BASIS OF INTERIM PRESENTATION

AND STATUS OF RECENT ACCOUNTING PRONOUNCEMENTS

The consolidated financial statements include the accounts of Citizens & Northern Corporation and its subsidiaries, Citizens & Northern Bank (“C&N Bank”), Bucktail Life Insurance Company and Citizens & Northern Investment Corporation (collectively, “Corporation”). The consolidated financial statements also include C&N Bank’s wholly-owned subsidiaries, C&N Financial Services Corporation and Northern Tier Holding LLC. C&N Bank is the sole member of 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, 2019,

is unaudited. Such information reflects all adjustments (consisting solely of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations, comprehensive income, cash flows and changes in stockholders’ equity for the interim periods; however, the information does

not

include all disclosures required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for a complete set of financial statements. Certain

2019

information has been reclassified for consistency with the

2020

presentation.

Operating results reported for the

three

-month period ended

March 31, 2020

might

not

be indicative of the results for the year ending

December 31, 2020.

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.

Recent Accounting Pronouncements - Adopted

Effective

January 1, 2019,

the Corporation adopted ASU

2016

02,

Leases (Topic

842

), as modified by subsequent ASUs, which changed U.S. GAAP by requiring that lease assets and liabilities arising from operating leases be recognized on the balance sheet. Topic

842,

as modified, does

not

significantly change the recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee from prior U.S. GAAP. For leases with a term of

months or less, the Corporation made an accounting policy election by class of underlying asset

not

to recognize lease assets and liabilities. The Corporation elected to adopt this pronouncement using an optional transition method resulting in recognition of right-of-use assets and lease liabilities for operating leases of

$1,132,000

on its consolidated balance sheets at

January 1, 2019,

with

adjustment to stockholders’ equity and

material impact to its consolidated statements of income. At

December 31, 2019,

right-of-use assets of

$1,637,000

were included in other assets, and the related liabilities totaling the same amount were included in accrued interest and other liabilities, in the consolidated balance sheets.

Effective

December 31, 2019,

the Corporation elected early adoption of ASU

2017

04,

Intangibles – Goodwill and Other (Topic

350

), which simplified accounting for goodwill impairment by removing step

of the goodwill impairment test thus eliminating the need to determine the fair value of individual assets and liabilities of the reporting unit. Upon adoption of this ASU, goodwill impairment is the amount by which a reporting unit’s carrying value exceeds its fair value,

not

to exceed the carrying amount of goodwill. Adoption of this ASU did

not

have a material impact on the Corporation’s consolidated financial statements.

ASU

2018

13,

Fair Value Measurement (Topic

820

) modifies disclosure requirements on fair value measurements. This ASU removes requirements to disclose the amount of and reasons for transfers between Level

and Level

of the fair value hierarchy, the policy for timing of transfers between levels and the valuation processes for Level

fair value measurements. ASU

2018

clarifies that disclosure regarding measurement uncertainty is intended to communicate information about the uncertainty in measurement as of the reporting date. ASU

2018

adds certain disclosure requirements, including disclosure of changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level

fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level

fair value measurements. The amendments in this ASU are effective for the Corporation beginning in the

first

quarter

2020.

The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level

fair value measurements and the narrative description of measurement uncertainty should be applied prospectively, while all other amendments should be applied retrospectively for all periods presented. The Corporation does

not

expect adoption of this ASU to have a material impact on its consolidated financial position or results of operations.

Recently Issued

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

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

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

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

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 Update

2020

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.

●

Simplifies the assessment of hedge effectiveness and allows hedging relationships affected by reference rate reform to continue.

The amendments in this Update are effective as of

March 12, 2020

through

December 31, 2022.

The Corporation expects to apply the amendments prospectively for applicable loan and other contracts within the effective period of this Update.