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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
or
For the transition period from _______________ to _________________________.
Commission file number:
(Exact name of Registrant as specified in its charter)
| ||
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) |
(Address of principal executive offices) (Zip code)
(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 |
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.
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).
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 ◻
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
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) |
CITIZENS NORTHERN CORPORATION – FORM 10-Q
CITIZENS NORTHERN CORPORATION
Index
Part I. Financial Information |
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Consolidated Balance Sheets (Unaudited) – March 31, 2022 and December 31, 2021 | Page 3 | ||
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Consolidated Statements of Income (Unaudited) – Three-month Periods Ended March 31, 2022 and 2021 | Page 4 | ||
Page 5 | |||
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Page 6 | |||
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Page 7 | |||
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Pages 8 – 33 | |||
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | Pages 34 – 55 | ||
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Item 3. Quantitative and Qualitative Disclosures About Market Risk | Pages 55 – 57 | ||
Page 57 | |||
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Pages 57 – 59 | |||
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Page 60 | |||
2
CITIZENS NORTHERN CORPORATION – FORM 10-Q
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data) (Unaudited)
| March 31, |
| December 31, | |||
2022 | 2021 | |||||
ASSETS |
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Cash and due from banks: |
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Noninterest-bearing | $ | | $ | | ||
Interest-bearing |
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Total cash and due from banks |
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Available-for-sale debt securities, at fair value |
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Loans receivable |
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Allowance for loan losses |
| ( |
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Loans, net |
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Bank-owned life insurance |
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Accrued interest receivable |
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Bank premises and equipment, net |
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Foreclosed assets held for sale |
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Deferred tax asset, net |
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Goodwill |
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Core deposit intangibles, net |
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Other assets |
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TOTAL ASSETS | $ | | $ | | ||
LIABILITIES |
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Deposits: |
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Noninterest-bearing | $ | | $ | | ||
Interest-bearing |
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Total deposits |
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Short-term borrowings |
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Long-term borrowings - FHLB advances |
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Senior notes, net | | | ||||
Subordinated debt, net |
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Accrued interest and other liabilities |
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TOTAL LIABILITIES |
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STOCKHOLDERS' EQUITY |
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Preferred stock, $ |
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preference per share; |
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Common stock, par value $ |
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issued |
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issued |
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Paid-in capital |
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Retained earnings |
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Treasury stock, at cost; |
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shares at December 31, 2021 |
| ( |
| ( | ||
Accumulated other comprehensive (loss) income |
| ( |
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TOTAL STOCKHOLDERS' EQUITY |
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TOTAL LIABILITIES STOCKHOLDERS' EQUITY | $ | | $ | | ||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
3
CITIZENS NORTHERN CORPORATION – FORM 10-Q
Consolidated Statements of Income
(In Thousands Except Per Share Data) (Unaudited)
| Three Months Ended | |||||
March 31, | March 31, | |||||
2022 | 2021 | |||||
INTEREST INCOME |
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Interest and fees on loans: |
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Taxable | $ | | $ | | ||
Tax-exempt |
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Income from available-for-sale debt securities: |
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Taxable |
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Tax-exempt |
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Other interest and dividend income |
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Total interest and dividend income |
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INTEREST EXPENSE |
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Interest on deposits |
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Interest on short-term borrowings |
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Interest on long-term borrowings - FHLB advances |
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Interest on senior notes, net |
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Interest on subordinated debt, net |
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Total interest expense |
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Net interest income |
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Provision for loan losses |
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Net interest income after provision for loan losses |
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NONINTEREST INCOME |
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Trust revenue |
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Brokerage and insurance revenue |
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Service charges on deposit accounts |
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Interchange revenue from debit card transactions |
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Net gains from sale of loans |
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Loan servicing fees, net |
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Increase in cash surrender value of life insurance |
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Other noninterest income |
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Realized gains on available-for-sale debt securities, net | | |||||
Total noninterest income |
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NONINTEREST EXPENSE |
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Salaries and employee benefits | | | ||||
Net occupancy and equipment expense | | | ||||
Data processing and telecommunications expense | | | ||||
Automated teller machine and interchange expense |
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Pennsylvania shares tax |
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Professional fees |
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Other noninterest expense |
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Total noninterest expense |
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Income before income tax provision |
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Income tax provision |
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NET INCOME | $ | | $ | | ||
EARNINGS PER COMMON SHARE - BASIC | $ | | $ | | ||
EARNINGS PER COMMON SHARE - DILUTED | $ | | $ | | ||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
CITIZENS NORTHERN CORPORATION – FORM 10-Q
Consolidated Statements of Comprehensive (Loss) Income
(In Thousands) (Unaudited)
| Three Months Ended | |||||
March 31, | March 31, | |||||
| 2022 |
| 2021 | |||
Net income | $ | | $ | | ||
Available-for-sale debt securities: | ||||||
Unrealized holding losses on available-for-sale debt securities | ( | ( | ||||
Reclassification adjustment for (gains) realized in income | ( | |||||
Other comprehensive loss on available-for-sale debt securities | ( | ( | ||||
Unfunded pension and postretirement obligations: |
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Changes from plan amendments and actuarial gains and losses |
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| ( | ||
Amortization of prior service cost and net actuarial loss included in net periodic benefit cost |
| ( |
| ( | ||
Other comprehensive income (loss) on pension and postretirement obligations |
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| ( | ||
Other comprehensive loss before income tax |
| ( |
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Income tax related to other comprehensive loss |
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Net other comprehensive loss |
| ( |
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Comprehensive (loss) income | $ | ( | $ | | ||
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)
| Three Months Ended | |||||
March 31, | March 31, | |||||
2022 |
| 2021 | ||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income | $ | | $ | | ||
Adjustments to reconcile net income to net cash provided by operating activities: |
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Provision for loan losses |
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Realized gains on available-for-sale debt securities, net |
| ( |
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Net amortization of securities | | | ||||
Increase in cash surrender value of life insurance |
| ( |
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Depreciation and amortization of bank premises and equipment |
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Net accretion of purchase accounting adjustments |
| ( |
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Stock-based compensation |
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Deferred income taxes |
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Increase in fair value of servicing rights |
| ( |
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Gains on sales of loans, net |
| ( |
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Origination of loans held for sale |
| ( |
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Proceeds from sales of loans held for sale |
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Increase in accrued interest receivable and other assets |
| ( |
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(Decrease) increase in accrued interest payable and other liabilities |
| ( |
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Other |
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Net Cash Provided by Operating Activities |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Purchase of certificates of deposit | ( | |||||
Proceeds from calls and maturities of available-for-sale debt securities |
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Purchase of available-for-sale debt securities |
| ( |
| ( | ||
Redemption of Federal Home Loan Bank of Pittsburgh stock |
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Purchase of Federal Home Loan Bank of Pittsburgh stock |
| ( |
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Net decrease in loans |
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Proceeds from bank owned life insurance |
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Proceeds from sales of premises and equipment |
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Purchase of premises and equipment |
| ( |
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Proceeds from sale of foreclosed assets |
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Other |
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Net Cash (Used in) Provided by Investing Activities |
| ( |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Net increase in deposits |
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Net increase (decrease) in short-term borrowings |
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| ( | ||
Repayments of long-term borrowings - FHLB advances |
| ( |
| ( | ||
Sale of treasury stock |
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Purchases of treasury stock |
| ( |
| ( | ||
Common dividends paid |
| ( |
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Net Cash Provided by Financing Activities |
| |
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INCREASE IN CASH AND CASH EQUIVALENTS |
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CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
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CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | | $ | | ||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
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Accrued purchase of certificates of deposit | $ | $ | ||||
Increase in accrued purchase of available-for-sale debt securities | $ | | $ | |||
Assets acquired through foreclosure of real estate loans | $ | $ | ||||
Interest paid | $ | | $ | | ||
Income taxes paid | $ | | $ | | ||
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 March 31, 2022 |
| Shares |
| Shares |
| Stock |
| Capital |
| Earnings |
| Income (Loss) |
| Stock |
| Total | ||||||
Balance, December 31, 2021 |
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| | $ | | $ | | $ | | $ | | $ | ( | $ | | ||||||
Net income |
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Other comprehensive loss, net |
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Cash dividends declared on common stock, $ |
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Shares issued for dividend reinvestment plan |
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Shares issued from treasury and redeemed related to exercise of stock options | ( | ( | | | ||||||||||||||||||
Restricted stock granted |
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Forfeiture of restricted stock |
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Stock-based compensation expense |
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Purchase of restricted stock for tax withholding | | ( | ( | |||||||||||||||||||
Treasury stock purchases | | ( | ( | |||||||||||||||||||
Balance, March 31, 2022 |
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| | $ | | $ | | $ | | $ | ( | $ | ( | $ | | ||||||
Three Months Ended March 31, 2021 |
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Balance, December 31, 2020 |
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| | $ | | $ | | $ | | $ | | $ | ( | $ | | ||||||
Net income |
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Other comprehensive loss, net |
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Cash dividends declared on common stock, $ |
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Shares issued for dividend reinvestment plan |
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Shares issued from treasury and redeemed related to exercise of stock options |
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Restricted stock granted |
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Forfeiture of restricted stock |
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Stock-based compensation expense |
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Purchase of restricted stock for tax withholding | | ( | ( | |||||||||||||||||||
Balance, March 31, 2021 |
| |
| | $ | | $ | | $ | | $ | | $ | ( | $ | | ||||||
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 (“CN Bank”), Bucktail Life Insurance Company and Citizens Northern Investment Corporation (collectively, “Corporation”). The consolidated financial statements also include CN Bank’s wholly-owned subsidiaries, CN Financial Services, LLC and Northern Tier Holding LLC. CN Bank is the sole member of CN 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, 2021, 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.
Operating results reported for the three-month period ended March 31, 2022 might not be indicative of the results for the year ending December 31, 2022. 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 financial statements issued in the near future.
Recently Issued But Not Yet Effective Accounting Pronouncements
ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), as modified by subsequent ASUs, changes accounting for credit losses on loans receivable and debt securities from an incurred loss methodology to an expected credit loss methodology. Among other things, ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Accordingly, ASU 2016-13 requires the use of forward-looking information to form credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, though the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, ASU 2016-13 amends the accounting for credit losses on debt securities and purchased financial assets with credit deterioration. The effect of implementing this ASU is recorded through a cumulative-effect adjustment to retained earnings. The Corporation has formed a cross functional management team and is working with an outside vendor assessing alternative loss estimation methodologies and the Corporation’s data and system needs to evaluate the impact that adoption of this standard will have on the Corporation’s financial condition and results of operations. In November 2019, the FASB approved a delay of the required implementation date of ASU 2016-13 for smaller reporting companies, including the Corporation, resulting in a required implementation date for the Corporation of January 1, 2023.
ASU 2020-04, Reference Rate Reform (Topic 848) provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The amendments in ASU 2020-04 are elective and apply to all entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued. The guidance includes a general principle that permits an entity to consider contract modifications due to reference rate reform to be an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. Some specific optional expedients are as follows:
| ● | Simplifies accounting for contract modifications, including modifications to loans receivable and debt, by prospectively adjusting the effective interest rate. |
8
CITIZENS NORTHERN CORPORATION – FORM 10-Q
| ● | Simplifies the assessment of hedge effectiveness and allows hedging relationships affected by reference rate reform to continue. |
The amendments in ASU 2020-04 are effective as of March 12, 2020 through December 31, 2022. The Corporation has formed a cross functional management team to evaluate and implement changes to contracts with rates indexed to LIBOR and expects to apply the amendments prospectively for applicable loan and other contracts within the effective period of ASU 2020-04.
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 | |||||
March 31, | March 31, | |||||
| 2022 |
| 2021 | |||
Basic |
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|
| |||
Net income | $ | | $ | | ||
Less: Dividends and undistributed earnings allocated to participating securities |
| ( |
| ( | ||
Net income attributable to common shares | $ | | $ | | ||
Basic weighted-average common shares outstanding |
| |
| | ||
Basic earnings per common share (a) | $ | | $ | | ||
Diluted |
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Net income attributable to common shares | $ | | $ | | ||
Basic weighted-average common shares outstanding |
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Dilutive effect of potential common stock arising from stock options |
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Diluted weighted-average common shares outstanding |
| |
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Diluted earnings per common share (a) | $ | | $ | | ||
Weighted-average nonvested restricted shares outstanding |
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| | ||
| (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. There were
9
CITIZENS NORTHERN CORPORATION – FORM 10-Q
3. COMPREHENSIVE (LOSS) INCOME
Comprehensive (loss) income 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 (loss) income. The components of other comprehensive (loss) income, and the related tax effects, are as follows:
(In Thousands) |
| Before-Tax |
| Income Tax |
| Net-of-Tax | |||
Amount | Effect | Amount | |||||||
Three Months Ended March 31, 2022 |
|
|
|
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| |||
Available-for-sale debt securities: | |||||||||
Unrealized holding losses on available-for-sale debt securities | $ | ( | $ | | $ | ( | |||
Reclassification adjustment for (gains) realized in income | ( | ( | |||||||
Other comprehensive loss from available-for-sale debt securities | ( | ( | |||||||
Unfunded pension and postretirement obligations: |
|
|
|
|
|
| |||
Changes from plan amendments and actuarial gains and losses | | ( | | ||||||
Amortization of prior service cost and net actuarial loss included in net periodic benefit cost |
| ( |
| |
| ( | |||
Other comprehensive income on unfunded retirement obligations | | ( | | ||||||
Total other comprehensive loss | $ | ( | $ | | $ | ( | |||
(In Thousands) |
| Before-Tax |
| Income Tax |
| Net-of-Tax | |||
Amount | Effect | Amount | |||||||
Three Months Ended March 31, 2021 |
|
|
|
|
|
| |||
Available-for-sale debt securities, | |||||||||
Unrealized holding losses on available-for-sale debt securities | $ | ( | $ | | $ | ( | |||
Unfunded pension and postretirement obligations: |
|
|
|
|
|
| |||
Changes from plan amendments and actuarial gains and losses | ( |
| |
| ( | ||||
Amortization of prior service cost and net actuarial loss included in net periodic benefit cost |
| ( |
| |
| ( | |||
Other comprehensive loss on unfunded retirement obligations | ( | | ( | ||||||
Total other comprehensive loss | $ | ( | $ | | $ | ( | |||
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 |
10
CITIZENS NORTHERN CORPORATION – FORM 10-Q
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 March 31, 2022 |
|
|
|
|
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| |||
Balance, beginning of period | $ | | $ | | $ | | |||
Other comprehensive (loss) income during three months ended March 31, 2022 |
| ( |
| |
| ( | |||
Balance, end of period | $ | ( | $ | | $ | ( | |||
Three Months Ended March 31, 2021 |
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|
|
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| |||
Balance, beginning of period | $ | | $ | | $ | | |||
Other comprehensive loss during three months ended March 31, 2021 |
| ( |
| ( |
| ( | |||
Balance, end of period | $ | | $ | | $ | | |||
4. CASH AND DUE FROM BANKS
Cash and due from banks at March 31, 2022 and December 31, 2021 include the following:
(In Thousands) |
| March 31, |
| December 31, | ||
2022 | 2021 | |||||
Cash and cash equivalents | $ | | $ | | ||
Certificates of deposit |
| |
| | ||
Total cash and due from banks | $ | | $ | | ||
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.
