CNBファイナンシャルの四半期報告

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended June 30, 2023


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

For the transition period from to

Commission File Number 001-39472

CNB FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)


Pennsylvania						25-1450605
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

1 South Second Street

P.O. Box 42

Clearfield, Pennsylvania 16830

(Address of principal executive offices)

Registrant’s telephone number, including area code, (814) 765-9621

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

Title of Class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, no par value

CCNE

The NASDAQ Stock Market LLC

Depositary Shares (each representing a 1/40th interest in a share of 7.125% Series A Non-Cumulative, perpetual preferred stock)

CCNEP

The NASDAQ Stock Market LLC

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

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

Large Accelerated Filer

☐

Accelerated Filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

The number of shares outstanding of the issuer’s common stock as of August 1, 2023:

COMMON STOCK, NO PAR VALUE PER SHARE: 20,995,716 SHARES

Table of Contents

INDEX

PART I.

FINANCIAL INFORMATION


			Page Number

ITEM 1 – Financial Statements

Condensed Consolidated Balance Sheets June 3 0 , 2023 (unaudited) and December 31, 2022 (audited)			1

Condensed Consolidated Statements of Income – Three and six months ended J une 3 0 , 2023 and 2022 (unaudited)			2

Condensed Consolidated Statements of Comprehensive Income – Three and six months ended June 3 0 , 2023 and 2022 (unaudited)			3

Condensed Consolidated Statements of Changes in Shareholders' Equity – Three and six months ended June 3 0 , 2023 and 2022 (unaudited)			4

Condensed Consolidated Statements of Cash Flows – Three and six months ended June 3 0 , 2023 and 2022 (unaudited)			6

Notes to Condensed Consolidated Financial Statements			8

ITEM 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations			46

ITEM 3 – Quantitative and Qualitative Disclosures about Market Risk			70

ITEM 4 – Controls and Procedures			71

PART II. OTHER INFORMATION

ITEM 1 – Legal Proceedings			72

ITEM 1A – Risk Factors			72

ITEM 2 – Unregistered Sales of Equity Securities and Use of Proceeds			72

ITEM 3 – Defaults Upon Senior Securities			73

ITEM 4 – Mine Safety Disclosures			73

ITEM 5 – Other Information			73

ITEM 6 – Exhibits			74

Signatures			75

Table of Contents

Forward-Looking Statements and Factors that Could Affect Future Results

The information below includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, with respect to the financial condition, liquidity, results of operations, future performance and business of CNB Financial Corporation (“CNB”). These forward-looking statements are intended to be covered by the safe harbor for "forward-looking statements" provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are those that are not historical facts. Forward-looking statements include statements with respect to beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions that are subject to significant risks and uncertainties and are subject to change based on various factors (some of which are beyond CNB’s control). Forward-looking statements often include the words "believes," "expects," "anticipates," "estimates," "forecasts," "intends," "plans," "targets," "potentially," "probably," "projects," "outlook" or similar expressions or future conditional verbs such as "may," "will," "should," "would" and "could." CNB’s actual results may differ materially from those contemplated by the forward-looking statements, which are neither statements of historical fact nor guarantees or assurances of future performance.

Factors that could cause the actual results to differ materially from the statements, include, but are not limited to, (i) adverse changes or conditions in capital and financial markets, including actual or potential stresses in the banking industry; (ii) changes in the interest rate environment; (iii) the credit risks of lending activities, including our ability to estimate credit losses and the allowance for credit losses, as well as the effects of changes in the level of, and trends in, loan delinquencies and write-offs; (iv) effectiveness of our data security controls in the face of cyber attacks and any reputational risks following a cybersecurity incident; (v) the duration and scope of a pandemic, including the lingering impacts of the COVID-19 pandemic, and the local, national and global impact of a pandemic; (vi) changes in general business, industry or economic conditions or competition; (vii) changes in any applicable law, rule, regulation, policy, guideline or practice governing or affecting financial holding companies and their subsidiaries or with respect to tax or accounting principles or otherwise; (viii) higher than expected costs or other difficulties related to integration of combined or merged businesses; (ix) the effects of business combinations and other acquisition transactions, including the inability to realize our loan and investment portfolios; (x) changes in the quality or composition of our loan and investment portfolios; (xi) adequacy of loan loss reserves; (xii) increased competition; (xiii) loss of certain key officers; (xiv) deposit attrition; (xv) rapidly changing technology; (xvi) unanticipated regulatory or judicial proceedings and liabilities and other costs; (xvii) changes in the cost of funds, demand for loan products or demand for financial services; and (xviii) other economic, competitive, governmental or technological factors affecting our operations, markets, products, services and prices. Such developments could have an adverse impact on CNB's financial position and results of operations.

The forward-looking statements contained herein are based upon management’s beliefs and assumptions. Any forward-looking statement made herein speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. CNB undertakes no obligation to publicly update or revise any forward-looking statements included in this Quarterly Report on Form 10-Q, whether as a result of new information, future events or otherwise, except to the extent required by law. In light of these risks, uncertainties and assumptions, the forward-looking events discussed might not occur and you should not put undue reliance on any forward-looking statements.

Table of Contents

Part I Financial Information

Item 1. Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS

Dollars in thousands, except share data


	(unaudited)
	June 30, 2023		December 31, 2022
ASSETS
Cash and due from banks	$	58,278	$	58,884
Interest-bearing deposits with Federal Reserve	62,644		43,401
Interest-bearing deposits with other financial institutions	4,241		4,000
Total cash and cash equivalents	125,163		106,285
Debt securities available-for-sale, at fair value (amortized cost of $412,536 and $432,992, respectively)	353,136		371,409
Debt securities held-to-maturity, at amortized cost (fair value $358,806 and $367,388, respectively)	394,238		404,765
Equity securities	9,266		9,615
Loans held for sale	1,654		231
Loans receivable
PPP loans, net of deferred processing fees	67		159
Syndicated loans	145,627		156,649
Loans	4,319,140		4,118,370

Total loans receivable	4,464,834		4,275,178
Less: allowance for credit losses	(45,541)		(43,436)
Net loans receivable	4,419,293		4,231,742
FHLB and other restricted stock holdings and investments	27,883		30,715
Premises and equipment, net	72,944		68,535
Operating lease right-of-use assets	36,444		32,307
Bank owned life insurance	112,980		111,523
Mortgage servicing rights	1,686		1,804
Goodwill and other intangibles	43,874		43,749
Core deposit intangible, net	320		364
Accrued interest receivable and other assets	64,719		62,135
Total Assets	$	5,663,600	$	5,475,179
LIABILITIES AND SHAREHOLDERS’ EQUITY
Noninterest-bearing demand deposits	$	808,074	$	898,437
Interest-bearing demand deposits	861,871		1,007,202
Savings	2,708,386		2,270,337
Certificates of deposit	554,744		446,461
Total deposits	4,933,075		4,622,437
Short-term borrowings	—		132,396

Subordinated debentures	20,620		20,620
Subordinated notes, net of unamortized issuance costs	84,115		83,964
Operating lease liabilities	38,182		33,726
Accrued interest payable and other liabilities	37,974		51,274
Total liabilities	5,113,966		4,944,417
Commitments and contingent liabilities
Preferred stock, Series A non-cumulative perpetual, $0 par value; $1,000 liquidation preference; shares authorized 60,375; Shares issued 60,375 at June 30, 2023 and December 31, 2022	57,785		57,785
Common stock, no par value; 50,000,000 shares authorized; Shares issued 21,235,503 at June 30, 2023 and 21,235,503 at December 31, 2022	—		—
Additional paid in capital	219,723		221,553
Retained earnings	327,707		306,911
Treasury stock, at cost (238,450 shares at June 30, 2023 and 114,157 shares December 31, 2022)	(4,996)		(2,967)
Accumulated other comprehensive loss	(50,585)		(52,520)
Total shareholders’ equity	549,634		530,762
Total Liabilities and Shareholders’ Equity	$	5,663,600	$	5,475,179

See Notes to Condensed Consolidated Financial Statements

Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)

Dollars in thousands, except per share data


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
INTEREST AND DIVIDEND INCOME:
Loans receivable including fees
Interest and fees on loans receivable	$	66,899	$	44,666	$	129,226	$	85,816
Processing fees on PPP loans	2		559		3		1,796
Securities:
Taxable	5,083		4,254		9,113		7,868
Tax-exempt	180		227		377		446
Dividends	168		35		253		69
Total interest and dividend income	72,332		49,741		138,972		95,995
INTEREST EXPENSE:
Deposits	23,578		2,487		40,277		5,193
Borrowed funds and finance lease liabilities	445		5		1,708		10
Subordinated notes and debentures (includes $(51), $51, $(96), and $118 accumulated other comprehensive income reclassification for change in fair value of interest rate swap agreements, respectively)	1,049		948		2,088		1,874
Total interest expense	25,072		3,440		44,073		7,077
NET INTEREST INCOME	47,260		46,301		94,899		88,918
PROVISION FOR CREDIT LOSS EXPENSE	2,405		2,905		3,695		4,548
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSS EXPENSE	44,855		43,396		91,204		84,370
NON-INTEREST INCOME:
Service charges on deposit accounts	1,913		1,771		3,708		3,528
Other service charges and fees	1,085		784		1,716		1,439
Wealth and asset management fees	1,917		1,803		3,734		3,586
Net realized gains on available-for-sale securities (includes $30, $0, $52, and $651 accumulated other comprehensive income reclassifications for net realized gains on available-for-sale securities, respectively)	30		—		52		651
Net realized and unrealized losses on equity securities	(244)		(641)		(530)		(1,035)
Mortgage banking	176		292		344		767
Bank owned life insurance	693		1,390		1,457		2,084
Card processing and interchange income	2,062		1,992		4,121		3,801
Other non-interest income	661		755		1,733		2,979
Total non-interest income	8,293		8,146		16,335		17,800
NON-INTEREST EXPENSES:
Compensation and benefits	17,059		16,771		34,104		33,759
Net occupancy expense	3,628		3,335		7,194		6,565

Technology expense	5,187		4,024		9,445		7,396
State and local taxes	1,030		1,037		2,080		2,085
Legal, professional, and examination fees	1,002		1,176		1,847		2,013
Advertising	701		537		1,245		1,157
FDIC insurance premiums	1,001		710		1,874		1,433

Card processing and interchange expenses	1,572		1,256		3,062		2,285

Other non-interest expenses	4,808		3,763		9,127		7,808
Total non-interest expenses	35,988		32,609		69,978		64,501
INCOME BEFORE INCOME TAXES	17,160		18,933		37,561		37,669
INCOME TAX EXPENSE (includes $17, $(11), $31 and $113 income tax expense from reclassification items, respectively)	3,333		3,495		7,245		6,986
NET INCOME	13,827		15,438		30,316		30,683
PREFERRED STOCK DIVIDENDS	1,075		1,075		2,150		2,150
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS	$	12,752	$	14,363	$	28,166	$	28,533
AVERAGE COMMON SHARES OUTSTANDING:
Basic	20,916,861		16,781,743		20,979,373		16,796,154
Diluted	20,956,575		16,815,124		21,019,178		16,829,535
PER COMMON SHARE DATA:
Basic Earnings Per Common Share	$	0.61	$	0.85	$	1.34	$	1.69
Diluted Earnings Per Common Share	$	0.61	$	0.85	$	1.33	$	1.69

Cash Dividends Declared	$	0.175	$	0.175	$	0.350	$	0.350

See Notes to Condensed Consolidated Financial Statements

Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)

Dollars in thousands


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
NET INCOME	$	13,827	$	15,438	$	30,316	$	30,683
Other comprehensive income (loss), net of tax:
Net change in fair value of derivative instruments:
Unrealized gain on interest rate swaps, net of tax $(2), $(18), $(2), and $(60), respectively	9		70		8		228
Reclassification adjustment for (gains) losses recognized in earnings, net of tax $11, $(11), $20, $(24), respectively	(40)		40		(76)		94
	(31)		110		(68)		322
Net change in debt securities:
Unrealized holding gains (losses) on available-for-sale securities arising during the period, net of tax of $1,062, $3,866, $(469), and $10,936, respectively	(3,995)		(14,546)		1,765		(41,146)
Amortization of unrealized losses from held-to-maturity securities, net of tax of $(39), $(112), $(74), and $(98), respectively	146		422		279		371
Reclassification adjustment for realized losses included in net income, net of tax of $6, $0, $11, and $137, respectively	(24)		—		(41)		(514)
	(3,873)		(14,124)		2,003		(41,289)


Other comprehensive income (loss)	(3,904)		(14,014)		1,935		(40,967)
COMPREHENSIVE INCOME (LOSS)	$	9,923	$	1,424	$	32,251	$	(10,284)

See Notes to Condensed Consolidated Financial Statements

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CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited)

Dollars in thousands, except share and per share data


	Preferred Stock		Additional Paid-In Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total Share- holders’ Equity
Balance, April 1, 2023	$	57,785	$	219,561	$	318,629	$	(2,867)	$	(46,681)	$	546,427
Net income					13,827						13,827
Other comprehensive loss									(3,904)		(3,904)
Forfeiture of restricted stock award grants (742 shares)			13				(13)				—
Restricted stock award grants (7,326 shares)			(196)				196				—

Stock-based compensation expense			345								345



Purchase of treasury stock (126,459 shares)							(2,312)				(2,312)




Preferred cash dividend declared					(1,075)						(1,075)
Cash dividends declared ($0.175 per common share)					(3,674)						(3,674)
Balance, June 30, 2023	$	57,785	$	219,723	$	327,707	$	(4,996)	$	(50,585)	$	549,634

Balance, April 1, 2022	$	57,785	$	126,703	$	271,792	$	(2,998)	$	(27,347)	$	425,935
Net income					15,438						15,438
Other comprehensive loss									(14,014)		(14,014)
Forfeiture of restricted stock award grants (1,090 shares)			27				(27)				—


Stock-based compensation expense			256								256




Purchase of treasury stock for the purpose of tax withholding related to restricted stock award vesting (22 shares)							(1)				(1)

Preferred cash dividend declared					(1,075)						(1,075)
Cash dividends declared ($0.175 per common share)					(2,951)						(2,951)
Balance, June 30, 2022	$	57,785	$	126,986	$	283,204	$	(3,026)	$	(41,361)	$	423,588

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CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited) (continued)

Dollars in thousands, except share and per share data


	Preferred Stock		Additional Paid-In Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total Share- holders’ Equity
Balance, January 1, 2023	$	57,785	$	221,553	$	306,911	$	(2,967)	$	(52,520)	$	530,762
Net income					30,316						30,316
Other comprehensive gain									1,935		1,935
Forfeiture of restricted stock award grants (2,803 shares)			63				(63)				—
Restricted stock award grants (105,185 shares)			(2,743)				2,743				—
Performance based restricted stock award grants (4,118 shares)			(111)				111				—
Stock-based compensation expense			961								961



Purchase of treasury stock (226,459 shares)							(4,717)				(4,717)
Purchase of treasury stock for the purpose of tax withholding related to restricted stock award vesting (3,750 shares)							(89)				(89)
Purchase of treasury stock for the purpose of tax withholding related to performance based restricted stock award vesting (584 shares)							(14)				(14)


Preferred cash dividend declared					(2,150)						(2,150)
Cash dividends declared ($0.350 per common share)					(7,370)						(7,370)
Balance, June 30, 2023	$	57,785	$	219,723	$	327,707	$	(4,996)	$	(50,585)	$	549,634

Balance, January 1, 2022	$	57,785	$	127,351	$	260,582	$	(2,477)	$	(394)	$	442,847
Net income					30,683						30,683
Other comprehensive loss									(40,967)		(40,967)
Forfeiture of restricted stock award grants (1,090 shares)			27				(27)				—
Restricted stock award grants (56,159 shares)			(976)				976				—
Performance based restricted stock award grants (11,895 shares)			(173)				173				—
Stock-based compensation expense			757								757



Purchase of treasury stock (50,166 shares)							(1,342)				(1,342)
Purchase of treasury stock for the purpose of tax withholding related to restricted stock award vesting (7,568 shares)							(203)				(203)
Purchase of treasury stock for the purpose of tax withholding related to performance based restricted stock award vesting (4,706 shares)							(126)				(126)
Preferred cash dividend declared					(2,150)						(2,150)
Cash dividends declared ($0.175 per common share)					(5,911)						(5,911)
Balance, June 30, 2022	$	57,785	$	126,986	$	283,204	$	(3,026)	$	(41,361)	$	423,588

See Notes to Condensed Consolidated Financial Statements

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

Dollars in thousands


	Six Months Ended June 30,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	30,316	$	30,683
Adjustments to reconcile net income to net cash provided by operations:
Provision for credit loss expense	3,695		4,548
Depreciation and amortization of premises and equipment, operating leases assets, core deposit intangible, and mortgage servicing rights	3,842		3,483
Accretion of securities, deferred loan fees and costs, net yield and credit mark on acquired loans, and unearned income	(2,164)		(1,741)
Net amortization of deferred costs on borrowings	151		151
Accretion of deferred PPP processing fees	(3)		(1,796)
Net realized gains on sales of available-for-sale securities	(52)		(651)
Net realized and unrealized losses on equity securities	530		1,035
Gain on sale of loans held for sale	(212)		(930)
Net losses on dispositions of premises and equipment and foreclosed assets	27		40
Proceeds from sale of loans receivable	7,561		17,367
Origination of loans held for sale	(9,737)		(23,168)
Income on bank owned life insurance	(1,457)		(1,254)
Gain on bank owned life insurance (death benefit proceeds in excess of cash surrender value)	—		(830)
Restricted stock compensation expense	961		757

Change in:
Accrued interest receivable and other assets	(2,484)		(13,770)
Accrued interest payable, lease liabilities, and other liabilities	(14,578)		7,891
NET CASH PROVIDED BY OPERATING ACTIVITIES	16,396		21,815
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities, prepayments and calls of available-for-sale securities	20,168		47,229
Proceeds from sales of available-for-sale securities	13,151		22,164
Purchase of available-for-sale securities	(13,203)		(43,055)
Proceeds from maturities, prepayments and calls of held-to-maturity securities	11,011		14,707
Purchases of held-to-maturity securities	—		(213,853)

Purchase of equity securities	(181)		(208)
Proceeds from loans classified as portfolio loans	4,994		—
Net increase in loans receivable	(192,961)		(265,410)
Purchase of bank owned life insurance	—		(2,750)


Redemption (purchase) of FHLB, other equity, and restricted equity interests	2,832		(1,208)
Purchase of premises and equipment	(7,158)		(3,991)
Purchase of other intangible assets	(125)		—
Proceeds from the sale of premises and equipment and foreclosed assets	52		47
NET CASH USED BY INVESTING ACTIVITIES	(161,420)		(446,328)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in checking, money market and savings accounts	202,355		68,376
Net increase (decrease) in certificates of deposit	108,283		(82,175)

Purchase of treasury stock	(4,820)		(1,671)
Cash dividends paid, common stock	(7,370)		(5,911)
Cash dividends paid, preferred stock	(2,150)		(2,150)






Net change in short-term borrowings	(132,396)		—
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES	163,902		(23,531)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	18,878		(448,044)
CASH AND CASH EQUIVALENTS, Beginning	106,285		732,198
CASH AND CASH EQUIVALENTS, Ending	$	125,163	$	284,154

Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (continued)

Dollars in thousands


	Six Months Ended June 30,
	2023		2022
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	43,474	$	8,530
Income taxes	4,724		6,958
SUPPLEMENTAL NONCASH DISCLOSURES:
Transfers to other real estate owned	$	161	$	—
Transfers from loans held for sale to loans held for investment	1,064		6,352
Transfers from loans held for investment to loans held for sale	166		—
Transfers from available-for-sale to held-to-maturity	—		220,757
Grant of restricted stock awards from treasury stock	2,743		976
Grant of performance based restricted stock awards from treasury stock	111		173
Restricted stock forfeiture	63		27

Lease liabilities arising from obtaining right-of-use assets	5,001		6,188

See Notes to Condensed Consolidated Financial Statements

Table of Contents

CNB FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

CNB Financial Corporation (the "Corporation") is headquartered in Clearfield, Pennsylvania, and provides a full range of banking and related services through its wholly owned subsidiary, CNB Bank (the "Bank"). In addition, the Bank provides wealth and asset management services, including the administration of trusts and estates, retirement plans, and other employee benefit plans as well as a full range of wealth management services. The Bank serves individual and corporate customers and is subject to competition from other financial institutions and intermediaries with respect to these services. In addition to the Bank, the Corporation also operates a consumer discount loan and finance business through its wholly owned subsidiary, Holiday Financial Services Corporation ("Holiday"). The Corporation and its other subsidiaries are subject to examination by federal and state regulators. The Corporation’s market area is primarily concentrated in the Central and Northwest regions of the Commonwealth of Pennsylvania, the Central and Northeast regions of the State of Ohio, Western region of the State of New York and the Southwest region of the Commonwealth of Virginia.

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared pursuant to rules and regulations of the SEC and in compliance with U.S. generally accepted accounting principles ("GAAP"). Because this report is based on an interim period, certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with GAAP have been condensed or omitted.

In the opinion of management of the registrant, the accompanying condensed consolidated financial statements as of June 30, 2023 and for the three and six months ended June 30, 2023 and 2022 include all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the financial condition and the results of operations for the periods presented. The financial performance reported for the Corporation for the three and six months ended June 30, 2023 is not necessarily indicative of the results to be expected for the full year.

This information should be read in conjunction with the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2022 (the "2022 Form 10-K"). Certain amounts appearing in the condensed consolidated financial statements and notes thereto for prior periods have been reclassified to conform with the current presentation. The reclassifications had no effect on net income or shareholders’ equity as previously reported. Dollar amounts in tables are stated in thousands, except for per share amounts.

Use of Estimates

To prepare financial statements in conformity with GAAP, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the condensed consolidated financial statements and the disclosures provided and future results could differ.

Operating Segments

While the Corporation's chief operating decision makers monitor the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Corporation-wide basis, and operating segments are aggregated into one as operating results for all segments are similar. Accordingly, all of the financial services operations are considered by management to be aggregated in one reportable operating segment.

Table of Contents

Goodwill Assessment

The Corporation's policy is to test goodwill for impairment annually on December 31 or on an interim basis if an event triggering impairment may have occurred. During the six months ended June 30, 2023, the economic uncertainty and market volatility resulting from the rising interest rate environment and the recent banking industry stresses resulted in a decrease in the Corporation's stock price and market capitalization. Management believed such a decrease was a triggering indicator requiring an interim goodwill impairment analysis. At June 30, 2023, the Corporation elected to perform a qualitative assessment to determine if it was more likely than not that the fair value exceeded its carrying value, including goodwill. The qualitative assessment indicated that it was more likely than not that the fair value exceeded its carrying value, resulting in no impairment. Management will continue to evaluate the economic conditions at future reporting periods for any potential applicable changes.

2. RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Standards Adopted in 2022

In December 2022, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2022-06 - Reference Rate Reform (Topic 848). ASU 2022-06 extends the period of time preparers can utilize the reference rate reform relief guidance provided by ASU 2020-04 and ASU 2021-01, which are discussed above. ASU 2022-06, which was effective upon issuance, defers the sunset date of this prior guidance from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the relief guidance in Topic 848. ASU 2022-06 did not have a material impact on the Corporation's financial statements and related disclosures.

Accounting Standards Adopted in 2023

In October 2021, the FASB issued ASU No. 2021-08, "Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers." This ASU requires that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, "Revenue from Contracts with Customers." ASU 2021-08 was effective for the Corporation on January 1, 2023 and did not have a material impact on its condensed consolidated financial statements and related disclosures.

