EMPLOYEE AND POSTRETIREMENT BENEFIT PLANS

12 Months Ended

Dec. 31, 2024

EMPLOYEE AND POSTRETIREMENT BENEFIT PLANS

EMPLOYEE AND POSTRETIREMENT BENEFIT PLANS

12. EMPLOYEE AND POSTRETIREMENT BENEFIT PLANS

DEFINED BENEFIT PLANS

The Corporation sponsors a defined benefit health care plan that provides postretirement medical benefits and life insurance to employees who meet certain age and length of service requirements. Full-time employees no longer accrue service time toward the Corporation-subsidized portion of the medical benefits. The plan contains a cost-sharing feature which causes participants to pay for all future increases in costs related to benefit coverage. Accordingly, actuarial assumptions related to health care cost trend rates do not significantly affect the liability balance at December 31, 2024 and 2023 and are not expected to significantly affect the Corporation’s future expenses. The Corporation uses a December 31 measurement date for the postretirement plan.

In an acquisition in 2007, the Corporation assumed the Citizens Trust Company Retirement Plan, a defined benefit pension plan. This plan covers certain employees who were employed by Citizens Trust Company on December 31, 2002, when the plan was amended to discontinue admittance of any future participant and to freeze benefit accruals. Information related to the Citizens Trust Company Retirement Plan has been included in the tables that follow. The Corporation uses a December 31 measurement date for this plan.

The following table shows the funded status of the defined benefit plans:

	Pension				Postretirement
(In Thousands)	2024		2023		2024		2023
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year	$	896	$	946	$	1,013	$	935
Service cost		0		0		6		54
Interest cost		29		31		31		48
Plan participants' contributions		0		0		118		129
Actuarial loss		18		63		10		37
Gain from plan amendments		0		0		(413)		0
Benefits paid		(5)		(5)		(179)		(190)
Settlement of plan obligation		0		(139)		0		0
Benefit obligation at end of year	$	938	$	896	$	586	$	1,013
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year	$	946	$	1,001	$	0	$	0
Actual return on plan assets		36		89		0		0
Employer contribution		0		0		61		61
Plan participants' contributions		0		0		118		129
Benefits paid		(5)		(5)		(179)		(190)
Settlement of plan obligation		0		(139)		0		0
Fair value of plan assets at end of year	$	977	$	946	$	0	$	0
Funded status at end of year	$	39	$	50	$	(586)	$	(1,013)

At December 31, 2024 and 2023, the following pension plan and postretirement plan liability amounts were recognized in the consolidated balance sheets:

	Pension				Postretirement
(In Thousands)	2024		2023		2024		2023
Accrued interest and other liabilities		39	$	50	$	586		1,013

At December 31, 2024 and 2023, the following items included in accumulated other comprehensive loss had not been recognized as components of expense:

	Pension				Postretirement
(In Thousands)	2024		2023		2024		2023
Prior service cost	$	0	$	0	$	(56)	$	(124)
Net actuarial loss (gain)		131		139		(486)		(573)
Total	$	131	$	139	$	(542)	$	(697)

For the defined benefit pension plan, amortization of the net actuarial loss is expected to be $5,000 in 2025. For the postretirement plan, effective in 2024, amendments to the plan resulted in a decrease of $413,000 in unrecognized prior service cost and a related reduction in net periodic benefit costs from curtailment of $469,000.  In 2025, the net actuarial gain to be amortized as a reduction in expense is $83,000 and the estimated reduction in expense related to prior service cost is $8,000.

The accumulated benefit obligation for the defined benefit pension plan was $938,000 at December 31, 2024 and $896,000 at December 31, 2023.

The components of net periodic benefit costs from defined benefit plans are as follows:

	Pension						Postretirement
(In Thousands)	2024		2023		2022		2024		2023		2022
Service cost	$	0	$	0	$	0	$	6	$	54	$	63
Interest cost		29		31		22		31		48		34
Expected return on plan assets		(16)		(18)		(35)		0		0		0
Amortization of prior service cost		0		0		0		(12)		(31)		(31)
Recognized net actuarial loss (gain)		6		11		8		(77)		(36)		(19)
Effect of curtailment		0		0		0		(469)		0		0
Settlement of plan obligation		0		21		0		0		0		0
Total net periodic benefit cost	$	19	$	45	$	(5)	$	(521)	$	35	$	47

The weighted-average assumptions used to determine net periodic benefit cost are as follows:

	Pension						Postretirement
	2024		2023		2022		2024		2023		2022
Discount rate	4.80	%	5.05	%	2.60	%	5.00	%	5.25	%	3.00	%
Expected return on plan assets	5.00	%	4.22	%	5.00	%	N/A		N/A		N/A
Rate of compensation increase	N/A		N/A		N/A		N/A		N/A		N/A

The weighted-average assumptions used to determine benefit obligations as of December 31, 2024 and 2023 are as follows:

	Pension				Postretirement
	2024		2023		2024		2023
Discount rate	5.35	%	4.80	%	5.29	%	5.00	%
Rate of compensation increase	N/A		N/A		N/A		N/A

Estimated future benefit payments, including only estimated employer contributions for the postretirement plan, which reflect expected future service, are as follows:

(In Thousands)	Pension		Postretirement
2025	$	620	$	68
2026		14		67
2027		9		59
2028		250		59
2029		8		54
2030-2034		38		233

No estimated minimum contribution to the defined benefit pension plan is required in 2025, though the Corporation may make discretionary contributions.

The expected return on pension plan assets is a significant assumption used in the calculation of net periodic benefit cost. This assumption reflects the average long-term rate of earnings expected on the funds invested or to be invested to provide for the benefits included in the projected benefit obligation.

The fair values of pension plan assets at December 31, 2024 and 2023 are as follows:

	2024		2023
Mutual funds invested principally in:
Cash and cash equivalents	100	%	54	%
Debt securities	0	%	18	%
Equity securities	0	%	24	%
Alternative funds	0	%	4	%
Total	100	%	100	%

C&N Bank’s Wealth Management Department manages the investment of the pension plan assets. The Plan’s securities include mutual funds invested principally in cash and cash equivalents. The fair values of plan assets are determined based on Level 1 inputs (as described in Note 20). The Plan’s assets do not include any shares of the Corporation’s common stock.

PROFIT SHARING AND DEFERRED COMPENSATION PLANS

The Corporation has a profit sharing plan that incorporates the deferred salary savings provisions of Section 401(k) of the Internal Revenue Code. The Corporation’s matching contributions to the Plan depend upon the tax deferred contributions of employees. The Corporation’s total basic and matching contributions were $1,468,000 in 2024, $1,419,000 in 2023 and $1,415,000 in 2022.

The Corporation has an Employee Stock Ownership Plan (ESOP). Contributions to the ESOP are discretionary, and the ESOP uses funds contributed to purchase Corporation stock for the accounts of ESOP participants. These purchases are made in the market (not directly from the Corporation), and employees are not permitted to purchase Corporation stock under the ESOP. The ESOP includes a diversification feature, which allows participants, upon reaching age 55 and 10 years of service (as defined), to sell up to 50% of their Corporation shares over a period of 6 years. As of December 31, 2024 and 2023, there were no shares allocated for repurchase by the ESOP.

Dividends paid on shares held by the ESOP are charged to retained earnings. All Corporation shares owned through the ESOP are included in the calculation of weighted-average shares outstanding for purposes of calculating earnings per share – basic and diluted. The ESOP held 618,148 shares of Corporation stock at December 31, 2024, 579,567 shares at December 31, 2023 and 564,353 shares at December 31, 2022, all of which had been allocated to Plan participants. The Corporation’s contributions to the ESOP totaled $665,000 in 2024, $1,244,000 in 2023 and $1,170,000 in 2022.

The Corporation has a nonqualified supplemental deferred compensation arrangement with its key officers. Charges to operating expense for officers’ supplemental deferred compensation were $223,000 in 2024, $489,000 in 2023 and $391,000 in 2022. The balance of the liability, which is included in accrued interest and other liabilities in the consolidated balance sheets, is $3,164,000 at December 31, 2024 and $3,025,000 at December 31, 2023.

In connection with an acquisition, the Corporation assumed an obligation to provide a supplemental retirement benefit to a former executive. Under the terms of the agreement, the executive or his heirs will receive monthly payments totaling $1 million over a 10-year period starting in October 2025. The Corporation recorded expense of $14,000 in 2024, $13,000 in 2023 and $14,000 in 2022, which is included in salaries and employee benefits in the consolidated statements of income, representing the effective interest cost on the obligation. The discount rate used to measure the liability is 1.5%. The balance of the liability, which is included in accrued interest and other liabilities in the consolidated balance sheets, is $919,000 at December 31, 2024 and $905,000 at December 31, 2023.

