commercial | Other commercial loans | Substandard
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable	17,072
Commercial | Other commercial loans | Doubtful
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable	0
Residential mortgage loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable	410,013	393,582
Residential mortgage loans | Pass
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable		387,944
Residential mortgage loans | Special Mention
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable		0
Residential mortgage loans | Substandard
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable		5,638
Residential mortgage loans | Doubtful
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable		0
Consumer loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable	$ 56,555	54,874
Consumer loans | Pass
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable		54,353
Consumer loans | Special Mention
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable		0
Consumer loans | Substandard
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable		521
Consumer loans | Doubtful
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable		$ 0

XML

LOANS AND ALLOWANCE FOR CREDIT LOSSES - Nonaccrual Loans (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Nonaccrual loans with no allowance	$ 7,640
Nonaccrual loans with an allowance	7,861
Total nonaccrual loans	15,501	$ 23,085
Purchased Credit Impaired
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Nonaccrual loans with no allowance	0
Nonaccrual loans with an allowance	0
Total nonaccrual loans	0	1,027
Commercial | Commercial real estate - non-owner occupied
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Nonaccrual loans with no allowance	1,669
Nonaccrual loans with an allowance	7,362
Total nonaccrual loans	9,031	6,350
Commercial | Commercial real estate - owner occupied
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Nonaccrual loans with no allowance	1,283
Nonaccrual loans with an allowance	303
Total nonaccrual loans	1,586	19
Commercial | All other commercial loans
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Nonaccrual loans with no allowance	1,194
Nonaccrual loans with an allowance	196
Total nonaccrual loans	1,390	11,528
Residential mortgage
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Nonaccrual loans with no allowance	3,244
Nonaccrual loans with an allowance	0
Total nonaccrual loans	3,244	3,974
Consumer
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Nonaccrual loans with no allowance	250
Nonaccrual loans with an allowance	0
Total nonaccrual loans	$ 250	$ 187

XML

LOANS AND ALLOWANCE FOR CREDIT LOSSES - Accrued Interest Receivables (Details) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2023	Sep. 30, 2023
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Accrued Interest, written off	$ 33	$ 67
Commercial | Commercial real estate - non-owner occupied
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Accrued Interest, written off	22	48
Residential mortgage
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Accrued Interest, written off	11	17
Consumer
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Accrued Interest, written off	$ 0	$ 2

XML

LOANS AND ALLOWANCE FOR CREDIT LOSSES - Amortized Cost Of Collateral Dependent Loans (Details) $ in Thousands	Sep. 30, 2023 USD ($)
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Amortized Cost	$ 12,007
Allowance	820
Commercial | Commercial real estate - non-owner occupied
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Amortized Cost	9,031
Allowance	664
Commercial | Commercial real estate - owner occupied
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Amortized Cost	1,586
Allowance	61
Commercial | All other commercial loans
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Amortized Cost	1,390
Allowance	$ 95

XML

LOANS AND ALLOWANCE FOR CREDIT LOSSES - CECL Adoption On Loans (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Jun. 30, 2023	Dec. 31, 2022	Sep. 30, 2022	Jun. 30, 2022	Dec. 31, 2021
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Financing Receivable, Allowance for Credit Loss, Excluding Accrued Interest	$ 18,085	$ 19,056	$ 16,615	$ 16,170	$ 14,547	$ 13,537
Adoption of ASU 2016-13 (CECL)
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Financing Receivable, Allowance for Credit Loss, Excluding Accrued Interest			$ 2,104