In March 2022, the FASB issued ASU 2022-01, "Derivatives and Hedging (Topic 815): Fair Value Hedging - Portfolio Layer Method." Under prior guidance, entities can apply the last-of-layer hedging method to hedge the exposure of a closed portfolio of prepayable financial assets to fair value changes due to changes in interest rates for a portion of the portfolio that is not expected to be affected by prepayments, defaults, and other events affecting the timing and amount of cash flows. ASU 2022-01 expands the last-of-layer method, which permits only one hedge layer, to allow multiple hedged layers of a single closed portfolio. To reflect that expansion, the last-of-layer method is renamed the portfolio layer method. ASU 2022-01 also (i) expands the scope of the portfolio layer method to include non-prepayable financial assets, (ii) specifies eligible hedging instruments in a single-layer hedge, (iii) provides additional guidance on the accounting for and disclosure of hedge basis adjustments under the portfolio layer method and (iv) specifies how hedge basis adjustments should be considered when determining credit losses for the assets included in the closed portfolio. ASU 2022-01 was effective for the Corporation on January 1, 2023 and did not have a material impact on its condensed consolidated financial statements and related disclosures.

In March 2022, the FASB issued ASU No. 2022-02, "Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures." This ASU eliminates the separate recognition and measurement guidance for Troubled Debt Restructurings ("TDRs") by creditors. The elimination of the TDRs guidance may be adopted prospectively for loan modifications after adoption or on a modified retrospective basis, which would also apply to loans previously modified, resulting in a cumulative effect adjustment to retained earnings in the period of adoption for changes in the allowance for credit losses. ASU 2022-02 was effective for the Corporation on January 1, 2023 and did not have a material impact on its condensed consolidated financial statements and related disclosures.

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Accounting Pronouncements Pending Adoption

In June 2022, FASB issued ASU No. 2022-03, "Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions." In this ASU, a contractual restriction on the sale of an equity security is not considered in measuring the security's fair value. The ASU also requires certain disclosures for equity securities that are subject to contractual restrictions. This guidance is effective for the Corporation on January 1, 2024, with early adoption permitted. The Corporation is evaluating the effect that ASU 2022-03 will have on its consolidated financial statements and related disclosures.

In March 2023, FASB issued ASU No. 2023-01, "Leases (Topic 842): Common Control Arrangements." This ASU requires the Corporation to amortize leasehold improvements associated with common control leases over the useful life to the common control group. This guidance is effective for the Corporation on January 1, 2024 with early adoption permitted. The Corporation is evaluating the effect that ASU 2023-01 will have on its consolidated financial statements and related disclosures.

In March 2023, FASB issued ASU No. 2023-02, "Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method." In this ASU, these amendments allow the Corporation to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. This guidance is effective for the Corporation on January 1, 2024 with early adoption permitted. The Corporation is evaluating the effect that ASU 2023-02 will have on its consolidated financial statements and related disclosures.

3. SECURITIES

Debt securities available-for-sale ("AFS") at June 30, 2023 and December 31, 2022 were as follows:


	June 30, 2023
	Amortized		Unrealized				Allowance For		Fair
	Cost		Gains		Losses		Credit Losses		Value
U.S. Government sponsored entities	$	3,074	$	—	$	(80)	$	—	$	2,994
State & political subdivisions	107,396		8		(14,928)		—		92,476
Residential & multi-family mortgage	240,874		—		(37,442)		—		203,432
Corporate notes & bonds	48,779		9		(5,931)		—		42,857
Pooled SBA	12,413		—		(1,036)		—		11,377

Total	$	412,536	$	17	$	(59,417)	$	—	$	353,136


	December 31, 2022
	Amortized		Unrealized				Allowance For		Fair
	Cost		Gains		Losses		Credit Losses		Value
U.S. Government sponsored entities	$	3,213	$	—	$	(84)	$	—	$	3,129
State & political subdivisions	112,734		24		(17,095)		—		95,663
Residential & multi-family mortgage	256,111		—		(38,564)		—		217,547
Corporate notes & bonds	47,111		—		(4,720)		—		42,391
Pooled SBA	13,823		—		(1,144)		—		12,679

Total	$	432,992	$	24	$	(61,607)	$	—	$	371,409

Debt securities held-to-maturity ("HTM") at June 30, 2023 and December 31, 2022 were as follows:


	June 30, 2023
	Amortized		Unrealized				Allowance For		Fair
	Cost		Gains		Losses		Credit Losses		Value
U.S. Government sponsored entities	$	302,798	$	—	$	(25,781)	$	—	$	277,017
Residential & multi-family mortgage	91,440		—		(9,651)		—		81,789





Total	$	394,238	$	—	$	(35,432)	$	—	$	358,806

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	December 31, 2022
	Amortized		Unrealized				Allowance For		Fair
	Cost		Gains		Losses		Credit Losses		Value
U.S. Government sponsored entities	$	307,711	$	—	$	(27,276)	$	—	$	280,435
Residential & multi-family mortgage	97,054		—		(10,101)		—		86,953





Total	$	404,765	$	—	$	(37,377)	$	—	$	367,388

The Corporation elected to transfer 74 AFS securities with an aggregate fair value of $213.7 million to a classification of HTM during the twelve months ended December 31, 2022. In accordance with FASB ASC 320-10-55-24, the transfer from AFS to HTM must be recorded at the fair value of the AFS securities at the time of transfer. The net unrealized holding loss of $5.6 million, net of tax, at the date of transfer was retained in accumulated other comprehensive income (loss), with the associated pre-tax amount retained in the carrying value of the HTM securities. Such amounts will be amortized to comprehensive income over the remaining life of the securities.

Information pertaining to security sales on AFS securities is as follows:


	Proceeds		Gross Gains		Gross Losses
Three months ended June 30, 2023	$	3,492	$	30	$	—
Three months ended June 30, 2022	—		—		—
Six months ended June 30, 2023	13,151		52		—
Six months ended June 30, 2022	22,164		651		—

The tax provision related to these net realized gains was $6 thousand and $11 thousand for the three and six months ended June 30, 2023 and zero and $137 thousand for the three and six months ended June 30, 2022, respectively.

The table below illustrates the maturity distribution of debt securities at amortized cost and fair value as of June 30, 2023:


	Available-for-sale				Held-to-maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
1 year or less	$	7,839	$	7,754	$	19,912	$	19,299
1 year – 5 years	45,110		42,446		232,093		214,648
5 years – 10 years	83,578		70,916		50,793		43,070
After 10 years	22,722		17,211		—		—
	159,249		138,327		302,798		277,017
Residential & multi-family mortgage	240,874		203,432		91,440		81,789
Pooled SBA	12,413		11,377		—		—

Total debt securities	$	412,536	$	353,136	$	394,238	$	358,806

Mortgage securities and pooled SBA securities are not due at a single date; periodic payments are received based on the payment patterns of the underlying collateral.

On June 30, 2023 and December 31, 2022, securities carried at $491.2 million and $561.8 million, respectively, were pledged to secure public deposits and for other purposes as provided by law.

At June 30, 2023 and December 31, 2022, there were no holdings of securities of any one issuer, other than the U.S. Government sponsored entities, in an amount greater than 10% of shareholders’ equity. The Corporation’s residential and multi-family mortgage securities are issued by government sponsored entities.

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AFS debt securities with unrealized losses at June 30, 2023 and December 31, 2022, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows:

June 30, 2023


	Less than 12 Months				12 Months or More				Total
Description of Securities	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
U.S. Government sponsored entities	$	1,478	$	(5)	$	1,516	$	(75)	$	2,994	$	(80)
State & political subdivisions	12,482		(194)		77,811		(14,734)		90,293		(14,928)
Residential & multi-family mortgage	7,833		(356)		195,504		(37,086)		203,337		(37,442)
Corporate notes and bonds	10,624		(905)		31,225		(5,026)		41,849		(5,931)
Pooled SBA	643		(12)		10,734		(1,024)		11,377		(1,036)

	$	33,060	$	(1,472)	$	316,790	$	(57,945)	$	349,850	$	(59,417)

December 31, 2022


	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
U.S. Government sponsored entities	$	3,129	$	(84)	$	—	$	—	$	3,129	$	(84)
State & political subdivisions	34,667		(1,887)		54,546		(15,208)		89,213		(17,095)
Residential & multi-family mortgage	48,996		(3,122)		168,551		(35,442)		217,547		(38,564)
Corporate notes and bonds	31,730		(3,403)		10,661		(1,317)		42,391		(4,720)
Pooled SBA	5,107		(314)		7,572		(830)		12,679		(1,144)

	$	123,629	$	(8,810)	$	241,330	$	(52,797)	$	364,959	$	(61,607)

HTM debt securities with unrealized losses at June 30, 2023 and December 31, 2022, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows:

June 30, 2023


	Less than 12 Months				12 Months or More				Total
Description of Securities	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
U.S. Government sponsored entities	$	—	$	—	$	277,017	$	(25,781)	$	277,017	$	(25,781)
Residential & multi-family mortgage	1,158		(244)		80,631		(9,407)		81,789		(9,651)





	$	1,158	$	(244)	$	357,648	$	(35,188)	$	358,806	$	(35,432)

December 31, 2022


	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
U.S. Government sponsored entities	$	143,556	$	(10,063)	$	136,879	$	(17,213)	$	280,435	$	(27,276)
Residential & multi-family mortgage	24,132		(2,253)		62,821		(7,848)		86,953		(10,101)





	$	167,688	$	(12,316)	$	199,700	$	(25,061)	$	367,388	$	(37,377)

At June 30, 2023 and December 31, 2022, management performed an assessment for possible impairment related to credit losses of the Corporation’s debt securities, relying on information obtained from various sources, including publicly available financial data, ratings by external agencies, brokers and other sources. Based on the results of the assessment, management believes there is no credit related impairment of these debt securities at June 30, 2023 and December 31, 2022.

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For the securities that comprise corporate notes and bonds and the securities that are issued by state and political subdivisions, management monitors publicly available financial information, such as filings with the Securities and Exchange Commission, in order to evaluate the securities for potential credit impairment. For financial institution issuers, management monitors information from quarterly “call” report filings that are used to generate Uniform Bank Performance Reports. All other securities that were in an unrealized loss position at the balance sheet date were reviewed by management, and issuer-specific documents were reviewed as appropriate given the following considerations; the financial condition and near-term prospects of the issuer and whether downgrades by bond rating agencies have occurred, the length of time and extent to which fair value has been less than cost, and whether management does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery.

As of June 30, 2023 and December 31, 2022, management concluded the debt securities described in the previous paragraphs were not impaired for reasons due to credit quality for the following reasons:

•There is no indication of any significant deterioration of the creditworthiness of the institutions that issued the securities.

•All contractual interest payments on the securities have been received as scheduled, and no information has come to management’s attention through the processes previously described which would lead to a conclusion that future contractual payments will not be timely received.

•The unrealized losses were deemed to be temporary changes in value related to market movements in interest yields.

The Corporation does not intend to sell and it is not more likely than not that it will be required to sell the securities in an unrealized loss position before recovery of its amortized cost basis.

Equity securities at June 30, 2023 and December 31, 2022 were as follows:


	June 30, 2023		December 31, 2022
Corporate equity securities	$	5,633	$	6,973
Mutual funds	2,196		1,406
Money market funds	738		479
Corporate notes	699		757

Total	$	9,266	$	9,615

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4. LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES

Total net loans receivable at June 30, 2023 and December 31, 2022 are summarized as follows:


	June 30, 2023		Percentage of Total		December 31, 2022		Percentage of Total
Farmland	$	33,774	0.8	%	$	32,168	0.8	%
Owner-occupied, nonfarm nonresidential properties	490,728		11.0		468,493		11.0
Agricultural production and other loans to farmers	1,135		—		1,198		—
Commercial and Industrial	778,704		17.4		791,911		18.5
Obligations (other than securities and leases) of states and political subdivisions	154,834		3.5		145,345		3.4
Other loans	30,749		0.7		24,710		0.6
Other construction loans and all land development and other land loans	451,043		10.1		446,685		10.5
Multifamily (5 or more) residential properties	276,829		6.2		257,696		6.0
Non-owner occupied, nonfarm nonresidential properties	881,550		19.7		795,315		18.6
1-4 Family Construction	59,735		1.3		51,171		1.2
Home equity lines of credit	121,813		2.7		124,892		2.9
Residential Mortgages secured by first liens	967,807		21.7		942,531		22.0
Residential Mortgages secured by junior liens	87,985		2.0		74,638		1.7
Other revolving credit plans	41,774		0.9		36,372		0.9
Automobile	26,753		0.6		21,806		0.5
Other consumer	47,760		1.1		49,144		1.1
Credit cards	11,640		0.3		10,825		0.3
Overdrafts	221		—		278		—
Total loans receivable	$	4,464,834	100.0	%	$	4,275,178	100.0	%
Less: Allowance for credit losses	(45,541)				(43,436)
Loans receivable, net	$	4,419,293			$	4,231,742

Net deferred loan origination fees included in the above table	$	3,432			$	4,463

The Corporation’s outstanding loans receivable and related unfunded commitments are primarily concentrated within Central and Northwest Pennsylvania, Central and Northeast Ohio, Western New York and Southwest Virginia. The Bank attempts to limit concentrations within specific industries by utilizing dollar limitations to single industries or customers, and by entering into participation agreements with third parties. Collateral requirements are established based on management’s assessment of the customer. The Corporation maintains lending policies to control the quality of the loan portfolio. These policies delegate the authority to extend loans under specific guidelines and underwriting standards. These policies are prepared by the Corporation’s management and reviewed and approved annually by the Corporation’s Board of Directors.

Syndicated loans, net of deferred fees and costs, are included in the commercial and industrial classification and totaled $145.6 million and $156.6 million as of June 30, 2023 and December 31, 2022, respectively.

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Transactions in the allowance for credit losses for the three months ended June 30, 2023 were as follows:


	Beginning Allowance		(Charge-offs)		Recoveries		Provision (Benefit) for Credit Losses on Loans Receivable(1)		Ending Allowance
Farmland	$	129	$	—	$	—	$	11	$	140
Owner-occupied, nonfarm nonresidential properties	2,546		—		7		598		3,151
Agricultural production and other loans to farmers	3		—		—		2		5
Commercial and Industrial	8,943		—		—		(284)		8,659
Obligations (other than securities and leases) of states and political subdivisions	1,848		—		—		458		2,306
Other loans	594		—		—		139		733
Other construction loans and all land development and other land loans	3,394		—		—		197		3,591
Multifamily (5 or more) residential properties	2,535		—		2		(924)		1,613
Non-owner occupied, nonfarm nonresidential properties	8,259		(248)		—		966		8,977
1-4 Family Construction	398		—		—		10		408
Home equity lines of credit	1,158		—		2		(191)		969
Residential Mortgages secured by first liens	8,851		—		3		396		9,250
Residential Mortgages secured by junior liens	1,275		—		—		303		1,578
Other revolving credit plans	830		(36)		12		125		931
Automobile	330		(5)		—		51		376
Other consumer	2,561		(442)		31		411		2,561
Credit cards	73		(18)		6		11		72
Overdrafts	254		(138)		35		70		221
Total	$	43,981	$	(887)	$	98	$	2,349	$	45,541

(1) Excludes provision for credit losses related to unfunded commitments. Note 9, "Off-Balance Sheet Commitments and Contingencies," in the condensed consolidated financial statements provides more detail concerning the provision for credit losses related to unfunded commitments of the Corporation.

Transactions in the allowance for credit losses for the six months ended June 30, 2023 were as follows:


	Beginning Allowance		(Charge-offs)		Recoveries		Provision (Benefit) for Credit Losses on Loans Receivable(1)		Ending Allowance
Farmland	$	159	$	—	$	—	$	(19)	$	140
Owner-occupied, nonfarm nonresidential properties	2,905		(26)		15		257		3,151
Agricultural production and other loans to farmers	6		—		—		(1)		5
Commercial and Industrial	9,766		(46)		145		(1,206)		8,659
Obligations (other than securities and leases) of states and political subdivisions	1,863		—		—		443		2,306
Other loans	456		—		—		277		733
Other construction loans and all land development and other land loans	3,253		—		—		338		3,591
Multifamily (5 or more) residential properties	2,353		(65)		2		(677)		1,613
Non-owner occupied, nonfarm nonresidential properties	7,653		(248)		—		1,572		8,977
1-4 Family Construction	327		—		—		81		408
Home equity lines of credit	1,173		—		3		(207)		969
Residential Mortgages secured by first liens	8,484		(7)		3		770		9,250
Residential Mortgages secured by junior liens	1,035		—		—		543		1,578
Other revolving credit plans	722		(58)		17		250		931
Automobile	271		(10)		—		115		376
Other consumer	2,665		(982)		74		804		2,561
Credit cards	67		(80)		7		78		72
Overdrafts	278		(298)		79		162		221
Total	$	43,436	$	(1,820)	$	345	$	3,580	$	45,541

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Transactions in the allowance for credit losses for the three months ended June 30, 2022 were as follows:


	Beginning Allowance		(Charge-offs)		Recoveries		Provision (Benefit) for Credit Losses on Loans Receivable(1)		Ending Allowance
Farmland	$	186	$	—	$	—	$	5	$	191
Owner-occupied, nonfarm nonresidential properties	3,595		—		2		117		3,714
Agricultural production and other loans to farmers	10		—		—		(3)		7
Commercial and Industrial	9,090		(14)		13		466		9,555
Obligations (other than securities and leases) of states and political subdivisions	1,828		—		—		(163)		1,665
Other loans	143		—		—		24		167
Other construction loans and all land development and other land loans	2,050		—		—		278		2,328
Multifamily (5 or more) residential properties	2,236		—		—		41		2,277
Non-owner occupied, nonfarm nonresidential properties	6,411		—		—		337		6,748
1-4 Family Construction	210		—		—		26		236
Home equity lines of credit	1,181		—		2		170		1,353
Residential Mortgages secured by first liens	6,905		—		—		759		7,664
Residential Mortgages secured by junior liens	552		—		—		76		628
Other revolving credit plans	547		(19)		28		42		598
Automobile	254		(6)		—		(6)		242
Other consumer	2,569		(369)		19		485		2,704
Credit cards	103		(45)		4		48		110
Overdrafts	247		(127)		33		203		356
Total loans	$	38,117	$	(580)	$	101	$	2,905	$	40,543

Transactions in the allowance for credit losses for the six months ended June 30, 2022 were as follows:


	Beginning Allowance		(Charge-offs)		Recoveries		Provision (Benefit) for Credit Losses on Loans Receivable(1)		Ending Allowance
Farmland	$	151	$	—	$	—	$	40	$	191
Owner-occupied, nonfarm nonresidential properties	3,339		(21)		9		387		3,714
Agricultural production and other loans to farmers	9		—		—		(2)		7
Commercial and Industrial	8,837		(85)		91		712		9,555
Obligations (other than securities and leases) of states and political subdivisions	1,649		—		—		16		1,665
Other loans	149		—		—		18		167
Other construction loans and all land development and other land loans	2,198		—		—		130		2,328
Multifamily (5 or more) residential properties	2,289		—		—		(12)		2,277
Non-owner occupied, nonfarm nonresidential properties	6,481		—		—		267		6,748
1-4 Family Construction	158		—		—		78		236
Home equity lines of credit	1,169		—		10		174		1,353
Residential Mortgages secured by first liens	6,943		(47)		12		756		7,664
Residential Mortgages secured by junior liens	546		—		—		82		628
Other revolving credit plans	528		(45)		34		81		598
Automobile	263		(13)		—		(8)		242
Other consumer	2,546		(770)		41		887		2,704
Credit cards	92		(59)		8		69		110
Overdrafts	241		(246)		74		287		356
Total loans	$	37,588	$	(1,286)	$	279	$	3,962	$	40,543

The Corporation's allowance for credit losses is influenced by loan volumes, risk rating migration, delinquency status and other conditions influencing loss expectations, such as reasonable and supportable forecasts of economic conditions.

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For the three and six months ended June 30, 2023, the allowance for credit losses increased due to the growth in the Corporation's loan portfolio, including growth in new market areas. This was partially offset by improvements in the Corporation's historical loss rates, as well as the impact of net charge-offs. There is still a significant amount of uncertainty related to the domestic and global economy, tightening credit conditions, persistent inflation, and higher interest rates. Management will continue to proactively evaluate its estimate of expected credit losses as new information becomes available.

Provision for credit losses was $2.4 million and $3.7 million for the three and six months ended June 30, 2023, respectively, compared to $2.9 million and $4.5 million for the three and six months ended June 30, 2022, respectively. Included in the provision for credit losses for the three and six months ended June 30, 2023 was $56 thousand and $115 thousand, respectively, related to the allowance for unfunded commitments compared to zero and $586 thousand, provision towards the allowance for unfunded commitments for the three and six months ended June 30, 2022, respectively.

The following tables presents the amortized cost basis of loans receivable on nonaccrual status and loans receivable past due over 89 days still accruing as of June 30, 2023 and December 31, 2022, respectively:


	June 30, 2023
	Nonaccrual		Nonaccrual With No Allowance for Credit Loss		Loans Receivable Past Due over 89 Days Still Accruing
Farmland	$	996	$	996	$	1,104
Owner-occupied, nonfarm nonresidential properties	2,338		1,795		—

Commercial and Industrial	5,058		2,057		—


Other construction loans and all land development and other land loans	2,085		536		—
Multifamily (5 or more) residential properties	310		310		—
Non-owner occupied, nonfarm nonresidential properties	4,422		1,004		—

Home equity lines of credit	499		499		—
Residential Mortgages secured by first liens	4,699		4,271		146
Residential Mortgages secured by junior liens	94		94		—
Other revolving credit plans	49		49		49
Automobile	17		17		—
Other consumer	609		609		—
Credit cards	—		—		74

Total	$	21,176	$	12,237	$	1,373


	December 31, 2022
	Nonaccrual		Nonaccrual With No Allowance for Credit Loss		Loans Receivable Past Due over 89 Days Still Accruing
Farmland	$	1,011	$	1,011	$	994
Owner-occupied, nonfarm nonresidential properties	2,055		1,987		—

Commercial and Industrial	5,485		2,366		71


Other construction loans and all land development and other land loans	567		567		—
Multifamily (5 or more) residential properties	1,066		423		—
Non-owner occupied, nonfarm nonresidential properties	5,081		2,665		—

Home equity lines of credit	475		475		—
Residential Mortgages secured by first liens	4,329		3,882		48
Residential Mortgages secured by junior liens	91		91		—
Other revolving credit plans	26		26		—
Automobile	19		19		—
Other consumer	781		781		—
Credit cards	—		—		8

Total	$	20,986	$	14,293	$	1,121

All payments received while on nonaccrual status are applied against the principal balance of the loan. The Corporation does not recognize interest income while a loan is on nonaccrual status.