Historically, CN Bank has been required to maintain reserves against deposit liabilities in the form of cash and balances with the Federal Reserve Bank of Philadelphia. The reserves are based on deposit levels, account activity, and other services provided by the Federal Reserve Bank. In March 2020, the Federal Reserve Board reduced reserve requirements for U.S. banks to 0%. Accordingly, CN Bank had
11
CITIZENS NORTHERN CORPORATION – FORM 10-Q
5. SECURITIES
Amortized cost and fair value of available-for-sale debt securities at March 31, 2022 and December 31, 2021 are summarized as follows:
(In Thousands) |
| March 31, 2022 | ||||||||||
Gross | Gross | |||||||||||
Unrealized | Unrealized | |||||||||||
| Amortized |
| Holding |
| Holding |
| Fair | |||||
| Cost |
| Gains |
| Losses |
| Value | |||||
Obligations of the U.S. Treasury | $ | | $ | | $ | ( | $ | | ||||
Obligations of U.S. Government agencies | | | ( | | ||||||||
Bank holding company debt securities | | ( | | |||||||||
Obligations of states and political subdivisions: |
|
|
|
|
| |||||||
Tax-exempt |
| |
| |
| ( |
| | ||||
Taxable |
| |
| |
| ( |
| | ||||
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies: |
|
|
|
|
|
|
|
| ||||
Residential pass-through securities |
| |
| |
| ( |
| | ||||
Residential collateralized mortgage obligations |
| |
| |
| ( |
| | ||||
Commercial mortgage-backed securities |
| |
| |
| ( |
| | ||||
Total available-for-sale debt securities | $ | | $ | | $ | ( | $ | | ||||
(In Thousands) |
| December 31, 2021 | ||||||||||
Gross | Gross | |||||||||||
|
| Unrealized | Unrealized | |||||||||
| Amortized |
| Holding |
| Holding |
| Fair | |||||
| Cost |
| Gains |
| Losses |
| Value | |||||
Obligations of the U.S. Treasury | $ | | $ | | $ | ( | $ | | ||||
Obligations of U.S. Government agencies | | | ( | | ||||||||
Bank holding company debt securities | | | ( | | ||||||||
Obligations of states and political subdivisions: |
|
|
|
|
| |||||||
Tax-exempt |
| |
| |
| ( |
| | ||||
Taxable |
| |
| |
| ( |
| | ||||
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies: |
|
|
|
|
|
|
|
| ||||
Residential pass-through securities |
| |
| |
| ( |
| | ||||
Residential collateralized mortgage obligations |
| |
| |
| ( |
| | ||||
Commercial mortgage-backed securities |
| |
| |
| ( |
| | ||||
Total available-for-sale debt securities | $ | | $ | | $ | ( | $ | | ||||
12
CITIZENS NORTHERN CORPORATION – FORM 10-Q
The following table presents gross unrealized losses and fair value of available-for-sale debt securities with unrealized loss positions that are not deemed to be other-than-temporarily impaired, aggregated by length of time that individual securities have been in a continuous unrealized loss position at March 31, 2022 and December 31, 2021:
March 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 | $ | | $ | ( | $ | $ | $ | | $ | ( | ||||||||
Obligations of U.S. Government agencies | | ( | | ( | | ( | ||||||||||||
Bank holding company debt securities | | ( | | ( | ||||||||||||||
Obligations of states and political subdivisions: | ||||||||||||||||||
Tax-exempt | | ( | | ( | | ( | ||||||||||||
Taxable |
| |
| ( |
| |
| ( |
| |
| ( | ||||||
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies: |
|
|
|
|
|
|
|
|
|
|
| |||||||
Residential pass-through securities | | ( | | ( | | ( | ||||||||||||
Residential collateralized mortgage obligations |
| |
| ( |
|
|
| |
| ( | ||||||||
Commercial mortgage-backed securities |
| |
| ( |
| |
| ( |
| |
| ( | ||||||
Total temporarily impaired available-for-sale debt securities | $ | | $ | ( | $ | | $ | ( | $ | | $ | ( | ||||||
December 31, 2021 |
| 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 | $ | | $ | ( | $ | $ | $ | | $ | ( | ||||||||
Obligations of U.S. Government agencies | | ( | | ( | | ( | ||||||||||||
Bank holding company debt securities | | ( | | ( | ||||||||||||||
Obligations of states and political subdivisions: | ||||||||||||||||||
Tax-exempt | | ( | ( | | ( | |||||||||||||
Taxable |
| |
| ( |
| |
| ( |
| |
| ( | ||||||
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies: |
|
|
|
|
|
|
|
|
|
|
| |||||||
Residential pass-through securities | | ( | | ( | ||||||||||||||
Residential collateralized mortgage obligations |
| |
| ( |
|
|
| |
| ( | ||||||||
Commercial mortgage-backed securities |
| |
| ( |
| |
|
| |
| ( | |||||||
Total temporarily impaired available-for-sale debt securities | $ | | $ | ( | $ | | $ | ( | $ | | $ | ( | ||||||
Gross realized gains and losses from available-for-sale debt securities were as follows:
(In Thousands) | Three Months Ended | |||||
March 31, | March 31, | |||||
| 2022 |
| 2021 | |||
Gross realized gains from sales | $ | $ | | |||
Gross realized losses from sales |
|
| | |||
Net realized gains | $ | $ | ||||
13
CITIZENS NORTHERN CORPORATION – FORM 10-Q
The amortized cost and fair value of available-for-sale debt securities by contractual maturity are shown in the following table as of March 31, 2022. 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) | March 31, 2022 | |||||
Amortized | Fair | |||||
| Cost |
| Value | |||
Due in one year or less | $ | | $ | | ||
Due from one year through five years |
| |
| | ||
Due from five years through ten years |
| |
| | ||
Due after ten years |
| |
| | ||
Sub-total |
| |
| | ||
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies: |
|
|
|
| ||
Residential pass-through securities |
| |
| | ||
Residential collateralized mortgage obligations |
| |
| | ||
Commercial mortgage-backed securities |
| |
| | ||
Total | $ | | $ | | ||
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 $
Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) whether the Corporation intends to sell the security or more likely than not will be required to sell the security before its anticipated recovery.
A summary of information management considered in evaluating debt and equity securities for OTTI at March 31, 2022 is provided below.
Debt Securities
At March 31, 2022 and December 31, 2021, management performed an assessment for possible OTTI 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. The extent of individual analysis applied to each security depended on the size of the Corporation’s investment, as well as management’s perception of the credit risk associated with each security. As reflected in the table above, the fair value of available-for-sale debt securities as of March 31, 2022 was lower than the amortized cost basis by $
Equity Securities
CN 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, CN Bank is required to purchase and maintain stock in FHLB-Pittsburgh. There is no active market for
14
CITIZENS NORTHERN CORPORATION – FORM 10-Q
FHLB-Pittsburgh stock, and it must ordinarily be redeemed by FHLB-Pittsburgh in order to be liquidated. CN Bank’s investment in FHLB-Pittsburgh stock, included in other assets in the consolidated balance sheets, was $
The Corporation has a marketable equity security included in other assets in the consolidated balance sheets with a carrying value of $
6. LOANS
The loans receivable portfolio is segmented into commercial, residential mortgage and consumer loans. Loans outstanding at March 31, 2022 and December 31, 2021 are summarized by segment, and by classes within each segment, as follows:
Summary of Loans by Type
(In Thousands)
| March 31, |
| December 31, | |||
2022 | 2021 | |||||
Commercial: |
|
|
|
| ||
Commercial loans secured by real estate | $ | | $ | | ||
Commercial and industrial |
| |
| | ||
Paycheck Protection Program - 1st Draw | | | ||||
Paycheck Protection Program - 2nd Draw | | | ||||
Political subdivisions |
| |
| | ||
Commercial construction and land |
| |
| | ||
Loans secured by farmland |
| |
| | ||
Multi-family (5 or more) residential |
| |
| | ||
Agricultural loans |
| |
| | ||
Other commercial loans |
| |
| | ||
Total commercial |
| |
| | ||
Residential mortgage: |
|
|
|
| ||
Residential mortgage loans - first liens | | | ||||
Residential mortgage loans - junior liens |
| |
| | ||
Home equity lines of credit |
| |
| | ||
1-4 Family residential construction |
| |
| | ||
Total residential mortgage |
| |
| | ||
Consumer |
| |
| | ||
Total |
| |
| | ||
Less: allowance for loan losses |
| ( |
| ( | ||
Loans, net | $ | | $ | | ||
In the table above, outstanding loan balances are presented net of deferred loan origination fees, net, of $
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.
15
CITIZENS NORTHERN CORPORATION – FORM 10-Q
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law. A provision in the CARES Act includes creation of the Paycheck Protection Program (“PPP”) through the Small Business Administration (“SBA”) and Treasury Department. Under the PPP, the Corporation, as an SBA-certified lender, provided SBA-guaranteed loans to small businesses to pay their employees, rent, mortgage interest, and utilities. PPP loans are forgiven subject to clients’ providing documentation evidencing their compliant use of funds and otherwise complying with the terms of the program. Information related to PPP loans advanced pursuant to the CARES Act are labeled “1st Draw” within the tables.
On December 27, 2020, the President of the United States signed into law the Consolidated Appropriations Act, 2021 (the “CAA”), which includes provisions that broadly address additional COVID-19 responses and relief. Among the additional relief measures included are certain extensions to elements of the CARES Act, including extension of relief from troubled debt restructurings reporting established under Section 4013 of the CARES Act to 60 days after the date on which the national COVID-19 emergency terminates. The CAA also includes additional funding for the PPP with additional eligibility requirements for borrowers with generally the same loan terms as provided under the CARES Act. Information related to PPP loans advanced pursuant to the CAA are labeled “2nd Draw” within the tables.
The maximum term of PPP loans is five years. Most of the Corporation’s 1st Draw PPP loans have two-year terms, while 2nd Draw PPP loans have five-year terms and the Corporation will be repaid sooner to the extent the loans are forgiven. The interest rate on PPP loans is 1%, and the Corporation has received fees from the SBA ranging between 1% and 5% per loan, depending on the size of the loan. Fees on PPP loans, net of origination costs and a market rate adjustment on acquired PPP loans, are recognized in interest income as a yield adjustment over the term of the loans.
As of March 31, 2022, the recorded investment in 1st Draw PPP loans was $
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 non-impaired (performing) loans, and a partial recovery of purchased credit impaired (PCI) loans. For the three-month periods ended March 31, 2022 and 2021, adjustments to the initial market rate and credit fair value adjustments of performing loans were recognized as follows:
(In Thousands) | Three Months Ended | |||||
March 31, | March 31, | |||||
2022 | 2021 | |||||
Market Rate Adjustment |
|
|
|
| ||
Adjustments to gross amortized cost of loans at beginning of period | $ | ( | $ | |||
Amortization recognized in interest income | ( | ( | ||||
Adjustments to gross amortized cost of loans at end of period | $ | ( | $ | | ||
Credit Adjustment on Non-impaired Loans | ||||||
Adjustments to gross amortized cost of loans at beginning of period | $ | ( | $ | ( | ||
Accretion recognized in interest income |
| |
| | ||
Adjustments to gross amortized cost of loans at end of period | $ | ( | $ | ( | ||
A summary of PCI loans held at March 31, 2022 and December 31, 2021 is as follows:
(In Thousands) | March 31, | December 31, | ||||
| 2022 |
| 2021 | |||
Outstanding balance | $ | | $ | | ||
Carrying amount |
| |
| | ||
16
CITIZENS NORTHERN CORPORATION – FORM 10-Q
In the three-month period ended March 31, 2022, the Corporation received repayments on PCI loans in excess of previous carrying amounts, resulting in income of $
The Corporation maintains an allowance for loan losses that represents management’s estimate of the losses inherent in the loan portfolio as of the balance sheet date and recorded as a reduction of the investment in loans. The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs a quarterly evaluation of the adequacy of the allowance. The allowance is based on the Corporation’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available. In the process of evaluating the loan portfolio, management also considers the Corporation’s exposure to losses from unfunded loan commitments. As of March 31, 2022 and December 31, 2021, management determined that
Transactions within the allowance for loan losses, summarized by segment and class, for the three-month periods ended March 31, 2022 and 2021 were as follows:
Three Months Ended March 31, 2022 | December 31, 2021 |
|
|
|
|
|
|
| March 31, 2022 | ||||||
(In Thousands) |
| Balance |
| Charge-offs |
| Recoveries |
| Provision (Credit) |
| Balance | |||||
Allowance for Loan Losses: |
|
|
|
|
|
| |||||||||
Commercial: |
|
|
|
|
|
|
|
|
|
| |||||
Commercial loans secured by real estate | $ | | $ | $ | $ | | $ | | |||||||
Commercial and industrial |
| |
| ( |
|
| |
| | ||||||
Commercial construction and land |
| |
|
|
| ( |
| | |||||||
Loans secured by farmland |
| |
|
|
| |
| | |||||||
Multi-family (5 or more) residential |
| |
|
|
| |
| | |||||||
Agricultural loans |
| |
|
|
| |
| | |||||||
Other commercial loans |
| |
|
|
| ( |
| | |||||||
Total commercial |
| |
| ( |
|
| |
| | ||||||
Residential mortgage: |
|
|
|
|
|
| |||||||||
Residential mortgage loans - first liens | | | | | |||||||||||
Residential mortgage loans - junior liens |
| |
|
|
| ( |
| | |||||||
Home equity lines of credit |
| |
|
|
| ( |
| | |||||||
1-4 Family residential construction |
| |
|
|
| ( |
| | |||||||
Total residential mortgage |
| |
|
|
| | | ||||||||
Consumer |
| |
| ( |
|
| |
| | ||||||
Unallocated |
| |
|
|
| ( |
| | |||||||
Total Allowance for Loan Losses | $ | | $ | ( | $ | | $ | | $ | | |||||
17
CITIZENS NORTHERN CORPORATION – FORM 10-Q
Three Months Ended March 31, 2021 | December 31, 2020 |
|
|
|
|
|
|
| March 31, 2021 | ||||||
(In Thousands) |
| Balance |
| Charge-offs |
| Recoveries |
| Provision (Credit) |
| Balance | |||||
Allowance for Loan Losses: |
|
|
|
|
|
| |||||||||
Commercial: |
|
|
|
|
|
|
|
|
|
| |||||
Commercial loans secured by real estate | $ | | $ | $ | $ | $ | | ||||||||
Commercial and industrial |
| |
|
|
| ( |
| | |||||||
Commercial construction and land |
| |
|
|
|
| | ||||||||
Loans secured by farmland |
| |
|
|
| ( |
| | |||||||
Multi-family (5 or more) residential |
| |
|
|
|
| | ||||||||
Agricultural loans |
| |
|
|
| ( |
| | |||||||
Other commercial loans |
| |
|
|
| ( |
| | |||||||
Total commercial |
| |
|
|
|
| | ||||||||
Residential mortgage: |
|
|
|
|
|
| |||||||||
Residential mortgage loans - first liens | | ( | | ||||||||||||
Residential mortgage loans - junior liens |
| |
|
|
| ( |
| | |||||||
Home equity lines of credit |
| |
|
|
| ( |
| | |||||||
1-4 Family residential construction |
| |
|
|
| ( |
| | |||||||
Total residential mortgage |
| |
|
|
| ( |
| | |||||||
Consumer |
| |
| ( |
|
| ( |
| | ||||||
Unallocated |
| |
|
|
|
| | ||||||||
Total Allowance for Loan Losses | $ | | $ | ( | $ | $ | $ | ||||||||
For the three months ended March 31, 2022, the provision for loan losses was $
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” column in the table that follows.
18
CITIZENS NORTHERN CORPORATION – FORM 10-Q
The following tables summarize the aggregate credit quality classification of outstanding loans by risk rating as of March 31, 2022 and December 31, 2021:
March 31, 2022 |
|
|
|
|
| Purchased |
| |||||||||||
(In Thousands) | Special | Credit | ||||||||||||||||
Pass | Mention | Substandard | Doubtful | Impaired | Total | |||||||||||||
Commercial: |
|
|
|
|
|
| ||||||||||||
Commercial loans secured by real estate | $ | | $ | | $ | | $ | $ | | $ | | |||||||
Commercial and Industrial |
| |
| |
| |
|
| |
| | |||||||
Paycheck Protection Program - 1st Draw | | | ||||||||||||||||
Paycheck Protection Program - 2nd Draw | | | ||||||||||||||||
Political subdivisions |
| |
|
|
|
|
| | ||||||||||
Commercial construction and land |
| |
| |
| |
|
|
| | ||||||||
Loans secured by farmland |
| |
| |
| |
|
|
| | ||||||||
Multi-family (5 or more) residential |
| |
|
| |
|
|
| | |||||||||
Agricultural loans |
| |
|
| |
|
|
| | |||||||||
Other commercial loans |
| |
|
|
|
|
| | ||||||||||
Total commercial |
| |
| |
| |
|
| |
| | |||||||
Residential Mortgage: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Residential mortgage loans - first liens | | | | | | |||||||||||||
Residential mortgage loans - junior liens |
| |
| |
| |
|
| |
| | |||||||
Home equity lines of credit |
| |
| |
| |
|
|
| | ||||||||
1-4 Family residential construction |
| |
|
|
|
|
| | ||||||||||
Total residential mortgage |
| |
| |
| |
|
|
| | ||||||||
Consumer |
| |
|
| |
|
|
| | |||||||||
Totals | $ | | $ | | $ | | $ | $ | | $ | | |||||||
December 31, 2021 |
|
|
|
|
| Purchased |
| |||||||||||
(In Thousands) | Special | Credit | ||||||||||||||||
Pass | Mention | Substandard | Doubtful | Impaired | Total | |||||||||||||
Commercial: |
|
|
|
|
|
| ||||||||||||
Commercial loans secured by real estate | $ | | $ | | $ | | $ | $ | | $ | | |||||||
Commercial and Industrial |
| |
| |
| |
|
| |
| | |||||||
Paycheck Protection Program - 1st Draw | | | ||||||||||||||||
Paycheck Protection Program - 2nd Draw | | | ||||||||||||||||
Political subdivisions |
| |
|
|
|
|
| | ||||||||||
Commercial construction and land |
| |
| |
| |
|
|
| | ||||||||
Loans secured by farmland |
| |
| |
| |
|
|
| | ||||||||
Multi-family (5 or more) residential |
| |
|
| |
|
| |
| | ||||||||
Agricultural loans |
| |
|
| |
|
|
| | |||||||||
Other commercial loans |
| |
|
|
|
|
| | ||||||||||
Total commercial |
| |
| |
| |
|
| |
| | |||||||
Residential Mortgage: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Residential mortgage loans - first liens | | | | | | |||||||||||||
Residential mortgage loans - junior liens |
| |
| |
| |
|
| |
| | |||||||
Home equity lines of credit |
| |
| |
| |
|
|
| | ||||||||
1-4 Family residential construction |
| |
|
|
|
|
| | ||||||||||
Total residential mortgage |
| |
| |
| |
|
|
| | ||||||||
Consumer |
| |
|
| |
|
|
| | |||||||||
Totals | $ | | $ | | $ | | $ | $ | | $ | | |||||||
19
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 March 31, 2022 and December 31, 2021.