XML

LOANS AND ALLOWANCE FOR CREDIT LOSSES - Allowance for Credit Losses (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022	Dec. 31, 2022
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Allowance for Loan losses	$ 19,056	$ 14,547	$ 16,615	$ 13,537
Allowance for credit losses	18,085		18,085		$ 16,615
Allowance for Loan losses, Charge-offs	(98)	(2,196)	(299)	(2,417)
Allowance for Loan losses, Recoveries	60	25	74	57
(Credit) provision for credit losses on loans	(933)	3,794	(409)	4,993
Allowance for Loan losses	18,085	16,170	18,085	16,170
Adoption of ASU 2016-13 (CECL)
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Allowance for Loan losses			2,104
Commercial
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Allowance for Loan losses		8,894	11,298	8,293
Allowance for Loan losses, Charge-offs		(2,160)		(2,310)
Allowance for Loan losses, Recoveries		0		0
(Credit) provision for credit losses on loans		3,504		4,255
Allowance for Loan losses		10,238		10,238
Commercial | Commercial real estate - non-owner occupied
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Allowance for Loan losses	10,603		6,305
Allowance for Loan losses, Charge-offs	0		0
Allowance for Loan losses, Recoveries	0		0
(Credit) provision for credit losses on loans	(268)		267
Allowance for Loan losses	10,335		10,335
Commercial | Commercial real estate - non-owner occupied | Adoption of ASU 2016-13 (CECL)
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Allowance for Loan losses			3,763
Commercial | Commercial real estate - owner occupied
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Allowance for Loan losses	2,025		1,942
Allowance for Loan losses, Charge-offs	0		0
Allowance for Loan losses, Recoveries	0		0
(Credit) provision for credit losses on loans	(161)		(85)
Allowance for Loan losses	1,864		1,864
Commercial | Commercial real estate - owner occupied | Adoption of ASU 2016-13 (CECL)
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Allowance for Loan losses			7
Commercial | All other commercial loans
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Allowance for Loan losses	3,686		4,142
Allowance for Loan losses, Charge-offs	(7)		(12)
Allowance for Loan losses, Recoveries	34		34
(Credit) provision for credit losses on loans	(161)		(524)
Allowance for Loan losses	3,552		3,552
Commercial | All other commercial loans | Adoption of ASU 2016-13 (CECL)
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Allowance for Loan losses			(88)
Commercial | Other commercial loans
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Allowance for Loan losses		131	124	173
Allowance for Loan losses, Charge-offs		0		0
Allowance for Loan losses, Recoveries		0		0
(Credit) provision for credit losses on loans		(9)		(51)
Allowance for Loan losses		122		122
Commercial | Commercial and industrial
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Allowance for Loan losses		2,792	2,909	2,723
Allowance for Loan losses, Charge-offs		0		(150)
Allowance for Loan losses, Recoveries		0		0
(Credit) provision for credit losses on loans		31		250
Allowance for Loan losses		2,823		2,823
Commercial | Real estate loan
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Allowance for Loan losses		4,982	7,074	4,405
Allowance for Loan losses, Charge-offs		(2,160)		(2,160)
Allowance for Loan losses, Recoveries		0		0
(Credit) provision for credit losses on loans		3,225		3,802
Allowance for Loan losses		6,047		6,047
Commercial | Commercial Construction And Land
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Allowance for Loan losses		515	647	637
Allowance for Loan losses, Charge-offs		0		0
Allowance for Loan losses, Recoveries		0		0
(Credit) provision for credit losses on loans		169		47
Allowance for Loan losses		684		684
Commercial | Loans secured by farm land
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Allowance for Loan losses		112	112	115
Allowance for Loan losses, Charge-offs		0		0
Allowance for Loan losses, Recoveries		0		0
(Credit) provision for credit losses on loans		1		(2)
Allowance for Loan losses		113		113
Commercial | Multi-family (5 or more) residential
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Allowance for Loan losses		339	411	215
Allowance for Loan losses, Charge-offs		0		0
Allowance for Loan losses, Recoveries		0		0
(Credit) provision for credit losses on loans		88		212
Allowance for Loan losses		427		427
Commercial | Agricultural loans
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Allowance for Loan losses		23	21	25
Allowance for Loan losses, Charge-offs		0		0
Allowance for Loan losses, Recoveries		0		0
(Credit) provision for credit losses on loans		(1)		(3)
Allowance for Loan losses		22		22
Residential mortgage loans
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Allowance for Loan losses	2,464		2,751
Allowance for Loan losses, Charge-offs	0		(33)
Allowance for Loan losses, Recoveries	8		10
(Credit) provision for credit losses on loans	(479)		(391)
Allowance for Loan losses	1,993		1,993
Residential mortgage loans | Adoption of ASU 2016-13 (CECL)
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Allowance for Loan losses			(344)
Residential mortgage
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Allowance for Loan losses		4,392	4,073	4,338
Allowance for Loan losses, Charge-offs		0		0
Allowance for Loan losses, Recoveries		1		18
(Credit) provision for credit losses on loans		304		341
Allowance for Loan losses		4,697		4,697
Residential mortgage | Real estate loan | first liens
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Allowance for Loan losses		3,689	3,413	3,650
Allowance for Loan losses, Charge-offs		0		0
Allowance for Loan losses, Recoveries		1		3
(Credit) provision for credit losses on loans		229		266
Allowance for Loan losses		3,919		3,919
Residential mortgage | Real estate loan | junior liens
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Allowance for Loan losses		180	167	184
Allowance for Loan losses, Charge-offs		0		0
Allowance for Loan losses, Recoveries		0		0
(Credit) provision for credit losses on loans		14		10
Allowance for Loan losses		194		194
Residential mortgage | 1-4 Family residential construction
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Allowance for Loan losses		215	211	202
Allowance for Loan losses, Charge-offs		0		0
Allowance for Loan losses, Recoveries		0		0
(Credit) provision for credit losses on loans		36		49
Allowance for Loan losses		251		251
Residential mortgage | Home equity lines of credit
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Allowance for Loan losses		308	282	302
Allowance for Loan losses, Charge-offs		0		0
Allowance for Loan losses, Recoveries		0		15
(Credit) provision for credit losses on loans		25		16
Allowance for Loan losses		333		333
Consumer loans
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Allowance for Loan losses	278		475
Allowance for Loan losses, Charge-offs	(91)		(254)
Allowance for Loan losses, Recoveries	18		30
(Credit) provision for credit losses on loans	136		324
Allowance for Loan losses	341		341
Consumer loans | Adoption of ASU 2016-13 (CECL)
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Allowance for Loan losses			(234)
Consumer
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Allowance for Loan losses		261	244	235
Allowance for Loan losses, Charge-offs		(36)		(107)
Allowance for Loan losses, Recoveries		24		39
(Credit) provision for credit losses on loans		(14)		68
Allowance for Loan losses		235		235
Unallocated
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Allowance for Loan losses	0	1,000	1,000	671
Allowance for Loan losses, Charge-offs	0	0	0	0
Allowance for Loan losses, Recoveries	0	0	0	0
(Credit) provision for credit losses on loans	0	0	0	329
Allowance for Loan losses	$ 0	$ 1,000	0	$ 1,000
Unallocated | Adoption of ASU 2016-13 (CECL)
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Allowance for Loan losses			$ (1,000)