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The following table presents the amortized cost basis of loans receivable that are individually evaluated and collateral-dependent by class of loans as of June 30, 2023:


	Real Estate Collateral		Non-Real Estate Collateral
Farmland	$	829	$	—
Owner-occupied, nonfarm nonresidential properties	1,038		4

Commercial and Industrial	—		1,757


Other construction loans and all land development and other land loans	2,020		—
Multifamily (5 or more) residential properties	310		—
Non-owner occupied, nonfarm nonresidential properties	3,278		—

Home equity lines of credit	323		—
Residential Mortgages secured by first liens	1,102		—






Total	$	8,900	$	1,761

The following table presents the amortized cost basis of loans receivable that are individually evaluated and collateral-dependent by class of loans as of December 31, 2022:


	Real Estate Collateral		Non-Real Estate Collateral
Farmland	$	829	$	—
Owner-occupied, nonfarm nonresidential properties	1,296		4

Commercial and Industrial	—		1,904


Other construction loans and all land development and other land loans	501		—
Multifamily (5 or more) residential properties	1,066		—
Non-owner occupied, nonfarm nonresidential properties	5,874		—

Home equity lines of credit	335		—
Residential Mortgages secured by first liens	1,150		—






Total	$	11,051	$	1,908

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The following table presents the aging of the amortized cost basis in past-due loans receivable as of June 30, 2023 by class of loans:


	30 - 59 Days Past Due		60 - 89 Days Past Due		Greater Than 89 Days Past Due		Total Past Due		Loans Receivable Not Past Due		Total
Farmland	$	—	$	183	$	1,233	$	1,416	$	32,358	$	33,774
Owner-occupied, nonfarm nonresidential properties	—		—		417		417		490,311		490,728
Agricultural production and other loans to farmers	—		—		—		—		1,135		1,135
Commercial and Industrial	470		94		292		856		777,848		778,704
Obligations (other than securities and leases) of states and political subdivisions	—		—		—		—		154,834		154,834
Other loans	—		—		—		—		30,749		30,749
Other construction loans and all land development and other land loans	59		—		1,614		1,673		449,370		451,043
Multifamily (5 or more) residential properties	—		—		—		—		276,829		276,829
Non-owner occupied, nonfarm nonresidential properties	221		88		1,181		1,490		880,060		881,550
1-4 Family Construction	324		—		—		324		59,411		59,735
Home equity lines of credit	305		445		10		760		121,053		121,813
Residential Mortgages secured by first liens	1,382		1,351		1,806		4,539		963,268		967,807
Residential Mortgages secured by junior liens	63		—		51		114		87,871		87,985
Other revolving credit plans	41		23		67		131		41,643		41,774
Automobile	56		2		1		59		26,694		26,753
Other consumer	354		213		271		838		46,922		47,760
Credit cards	33		36		74		143		11,497		11,640
Overdrafts	—		—		—		—		221		221
Total	$	3,308	$	2,435	$	7,017	$	12,760	$	4,452,074	$	4,464,834

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The following table presents the aging of the amortized cost basis in past-due loans receivable as of December 31, 2022 by class of loans:


	30 - 59 Days Past Due		60 - 89 Days Past Due		Greater Than 89 Days Past Due		Total Past Due		Loans Receivable Not Past Due		Total
Farmland	$	—	$	—	$	1,136	$	1,136	$	31,032	$	32,168
Owner-occupied, nonfarm nonresidential properties	185		27		734		946		467,547		468,493
Agricultural production and other loans to farmers	—		—		—		—		1,198		1,198
Commercial and Industrial	246		93		611		950		790,961		791,911
Obligations (other than securities and leases) of states and political subdivisions	—		—		—		—		145,345		145,345
Other loans	—		—		—		—		24,710		24,710
Other construction loans and all land development and other land loans	1,522		—		501		2,023		444,662		446,685
Multifamily (5 or more) residential properties	706		—		90		796		256,900		257,696
Non-owner occupied, nonfarm nonresidential properties	113		60		879		1,052		794,263		795,315
1-4 Family Construction	—		—		—		—		51,171		51,171
Home equity lines of credit	203		10		49		262		124,630		124,892
Residential Mortgages secured by first liens	1,302		538		1,775		3,615		938,916		942,531
Residential Mortgages secured by junior liens	5		—		51		56		74,582		74,638
Other revolving credit plans	65		27		—		92		36,280		36,372
Automobile	36		—		—		36		21,770		21,806
Other consumer	361		188		473		1,022		48,122		49,144
Credit cards	196		18		8		222		10,603		10,825
Overdrafts	—		—		—		—		278		278
Total	$	4,940	$	961	$	6,307	$	12,208	$	4,262,970	$	4,275,178

Loan Modifications

The Corporation adopted ASU 2022-02, Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures effective January 1, 2023. The amendments in ASU 2022-02 eliminated the recognition and measure of troubled debt restructurings and enhanced disclosures for loan modifications to borrowers experiencing financial difficulty.

Occasionally, the Corporation modifies loans to borrowers in financial distress by providing principal forgiveness, term extension, an other-than-insignificant payment delay or interest rate reduction. When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit losses.

In some cases, the Corporation provides multiple types of concessions on one loan. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted. For the loans included in the “combination” columns below, multiple types of modifications have been made on the same loan within the current reporting period. The combination is at least two of the following: a term extension, principal forgiveness, an other-than-insignificant payment delay and/or an interest rate reduction.

Table of Contents

The following table presents the amortized cost basis of loans at June 30, 2023 that were both experiencing financial difficulty and modified during the six months ended June 30, 2023, by class and by type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financing receivable is also presented below:


	Principal Forgiveness		Payment Delay		Term Extension		Interest Rate Reduction		Combination Payment Delay and Term Extension		Total Class of Financing Receivable

Owner-occupied, nonfarm nonresidential properties	$	—	$	6,246	$	—	$	—	$	—	1.3	%

Commercial and Industrial	—		7,987		583		352		117		1.2


Other construction loans and all land development and other land loans	—		1,549		—		—		—		0.3

Non-owner occupied, nonfarm nonresidential properties	—		—		1,523		—		—		0.2









Total	$	—	$	15,782	$	2,106	$	352	$	117	0.4	%

The Corporation has no further loan commitments to customers whose loan receivables are included in the previous table.

The Corporation closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table presents the performance of such loans that have been modified during the six months ended June 30, 2023:


	30 - 59 Days Past Due		60 - 89 Days Past Due		Greater Than 89 Days Past Due		Total Past Due






Other construction loans and all land development and other land loans	$	—	$	—	$	1,549	$	1,549











Total	$	—	$	—	$	1,549	$	1,549

The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the six months ended June 30, 2023:


	Principal Forgiveness		Term Extension (in years)	Interest Rate Reduction



Commercial and Industrial	$	—	0.97	0.5	%




Non-owner occupied, nonfarm nonresidential properties	—		0.50	—









Total	$	—	0.65	0.5	%

There were no modified loans and leases that had a payment default during the six months ended June 30, 2023 and were modified in the twelve months prior to that default to borrowers experiencing financial difficulty.

If the Corporation determines that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is written off and the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount.

Troubled Debt Restructurings Prior to the Adoption of ASU 2022-02

As of December 31, 2022, the terms of certain loans were modified as TDRs. The modification of the terms of such loans included either or both of the following: a reduction of the stated interest rate of the loan; or an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk. The Corporation had an amortized cost in TDRs of $12.4 million as of December 31, 2022. The Corporation has allocated $2.2 million of allowance for those loans as of December 31, 2022.

There were no loans modified as TDRs during the three months ended June 30, 2022.

Table of Contents

There was one loan modified as a TDR during the six months ended June 30, 2022:


	Six Months Ended June 30, 2022
	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Type of Modification








Non-owner occupied, nonfarm nonresidential properties	1	$	1,784	$	1,784	Modify Rate and Extend Amortization









Total loans	1	$	1,784	$	1,784

The TDR described above increased the allowance for credit losses by an immaterial amount for the three and six months ended June 30, 2022.

A loan receivable is considered to be in payment default once it is 90 days contractually past due under the modified terms. There were no loans modified as TDRs for which there was a payment default within a twelve-month cycle following the modification during the three and six months ended June 30, 2022. There were no principal balances forgiven in connection with the loans restructurings.

As discussed above, effective for January 1, 2023, the Corporation adopted prospectively Accounting Standard Update 2022-02, which eliminated the separate recognition and measurement guidance for TDRs by creditors.

Credit Quality Indicators

The Corporation categorizes loans receivable into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Corporation analyzes loans individually to classify the loans as to credit risk.

The Corporation uses the following definitions for risk ratings:

Special Mention: A loan classified as special mention has a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Corporation’s credit position at some future date.

Substandard: A loan classified as substandard is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. The loan has a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. A substandard loan is characterized by the distinct possibility that the Corporation will sustain some loss if the deficiencies are not corrected.

Doubtful: A loan classified as doubtful has all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Table of Contents

The following tables represent the Corporation's commercial credit risk profile by risk rating. Loans receivable not rated as special mention, substandard, or doubtful are considered to be pass rated loans.


	June 30, 2023
			Non-Pass Rated
	Pass		Special Mention		Substandard		Doubtful		Total Non-Pass		Total
Farmland	$	32,595	$	183	$	996	$	—	$	1,179	$	33,774
Owner-occupied, nonfarm nonresidential properties	451,854		26,622		12,252		—		38,874		490,728
Agricultural production and other loans to farmers	1,135		—		—		—		—		1,135
Commercial and Industrial	731,135		31,257		15,063		1,249		47,569		778,704
Obligations (other than securities and leases) of states and political subdivisions	141,355		13,479		—		—		13,479		154,834
Other loans	30,749		—		—		—		—		30,749
Other construction loans and all land development and other land loans	444,962		3,997		2,084		—		6,081		451,043
Multifamily (5 or more) residential properties	276,019		—		810		—		810		276,829
Non-owner occupied, nonfarm nonresidential properties	854,144		8,407		18,999		—		27,406		881,550









Total	$	2,963,948	$	83,945	$	50,204	$	1,249	$	135,398	$	3,099,346


	December 31, 2022
			Non-Pass Rated
	Pass		Special Mention		Substandard		Doubtful		Total Non-Pass		Total
Farmland	$	29,706	$	1,450	$	1,012	$	—	$	2,462	$	32,168
Owner-occupied, nonfarm nonresidential properties	433,467		27,796		7,230		—		35,026		468,493
Agricultural production and other loans to farmers	1,198		—		—		—		—		1,198
Commercial and Industrial	765,821		14,740		10,037		1,313		26,090		791,911
Obligations (other than securities and leases) of states and political subdivisions	145,345		—		—		—		—		145,345
Other loans	24,710		—		—		—		—		24,710
Other construction loans and all land development and other land loans	443,300		1,296		2,089		—		3,385		446,685
Multifamily (5 or more) residential properties	256,120		510		1,066		—		1,576		257,696
Non-owner occupied, nonfarm nonresidential properties	772,450		2,791		20,074		—		22,865		795,315









Total	$	2,872,117	$	48,583	$	41,508	$	1,313	$	91,404	$	2,963,521

Table of Contents

The following tables detail the amortized cost of loans receivable, by year of origination (for term loans) and by risk grade within each portfolio segment as of June 30, 2023. Current period originations may include modifications.


	Term Loans Amortized Cost Basis by Origination Year
	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
Farmland
Risk rating
Pass	$	3,218	$	11,779	$	7,412	$	1,483	$	854	$	7,461	$	388	$	—	$	32,595
Special mention	—		—		—		—		—		183		—		—		183
Substandard	—		—		347		—		—		649		—		—		996

Total	$	3,218	$	11,779	$	7,759	$	1,483	$	854	$	8,293	$	388	$	—	$	33,774
Current period gross write offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Owner-occupied, nonfarm nonresidential properties
Risk rating
Pass	$	43,048	$	118,086	$	109,495	$	46,069	$	47,666	$	76,144	$	11,346	$	—	$	451,854
Special mention	119		3,441		696		13,617		855		4,703		3,191		—		26,622
Substandard	—		—		—		324		6,973		4,781		174		—		12,252

Total	$	43,167	$	121,527	$	110,191	$	60,010	$	55,494	$	85,628	$	14,711	$	—	$	490,728
Current period gross write offs	$	—	$	—	$	—	$	—	$	—	$	26	$	—	$	—	$	26

Agricultural production and other loans to farmers
Risk rating
Pass	$	70	$	45	$	117	$	71	$	21	$	173	$	638	$	—	$	1,135
Special mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—		—

Total	$	70	$	45	$	117	$	71	$	21	$	173	$	638	$	—	$	1,135
Current period gross write offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial and Industrial
Risk rating
Pass	$	49,964	$	153,927	$	187,433	$	44,128	$	9,569	$	22,036	$	264,078	$	—	$	731,135
Special mention	—		7,505		3,223		6,362		355		31		13,781		—		31,257
Substandard	—		202		2,888		638		3,457		2,467		5,411		—		15,063
Doubtful(1)	—		—		1,249		—		—		—		—		—		1,249
Total	$	49,964	$	161,634	$	194,793	$	51,128	$	13,381	$	24,534	$	283,270	$	—	$	778,704
Current period gross write offs	$	—	$	—	$	—	$	—	$	—	$	—	$	46	$	—	$	46

Obligations (other than securities and leases) of states and political subdivisions
Risk rating
Pass	$	23,256	$	17,439	$	32,420	$	12,706	$	4,335	$	46,822	$	4,377	$	—	$	141,355
Special mention	—		—		—		—		—		13,479		—		—		13,479
Substandard	—		—		—		—		—		—		—		—		—

Total	$	23,256	$	17,439	$	32,420	$	12,706	$	4,335	$	60,301	$	4,377	$	—	$	154,834
Current period gross write offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Other loans
Risk rating
Pass	$	250	$	12,105	$	5,324	$	2,041	$	324	$	—	$	10,705	$	—	$	30,749
Special mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—		—

Total	$	250	$	12,105	$	5,324	$	2,041	$	324	$	—	$	10,705	$	—	$	30,749
Current period gross write offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

(1) Consists of one loan relationship originated in 2015 and modified in 2021. The modification met the requirements to disclose the loan relationship as a new loan during 2021.

Table of Contents


	Term Loans Amortized Cost Basis by Origination Year
	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
Other construction loans and all land development and other land loans
Risk rating
Pass	$	39,127	$	261,801	$	93,433	$	34,554	$	6,558	$	1,508	$	7,981	$	—	$	444,962
Special mention	—		3,997		—		—		—		—		—		—		3,997
Substandard	—		—		471		—		1,549		—		64		—		2,084

Total	$	39,127	$	265,798	$	93,904	$	34,554	$	8,107	$	1,508	$	8,045	$	—	$	451,043
Current period gross write offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Multifamily (5 or more) residential properties
Risk rating
Pass	$	35,483	$	108,450	$	44,349	$	45,547	$	11,388	$	29,855	$	947	$	—	$	276,019
Special mention	—		—		—		—		—		—		—		—		—
Substandard	310		—		—		—		—		500		—		—		810

Total	$	35,793	$	108,450	$	44,349	$	45,547	$	11,388	$	30,355	$	947	$	—	$	276,829
Current period gross write offs	$	—	$	—	$	—	$	—	$	—	$	65	$	—	$	—	$	65

Non-owner occupied, nonfarm nonresidential properties
Risk rating
Pass	$	139,785	$	324,695	$	153,944	$	39,537	$	56,914	$	132,195	$	7,074	$	—	$	854,144
Special mention	—		379		—		6,462		157		970		439		—		8,407
Substandard	—		1,407		1,275		—		3,980		10,605		1,732		—		18,999

Total	$	139,785	$	326,481	$	155,219	$	45,999	$	61,051	$	143,770	$	9,245	$	—	$	881,550
Current period gross write offs	$	—	$	—	$	—	$	—	$	—	$	—	$	248	$	—	$	248

Table of Contents

The following tables detail the amortized cost of loans receivable, by year of origination (for term loans) and by risk grade within each portfolio segment as of December 31, 2022. Current period originations may include modifications.


	Term Loans Amortized Cost Basis by Origination Year
	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
Farmland
Risk rating
Pass	$	12,321	$	7,635	$	1,536	$	871	$	3,277	$	3,523	$	543	$	—	$	29,706
Special mention	—		—		—		—		—		1,450		—		—		1,450
Substandard	—		347		—		—		142		523		—		—		1,012

Total	$	12,321	$	7,982	$	1,536	$	871	$	3,419	$	5,496	$	543	$	—	$	32,168
Owner-occupied, nonfarm nonresidential properties
Risk rating
Pass	$	116,701	$	113,575	$	50,226	$	55,040	$	25,327	$	60,810	$	11,788	$	—	$	433,467
Special mention	3,402		—		15,613		872		4,097		814		2,998		—		27,796
Substandard	—		—		355		1,864		862		4,149		—		—		7,230

Total	$	120,103	$	113,575	$	66,194	$	57,776	$	30,286	$	65,773	$	14,786	$	—	$	468,493
Agricultural production and other loans to farmers
Risk rating
Pass	$	105	$	140	$	80	$	42	$	179	$	—	$	652	$	—	$	1,198
Special mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—		—

Total	$	105	$	140	$	80	$	42	$	179	$	—	$	652	$	—	$	1,198
Commercial and Industrial
Risk rating
Pass	$	195,955	$	213,433	$	51,695	$	16,730	$	9,051	$	19,116	$	259,841	$	—	$	765,821
Special mention	241		—		6,691		273		81		45		7,409		—		14,740
Substandard	299		1,809		689		379		324		913		5,624		—		10,037
Doubtful(1)	—		1,313		—		—		—		—		—		—		1,313
Total	$	196,495	$	216,555	$	59,075	$	17,382	$	9,456	$	20,074	$	272,874	$	—	$	791,911
Obligations (other than securities and leases) of states and political subdivisions
Risk rating
Pass	$	20,840	$	37,527	$	13,868	$	4,584	$	13,518	$	50,050	$	4,958	$	—	$	145,345
Special mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—		—

Total	$	20,840	$	37,527	$	13,868	$	4,584	$	13,518	$	50,050	$	4,958	$	—	$	145,345
Other loans
Risk rating
Pass	$	14,248	$	5,358	$	2,278	$	363	$	—	$	—	$	2,463	$	—	$	24,710
Special mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—		—

Total	$	14,248	$	5,358	$	2,278	$	363	$	—	$	—	$	2,463	$	—	$	24,710

(1) Consists of one loan relationship originated in 2015 and modified in 2021. The modification met the requirements to disclose the loan relationship as a new loan during 2021.

Table of Contents


	Term Loans Amortized Cost Basis by Origination Year
	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
Other construction loans and all land development and other land loans
Risk rating
Pass	$	272,118	$	86,894	$	56,782	$	6,918	$	8,644	$	916	$	11,028	$	—	$	443,300
Special mention	1,296		—		—		—		—		—		—		—		1,296
Substandard	—		2,023		—		—		—		—		66		—		2,089

Total	$	273,414	$	88,917	$	56,782	$	6,918	$	8,644	$	916	$	11,094	$	—	$	446,685
Multifamily (5 or more) residential properties
Risk rating
Pass	$	114,454	$	49,794	$	46,784	$	11,854	$	6,764	$	23,841	$	2,629	$	—	$	256,120
Special mention	—		—		—		—		—		510		—		—		510
Substandard	643		—		—		—		333		90		—		—		1,066

Total	$	115,097	$	49,794	$	46,784	$	11,854	$	7,097	$	24,441	$	2,629	$	—	$	257,696
Non-owner occupied, nonfarm nonresidential properties
Risk rating
Pass	$	339,151	$	153,613	$	51,709	$	66,592	$	45,211	$	107,988	$	8,186	$	—	$	772,450
Special mention	—		488		—		273		498		1,068		464		—		2,791
Substandard	2,227		800		—		4,090		1,314		9,587		2,056		—		20,074

Total	$	341,378	$	154,901	$	51,709	$	70,955	$	47,023	$	118,643	$	10,706	$	—	$	795,315

The Corporation considers the performance of the loan portfolio and its impact on the allowance for credit losses. For 1-4 family construction, home equity lines of credit, residential mortgages secured by first liens, residential mortgages secured by junior liens, automobile, credit cards, other revolving credit plans and other consumer segments, the Corporation evaluates credit quality based on the performance status of the loan, which was previously presented, and by payment activity. Nonperforming loans include loans receivable on nonaccrual status and loans receivable past due over 89 days and still accruing interest.


	June 30, 2023						December 31, 2022
	Performing		Nonperforming		Total		Performing		Nonperforming		Total









1-4 Family Construction	$	59,735	$	—	$	59,735	$	51,171	$	—	$	51,171
Home equity lines of credit	121,314		499		121,813		124,417		475		124,892
Residential Mortgages secured by first liens	962,962		4,845		967,807		938,154		4,377		942,531
Residential Mortgages secured by junior liens	87,891		94		87,985		74,547		91		74,638
Other revolving credit plans	41,676		98		41,774		36,346		26		36,372
Automobile	26,736		17		26,753		21,787		19		21,806
Other consumer	47,151		609		47,760		48,363		781		49,144


Total	$	1,347,465	$	6,162	$	1,353,627	$	1,294,785	$	5,769	$	1,300,554

Table of Contents

The following tables detail the amortized cost of loans receivable, by year of origination (for term loans) and by payment activity within each portfolio segment as of June 30, 2023. Current period originations may include modifications.


	Term Loans Amortized Cost Basis by Origination Year
	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
1-4 Family Construction
Payment performance
Performing	$	10,688	$	34,230	$	10,657	$	2,583	$	719	$	60	$	798	$	—	$	59,735
Nonperforming	—		—		—		—		—		—		—		—		—
Total	$	10,688	$	34,230	$	10,657	$	2,583	$	719	$	60	$	798	$	—	$	59,735
Current period gross write offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Home equity lines of credit
Payment performance
Performing	$	10,055	$	33,034	$	13,182	$	10,413	$	7,472	$	35,167	$	6,932	$	5,059	$	121,314
Nonperforming	—		—		—		—		—		15		—		484		499
Total	$	10,055	$	33,034	$	13,182	$	10,413	$	7,472	$	35,182	$	6,932	$	5,543	$	121,813
Current period gross write offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Residential mortgages secured by first lien
Payment performance
Performing	$	74,701	$	225,421	$	211,770	$	152,625	$	85,141	$	210,359	$	2,945	$	—	$	962,962
Nonperforming	66		97		1,003		272		549		2,703		155		—		4,845
Total	$	74,767	$	225,518	$	212,773	$	152,897	$	85,690	$	213,062	$	3,100	$	—	$	967,807
Current period gross write offs	$	—	$	—	$	—	$	—	$	—	$	7	$	—	$	—	$	7

Residential mortgages secured by junior liens
Payment performance
Performing	$	19,220	$	29,462	$	15,631	$	7,683	$	4,325	$	10,073	$	1,497	$	—	$	87,891
Nonperforming	—		—		—		—		—		50		44		—		94
Total	$	19,220	$	29,462	$	15,631	$	7,683	$	4,325	$	10,123	$	1,541	$	—	$	87,985
Current period gross write offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Other revolving credit plans
Payment performance
Performing	$	7,402	$	9,693	$	2,794	$	7,627	$	1,813	$	12,347	$	—	$	—	$	41,676
Nonperforming	—		—		10		—		13		75		—		—		98
Total	$	7,402	$	9,693	$	2,804	$	7,627	$	1,826	$	12,422	$	—	$	—	$	41,774
Current period gross write offs	$	—	$	—	$	40	$	—	$	—	$	18	$	—	$	—	$	58

Automobile
Payment performance
Performing	$	9,891	$	8,482	$	3,587	$	2,076	$	1,637	$	1,063	$	—	$	—	$	26,736
Nonperforming	—		—		—		8		9		—		—		—		17
Total	$	9,891	$	8,482	$	3,587	$	2,084	$	1,646	$	1,063	$	—	$	—	$	26,753
Current period gross write offs	$	—	$	5	$	—	$	—	$	5	$	—	$	—	$	—	$	10

Other consumer
Payment performance
Performing	$	13,160	$	18,503	$	8,114	$	3,932	$	1,759	$	1,683	$	—	$	—	$	47,151
Nonperforming	13		444		87		14		5		46		—		—		609
Total	$	13,173	$	18,947	$	8,201	$	3,946	$	1,764	$	1,729	$	—	$	—	$	47,760
Current period gross write offs	$	2	$	571	$	303	$	73	$	23	$	10	$	—	$	—	$	982

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The following tables detail the amortized cost of loans receivable, by year of origination (for term loans) and by payment activity within each portfolio segment as of December 31, 2022. Current period originations may include modifications.