March 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 | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
Commercial and industrial |
| |
| |
| |
| |
| |
| | ||||||
Paycheck Protection Program - 1st Draw |
| |
| |
| |
| |
| |
| | ||||||
Paycheck Protection Program - 2nd Draw | | | | | | | ||||||||||||
Political subdivisions |
| |
| |
| |
| |
| |
| | ||||||
Commercial construction and land |
| |
| |
| |
| |
| |
| | ||||||
Loans secured by farmland |
| |
| |
| |
| |
| |
| | ||||||
Multi-family (5 or more) residential |
| |
| |
| |
| |
| |
| | ||||||
Agricultural loans |
| |
| |
| |
| |
| |
| | ||||||
Other commercial loans |
| |
| |
| |
| |
| |
| | ||||||
Total commercial |
| |
| |
| |
| |
| |
| | ||||||
Residential mortgage: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Residential mortgage loans - first liens | | | | | | |||||||||||||
Residential mortgage loans - junior liens |
| |
| |
| |
|
| |
| | |||||||
Home equity lines of credit |
| |
| |
| |
| |
| |
| | ||||||
1-4 Family residential construction |
| |
| |
| |
| |
| |
| | ||||||
Total residential mortgage |
| |
| |
| |
|
| |
| | |||||||
Consumer |
|
| |
| |
|
| |
| | ||||||||
Unallocated |
|
|
|
|
|
|
|
|
|
|
| | ||||||
Total | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
20
CITIZENS NORTHERN CORPORATION – FORM 10-Q
December 31, 2021 |
| Loans: | Allowance for Loan Losses: | |||||||||||||||
(In Thousands) | ||||||||||||||||||
Individually | Collectively | Individually | Collectively |
| ||||||||||||||
| Evaluated |
| Evaluated |
| Totals |
| Evaluated |
| Evaluated |
| Totals | |||||||
Commercial: |
|
|
|
|
|
| ||||||||||||
Commercial loans secured by real estate | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
Commercial and industrial |
| |
| |
| |
| |
| |
| | ||||||
Paycheck Protection Program - 1st Draw |
| |
| |
| |
| |
| |
| | ||||||
Paycheck Protection Program - 2nd Draw | | | | | | | ||||||||||||
Political subdivisions |
| |
| |
| |
| |
| |
| | ||||||
Commercial construction and land |
| |
| |
| |
| |
| |
| | ||||||
Loans secured by farmland |
| |
| |
| |
| |
| |
| | ||||||
Multi-family (5 or more) residential |
| |
| |
| |
| |
| |
| | ||||||
Agricultural loans |
| |
| |
| |
| |
| |
| | ||||||
Other commercial loans |
| |
| |
| |
| |
| |
| | ||||||
Total commercial |
| |
| |
| |
| |
| |
| | ||||||
Residential mortgage: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Residential mortgage loans - first liens | | | | | | |||||||||||||
Residential mortgage loans - junior liens |
| |
| |
| |
|
| |
| | |||||||
Home equity lines of credit |
| |
| |
| |
| |
| |
| | ||||||
1-4 Family residential construction |
| |
| |
| |
| |
| |
| | ||||||
Total residential mortgage |
| |
| |
| |
|
| |
| | |||||||
Consumer |
|
| |
| |
|
| |
| | ||||||||
Unallocated |
|
|
|
|
|
|
|
|
|
|
| | ||||||
Total | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
Summary information related to impaired loans at March 31, 2022 and December 31, 2021 is provided in the table immediately below.
(In Thousands) | March 31, 2022 | December 31, 2021 | ||||||||||||||||
Unpaid | Unpaid | |||||||||||||||||
Principal | Recorded | Related | Principal | Recorded | Related | |||||||||||||
| Balance |
| Investment |
| Allowance |
| Balance |
| Investment |
| Allowance | |||||||
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Commercial loans secured by real estate | $ | | $ | | $ | $ | | $ | | $ | ||||||||
Commercial and industrial |
| |
| |
|
| |
| |
| ||||||||
Residential mortgage loans - first liens | | | | | ||||||||||||||
Residential mortgage loans - junior liens |
| |
| |
|
| |
| |
| ||||||||
Loans secured by farmland |
|
|
|
|
|
| ||||||||||||
Agricultural loans | ||||||||||||||||||
Construction and other land loans | ||||||||||||||||||
Multi-family (5 or more) residential | ||||||||||||||||||
Total with no related allowance recorded |
| |
| |
|
| |
| |
| ||||||||
With a related allowance recorded: |
|
|
|
|
|
| ||||||||||||
Commercial loans secured by real estate | | | | | | | ||||||||||||
Commercial and industrial |
| |
| |
| |
| |
| |
| | ||||||
Total with a related allowance recorded |
| |
| |
| |
| |
| |
| | ||||||
Total | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
21
CITIZENS NORTHERN CORPORATION – FORM 10-Q
The average balance of impaired loans, excluding purchased credit 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 | Three Months Ended | |||||||||||
March 31, | March 31, | |||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||
Commercial: | ||||||||||||
Commercial loans secured by real estate | $ | | $ | | $ | | $ | | ||||
Commercial and industrial | | | | | ||||||||
Commercial construction and land | | | ||||||||||
Loans secured by farmland | | | | |||||||||
Multi-family (5 or more) residential | | |||||||||||
Agricultural loans | | | ||||||||||
Total commercial | | | | | ||||||||
Residential mortgage: |
| |||||||||||
Residential mortgage loans - first lien | | | | | ||||||||
Residential mortgage loans - junior lien | | | | | ||||||||
Home equity lines of credit | | | ||||||||||
Total residential mortgage | | | | | ||||||||
Total | $ | | $ | | $ | | $ | | ||||
The breakdown by portfolio segment and class of nonaccrual loans and loans past due ninety days or more and still accruing is as follows:
(In Thousands) | March 31, 2022 | December 31, 2021 | ||||||||||
Past Due | Past Due | |||||||||||
90+ Days and | 90+ Days and | |||||||||||
| Accruing |
| Nonaccrual |
| Accruing |
| Nonaccrual | |||||
Commercial: |
|
|
|
|
|
| ||||||
Commercial loans secured by real estate | $ | | $ | | $ | | $ | | ||||
Commercial and industrial |
| |
| |
| |
| | ||||
Commercial construction and land |
|
| |
|
| | ||||||
Loans secured by farmland |
|
| |
| |
| | |||||
Multi-family (5 or more) residential | | |||||||||||
Agricultural loans | ||||||||||||
Total commercial |
| |
| |
| |
| | ||||
Residential mortgage: |
|
|
|
|
|
|
|
| ||||
Residential mortgage loans - first liens | | | | | ||||||||
Residential mortgage loans - junior liens |
| |
| |
| |
| | ||||
Home equity lines of credit |
| |
| |
| |
| | ||||
Total residential mortgage |
| |
| |
| |
| | ||||
Consumer |
| |
| |
| |
| | ||||
Totals | $ | | $ | | $ | | $ | | ||||
The amounts shown in the table immediately above include loans classified as troubled debt restructurings (described in more detail below), if such loans are past due ninety days or more or nonaccrual. PCI loans with a total recorded investment of $
22
CITIZENS NORTHERN CORPORATION – FORM 10-Q
The table below presents a summary of the contractual aging of loans as of March 31, 2022 and December 31, 2021. Loans modified under the Corporation’s program designed to work with clients impacted by COVID-19 are included in the current and past due less than 30 days category in the table that follows.
(In Thousands) | As of March 31, 2022 | As of December 31, 2021 | ||||||||||||||||||||||
| Current |
|
|
|
| Current |
|
|
| |||||||||||||||
Past Due | Past Due | Past Due | Past Due | Past Due | Past Due | |||||||||||||||||||
Less than | 30-89 | 90+ | Less than | 30-89 | 90+ | |||||||||||||||||||
30 Days | Days | Days | Total | 30 Days | Days | Days | Total | |||||||||||||||||
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Commercial loans secured by real estate | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Commercial and industrial |
| |
| |
| |
| |
| |
| |
| |
| | ||||||||
Paycheck Protection Program - 1st Draw | | | | | ||||||||||||||||||||
Paycheck Protection Program - 2nd Draw | | | | | ||||||||||||||||||||
Political subdivisions |
| |
|
|
| |
| |
|
|
| | ||||||||||||
Commercial construction and land |
| |
| |
|
| |
| |
| |
|
| | ||||||||||
Loans secured by farmland |
| |
|
| |
| |
| |
|
| |
| | ||||||||||
Multi-family (5 or more) residential |
| |
|
|
| |
| |
|
|
| | ||||||||||||
Agricultural loans |
| |
|
|
| |
| |
|
|
| | ||||||||||||
Other commercial loans |
| |
|
|
| |
| |
|
|
| | ||||||||||||
Total commercial |
| |
| |
| |
| |
| |
| |
| |
| | ||||||||
Residential mortgage: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Residential mortgage loans - first liens | | | | | | | | | ||||||||||||||||
Residential mortgage loans - junior liens |
| |
| |
| |
| |
| |
| |
| |
| | ||||||||
Home equity lines of credit |
| |
| |
| |
| |
| |
| |
| |
| | ||||||||
1-4 Family residential construction |
| |
|
|
| |
| |
|
|
| | ||||||||||||
Total residential mortgage |
| |
| |
| |
| |
| |
| |
| |
| | ||||||||
Consumer |
| |
| |
| |
| |
| |
| |
| |
| | ||||||||
Totals | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
23
CITIZENS NORTHERN CORPORATION – FORM 10-Q
Nonaccrual loans are included in the contractual aging in the immediately preceding table. A summary of the contractual aging of nonaccrual loans at March 31, 2022 and December 31, 2021 is as follows:
(In Thousands) | Current |
| ||||||||||
Past Due | Past Due | Past Due |
| |||||||||
Less than | 30-89 | 90+ |
| |||||||||
| 30 Days |
| Days |
| Days |
| Total | |||||
March 31, 2022 Nonaccrual Totals | $ | | $ | | $ | | $ | | ||||
December 31, 2021 Nonaccrual Totals | $ | | $ | | $ | | $ | | ||||
Loans whose terms are modified are classified as troubled debt restructurings (TDRs) if the Corporation grants such borrowers concessions, and it is deemed that those borrowers are experiencing financial difficulty. Loans classified as TDRs are designated as impaired. The outstanding balance of loans subject to TDRs, as well as contractual aging information at March 31, 2022 and December 31, 2021 is as follows:
(In Thousands) | Current |
|
| ||||||||||||
Past Due | Past Due | Past Due |
|
| |||||||||||
Less than | 30-89 | 90+ |
|
| |||||||||||
| 30 Days |
| Days |
| Days |
| Nonaccrual |
| Total | ||||||
March 31, 2022 Totals | $ | | $ | $ | | $ | | $ | | ||||||
December 31, 2021 Totals | $ | | $ | $ | | $ | | $ | | ||||||
At March 31, 2022 and December 31, 2021, there were
TDRs that occurred during the three-month periods ended March 31, 2022 and 2021 are as follows:
(Balances in Thousands) | Three Months Ended | Three Months Ended | ||||||||
March 31, 2022 | March 31, 2021 | |||||||||
Post- | Post- | |||||||||
Number | Modification | Number | Modification | |||||||
of | Recorded | of | Recorded | |||||||
Loans | Investment | Loans | Investment | |||||||
Residential mortgage - first liens, | ||||||||||
Reduced monthly payments and extended maturity date | |
| $ | |
| |
| $ | | |
Consumer, | ||||||||||
Reduced monthly payments and extended maturity date | | | ||||||||
Total |
|
| $ |
| |
| $ | | ||
In the three-month periods ended March 31, 2022 and 2021, defaults on loans for which modifications that were considered to be TDR and were entered into within the previous 12 months are summarized as follows:
(Balances in Thousands) | Three Months Ended | Three Months Ended | ||||||||
March 31, 2022 | March 31, 2021 | |||||||||
Number | Number | |||||||||
of | Recorded | of | Recorded | |||||||
Loans | Investment | Loans | Investment | |||||||
Commercial loans secured by real estate | | $ | $ | |||||||
Total |
| $ |
| $ | ||||||
24
CITIZENS NORTHERN CORPORATION – FORM 10-Q
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) |
| March 31, |
| December 31, | ||
2022 | 2021 | |||||
Foreclosed residential real estate | $ | | $ | | ||
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) |
| March 31, |
| December 31, | ||
2022 | 2021 | |||||
Residential real estate in process of foreclosure | $ | | $ | | ||
7. GOODWILL AND OTHER INTANGIBLE ASSETS
Information related to core deposit intangibles is as follows:
(In Thousands) |
| March 31, |
| December 31, | ||
2022 | 2021 | |||||
Gross amount | $ | | $ | | ||
Accumulated amortization |
| ( |
| ( | ||
Net | $ | | $ | | ||
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 | |||||
March 31, | March 31, | |||||
| 2022 |
| 2021 | |||
Amortization expense | $ | |
| $ | | |
Goodwill represents the excess of the cost of acquisitions over the fair value of the net assets acquired. At March 31, 2022 and December 31, 2021, the net carrying value of goodwill was $
8. BORROWED FUNDS
SHORT-TERM BORROWINGS
Short-term borrowings (initial maturity within one year) include the following:
(In Thousands) |
| March 31, |
| December 31, | ||
2022 | 2021 | |||||
FHLB-Pittsburgh borrowings | $ | $ | ||||
Customer repurchase agreements |
| |
| | ||
Total short-term borrowings | $ | | $ | | ||
The Corporation had available credit with other correspondent banks totaling $
The Corporation has a line of credit with the Federal Reserve Bank of Philadelphia’s Discount Window. At March 31, 2022, the Corporation had available credit in the amount of $
25
CITIZENS NORTHERN CORPORATION – FORM 10-Q
Corporation had available credit in the amount of $
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
The FHLB-Pittsburgh loan facility is collateralized by qualifying loans secured by real estate with a book value totaling $
At March 31, 2022 and December 31, 2021, there were no overnight borrowings or short-term advances from FHLB-Pittsburgh.
LONG-TERM BORROWINGS – FHLB ADVANCES
Long-term borrowings from FHLB-Pittsburgh are as follows:
(In Thousands) |
| March 31, |
| December 31, | ||
2022 | 2021 | |||||
Loans maturing in 2022 with a weighted-average rate of | $ | | $ | | ||
Loans maturing in 2023 with a weighted-average rate of | | | ||||
Loan maturing in 2024 with a rate of | | | ||||
Loan maturing in 2025 with a rate of | | | ||||
Total long-term FHLB-Pittsburgh borrowings | $ | | $ | | ||
Note: Weighted-average rates are presented as of March 31, 2022.