XML

LOANS AND ALLOWANCE FOR CREDIT LOSSES - Loan Balances and Allowance for Loan Losses for Each Impairment Method (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Jun. 30, 2023	Dec. 31, 2022	Sep. 30, 2022	Jun. 30, 2022	Dec. 31, 2021
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans receivable: Individually Evaluated			$ 19,358
Loans receivable: Collectively Evaluated			1,720,682
Loans receivable	$ 1,830,670		1,740,040
Financing Receivable, Allowance for Credit Losses, Individually Evaluated for Impairment2			453
Financing Receivable, Allowance for Credit Losses, Collectively Evaluated for Impairment1			15,162
Allowance for loan losses	18,085	$ 19,056	16,615	$ 16,170	$ 14,547	$ 13,537
Commercial
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans receivable: Individually Evaluated			18,754
Loans receivable: Collectively Evaluated			1,092,744
Loans receivable			1,111,498
Financing Receivable, Allowance for Credit Losses, Individually Evaluated for Impairment2			453
Financing Receivable, Allowance for Credit Losses, Collectively Evaluated for Impairment1			10,845
Allowance for loan losses			11,298	10,238	8,894	8,293
Commercial | Real estate loan
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans receivable: Individually Evaluated			7,154
Loans receivable: Collectively Evaluated			675,095
Loans receivable			682,249
Financing Receivable, Allowance for Credit Losses, Individually Evaluated for Impairment2			427
Financing Receivable, Allowance for Credit Losses, Collectively Evaluated for Impairment1			6,647
Allowance for loan losses			7,074	6,047	4,982	4,405
Commercial | Commercial and industrial
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans receivable: Individually Evaluated			11,223
Loans receivable: Collectively Evaluated			167,048
Loans receivable			178,271
Financing Receivable, Allowance for Credit Losses, Individually Evaluated for Impairment2			26
Financing Receivable, Allowance for Credit Losses, Collectively Evaluated for Impairment1			2,883
Allowance for loan losses			2,909	2,823	2,792	2,723
Commercial | Paycheck Protection Program - 1st Draw
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans receivable: Individually Evaluated			0
Loans receivable: Collectively Evaluated			5
Loans receivable			5
Financing Receivable, Allowance for Credit Losses, Individually Evaluated for Impairment2			0
Financing Receivable, Allowance for Credit Losses, Collectively Evaluated for Impairment1			0
Allowance for loan losses			0
Commercial | Paycheck Protection Program - 2nd Draw
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans receivable: Individually Evaluated			0
Loans receivable: Collectively Evaluated			163
Loans receivable			163
Financing Receivable, Allowance for Credit Losses, Individually Evaluated for Impairment2			0
Financing Receivable, Allowance for Credit Losses, Collectively Evaluated for Impairment1			0
Allowance for loan losses			0
Commercial | Political subdivisions
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans receivable: Individually Evaluated			0
Loans receivable: Collectively Evaluated			90,719
Loans receivable			90,719
Financing Receivable, Allowance for Credit Losses, Individually Evaluated for Impairment2			0
Financing Receivable, Allowance for Credit Losses, Collectively Evaluated for Impairment1			0
Allowance for loan losses			0
Commercial | Commercial Construction And Land
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans receivable: Individually Evaluated			244
Loans receivable: Collectively Evaluated			73,719
Loans receivable			73,963
Financing Receivable, Allowance for Credit Losses, Individually Evaluated for Impairment2			0
Financing Receivable, Allowance for Credit Losses, Collectively Evaluated for Impairment1			647
Allowance for loan losses			647	684	515	637
Commercial | Loans secured by farm land
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans receivable: Individually Evaluated			76
Loans receivable: Collectively Evaluated			12,874
Loans receivable			12,950
Financing Receivable, Allowance for Credit Losses, Individually Evaluated for Impairment2			0
Financing Receivable, Allowance for Credit Losses, Collectively Evaluated for Impairment1			112
Allowance for loan losses			112	113	112	115
Commercial | Multi-family (5 or more) residential
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans receivable: Individually Evaluated			0
Loans receivable: Collectively Evaluated			55,886
Loans receivable			55,886
Financing Receivable, Allowance for Credit Losses, Individually Evaluated for Impairment2			0
Financing Receivable, Allowance for Credit Losses, Collectively Evaluated for Impairment1			411
Allowance for loan losses			411	427	339	215
Commercial | Agricultural loans
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans receivable: Individually Evaluated			57
Loans receivable: Collectively Evaluated			2,378
Loans receivable			2,435
Financing Receivable, Allowance for Credit Losses, Individually Evaluated for Impairment2			0
Financing Receivable, Allowance for Credit Losses, Collectively Evaluated for Impairment1			21
Allowance for loan losses			21	22	23	25
Commercial | Other commercial loans
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans receivable: Individually Evaluated			0
Loans receivable: Collectively Evaluated			14,857
Loans receivable	395,703		14,857
Financing Receivable, Allowance for Credit Losses, Individually Evaluated for Impairment2			0
Financing Receivable, Allowance for Credit Losses, Collectively Evaluated for Impairment1			124
Allowance for loan losses			124	122	131	173
Residential mortgage
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans receivable: Individually Evaluated			604
Loans receivable: Collectively Evaluated			608,502
Loans receivable	410,013		609,106
Financing Receivable, Allowance for Credit Losses, Individually Evaluated for Impairment2			0
Financing Receivable, Allowance for Credit Losses, Collectively Evaluated for Impairment1			4,073
Allowance for loan losses			4,073	4,697	4,392	4,338
Residential mortgage | Real estate loan | first liens
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans receivable: Individually Evaluated			506
Loans receivable: Collectively Evaluated			509,276
Loans receivable			509,782
Financing Receivable, Allowance for Credit Losses, Individually Evaluated for Impairment2			0
Financing Receivable, Allowance for Credit Losses, Collectively Evaluated for Impairment1			3,413
Allowance for loan losses			3,413	3,919	3,689	3,650
Residential mortgage | Real estate loan | junior liens
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans receivable: Individually Evaluated			30
Loans receivable: Collectively Evaluated			24,919
Loans receivable			24,949
Financing Receivable, Allowance for Credit Losses, Individually Evaluated for Impairment2			0
Financing Receivable, Allowance for Credit Losses, Collectively Evaluated for Impairment1			167
Allowance for loan losses			167	194	180	184
Residential mortgage | Home equity lines of credit
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans receivable: Individually Evaluated			68
Loans receivable: Collectively Evaluated			43,730
Loans receivable			43,798
Financing Receivable, Allowance for Credit Losses, Individually Evaluated for Impairment2			0
Financing Receivable, Allowance for Credit Losses, Collectively Evaluated for Impairment1			282
Allowance for loan losses			282	333	308	302
Residential mortgage | 1-4 Family residential construction
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans receivable: Individually Evaluated			0
Loans receivable: Collectively Evaluated			30,577
Loans receivable			30,577
Financing Receivable, Allowance for Credit Losses, Individually Evaluated for Impairment2			0
Financing Receivable, Allowance for Credit Losses, Collectively Evaluated for Impairment1			211
Allowance for loan losses			211	251	215	202
Consumer
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans receivable: Individually Evaluated			0
Loans receivable: Collectively Evaluated			19,436
Loans receivable	56,555		19,436
Financing Receivable, Allowance for Credit Losses, Individually Evaluated for Impairment2			0
Financing Receivable, Allowance for Credit Losses, Collectively Evaluated for Impairment1			244
Allowance for loan losses			244	235	261	235
Unallocated
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Allowance for loan losses	$ 0	$ 0	$ 1,000	$ 1,000	$ 1,000	$ 671

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LOANS AND ALLOWANCE FOR CREDIT LOSSES - Impaired Loans (Details) $ in Thousands	Dec. 31, 2022 USD ($)
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Unpaid Principal Balance - with no allowance	$ 22,508
Recorded Investment - with no allowance	15,898
Related Allowance - with no allowance	0
Unpaid Principal Balance - with allowance	3,460
Impaired Financing Receivable, with Related Allowance, Recorded Investment1	3,460
Related Allowance - with allowance	453
Unpaid Principal Balance	25,968
Recorded Investment	19,358
Commercial | Real estate loan
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Unpaid Principal Balance - with no allowance	8,563
Recorded Investment - with no allowance	3,754
Related Allowance - with no allowance	0
Unpaid Principal Balance - with allowance	3,400
Impaired Financing Receivable, with Related Allowance, Recorded Investment1	3,400
Related Allowance - with allowance	427
Commercial | Commercial and industrial
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Unpaid Principal Balance - with no allowance	12,926
Recorded Investment - with no allowance	11,163
Related Allowance - with no allowance	0
Unpaid Principal Balance - with allowance	60
Impaired Financing Receivable, with Related Allowance, Recorded Investment1	60
Related Allowance - with allowance	26
Commercial | Home equity lines of credit
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Unpaid Principal Balance - with no allowance	68
Recorded Investment - with no allowance	68
Related Allowance - with no allowance	0
Commercial | Loans secured by farm land
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Unpaid Principal Balance - with no allowance	76
Recorded Investment - with no allowance	76
Related Allowance - with no allowance	0
Commercial | Agricultural loans
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Unpaid Principal Balance - with no allowance	57
Recorded Investment - with no allowance	57
Related Allowance - with no allowance	0
Commercial | Construction And Other Land Loans
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Unpaid Principal Balance - with no allowance	244
Recorded Investment - with no allowance	244
Related Allowance - with no allowance	0
Residential mortgage | Real estate loan | first liens
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Unpaid Principal Balance - with no allowance	506
Recorded Investment - with no allowance	506
Related Allowance - with no allowance	0
Residential mortgage | Real estate loan | junior liens
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Unpaid Principal Balance - with no allowance	68
Recorded Investment - with no allowance	30
Related Allowance - with no allowance	$ 0