	Term Loans Amortized Cost Basis by Origination Year
	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
1-4 Family Construction
Payment performance
Performing	$	30,451	$	16,360	$	2,577	$	752	$	62	$	—	$	969	$	—	$	51,171
Nonperforming	—		—		—		—		—		—		—		—		—
Total	$	30,451	$	16,360	$	2,577	$	752	$	62	$	—	$	969	$	—	$	51,171
Home equity lines of credit
Payment performance
Performing	$	34,738	$	13,654	$	12,903	$	8,587	$	7,924	$	38,127	$	8,484	$	—	$	124,417
Nonperforming	—		—		—		10		—		465		—		—		475
Total	$	34,738	$	13,654	$	12,903	$	8,597	$	7,924	$	38,592	$	8,484	$	—	$	124,892
Residential mortgages secured by first lien
Payment performance
Performing	$	229,842	$	222,522	$	159,651	$	91,238	$	49,587	$	181,939	$	3,375	$	—	$	938,154
Nonperforming	—		771		273		581		416		2,150		186		—		4,377
Total	$	229,842	$	223,293	$	159,924	$	91,819	$	50,003	$	184,089	$	3,561	$	—	$	942,531
Residential mortgages secured by junior liens
Payment performance
Performing	$	31,837	$	17,163	$	8,326	$	4,956	$	3,073	$	8,395	$	797	$	—	$	74,547
Nonperforming	—		—		—		—		—		47		44		—		91
Total	$	31,837	$	17,163	$	8,326	$	4,956	$	3,073	$	8,442	$	841	$	—	$	74,638
Other revolving credit plans
Payment performance
Performing	$	10,778	$	2,820	$	7,911	$	2,264	$	2,265	$	10,308	$	—	$	—	$	36,346
Nonperforming	—		—		—		4		14		8		—		—		26
Total	$	10,778	$	2,820	$	7,911	$	2,268	$	2,279	$	10,316	$	—	$	—	$	36,372
Automobile
Payment performance
Performing	$	10,146	$	4,637	$	2,945	$	2,349	$	1,117	$	593	$	—	$	—	$	21,787
Nonperforming	—		—		10		7		2		—		—		—		19
Total	$	10,146	$	4,637	$	2,955	$	2,356	$	1,119	$	593	$	—	$	—	$	21,806
Other consumer
Payment performance
Performing	$	26,699	$	12,120	$	5,333	$	2,176	$	776	$	1,259	$	—	$	—	$	48,363
Nonperforming	403		220		85		22		6		45		—		—		781
Total	$	27,102	$	12,340	$	5,418	$	2,198	$	782	$	1,304	$	—	$	—	$	49,144


	June 30, 2023		December 31, 2022

Credit card
Payment performance
Performing	$	11,566	$	10,817
Nonperforming	74		8
Total	$	11,640	$	10,825
Current period gross write offs	$	80

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Holiday’s loan portfolio, included in other consumer loans above, is summarized as follows at June 30, 2023 and December 31, 2022:


	June 30, 2023		December 31, 2022
Gross other consumer	$	30,471	$	31,821
Less: other consumer unearned discounts	(5,636)		(5,972)
Total other consumer loans, net of unearned discounts	$	24,835	$	25,849

5. LEASES

Operating lease assets represent the Corporation's right to use an underlying asset during the lease term and operating lease liabilities represent the Corporation's obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents the Corporation's incremental borrowing rate at the lease commencement date. Operating lease cost, which is comprised of amortization of the operating lease asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term, and is recorded in net occupancy expense in the condensed consolidated statements of income.

The Corporation leases certain full-service branch offices, land, and equipment. Leases with an initial term of twelve months or less are not recorded on the balance sheet. Most leases include one or more options to renew and the exercise of the lease renewal options are at the Corporation's sole discretion. The Corporation includes lease extension and termination options in the lease term if, after considering relevant economic factors, it is reasonably certain the Corporation will exercise the option. Certain lease agreements of the Corporation include rental payments adjusted periodically for changes in the consumer price index.


Leases	Classification	June 30, 2023		December 31, 2022
Assets:
Operating lease assets	Operating lease assets	$	36,444	$	32,307
Finance lease assets	Premises and equipment, net (1)	250		286
Total leased assets		$	36,694	$	32,593

Liabilities:
Operating lease liabilities	Operating lease liabilities	$	38,182	$	33,726
Finance lease liabilities	Accrued interest payable and other liabilities	339		383
Total leased liabilities		$	38,521	$	34,109

(1) Finance lease assets are recorded net of accumulated amortization of $966 thousand as of June 30, 2023 and $930 thousand as of December 31, 2022.

The components of the Corporation's net lease expense for the three and six months ended June 30, 2023 and 2022, respectively, were as follows:


		Three Months Ended June 30,				Six Months Ended June 30,
Lease Cost	Classification	2023		2022		2023		2022
Operating lease cost	Net occupancy expense	$	782	$	566	$	1,479	$	1,058
Variable lease cost	Net occupancy expense	22		17		44		30
Finance lease cost:
Amortization of leased assets	Net occupancy expense	18		18		36		36
Interest on lease liabilities	Interest expense - borrowed funds	4		5		8		10
Sublease income (1)	Net occupancy expense	(23)		(17)		(46)		(33)
Net lease cost		$	803	$	589	$	1,521	$	1,101

(1) Sublease income excludes rental income from owned properties.

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The following table sets forth future minimum rental payments under noncancellable leases with initial terms in excess of one year as of June 30, 2023:


Maturity of Lease Liabilities as of June 30, 2023	Operating Leases (1)		Finance Leases		Total
2023	$	1,276	$	52	$	1,328
2024	2,559		105		2,664
2025	2,579		105		2,684
2026	2,567		105		2,672
2027	2,543		—		2,543
After 2027	50,239		—		50,239
Total lease payments	61,763		367		62,130
Less: Interest	23,581		28		23,609
Present value of lease liabilities	$	38,182	$	339	$	38,521

(1) Operating lease payments include payments related to options to extend lease terms that are reasonably certain of being exercised and exclude $4.8 million of legally binding minimum lease payments for leases signed, but not yet commenced.

Lease terms and discount rates related to the Corporation's lease liabilities as of June 30, 2023 and December 31, 2022 were as follows:


Lease Term and Discount Rate	June 30, 2023		December 31, 2022
Weighted-average remaining lease term (years)
Operating leases	23.3		23.9
Finance leases	3.5		4.0

Weighted-average discount rate
Operating leases	4.05	%	3.83	%
Finance leases	4.49	%	4.49	%

Other information related to the Corporation's lease liabilities as of June 30, 2023 and 2022, respectively, was as follows:


Other Information	June 30, 2023		June 30, 2022

Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	603	$	581

6. DEPOSITS

The following table reflects time certificates of deposit accounts included in total deposits and their remaining maturities at June 30, 2023:



Time deposits maturing:
2023	$	270,881
2024	221,664
2025	42,533
2026	8,643
2027	6,918
Thereafter	4,105
	$	554,744

Certificates of deposits of $250 thousand or more totaled $135.9 million and $135.4 million at June 30, 2023 and December 31, 2022, respectively.

The Corporation had $179.4 million in brokered deposits as of June 30, 2023 compared to $24.1 million at December 31, 2022. In addition, the Corporation had $463.4 million and $4.6 million in reciprocal deposits at June 30, 2023 and December 31, 2022, respectively.

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7. BORROWINGS

At June 30, 2023 and December 31, 2022, the Corporation had available one $10.0 million unsecured line of credit with an unaffiliated institution. Borrowings under the line of credit bear interest at a variable rate equal to the Secured Overnight Finance Rate ("SOFR") plus 2.85%. There were no borrowings under the line of credit at June 30, 2023 and December 31, 2022.

FHLB Borrowings

The Bank has the ability to borrow funds from the Federal Home Loan Bank ("FHLB"). The Bank maintains a $250.0 million line-of-credit (Open Repo Plus) with the FHLB which is a revolving term commitment available on an overnight basis. The term of this commitment may not exceed 364 days and it reprices daily at market rates. Under terms of a blanket collateral agreement with the FHLB, the line-of-credit and long term advances are secured by FHLB stock and the Bank pledges its single-family residential mortgage loan portfolio, certain commercial real estate loans, and certain agriculture real estate loans as security for any advances.

Total loans receivable pledged to the FHLB at June 30, 2023, and December 31, 2022 were $1.7 billion and $1.6 billion, respectively. The Bank could obtain advances of up to approximately $962.3 million from the FHLB at June 30, 2023 and $757.8 million at December 31, 2022.

At June 30, 2023 and December 31, 2022, outstanding advances from the FHLB were as follows.


	June 30, 2023		December 31, 2022
Open Repo borrowing at an interest rate of 5.39% and 4.45% at June 30, 2023 and December 31, 2022, respectfully. The maximum amount of the Open Repo borrowing available is $250,000.	$	—	$	132,396
Total	$	—	$	132,396

At June 30, 2023 and December 31, 2022, municipal deposit letters of credit issued by the FHLB on behalf of the Bank naming applicable municipalities as beneficiaries were $153.0 million and $75.5 million, respectively. The letters of credit were utilized in place of securities pledged to the municipalities for their deposits maintained at the Bank.

Federal Reserve Borrowings

In June 2023, the Bank was approved by the Federal Reserve Bank of Philadelphia (the “Federal Reserve”) for its Borrower-in-Custody ("BIC") program. At June 30, 2023, the Bank had borrowing capacity through the Federal Reserve BIC program of $169.3 million. Borrowings under the BIC program are overnight advances with interest chargeable at the discount window (“primary credit”) borrowing rate. At June 30, 2023, the Bank has pledged certain qualifying loans with an unpaid principal balance of $273.3 million and securities with a carrying value of $10.0 million as collateral.

At June 30, 2023 and December 31, 2022, the Bank had no borrowings from the Federal Reserve BIC program, discount window and no borrowings under the Federal Reserve’s Bank Term Facility Program (“BTFP”), which opened March 12, 2023.

Other Borrowings

At June 30, 2023 and December 31, 2022, the Bank had no outstanding borrowings from unaffiliated institutions under overnight borrowing agreements.

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Subordinated Debentures

In 2007, the Corporation issued two $10.0 million floating rate trust preferred securities as part of a pooled offering of such securities. The interest rate on each offering is determined quarterly and floats based on the three-month LIBOR plus 1.55%. The all-in rate was 7.10% at June 30, 2023 and 6.32% at December 31, 2022. The Corporation issued subordinated debentures to the trusts in exchange for the proceeds of the offerings, which debentures represent the sole assets of the trusts. The subordinated debentures must be redeemed no later than 2037. The Corporation may redeem the debentures, in whole or in part, at face value at any time. The Corporation has the option to defer interest payments from time to time for a period not to exceed five consecutive years. Although the trusts are variable interest entities, the Corporation is not the primary beneficiary. As a result, because the trusts are not consolidated with the Corporation, the Corporation does not report the securities issued by the trusts as liabilities. Instead, the Corporation reports as liabilities the subordinated debentures issued by the Corporation and held by the trusts, since the liabilities are not eliminated in consolidation. The trust preferred securities were designated to qualify as Tier 1 capital under the Federal Reserve’s capital guidelines.

Subordinated Notes

In June 2021, the Corporation sold $85.0 million aggregate principal amount of its fixed-to-floating rate subordinated notes to eligible purchasers in a private offering in reliance on the exemption from the registration requirements of Section 4(a)(2) of the Securities Act and the provisions of Rule 506 of Regulation D thereunder. The notes will mature in June 2031, and initially bear interest at a fixed rate of 3.25% per annum, payable semi-annually in arrears, to, but excluding, June 15, 2026, and thereafter to, but excluding, the maturity date or earlier redemption, the interest rate will reset quarterly to an interest rate per annum equal to the then current three-month average SOFR plus 2.58%. The net proceeds from the sale were approximately $83.5 million, after deducting offering expenses. These subordinated notes were designed to qualify as Tier 2 capital under the Federal Reserve’s capital guidelines and were given an investment grade rating of BBB- by Kroll Bond Rating Agency. The unamortized debt issuance costs were $0.9 million and $1.0 million as of June 30, 2023 and December 31, 2022, respectively.

8. RELATED PARTY TRANSACTIONS

Some of the Corporation's directors, executive officers, and their related interests had transactions with the Bank in the ordinary course of business. All loan and deposit transactions were made on substantially the same terms, such as interest rates and collateral, as those prevailing at the time for comparable transactions. In the opinion of management, these transactions do not involve more than the normal risk of collectability nor do they present other unfavorable features. It is anticipated that similar transactions will be entered into in the future.

Loans to principal officers, directors, and their affiliates during the three months ended June 30, 2023 were as follows:


Beginning balance	$	40,638
New loans and advances	434
Effect of changes in composition of related parties	—
Repayments	(553)
Ending balance	$	40,519

Loans to principal officers, directors, and their affiliates during the six months ended June 30, 2023 were as follows:


Beginning balance	$	44,998
New loans and advances	2,706
Effect of changes in composition of related parties	(491)
Repayments	(6,694)
Ending balance	$	40,519

Deposits from directors, executive officers, and their affiliates were $9.6 million and $13.7 million at June 30, 2023 and December 31, 2022, respectively.

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9. OFF-BALANCE SHEET COMMITMENTS AND CONTINGENCIES

Financial Instruments with Off-Balance Sheet Risk

The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the condensed consolidated balance sheets. The Corporation's exposure to credit loss in the event of nonperformance by the other party of the financial instrument for commitments to extend credit and standby letters of credit is represented by the contract or notional amount of those instruments. The Corporation uses the same credit policies for underwriting all loans, including these commitments and conditional obligations.

As of June 30, 2023 and December 31, 2022, the Corporation did not own or trade other financial instruments with significant off-balance sheet risk including derivatives such as futures, forwards, option contracts and the like, although such instruments may be appropriate to use in the future to manage interest rate risk. See Note 12, “Derivative Instruments,” for a description of interest rate derivatives entered into by the Corporation.

Standby letters of credit are conditional commitments issued by the Corporation to guarantee the performance of a customer to a third party. The contract or notional amount of these instruments reflects the maximum amount of future payments that the Corporation could be required to pay under the guarantees if there were a total default by the guaranteed parties, without consideration for possible recoveries under recourse provisions or from collateral held or pledged. In addition, many of these commitments are expected to expire without being drawn upon; therefore, the total commitment amounts do not necessarily represent future cash requirements.

The Corporation's maximum obligation to extend credit for loan commitments (unfunded loans and unused lines of credit) and standby letters of credit outstanding as of June 30, 2023 and December 31, 2022 were as follows:


	June 30, 2023				December 31, 2022
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to extended credit	$	102,353	$	473,953	$	126,594	$	441,008
Unused lines of credit	9,497		764,504		7,444		725,277
Standby letters of credit	16,755		1,673		16,124		1,603

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Corporation evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Corporation upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral that is held varies but may include securities, accounts receivable, inventory, property, plant and equipment, and residential and income-producing commercial properties.

Allowance for Credit Losses on Unfunded Loan Commitments

The Corporation maintains an allowance for credit losses on unfunded commercial lending commitments and letters of credit to provide for the risk of loss inherent in these arrangements. The allowance is computed using a methodology similar to that used to determine the allowance for credit losses for loans receivable, modified to take into account the probability of a draw-down on the commitment. The provision for credit losses on unfunded loan commitments is included in the provision for credit losses on the Corporation's condensed consolidated statements of income. The allowance for unfunded commitments is included in other liabilities in the condensed consolidated balance sheets. Note 4, "Loans Receivable and Allowance for Credit Losses," in the condensed consolidated financial statements provides more detail concerning the provision for credit losses related to the loan portfolio of the Corporation.

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The following table presents activity in the allowance for credit losses on unfunded loan commitments for the three and six months ended June 30, 2023 and 2022, respectively:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Beginning balance	$	662	$	586	$	603	$	—
Provision for credit losses on unfunded loan commitments (1)	56		—		115		586
Ending balance	$	718	$	586	$	718	$	586

(1) Excludes provision for credit losses related to the loan portfolio.

Other Off-Balance Sheet Commitments

The Corporation makes investments in limited partnerships, including certain small business investment corporations and low income housing partnerships. Capital contributions for investments in small business companies ("SBIC") and other limited partnerships, reported in FHLB and other restricted stock holdings and investments on the condensed consolidated balance sheet, as of June 30, 2023 and December 31, 2022 were $19.1 million and $17.0 million, respectively. Unfunded capital commitments in investments in SBIC's and other limited partnerships totaled $6.4 million and $5.5 million as of June 30, 2023 and December 31, 2022, respectively. These investments are accounted for under the equity method of accounting.

Qualified Affordable Housing Project Investments

The carrying value of investments in the low income housing partnerships, reported in FHLB and other restricted stock holdings and investments on the consolidated balance sheet, as of June 30, 2023 and December 31, 2022 were $4.1 million and $4.5 million, respectively. The related amortization for the three and six months ended June 30, 2023 was $187 thousand and $373 thousand, respectively, and for the three and six months ended June 30, 2022 were $197 thousand and $395 thousand, respectively. Unfunded commitments, reported in accrued interest payable and other liabilities on the condensed consolidated balance sheets, as of June 30, 2023 and December 31, 2022 were $796 thousand and $1.0 million, respectively.

Litigation

The Corporation is subject to claims and lawsuits that arise primarily in the ordinary course of business. It is the opinion of management the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the consolidated financial position, results of operations and cash flows of the Corporation.

10. STOCK COMPENSATION

The Corporation has a stock incentive plan, which is administered by a committee of the Board of Directors and which permits the Corporation to provide various types of stock-based compensation to its key employees, directors, and/or consultants, including time-based and performance-based shares of restricted stock. The Corporation maintains the CNB Financial Corporation 2019 Omnibus Incentive Plan (the "2019 Stock Incentive Plan"), which was approved by the Corporation’s shareholders and became effective on April 16, 2019.

The 2019 Stock Incentive Plan provides for up to 507,671 shares of common stock to be awarded in the form of nonqualified options or restricted stock. For key employees, the vesting of time-based restricted stock is one-third, one-fourth, or one-fifth of the granted restricted shares per year, beginning one year after the grant date, with 100% vesting on the third, fourth or fifth anniversary of the grant date, respectively. Stock compensation received by non-employee directors vests immediately.

At June 30, 2023, there was no unrecognized compensation cost related to stock-based compensation awarded under this plan and, except for the time-based and performance-based restricted stock awards disclosed below and in previous filings, no other stock-based compensation was granted during the three and six months ended June 30, 2023 and 2022.

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Compensation expense for the restricted stock awards is recognized over the requisite service period based on the fair value of the shares at the date of grant on a straight-line basis. Non-vested restricted stock awards are recorded as a reduction of additional paid-in-capital in shareholders’ equity until earned. Compensation expense resulting from time-based, performance-based and director restricted stock awards was $345 thousand and $961 thousand for the three and six months ended June 30, 2023, respectively, and $256 thousand and $757 thousand for the three and six months ended June 30, 2022, respectively. The total income tax benefit related to the recognized compensation cost of vested restricted stock awards was $72 thousand and $202 thousand for the three and six months ended June 30, 2023, respectively, and $54 thousand and $159 thousand for the three and six months ended June 30, 2022, respectively.

A summary of changes in time-based unvested restricted stock awards for the three months ended June 30, 2023 follows:


	Shares	Per Share Weighted Average Grant Date Fair Value
Unvested at beginning of period	126,588	$	24.47
Granted	7,326	18.02

Forfeited	(742)	24.12
Vested	(200)	25.02
Unvested at end of period	132,972	$	24.12

A summary of changes in time-based unvested restricted stock awards for the six months ended June 30, 2023 follows:


	Shares	Per Share Weighted Average Grant Date Fair Value
Unvested at beginning of period	69,746	$	25.21
Granted	90,675	23.63

Forfeited	(2,803)	24.28
Vested	(24,646)	25.37
Unvested at end of period	132,972	$	24.12

The above table excludes 14,510 shares in restricted stock awards that were granted at a weighted average fair value of $24.12 and immediately vested. As of June 30, 2023 and December 31, 2022, there was $2.8 million and $1.2 million of total unrecognized compensation cost related to unvested restricted stock awards, respectively. The fair value of shares vested was $4 thousand and $938 thousand during the three and six months ended June 30, 2023, respectively, and $2 thousand and $987 thousand during the three and six months ended June 30, 2022, respectively.

In addition to the time-based restricted stock disclosed above, the Corporation’s Board of Directors grants performance-based restricted stock awards (“PBRSAs”) to key employees. The number of PBRSAs will depend on certain performance conditions earned over a three year period and are also subject to service-based vesting. In 2023, awards with a maximum of 23,124 shares in aggregate were granted to key employees. In 2022, awards with a maximum of 13,761 shares in aggregate were granted to key employees. In 2021, awards with a maximum of 18,210 shares in aggregate were granted to key employees.

In 2022, the 2020 PBRSAs were fully earned and in 2023, 4,118 shares were fully distributed. The fair value of the shares distributed in 2023 was $99 thousand.

11. EARNINGS PER COMMON SHARE

Basic earnings per common share is computed by dividing net income, excluding net earnings allocated to participating securities, by the weighted average number of shares outstanding during the applicable period, excluding outstanding participating securities. Diluted earnings per common share is computed using the weighted average number of shares determined for the basic computation plus the dilutive effect of potential common shares issuable under certain stock compensation plans. For the three and six months ended June 30, 2023 and 2022, there were no outstanding stock options to include in the diluted earnings per common share calculations.

Unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are included in the computation of earnings per common share pursuant to the two-class method. The Corporation has determined that its outstanding unvested time-based stock awards are participating securities.

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The computation of basic and diluted earnings per common share is shown below:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Basic earnings per common share computation:
Net income per condensed consolidated statements of income	$	12,752	$	14,363	$	28,166	$	28,533
Net earnings allocated to participating securities	(74)		(68)		(154)		(132)
Net earnings allocated to common stock	$	12,678	$	14,295	$	28,012	$	28,401
Distributed earnings allocated to common stock	$	3,650	$	2,935	$	7,322	$	5,879
Undistributed earnings allocated to common stock	9,028		11,360		20,690		22,522
Net earnings allocated to common stock	$	12,678	$	14,295	$	28,012	$	28,401
Weighted average common shares outstanding, including shares considered participating securities	21,033		16,860		21,087		16,871
Less: Average participating securities	(116)		(78)		(108)		(75)
Weighted average shares	20,917		16,782		20,979		16,796
Basic earnings per common share	$	0.61	$	0.85	$	1.34	$	1.69
Diluted earnings per common share computation:
Net earnings allocated to common stock	$	12,678	$	14,295	$	28,012	$	28,401
Weighted average common shares outstanding for basic earnings per common share	20,917		16,782		20,979		16,796
Add: Dilutive effect of stock compensation	40		33		40		34
Weighted average shares and dilutive potential common shares	20,957		16,815		21,019		16,830
Diluted earnings per common share	$	0.61	$	0.85	$	1.33	$	1.69

12. DERIVATIVE INSTRUMENTS

On September 7, 2018, the Corporation executed an interest rate swap agreement with a 5-year term and an effective date of September 15, 2018 in order to hedge cash flows associated with $10.0 million of a subordinated trust preferred security that was issued by the Corporation during 2007 and elected cash flow hedge accounting for the agreement. The Corporation’s objective in using this derivative is to add stability to interest expense and to manage its exposure to interest rate risk. The interest rate swap involves the receipt of variable-rate amounts in exchange for fixed-rate payments from September 15, 2018 to September 15, 2023 without the exchange of the underlying notional amount. At June 30, 2023, the variable rate on the subordinated trust preferred security was 7.10% (LIBOR plus 155 basis points) and the Corporation was paying 4.53% (2.98% fixed rate plus 155 basis points).

As of June 30, 2023 and December 31, 2022, no derivatives were designated as fair value hedges or hedges of net investments in foreign operations. Additionally, the Corporation does not use derivatives for trading or speculative purposes and currently does not have any derivatives that are not designated as hedges.