SENIOR NOTES
On May 19, 2021, the Corporation issued and sold $
The Senior Notes were recorded, net of debt issuance costs of $
At March 31, 2022 and December 31, 2021, outstanding Senior Notes are as follows:
(In Thousands) |
| March 31, |
| December 31, | ||
2022 | 2021 | |||||
Senior Notes with an aggregate par value of $ | $ | $ | ||||
Total carrying value | $ | | $ | | ||
26
CITIZENS NORTHERN CORPORATION – FORM 10-Q
SUBORDINATED DEBT
On
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 $
At March 31, 2022 and December 31, 2021, the carrying amounts of subordinated debt agreements are as follows:
(In Thousands) |
| March 31, |
| December 31, | ||
2022 | 2021 | |||||
Agreements with an aggregate par value of $ | $ | | $ | | ||
Agreement with a par value of $ | | | ||||
Agreements with a par value of $ | | | ||||
Total carrying value | $ | | $ | | ||
9. STOCK-BASED COMPENSATION PLANS
The Corporation has a Stock Incentive Plan for a selected group of officers and an Independent Directors Stock Incentive Plan. The 2022 restricted stock awards under the Stock Incentive Plan vest ratably over
(Dollars in Thousands) |
|
| Aggregate | ||
Grant | |||||
Date | |||||
Number of | Fair | ||||
Shares | Value | ||||
1st quarter 2022 awards: | |||||
Time-based awards to independent directors | $ | ||||
Time-based awards to employees | |||||
Performance-based awards to employees | |||||
Total | | $ | | ||
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, 2022 is estimated
27
CITIZENS NORTHERN CORPORATION – FORM 10-Q
to total $
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 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 $
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 March 31, 2022 and December 31, 2021:
(In Thousands) | At March 31, 2022 | At December 31, 2021 | |||||||||||||||||||||
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 | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | |||||||
| (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 agreement with its derivative counterparty provides 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 counterparty 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 $
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
28
CITIZENS NORTHERN CORPORATION – FORM 10-Q
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 March 31, 2022 and December 31, 2021, assets and liabilities measured at fair value and the valuation methods used are as follows:
March 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 | $ | | $ | $ | $ | | ||||||
Obligations of U.S. Government agencies | | | ||||||||||
Bank holding company debt securities | | | ||||||||||
Obligations of states and political subdivisions: |
|
|
|
|
|
| ||||||
Tax-exempt |
|
| |
|
| | ||||||
Taxable |
|
| |
|
| | ||||||
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies: |
|
|
|
|
|
|
|
| ||||
Residential pass-through securities |
|
| |
|
| | ||||||
Residential collateralized mortgage obligations |
|
| |
|
| | ||||||
Commercial mortgage-backed securities |
|
| |
|
| | ||||||
Total available-for-sale debt securities |
| |
| |
|
| | |||||
Marketable equity security |
| |
|
|
| | ||||||
Servicing rights |
|
|
| |
| | ||||||
Interest rate swap agreements, assets | | |||||||||||
Total recurring fair value measurements, assets | $ | | $ | | $ | | $ | | ||||
Recurring fair value measurements, liabilities, | ||||||||||||
Interest rate swap agreements, liabilities | $ | | $ | | $ | | $ | | ||||
Nonrecurring fair value measurements, assets: |
|
|
|
|
|
|
|
| ||||
Impaired loans, net | $ | $ | $ | | $ | | ||||||
Foreclosed assets held for sale |
|
|
| |
| | ||||||
Total nonrecurring fair value measurements, assets | $ | $ | $ | | $ | | ||||||
29
CITIZENS NORTHERN CORPORATION – FORM 10-Q
December 31, 2021 | ||||||||||||
| Quoted |
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| ||||||||
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: |
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| ||||
AVAILABLE-FOR-SALE DEBT SECURITIES: |
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| ||||
Obligations of the U.S. Treasury | $ | | $ | $ | $ | | ||||||
Obligations of U.S. Government agencies | | | ||||||||||
Bank holding company debt securities | | | ||||||||||
Obligations of states and political subdivisions: |
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Tax-exempt |
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| |
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| | ||||||
Taxable |
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| | ||||||
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies: |
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| ||||
Residential pass-through securities |
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| | ||||||
Residential collateralized mortgage obligations |
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| | ||||||
Commercial mortgage-backed securities |
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| |
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| | ||||||
Total available-for-sale debt securities |
| |
| |
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| | |||||
Marketable equity security |
| |
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| | ||||||
Servicing rights |
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|
| |
| | ||||||
Interest rate swap agreements, assets | | |||||||||||
Total recurring fair value measurements, assets | $ | | $ | | $ | | $ | | ||||
Recurring fair value measurements, liabilities, | ||||||||||||
Interest rate swap agreements, liabilities | $ | | $ | | $ | | $ | | ||||
Nonrecurring fair value measurements, assets: |
|
|
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|
|
|
|
| ||||
Impaired loans, net | $ | $ | $ | | $ | | ||||||
Foreclosed assets held for sale |
|
|
| |
| | ||||||
Total nonrecurring fair value measurements, assets | $ | $ | $ | | $ | | ||||||
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.
30
CITIZENS NORTHERN CORPORATION – FORM 10-Q
At March 31, 2022 and December 31, 2021, 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 |
|
|
|
|
|
|
|
| |||
3/31/2022 | Valuation | Unobservable | Method or Value As of | |||||||||
Asset | (In Thousands) | Technique | Input(s) | 3/31/2022 | ||||||||
Servicing rights | $ | |
| Discounted cash flow |
| Discount rate |
| | % | Rate used through modeling period | ||
|
| Loan prepayment speeds | | % | Weighted-average PSA | |||||||
|
| Servicing fees | | % | of loan balances | |||||||
| | % | of payments are late | |||||||||
| | % | late fees assessed | |||||||||
$ | | Miscellaneous fees per account per month | ||||||||||
|
| Servicing costs | $ | | Monthly servicing cost per account | |||||||
$ | | Additional monthly servicing cost per loan on loans more than 30 days delinquent | ||||||||||
| | % | of loans more than 30 days delinquent | |||||||||
|
| | % | annual increase in servicing costs | ||||||||
| Fair Value at |
|
|
|
|
|
|
|
| |||
12/31/2021 | Valuation | Unobservable | Method or Value As of | |||||||||
Asset | (In Thousands) | Technique | Input(s) | 12/31/2021 | ||||||||
Servicing rights | $ | |
| Discounted cash flow |
| Discount rate |
| | % | Rate used through modeling period | ||
|
| Loan prepayment speeds | | % | Weighted-average PSA | |||||||
|
| Servicing fees | | % | of loan balances | |||||||
| | % | of payments are late | |||||||||
| % | late fees assessed | ||||||||||
$ | | Miscellaneous fees per account per month | ||||||||||
| Servicing costs | $ | | Monthly servicing cost per account | ||||||||
$ | | Additional monthly servicing cost per loan on loans more than 30 days delinquent | ||||||||||
| % | of loans more than 30 days delinquent | ||||||||||
|
| | % | 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 | |||||
| March 31, 2022 |
| March 31, 2021 | |||
Servicing rights balance, beginning of period | $ | | $ | | ||
Originations of servicing rights |
| |
| | ||
Unrealized gain included in earnings |
| |
| | ||
Servicing rights balance, end of period | $ | | $ | | ||
Loans are classified as impaired 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
31
CITIZENS NORTHERN CORPORATION – FORM 10-Q
assets held for sale consist of real estate acquired by foreclosure. For impaired 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 March 31, 2022 and December 31, 2021, 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) |
|
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|
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|
| Weighted |
| ||||
Valuation |
|
|
| Average |
| |||||||||||
Balance at | Allowance at | Fair Value at | Valuation | Unobservable | Discount at |
| ||||||||||
Asset | 3/31/2022 | 3/31/2022 | 3/31/2022 | Technique | Inputs | 3/31/2022 | ||||||||||
Impaired loans: |
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| ||||
Commercial: |
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| |||||||
Commercial loans secured by real estate | $ | | $ | | $ | |
| Sales comparison |
| Discount to appraised value |
| | % | |||
Commercial and industrial | | | Liquidation of assets |
| Discount to appraised value |
| | % | ||||||||
Total impaired loans | $ | | $ | | $ | |
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|
| ||||
Foreclosed assets held for sale - real estate: |
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| ||||
Commercial real estate | $ | | $ | $ | |
| Sales comparison |
| Discount to appraised value |
| | % | ||||
Residential (1-4 family) | | |
| Sales comparison |
| Discount to appraised value |
| | % | |||||||
Total foreclosed assets held for sale | $ | | $ | $ | |
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|
| ||||||
(Dollars In Thousands) |
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| Weighted |
| ||||
Valuation |
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|
| Average |
| |||||||||||
Balance at | Allowance at | Fair Value at | Valuation | Unobservable | Discount at |
| ||||||||||
Asset | 12/31/2021 | 12/31/2021 | 12/31/2021 | Technique | Inputs | 12/31/2021 |
| |||||||||
Impaired loans: |
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|
| ||||
Commercial: |
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| |||||||
Commercial loans secured by real estate | $ | | $ | | $ | |
| Sales comparison |
| Discount to appraised value |
| | % | |||
Commercial and industrial | | | Liquidation of assets |
| Discount to appraised value |
| | % | ||||||||
Total impaired loans | $ | | $ | | $ | |
|
|
|
|
|
| ||||
Foreclosed assets held for sale - real estate: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commercial real estate | $ | | $ | $ | |
| Sales comparison |
| Discount to appraised value |
| | % | ||||
Residential (1-4 family) | | |
| Sales comparison |
| Discount to appraised value |
| | % | |||||||
Total foreclosed assets held for sale | $ | | $ | $ | |
|
|
|
|
| ||||||
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.
32
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 | March 31, 2022 | December 31, 2021 | |||||||||||
Hierarchy | Carrying | Fair | Carrying | Fair | ||||||||||
| Level |
| Amount |
| Value |
| Amount |
| Value | |||||
Financial assets: |
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|
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|
|
|
|
|
|
| ||||
Cash and cash equivalents |
| Level 1 | $ | | $ | | $ | | $ | | ||||
Certificates of deposit |
| Level 2 |
| |
| |
| |
| | ||||
Restricted equity securities (included in Other Assets) |
| Level 2 |
| |
| |
| |
| | ||||
Loans, net |
| Level 3 |
| |
| |
| |
| | ||||
Accrued interest receivable |
| Level 2 |
| |
| |
| |
| | ||||
Financial liabilities: |
|
|
|
|
|
|
|
|
|
| ||||
Deposits with no stated maturity |
| Level 2 |
| |
| |
| |
| | ||||
Time deposits |
| Level 2 |
| |
| |
| |
| | ||||
Short-term borrowings |
| Level 2 |
| |
| |
| |
| | ||||
Long-term borrowings |
| Level 2 |
| |
| |
| |
| | ||||
Senior debt | Level 2 | | | | | |||||||||
Subordinated debt | Level 2 | | | | | |||||||||
Accrued interest payable |
| Level 2 |
| |
| |
| |
| | ||||
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.
33
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 |
| ● | the Corporation’s credit standards and its on-going credit assessment processes might not protect it from significant credit losses |
| ● | the effect of the novel coronavirus (COVID-19) and related events |
| ● | 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 |
These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.
EARNINGS OVERVIEW
First quarter 2022 net income was $6,895,000, or $0.44 per diluted share. In comparison, first quarter 2021 net income was $8,787,000, or $0.55 per diluted share. Significant variances were as follows:
| ● | First quarter 2022 net interest income of $20,332,000 was $249,000 higher than the first quarter 2021 total. Total interest and fees on loans included $1,398,000 from repayments received on purchased credit impaired loans in excess of previous carrying amounts with no comparable income in the first quarter 2021. Interest and fees on PPP loans totaled $575,000 in the first quarter 2022, a decrease of $1,423,000 compared to the first quarter 2021 amount. Interest income from available-for-sale debt securities, on a fully taxable-equivalent basis, increased $960,000 in the first quarter 2022 as compared to the first quarter 2021, as the average balance (at amortized cost) of available-for-sale debt securities increased $199.4 million. Accretion and amortization of purchase accounting adjustments had a net positive impact on net interest income of $450,000 in the first quarter 2022 as compared to a net positive impact of $952,000 in the first quarter 2021. Average outstanding loans decreased $86.7 million, including a reduction in average PPP loans of $119.7 million, and average total deposits increased $100.6 million (5.5%). The net interest margin for the first quarter 2022 was 3.86% as compared to 4.00% for the first quarter 2021. The average yield on earning assets of 4.13% was down 0.20% from the first quarter 2021, while the average rate on interest-bearing liabilities of 0.40% in the first quarter 2022 was 0.07% lower than the comparable first quarter 2021 average rate. |
| ● | The provision for loan losses was $891,000 in the first quarter 2022 as compared to $259,000 in the first quarter 2021. The first quarter 2022 provision included a net charge of $147,000 related to specific loans (net charge-offs of $157,000 offset by a net decrease in specific allowances on loans of $10,000), an increase of $748,000 in the collectively determined portion of the allowance and a decrease of $4,000 in the unallocated portion of the allowance. The increase in the collectively determined |
34
CITIZENS NORTHERN CORPORATION – FORM 10-Q
| portion of the allowance reflected the impact of an increase in volume of commercial loans, excluding PPP loans. The first quarter 2021 provision included a net charge of $182,000 related to specific loans (increase in specific allowances on loans of $199,000, partially offset by net recoveries of $17,000), an increase of $92,000 in the unallocated portion of the allowance and a reduction of $15,000 attributable to decreases in the collectively determined portion of the allowance for loan losses. |
| ● | Noninterest income for the first quarter 2022 was down $959,000 from the first quarter 2021 total. Significant variances included the following: |
| o | Other noninterest income of $588,000 decreased $884,000 from the first quarter 2021 total. There was no income from tax credits in the first quarter 2022 compared to $765,000 in the first quarter 2021. In 2022, the Corporation will make PA Educational Improvement Tax Credit Program donations in the second quarter comparable to total donations made in the first quarter 2021, generating tax credits in 2022 comparable to the first quarter 2021. |
| o | Net gains from sales of loans of $382,000 decreased $682,000 from the first quarter 2021 total, as the volume of residential mortgage loans sold in the first quarter 2022 was down from the first quarter 2021 level. |
| o | Service charges on deposit accounts of $1,235,000 increased $220,000 from the first quarter 2021 total, as the volume of consumer and business overdraft and other activity increased. |
| o | Brokerage and insurance revenue of $522,000 increased $196,000 from the first quarter 2021 total, due to commissions on higher transaction volume. |
| o | Trust revenue of $1,786,000 increased $160,000 from the first quarter 2021 total, reflecting the impact of growth in trust assets under management. |
| ● | Noninterest expense increased $1,177,000 in the first quarter 2022 over the first quarter 2021 amount. Significant variances included the following: |
| o | Salaries and employee benefits of $10,607,000 increased $1,712,000 from the first quarter 2021 total, including an increase in base salaries expense of $1,018,000. In addition to the impact of merit-based salary increases, the number of employees increased, reflecting expansion of the Southcentral PA market with the opening of an office in Lancaster as well as additions to staffing for information technology (IT), human resources and other functions. In total, the number of full-time equivalent employees (FTEs) increased 5.2% to 403 in the first quarter 2022 as compared to the first quarter 2021. Additional increases include $241,000 due to a lower proportion of payroll costs capitalized (added to the carrying value of loans) due to the high volume of PPP loans originated in 2021 and an increase in health care expense of $183,000 due to higher claims on the Corporation’s partially self-insured plan. |
| o | Data processing and telecommunications expense of $1,623,000 increased $243,000 from the first quarter 2021 total, including the impact of increases in software licensing and maintenance costs as well as costs related to enhancements of data management capabilities. |
| o | Net occupancy and equipment expense of $1,411,000 increased $107,000 from the first quarter 2021 total, including computer supplies and repairs and maintenance related to IT and Digital departments and increases related to a new branch location in Lancaster, PA. |
| o | Other noninterest expense of $1,884,000 decreased $871,000 from the first quarter 2021 total. Within this category, significant variances included the following: |
| ● | Donations expense totaled $29,000 in the first quarter 2022, down $785,000 from the first quarter 2021. As noted above, donations of approximately $800,000 related to the PA Educational Improvement Tax Credit Program will be made in the second quarter 2022, comparable to donations made in the first quarter 2021. |
35
CITIZENS NORTHERN CORPORATION – FORM 10-Q
| ● | The allowance for SBA claim adjustments decreased, reflecting more favorable claim results than previously estimated, resulting in a reduction in expense of $242,000 in the first quarter 2022 with no comparable amount in the first quarter 2021. |
| ● | The income tax provision of $1,483,000, or 17.7% of pre-tax income for the first quarter 2022 decreased $627,000 from $2,110,000, or 19.4% of pre-tax income for the first quarter 2021, reflecting lower pre-tax income. |
More 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.
TABLE I – QUARTERLY FINANCIAL DATA
(Dollars In Thousands, | For the Three Months Ended : | ||||||||||||||
Except Per Share Data) | March 31, | December 31, | September 30, | June 30, | March 31, | ||||||||||
(Unaudited) |
| 2022 |
| 2021 | 2021 |
| 2021 |
| 2021 | ||||||
Interest income | $ | 21,773 | $ | 21,246 | $ | 21,073 | $ | 20,428 | $ | 21,754 | |||||
Interest expense |
| 1,441 |
| 1,530 |
| 1,614 |
| 1,747 |
| 1,671 | |||||
Net interest income |
| 20,332 |
| 19,716 |
| 19,459 |
| 18,681 |
| 20,083 | |||||
Provision for loan losses |
| 891 |
| 1,128 |
| 1,530 |
| 744 |
| 259 | |||||
Net interest income after provision for loan losses |
| 19,441 |
| 18,588 |
| 17,929 |
| 17,937 |
| 19,824 | |||||
Noninterest income |
| 5,823 |
| 6,415 |
| 6,382 |
| 6,302 |
| 6,782 | |||||
Noninterest expense |
| 16,886 |
| 16,018 |
| 15,346 |
| 15,399 |
| 15,709 | |||||
Income before income tax provision |
| 8,378 |
| 8,985 |
| 8,965 |
| 8,840 |
| 10,897 | |||||
Income tax provision |
| 1,483 |
| 1,677 |
| 1,566 |
| 1,780 |
| 2,110 | |||||
Net income | $ | 6,895 | $ | 7,308 | $ | 7,399 | $ | 7,060 | $ | 8,787 | |||||
Net income attributable to common shares | $ | 6,835 | $ | 7,256 | $ | 7,336 | $ | 6,999 | $ | 8,722 | |||||
Basic earnings per common share | $ | 0.44 | $ | 0.46 | $ | 0.47 | $ | 0.44 | $ | 0.55 | |||||
Diluted earnings per common share | $ | 0.44 | $ | 0.46 | $ | 0.47 | $ | 0.44 | $ | 0.55 | |||||
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 Loan Losses – A material estimate that is particularly susceptible to significant change is the determination of the allowance for loan losses. The Corporation maintains an allowance for loan losses that represents management’s estimate of the losses inherent in the loan portfolio as of the balance sheet date and recorded as a reduction of the investment in loans. Management believes the allowance for loan losses is adequate and reasonable. Note 6 to the unaudited consolidated financial statements provides an overview of the process management uses for evaluating and determining the allowance for loan losses, and additional discussion of the allowance for loan losses is provided in a separate section later in Management’s Discussion and Analysis. Given the very subjective nature of identifying and valuing loan losses, it is likely that well-informed individuals could make materially different assumptions, and could, therefore calculate a materially different allowance value. While management uses available information to recognize losses on loans, changes in economic conditions may necessitate revisions in future years. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Corporation’s allowance for loan losses. Such agencies may require the Corporation to recognize adjustments to the allowance based on their judgments of information available to them at the time of their examination.