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LOANS AND ALLOWANCE FOR CREDIT LOSSES - Average Balance of Impaired Loans and Income Recognized on Impaired Loans (Details) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2022	Sep. 30, 2022
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Average Investment in Impaired Loans	$ 10,977	$ 11,749
Interest Income Recognized on Impaired Loans on a Cash Basis	153	1,875
Commercial
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Average Investment in Impaired Loans	10,266	11,095
Interest Income Recognized on Impaired Loans on a Cash Basis	147	1,849
Commercial | Real estate loan
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Average Investment in Impaired Loans	9,710	9,804
Interest Income Recognized on Impaired Loans on a Cash Basis	143	483
Commercial | Commercial and industrial
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Average Investment in Impaired Loans	371	839
Interest Income Recognized on Impaired Loans on a Cash Basis	4	207
Commercial | Commercial Construction And Land
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Average Investment in Impaired Loans	47	47
Interest Income Recognized on Impaired Loans on a Cash Basis	0	1
Commercial | Loans secured by farm land
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Average Investment in Impaired Loans	79	81
Interest Income Recognized on Impaired Loans on a Cash Basis	0	0
Commercial | Multi-family (5 or more) residential.
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Average Investment in Impaired Loans	0	263
Interest Income Recognized on Impaired Loans on a Cash Basis	0	1,156
Commercial | Agricultural loans
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Average Investment in Impaired Loans	59	61
Interest Income Recognized on Impaired Loans on a Cash Basis	0	2
Residential mortgage
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Average Investment in Impaired Loans	711	654
Interest Income Recognized on Impaired Loans on a Cash Basis	6	26
Residential mortgage | Real estate loan | first liens
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Average Investment in Impaired Loans	612	587
Interest Income Recognized on Impaired Loans on a Cash Basis	5	17
Residential mortgage | Real estate loan | junior liens
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Average Investment in Impaired Loans	31	33
Interest Income Recognized on Impaired Loans on a Cash Basis	0	6
Residential mortgage | Home Equity Line of Credit [Member]
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Average Investment in Impaired Loans	68	34
Interest Income Recognized on Impaired Loans on a Cash Basis	$ 1	$ 3

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LOANS AND ALLOWANCE FOR CREDIT LOSSES - Foreclosed Residential Real Estate (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Residential mortgage
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Foreclosed residential real estate	$ 202	$ 0

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LOANS AND ALLOWANCE FOR CREDIT LOSSES- Mortgage Loans in Process of Foreclosure (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Residential mortgage
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Residential real estate in process of foreclosure	$ 1,049	$ 1,229

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LOANS AND ALLOWANCE FOR CREDIT LOSSES - Credit Losses For Off- Balance Sheet (Details) - USD ($)	3 Months Ended		9 Months Ended	12 Months Ended
	Sep. 30, 2023	Jun. 30, 2023	Sep. 30, 2023	Dec. 31, 2022
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Balance	$ 1,154,000		$ 425,000
Credit for unfunded commitments	(292,000)		(356,000)
Balance	900,000	$ 1,154,000	900,000	$ 425,000
Accounting Standards Update 2022-02 [Member] | Adoption of ASU 2016-13 (CECL)
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Balance	$ 0		$ 793,000
Recoveries		38,000		38,000
Balance		$ 0		$ 793,000

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LOANS AND ALLOWANCE FOR CREDIT LOSSES - Additional information (Details)	3 Months Ended	9 Months Ended
	Sep. 30, 2023 USD ($) item	Sep. 30, 2023 USD ($) item	Jun. 30, 2023 USD ($)	Dec. 31, 2022 USD ($)
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Interest income on nonaccrual loans	$ 317,000	$ 744,000
Unamortized Loan Commitment and Origination Fees and Unamortized Discounts or Premiums, Total	4,456,000	4,456,000		$ 4,725,000
Credit losses for off-balance sheet exposures	$ 900,000	$ 900,000	$ 1,154,000	$ 425,000
Financing Receivable, Individually Evaluated for Impairment, Number of Extension for Credit Graded | item	1	1
Estimated loss amount of financing receivables		$ 100,000
Commercial
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Threshold amount of financing receivables of TDR	200,000	200,000
Threshold amount of financing receivables for credit losses	$ 200,000	$ 200,000
Residential mortgage
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Threshold amount of financing receivables for credit losses	400,000	400,000
Consumer
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Threshold amount of financing receivables for credit losses	$ 400,000	$ 400,000
Other Loans [Member]
LOANS AND ALLOWANCE FOR CREDIT LOSSES
Threshold amount of financing receivables of TDR	400,000	400,000

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GOODWILL AND OTHER INTANGIBLE ASSETS - Core Deposit Intangibles (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
GOODWILL AND OTHER INTANGIBLE ASSETS
Gross amount	$ 6,639	$ 6,639
Accumulated amortization	(4,068)	(3,762)
Net	$ 2,571	$ 2,877

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GOODWILL AND OTHER INTANGIBLE ASSETS - Amortization Expense Core Deposit Intangibles (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
GOODWILL AND OTHER INTANGIBLE ASSETS
Amortization expense	$ 102	$ 110	$ 306	$ 329

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GOODWILL AND OTHER INTANGIBLE ASSETS - Change in Carrying Amount of Goodwill (Details) - USD ($)	Sep. 30, 2023	Dec. 31, 2022
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill	$ 52,505,000	$ 52,505,000

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BORROWED FUNDS - Short-term borrowings (Details) - USD ($)	Sep. 30, 2023	Dec. 31, 2022
BORROWED FUNDS AND SUBORDINATED DEBT
Short-term borrowings	$ 23,253,000	$ 80,062,000
FHLB-Pittsburgh borrowings
BORROWED FUNDS AND SUBORDINATED DEBT
Short-term borrowings	21,500,000	77,000,000
FHLB-Pittsburgh borrowings | Federal Home Loan Bank of Pittsburgh
BORROWED FUNDS AND SUBORDINATED DEBT
Short-term borrowings	15,000,000
Customer repurchase agreements
BORROWED FUNDS AND SUBORDINATED DEBT
Short-term borrowings	$ 1,753,000	$ 3,062,000

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BORROWED FUNDS - Short-term borrowings - Additional information (Details) - USD ($)	Sep. 30, 2023	Dec. 31, 2022
BORROWED FUNDS
Short-term borrowings	$ 23,253,000	$ 80,062,000
Other assets
BORROWED FUNDS
Federal Home Loan Bank Stock	6,243,000
Other Correspondent Banks
BORROWED FUNDS
Line of Credit Facility, Maximum Borrowing Capacity	95,000,000	95,000,000
Long-term Line of Credit, Total	0	0
Federal Reserve Bank of Philadelphia | Collateral Pledged
BORROWED FUNDS
Investment pledged as collateral	$ 21,731,000	$ 24,113,000
Customer repurchase agreements
BORROWED FUNDS
Debt, Weighted Average Interest Rate	0.10%	0.10%
Carrying Value of Securities Sold under Repurchase Agreements and Deposits Received for Securities Loaned, Total	$ 1,770,000	$ 3,080,000
Short-term borrowings	1,753,000	3,062,000
FHLB-Pittsburgh borrowings
BORROWED FUNDS
Short-term borrowings	21,500,000	77,000,000
Federal Home Loan Bank of Pittsburgh
BORROWED FUNDS
Line of Credit Facility, Maximum Borrowing Capacity	918,798,000	839,378,000
Federal Home Loan Bank, Advances, General Debt Obligations, Disclosures, Collateral Pledged	1,321,417,000	1,209,179,000
Line of Credit Facility, Remaining Borrowing Capacity	752,847,000	689,279,000
Short-term advances		0
Federal Home Loan Bank of Pittsburgh | Other assets
BORROWED FUNDS
Federal Home Loan Bank Stock	14,570,000	14,168,000
Federal Home Loan Bank of Pittsburgh | Federal Reserve Bank of Philadelphia
BORROWED FUNDS
Line of Credit Facility, Maximum Borrowing Capacity	20,766,000	23,107,000
Long-term Line of Credit, Total	$ 0	$ 0
Federal Home Loan Bank of Pittsburgh | Overnight Borrowing
BORROWED FUNDS
Federal Home Loan Bank, Advances, Branch of FHLB Bank, Interest Rate	5.68%	4.45%
Short-term borrowings	$ 6,500,000	$ 77,000,000
Federal Home Loan Bank of Pittsburgh | FHLB-Pittsburgh borrowings
BORROWED FUNDS
Federal Home Loan Bank, Advances, Branch of FHLB Bank, Interest Rate	5.61%
Short-term borrowings	$ 15,000,000