The following tables provide information about the amounts and locations of activity related to the interest rate swaps designated as cash flow hedges within the Corporation’s condensed consolidated balance sheets and statements of income as of June 30, 2023 and December 31, 2022 and for the three and six months ended June 30, 2023 and 2022:


		Fair value as of
	Balance Sheet Location	June 30, 2023		December 31, 2022
Interest rate contracts	Accrued interest receivable (payable) and other assets ( liabilities)	$	65	$	150

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For the Three Months Ended June 30, 2023	(a)		(b)	(c)		(d)	(e)
Interest rate contracts	$	(31)	Interest expense – subordinated notes and debentures	$	(51)	Other income	$	—
For the Six Months Ended June 30, 2023	(a)		(b)	(c)		(d)	(e)
Interest rate contracts	$	(68)	Interest expense – subordinated notes and debentures	$	(96)	Other income	$	—
For the Three Months Ended June 30, 2022	(a)		(b)	(c)		(d)	(e)
Interest rate contracts	$	110	Interest expense – subordinated notes and debentures	$	(51)	Other income	$	—
For the Six Months Ended June 30, 2022	(a)		(b)	(c)		(d)	(e)
Interest rate contracts	$	322	Interest expense – subordinated notes and debentures	$	(118)	Other income	$	—

(a)Amount of Gain or (Loss) Recognized in Other Comprehensive Loss on Derivative (Effective Portion), net of tax

(b)Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion)

(c)Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion)

(d)Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)

(e)Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)

Amounts reported in accumulated other comprehensive income (loss) related to the interest rate swap will be reclassified to interest income as interest payments are made on the subordinated notes and debentures. Such amounts reclassified from accumulated other comprehensive income (loss) to interest income in the next twelve months are expected to be $257 thousand.

As of June 30, 2023 and December 31, 2022, a cash collateral balance in the amount of $200 thousand was maintained with a counterparty to the interest rate swaps. These balances are included in interest-bearing deposits with other banks on the condensed consolidated balance sheets.

The Corporation entered into certain interest rate swap contracts that are not designated as hedging instruments. These derivative contracts relate to transactions in which the Corporation enters into an interest rate swap with a customer while at the same time entering into an offsetting interest rate swap with another financial institution. In connection with each swap transaction, the Corporation agrees to pay interest to the customer on a notional amount at a variable interest rate and receive interest from the customer on a similar notional amount at a fixed interest rate. Concurrently, the Corporation agrees to pay another financial institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. The transaction allows the Corporation’s customers to effectively convert a variable rate loan to a fixed rate. Because the Corporation acts as an intermediary for its customer, changes in the fair value of the underlying derivative contracts offset each other and do not impact the Corporation’s results of operations.

The Corporation pledged cash collateral to another financial institution with a balance $173 thousand as of June 30, 2023 and December 31, 2022. This balance is included in cash and due banks on the condensed consolidated balance sheets. The Corporation may require its customers to post cash or securities as collateral on its program of back-to-back swaps depending upon the specific facts and circumstances surrounding each loan and individual swap. In addition, certain language is included in the International Swaps and Derivatives Association agreement and loan documents where, in default situations, the Corporation is permitted to access collateral supporting the loan relationship to recover any losses suffered on the derivative asset or liability. The Corporation may be required to post additional collateral to swap counterparties in the future in proportion to potential increases in unrealized loss positions.

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The following table provides information about the amounts and locations of activity related to the back-to-back interest rate swaps within the Corporation’s condensed consolidated balance sheet as of June 30, 2023 and December 31, 2022:


	Notional Amount		Weighted Average Maturity (in years)	Weighted Average Fixed Rate		Weighted Average Variable Rate	Fair Value
June 30, 2023
3rd Party interest rate swaps	$	21,840	5.38	4.19	%	1 month LIBOR + 1.79%	$	1,393	(a)
Customer interest rate swaps	(21,840)		5.38	4.19	%	1 month LIBOR + 1.79%	(1,393)		(b)
December 31, 2022
3rd Party interest rate swaps	$	31,417	4.9	4.12	%	1 month LIBOR + 1.68%	$	1,700	(a)
Customer interest rate swaps	(31,417)		4.9	4.12	%	1 month LIBOR + 1.68%	(1,700)		(b)

(a)Reported in accrued interest receivable and other assets within the condensed consolidated balance sheets

(b)Reported in accrued interest payable and other liabilities within the condensed consolidated balance sheets

Risk Participation Agreements

The Corporation entered into a Risk Participation Agreement ("RPA") swap with another financial institution related to a loan in which the Corporation is a participant. The RPA provides credit protection to the financial institution should the borrower fail to perform on its interest rate derivative contract with the financial institution. The notional amount of this contingent agreement is $14.0 million as of June 30, 2023 and zero as of December 31, 2022.

13. FAIR VALUE

Fair Value Measurement

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

The following three levels of inputs are used to measure fair value:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The Corporation used the following methods and significant assumptions to estimate fair value:

Investment Securities: The fair values for investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2), using matrix pricing. Matrix pricing is a mathematical technique commonly used to price debt securities that are not actively traded, values debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).

Loans Held for Sale: Loans held for sale are carried at the lower of cost or fair value, which is evaluated on a loan-level basis. The fair value of loans held for sale is determined using quoted prices for similar assets, adjusted for specific attributes of that loan or other observable market data, such as outstanding commitments from third party investors (Level 2).

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Derivatives: The fair values of derivatives are based on valuation models using observable market data as of the measurement date (Level 2). The Corporation's derivatives are traded in an over-the-counter market where quoted market prices are not always available. Therefore, the fair values of derivatives are determined using quantitative models that utilize multiple market inputs. The inputs will vary based on the type of derivative, but could include interest rates, prices, and indices to generate continuous yield or pricing curves, prepayment rates, and volatility factors to value the position. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions, and third-party pricing services.

Individually Evaluated Loans: The fair value of individually evaluated loans with specific allocations of the allowance for credit losses is generally based on recent real estate appraisals prepared by third-parties. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Management also adjusts appraised values based on the length of time that has passed since the appraisal date and other factors. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower's financial statements, or aging reports, adjusted or discounted based on management's historical knowledge, changes in market conditions from the time of the valuation, and management's expertise and knowledge of the client and client's business, resulting in a Level 3 fair value classification. Individually evaluated loans are evaluated on a quarterly basis for additional impairment and adjusted in accordance with the allowance policy.

Assets and liabilities measured at fair value on a recurring basis are as follows at June 30, 2023 and December 31, 2022:


			Fair Value Measurements at June 30, 2023 Using:
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	Total		(Level 1)		(Level 2)		(Level 3)
Assets:
Securities Available-For-Sale:
U.S. Government sponsored entities	$	2,994	$	—	$	2,994	$	—
States and political subdivisions	92,476		—		92,476		—
Residential and multi-family mortgage	203,432		—		203,432		—
Corporate notes and bonds	42,857		—		42,857		—
Pooled SBA	11,377		—		11,377		—

Total Securities Available-For-Sale	$	353,136	$	—	$	353,136	$	—
Interest Rate swaps	$	1,458	$	—	$	1,458	$	—
Equity Securities:
Corporate equity securities	$	5,633	$	5,633	$	—	$	—
Mutual funds	2,196		2,196		—		—
Money market funds	738		738		—		—
Corporate notes	699		—		699		—

Total Equity Securities	$	9,266	$	8,567	$	699	$	—
Liabilities:
Interest Rate Swaps	$	(1,393)	$	—	$	(1,393)	$	—

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			Fair Value Measurements at December 31, 2022 Using:
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	Total		(Level 1)		(Level 2)		(Level 3)
Assets:
Securities Available-For-Sale:
U.S. Government sponsored entities	$	3,129	$	—	$	3,129	$	—
States and political subdivisions	95,663		—		95,663		—
Residential and multi-family mortgage	217,547		—		217,547		—
Corporate notes and bonds	42,391		—		42,391		—
Pooled SBA	12,679		—		12,679		—

Total Securities Available-For-Sale	$	371,409	$	—	$	371,409	$	—
Interest Rate swaps	$	1,850	$	—	$	1,850	$	—
Equity Securities:
Corporate equity securities	$	6,973	$	6,973	$	—	$	—
Mutual funds	1,406		1,406		—		—
Money market funds	479		479		—		—
Corporate notes	757		757		—		—

Total Equity Securities	$	9,615	$	9,615	$	—	$	—
Liabilities:
Interest Rate Swaps	$	(1,700)	$	—	$	(1,700)	$	—

Assets and liabilities measured at fair value on a non-recurring basis are as follows at June 30, 2023 and December 31, 2022:


			Fair Value Measurements at June 30, 2023 Using
Description	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Collateral-dependent loans receivable:
Farmland	$	829	$	—	$	—	$	829
Owner-occupied, nonfarm nonresidential properties	795		—		—		795
Commercial and industrial	1,472		—		—		1,472
Other construction loans and all land development loans and other land loans	1,770		—		—		1,770
Multifamily (5 or more) residential properties	310		—		—		310
Non-owner occupied, nonfarm nonresidential	1,775		—		—		1,775
Home equity lines of credit	323		—		—		323
Residential Mortgages secured by first liens	902		—		—		902

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			Fair Value Measurements at December 31, 2022 Using
Description	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Collateral-dependent loans receivable:
Farmland	$	829	$	—	$	—	$	829
Owner-occupied, nonfarm nonresidential properties	1,071		—		—		1,071
Commercial and industrial	1,631		—		—		1,631
Other construction loans and all land development loans and other land loans	501		—		—		501
Multifamily (5 or more) residential properties	613		—		—		613
Non-owner occupied, nonfarm nonresidential	3,867		—		—		3,867
Home equity lines of credit	335		—		—		335
Residential mortgages secured by first liens	944		—		—		944

A loan is considered to be a collateral dependent loan when, based on current information and events, the Corporation expects repayment of the financial assets to be provided substantially through the operation or sale of the collateral and the Corporation has determined that the borrower is experiencing financial difficulty as of the measurement date. The allowance for credit losses is measured by estimating the fair value of the loan based on the present value of expected cash flows, the market price of the loan, or the underlying fair value of the loan’s collateral. For real estate loans, fair value of the loan’s collateral is determined by third-party appraisals, which are then adjusted for the estimated selling and closing costs related to liquidation of the collateral. For this asset class, the actual valuation methods (income, sales comparable, or cost) vary based on the status of the project or property. For example, land is generally based on the sales comparable method while construction is based on the income and/or sales comparable methods. The unobservable inputs may vary depending on the individual assets with no one of the three methods being the predominant approach. The Corporation reviews the third-party appraisal for appropriateness and may adjust the value downward to consider selling and closing costs. For non-real estate loans, fair value of the loan’s collateral may be determined using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business.

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The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at June 30, 2023:

Fair
value

Valuation
Technique

Unobservable Inputs

Range
(Weighted
Average)

Collateral-dependent loans receivable:

Farmland

829

Valuation of third party appraisal on underlying collateral

Loss severity rates

27% (27%)

Owner-occupied, nonfarm nonresidential properties

795

Valuation of third party appraisal on underlying collateral

Loss severity rates

22%-100% (24%)

Commercial and industrial

1,472

Valuation of third party appraisal on underlying collateral

Loss severity rates

4%-100% (34%)

Other construction loans and all land development loans and other land loans

1,770

Valuation of third party appraisal on underlying collateral

Loss severity rates

32% (32%)

Multifamily (5 or more) residential properties

310

Valuation of third party appraisal on underlying collateral

Loss severity rates

26% (26%)

Non-owner occupied, nonfarm nonresidential

1,775

Valuation of third party appraisal on underlying collateral

Loss severity rates

25%-33% (31%)

Home equity lines of credit

323

Valuation of third party appraisal on underlying collateral

Loss severity rates

15%-22% (16%)

Residential Mortgages secured by first liens

902

Valuation of third party appraisal on underlying collateral

Loss severity rates

22%-38% (30%)

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at December 31, 2022:

Fair
value

Valuation
Technique

Unobservable Inputs

Range
(Weighted
Average)

Collateral-dependent loans receivable:

Farmland

829

Valuation of third party appraisal on underlying collateral

Loss severity rates

20% (20%)

Owner-occupied, nonfarm nonresidential properties

1,071

Valuation of third party appraisal on underlying collateral

Loss severity rates

25%-100% (29%)

Commercial and industrial

1,631

Valuation of third party appraisal on underlying collateral

Loss severity rates

3%-49% (23%)

Other construction loans and all land development loans and other land loans

501

Valuation of third party appraisal on underlying collateral

Loss severity rates

33% (33%)

Multifamily (5 or more) residential properties

613

Valuation of third party appraisal on underlying collateral

Loss severity rates

19%-25% (23%)

Non-owner occupied, nonfarm nonresidential

3,867

Valuation of third party appraisal on underlying collateral

Loss severity rates

15%-53% (35%)

Home equity lines of credit

335

Valuation of third party appraisal on underlying collateral

Loss severity rates

15% (15%)

Residential mortgages secured by first liens

944

Valuation of third party appraisal on underlying collateral

Loss severity rates

15%-27% (21%)

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Fair Value of Financial Instruments

The following table presents the carrying amount and fair value of financial instruments at June 30, 2023:


	Carrying		Fair Value Measurement Using:						Total
	Amount		Level 1		Level 2		Level 3		Fair Value
ASSETS
Cash and cash equivalents	$	125,163	$	125,163	$	—	$	—	$	125,163
Debt securities available-for-sale	353,136		—		353,136		—		353,136
Debt securities held-to-maturity	394,238		—		358,806		—		358,806
Equity securities	9,266		8,567		699		—		9,266
Loans held for sale	1,654		—		1,656		—		1,656
Net loans receivable	4,419,293		—		—		4,326,096		4,326,096
FHLB and other restricted stock holdings and investments	27,883		n/a		n/a		n/a		n/a
Interest rate swaps	1,458		—		1,458		—		1,458
Accrued interest receivable	20,492		—		2,753		17,739		20,492
LIABILITIES
Deposits	$	(4,933,075)	$	(4,378,331)	$	(556,190)	$	—	$	(4,934,521)

Subordinated notes and debentures	(104,735)		—		(124,896)		—		(124,896)
Interest rate swaps	(1,393)		—		(1,393)		—		(1,393)
Accrued interest payable	(2,438)		—		(2,438)		—		(2,438)

The following table presents the carrying amount and fair value of financial instruments at December 31, 2022:


	Carrying		Fair Value Measurement Using:						Total
	Amount		Level 1		Level 2		Level 3		Fair Value
ASSETS
Cash and cash equivalents	$	106,285	$	106,285	$	—	$	—	$	106,285
Debt securities available-for-sale	371,409		—		371,409		—		371,409
Debt securities held-to-maturity	404,765		—		367,388		—		367,388
Equity securities	9,615		9,615		—		—		9,615
Loans held for sale	231		—		231		—		231
Net loans receivable	4,231,742		—		—		4,157,843		4,157,843
FHLB and other restricted stock holdings and investments	30,715		n/a		n/a		n/a		n/a
Interest rate swaps	1,850		—		1,850		—		1,850
Accrued interest receivable	20,194		—		2,867		17,327		20,194
LIABILITIES
Deposits	$	(4,622,437)	$	(4,175,976)	$	(445,788)	$	—	$	(4,621,764)
Short-term borrowings	(132,396)		—		(132,396)		—		(132,396)
Subordinated notes and debentures	(104,584)		—		(117,378)		—		(117,378)
Interest rate swaps	(1,700)		—		(1,700)		—		(1,700)
Accrued interest payable	(1,839)		—		(1,839)		—		(1,839)

While estimates of fair value are based on management’s judgment of the most appropriate factors as of the balance sheet dates, there is no assurance that the estimated fair values would have been realized if the assets had been disposed of or the liabilities settled at that date, since market values may differ depending on various circumstances. The estimated fair values would also not apply to subsequent dates. The fair value of other equity interests is based on the net asset values provided by the underlying investment partnership. ASU 2015-7 removes the requirement to categorize within the fair value hierarchy all investments measured using the net asset value per share practical expedient and related disclosures. In addition, other assets and liabilities that are not financial instruments, such as premises and equipment, are not included in the disclosures.

Also, non-financial assets such as, among other things, the estimated earnings power of core deposits, the earnings potential of trust accounts, the trained workforce, and customer goodwill, which typically are not recognized on the balance sheet, may have value but are not included in the fair value disclosures.

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14. REVENUE FROM CONTRACTS WITH CUSTOMERS

All of the Corporation’s revenue from contracts with customers in the scope of ASC 606 is recognized within Non-Interest Income. The following table presents the Corporation's Non-Interest Income by revenue stream and reportable segment for the three and six months ended June 30, 2023 and 2022. Items outside the scope of ASC 606 are noted as such.


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Non-interest Income
Service charges on deposit accounts	$	1,913	$	1,771	$	3,708	$	3,528
Wealth and asset management fees	1,917		1,803		3,734		3,586
Mortgage banking (1)	176		292		344		767
Card processing and interchange income	2,062		1,992		4,121		3,801
Net gains on sales of securities (1)	30		—		52		651
Other income	2,195		2,288		4,376		5,467
Total non-interest income	$	8,293	$	8,146	$	16,335	$	17,800

(1) Not within scope of ASU 2014-9

Management determined that the primary sources of revenue emanating from interest and dividend income on loans receivable and investment securities along with non-interest revenue resulting from security gains, loan servicing, gains on the sale of loans receivable, commitment fees, fees from financial guarantees, certain credit card fees, gains (losses) on sale of other real estate owned not financed by the Corporation, is not within the scope of ASU 2014-9.

The types of non-interest income within the scope of the standard that are material to the condensed consolidated financial statements are services charges on deposit accounts, wealth and asset management fee income, card processing and interchange income, and other income.

Service charges on deposit accounts: The Corporation earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services. Transaction-based fees, which include services such as ATM use fees, stop payment charges, statement rendering, and ACH fees, are recognized at the time the transaction is executed, as that is the point in time the Corporation fulfills the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Corporation satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Services charges on deposits are withdrawn from the customer’s account balance.

Wealth and asset management fees: The Corporation earns wealth and asset management fees from its contracts with trust and brokerage customers to manage assets for investment, and/or to transact on their accounts. These fees are primarily earned over time as the Corporation provides the contracted monthly or quarterly services and are generally assessed based on a tiered scale of the market value of assets under management at month end. Fees for these services are billed to customers on a monthly or quarterly basis and are recorded as revenue at the end of the period for which the wealth and asset management services have been performed. Other performance obligations, such as the delivery of account statements to customers, are generally considered immaterial to the overall transaction price.

Card processing and interchange income: The Corporation earns interchange fees from check card and credit card transactions conducted through the Visa payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder.

Other income: The Corporation's other income includes sources such as bank owned life insurance, changes in fair value and realized gains on sales of trading securities, certain service fees, gains (losses) on sales of fixed assets, and gains (losses) on sale of other real estate owned. The service fees are recognized in the same manner as the service charges mentioned above. While gains (losses) on the sale of other real estate owned are within the scope of ASU 2014-9 if financed by the Corporation, the Corporation does not finance the sale of transactions. The revenue on the sale is recorded upon the transfer of control of the property to the buyer and the other real estate owned asset is derecognized.

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ITEM 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

GENERAL OVERVIEW

The following discussion and analysis of the condensed consolidated financial statements of the Corporation is presented to provide insight into management’s assessment of financial results. The terms “we”, “us” and “our” refer to CNB Financial Corporation and its subsidiaries. The financial condition and results of operations of the Corporation and its consolidated subsidiaries are not necessarily indicative of future performance.

The Corporation’s subsidiary, the Bank, provides financial services to individuals and businesses primarily within its primary market area of the Pennsylvania counties of Blair, Cambria, Cameron, Centre, Clearfield, Crawford, Elk, Indiana, Jefferson and McKean. ERIEBANK, a division of the Bank, operates in the Pennsylvania counties of Crawford, Erie and Warren and in the Ohio counties of Ashtabula, Cuyahoga, Geauga, Lake and Lorain. FCBank, a division of the Bank, operates in the Ohio counties of Crawford, Delaware, Franklin, Knox, Marion, Morrow and Richland. BankOnBuffalo, a division of the Bank, operates in the New York counties of Erie, Niagara and Ontario. Ridge View Bank, a division of the Bank, operates in the Virginia counties of Franklin and Roanoke. Impressia Bank, a division of the Bank, operates in the Bank's primary market areas. Although the Corporation's strategies, through its Bank subsidiary, are executed based on the divisions discussed above, the Bank is a single Pennsylvania-chartered bank whereby all divisions of the Bank conduct their business on a "doing business as" basis. The Bank is subject to regulation, supervision and examination by the Pennsylvania State Department of Banking as well as the FDIC.

In addition to the Bank, the Corporation has four other subsidiaries. CNB Securities Corporation, incorporated in Delaware, maintains investments in debt and equity securities. CNB Insurance Agency, incorporated in Pennsylvania, provides for the sale of nonproprietary annuities and other insurance products. CNB Risk Management, Inc., a Delaware-based captive insurance company, insures against certain risks unique to the operations of the Corporation and its subsidiaries and for which insurance may not be currently available or economically feasible in today's insurance marketplace. Holiday, incorporated in Pennsylvania, offers small balance unsecured loans and secured loans, primarily collateralized by automobiles and equipment, to borrowers with higher risk characteristics.

The following discussion should be read in conjunction with the Corporation’s consolidated financial statements and notes thereto for the year ended December 31, 2022, included in its Annual Report on Form 10-K for the year ended December 31, 2022, and in conjunction with the condensed consolidated financial statements and notes thereto included in Item 1 of this report. Operating results for the three and six months ended June 30, 2023 are not necessarily indicative of the results for the full year ending December 31, 2023, or any future period.

NON-GAAP FINANCIAL INFORMATION

This report contains references to financial measures that are not defined in GAAP. Management uses non-GAAP financial information in its analysis of the Corporation’s performance. Management believes that these non-GAAP measures provide a greater understanding of ongoing operations, enhance comparability of results of operations with prior periods and show the effects of significant gains and charges in the periods presented. The Corporation’s management believes that investors may use these non-GAAP measures to analyze the Corporation’s financial performance without the impact of unusual items or events that may obscure trends in the Corporation’s underlying performance. This non-GAAP data should be considered in addition to results prepared in accordance with GAAP, and is not a substitute for, or superior to, GAAP results. Limitations associated with non-GAAP financial measures include the risks that persons might disagree as to the appropriateness of items included in these measures and that different companies might calculate these measures differently.

Non-GAAP measures reflected within the discussion below include:

•Tangible book value per share;

•Tangible common equity/tangible assets;

•Net interest margin (fully tax-equivalent basis);

•Efficiency ratio;

•Pre-provision net revenue ("PPNR");

•Return on average tangible common equity; and

•Non-interest income excluding realized gains on AFS securities.

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A reconciliation of these non-GAAP financial measures is provided below in the "Non-GAAP Financial Measures" section.

PRIMARY FACTORS USED TO EVALUATE PERFORMANCE

Management considers return on average assets, return on average equity, return on average tangible common equity, earnings per common share, asset quality, net interest margin, and other metrics as key measures of the financial performance of the Corporation. The interest rate environment will continue to play an important role in the future earnings of the Corporation. To address the challenging interest rate and competitive environments, the Corporation continues to evaluate, develop and implement strategies necessary to support its ongoing financial performance objectives and future growth goals. Additionally, management frequently evaluates the potential impact of economic and geopolitical events that may have an impact on the credit risk profile of its customers and develops proactive strategies to mitigate such potential impacts on the Corporation’s loan portfolio.

While non-interest expenses are expected to increase with the growth of the Corporation, management’s growth strategies are also expected to result in an increase in earning assets as well as enhanced revenue, which is expected to more than offset increases in non-interest expenses in 2023 and beyond.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents totaled $125.2 million at June 30, 2023, including additional excess liquidity of $62.6 million held at the Federal Reserve, compared to $106.3 million at December 31, 2022. These excess funds, when combined with (i) available borrowing capacity of approximately $2.3 billion from the Federal Home Loan Bank of Pittsburgh ("FHLB") and Federal Reserve, and (ii) available unused commitments from brokered deposit sources, and other third-party funding channels, including previously established lines of credit from correspondent banks, the total on-hand and contingent liquidity sources for the Corporation represented 2.4 times the estimated amount of adjusted uninsured deposit balances.