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.
36
CITIZENS NORTHERN CORPORATION – FORM 10-Q
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 II, III and IV include information regarding the Corporation’s net interest income for the three-month periods ended March 31, 2022 and 2021. 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. 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 March 31, 2022 and 2021
For the three-month periods, fully taxable equivalent net interest income was $20,634,000 in 2022, which was $278,000 (1.4%) higher than in 2021. Interest income in the first quarter was $22,075,000 which was $48,000 higher in 2022 as compared to 2021, while interest expense was lower by $230,000 in comparing the same periods. As presented in Table III, the Net Interest Margin was 3.86% in 2022 as compared to 4.00% in 2021, 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 3.73% in 2022 from 3.86% in 2021. The average yield on earning assets of 4.13% was 0.20% lower in 2022 as compared to 2021, and the average rate on interest- bearing liabilities of 0.40% in 2022 was 0.07% lower.
Income from purchase accounting-related adjustments in the first quarter 2022 had a positive effect on net interest income of $450,000, including an increase in income on loans of $305,000 and net reductions in interest expense on time deposits and borrowed funds totaling $145,000. The positive impact to the first quarter 2022 net interest margin from purchase accounting adjustments was 0.08%. In comparison, the positive impact of purchase accounting adjustments to the first quarter 2021 net interest margin was $952,000, or 0.19%.
INTEREST INCOME AND EARNING ASSETS
Interest income totaled $22,075,000 in 2022, an increase of $48,000 from 2021.
Interest and fees from loans receivable decreased $922,000 in 2022 as compared to 2021. Interest and fees on PPP loans totaled $575,000 in the first quarter 2022, a decrease of $1,423,000 from the first quarter 2021, as previously deferred fees were recognized in income upon the SBA’s repayment of loans based on forgiveness of the underlying borrowers. In the first quarter 2022, total interest and fees on loans included $1,398,000 from repayments received on purchased credit impaired loans in excess of previous carrying amounts with no comparable income in the first quarter 2021.
Average outstanding loans receivable decreased $86,725,000 (5.3%) to $1,547,861,000 in 2022 from $1,634,586,000 in 2021, including a reduction in average PPP loans of $119,715,000. Average total loans outstanding, excluding PPP loans, increased $32,990,000 (2.2%).
The average yield on loans in the first quarter 2022 was 5.01%, up from 4.97% in the first quarter 2021. The average yield on loans included the positive impact of the income on PCI loans in the first quarter 2022 and the comparatively high yield on PPP loans in both quarters.
Interest income from available-for-sale debt securities increased $960,000 in 2022 from 2021. Total average available-for-sale debt securities (at amortized cost) increased to $534,635,000 in 2022 from $335,265,000 in 2021. The increase in available-for-sale debt securities reflects the investment of otherwise excess cash. The average yield on available-for-sale debt securities was 2.18% for 2022, down from 2.32% in 2021.
Income from interest-bearing due from banks totaled $67,000 in 2022, an increase of $17,000 from 2021. The average yield on interest-bearing due from banks was 0.32% in 2022 and 0.22% in 2021. The average balance of interest-bearing due from banks was $84,115,000 in the first quarter 2022 as compared to $92,619,000 in the first quarter 2021. Within this category, the largest asset balance in 2022 and 2021 has been interest-bearing deposits held with the Federal Reserve.
37
CITIZENS NORTHERN CORPORATION – FORM 10-Q
INTEREST EXPENSE AND INTEREST-BEARING LIABILITIES
For the three-month periods, interest expense decreased $230,000 to $1,441,000 in 2022 from $1,671,000 in 2021. Interest expense on deposits decreased $368,000, as the average rate on interest-bearing deposits decreased to 0.26% in 2022 from 0.38% in 2021. The decrease in average rates on deposits includes decreases of 0.19% on time deposits, 0.08% on money market accounts, and 0.06% on interest checking accounts. The change in mix of deposits also contributed to the reduction in average rate, as time deposits fell to 14.4% of average total deposits in the first quarter 2022 from 20.2% in the first quarter 2021.
Average total deposits increased $100,569,000 (5.5%) to $1,931,681,000 in the first quarter 2022 from $1,831,112,000 in the first quarter 2021. The increase in average deposits includes the impact of PPP-related activity and funding from other government stimulus programs.
Interest expense on short-term borrowings in the first quarter 2022 was $1,000 as compared to $15,000 in 2021. The average balance of short-term borrowings decreased to $1,746,000 in 2022 from $14,365,000 in 2021. The average rate on short-term borrowings was 0.23% in 2021 compared to 0.42% in 2021.
Interest expense on long-term borrowings (FHLB advances) decreased $85,000 to $49,000 in 2022 from $134,000 in 2021. The average balance of long-term borrowings was $26,102,000 in 2022, down from an average balance of $52,847,000 in 2021. 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 0.76% in 2022 compared to 1.03% in 2021.
Interest expense on senior notes issued in May 2021 totaled $118,000 in the first quarter 2022. The average balance of the senior notes was $14,709,000 in the first quarter of 2022 at an average rate of 3.25%.
Interest expense on subordinated debt increased $119,000 to $363,000 in 2022 from $244,000 in 2021. The average balance of subordinated debt increased to $32,948,000 in 2022 from $16,543,000 in 2021, reflecting the net impact of a new issue of subordinated debt of $24,437,000, net, at an effective rate of 3.74% in May 2021 and the redemption of subordinated notes totaling $8,000,000 in June 2021. The average rate on subordinated debt decreased to 4.47% in 2022 from 5.98% in 2021.
More information regarding the terms of borrowed funds is provided in Note 8 to the unaudited consolidated financial statements.
38
CITIZENS NORTHERN CORPORATION – FORM 10-Q
TABLE II - ANALYSIS OF INTEREST INCOME AND EXPENSE
Three Months Ended | |||||||||
March 31, | Increase/ | ||||||||
(In Thousands) |
| 2022 |
| 2021 |
| (Decrease) | |||
INTEREST INCOME | |||||||||
Interest-bearing due from banks | $ | 67 | $ | 50 | $ | 17 | |||
Available-for-sale debt securities: |
|
|
|
| |||||
Taxable |
| 1,969 |
| 1,113 |
| 856 | |||
Tax-exempt |
| 905 |
| 801 |
| 104 | |||
Total available-for-sale debt securities |
| 2,874 |
| 1,914 |
| 960 | |||
Loans receivable: |
|
|
|
| |||||
Taxable |
| 17,974 |
| 17,493 |
| 481 | |||
Paycheck Protection Program - 1st Draw | 38 | 1,812 | (1,774) | ||||||
Paycheck Protection Program - 2nd Draw | 537 | 186 | 351 | ||||||
Tax-exempt |
| 573 |
| 553 |
| 20 | |||
Total loans receivable |
| 19,122 |
| 20,044 |
| (922) | |||
Other earning assets |
| 12 |
| 19 |
| (7) | |||
Total Interest Income |
| 22,075 |
| 22,027 |
| 48 | |||
| |||||||||
INTEREST EXPENSE |
|
|
|
| |||||
Interest-bearing deposits: |
|
|
|
| |||||
Interest checking |
| 194 |
| 221 |
| (27) | |||
Money market |
| 262 |
| 306 |
| (44) | |||
Savings |
| 61 |
| 55 |
| 6 | |||
Time deposits |
| 393 |
| 696 |
| (303) | |||
Total interest-bearing deposits |
| 910 |
| 1,278 |
| (368) | |||
Borrowed funds: |
|
|
|
| |||||
Short-term |
| 1 |
| 15 |
| (14) | |||
Long-term - FHLB advances |
| 49 |
| 134 |
| (85) | |||
Senior notes, net | 118 | 0 | 118 | ||||||
Subordinated debt, net |
| 363 |
| 244 |
| 119 | |||
Total borrowed funds |
| 531 |
| 393 |
| 138 | |||
Total Interest Expense |
| 1,441 |
| 1,671 |
| (230) | |||
| |||||||||
Net Interest Income | $ | 20,634 | $ | 20,356 | $ | 278 | |||
Note: Interest income from tax-exempt securities and loans has been adjusted to a fully taxable-equivalent basis, using the Corporation’s marginal federal income tax rate of 21%.
39
CITIZENS NORTHERN CORPORATION – FORM 10-Q
Table III - Analysis of Average Daily Balances and Rates
(Dollars in Thousands) | Three Months | Three Months |
| ||||||||
| Ended | Rate of | Ended | Rate of |
| ||||||
| 3/31/2022 | Return/ | 3/31/2021 | Return/ |
| ||||||
| Average | Cost of | Average | Cost of |
| ||||||
|
| Balance |
| Funds % |
| Balance |
| Funds % |
| ||
EARNING ASSETS |
|
|
|
|
|
|
|
| |||
Interest-bearing due from banks | $ | 84,115 |
| 0.32 | % | $ | 92,619 |
| 0.22 | % | |
Available-for-sale debt securities, at amortized cost: |
|
|
|
|
| ||||||
Taxable | 390,301 |
| 2.05 | % | 217,733 |
| 2.07 | % | |||
Tax-exempt |
| 144,334 |
| 2.54 | % |
| 117,532 |
| 2.76 | % | |
Total available-for-sale debt securities |
| 534,635 |
| 2.18 | % |
| 335,265 |
| 2.32 | % | |
Loans receivable: |
|
|
|
|
|
|
|
| |||
Taxable |
| 1,445,353 |
| 5.04 | % |
| 1,428,721 |
| 4.97 | % | |
Paycheck Protection Program - 1st Draw | 1,049 | 14.69 | % | 104,367 | 7.04 | % | |||||
Paycheck Protection Program - 2nd Draw | 17,800 | 12.24 | % | 34,197 | 2.21 | % | |||||
Tax-exempt |
| 83,659 |
| 2.78 | % |
| 67,301 |
| 3.33 | % | |
Total loans receivable |
| 1,547,861 |
| 5.01 | % |
| 1,634,586 |
| 4.97 | % | |
Other earning assets |
| 1,983 |
| 2.45 | % |
| 2,851 |
| 2.70 | % | |
Total Earning Assets |
| 2,168,594 |
| 4.13 | % |
| 2,065,321 |
| 4.33 | % | |
Cash |
| 20,703 |
|
|
| 23,796 |
|
| |||
Unrealized (loss) gain on securities |
| (2,508) |
|
|
| 12,890 |
|
| |||
Allowance for loan losses |
| (13,783) |
|
|
| (11,739) |
|
| |||
Bank-owned life insurance | 30,720 | 30,154 | |||||||||
Bank premises and equipment |
| 21,043 |
|
|
| 21,348 |
|
| |||
Intangible assets |
| 55,765 |
|
|
| 56,288 |
|
| |||
Other assets |
| 44,952 |
|
|
| 44,628 |
|
| |||
Total Assets | $ | 2,325,486 |
|
| $ | 2,242,686 |
|
| |||
|
|
|
|
|
|
|
| ||||
INTEREST-BEARING LIABILITIES |
|
|
|
|
|
|
|
| |||
Interest-bearing deposits: |
|
|
|
|
|
|
|
| |||
Interest checking | $ | 419,130 |
| 0.19 | % | $ | 355,993 |
| 0.25 | % | |
Money market |
| 456,904 |
| 0.23 | % |
| 406,841 |
| 0.31 | % | |
Savings |
| 249,165 |
| 0.10 | % |
| 213,437 |
| 0.10 | % | |
Time deposits |
| 277,405 |
| 0.57 | % |
| 370,555 |
| 0.76 | % | |
Total interest-bearing deposits |
| 1,402,604 |
| 0.26 | % |
| 1,346,826 |
| 0.38 | % | |
Borrowed funds: |
|
|
|
|
|
|
|
| |||
Short-term |
| 1,746 |
| 0.23 | % |
| 14,365 |
| 0.42 | % | |
Long-term - FHLB advances |
| 26,102 |
| 0.76 | % |
| 52,847 |
| 1.03 | % | |
Senior notes, net | 14,709 | 3.25 | % | 0 | 0.00 | % | |||||
Subordinated debt, net |
| 32,948 |
| 4.47 | % |
| 16,543 |
| 5.98 | % | |
Total borrowed funds |
| 75,505 |
| 2.85 | % |
| 83,755 |
| 1.90 | % | |
Total Interest-bearing Liabilities |
| 1,478,109 |
| 0.40 | % |
| 1,430,581 |
| 0.47 | % | |
Demand deposits |
| 529,077 |
|
|
| 484,286 |
|
| |||
Other liabilities |
| 24,046 |
|
|
| 27,930 |
|
| |||
Total Liabilities |
| 2,031,232 |
|
|
| 1,942,797 |
|
| |||
Stockholders' equity, excluding accumulated other comprehensive (loss) income |
| 295,996 |
|
|
| 289,591 |
|
| |||
Accumulated other comprehensive (loss) income |
| (1,742) |
|
|
| 10,298 |
|
| |||
Total Stockholders' Equity |
| 294,254 |
|
|
| 299,889 |
|
| |||
Total Liabilities and Stockholders' Equity | $ | 2,325,486 |
|
| $ | 2,242,686 |
|
| |||
Interest Rate Spread |
|
|
| 3.73 | % |
|
|
| 3.86 | % | |
Net Interest Income/Earning Assets |
|
|
| 3.86 | % |
|
|
| 4.00 | % | |
|
|
|
|
|
|
|
| ||||
Total Deposits (Interest-bearing and Demand) | $ | 1,931,681 |
|
| $ | 1,831,112 |
|
| |||
| (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. |
40
CITIZENS NORTHERN CORPORATION – FORM 10-Q
TABLE IV - ANALYSIS OF VOLUME AND RATE CHANGES
(In Thousands) | Three Months Ended 3/31/22 vs. 3/31/21 | ||||||||
| Change in | Change in | Total | ||||||
|
| Volume |
| Rate |
| Change | |||
EARNING ASSETS |
|
|
|
|
|
| |||
Interest-bearing due from banks | $ | (5) | $ | 22 | $ | 17 | |||
Available-for-sale debt securities: |
|
|
|
| |||||
Taxable |
| 871 |
| (15) |
| 856 | |||
Tax-exempt |
| 172 |
| (68) |
| 104 | |||
Total available-for-sale debt securities |
| 1,043 |
| (83) |
| 960 | |||
Loans receivable: |
|
|
|
|
|
| |||
Taxable |
| 205 |
| 276 |
| 481 | |||
Paycheck Protection Program - 1st Draw | (2,723) | 949 | (1,774) | ||||||
Paycheck Protection Program - 2nd Draw | (128) | 479 | 351 | ||||||
Tax-exempt |
| 121 |
| (101) |
| 20 | |||
Total loans receivable |
| (2,525) |
| 1,603 |
| (922) | |||
Other earning assets |
| (5) |
| (2) |
| (7) | |||
Total Interest Income |
| (1,492) |
| 1,540 |
| 48 | |||
|
|
|
|
|
| ||||
INTEREST-BEARING LIABILITIES |
|
|
|
|
|
| |||
Interest-bearing deposits: |
|
|
|
|
|
| |||
Interest checking |
| 35 |
| (62) |
| (27) | |||
Money market |
| 35 |
| (79) |
| (44) | |||
Savings |
| 9 |
| (3) |
| 6 | |||
Time deposits |
| (153) |
| (150) |
| (303) | |||
Total interest-bearing deposits |
| (74) |
| (294) |
| (368) | |||
Borrowed funds: |
|
|
|
| |||||
Short-term |
| (9) |
| (5) |
| (14) | |||
Long-term - FHLB advances |
| (56) |
| (29) |
| (85) | |||
Senior notes, net | 118 | 0 | 118 | ||||||
Subordinated debt, net |
| 193 |
| (74) |
| 119 | |||
Total borrowed funds |
| 246 |
| (108) |
| 138 | |||
Total Interest Expense |
| 172 |
| (402) |
| (230) | |||
|
|
|
| ||||||
Net Interest Income | $ | (1,664) | $ | 1,942 | $ | 278 | |||
| (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. |
41
CITIZENS NORTHERN CORPORATION – FORM 10-Q
NONINTEREST INCOME
TABLE V – COMPARISON OF NONINTEREST INCOME
(Dollars in Thousands) | Three Months Ended |
| ||||||||||
| March 31, | $ | % |
| ||||||||
|
| 2022 | 2021 |
| Change | Change |
| |||||
Trust revenue | $ | 1,786 | $ | 1,626 | $ | 160 | 9.8 | % | ||||
Brokerage and insurance revenue |
| 522 | 326 | 196 | 60.1 | % | ||||||
Service charges on deposit accounts |
| 1,235 | 1,015 | 220 | 21.7 | % | ||||||
Interchange revenue from debit card transactions |
| 963 | 881 | 82 | 9.3 | % | ||||||
Net gains from sales of loans |
| 382 | 1,064 | (682) | (64.1) | % | ||||||
Loan servicing fees, net |
| 210 | 248 | (38) | (15.3) | % | ||||||
Increase in cash surrender value of life insurance |
| 135 | 150 | (15) | (10.0) | % | ||||||
Other noninterest income |
| 588 | 1,472 | (884) | (60.1) | % | ||||||
Realized gains on available-for-sale debt securities, net | 2 | 0 | 2 | % | ||||||||
Total noninterest income | $ | 5,823 | $ | 6,782 | $ | (959) | (14.1) | % | ||||
Total noninterest income decreased $959,000 (14.1%) from the first quarter 2021 total. Changes of significance are discussed in the Earnings Overview section of Management’s Discussion and Analysis.