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BORROWED FUNDS - Long-term Borrowings (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Long-term Borrowing
Long-term borrowings	$ 125,276	$ 62,347
Rate	4.12%	4.12%
Loan maturing in 2023 with a rate of 3.25%
Long-term Borrowing
Rate	3.25%	3.25%
Loans maturing in 2024 with a weighted-average rate of 2.89%
Long-term Borrowing
Rate	2.89%	2.89%
Loans maturing in 2026 with a weighted-average rate of 4.30%
Long-term Borrowing
Rate	4.44%	4.44%
Loans maturing in 2027 with a weighted-average rate of 4.00%
Long-term Borrowing
Rate	4.00%	4.00%
Loan maturing in 2028 with a rate of 3.72%
Long-term Borrowing
Rate	3.72%	3.72%
Federal Home Loan Bank of Pittsburgh
Long-term Borrowing
Long-term borrowings	$ 125,276	$ 62,347
Federal Home Loan Bank of Pittsburgh | Loan maturing in 2023 with a rate of 3.25%
Long-term Borrowing
Long-term borrowings	2,290	9,303
Federal Home Loan Bank of Pittsburgh | Loans maturing in 2024 with a weighted-average rate of 2.89%
Long-term Borrowing
Long-term borrowings	29,784	29,813
Federal Home Loan Bank of Pittsburgh | Loans maturing in 2025 with a weighted-average rate of 4.05%
Long-term Borrowing
Long-term borrowings	35,653	23,231
Federal Home Loan Bank of Pittsburgh | Loans maturing in 2026 with a weighted-average rate of 4.30%
Long-term Borrowing
Long-term borrowings	31,518	0
Federal Home Loan Bank of Pittsburgh | Loans maturing in 2027 with a weighted-average rate of 4.00%
Long-term Borrowing
Long-term borrowings	24,031	0
Federal Home Loan Bank of Pittsburgh | Loan maturing in 2028 with a rate of 3.72%
Long-term Borrowing
Long-term borrowings	$ 2,000	$ 0

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BORROWED FUNDS - Senior Notes (Details) - USD ($)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022	Dec. 31, 2021	Dec. 31, 2022
Debt Instrument [Line Items]
Senior notes, net	$ 14,814,000		$ 14,814,000			$ 14,765,000
Senior Notes with an aggregate par value of $15,000,000; bearing interest at 2.75% with an effective interest rate of 3.23%; maturing in June 2026
Debt Instrument [Line Items]
Aggregate par value	$ 15,000,000		$ 15,000,000		$ 15,000,000.0	$ 15,000,000
Stated interest rate	2.75%		2.75%		2.75%	2.75%
Debt issuance costs					$ 337,000
Senior notes, net	$ 14,814,000		$ 14,814,000		$ 14,663,000	$ 14,765,000
Amortization of debt issuance costs	$ 16,000	$ 16,000	$ 49,000	$ 48,000
Effective interest rate	3.23%		3.23%			3.23%

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BORROWED FUNDS - Subordinated Debt (Details) - USD ($)	3 Months Ended		6 Months Ended	9 Months Ended	12 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Jun. 30, 2023	Sep. 30, 2022	Dec. 31, 2021	Dec. 31, 2022
Debt Instrument [Line Items]
Subordinated debt, net	$ 24,689,000					$ 24,607,000
3.25% maturing in June 2031 and redeemable at par in June 2026
Debt Instrument [Line Items]
Aggregate par value	$ 25,000,000				$ 25,000,000.0	$ 25,000,000
Stated interest rate	3.25%				3.25%	3.25%
Debt issuance costs					$ 563,000
Subordinated debt, net	$ 24,689,000				$ 24,437,000	$ 24,607,000
Amortization of debt issuance costs	$ 28,000	$ 27,000	$ 82,000	$ 79,000
Effective interest rate	3.74%					3.74%
3.25% maturing in June 2031 and redeemable at par in June 2026 | Debt Instrument, Redemption, Period One
Debt Instrument [Line Items]
Stated interest rate					3.25%
Debt Instrument, Redemption Period, End Date					Jun. 01, 2026
3.25% maturing in June 2031 and redeemable at par in June 2026 | Debt Instrument, Redemption, Period Two
Debt Instrument [Line Items]
Debt Instrument, Redemption Period, Start Date					Jun. 01, 2026
Debt Instrument, Redemption Period, End Date					Jun. 01, 2031
Debt Instrument, Basis Spread on Variable Rate					2.59%

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STOCK-BASED COMPENSATION PLANS (Details) - USD ($)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022	Dec. 31, 2023
Forecast
Stock-based compensation expense					$ 1,340,000
Restricted Stock
Stock-based compensation expense	$ 320,000	$ 388,000	$ 1,015,000	$ 1,169,000
Stock Incentive Plan | Restricted Stock
Vesting period			3 years
Independent Directors Stock Incentive Plan | Restricted Stock
Vesting period			1 year

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STOCK-BASED COMPENSATION PLANS - Restricted Stock Awards Granted (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2023 USD ($) shares
Stock Incentive Plan | Restricted Stock
STOCK-BASED COMPENSATION PLANS
Number of Shares | shares	53,788
Aggregate Grant Date Fair Value | $	$ 1,256
Stock Incentive Plan | Restricted Stock | Employees
STOCK-BASED COMPENSATION PLANS
Number of Shares | shares	31,684
Aggregate Grant Date Fair Value | $	$ 740
Stock Incentive Plan | Performance Shares | Employees
STOCK-BASED COMPENSATION PLANS
Number of Shares | shares	11,104
Aggregate Grant Date Fair Value | $	$ 259
Independent Directors Stock Incentive Plan | Restricted Stock | Director [Member]
STOCK-BASED COMPENSATION PLANS
Number of Shares | shares	11,000
Aggregate Grant Date Fair Value | $	$ 257