Management believes the liquidity needs of the Corporation are satisfied primarily by the current balance of cash and cash equivalents, customer and brokered deposits, FHLB financing, the portions of the securities and loan portfolios that mature within one year, and other third-party funding channels. The Corporation expects that these sources of funds will enable it to meet cash obligations and off-balance sheet commitments as they come due. In addition to the above noted liquidity sources, the Corporation maintains access to the Federal Reserve discount window.

SECURITIES

Securities AFS and equity securities combined totaled $362.4 million and $381.0 million at June 30, 2023 and December 31, 2022, respectively. At June 30, 2023, the total balance of investments classified as HTM securities was $394.2 million compared to $404.8 million at December 31, 2022.

The Corporation’s objective is to maintain the investment securities portfolio at an appropriate level to balance the earnings and liquidity provided by the portfolio. Note 3, "Securities," in the condensed consolidated financial statements provides more detail concerning the composition of the Corporation’s securities portfolio and the process for evaluating securities for impairment.

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The following table summarizes the maturity distribution schedule with corresponding weighted-average yields of securities AFS as of June 30, 2023. Weighted-average yields have been computed on a fully taxable-equivalent basis using a tax rate of 21%. Mortgage-backed securities are included in maturity categories based on their stated maturity date.


	June 30, 2023
	Within One Year				After One But Within Five Years				After Five But Within Ten Years				After Ten Years				Total
	$ Amt.		Yield		$ Amt.		Yield		$ Amt.		Yield		$ Amt.		Yield		$ Amt.		Yield
U.S. Government Sponsored Entities	$	2,048	3.51	%	$	946	1.84	%	$	—	—	%	$	—	—	%	$	2,994	2.98	%
State and Political Subdivisions	3,471		2.43		28,280		2.59		43,513		2.13		17,212		2.28		92,476		2.31
Residential and multi-family mortgage	1,838		2.89		13,828		2.36		18,379		2.14		169,387		1.58		203,432		1.70
Corporate notes and bonds	1,710		5.28		13,744		4.09		27,403		4.52		—		—		42,857		4.41
Pooled SBA	—		—		249		5.32		9,524		2.61		1,604		2.09		11,377		2.60
Total	$	9,067	3.30	%	$	57,047	2.90	%	$	98,819	2.84	%	$	188,203	1.65	%	$	353,136	2.23	%

The following table summarizes the maturity distribution schedule with corresponding weighted-average yields of securities HTM as of June 30, 2023.


	June 30, 2023
	Within One Year				After One But Within Five Years				After Five But Within Ten Years				After Ten Years				Total
	$ Amt.		Yield		$ Amt.		Yield		$ Amt.		Yield		$ Amt.		Yield		$ Amt.		Yield
U.S. Government Sponsored Entities	$	29,921	1.54	%	$	222,083	1.55	%	$	50,794	1.77	%	$	—	—	%	$	302,798	1.59	%
Residential and multi-family mortgage	—		—		3,696		2.77		2,589		3.27		85,155		2.77		91,440		2.78
Total	$	29,921	1.54	%	$	225,779	1.57	%	$	53,383	1.84	%	$	85,155	2.77	%	$	394,238	1.87	%

The following table summarizes the weighted average modified duration of securities AFS as of June 30, 2023.


			Weighted Average Modified Duration (in Years)
U.S. Government Sponsored Entities			0.83
State and Political Subdivisions			4.94
Residential and multi-family mortgage			5.80
Corporate notes and bonds			4.44
Pooled SBA			3.22
Total			5.28

The following table summarizes the weighted average modified duration of securities HTM as of June 30, 2023.


			Weighted Average Modified Duration (in Years)
U.S. Government Sponsored Entities			2.94
Residential and multi-family mortgage			5.10
Total			3.44

The portfolio contains no holdings of a single issuer that exceeds 10% of shareholders’ equity other than U.S. government sponsored entities.

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The Corporation generally purchases debt securities over time and does not attempt to "time" its transactions, which allows for more efficient management of fluctuations in the interest rate environment. The Corporation's strategy given the current environment is to focus on lower risk securities, shorter durations that complement the current portfolio investment ladder, and consistent reinvestment of cash flows to replace lower earning assets.

The Corporation monitors the earnings performance and the effectiveness of the liquidity of the securities portfolio on a regular basis through meetings of the Asset/Liability Committee ("ALCO"). The ALCO also reviews and manages interest rate risk for the Corporation. Through active balance sheet management and analysis of the securities portfolio, a sufficient level of liquidity is maintained to satisfy depositor requirements and various credit needs of our customers.

LOANS RECEIVABLE

Note 4, "Loans Receivable and Allowance for Credit Losses," in the condensed consolidated financial statements provides more detail concerning the loan portfolio of the Corporation.

At June 30, 2023, loans, excluding the impact of (i) syndicated loans, and (ii) any remaining balance on Paycheck Protection Program ("PPP") loans, net of PPP-related fees (such loans being referred to as the "PPP-related loans"), totaled $4.3 billion, representing an increase of $200.8 million, or 4.9% year to date growth (9.8% annualized), from December 31, 2022. The loan growth was experienced primarily in the Corporation's recent expansion markets of Cleveland, Roanoke, and Buffalo combined with growth in the portfolio related to CNB Bank's Private Banking division.

For the six months ended June 30, 2023, the Corporation's consolidated balance sheet reflected a decrease in syndicated lending balances of $11.0 million compared to December 31, 2022. The syndicated loan portfolio totaled $145.6 million, or 3.3% of total loans, excluding PPP-related loans, at June 30, 2023, compared to $156.6 million, or 3.7% of total loans, excluding PPP-related loans, at December 31, 2022.

Loan Origination/Risk Management

The Corporation has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. Management reviews and approves these policies and procedures on a regular basis. A reporting system supplements the review process by providing management with frequent reports related to loan production, loan quality, concentrations of credit, loan delinquencies and nonperforming and potential problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions. The Corporation has not underwritten any hybrid loans, payment option loans, or low documentation/no documentation loans. Variable rate loans are generally underwritten at the fully indexed rate. Loan underwriting policies and procedures have not changed materially between any periods presented. As discussed more fully above, syndicated loan purchases are underwritten utilizing the same process as the Corporation’s originated loans.

The Corporation continues to explore the credit and reputational risks associated with climate change and their potential impact on the foregoing, while closely monitoring regulatory developments on climate risk. This includes, among other things, researching and developing a formalized approach to considering climate change related risks in the Corporation's underwriting processes. This approach will be impacted, in part, by the accessibility and reliability of both customer climate risk data and climate risk data in general. One of the objectives of these efforts is to enable the Corporation to better understand the climate change related risks associated with the Corporation's customers' business activities and to be able to monitor their response to those risks and their ultimate impact on the Corporation's customers.

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Maturities and Sensitivities of Loans Receivable to Changes in Interest Rate

The following table presents the maturity distribution of the Corporation's loans receivable at June 30, 2023. The table also presents the portion of loans receivable that have fixed interest rates or variable interest rates that fluctuate over the life of the loans in accordance with changes in an interest rate index.


	June 30, 2023
	Due in One Year or Less		After One, but Within Five Years		After Five but Within Fifteen Years		After Fifteen Years		Total
Loans Receivable with Fixed Interest Rate
Farmland	$	9	$	2,202	$	8,096	$	—	$	10,307
Owner-occupied, nonfarm nonresidential properties	17,432		32,459		10,950		4,846		65,687
Agricultural production and other loans to farmers	18		180		—		—		198
Commercial and Industrial	22,854		249,005		72,656		133		344,648
Obligations (other than securities and leases) of states and political subdivisions	2,906		7,991		85,767		21,021		117,685
Other loans	27		561		562		12,313		13,463
Other construction loans and all land development and other land loans (1)	23,170		59,004		10,167		1,366		93,707
Multifamily (5 or more) residential properties	28,652		32,857		2,897		4,490		68,896
Non-owner occupied, nonfarm nonresidential properties	10,440		76,707		58,775		1,297		147,219
1-4 Family Construction (1)	1,074		650		981		1,546		4,251
Home equity lines of credit	7		47		611		326		991
Residential Mortgages secured by first liens	5,621		32,494		235,912		129,974		404,001
Residential Mortgages secured by junior liens	370		8,130		58,318		12,251		79,069
Other revolving credit plans	5		8		10		2		25
Automobile	396		17,786		8,550		16		26,748
Other consumer	3,390		33,746		7,402		2,984		47,522
Credit cards	—		—		—		—		—
Overdrafts	—		—		—		—		—
Total	$	116,371	$	553,827	$	561,654	$	192,565	$	1,424,417

Loans Receivable with Variable or Floating Interest Rate
Farmland	$	388	$	4,469	$	9,820	$	8,790	$	23,467
Owner-occupied, nonfarm nonresidential properties	14,342		53,766		293,169		63,764		425,041
Agricultural production and other loans to farmers	709		63		165		—		937
Commercial and Industrial	265,051		88,670		78,925		1,410		434,056
Obligations (other than securities and leases) of states and political subdivisions	—		4,151		11,442		21,556		37,149
Other loans	7,785		3,338		6,163		—		17,286
Other construction loans and all land development and other land loans (1)	145,864		103,909		98,268		9,295		357,336
Multifamily (5 or more) residential properties	21,717		21,640		156,559		8,017		207,933
Non-owner occupied, nonfarm nonresidential properties	85,775		207,458		371,718		69,380		734,331
1-4 Family Construction (1)	5,563		14,462		7,218		28,241		55,484
Home equity lines of credit	7,224		6,908		54,669		52,021		120,822
Residential Mortgages secured by first liens	8,854		16,280		159,177		379,495		563,806
Residential Mortgages secured by junior liens	2,229		405		5,804		478		8,916
Other revolving credit plans	6,547		2,576		31,327		1,299		41,749
Automobile	—		5		—		—		5
Other consumer	0		36		122		80		238
Credit cards	11,640		—		—		—		11,640
Overdrafts	221		—		—		—		221
Total	$	583,909	$	528,136	$	1,284,546	$	643,826	$	3,040,417
(1) 1-4 family construction loans and other construction loans and all land development and other land loans segments include loans that are construction to permanent loans in which the loan segment will change when the construction period has concluded.

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Loans Receivable Concentration

At June 30, 2023, no industry concentration existed which exceeded 10% of the total loan portfolio.

Loan Portfolio Profile

As part of our lending policy and risk management activities, the Corporation tracks lending exposure by industry classification and type to determine potential risks associated with industry concentrations, and if any risk issues could lead to additional credit loss exposure. In the current post-pandemic economic environment, the Corporation has determined that office commercial real estate ("commercial office") inherently could pose a higher level of credit risk, even given the historical high credit quality applied to the deals when initially underwritten and funding or commitments made. The Corporation monitors numerous elements at both underwriting and through and beyond the funding period, including each project’s occupancy, updated appraisals and loan-to-value, absorption and cap rates, debt service coverage and covenant compliance, and developer/lessor financial strength both in the project and globally.

At June 30, 2023, the Corporation had the following key metrics related to its commercial office portfolio:

•Commercial office loans outstanding consisted of 122 loans, totaling $118.1 million, or 2.6%, of total loans outstanding;

•Nonaccrual commercial office loans (three customer relationships) totaled $1.8 million, or 1.5% of total office loans outstanding; and

•The average outstanding balance per commercial office loan is $968 thousand.

•The Corporation had no commercial office loan relationships considered by the banking regulators to be a high volatility commercial real estate credit.

Loans Receivable Credit Quality

The following table presents information concerning the loan portfolio delinquency and other nonperforming assets at June 30, 2023 and December 31, 2022:


	June 30, 2023			December 31, 2022
Nonaccrual loans	$	21,176		$	20,986
Accrual loans greater than 90 days past due	1,373			1,121
Total nonperforming loans	22,549			22,107
Other real estate owned	1,575			1,439
Total nonperforming assets	$	24,124		$	23,546




Total loans receivable	$	4,464,834		$	4,275,178
Nonaccrual loans as a percentage of total loans receivable	0.47		%	0.49		%
Total assets	$	5,663,600		$	5,475,179
Nonperforming assets as a percentage of total assets	0.43		%	0.43		%
Allowance for credit losses on loans receivable	$	45,541		$	43,436
Allowance for credit losses / Total loans	1.02		%	1.02		%
Ratio of allowance for credit losses to nonaccrual loans	215.06		%	206.98		%

Total nonperforming assets were $24.1 million, or 0.43% of total assets, as of June 30, 2023, compared to $23.5 million, or 0.43% of total assets, as of December 31, 2022. In addition, the allowance for credit losses as a percentage of nonaccrual loans was 215.06% at June 30, 2023, compared to 206.98% at December 31, 2022.

The Corporation has established written lending policies and procedures that require underwriting standards, loan documentation, and credit analysis standards to be met prior to funding a loan. Subsequent to the funding of a loan, ongoing review of credits is required. Credit reviews are performed quarterly by an outsourced loan review firm and cover approximately 65% of the commercial loan portfolio on an annual basis. In addition, the external independent loan review firm reviews past due loans and all classified assets and nonaccrual loans annually.

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Potential problem loans consist of loans that are performing in accordance with contractual terms but for which management has concerns about the ability of a borrower to continue to comply with contractual repayment terms because of the borrower’s potential operating or financial difficulties. Management monitors these "watchlist" loans monthly to determine potential losses within the commercial loan portfolio. The "watchlist" is comprised of all credits risk rated special mention, substandard and doubtful.

ALLOWANCE FOR CREDIT LOSSES

The amount of each allowance for credit losses account represents management's best estimate of current expected credit losses on these financial instruments considering available information, from internal and external sources, relevant to assessing exposure to credit loss over the contractual term of the instrument. Relevant available information includes historical credit loss experience, current conditions and reasonable and supportable forecasts. While historical credit loss experience provides the basis for the estimation of expected credit losses, adjustments to historical loss information may be made for differences in current portfolio-specific risk characteristics, environmental conditions or other relevant internal and external factors. While management utilizes its best judgment and information available, the ultimate adequacy of the Corporation's allowance for credit losses account is dependent upon a variety of factors beyond the Corporation's control, including the performance of the Corporation's loan portfolios, the economy, changes in interest rates, and the view of the regulatory authorities toward classification of assets. The adequacy of the allowance for credit losses is subject to a formal analysis by the Credit Administration and Finance Departments of the Corporation. For additional information regarding the Corporation's accounting policies related to credit losses, refer to Note 1, "Summary of Significant Accounting Policies" in the Corporation's 2022 Form 10-K and Note 4, "Loans" in these condensed consolidated financial statements.

The tables below provide an allocation of the allowance for credit losses on loans receivable by loan portfolio segment at June 30, 2023 and December 31, 2022; however, allocation of a portion of the allowance for credit losses to one segment does not preclude its availability to absorb losses in other segments.


	June 30, 2023
	Amount of Allowance Allocated		Percent of Loans in Each Category to Total Loans Receivable		Total Loans Receivable		Ratio of Allowance Allocated to Loans Receivable in Each Category
Farmland	$	140	0.8	%	$	33,774	0.41	%
Owner-occupied, nonfarm nonresidential properties	3,151		11.0		490,728		0.64
Agricultural production and other loans to farmers	5		—		1,135		0.44
Commercial and Industrial (1)	8,659		17.4		778,704		1.11
Obligations (other than securities and leases) of states and political subdivisions	2,306		3.5		154,834		1.49
Other loans	733		0.7		30,749		2.38
Other construction loans and all land development and other land loans	3,591		10.1		451,043		0.80
Multifamily (5 or more) residential properties	1,613		6.2		276,829		0.58
Non-owner occupied, nonfarm nonresidential properties	8,977		19.7		881,550		1.02
1-4 Family Construction	408		1.3		59,735		0.68
Home equity lines of credit	969		2.7		121,813		0.80
Residential Mortgages secured by first liens	9,250		21.7		967,807		0.96
Residential Mortgages secured by junior liens	1,578		2.0		87,985		1.79
Other revolving credit plans	931		0.9		41,774		2.23
Automobile	376		0.6		26,753		1.41
Other consumer	2,561		1.1		47,760		5.36
Credit cards	72		0.3		11,640		0.62
Overdrafts	221		—		221		100.00
Total	$	45,541	100.0	%	$	4,464,834	1.02	%

(1) PPP loans, net of deferred PPP processing fees, disbursed in 2021 are included in the Commercial and Industrial classification.

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	December 31, 2022
	Amount of Allowance Allocated		Percent of Loans in Each Category to Total Loans Receivable		Total Loans Receivable		Ratio of Allowance Allocated to Loans Receivable in Each Category
Farmland	$	159	0.8	%	$	32,168	0.49	%
Owner-occupied, nonfarm nonresidential properties	2,905		11.0		468,493		0.62
Agricultural production and other loans to farmers	6		—		1,198		0.50
Commercial and Industrial (1)	9,766		18.5		791,911		1.23
Obligations (other than securities and leases) of states and political subdivisions	1,863		3.4		145,345		1.28
Other loans	456		0.6		24,710		1.85
Other construction loans and all land development and other land loans	3,253		10.5		446,685		0.73
Multifamily (5 or more) residential properties	2,353		6.0		257,696		0.91
Non-owner occupied, nonfarm nonresidential properties	7,653		18.6		795,315		0.96
1-4 Family Construction	327		1.2		51,171		0.64
Home equity lines of credit	1,173		2.9		124,892		0.94
Residential Mortgages secured by first liens	8,484		22.0		942,531		0.90
Residential Mortgages secured by junior liens	1,035		1.7		74,638		1.39
Other revolving credit plans	722		0.9		36,372		1.99
Automobile	271		0.5		21,806		1.24
Other consumer	2,665		1.1		49,144		5.42
Credit cards	67		0.3		10,825		0.62
Overdrafts	278		—		278		100.00
Total	$	43,436	100.0	%	$	4,275,178	1.02	%

(1) PPP loans, net of deferred PPP processing fees, disbursed in 2021 and 2020 are included in the Commercial and Industrial classification.

The allowance for credit losses measured as a percentage of total loans receivable was 1.02% as of June 30, 2023 and December 31, 2022.

The Corporation's allowance for credit losses is influenced by loan volumes, risk rating migration, delinquency status, and other internal and external conditions influencing loss expectations, such as reasonable and supportable forecasts of economic conditions and other external factors.

For the six months ended June 30, 2023, the allowance for credit losses increased due to the growth in the Corporation's loan portfolio, including growth in new market areas. This was partially offset by improvements in the Corporation's historical loss rates, as well as the impact of net charge-offs. There is still a significant amount of uncertainty related to the domestic and global economy, tightening credit conditions, persistent inflation, and higher interest rates. Management will continue to proactively evaluate its estimate of expected credit losses as new information becomes available.

Note 4, "Loans Receivable and Allowance for Credit Losses," to the condensed consolidated financial statements provides further disclosure of loan balances by portfolio segment as of June 30, 2023 and December 31, 2022.

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Additional information related to provision for credit loss expense and net charge-offs and recoveries for the three and six months ended June 30, 2023 and 2022 is presented in the tables below.


	Three Months Ended June 30, 2023
	Provision (Benefit) for Credit Losses on Loans Receivable (1)		Net (Charge-Offs) Recoveries		Average Loans Receivable		Ratio of Annualized Net (Charge-Offs) Recoveries to Average Loans Receivable
Farmland	$	11	$	—	$	35,337	—	%
Owner-occupied, nonfarm nonresidential properties	598		7		501,569		0.01
Agricultural production and other loans to farmers	2		—		1,176		—
Commercial and Industrial	(284)		—		795,253		—
Obligations (other than securities and leases) of states and political subdivisions	458		—		153,073		—
Other loans	139		—		25,699		—
Other construction loans and all land development and other land loans	197		—		425,830		—
Multifamily (5 or more) residential properties	(924)		2		269,986		—
Non-owner occupied, nonfarm nonresidential properties	966		(248)		823,863		(0.12)
1-4 Family Construction	10		—		55,939		—
Home equity lines of credit	(191)		2		123,123		0.01
Residential Mortgages secured by first liens	396		3		954,036		—
Residential Mortgages secured by junior liens	303		—		82,916		—
Other revolving credit plans	125		(24)		40,931		(0.24)
Automobile	51		(5)		25,837		(0.08)
Other consumer	411		(411)		48,108		(3.43)
Credit cards	11		(12)		13,263		(0.36)
Overdrafts	70		(103)		284		(145.47)
Total	$	2,349	$	(789)	$	4,376,223	(0.07)	%


	Six Months Ended June 30, 2023
	Provision (Benefit) for Credit Losses on Loans Receivable (1)		Net (Charge-Offs) Recoveries		Average Loans Receivable		Ratio of Annualized Net (Charge-Offs) Recoveries to Average Loans Receivable
Farmland	$	(19)	$	—	$	35,009	—	%
Owner-occupied, nonfarm nonresidential properties	257		(11)		497,408		—
Agricultural production and other loans to farmers	(1)		—		1,169		—
Commercial and Industrial	(1,206)		99		801,180		0.02
Obligations (other than securities and leases) of states and political subdivisions	443		—		150,303		—
Other loans	277		—		25,287		—
Other construction loans and all land development and other land loans	338		—		415,776		—
Multifamily (5 or more) residential properties	(677)		(63)		260,806		(0.05)
Non-owner occupied, nonfarm nonresidential properties	1,572		(248)		801,355		(0.06)
1-4 Family Construction	81		—		55,023		—
Home equity lines of credit	(207)		3		123,641		—
Residential Mortgages secured by first liens	770		(4)		945,707		—
Residential Mortgages secured by junior liens	543		—		79,700		—
Other revolving credit plans	250		(41)		39,306		(0.21)
Automobile	115		(10)		24,227		(0.08)
Other consumer	804		(908)		48,038		(3.81)
Credit cards	78		(73)		12,796		(1.15)
Overdrafts	162		(219)		292		(151.24)
Total	$	3,580	$	(1,475)	$	4,317,023	(0.07)	%

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	Three Months Ended June 30, 2022
	Provision (Benefit) for Credit Losses on Loans Receivable (1)		Net (Charge-Offs) Recoveries		Average Loans Receivable		Ratio of Annualized Net (Charge-Offs) Recoveries to Average Loans Receivable
Farmland	$	5	$	—	$	32,530	—	%
Owner-occupied, nonfarm nonresidential properties	117		2		470,087		—
Agricultural production and other loans to farmers	(3)		—		1,263		—
Commercial and Industrial	466		(1)		758,425		—
Obligations (other than securities and leases) of states and political subdivisions	(163)		—		147,551		—
Other loans	24		—		14,222		—
Other construction loans and all land development and other land loans	278		—		326,727		—
Multifamily (5 or more) residential properties	41		—		224,514		—
Non-owner occupied, nonfarm nonresidential properties	337		—		690,368		—
1-4 Family Construction	26		—		41,187		—
Home equity lines of credit	170		2		112,448		0.01
Residential Mortgages secured by first liens	759		—		847,161		—
Residential Mortgages secured by junior liens	76		—		59,594		—
Other revolving credit plans	42		9		27,436		0.13
Automobile	(6)		(6)		20,237		(0.12)
Other consumer	485		(350)		50,687		(2.77)
Credit cards	48		(41)		11,868		(1.39)
Overdrafts	203		(94)		257		(146.71)
Total	$	2,905	$	(479)	$	3,836,562	(0.05)	%


	Six Months Ended June 30, 2022
	Provision (Benefit) for Credit Losses on Loans Receivable (1)		Net (Charge-Offs) Recoveries		Average Loans Receivable		Ratio of Annualized Net (Charge-Offs) Recoveries to Average Loans Receivable
Farmland	$	40	$	—	$	31,315	—	%
Owner-occupied, nonfarm nonresidential properties	387		(12)		459,095		(0.01)
Agricultural production and other loans to farmers	(2)		—		1,321		—
Commercial and Industrial	712		6		738,541		—
Obligations (other than securities and leases) of states and political subdivisions	16		—		146,500		—
Other loans	18		—		14,018		—
Other construction loans and all land development and other land loans	130		—		314,260		—
Multifamily (5 or more) residential properties	(12)		—		219,810		—
Non-owner occupied, nonfarm nonresidential properties	267		—		674,195		—
1-4 Family Construction	78		—		40,134		—
Home equity lines of credit	174		10		109,553		0.02
Residential Mortgages secured by first liens	756		(35)		837,485		(0.01)
Residential Mortgages secured by junior liens	82		—		58,080		—
Other revolving credit plans	81		(11)		27,002		(0.08)
Automobile	(8)		(13)		20,298		(0.13)
Other consumer	887		(729)		49,804		(2.95)
Credit cards	69		(51)		11,485		(0.90)
Overdrafts	287		(172)		253		(137.10)
Total	$	3,962	$	(1,007)	$	3,753,149	(0.05)	%

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Provision for credit losses was $2.4 million and $3.7 million for the three and six months ended June 30, 2023, respectively, compared to $2.9 million and $4.5 million for the three and six months ended June 30, 2022. Included in the provision for credit losses for the three and six months ended June 30, 2023 was $59 thousand and $115 thousand, respectively, related to the allowance for unfunded commitments compared to $0 and $586 thousand accrual towards the allowance for unfunded commitments for the three and six months ended June 30, 2022.