NONINTEREST EXPENSE
TABLE VI - COMPARISON OF NONINTEREST EXPENSE
(Dollars in Thousands) | Three Months Ended |
| ||||||||||
March 31, | $ | % |
| |||||||||
| 2022 |
| 2021 |
| Change |
| Change | |||||
Salaries and employee benefits |
| $ | 10,607 |
| $ | 8,895 |
| $ | 1,712 |
| 19.2 | % |
Net occupancy and equipment expense |
| 1,411 |
| 1,304 |
| 107 |
| 8.2 | % | |||
Data processing and telecommunications expense |
| 1,623 |
| 1,380 |
| 243 |
| 17.6 | % | |||
Automated teller machine and interchange expense |
| 384 |
| 337 |
| 47 |
| 13.9 | % | |||
Pennsylvania shares tax |
| 488 |
| 491 |
| (3) |
| (0.6) | % | |||
Professional fees |
| 489 |
| 547 |
| (58) |
| (10.6) | % | |||
Other noninterest expense | 1,884 | 2,755 | (871) | (31.6) | % | |||||||
Total noninterest expense | $ | 16,886 | $ | 15,709 | $ | 1,177 |
| 7.5 | % | |||
Total noninterest expense in the first quarter 2022 increased $1,177,000 (7.5%) from the first quarter 2021 total. Changes of significance are discussed in the Earnings Overview section of Management’s Discussion and Analysis.
INCOME TAXES
The income tax provision in interim periods is based on the Corporation’s estimate of the effective tax rate expected to be applicable for the full year. The income tax provision for the first three months of 2022 was $1,483,000, which was $627,000 lower than the provision for the first three months of 2021. The effective tax rate (tax provision as a percentage of pre-tax income) was 17.7% in the first three months of 2022 compared to 19.4% in the first three months of 2021. The Corporation’s effective tax rates differ from the statutory rate of 21% in the first three months of 2022 and 2021 principally because of the effects of tax-exempt interest income, state income taxes and other permanent differences.
42
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 March 31, 2022 and December 31, 2021 represents the following temporary difference components:
| March 31, |
| December 31, | |||
(In Thousands) | 2022 | 2021 | ||||
Deferred tax assets: |
|
|
|
| ||
Unrealized holding losses on securities | $ | 5,448 | $ | 0 | ||
Allowance for loan losses | 3,124 | 2,935 | ||||
Purchase accounting adjustments on loans |
| 1,237 |
| 1,621 | ||
Deferred compensation | 1,060 | 965 | ||||
Operating leases liability |
| 762 |
| 821 | ||
Net operating loss carryforward | 748 | 778 | ||||
Accrued incentive compensation | 129 | 529 | ||||
Other deferred tax assets |
| 1,473 |
| 1,766 | ||
Total deferred tax assets |
| 13,981 |
| 9,415 | ||
|
|
|
| |||
Deferred tax liabilities: |
|
|
|
| ||
Unrealized holding gains on securities |
| 0 |
| 1,278 | ||
Defined benefit plans - ASC 835 |
| 82 |
| 57 | ||
Bank premises and equipment |
| 425 |
| 460 | ||
Core deposit intangibles |
| 702 |
| 725 | ||
Right-of-use assets from operating leases |
| 762 |
| 821 | ||
Other deferred tax liabilities |
| 192 |
| 187 | ||
Total deferred tax liabilities |
| 2,163 |
| 3,528 | ||
Deferred tax asset, net | $ | 11,818 | $ | 5,887 | ||
The Corporation regularly reviews deferred tax assets for recoverability based on history of earnings, expectations for future earnings and expected timing of reversals of temporary differences. Realization of deferred tax assets ultimately depends on the existence of sufficient taxable income.
Management believes the recorded net deferred tax asset at March 31, 2022 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.
43
CITIZENS NORTHERN CORPORATION – FORM 10-Q
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, maximizing return on earning assets within reasonable risk parameters and providing a means to hedge the Corporation’s overall interest rate risk exposure, while maintaining high credit quality.
The composition of the available-for-sale debt securities portfolio at March 31, 2022, December 31, 2021 and December 31, 2020 is as follows:
(Dollars In Thousands) | March 31, 2022 | December 31, 2021 |
| December 31, 2020 | |||||||||||||||
Amortized | Fair | Amortized | Fair |
| Amortized | Fair | |||||||||||||
| Cost |
| Value |
| Cost |
| Value | Cost |
| Value | |||||||||
Obligations of the U.S. Treasury | $ | 38,152 | $ | 36,494 | $ | 25,058 | $ | 24,912 | $ | 12,184 | $ | 12,182 | |||||||
Obligations of U.S. Government agencies | 24,455 | 23,408 | 23,936 | 24,091 | 25,349 | 26,344 | |||||||||||||
Bank holding company debt securities | 24,942 | 24,043 | 18,000 | 17,987 | 0 | 0 | |||||||||||||
Obligations of states and political subdivisions: |
|
|
|
|
|
| |||||||||||||
Tax-exempt |
| 149,140 |
| 143,633 |
| 143,427 |
| 148,028 |
| 116,427 |
| 122,401 | |||||||
Taxable |
| 73,732 |
| 69,629 |
| 72,182 |
| 72,765 |
| 45,230 |
| 47,452 | |||||||
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies: |
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Residential pass-through securities |
| 112,122 |
| 106,568 |
| 98,048 |
| 98,181 |
| 36,853 |
| 38,176 | |||||||
Residential collateralized mortgage obligations |
| 45,628 |
| 43,868 |
| 44,015 |
| 44,247 |
| 56,048 |
| 57,467 | |||||||
Commercial mortgage-backed securities |
| 90,682 |
| 85,270 |
| 86,926 |
| 87,468 |
| 42,461 |
| 45,310 | |||||||
Total Available-for-Sale Debt Securities | $ | 558,853 | $ | 532,913 | $ | 511,592 | $ | 517,679 | $ | 334,552 | $ | 349,332 | |||||||
Aggregate Unrealized (Loss) Gain | $ | (25,940) | $ | 6,087 | $ | 14,780 | |||||||||||||
Aggregate Unrealized (Loss) Gain as a % of Amortized Cost | (4.6) | % | 1.2 | % | 4.4 | % | |||||||||||||
Market Yield on 5-Year U.S. Treasury Obligations (a) | 2.42 | % | 1.26 | % | 0.36 | % | |||||||||||||
(a) Source: Treasury.gov (Daily Treasury Par Yield Curve Rates)
The amortized cost of available-for-sale debt securities increased to $558,853,000 at March 31, 2022 from $511,592,000 at December 31, 2021 and $334,552,000 at December 31, 2020. The increase in the securities portfolio resulted from management’s decision to invest excess funds available from the fast growth in deposits and loan repayments throughout most of 2020, 2021 and the first quarter 2022.
As reflected in the table above, the fair value of available-for-sale securities as of March 31, 2022 was lower than the amortized cost basis by $25,940,000, or 4.6%. In comparison, the aggregate unrealized gain position was $6,087,000 (1.2%) at December 31, 2021 and $14,780,000 (4.4%) at December 31, 2020. The unrealized decrease in fair value of the portfolio in the first quarter 2022 and in 2021 resulted from an increase in interest rates. As shown above, the market yield on the 5-year U.S. Treasury Note was 1.16% higher at March 31, 2022 in comparison to December 31, 2021, and 2.06% higher than at December 31, 2020.
Management reviewed the Corporation’s holdings as of March 31, 2022 and concluded there were no credit-related declines in fair value and that the unrealized losses on all of the securities in an unrealized loss position are considered temporary. In assessing whether there were other-than-temporary impairment losses, management considered (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) the intent and ability of the Corporation to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value, and (4) whether the Corporation intends to sell the security or if it is more likely than not that the Corporation will be required to sell the security before the recovery of its amortized cost basis.
44
CITIZENS NORTHERN CORPORATION – FORM 10-Q
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 loan losses and stockholders’ equity, are discussed in separate sections of Management’s Discussion and Analysis. There are no significant concerns that have arisen related to the Corporation’s off-balance sheet loan commitments or outstanding letters of credit at March 31, 2022, and 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 2022.
Table VII shows the composition of the loan portfolio at March 31, 2022 and at year-end from 2017 through 2021. The significant loan growth in 2019 and 2020 reflects the impact of acquisitions. Also, the Corporation has increased the proportion of residential mortgage loans sold into the secondary market, contributing to a reduction of $59,887,000 in residential mortgage loans outstanding at March 31, 2022 compared to December 31, 2020. At March 31, 2022, commercial loans represented approximately 62% of the portfolio while residential mortgage loans totaled 36% of the portfolio.
At March 31, 2022, gross loans outstanding totaled $1,538,190,000, a decrease of $26,659,000 from December 31, 2021, including a reduction in PPP loans of $14,487,000 due to repayments and a net reduction in residential mortgage loans of $9,061,000. Excluding PPP loans, total commercial loans at March 31, 2022 were down $3,741,000 from December 31, 2021. Recently, residential mortgage lending activity has slowed, consistent with the rapid increase in interest rates. The “pipeline” of commercial lending opportunities has grown substantially in recent months as portions of the economy have shown signs of recovery from the pandemic. The pace of loan growth for the remainder of 2022 will depend on the impact of potential further increases in interest rates and many 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. Participation loans are included in the “Commercial and industrial”, “Commercial loans secured by real estate”, “Political subdivisions” and “Other commercial” classes in the loan tables presented in this Form 10-Q. Total participation loans outstanding amounted to $46,083,000 at March 31, 2022, down from $54,372,000 at December 31, 2021. At March 31, 2022, the balance of participation loans outstanding includes a total of $25,767,000 to businesses located outside of the Corporation’s market areas. Also, included within participation loans are “leveraged loans,” meaning loans to businesses with minimal tangible book equity and for which the extent of collateral available is limited, though typically at the time of origination the businesses have demonstrated strong cash flow performance in their recent histories. Leveraged participation loans totaled $6,742,000 at March 31, 2022 and $7,469,000 at December 31, 2021.
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 March 31, 2022, the Corporation’s activity under the MPF Direct Program has been minimal.
45
CITIZENS NORTHERN CORPORATION – FORM 10-Q
For loan sales originated under the MPF programs, the Corporation provides customary representations and warranties to investors that specify, among other things, that the loans have been underwritten to the standards established by the investor. The Corporation may be required to repurchase a loan and reimburse a portion of fees received or reimburse the investor for a credit loss incurred on a loan, if it is determined that the representations and warranties have not been met. Such repurchases or reimbursements generally result from an underwriting or documentation deficiency. At March 31, 2022, the total outstanding balance of loans the Corporation has repurchased as a result of identified instances of noncompliance amounted to $1,557,000, and the corresponding total outstanding balance of repurchased loans at December 31, 2021 was $1,571,000.
At March 31, 2022, outstanding balances of loans sold and serviced through the MPF Xtra and Original programs totaled $338,482,000, including loans sold through the MPF Xtra program of $163,199,000 and loans sold through the Original program of $175,283,000. At December 31, 2021, outstanding balances of loans sold and serviced through the two programs totaled $334,741,000, including loans sold through the MPF Xtra program of $165,668,000 and loans sold through the Original Program of $169,073,000. Based on the fairly limited volume of required repurchases to date, no allowance has been established for representation and warranty exposures as of March 31, 2022 and December 31, 2021.
For loans sold under the Original program, the Corporation provides a credit enhancement whereby the Corporation would assume credit losses in excess of a defined First Loss Account (“FLA”) balance, up to specified amounts. The FLA is funded by the Federal Home Loan Bank of Pittsburgh based on a percentage of the outstanding balance of loans sold. At March 31, 2022, the Corporation’s maximum credit enhancement obligation under the MPF Original Program was $8,998,000, and the Corporation has recorded a related allowance for credit losses in the amount of $660,000 which is included in accrued interest and other liabilities in the accompanying consolidated balance sheets. At December 31, 2021, the Corporation’s maximum credit enhancement obligation under the MPF Original Program was $8,656,000, and the related allowance for credit losses was $635,000. Income related to providing the credit enhancement (included in other noninterest income in the consolidated statements of income) totaled $90,000 for the three months ended March 31, 2022 and $115,000 for the three months ended March 31, 2021. A provision for losses related to the credit enhancement obligation (included in other noninterest expense in the consolidated statements of income) of $25,000 was recorded in the three months ended March 31, 2022 with a provision for losses of $30,000 in the three months ended March 31, 2021. The Corporation does not provide a credit enhancement for loans sold through the Xtra program.
The Corporation is a participating SBA lender. Under the terms of its arrangements with the SBA, the Corporation may originate loans to commercial borrowers, with full-or-partial guarantees by the SBA, subject to the SBA’s underwriting and documentation requirements. Pursuant to an acquisition, the Corporation acquired loans with partial SBA guarantees, or in some cases, loans where the SBA-guaranteed portion of the loans had been sold back to the SBA subject to ongoing compliance with SBA underwriting and documentation requirements. As part of its due diligence, the Corporation reviewed all the purchased loans originated through the various SBA loan programs as of July 1, 2020 and recorded an allowance for SBA claim adjustments. Determination of the allowance was subjective in nature and was based on the Corporation’s assessment of the credit quality of the loans and the quality of the documentation supporting compliance with SBA requirements. The Corporation’s total exposure related to SBA guarantees on purchased loans was $8,907,000 at March 31, 2022 and $12,856,000 at December 31, 2021 with an allowance for SBA claim adjustments (included in accrued interest and other liabilities in the consolidated balance sheets) of $215,000 at March 31, 2022 and $457,000 at December 31, 2021. In the three months ended March 31, 2022, the Corporation recorded a reduction in other noninterest expense of $242,000 representing amounts realized on SBA claims in excess of prior estimates, with no corresponding expense or reduction in expense in the first quarter 2021.
46
CITIZENS NORTHERN CORPORATION – FORM 10-Q
TABLE VII - SUMMARY OF LOANS BY TYPE
Summary of Loans by Type
(In Thousands) | March 31, | December 31, | ||||||||||||||||
| 2022 |
| 2021 |
| 2020 |
| 2019 |
| 2018 |
| 2017 | |||||||
Commercial: |
|
|
|
|
|
|
|
|
|
|
| |||||||
Commercial loans secured by real estate | $ | 585,677 | $ | 569,840 | $ | 531,810 | $ | 301,227 | $ | 162,611 | $ | 159,266 | ||||||
Commercial and industrial |
| 159,793 |
| 159,073 |
| 159,577 |
| 126,374 |
| 91,856 |
| 88,276 | ||||||
Paycheck Protection Program - 1st Draw | 887 | 1,356 | 132,269 | 0 | 0 | 0 | ||||||||||||
Paycheck Protection Program - 2nd Draw | 11,490 | 25,508 | 0 | 0 | 0 | 0 | ||||||||||||
Political subdivisions |
| 81,975 |
| 81,301 |
| 53,221 |
| 53,570 |
| 53,263 |
| 59,287 | ||||||
Commercial construction and land |
| 37,258 |
| 60,579 |
| 42,874 |
| 33,555 |
| 11,962 |
| 14,527 | ||||||
Loans secured by farmland |
| 12,507 |
| 11,121 |
| 11,736 |
| 12,251 |
| 7,146 |
| 7,255 | ||||||
Multi-family (5 or more) residential |
| 53,141 |
| 50,089 |
| 55,811 |
| 31,070 |
| 7,180 |
| 7,713 | ||||||
Agricultural loans |
| 2,588 |
| 2,351 |
| 3,164 |
| 4,319 |
| 5,659 |
| 6,178 | ||||||
Other commercial loans |
| 14,827 |
| 17,153 |
| 17,289 |
| 16,535 |
| 13,950 |
| 10,986 | ||||||
Total commercial |
| 960,143 |
| 978,371 |
| 1,007,751 |
| 578,901 |
| 353,627 |
| 353,488 | ||||||
Residential mortgage: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Residential mortgage loans - first liens | 481,119 | 483,629 | 532,947 | 510,641 | 372,339 | $ | 359,987 | |||||||||||
Residential mortgage loans - junior liens |
| 22,572 |
| 23,314 |
| 27,311 |
| 27,503 |
| 25,450 |
| 25,325 | ||||||
Home equity lines of credit |
| 39,649 |
| 39,252 |
| 39,301 |
| 33,638 |
| 34,319 |
| 35,758 | ||||||
1-4 Family residential construction |
| 16,945 |
| 23,151 |
| 20,613 |
| 14,798 |
| 24,698 |
| 26,216 | ||||||
Total residential mortgage |
| 560,285 |
| 569,346 |
| 620,172 |
| 586,580 |
| 456,806 |
| 447,286 | ||||||
Consumer |
| 17,762 |
| 17,132 |
| 16,286 |
| 16,741 |
| 17,130 |
| 14,939 | ||||||
Total |
| 1,538,190 |
| 1,564,849 |
| 1,644,209 |
| 1,182,222 |
| 827,563 |
| 815,713 | ||||||
Less: allowance for loan losses |
| (14,271) |
| (13,537) |
| (11,385) |
| (9,836) |
| (9,309) |
| (8,856) | ||||||
Loans, net | $ | 1,523,919 | $ | 1,551,312 | $ | 1,632,824 | $ | 1,172,386 | $ | 818,254 | $ | 806,857 | ||||||
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The Corporation maintains an allowance for loan losses that represents management’s estimate of the losses inherent in the loan portfolio as of the balance sheet date and recorded as a reduction of the investment in loans. Note 6 to the unaudited consolidated financial statements provides an overview of the process management uses for evaluating and determining the allowance for loan losses.