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DERIVATIVE FINANCIAL INSTRUMENTS - (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2023 USD ($) item	Sep. 30, 2022 USD ($) item	Sep. 30, 2023 USD ($) item	Sep. 30, 2022 USD ($) item	Dec. 31, 2022 USD ($)
Derivative Financial Instruments
Net impact	$ 1,000	$ 0	$ 19,000	$ 0
Asset pledged
Derivative Financial Instruments
Available-for-sale securities pledged as collateral	2,251,000		2,251,000
Interest rate swap agreements
Derivative Financial Instruments
Aggregate notional amount	152,536,000		152,536,000		$ 155,214,000
Asset Derivatives, Notional Amount	76,268,000		76,268,000		77,607,000
Asset Derivatives, Fair Value	4,545,000		4,545,000		3,638,000
Liability Derivatives, Notional Amount	76,268,000		76,268,000		77,607,000
Liability Derivatives, Fair Value	$ 4,545,000		$ 4,545,000		3,638,000
Number of derivative instruments originated | item	0	0	0	0
RPA Out
Derivative Financial Instruments
Asset Derivatives, Notional Amount	$ 7,111,000		$ 7,111,000		7,200,000
Asset Derivatives, Fair Value	6,000		6,000		0
Liability Derivatives, Notional Amount	0		0		0
Liability Derivatives, Fair Value	0		0		0
RPA In
Derivative Financial Instruments
Asset Derivatives, Notional Amount	0		0		0
Asset Derivatives, Fair Value	0		0		0
Liability Derivatives, Notional Amount	10,000,000		10,000,000		10,000,000
Liability Derivatives, Fair Value	6,000		6,000		$ 19,000
Derivatives not designated as hedging instruments | Interest rate swap agreements
Derivative Financial Instruments
Interest rate swap	0		0
Increase (decrease) in interest income	$ 502,000	$ 4,000	$ 1,286,000	$ 541,000

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FAIR VALUE MEASUREMENTS AND FAIR VALUES OF FINANCIAL INSTRUMENTS - Assets Measured at Fair Value (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Assets Measured at Fair Value
Total, fair value	$ 429,138	$ 498,033
Impaired loans with a valuation allowance		3,460
Valuation allowance		(453)
Impaired loans, net		3,460
Interest rate swap agreements
Assets Measured at Fair Value
Fair value derivative asset	4,545	3,638
Fair value of the derivative liability	4,545	3,638
Obligations of the U.S. Treasury
Assets Measured at Fair Value
Total, fair value	30,557	31,836
Obligations of U.S. Government agencies
Assets Measured at Fair Value
Total, fair value	18,796	23,430
Bank holding company debt securities
Assets Measured at Fair Value
Total, fair value	22,311	25,386
Obligations Of States And Political Subdivisions Tax Exempt
Assets Measured at Fair Value
Total, fair value	104,453	132,623
Obligations Of States And Political Subdivisions Taxable
Assets Measured at Fair Value
Total, fair value	53,457	56,812
Residential Passthrough Securities
Assets Measured at Fair Value
Total, fair value	94,469	99,941
Residential Collateralized Mortgage Obligations
Assets Measured at Fair Value
Total, fair value	33,397	40,296
Commercial Mortgage Backed Securities
Assets Measured at Fair Value
Total, fair value	63,672	79,686
Private label commercial mortgage-backed securities
Assets Measured at Fair Value
Total, fair value	8,026	8,023
Recurring fair value measurements
Assets Measured at Fair Value
Total, fair value	429,138	498,033
Marketable equity security	832	859
Servicing rights	2,630	2,653
Total asset fair value measurements	437,151	505,183
Recurring fair value measurements | Level 1
Assets Measured at Fair Value
Total, fair value	30,557	31,836
Marketable equity security	832	859
Servicing rights	0	0
Total asset fair value measurements	31,389	32,695
Recurring fair value measurements | Level 2
Assets Measured at Fair Value
Total, fair value	398,581	466,197
Marketable equity security	0	0
Servicing rights	0	0
Total asset fair value measurements	403,132	469,835
Recurring fair value measurements | Level 3
Assets Measured at Fair Value
Total, fair value	0	0
Marketable equity security	0	0
Servicing rights	2,630	2,653
Total asset fair value measurements	2,630	2,653
Recurring fair value measurements | RPA Out
Assets Measured at Fair Value
Fair value derivative asset	6
Recurring fair value measurements | RPA Out | Level 1
Assets Measured at Fair Value
Fair value derivative asset	0
Recurring fair value measurements | RPA Out | Level 2
Assets Measured at Fair Value
Fair value derivative asset	6
Recurring fair value measurements | RPA Out | Level 3
Assets Measured at Fair Value
Fair value derivative asset	0
Recurring fair value measurements | Interest rate swap agreements
Assets Measured at Fair Value
Fair value derivative asset	4,545	3,638
Fair value of the derivative liability	4,545	3,638
Recurring fair value measurements | Interest rate swap agreements | Level 1
Assets Measured at Fair Value
Fair value derivative asset	0	0
Fair value of the derivative liability	0	0
Recurring fair value measurements | Interest rate swap agreements | Level 2
Assets Measured at Fair Value
Fair value derivative asset	4,545	3,638
Fair value of the derivative liability	4,545	3,638
Recurring fair value measurements | Interest rate swap agreements | Level 3
Assets Measured at Fair Value
Fair value derivative asset	0	0
Fair value of the derivative liability	0	0
Recurring fair value measurements | Obligations of the U.S. Treasury
Assets Measured at Fair Value
Total, fair value	30,557	31,836
Recurring fair value measurements | Obligations of the U.S. Treasury | Level 1
Assets Measured at Fair Value
Total, fair value	30,557	31,836
Recurring fair value measurements | Obligations of the U.S. Treasury | Level 2
Assets Measured at Fair Value
Total, fair value	0	0
Recurring fair value measurements | Obligations of the U.S. Treasury | Level 3
Assets Measured at Fair Value
Total, fair value	0	0
Recurring fair value measurements | Obligations of U.S. Government agencies
Assets Measured at Fair Value
Total, fair value	18,796	23,430
Recurring fair value measurements | Obligations of U.S. Government agencies | Level 1
Assets Measured at Fair Value
Total, fair value	0	0
Recurring fair value measurements | Obligations of U.S. Government agencies | Level 2
Assets Measured at Fair Value
Total, fair value	18,796	23,430
Recurring fair value measurements | Obligations of U.S. Government agencies | Level 3
Assets Measured at Fair Value
Total, fair value	0	0
Recurring fair value measurements | Bank holding company debt securities
Assets Measured at Fair Value
Total, fair value	22,311	25,386
Recurring fair value measurements | Bank holding company debt securities | Level 1
Assets Measured at Fair Value
Total, fair value	0	0
Recurring fair value measurements | Bank holding company debt securities | Level 2
Assets Measured at Fair Value
Total, fair value	22,311	25,386
Recurring fair value measurements | Bank holding company debt securities | Level 3
Assets Measured at Fair Value
Total, fair value	0	0
Recurring fair value measurements | Obligations Of States And Political Subdivisions Tax Exempt
Assets Measured at Fair Value
Total, fair value	104,453	132,623
Recurring fair value measurements | Obligations Of States And Political Subdivisions Tax Exempt | Level 1
Assets Measured at Fair Value
Total, fair value	0	0
Recurring fair value measurements | Obligations Of States And Political Subdivisions Tax Exempt | Level 2
Assets Measured at Fair Value
Total, fair value	104,453	132,623
Recurring fair value measurements | Obligations Of States And Political Subdivisions Tax Exempt | Level 3
Assets Measured at Fair Value
Total, fair value	0	0
Recurring fair value measurements | Obligations Of States And Political Subdivisions Taxable
Assets Measured at Fair Value
Total, fair value	53,457	56,812
Recurring fair value measurements | Obligations Of States And Political Subdivisions Taxable | Level 1
Assets Measured at Fair Value
Total, fair value	0	0
Recurring fair value measurements | Obligations Of States And Political Subdivisions Taxable | Level 2
Assets Measured at Fair Value
Total, fair value	53,457	56,812
Recurring fair value measurements | Obligations Of States And Political Subdivisions Taxable | Level 3
Assets Measured at Fair Value
Total, fair value	0	0
Recurring fair value measurements | Residential Passthrough Securities
Assets Measured at Fair Value
Total, fair value	94,469	99,941
Recurring fair value measurements | Residential Passthrough Securities | Level 1
Assets Measured at Fair Value
Total, fair value	0	0
Recurring fair value measurements | Residential Passthrough Securities | Level 2
Assets Measured at Fair Value
Total, fair value	94,469	99,941
Recurring fair value measurements | Residential Passthrough Securities | Level 3
Assets Measured at Fair Value
Total, fair value	0	0
Recurring fair value measurements | Residential Collateralized Mortgage Obligations
Assets Measured at Fair Value
Total, fair value	33,397	40,296
Recurring fair value measurements | Residential Collateralized Mortgage Obligations | Level 1
Assets Measured at Fair Value
Total, fair value	0	0
Recurring fair value measurements | Residential Collateralized Mortgage Obligations | Level 2
Assets Measured at Fair Value
Total, fair value	33,397	40,296
Recurring fair value measurements | Residential Collateralized Mortgage Obligations | Level 3
Assets Measured at Fair Value
Total, fair value	0	0
Recurring fair value measurements | Commercial Mortgage Backed Securities
Assets Measured at Fair Value
Total, fair value	63,672	79,686
Recurring fair value measurements | Commercial Mortgage Backed Securities | Level 1
Assets Measured at Fair Value
Total, fair value	0	0
Recurring fair value measurements | Commercial Mortgage Backed Securities | Level 2
Assets Measured at Fair Value
Total, fair value	63,672	79,686
Recurring fair value measurements | Commercial Mortgage Backed Securities | Level 3
Assets Measured at Fair Value
Total, fair value	0	0
Recurring fair value measurements | Private label commercial mortgage-backed securities
Assets Measured at Fair Value
Total, fair value	8,026	8,023
Recurring fair value measurements | Private label commercial mortgage-backed securities | Level 1
Assets Measured at Fair Value
Total, fair value	0	0
Recurring fair value measurements | Private label commercial mortgage-backed securities | Level 2
Assets Measured at Fair Value
Total, fair value	8,026	8,023
Recurring fair value measurements | Private label commercial mortgage-backed securities | Level 3
Assets Measured at Fair Value
Total, fair value	0	0
Nonrecurring fair value measurements
Assets Measured at Fair Value
Total asset fair value measurements	7,674	3,282
Impaired loans, net		3,007
Loans individually evaluated for credit loss, net	7,041
Foreclosed assets held for sale	633	275
Nonrecurring fair value measurements | Level 1
Assets Measured at Fair Value
Total asset fair value measurements	0	0
Impaired loans, net		0
Loans individually evaluated for credit loss, net	0
Foreclosed assets held for sale	0	0
Nonrecurring fair value measurements | Level 2
Assets Measured at Fair Value
Total asset fair value measurements	0	0
Impaired loans, net		0
Loans individually evaluated for credit loss, net	0
Foreclosed assets held for sale	0	0
Nonrecurring fair value measurements | Level 3
Assets Measured at Fair Value
Total asset fair value measurements	7,674	3,282
Impaired loans, net		3,007
Loans individually evaluated for credit loss, net	7,041
Foreclosed assets held for sale	$ 633	$ 275