The Corporation also has a nonqualified deferred compensation plan that allows selected officers the option to defer receipt of cash compensation, including base salary and any cash bonuses or other cash incentives. This nonqualified deferred compensation plan does not provide for Corporation contributions.

STOCK-BASED COMPENSATION PLANS

At the Annual Meeting of Shareholders on April 20, 2023, the Citizens & Northern Corporation 2023 Equity Incentive Plan (“2023 Equity Incentive Plan”) was approved. A total of 500,000 shares of common stock may be issued under the 2023 Equity Incentive Plan. Awards may be made to participating employees and independent directors under the 2023 Equity Incentive Plan in the form of qualified options (“Incentive Stock Options,” as defined in the Internal Revenue Code), nonqualified options, restricted stock units or restricted stock, any or all of which can be granted with performance-based vesting conditions. As of December 31, 2024, 92,860 awards had been granted under this plan.

Outstanding restricted stock awards granted prior to adoption of the 2023 Equity Incentive Plan, including awards made in 2023, are governed under the 1995 Stock Incentive Plan and the Independent Directors Stock Incentive Plan. The restricted stock awards in 2023 under the 1995 Stock Incentive Plan and the Independent Directors Stock Incentive Plan were the final awards under these plans.  

Total stock-based compensation expense is as follows:

(In Thousands)	2024		2023		2022
Restricted stock	$	1,494	$	1,472	$	1,260
Stock options		0		0		0
Total	$	1,494	$	1,472	$	1,260

The following summarizes non-vested restricted stock activity for the year ended December 31, 2024:

		Weighted
		Average
	Number	Grant Date
	of Shares	Fair Value
Outstanding, December 31, 2023	110,009	$	23.44
Granted	92,860	$	20.69
Vested	(62,969)	$	22.97
Forfeited	(2,076)	$	23.37
Outstanding, December 31, 2024	137,824	$	21.80

Compensation cost related to restricted stock is recognized based on the market price of the stock at the grant date over the vesting period, adjusted for estimated and actual forfeitures. As of December 31, 2024, there was $1,639,000 total unrecognized compensation cost related to restricted stock, which is expected to be recognized over a weighted average period of 1.5 years.

In 2024 and 2023, the Corporation awarded shares of restricted stock under the Stock Incentive Plan, as follows:

	2024	2023
Time-based awards to independent directors	10,000	11,000
Time-based awards to employees	63,514	31,684
Performance-based awards to employees	19,346	11,104
Total	92,860	53,788

Time-based restricted stock awards granted to independent (non-employee) directors in 2024 and 2023 vest over one-year terms. Time-based restricted stock awards granted to employees in 2024 and 2023 vest ratably over three-year terms, subject to continued employment and satisfactory job performance. Performance-based restricted stock awards granted in 2024 and 2023 vest ratably over three-year terms, with vesting contingent upon meeting conditions based on the Corporation’s earnings as specified in the agreements.

There were no stock options granted in 2024, 2023, or 2022. A summary of stock option activity is presented below.

	2024			2023			2022
		Weighted			Weighted			Weighted
		Average			Average			Average
		Exercise			Exercise			Exercise
	Shares	Price		Shares	Price		Shares	Price
Outstanding, beginning of year	646	$	20.45	10,564	$	20.45	24,218	$	20.01
Granted	0		0	0		0	0		0
Exercised	0		0	(8,288)	$	20.45	(13,654)	$	19.67
Forfeited	0		0	(1,630)	$	20.45	0		0
Expired	(646)	$	20.45	0		0	0		0
Outstanding, end of year	0	$	0	646	$	20.45	10,564	$	20.45
Options exercisable at year-end	0	$	0	646	$	20.45	10,564	$	20.45
Weighted-average fair value of options forfeited		$	N/A		$	5.50			N/A

There were no  shares of outstanding stock options at December 31, 2024. The total intrinsic value of options exercised was $14,000 in 2023 and $76,000 in 2022.

In January 2025, the Corporation granted 31,113 shares of time-based restricted stock awards and 11,848 shares of performance-based restricted stock awards under the 2023 Equity Incentive Plan. The time-based shares vest ratably over three years while the performance-based restricted stock awards vest ratably over three years, with vesting contingent upon meeting earnings-related conditions specified in agreements. The restricted stock awards made in January 2025 are not included in the tables above.