While management uses available information to recognize losses on loans, changes in economic conditions may necessitate revisions in future years. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Corporation’s allowance for loan losses. Such agencies may require the Corporation to recognize adjustments to the allowance based on their judgments of information available to them at the time of their examination.
The allowance for loan losses was $14,271,000 at March 31, 2022, up from $13,537,000 at December 31, 2021. Table IX shows total specific allowances on impaired loans of $730,000 at March 31, 2022, down slightly from $740,000 at December 31, 2021. Table IX also shows the increase in the allowance in 2022 is mainly related to commercial loans, as the collectively evaluated portion of the allowance related to the commercial segment increased to $8,192,000 at March 31, 2022 from $7,553,000 at December 31, 2021. The net increase in the collectively determined portion of the allowance includes increases related to management’s updated assessments of purchased performing loans. The impact of changes in the collectively determined portion of the allowance related to purchased performing loans is included in “Changes in loan volume” in the accompanying analysis of the provision.
47
CITIZENS NORTHERN CORPORATION – FORM 10-Q
Table X shows the allowance for loan losses totaled 0.93% of gross loans outstanding at March 31, 2022, up from 0.87% at December 31, 2021 and down from levels in excess of 1.00% from 2017 and 2018. Table X also shows that the total of the allowance and the credit adjustment on purchased non-impaired loans, as a percentage of total loans plus the credit adjustment, was 1.11% at March 31, 2022, in line with ratios from the previous years.
The provision (credit) for loan losses by segment in the three-month periods ended March 31, 2022 and 2021 are as follows:
Three Months Ended | ||||||
| March 31, | March 31, | ||||
(In Thousands) |
| 2022 | 2021 | |||
Commercial | $ | 779 | $ | 242 | ||
Residential mortgage | 91 | (55) | ||||
Consumer |
| 25 |
| (20) | ||
Unallocated |
| (4) |
| 92 | ||
Total | $ | 891 | $ | 259 | ||
The provision (credit) for loan losses is further detailed as follows:
Commercial segment | Three Months Ended | |||||
March 31, | March 31, | |||||
(In Thousands) |
| 2022 | 2021 | |||
Increase in total specific allowance on impaired loans, adjusted for the effect of net charge-offs | $ | 140 | $ | 193 | ||
Increase (decrease) in collectively determined portion of the allowance attributable to: | ||||||
Changes in loan volume | 577 | 142 | ||||
Changes in historical loss experience factors | 62 | (49) | ||||
Changes in qualitative factors | 0 | (44) | ||||
Total provision for loan losses - Commercial segment | $ | 779 | $ | 242 | ||
Residential mortgage segment | Three Months Ended | |||||
March 31, | March 31, | |||||
(In Thousands) |
| 2022 | 2021 | |||
Decrease in total specific allowance on impaired loans, adjusted for the effect of net charge-offs | $ | (16) | $ | (10) | ||
Increase (decrease) in collectively determined portion of the allowance attributable to: | ||||||
Changes in loan volume | 68 | (7) | ||||
Changes in historical loss experience factors | (10) | (38) | ||||
Changes in qualitative factors | 49 | 0 | ||||
Total provision for loan losses - Residential mortgage segment | $ | 91 | $ | (55) | ||
Consumer segment | Three Months Ended | |||||
March 31, | March 31, | |||||
(In Thousands) |
| 2022 | 2021 | |||
Increase (decrease) in total specific allowance on impaired loans, adjusted for the effect of net charge-offs | $ | 23 | $ | (1) | ||
Increase (decrease) in collectively determined portion of the allowance attributable to: | ||||||
Changes in loan volume | 0 | (10) | ||||
Changes in historical loss experience factors | (3) | (10) | ||||
Changes in qualitative factors | 5 | 1 | ||||
Total provision for loan losses - Consumer segment | $ | 25 | $ | (20) | ||
48
CITIZENS NORTHERN CORPORATION – FORM 10-Q
Total - All segments | Three Months Ended | |||||
March 31, | March 31, | |||||
(In Thousands) |
| 2022 | 2021 | |||
Increase in total specific allowance on impaired loans, adjusted for the effect of net charge-offs | $ | 147 | $ | 182 | ||
Increase (decrease) in collectively determined portion of the allowance attributable to: | ||||||
Changes in loan volume | 645 | 125 | ||||
Changes in historical loss experience factors | 49 | (97) | ||||
Changes in qualitative factors | 54 | (43) | ||||
Sub-total | 895 | 167 | ||||
Unallocated | (4) | 92 | ||||
Total provision for loan losses - All segments | $ | 891 | $ | 259 | ||
For the periods shown in the tables immediately above, the provision related to increases or decreases in specific allowances on impaired loans was affected by changes in the results of management’s assessment of the amount of probable or actual (charged-off) losses associated with a small number of larger, individual loans. This line item also includes net charge-offs or recoveries from smaller loans that had not been individually evaluated for impairment prior to charge-off.
In the tables immediately above, the portion of the net change in the collectively determined allowance attributable to loan growth was determined by applying the historical loss experience and qualitative factors used in the allowance calculation at the end of the preceding period to the net increase or reduction in loans outstanding (excluding purchased loans and loans specifically evaluated for impairment) for the period.
The effect on the provision of changes in historical loss experience and qualitative factors, as shown in the tables above, was determined by: (1) calculating the net change in each factor used in determining the allowance at the end of the period as compared to the preceding period, and (2) applying the net change in each factor to the outstanding balance of loans at the end of the preceding period (excluding loans specifically evaluated for impairment).
In the three months ended March 31, 2022, net charge-offs were $157,000, including recoveries of $23,000 and charge-offs of $180,000. Table VIII shows the average rate of net charge-offs as a percentage of loans was 0.01% in the three months ended March 31, 2022, and annual average rates ranging from a high of 0.16% in 2020 to a low of 0.02% in 2018.
Table X presents information related to past due and impaired loans, and loans that have been modified under terms that are considered TDRs. Total nonperforming loans as a percentage of outstanding loans was 1.19% at March 31, 2022, down from 1.36% at December 31, 2021, and nonperforming assets as a percentage of total assets was 0.81% at March 31, 2022, down from 0.94% at December 31, 2021. Table X presents data at the end of each of the years ended December 31, 2017 through 2021. Table X shows that total nonperforming loans as a percentage of loans of 1.19% at March 31, 2022, though up from December 31, 2019, was lower than the corresponding year-end ratio for all other years presented. Similarly, the March 31, 2022 ratio of total nonperforming assets as a percentage of assets of 0.81% was lower than the corresponding ratio for all years presented except December 31, 2019.
Total impaired loans of $12,005,000 at March 31, 2022 are down $3,729,000 from the corresponding amount at December 31, 2021 of $15,734,000. Purchased credit impaired loans were included in impaired loans and had carrying values totaling $3,983,000 at March 31, 2022 and $6,558,000 at December 31, 2021. In the first quarter 2022, the Corporation received pay-offs on a few purchased credit impaired loans and recognized interest income of $1,398,000 for the excess received over previous carrying amounts.
Over the period 2017-2021 and the first three months of 2022, 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 impaired loans, and may significantly impact the amount of total charge-offs reported in any one period.
Management believes it has been conservative in its decisions concerning identification of impaired loans, estimates of loss, and nonaccrual status; however, the actual losses realized from these relationships could vary materially from the allowances calculated as
49
CITIZENS NORTHERN CORPORATION – FORM 10-Q
of March 31, 2022. 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 loan losses.
TABLE VIII - ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
(Dollars In Thousands) | Three Months Ended |
| |||||||||||||||||||||
March 31, | March 31, | Years Ended December 31, | |||||||||||||||||||||
| 2022 |
| 2021 |
|
| 2021 |
| 2020 |
| 2019 |
| 2018 |
| 2017 |
| ||||||||
Balance, beginning of year | $ | 13,537 | $ | 11,385 | $ | 11,385 | $ | 9,836 | $ | 9,309 | $ | 8,856 | $ | 8,473 | |||||||||
Charge-offs: |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Commercial |
| (150) |
| 0 |
| (1,464) |
| (2,343) |
| (6) |
| (165) |
| (132) | |||||||||
Residential mortgage |
| 0 |
| 0 |
| (11) |
| 0 |
| (190) |
| (158) |
| (197) | |||||||||
Consumer |
| (30) |
| (11) |
| (100) |
| (122) |
| (183) |
| (174) |
| (150) | |||||||||
Total charge-offs |
| (180) |
| (11) |
| (1,575) |
| (2,465) |
| (379) |
| (497) |
| (479) | |||||||||
Recoveries: |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Commercial |
| 0 |
| 14 |
| 22 |
| 16 |
| 6 |
| 317 |
| 4 | |||||||||
Residential mortgage |
| 16 |
| 2 |
| 6 |
| 44 |
| 12 |
| 8 |
| 19 | |||||||||
Consumer |
| 7 |
| 12 |
| 38 |
| 41 |
| 39 |
| 41 |
| 38 | |||||||||
Total recoveries |
| 23 |
| 28 |
| 66 |
| 101 |
| 57 |
| 366 |
| 61 | |||||||||
Net (charge-offs) recoveries |
| (157) |
| 17 |
| (1,509) |
| (2,364) |
| (322) |
| (131) |
| (418) | |||||||||
Provision for loan losses |
| 891 |
| 259 |
| 3,661 |
| 3,913 |
| 849 |
| 584 |
| 801 | |||||||||
Balance, end of period | $ | 14,271 | $ | 11,661 | $ | 13,537 | $ | 11,385 | $ | 9,836 | $ | 9,309 | $ | 8,856 | |||||||||
Net charge-offs as a % of average loans |
| 0.01 | % |
| 0.00 | % |
| 0.09 | % |
| 0.16 | % |
| 0.03 | % |
| 0.02 | % |
| 0.05 | % | ||
TABLE IX - COMPONENTS OF THE ALLOWANCE FOR LOAN LOSSES
(In Thousands) | March 31, | As of December 31, | ||||||||||||||||
| 2022 |
| 2021 |
| 2020 |
| 2019 |
| 2018 |
| 2017 | |||||||
ASC 310 - Impaired loans - individually evaluated | $ | 730 | $ | 740 | $ | 925 | $ | 1,051 | $ | 1,605 | $ | 1,279 | ||||||
ASC 450 - Collectively evaluated: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Commercial |
| 8,192 |
| 7,553 |
| 5,545 |
| 3,913 |
| 3,102 |
| 3,078 | ||||||
Residential mortgage |
| 4,445 |
| 4,338 |
| 4,091 |
| 4,006 |
| 3,870 |
| 3,841 | ||||||
Consumer |
| 237 |
| 235 |
| 239 |
| 281 |
| 233 |
| 159 | ||||||
Unallocated |
| 667 |
| 671 |
| 585 |
| 585 |
| 499 |
| 499 | ||||||
Total Allowance | $ | 14,271 | $ | 13,537 | $ | 11,385 | $ | 9,836 | $ | 9,309 | $ | 8,856 | ||||||
50
CITIZENS NORTHERN CORPORATION – FORM 10-Q
TABLE X - PAST DUE AND IMPAIRED LOANS, NONPERFORMING ASSETS
AND TROUBLED DEBT RESTRUCTURINGS (TDRs)
(Dollars In Thousands) | March 31, | As of December 31, |
| ||||||||||||||||
| 2022 |
| 2021 |
| 2020 |
| 2019 |
| 2018 |
| 2017 |
| |||||||
Impaired loans with a valuation allowance | $ | 6,528 | $ | 6,540 | $ | 8,082 | $ | 3,375 | $ | 4,851 | $ | 4,100 | |||||||
Impaired loans without a valuation allowance |
| 1,494 |
| 2,636 |
| 2,895 |
| 1,670 |
| 4,923 |
| 5,411 | |||||||
Purchased credit impaired loans | 3,983 | 6,558 | 6,841 | 441 | 0 | 0 | |||||||||||||
Total impaired loans | $ | 12,005 | $ | 15,734 | $ | 17,818 | $ | 5,486 | $ | 9,774 | $ | 9,511 | |||||||
Total loans past due 30-89 days and still accruing | $ | 3,868 | $ | 5,106 | $ | 5,918 | $ | 8,889 | $ | 7,142 | $ | 9,449 | |||||||
Nonperforming assets: |
|
|
|
|
|
|
|
|
|
|
| ||||||||
Purchased credit impaired loans | $ | 3,983 | $ | 6,558 | $ | 6,841 | $ | 441 | $ | 0 | $ | 0 | |||||||
Other nonaccrual loans | 10,962 | 12,441 | 14,575 | 8,777 | 13,113 | 13,404 | |||||||||||||
Total nonaccrual loans | 14,945 | 18,999 | 21,416 | 9,218 | 13,113 | 13,404 | |||||||||||||
Total loans past due 90 days or more and still accruing |
| 3,429 |
| 2,219 |
| 1,975 |
| 1,207 |
| 2,906 |
| 3,724 | |||||||
Total nonperforming loans |
| 18,374 |
| 21,218 |
| 23,391 |
| 10,425 |
| 16,019 |
| 17,128 | |||||||
Foreclosed assets held for sale (real estate) |
| 531 |
| 684 |
| 1,338 |
| 2,886 |
| 1,703 |
| 1,598 | |||||||
Total nonperforming assets | $ | 18,905 | $ | 21,902 | $ | 24,729 | $ | 13,311 | $ | 17,722 | $ | 18,726 | |||||||
Loans subject to troubled debt restructurings (TDRs): |
|
|
|
|
|
|
|
|
|
|
| ||||||||
Performing | $ | 279 | $ | 288 | $ | 166 | $ | 889 | $ | 655 | $ | 636 | |||||||
Nonperforming |
| 3,954 |
| 5,517 |
| 7,285 |
| 1,737 |
| 2,884 |
| 3,027 | |||||||
Total TDRs | $ | 4,233 | $ | 5,805 | $ | 7,451 | $ | 2,626 | $ | 3,539 | $ | 3,663 | |||||||
Total nonperforming loans as a % of loans |
| 1.19 | % |
| 1.36 | % |
| 1.42 | % |
| 0.88 | % |
| 1.94 | % |
| 2.10 | % | |
Total nonperforming assets as a % of assets |
| 0.81 | % |
| 0.94 | % |
| 1.10 | % |
| 0.80 | % |
| 1.37 | % |
| 1.47 | % | |
Allowance for loan losses as a % of total loans |
| 0.93 | % |
| 0.87 | % |
| 0.69 | % |
| 0.83 | % |
| 1.12 | % |
| 1.09 | % | |
Credit adjustment on purchased non-impaired loans and allowance for loan losses as a % of total loans and the credit adjustment (a) | 1.11 | % | 1.08 | % | 1.05 | % | 0.93 | % | 1.12 | % | 1.09 | % | |||||||
Allowance for loan losses as a % of nonperforming loans |
| 77.67 | % |
| 63.80 | % |
| 48.67 | % |
| 94.35 | % |
| 58.11 | % |
| 51.70 | % | |
(a) Credit adjustment on purchased non-impaired loans at end of period | $ | 2,783 | $ | 3,335 | $ | 5,979 | $ | 1,216 | $ | 0 | $ | 0 | |||||||
Allowance for loan losses | 14,271 | 13,537 | 11,385 | 9,836 | 9,309 | 8,856 | |||||||||||||
Total credit adjustment on purchased non-impaired loans at end of period and allowance for loan losses (1) | $ | 17,054 | $ | 16,872 | $ | 17,364 | $ | 11,052 | $ | 9,309 | $ | 8,856 | |||||||
Total loans receivable | $ | 1,538,190 | $ | 1,564,849 | $ | 1,644,209 | $ | 1,182,222 | $ | 827,563 | $ | 815,713 | |||||||
Credit adjustment on purchased non-impaired loans at end of period | 2,783 | 3,335 | 5,979 | 1,216 | 0 | 0 | |||||||||||||
Total (2) | $ | 1,540,973 | $ | 1,568,184 | $ | 1,650,188 | $ | 1,183,438 | $ | 827,563 | $ | 815,713 | |||||||
Credit adjustment on purchased non-impaired loans and allowance for loan losses as a % of total loans and the credit adjustment (1)/(2) | 1.11 | % | 1.08 | % | 1.05 | % | 0.93 | % | 1.12 | % | 1.09 | % | |||||||
51
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. At March 31, 2022, the Corporation maintained overnight interest-bearing deposits with the Federal Reserve Bank of Philadelphia and other correspondent banks totaling $85,775,000. The Corporation’s cash position at March 31, 2022 was elevated in comparison to historical (pre-pandemic) levels as growth in deposits and funds received from repayment of loans have outpaced loan originations, purchases of securities, repayments of borrowings and other uses of cash.