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FAIR VALUE MEASUREMENTS AND FAIR VALUES OF FINANCIAL INSTRUMENTS - Level 3 Valuation Techniques Recurring (Details) - Recurring fair value measurements - USD ($)	9 Months Ended	12 Months Ended
	Sep. 30, 2023	Dec. 31, 2022
Valuation Techniques and the Unobservable Inputs
Fair value	$ 2,630,000	$ 2,653,000
Valuation Technique, Discounted cash flow
Valuation Techniques and the Unobservable Inputs
Fair value	$ 2,630,000	$ 2,653,000
Valuation Technique, Discounted cash flow | Servicing rights.
Valuation Techniques and the Unobservable Inputs
Discount rate	13.00%	13.00%
Weighted-average PSA	129.00%	133.00%
Servicing fees of loan balances	0.25%	0.25%
Servicing fees of payments are late	4.00%	4.00%
Late fees assessed	5.00%	5.00%
Miscellaneous fees per account per month	$ 1.94	$ 1.94
Monthly servicing cost per account	6.00	6.00
Additional monthly servicing cost per loan on loans more than 30 days delinquent	$ 24.00	$ 24.00
Servicing costs of loans more than 30 days delinquent	1.50%	1.50%
Annual increase in servicing costs	3.00%	3.00%

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FAIR VALUE MEASUREMENTS AND FAIR VALUES OF FINANCIAL INSTRUMENTS - Level 3 Reconciliation (Details) - Level 3 - Servicing rights. - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Reconciliation of activity for Level 3 assets (servicing rights) measured at fair value on a recurring basis
Servicing rights balance, beginning of period	$ 2,607	$ 2,640	$ 2,653	$ 2,329
Originations of servicing rights	64	33	113	192
Unrealized (loss) gain included in earnings	(41)	(24)	(136)	128
Servicing rights balance, end of period	$ 2,630	$ 2,649	$ 2,630	$ 2,649
Fair Value, Liability, Recurring Basis, Unobservable Input Reconciliation, Gain (Loss), Statement of Income or Comprehensive Income [Extensible Enumeration]	Revenue from Contract with Customer, Excluding Assessed Tax	Revenue from Contract with Customer, Excluding Assessed Tax	Revenue from Contract with Customer, Excluding Assessed Tax	Revenue from Contract with Customer, Excluding Assessed Tax