DEPOSITS

The Corporation’s sources of funds are deposits, borrowings, amortization and repayment of loan principal, interest earned on or maturation of investment securities, and funds provided from operations. The Corporation considers deposits to be its primary source of funding in support of growth in assets.


	June 30, 2023		Percent of Deposits in Each Category to Total Deposits		December 31, 2022		Percent of Deposits in Each Category to Total Deposits		Percentage Change in Each Category 2023 vs. 2022
Demand, noninterest-bearing	$	808,074	16.4	%	$	898,437	19.4	%	(10.1)%
Demand, interest-bearing	861,871		17.5		1,007,202		21.8		(14.4)
Savings deposits	2,708,386		54.9		2,270,337		49.1		19.3
Time deposits	554,744		11.2		446,461		9.7		24.3
Total deposits	$	4,933,075	100.0	%	$	4,622,437	100.0	%	6.7%

At June 30, 2023, total deposits were $4.9 billion, reflecting an increase of $310.6 million, or 6.7%, from December 31, 2022. The increase in deposit balances was primarily the result of continued growth in the Corporation's treasury management customer base and resulting increases in municipal and institutional/corporate deposits, including new wealth and asset management deposit relationships resulting from participation in deposit insurance sharing programs. In addition, the total number of deposit households increased by approximately 0.6% from December 31, 2022.

The following table sets forth the average balances of and the average rates paid on deposits for the periods indicated.


	Three Months Ended June 30,
	2023				2022
	Average Amount		Annual Rate		Average Amount		Annual Rate
Demand, noninterest-bearing	$	793,686	—	%	$	839,009	—	%
Demand, interest-bearing	888,804		0.62		1,105,651		0.17
Savings deposits	2,608,232		2.82		2,426,518		0.17
Time deposits	550,188		2.82		324,370		1.19
Total	$	4,840,910			$	4,695,548


	Six Months Ended June 30,
	2023				2022
	Average Amount		Annual Rate		Average Amount		Annual Rate
Demand, noninterest-bearing	$	813,382	—	%	$	822,007	—	%
Demand, interest-bearing	912,345		0.55		1,076,240		0.17
Savings deposits	2,476,442		2.53		2,447,111		0.18
Time deposits	520,666		2.61		341,826		1.25
Total	$	4,722,835			$	4,687,184

At June 30, 2023, the average deposit balance per account for CNB Bank was approximately $33 thousand.

The following table presents additional information about our June 30, 2023 and December 31, 2022 deposits:


	June 30, 2023		December 31, 2022
Time deposits not covered by deposit insurance	$	63,633	$	69,874
Total deposits not covered by deposit insurance	1,532,048		1,864,886

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At June 30, 2023, the total estimated uninsured deposits for CNB Bank were approximately $1.5 billion, or approximately 30.4% of total CNB Bank deposits; however, when excluding $99.0 million of affiliate company deposits and $448.7 million of pledged-investment collateralized deposits, the adjusted amount and percentage of total estimated uninsured deposits was approximately $984.4 million, or approximately 19.6% of total CNB Bank deposits as of June 30, 2023.

At December 31, 2022, the total estimated uninsured deposits for CNB Bank were approximately $1.9 billion, or approximately 39% of total CNB Bank deposits. When excluding affiliate company deposits of $143.1 million and pledged-investment collateralized deposits of $396.2 million, the adjusted amount and percentage of total estimated uninsured deposits was approximately $1.3 billion, or approximately 27.8% of total CNB Bank deposits as of December 31, 2022.

Scheduled maturities of time deposits not covered by deposit insurance at June 30, 2023 were as follows:


	June 30, 2023
3 months or less	$	35,548
Over 3 through 6 months	9,690
Over 6 through 12 months	7,016
Over 12 months	11,379
Total	$	63,633

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Liquidity measures an organization’s ability to meet its cash obligations as they come due. The liquidity of a financial institution reflects its ability to meet loan requests, to accommodate possible outflows in deposits and to take advantage of interest rate market opportunities. The ability of a financial institution to meet its current financial obligations is a function of its balance sheet structure, its ability to liquidate assets and its access to alternative sources of funds.

The Corporation’s expected material cash requirements for the twelve months ended December 31, 2023 and thereafter consist of withdrawals by depositors, credit commitments to borrowers, shareholder dividends, share repurchases, operating expenses, and capital expenditures that are pursuant to the Corporation's strategic initiatives. The Corporation expects to satisfy these short-term and long-term cash requirements through deposit growth, principal and interest payments on loans and investment securities, maturing loans, and investment securities, as well as by maintaining access to wholesale funding sources.

The objective of the Corporation's liquidity management is to manage cash flow and liquidity reserves so that they are adequate to fund the Corporation's operations and to meet cash obligations and other commitments on a timely basis and at a reasonable cost. The Corporation seeks to achieve this objective and ensure that funding needs are met by maintaining an appropriate level of liquid funds through asset/liability management, which includes managing the mix and time to maturity of financial assets and financial liabilities on its balance sheet. The Corporation's liquidity position is enhanced by its ability to raise additional funds as needed in the wholesale markets.

Asset liquidity is provided by liquid assets which are readily marketable or pledgeable or which will mature in the near future. Liquid assets include cash, interest-bearing deposits in banks, including the Federal Reserve, and securities available for sale. Liability liquidity is provided by access to funding sources which include core deposits, correspondent banks, and other wholesale funding.

The Corporation's liquidity position is continuously monitored and adjustments are made to the balance between sources and uses of funds as deemed appropriate. Liquidity risk management is an important element in the Corporation's asset/liability management process. The Corporation regularly models liquidity stress scenarios to assess potential liquidity outflows or potential funding shortfalls resulting from economic disruptions, volatility in the financial markets, unexpected credit events or other significant occurrences deemed problematic by management. These scenarios are incorporated into the Corporation's contingency funding plan, which provides the basis for the identification of its liquidity needs.

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At June 30, 2023, the Corporation’s cash and cash equivalents position was approximately $125.2 million, including liquidity of $62.6 million held at the Federal Reserve. These excess funds, when combined with (i) available borrowing capacity of approximately $2.3 billion from the Federal Home Loan Bank of Pittsburgh ("FHLB") and Federal Reserve, and (ii) available unused commitments from brokered deposit sources, and other third-party funding channels, including previously established lines of credit from correspondent banks, the total on-hand and contingent liquidity sources for the Corporation represented 2.4 times the estimated amount of adjusted uninsured deposit balances discussed above.

The following table summarizes the Corporation's net available borrowing capacities as of June 30, 2023:


	Net Available
FHLB borrowing capacity (1)	$	962,319
Federal Reserve borrowing capacity (2)	394,547
Brokered deposits (3)	892,504
Other third-party funding channels (3) (4)	65,000
Total net available borrowing capacity	$	2,314,370

(1) Availability contingent on the FHLB activity-based stock ownership requirement

(2) Includes access to discount window, BIC program and Bank Term Funding Program

(3) Availability contingent on internal borrowing guidelines

(4) Availability contingent on correspondent bank approvals at time of borrowing

As of June 30, 2023, management is not aware of any events that are reasonably likely to have a material adverse effect on the Corporation's liquidity, capital resources or operations. In addition, management is not aware of any regulatory recommendations regarding liquidity that would have a material adverse effect on the Corporation.

In the ordinary course of business, the Corporation has entered into contractual obligations and have made other commitments to make future payments. Refer to the accompanying notes to consolidated financial statements elsewhere in this report for the expected timing of such payments as of June 30, 2023. The Corporation’s material contractual obligations as of June 30, 2023 consist of (i) long-term borrowings - Note 7, "Borrowings," (ii) operating leases - Note 5, "Leases," (iii) time deposits with stated maturity dates - Note 6, "Deposits," and (iv) commitments to extend credit and standby letters of credit - Note 9, "Off-Balance Sheet Commitments and Contingencies."

Shareholders’ Equity, Capital Ratios and Metrics

As of June 30, 2023, the Corporation’s total shareholders’ equity was $549.6 million, representing an increase of $18.9 million, or 3.6%, from December 31, 2022, primarily due to the increase in the Corporation's retained earnings (quarterly net income, partially offset by the common and preferred dividends paid in the quarter), and a decrease in accumulated other comprehensive loss during the quarter resulting primarily from the after-tax impact of the temporary unrealized reduction in the value of the available-for-sale investment portfolio.

The Corporation has complied with the standards of capital adequacy mandated by government regulations. Bank regulators have established "risk-based" capital requirements designed to measure capital adequacy. Risk-based capital ratios reflect the relative risks of various assets banks hold in their portfolios. A weight category (0% for the lowest risk assets and increasing for each tier of higher risk assets) is assigned to each asset on the balance sheet.

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As of June 30, 2023 all of the Corporation's capital ratios exceeded regulatory “well-capitalized” levels. The Corporation’s capital ratios and book value per common share at June 30, 2023 and December 31, 2022 were as follows:


	June 30, 2023			December 31, 2022
Total risk-based capital ratio	15.73		%	16.08		%
Tier 1 risk based ratio	12.93		%	13.24		%
Common equity tier 1 ratio	11.20		%	11.42		%
Tier 1 leverage ratio	10.44		%	10.74		%
Tangible common equity/tangible assets (1)	7.97		%	7.90		%

Book value per common share	$	23.42		$	22.39
Tangible book value per common share (1)	$	21.32		$	20.30

(1) Tangible common equity, tangible assets and tangible book value per common share are non-GAAP financial measures calculated using GAAP amounts. Tangible common equity is calculated by excluding the balance of goodwill and other intangible assets and preferred equity from the calculation of shareholders’ equity. Tangible assets is calculated by excluding the balance of goodwill and other intangible assets from the calculation of total assets. Tangible book value per common share is calculated by dividing tangible common equity by the number of shares outstanding. The Corporation believes that these non-GAAP financial measures provide information to investors that is useful in understanding its financial condition. Because not all companies use the same calculation of tangible common equity and tangible assets, this presentation may not be comparable to other similarly titled measures calculated by other companies. A reconciliation of these non-GAAP financial measures is provided.

At June 30, 2023, the Corporation's net unrealized losses on available-for-sale and held-to-maturity securities totaled approximately $94.8 million, or 17.3% of total shareholders' equity, compared to $99.0 million, or 18.6% of total shareholders' equity at December 31, 2022. Importantly, all regulatory capital ratios for the Corporation would exceed regulatory “well-capitalized” levels as of June 30, 2023 and December 31, 2022 if the net unrealized losses were fully recognized. Additionally, the Corporation maintains $98.3 million of funds at its holding company, well in excess of the $94.8 in the unrealized losses on investments, as an immediately available source of contingent capital for CNB Bank.

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AVERAGE BALANCES, INTEREST RATES AND YIELDS

The loans receivable categories used to monitor and analyze interest income and yields are different than the portfolio segments used to determine the allowance for credit losses for loans receivable. The allowance for credit losses was calculated by pooling loans of similar credit risk characteristics and credit monitoring procedures. See Note 4, "Loans Receivable and Allowance for Credit Losses," for more information about pooling of loans receivable for the allowance for credit losses.

The following table presents average balances of certain measures of our financial condition and net interest margin for the three months ended June 30, 2023 and 2022:


	Average Balances, Income and Interest Rates on a Taxable Equivalent Basis
	For the Three Months Ended,
	June 30, 2023						June 30, 2022
	Average Balance		Annual Rate		Interest Inc./Exp.		Average Balance		Annual Rate		Interest Inc./Exp.
ASSETS:
Securities:
Taxable (1) (4)	$	730,224	1.89	%	$	3,700	$	793,598	1.75	%	$	3,623
Tax-exempt (1) (2) (4)	30,274		2.59		209		37,719		2.87		284
Equity securities (1) (2)	10,107		7.22		182		7,852		1.89		37
Total securities (4)	770,605		1.99		4,091		839,169		1.80		3,944
Loans receivable:
Commercial (2) (3)	1,512,107		6.46		24,342		1,424,078		4.66		16,558
Mortgage and loans held for sale (2) (3)	2,735,693		5.73		39,089		2,301,999		4.55		26,096
Consumer (3)	128,423		11.46		3,670		110,485		10.23		2,819
Total loans receivable (3)	4,376,223		6.15		67,101		3,836,562		4.75		45,473
Interest-bearing deposits with the Federal Reserve and other financial institutions	91,643		6.05		1,383		291,866		0.87		630
Total earning assets	5,238,471		5.50		$	72,575	4,967,597		4.01		$	50,047

Noninterest-bearing assets:
Cash and due from banks	55,632						49,307
Premises and equipment	108,296						88,472
Other assets	250,019						225,358
Allowance for credit losses	(44,471)						(38,747)
Total non interest-bearing assets	369,476						324,390
TOTAL ASSETS	$	5,607,947					$	5,291,987
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Demand—interest-bearing	$	888,804	0.62	%	$	1,383	$	1,105,651	0.17	%	$	480
Savings	2,608,232		2.82		18,326		2,426,518		0.17		1,048
Time	550,188		2.82		3,869		324,370		1.19		959
Total interest-bearing deposits	4,047,224		2.34		23,578		3,856,539		0.26		2,487
Short-term borrowings	33,920		5.21		441		—		—		—
Finance lease liabilities	350		4.58		4		437		4.59		5
Subordinated notes and debentures	104,698		4.02		1,049		104,394		3.64		948
Total interest-bearing liabilities	4,186,192		2.40		$	25,072	3,961,370		0.35		$	3,440
Demand—noninterest-bearing	793,686						839,009
Other liabilities	77,579						66,158
Total liabilities	5,057,457						4,866,537
Shareholders’ equity	550,490						425,450
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	5,607,947					$	5,291,987
Interest income/Earning assets			5.50	%	$	72,575			4.01	%	$	50,047
Interest expense/Interest-bearing liabilities			2.40		25,072				0.35		3,440
Net interest spread			3.10	%	$	47,503			3.66	%	$	46,607
Interest income/Earning assets			5.50	%	72,575				4.01	%	50,047
Interest expense/Earning assets			1.90		25,072				0.28		3,440
Net interest margin (fully tax-equivalent)			3.60	%	$	47,503			3.73	%	$	46,607

(1) Includes unamortized discounts and premiums.

(2) Average yields are stated on a fully taxable equivalent basis (calculated using statutory rates of 21%) resulting from tax-free municipal securities in the investment portfolio and tax-free municipal loans in the commercial loan portfolio. The taxable equivalent adjustment to net interest income for the three months ended June 30, 2023 and 2022 was $243 thousand and $306 thousand, respectively.

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(3) Average loans receivable outstanding includes the average balance outstanding of all nonaccrual loans. Loans receivable consist of the average of total loans receivable less average unearned income. In addition, loans receivable interest income consists of loans receivable fees, including PPP deferred processing fees.

(4) Average balance is computed using the fair value of AFS securities and amortized cost of HTM securities. Average yield has been computed using amortized cost average balance for AFS and HTM securities. The adjustment to the average balance for securities in the calculation of average yield for the three months ended June 30, 2023 and 2022 was $(55.9) million and $(37.5) million, respectively.

(5) Includes loans held for sale.

The following table presents average balances of certain measures of our financial condition and net interest margin for the six months ended June 30, 2023 and 2022:


	Average Balances, Income and Interest Rates on a Taxable Equivalent Basis
	For the Six Months Ended,
	June 30, 2023						June 30, 2022
	Average Balance		Annual Rate		Interest Inc./Exp.		Average Balance		Annual Rate		Interest Inc./Exp.
ASSETS:
Securities:
Taxable (1) (4)	$	739,201	1.90	%	$	7,466	$	776,683	1.77	%	$	7,024
Tax-exempt (1) (2) (4)	31,824		2.63		443		37,653		2.94		559
Equity securities (1) (2)	11,664		4.75		275		7,894		2.02		79
Total securities (4)	782,689		1.96		8,184		822,230		1.83		7,662
Loans receivable:
Commercial (2) (3)	1,510,355		6.37		47,730		1,390,790		4.68		32,254
Mortgage and loans held for sale (2) (3)	2,682,009		5.63		74,821		2,253,517		4.51		50,388
Consumer (3)	124,659		11.49		7,104		108,842		10.19		5,498
Total loans receivable (3)	4,317,023		6.06		129,655		3,753,149		4.74		88,140
Other earning assets	54,435		6.10		1,647		399,585		0.43		843
Total earning assets	5,154,147		5.40		$	139,486	4,974,964		3.90		$	96,645

Noninterest-bearing assets:
Cash and due from banks	53,981						49,612
Premises and equipment	105,574						86,112
Other assets	248,010						219,560
Allowance for credit losses	(43,957)						(38,397)
Total non interest-bearing assets	363,608						316,887
TOTAL ASSETS	$	5,517,755					$	5,291,851
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Demand—interest-bearing	$	912,345	0.55	%	$	2,484	$	1,076,240	0.17	%	$	918
Savings	2,476,442		2.53		31,066		2,447,111		0.18		2,163
Time	520,666		2.61		6,727		341,826		1.25		2,112
Total interest-bearing deposits	3,909,453		2.08		40,277		3,865,177		0.27		5,193
Short-term borrowings	67,930		5.05		1,700		—		—		—
Finance lease liabilities	361		4.47		8		448		4.50		10
Subordinated notes and debentures	104,660		4.02		2,088		104,356		3.62		1,874
Total interest-bearing liabilities	4,082,404		2.18		$	44,073	3,969,981		0.36		$	7,077
Demand—noninterest-bearing	813,382						822,007
Other liabilities	78,930						66,110
Total liabilities	4,974,716						4,858,098
Shareholders’ equity	543,039						433,753
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	5,517,755					$	5,291,851
Interest income/Earning assets			5.40	%	$	139,486			3.90	%	$	96,645
Interest expense/Interest-bearing liabilities			2.18		44,073				0.36		7,077
Net interest spread			3.22	%	$	95,413			3.54	%	$	89,568
Interest income/Earning assets			5.40	%	139,486				3.90	%	96,645
Interest expense/Earning assets			1.71		44,073				0.29		7,077
Net interest margin (fully tax-equivalent)			3.69	%	$	95,413			3.61	%	$	89,568

(1) Includes unamortized discounts and premiums.

(2) Average yields are stated on a fully taxable equivalent basis (calculated using statutory rates of 21%) resulting from tax-free municipal securities in the investment portfolio and tax-free municipal loans in the commercial loan portfolio. The taxable equivalent adjustment to net interest income for the six months ended June 30, 2023 and 2022 was $514 thousand and $650 thousand, respectively.

(4) Average balance is computed using the fair value of AFS securities and amortized cost of HTM securities. Average yield has been computed using amortized cost average balance for AFS and HTM securities. The adjustment to the average balance for securities in the calculation of average yield for the six months ended June 30, 2023 and 2022 was $(57.3) million and $(24.1) million, respectively.

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VOLUME ANALYSIS OF CHANGES IN NET INTEREST INCOME

The following table presents the change in net interest income for the three months ended June 30, 2023 and 2022:


Net Interest Income Rate-Volume Variance	For Three Months Ended June 30, 2023 over (under) 2022 Due to Change In (1)
	Volume		Rate		Net
Assets
Securities:
Taxable	$	(178)	$	255	$	77
Tax-exempt (2)	(54)		(21)		(75)
Equity securities (2)	11		134		145
Total securities	(221)		368		147
Loans receivable:
Commercial (2)	998		6,786		7,784
Mortgage (2) (3)	4,945		8,048		12,993
Consumer	457		394		851
Total loans receivable	6,400		15,228		21,628
Other earning assets	(431)		1,184		753
Total Earning Assets	$	5,748	$	16,780	$	22,528

Liabilities and Shareholders’ Equity
Interest-Bearing Deposits
Demand – interest-bearing	$	(94)	$	997	$	903
Savings	46		17,232		17,278
Time	674		2,236		2,910
Total interest-bearing deposits	626		20,465		21,091
Short-Term Borrowings	—		441		441
Finance lease liabilities	(1)		—		(1)
Subordinated debentures	2		99		101
Total Interest-Bearing Liabilities	$	627	$	21,005	$	21,632

Change in Net Interest Income	$	5,121	$	(4,225)	$	896

(1) Changes in interest income or expense not arising solely as a result of volume or rate variances are allocated to volume changes.

(2) Changes in interest income on tax-exempt securities and loans receivable are presented on a fully taxable-equivalent basis, using the Corporation’s marginal federal income tax rate of 21% for the three months ended June 30, 2023 and June 30, 2022.

(3) Includes loans held for sale.

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The following table presents the change in net interest income for the six months ended June 30, 2023 and 2022:


Net Interest Income Rate-Volume Variance	For Six Months Ended June 30, 2023 over (under) 2022 Due to Change In (1)
	Volume		Rate		Net
Assets
Securities:
Taxable	$	(35)	$	477	$	442
Tax-exempt (2)	(67)		(49)		(116)
Equity securities (2)	38		158		196
Total securities	(64)		586		522
Loans receivable:
Commercial (2)	2,818		12,658		15,476
Mortgage (2) (3)	9,537		14,896		24,433
Consumer	802		804		1,606
Total loans receivable	13,157		28,358		41,515
Other earning assets	(727)		1,531		804
Total Earning Assets	$	12,366	$	30,475	$	42,841

Liabilities and Shareholders’ Equity
Interest-Bearing Deposits
Demand – interest-bearing	$	(153)	$	1,719	$	1,566
Savings	44		28,859		28,903
Time	1,104		3,511		4,615
Total interest-bearing deposits	995		34,089		35,084
Short-Term Borrowings	(1)		1,701		1,700
Finance lease liabilities	(2)		—		(2)
Subordinated debentures	6		208		214
Total Interest-Bearing Liabilities	$	998	$	35,998	$	36,996

Change in Net Interest Income	$	11,368	$	(5,523)	$	5,845

(1) Changes in interest income or expense not arising solely as a result of volume or rate variances are allocated to volume changes.