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 $12,817,000 at March 31, 2022.
The Corporation’s outstanding, available, and total credit facilities at March 31, 2022 and December 31, 2021 are as follows:
Outstanding | Available | Total Credit | ||||||||||||||||
(In Thousands) |
| March 31, |
| December 31, |
| March 31, |
| December 31, |
| March 31, |
| December 31, | ||||||
2022 | 2021 | 2022 | 2021 | 2022 | 2021 | |||||||||||||
Federal Home Loan Bank of Pittsburgh | $ | 26,382 | $ | 33,311 | $ | 731,429 | $ | 723,557 | $ | 757,811 | $ | 756,868 | ||||||
Federal Reserve Bank Discount Window |
| 0 |
| 0 |
| 12,429 |
| 13,642 |
| 12,429 |
| 13,642 | ||||||
Other correspondent banks |
| 0 |
| 0 |
| 45,000 |
| 45,000 |
| 45,000 |
| 45,000 | ||||||
Total credit facilities | $ | 26,382 | $ | 33,311 | $ | 788,858 | $ | 782,199 | $ | 815,240 | $ | 815,510 | ||||||
At March 31, 2022, the Corporation’s outstanding credit facilities with the Federal Home Loan Bank of Pittsburgh consisted of long-term borrowings of $20,348,000 and letters of credit totaling $6,034,000. At December 31, 2021, the Corporation’s outstanding credit facilities with the Federal Home Loan Bank of Pittsburgh consisted of long-term borrowings of $27,727,000 and letters of credit totaling $5,584,000. 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. At March 31, 2022, the carrying value of available-for-sale securities in excess of amounts required to meet pledging or repurchase agreement obligations was $328,909,000.
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 March 31, 2022; however, CN Bank remains subject to regulatory capital requirements administered by the federal banking agencies.
52
CITIZENS NORTHERN CORPORATION – FORM 10-Q
Details concerning capital ratios at March 31, 2022 and December 31, 2021 are presented below. Management believes, as of March 31, 2022, that CN 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 CN Bank’s capital ratios at March 31, 2022 and December 31, 2021 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 |
| ||
March 31, 2022: |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Total capital to risk-weighted assets: |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Consolidated | $ | 288,530 | 18.23 | % | N/A | N/A | N/A | N/A | N/A | N/A | $ | 166,142 | ≥10.5 | % | |||||||||
CN Bank |
| 256,215 |
| 16.26 | % | 126,278 |
| ≥8 | % | 165,740 |
| ≥10.5 | % | 157,848 |
| ≥10 | % | 165,740 |
| ≥10.5 | % | ||
Tier 1 capital to risk-weighted assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Consolidated |
| 240,568 |
| 15.20 | % | N/A |
| N/A |
| N/A |
| N/A |
| N/A |
| N/A |
| 134,496 |
| ≥8.5 | % | ||
CN Bank |
| 241,284 |
| 15.29 | % | 94,709 |
| ≥6 | % | 134,171 |
| ≥8.5 | % | 126,278 |
| ≥8 | % | 134,171 |
| ≥8.5 | % | ||
Common equity tier 1 capital to risk-weighted assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Consolidated |
| 240,568 |
| 15.20 | % | N/A |
| N/A |
| N/A |
| N/A |
| N/A |
| N/A |
| 110,762 |
| ≥7 | % | ||
CN Bank |
| 241,284 |
| 15.29 | % | 71,032 |
| ≥4.5 | % | 110,494 |
| ≥7.0 | % | 102,601 |
| ≥6.5 | % | 110,494 |
| ≥7 | % | ||
Tier 1 capital to average assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Consolidated |
| 240,568 |
| 10.59 | % | N/A |
| N/A |
| N/A |
| N/A |
| N/A |
| N/A |
| 181,748 |
| ≥8 | % | ||
CN Bank |
| 241,284 |
| 10.70 | % | 90,215 |
| ≥4 | % | N/A |
| N/A |
| 112,769 |
| ≥5 | % | 180,430 |
| ≥8 | % | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
December 31, 2021: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Total capital to risk-weighted assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Consolidated | $ | 287,614 |
| 18.21 | % | N/A |
| N/A | N/A |
| N/A |
| N/A |
| N/A | $ | 165,846 |
| ≥10.5 | % | |||
CN Bank |
| 252,606 |
| 16.04 | % | 126,012 |
| ≥8 | % | 165,390 |
| ≥10.5 | % | 157,514 |
| ≥10 | % |
| 165,390 |
| ≥10.5 | % | |
Tier 1 capital to risk-weighted assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Consolidated |
| 240,433 |
| 15.22 | % | N/A |
| N/A |
| N/A |
| N/A |
| N/A |
| N/A |
| 134,256 |
| ≥8.5 | % | ||
CN Bank |
| 238,434 |
| 15.14 | % | 94,509 |
| ≥6 | % | 133,887 |
| ≥8.5 | % | 126,012 |
| ≥8 | % |
| 133,887 |
| ≥8.5 | % | |
Common equity tier 1 capital to risk-weighted assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Consolidated |
| 240,433 |
| 15.22 | % | N/A |
| N/A |
| N/A |
| N/A |
| N/A |
| N/A |
| 110,564 |
| ≥7 | % | ||
CN Bank |
| 238,434 |
| 15.14 | % | 70,881 |
| ≥4.5 | % | 110,260 |
| ≥7.0 | % | 102,384 |
| ≥6.5 | % |
| 110,260 |
| ≥7 | % | |
Tier 1 capital to average assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Consolidated |
| 240,433 |
| 10.53 | % | N/A |
| N/A |
| N/A |
| N/A |
| N/A |
| N/A |
| 182,683 |
| ≥8 | % | ||
CN Bank |
| 238,434 |
| 10.52 | % | 90,688 |
| ≥4 | % | N/A |
| N/A |
| 113,360 |
| ≥5 | % |
| 181,376 |
| ≥8 | % | |
In February 2021, the Corporation amended its treasury stock repurchase program. Under the amended program, the Corporation is authorized to repurchase up to 1,000,000 shares of its common stock. In the first quarter 2022, 129,867 shares were repurchased for a total cost of $3,227,000, at an average price of $24.85 per share. Cumulatively through March 31, 2022, 428,926 shares have been repurchased for a total cost of $10,639,000, at an average price of $24.80 per share.
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 CN 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.
53
CITIZENS NORTHERN CORPORATION – FORM 10-Q
To avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, a banking organization subject to the rule must hold a capital conservation buffer composed of common equity tier 1 capital above its minimum risk-based capital requirements. The buffer is measured relative to risk-weighted assets. At March 31, 2022, 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 March 31, 2022, CN Bank’s Capital Conservation Buffer, determined based on the minimum total capital ratio, was 8.23%.
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 $20,492,000 at March 31, 2022 as compared to the balance in accumulated other comprehensive income related to unrealized gains on available-for-sale debt securities, net of deferred income tax of $4,809,000 at December 31, 2021. The decrease in stockholders’ equity in the first quarter 2022 from the change in accumulated other comprehensive (loss) income resulted from an increase in interest rates. Changes in accumulated other comprehensive (loss) income are excluded from earnings and directly increase or decrease stockholders’ equity. If available-for-sale debt securities are deemed to be other-than-temporarily impaired, unrealized losses are recorded as a charge against earnings, and amortized cost for the affected securities is reduced. The securities section of Management’s Discussion and Analysis and Note 5 to the unaudited consolidated financial statements provides additional information concerning management’s evaluation of available-for-sale debt securities for other-than-temporary impairment at March 31, 2022.
INFLATION
Inflation affects the cost of labor, supplies and services used to provide banking services as well as interest rates. After many years of low inflation, disruptions to labor markets and supply chains triggered by the COVID-19 pandemic and government policies, have led to high inflation. The annual inflation rate for the 12-month period ended March 31, 2022, based on changes in the Consumer Price Index, was 8.5%. The 8.5% increase was the largest 12-month advance since 1981.
54
CITIZENS NORTHERN CORPORATION – FORM 10-Q
The Corporation is significantly affected by the Federal Reserve Board’s efforts to control inflation through changes in short-term interest rates. In March of 2020, in response to significant concerns about the impact of the COVID-19 pandemic on the U.S. economy, the Federal Reserve lowered the fed funds target rate (at the high end of the range) from 1.75% to 0.25% and resumed injections of massive amounts of liquidity into the nation’s monetary system through a variety of programs including purchases of large amounts of securities. At its March 15-16, 2022 meeting, the Federal Open Market Committee (FOMC) changed course, raising the high end of the fed funds target rate to 0.50% and announcing that it anticipates ongoing increases to its target rate will be appropriate and that it expects to begin reducing its holdings of securities at a coming meeting. The Committee noted its desire to achieve maximum employment and inflation at a rate of 2 percent over the longer run.
Although management cannot predict future changes in the rates of inflation, management monitors the impact of economic trends, including indicators of inflationary pressures, in managing interest rate and other financial risks.
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 debt securities within the available-for-sale securities portfolio 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
Business risk arising from changes in interest rates is an inherent factor in operating a bank. A significant portion of the Corporation’s assets are long-term, fixed-rate loans and debt securities. Funding for these assets comes principally from shorter-term deposits and borrowed funds. Accordingly, there is an inherent risk of lower future earnings or decline in fair value of the Corporation’s financial instruments when interest rates change.
The Corporation uses a simulation model to calculate the potential effects of interest rate fluctuations on net interest income and the market value of portfolio equity. For purposes of these calculations, the market value of portfolio equity includes the fair 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 model makes 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. 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 market value of portfolio 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 market value of portfolio equity from the baseline values based on current rates.
55
CITIZENS NORTHERN CORPORATION – FORM 10-Q
Table XI, which follows this discussion, is based on the results of calculations performed using the simulation model as of March 31, 2022 and December 31, 2021. The table shows the Corporation is asset-sensitive, meaning the amounts of net interest income and market value of portfolio equity increase in the upward rate scenarios and decrease in the downward rate scenarios. The table also shows that as of the respective dates, the changes in net interest income and changes in market value were within the policy limits in all scenarios.
TABLE XI – THE EFFECT OF HYPOTHETICAL CHANGES IN INTEREST RATES
March 31, 2022 Data | |||||||||||||||
(In Thousands) | Period Ending March 31, 2023 | ||||||||||||||
Basis Point | Interest | Interest | Net Interest | NII | NII | ||||||||||
Change in Rates | Income | Expense | Income (NII) | % Change | Risk Limit | ||||||||||
+400 | $ | 101,995 | $ | 17,804 | $ | 84,191 | 19.5 | % | 25.0 | % | |||||
+300 | 95,469 | 14,798 | 80,671 | 14.5 | % | 20.0 | % | ||||||||
+200 | 89,022 | 11,793 | 77,229 | 9.6 | % | 15.0 | % | ||||||||
+100 | 82,584 | 8,788 | 73,796 | 4.7 | % | 10.0 | % | ||||||||
0 | 76,265 | 5,783 | 70,482 | 0.0 | % | 0.0 | % | ||||||||
-100 | 72,037 | 4,664 | 67,373 | (4.4) | % | 10.0 | % | ||||||||
-200 | 69,795 | 4,238 | 65,557 | (7.0) | % | 15.0 | % | ||||||||
Market Value of Portfolio Equity at March 31, 2022 | |||||||||||||||
Present | Present | Present | |||||||||||||
Basis Point | Value | Value | Value | ||||||||||||
Change in Rates | Equity | % Change | Risk Limit | ||||||||||||
+400 | $ | 498,635 | 10.0 | % | 50.0 | % | |||||||||
+300 | 488,691 | 7.8 | % | 45.0 | % | ||||||||||
+200 | 478,667 | 5.6 | % | 35.0 | % | ||||||||||
+100 | 466,970 | 3.0 | % | 25.0 | % | ||||||||||
0 | 453,227 | 0.0 | % | 0.0 | % | ||||||||||
-100 | 435,057 | (4.0) | % | 25.0 | % | ||||||||||
-200 | 409,709 | (9.6) | % | 35.0 | % | ||||||||||
56
CITIZENS NORTHERN CORPORATION – FORM 10-Q
December 31, 2021 Data | |||||||||||||||
(In Thousands) | Period Ending December 31, 2022 | ||||||||||||||
Basis Point | Interest | Interest | Net Interest | NII | NII | ||||||||||
Change in Rates | Income | Expense | Income (NII) | % Change | Risk Limit | ||||||||||
+400 | $ | 98,839 | $ | 18,142 | $ | 80,697 | 19.1 | % | 25.0 | % | |||||
+300 | 92,438 | 15,061 | 77,377 | 14.2 | % | 20.0 | % | ||||||||
+200 | 86,112 | 11,981 | 74,131 | 9.4 | % | 15.0 | % | ||||||||
+100 | 79,740 | 8,900 | 70,840 | 4.5 | % | 10.0 | % | ||||||||
0 | 73,536 | 5,760 | 67,776 | 0.0 | % | 0.0 | % | ||||||||
-100 | 70,118 | 4,820 | 65,298 | (3.7) | % | 10.0 | % | ||||||||
-200 | 68,824 | 4,503 | 64,321 | (5.1) | % | 15.0 | % | ||||||||
Market Value of Portfolio Equity at December 31, 2021 | |||||||||||||||
Present | Present | Present | |||||||||||||
Basis Point | Value | Value | Value | ||||||||||||
Change in Rates | Equity | % Change | Risk Limit | ||||||||||||
+400 | $ | 471,951 | 14.1 | % | 50.0 | % | |||||||||
+300 | 459,810 | 11.1 | % | 45.0 | % | ||||||||||
+200 | 447,354 | 8.1 | % | 35.0 | % | ||||||||||
+100 | 431,856 | 4.4 | % | 25.0 | % | ||||||||||
0 | 413,767 | 0.0 | % | 0.0 | % | ||||||||||
-100 | 388,721 | (6.1) | % | 25.0 | % | ||||||||||
-200 | 365,331 | (11.7) | % | 35.0 | % | ||||||||||
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 in 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.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
The Corporation and CN 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.
57
CITIZENS NORTHERN CORPORATION – FORM 10-Q
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 February 22, 2022.
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 is 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. As of March 31, 2022, 428,926 shares have been repurchased under the repurchase program. As permitted by securities laws and other legal requirements and subject to market conditions and other factors, purchases may be made from time to time in the open market at prevailing prices, or through privately negotiated transactions.
Consistent with the previously approved program, the Board of Directors' February 18, 2021 approval provides that: (1) the treasury stock repurchase program, as amended to increase the repurchase authorization to 1,000,000 shares, shall be effective when publicly announced and shall continue thereafter until suspended or terminated by the Board of Directors, in its sole discretion; and (2) all shares of common stock repurchased pursuant to the 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 Company's Dividend Reinvestment and Stock Purchase Plan and its equity compensation program.
The following table sets forth a summary of the purchases by the Corporation of its common stock during the first quarter 2022.
|
|
| 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 | |||||
January 1 - 31, 2022 |
| 10,000 | $ | 25.00 |
| 309,059 |
| 690,941 | |
February 1 - 28, 2022 |
| 23,413 | $ | 24.88 |
| 332,472 |
| 667,528 | |
March 1 - 31, 2022 |
| 96,454 | $ | 24.83 |
| 428,926 |
| 571,074 | |
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
Not applicable
Item 5. Other Information
None
58
CITIZENS NORTHERN CORPORATION – FORM 10-Q
Item 6. Exhibits
3.1 |
| Filed herewith | |
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3.2 |
| Incorporated by reference to Exhibit 3.1 of The Corporation’s Form 8-K filed February 18, 2022 | |
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4. | Instruments defining the rights of Security holders, including Indentures |
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4.1 | Incorporated by reference to Exhibit 4.1 of the Corporation’s Form 8-K filed May 19, 2021 | ||
4.2 | Incorporated by reference to Exhibit A-2 to Exhibit 4.1 of the Corporation’s Form 8-K filed May 19, 2021 | ||
4.3 | Incorporated by reference to Exhibit 4.3 of the Corporation’s Form 8-K filed May 19, 2021 | ||
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31. | Rule 13a-14(a)/15d-14(a) certifications: |
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31.1 |
| Filed herewith | |
31.2 |
| Filed herewith | |
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32. |
| Filed herewith | |
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101. | Interactive data file |
| Filed herewith |
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104. | Cover page interactive data file |
| 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.
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| CITIZENS NORTHERN CORPORATION |
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May 6, 2022 |
| By: /s/ J. Bradley Scovill |
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| President and Chief Executive Officer |
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May 6, 2022 |
| By: /s/ Mark A. Hughes |
Date |
| Treasurer and Chief Financial Officer |
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