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FAIR VALUE MEASUREMENTS AND FAIR VALUES OF FINANCIAL INSTRUMENTS - Level 3 Valuation Techniques Nonrecurring (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Valuation Techniques and the Unobservable Inputs
Impaired loans, net		$ 3,460
Valuation allowance		453
Nonrecurring fair value measurements
Valuation Techniques and the Unobservable Inputs
Impaired loans, net		3,007
Foreclosed assets held for sale	$ 633	275
Residential mortgage
Valuation Techniques and the Unobservable Inputs
Foreclosed assets held for sale	202	0
Commercial | Real estate loan
Valuation Techniques and the Unobservable Inputs
Impaired loans, net		3,400
Valuation allowance		427
Commercial | Commercial and industrial
Valuation Techniques and the Unobservable Inputs
Impaired loans, net		60
Valuation allowance		26
Impaired Loans | Nonrecurring fair value measurements
Valuation Techniques and the Unobservable Inputs
Impaired loans, net	7,861	3,460
Valuation allowance	820	453
Fair value	7,041	3,007
Impaired Loans | Valuation, Market Approach | Commercial | Commercial real estate - non-owner occupied | Nonrecurring fair value measurements
Valuation Techniques and the Unobservable Inputs
Impaired loans, net	7,362
Valuation allowance	664
Fair value	6,698
Impaired Loans | Valuation, Market Approach | Commercial | Commercial real estate - owner occupied | Nonrecurring fair value measurements
Valuation Techniques and the Unobservable Inputs
Impaired loans, net	303
Valuation allowance	61
Fair value	$ 242
Impaired Loans | Valuation, Market Approach | Commercial | Commercial real estate - owner occupied | Weighted average | Nonrecurring fair value measurements
Valuation Techniques and the Unobservable Inputs
Discount rate	57.00%
Impaired Loans | Valuation, Market Approach | Commercial | Other commercial loans | Nonrecurring fair value measurements
Valuation Techniques and the Unobservable Inputs
Impaired loans, net	$ 196
Valuation allowance	95
Fair value	$ 101
Impaired Loans | Valuation, Market Approach | Commercial | Other commercial loans | Weighted average | Nonrecurring fair value measurements
Valuation Techniques and the Unobservable Inputs
Discount rate	18.00%
Impaired Loans | Valuation, Market Approach | Commercial | Real estate loan | Nonrecurring fair value measurements
Valuation Techniques and the Unobservable Inputs
Impaired loans, net		3,400
Valuation allowance		427
Fair value		$ 2,973
Impaired Loans | Valuation, Market Approach | Commercial | Real estate loan | Weighted average | Nonrecurring fair value measurements
Valuation Techniques and the Unobservable Inputs
Discount rate	25.00%	25.00%
Impaired Loans | Valuation, Market Approach | Commercial | Commercial and industrial | Nonrecurring fair value measurements
Valuation Techniques and the Unobservable Inputs
Foreclosed assets held for sale		$ 60
Valuation allowance		26
Fair value		$ 34
Impaired Loans | Valuation, Market Approach | Commercial | Commercial and industrial | Weighted average | Nonrecurring fair value measurements
Valuation Techniques and the Unobservable Inputs
Discount rate		33.00%
Foreclosed Assets Held For Sale | Nonrecurring fair value measurements
Valuation Techniques and the Unobservable Inputs
Foreclosed assets held for sale	$ 633	$ 275
Valuation allowance	0	0
Fair value	633	275
Foreclosed Assets Held For Sale | Valuation, Market Approach | Commercial Real Estate Receivables | Nonrecurring fair value measurements
Valuation Techniques and the Unobservable Inputs
Foreclosed assets held for sale	202	275
Valuation allowance	0	0
Fair value	$ 202	$ 275
Foreclosed Assets Held For Sale | Valuation, Market Approach | Commercial Real Estate Receivables | Weighted average | Nonrecurring fair value measurements
Valuation Techniques and the Unobservable Inputs
Discount rate	38.00%	50.00%
Foreclosed Assets Held For Sale | Valuation, Market Approach | Commercial | Commercial Real Estate Receivables | Nonrecurring fair value measurements
Valuation Techniques and the Unobservable Inputs
Foreclosed assets held for sale	$ 431
Valuation allowance	0
Fair value	$ 431
Foreclosed Assets Held For Sale | Valuation, Market Approach | Commercial | Commercial Real Estate Receivables | Weighted average | Nonrecurring fair value measurements
Valuation Techniques and the Unobservable Inputs
Discount rate	45.00%

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FAIR VALUE MEASUREMENTS AND FAIR VALUES OF FINANCIAL INSTRUMENTS - Financial Instruments Not Recorded at Fair Value (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Reported value measurement | Level 1
Fair values, and carrying amounts financial instruments not recorded at fair value
Cash and cash equivalents	$ 48,308	$ 47,698
Reported value measurement | Level 2
Fair values, and carrying amounts financial instruments not recorded at fair value
Certificates of deposit	4,350	7,350
Restricted equity securities (included in Other Assets)	21,062	14,418
Accrued interest receivable	9,311	8,653
Short-term borrowings	23,253	80,062
Long-term borrowings	125,276	62,347
Senior debt	14,814	14,765
Subordinated debt	24,689	24,607
Accrued interest payable	1,464	461
Reported value measurement | Level 2 | Deposits with no stated maturity
Fair values, and carrying amounts financial instruments not recorded at fair value
Deposits, fair value	1,603,033	1,702,404
Reported value measurement | Level 2 | Time deposits
Fair values, and carrying amounts financial instruments not recorded at fair value
Deposits, fair value	421,964	295,189
Reported value measurement | Level 3
Fair values, and carrying amounts financial instruments not recorded at fair value
Loans, net	1,812,585	1,723,425
Estimate of fair value measurement | Level 1
Fair values, and carrying amounts financial instruments not recorded at fair value
Cash and cash equivalents	48,308	47,698
Estimate of fair value measurement | Level 2
Fair values, and carrying amounts financial instruments not recorded at fair value
Certificates of deposit	4,033	6,956
Restricted equity securities (included in Other Assets)	21,062	14,418
Accrued interest receivable	9,311	8,653
Short-term borrowings	23,253	80,062
Long-term borrowings	123,056	60,944
Senior debt	12,870	9,712
Subordinated debt	20,184	16,186
Accrued interest payable	1,464	461
Estimate of fair value measurement | Level 2 | Deposits with no stated maturity
Fair values, and carrying amounts financial instruments not recorded at fair value
Deposits, fair value	1,603,033	1,702,404
Estimate of fair value measurement | Level 2 | Time deposits
Fair values, and carrying amounts financial instruments not recorded at fair value
Deposits, fair value	419,686	293,814
Estimate of fair value measurement | Level 3
Fair values, and carrying amounts financial instruments not recorded at fair value
Loans, net	$ 1,732,232	$ 1,674,002

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Pay vs Performance Disclosure - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Pay vs Performance Disclosure
Net Income (Loss)	$ 7,591	$ 4,455	$ 19,887	$ 18,839

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Insider Trading Arrangements	3 Months Ended
	Sep. 30, 2023
Trading Arrangements, by Individual
Rule 10b5-1 Arrangement Adopted	false
Non-Rule 10b5-1 Arrangement Adopted	false
Rule 10b5-1 Arrangement Terminated	false
Non-Rule 10b5-1 Arrangement Terminated	false