(3) Includes loans held for sale

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RESULTS OF OPERATIONS

Three Months Ended June 30, 2023 and 2022

OVERVIEW

Net income available to common shareholders ("earnings") was $12.8 million, or $0.61 per diluted share, for the three months ended June 30, 2023. The Corporation’s prior year earnings for the three months ended June 30, 2022 were $14.4 million, or $0.85 per diluted share. The decrease in diluted earnings per share comparing the quarter ended June 30, 2023 to the quarter ended June 30, 2022 was primarily due to an increase in the Corporation's interest-bearing deposit costs as CNB raised targeted rates to sustain its core deposit base in legacy markets and to grow its funding base in expansion markets given the competitive deposit market as a result of continued Federal Open Market Committee ("Fed") rate increases, as well as the dilutive effect of the Corporation's common stock offering completed in September 2022, resulting in the issuance of 4,257,446 shares of common stock at $23.50 per share and net proceeds of $94.1 million after deducting the underwriting discount and customary offering expenses.

Annualized return on average equity was 10.07% for the three months ended June 30, 2023, compared to 14.55% for the three months ended June 30, 2022. Annualized return on average tangible common equity, a non-GAAP measure, was 11.40% for the three months ended June 30, 2023, compared to 17.81% for the three months ended June 30, 2022.

The Corporation's efficiency ratio was 64.78% for the three months ended June 30, 2023, compared to 59.89% for the three months ended June 30, 2022. The efficiency ratio on a fully tax-equivalent basis, a non-GAAP ratio, was 64.10% for the three months ended June 30, 2023, compared to 59.47% for the three months ended June 30, 2022.

NET INTEREST INCOME

Net interest income was $47.3 million for the three months ended June 30, 2023, compared to $46.3 million for the three months ended June 30, 2022. The increase in net interest income of $959 thousand, or 2.1%, was primarily a result of loan growth and the cumulative year-over-year benefits of the impact of rising interest rates resulting in greater income on variable-rate loans.

Net interest margin was 3.62% and 3.74% for the three months ended June 30, 2023 and June 30, 2022, respectively. Net interest margin on a fully tax-equivalent basis, a non-GAAP measure, was 3.60% and 3.73%, for the three months ended June 30, 2023 and June 30, 2022, respectively.

The yield on earning assets of 5.50% for the three months ended June 30, 2023 increased 149 basis points from June 30, 2022, primarily as a result of loan growth and the net benefit of higher interest rates. The cost of interest-bearing liabilities of 2.40% for the three months ended June 30, 2023 increased 205 basis points from June 30, 2022, primarily as a result of the Corporation’s targeted interest-bearing deposit rate increases in response to the competitive environment from numerous Fed rate hikes over the past year, and deposit retention and growth initiatives.

PROVISION FOR CREDIT LOSSES

The provision for credit losses was $2.4 million for the three months ended June 30, 2023, compared to $2.9 million for the three months ended June 30, 2022. Included in the provision for credit losses for the three months ended June 30, 2023 was a $56 thousand expense related to the allowance for unfunded commitments compared to zero for the three months ended June 30, 2022.

Management believes the charges to the provision for credit losses for the three months ended June 30, 2023 were appropriate and the allowance for credit losses was adequate to absorb current expected credit losses in the loan portfolio at June 30, 2023.

NON-INTEREST INCOME

Total non-interest income was $8.3 million for the three months ended June 30, 2023 compared to $8.1 million for the three months ended June 30, 2022. Wealth and Asset Management fees increased $114 thousand, or 6.3%, compared to the three months ended June 30, 2022. Other notable changes when comparing the second quarter of 2023 to the second quarter of 2022 included higher other service charges and fees and lower unrealized losses on equity securities, partially offset by lower bank owned life insurance income and lower mortgage banking income.

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NON-INTEREST EXPENSE

For the three months ended June 30, 2023, total non-interest expense was $36.0 million, compared to $32.6 million for the three months ended June 30, 2022. The increase of $3.4 million, or 10.4%, from the three months ended June 30, 2022, was primarily a result of higher technology expenses related to investments in applications aimed at expanding customer relationship management capabilities, as well as enhancing both customer experience and expanding service delivery channels and inflationary increases in other non-interest expenses.

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RESULTS OF OPERATIONS

Six Months Ended June 30, 2023 and 2022

OVERVIEW

Net income available to common shareholders was $28.2 million, or $1.33 per diluted share, for the six months ended June 30, 2023, compared to earnings of $28.5 million, or $1.69 per diluted share, for the six months ended June 30, 2022. As previously noted, the decrease in diluted earnings per share comparing the six months ended June 30, 2023 to the six months ended June 30, 2022 was primarily due to both the rise in deposit costs year over year and to the dilutive effect of the Corporation's common stock offering.

Annualized return on average equity was 11.26% for the six months ended June 30, 2023, compared to 14.26% for the six months ended June 30, 2022. Annualized return on average tangible common equity, a non-GAAP measure, was 12.88% for the six months ended June 30, 2023, compared to 17.34% for the six months ended June 30, 2022.

Efficiency ratio, a non-GAAP measure, was 62.91% for the six months ended June 30, 2023, compared to 60.44% for the six months ended June 30, 2022. The efficiency ratio on a fully tax-equivalent basis, a non-GAAP ratio, was 62.28% for the six months ended June 30, 2023, compared to 59.99% the six months ended June 30, 2022.

NET INTEREST INCOME

Net interest income was $94.9 million for the six months ended June 30, 2023, compared to $88.9 million for the six months ended June 30, 2022. The increase of $6.0 million, or 6.7%, was due to loan growth and the benefits of the impact of rising interest rates resulting in greater income on variable-rate loans, partially offset by an increase in the Corporation's interest expense as a result of both (i) targeted interest-bearing deposit rate increases to ensure both deposit growth and retention, and (ii) a year-over-year increase in the average balance of short-term borrowings through the FHLB.

Net interest margin was 3.71% and 3.60% for the six months ended June 30, 2023 and 2022, respectively. Net interest margin on a fully tax-equivalent basis, a non-GAAP measure, was 3.69% and 3.61% for the six months ended June 30, 2023 and 2022, respectively.

The yield on earning assets of 5.40% for the six months ended June 30, 2023 increased 150 basis points from June 30, 2022, primarily as a result of loan growth and the net benefit of higher interest rates. The cost of interest-bearing liabilities of 2.18% for the six months ended June 30, 2023 increased 182 basis points from June 30, 2022, primarily as a result of the Corporation’s targeted interest-bearing deposit rate increases and short-term borrowings through the FHLB.

PROVISION FOR CREDIT LOSSES

Provision for credit losses was $3.7 million for the six months ended June 30, 2023, compared to $4.5 million for the six months ended June 30, 2022. Included in the provision for credit losses for the six months ended June 30, 2023 was $115 thousand expense related to the allowance for unfunded commitments compared to $586 thousand for the six months ended June 30, 2022. The reduction in the provision expense of $853 thousand from the six months ended June 30, 2022 was primarily a result of the relatively lower loan portfolio growth in the first six months of 2023 compared to the first six months of 2022.

Management believes the charges to the provision for credit losses for the six months ended June 30, 2023 were appropriate and the allowance for credit losses was adequate to absorb current expected credit losses in the loan portfolio at June 30, 2023.

NON-INTEREST INCOME

Total non-interest income was $16.3 million for the six months ended June 30, 2023 compared to $17.8 million for the six months ended June 30, 2022. During the six months ended June 30, 2023, Wealth and Asset Management fees increased $148 thousand, or 4.1%, compared to the six months ended June 30, 2022, as the Corporation benefited from an increased number of wealth management relationships. Other notable favorable changes compared to the six months ended June 30, 2022 included higher other service charges and fees, lower unrealized losses on equity securities, and an increase in card processing and interchange income. These were offset by certain unfavorable variances including lower net realized gains on the sale of available-for-sale debt securities, lower bank owned life insurance income and lower other non-interest income driven by a decrease in gains on recoveries from acquired loans and lower pass-through income from SBICs.

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NON-INTEREST EXPENSE

For the six months ended June 30, 2023, total non-interest expense was $70.0 million, compared to $64.5 million for the six months ended June 30, 2022. The increase of $5.5 million, or 8.5%, from the six months ended June 30, 2022, was primarily a result of higher technology expenses, combined with higher card processing and interchange expenses. In addition, other non-interest expenses increased primarily due to business generation related expenses and consulting fees.

INCOME TAX EXPENSE

Income tax expense was $7.2 million, representing a 19.3% effective tax rate, compared to $7.0 million, representing a 18.5% effective tax rate for the six months ended June 30, 2023 and 2022, respectively.

OFF-BALANCE SHEET ARRANGEMENTS

In the normal course of business, the Corporation enters into various transactions, which, in accordance with GAAP, are not included in its condensed consolidated balance sheets. The Corporation enters into these transactions to meet the financing needs of its customers. These transactions include commitments to extend credit and standby and commercial letters of credit, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in the condensed consolidated balance sheets. For further information, see Note 9, "Off-Balance Sheet Commitments and Contingencies," in the in the condensed consolidated financial statements.

CRITICAL ACCOUNTING POLICIES

The Corporation’s accounting and reporting policies are in accordance with GAAP and conform to general practices within the financial services industry. Accounting and reporting practices for the allowance for credit losses and the fair value of assets acquired and liabilities assumed in connection with business combinations, including the associated goodwill and intangibles that was recorded, required the use of material estimates. Application of assumptions different than those used by management could result in material changes in the Corporation’s financial position or results of operations. Note 1 (Summary of Significant Accounting Policies) and Note 4 (Loans) of the 2022 Form 10-K provide additional detail with regard to the Corporation’s accounting for the allowance for credit losses and loans receivable. There have been no other significant changes in the application of accounting policies since December 31, 2022.

NON-GAAP FINANCIAL MEASURES

The following tables reconcile the non-GAAP financial measures to their most directly comparable measures under GAAP.



	(unaudited)
	June 30,			December 31,
	2023			2022
Calculation of tangible book value per common share and tangible common equity/tangible assets (non-GAAP):
Shareholders' equity	$	549,634		$	530,762
Less: preferred equity	57,785			57,785
Common shareholders' equity	491,849			472,977
Less: goodwill and other intangibles	43,874			43,749
Less: core deposit intangible	320			364
Tangible common equity (non-GAAP)	$	447,655		$	428,864

Total assets	$	5,663,600		$	5,475,179
Less: goodwill and other intangibles	43,874			43,749
Less: core deposit intangible	320			364
Tangible assets (non-GAAP)	$	5,619,406		$	5,431,066

Ending shares outstanding	20,997,053			21,121,346

Book value per common share (GAAP)	$	23.42		$	22.39
Tangible book value per common share (non-GAAP)	$	21.32		$	20.30

Common shareholders' equity / Total assets (GAAP)	8.68		%	8.64		%
Tangible common equity / Tangible assets (non-GAAP)	7.97		%	7.90		%

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NON-GAAP FINANCIAL MEASURES (continued)


	(unaudited)						(unaudited)
	Three Months Ended						Six Months Ended
	June 30,						June 30,

	2023			2022			2023			2022
Calculation of efficiency ratio:
Non-interest expense	$	35,988		$	32,609		$	69,978		$	64,501

Non-interest income	$	8,293		$	8,146		$	16,335		$	17,800
Net interest income	47,260			46,301			94,899			88,918
Total revenue	$	55,553		$	54,447		$	111,234		$	106,718
Efficiency ratio	64.78		%	59.89		%	62.91		%	60.44		%

Calculation of efficiency ratio (fully tax equivalent basis) (non-GAAP):
Non-interest expense	$	35,988		$	32,609		$	69,978		$	64,501
Less: core deposit intangible amortization	23			25			45			50
Adjusted non-interest expense (non-GAAP)	$	35,965		$	32,584		$	69,933		$	64,451

Non-interest income	$	8,293		$	8,146		$	16,335		$	17,800

Net interest income	$	47,260		$	46,301		$	94,899		$	88,918
Less: tax exempt investment and loan income, net of TEFRA (non-GAAP)	1,349			1,208			2,667			2,535
Add: tax exempt investment and loan income (fully tax equivalent basis) (non-GAAP)	1,906			1,549			3,713			3,252
Adjusted net interest income (fully tax equivalent basis) (non-GAAP)	47,817			46,642			95,945			89,635
Adjusted net revenue (fully tax equivalent basis) (non-GAAP)	$	56,110		$	54,788		$	112,280		$	107,435

Efficiency ratio (fully tax equivalent basis) (non-GAAP)	64.10		%	59.47		%	62.28		%	59.99		%


	(unaudited)						(unaudited)
	Three Months Ended						Six Months Ended
	June 30,						June 30,

	2023			2022			2023			2022
Calculation of net interest margin:
Interest income	$	72,332		$	49,741		$	138,972		$	95,995
Interest expense	25,072			3,440			44,073			7,077
Net interest income	$	47,260		$	46,301		$	94,899		$	88,918

Average total earning assets	$	5,238,471		$	4,967,597		$	5,154,147		$	4,974,964

Net interest margin (GAAP) (annualized)	3.62		%	3.74		%	3.71		%	3.60		%

Calculation of net interest margin (fully tax equivalent basis) (non-GAAP):
Interest income	$	72,332		$	49,741		$	138,972		$	95,995
Tax equivalent adjustment (non-GAAP)	243			306			514			650
Adjusted interest income (fully tax equivalent basis) (non-GAAP)	72,575			50,047			139,486			96,645
Interest expense	25,072			3,440			44,073			7,077
Net interest income (fully tax equivalent basis) (non-GAAP)	$	47,503		$	46,607		$	95,413		$	89,568

Average total earning assets	$	5,238,471		$	4,967,597		$	5,154,147		$	4,974,964
Less: average mark to market adjustment on investments (non-GAAP)	(55,940)			(37,519)			(57,294)			(24,101)
Adjusted average total earning assets, net of mark to market (non-GAAP)	$	5,294,411		$	5,005,116		$	5,211,441		$	4,999,065

Net interest margin, fully tax equivalent basis (non-GAAP) (annualized)	3.60		%	3.73		%	3.69		%	3.61		%

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NON-GAAP FINANCIAL MEASURES (continued)


	(unaudited)				(unaudited)
	Three Months Ended				Six Months Ended
	June 30,				June 30,

	2023		2022		2023		2022












Calculation of PPNR (non-GAAP): (1)
Net interest income	$	47,260	$	46,301	$	94,899	$	88,918
Add: Non-interest income	8,293		8,146		16,335		17,800
Less: Non-interest expense	35,988		32,609		69,978		64,501
PPNR (non-GAAP)	$	19,565	$	21,838	$	41,256	$	42,217

(1) Management believes that this is an important metric as it illustrates the underlying performance of the Corporation, it enables investors and others to assess the Corporation's ability to generate capital to cover credit losses through the credit cycle and provides consistent reporting with a key metric used by bank regulatory agencies.


	(unaudited)						(unaudited)
	Three Months Ended						Six Months Ended
	June 30,						June 30,

	2023			2022			2023			2022
Calculation of return on average tangible common equity (non-GAAP):
Net income	$	13,827		$	15,438		$	30,316		$	30,683
Less: preferred stock dividends	1,075			1,075			2,150			2,150
Net income available to common shareholders	$	12,752		$	14,363		$	28,166		$	28,533

Average shareholders' equity	$	550,490		$	425,450		$	543,039		$	433,753
Less: average goodwill & intangibles	44,208			44,175			44,208			44,188
Less: average preferred equity	57,785			57,785			57,785			57,785
Tangible common shareholders' equity (non-GAAP)	$	448,497		$	323,490		$	441,046		$	331,780

Return on average equity (GAAP) (annualized)	10.07		%	14.55		%	11.26		%	14.26		%
Return on average common equity (GAAP) (annualized)	9.29		%	13.54		%	10.46		%	13.27		%
Return on average tangible common equity (non-GAAP) (annualized)	11.40		%	17.81		%	12.88		%	17.34		%




	(unaudited)				(unaudited)
	Three Months Ended				Six Months Ended
	June 30,				June 30,

	2023		2022		2023		2022
Calculation of non-interest income excluding net realized gains on available-for-sale securities (non-GAAP):
Non-interest income	$	8,293	$	8,146	$	16,335	$	17,800
Less: net realized gains on available-for-sale securities	30		0		52		651
Adjusted non-interest income (non-GAAP)	$	8,263	$	8,146	$	16,283	$	17,149

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ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a financial institution, the Corporation’s primary source of market risk is interest rate risk, which is the exposure to fluctuations in the Corporation’s future earnings resulting from changes in interest rates. This exposure is correlated to the repricing characteristics of the Corporation’s portfolio of assets and liabilities. Each asset or liability reprices either at maturity or during the life of the instrument.

The principal purpose of asset/liability management is to maximize current and future net interest income within acceptable levels of interest rate risk while satisfying liquidity and capital requirements. Net interest income is enhanced by increasing the net interest margin and the growth in earning assets. As a result, the primary goal of interest rate risk management is to maintain a balance between risk and reward such that net interest income is maximized while risk is maintained at an acceptable level.

The Corporation uses an asset-liability management model to measure the effect of interest rate changes on its net interest income. The Corporation’s management also reviews asset-liability maturity gap and repricing analyses regularly. The Corporation does not always attempt to achieve a precise match between interest sensitive assets and liabilities because it believes that an actively managed amount of interest rate risk is inherent and appropriate in the management of the Corporation’s profitability.

Asset-liability modeling techniques and simulation involve assumptions and estimates that inherently cannot be measured with precision. Key assumptions in these analyses include maturity and repricing characteristics of assets and liabilities, prepayments on amortizing assets, non-maturing deposit sensitivity, and loan and deposit pricing. These assumptions are inherently uncertain due to the timing, magnitude, and frequency of rate changes and changes in market conditions and management strategies, among other factors. However, the analyses are useful in quantifying risk and provide a relative gauge of the Corporation’s interest rate risk position over time.

Management reviews interest rate risk on a quarterly basis and reports to the ALCO. This review includes earnings shock scenarios whereby interest rates are immediately increased and decreased by 100, 200, 300 and 400 basis points. These scenarios, detailed in the table below, indicate that there would not be a significant variance in net interest income over a one-year period due to interest rate changes; however, actual results could vary significantly. At June 30, 2023 and December 31, 2022, all interest rate risk levels according to the model were within the tolerance limits of ALCO-approved policy. In addition, the table does not take into consideration changes that management would make to realign its assets and liabilities in the event of an unexpected changing interest rate environment. Due to the current interest rate environment, the 400 basis point declining interest rate scenarios and 400 basis point increasing rate scenario have been excluded from the table.


	% Change in Net Interest Income
	June 30, 2023	December 31, 2022
+300 basis points	(2.1)%	4.9%
+200 basis points	0.1%	5.5%
+100 basis points	2.0%	5.8%
-100 basis points	(4.8)%	(1.7)%
-200 basis points	(7.8)%	(6.1)%
-300 basis points	(14.0)%	(12.5)%

At June 30, 2023, the Corporation has approximately $2.0 billion in outstanding loans receivable balances that are rate sensitive balances over the next twelve months.

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ITEM 4

CONTROLS AND PROCEDURES

The Corporation’s management, under the supervision of and with the participation of the Corporation’s Principal Executive Officer and Principal 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, management, including the Principal Executive Officer and Principal Financial Officer, have concluded that, as of the end of such period, the Corporation’s disclosure controls and procedures are effective to provide reasonable assurance 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 was no significant change in the Corporation’s internal control over financial reporting that occurred during the quarter ended June 30, 2023 that has materially affected, or that is reasonably likely to materially affect, our internal control over financial reporting.

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PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

There are no pending legal proceedings to which the Corporation or any of its subsidiaries is a party, or of which any of their properties is the subject, except ordinary routine proceedings which are incidental to the business.

ITEM 1A. RISK FACTORS

Other than the risk factor set forth below, there have been no material changes to the risk factors disclosed in Part I, Item 1A of the 2022 Form 10-K.

Recent negative developments affecting the banking industry, such as bank failures or concerns involving liquidity, may have eroded customer confidence in the banking system and have a material adverse effect on the Corporation’s operations.

The recent high-profile bank failures involving Silicon Valley Bank and Signature Bank have resulted in decreased confidence in banks among consumer and commercial depositors, other counterparties and investors, as well as significant disruption, volatility and reduced valuations of equity and other securities of banks in the capital markets. These events occurred during a period of rapidly rising interest rates which, among other things, has resulted in unrealized losses in longer duration securities and loans held by banks, more competition for bank deposits and may increase the risk of a potential recession. These market developments have caused general uncertainty and concern regarding the liquidity adequacy of the banking industry and in particular, regional banks like the Corporation. As a result, customers may choose to maintain deposits with larger financial institutions or invest in higher yielding short-term fixed income securities, all of which could materially adversely impact the Corporation’s liquidity, loan funding capacity, net interest margin, capital and results of operations. While the Department of the Treasury, the Federal Reserve, and the FDIC have made statements ensuring that depositors of these recently failed banks would have access to their deposits, including uninsured deposit accounts, there is no guarantee that such actions will be successful in restoring customer confidence in regional banks and the banking system more broadly.

These recent events may also result in potentially adverse changes to laws or regulations governing banks and bank holding companies or result in the impositions of restrictions through supervisory or enforcement activities, including higher capital requirements, which could have a material impact on our business. Inability to access short-term funding, loss of client deposits or changes in our credit ratings could increase the cost of funding, limit access to capital markets or negatively impact our overall liquidity or capitalization.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides information with respect to any purchase of shares of the Corporation’s common stock made by or on behalf of the Corporation for the three months ended June 30, 2023.


Period	Total Number of Shares Purchased	Average Price Paid per Common Share (2)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1)
April 1 – 30, 2023	54,168	$	18.57	54,168	345,832
May 1 – 31, 2023	72,291	17.98		72,291	273,541
June 1 – 30, 2023	—	—		—	273,541

(1) On May 17, 2022, the Corporation's Board of Directors authorized a common stock repurchase plan (the "Repurchase Plan") pursuant to which the Corporation is authorized to repurchase up to 500,000 shares of common stock, provided that the aggregate purchase price of shares of common stock repurchased does not exceed $15 million. The repurchases of common stock, if any, were originally authorized to be made during the period beginning on June 2, 2022 (the date on which the Company received acknowledgement of the repurchase program from the Federal Reserve Bank) through and including May 17, 2023. On May 9, 2023, the Corporation's Board of Directors amended the Repurchase Plan to extend its duration to May 17, 2024. Common stock repurchases under the Repurchase Plan may be conducted through open market purchases or, privately negotiated transactions. As of June 30, 2023, there were 273,541 shares remaining for repurchase under the program.

(2) The aggregate purchase price and weighted average price per share does not include the effect of excise tax expense incurred on net stock repurchases.

Additionally, during the quarter ended June 30, 2023, certain employees surrendered shares of common stock owned by them to satisfy their statutory minimum U.S. federal and state tax obligations associated with the vesting of shares of restricted common stock issued under the CNB Financial Corporation 2019 Omnibus Incentive Plan.

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ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Rule 10b5-1 Trading Plans

During the quarter ended June 30, 2023, none of the Corporation’s directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Corporation securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement.”

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ITEM 6. EXHIBITS


Exhibit No.						Description

31.1						Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2						Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1						Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2						Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS						Inline XBRL Instance Document

101.SCH						Inline XBRL Taxonomy Extension Schema Document

101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF						Inline XBRL Taxonomy Extension Definitions Linkbase Document

101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document

104						Cover Page Interactive Data File (formatted as Inline XBRL and included in Exhibit 101)

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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.

CNB FINANCIAL CORPORATION

(Registrant)

DATE: August 2, 2023

/s/ Michael D. Peduzzi

Michael D. Peduzzi

President and Chief Executive Officer

(Principal Executive Officer)

DATE: August 2, 2023

/s/ Tito L. Lima

Tito L. Lima

Treasurer

(Principal Financial and Accounting Officer)

EX-31.1 2 ccne06302023ex311.htm EX-31.1 Document

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael D. Peduzzi, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of CNB Financial Corporation.

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

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

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

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

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

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

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

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

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

b) Any fraud, whether or not material, that involves management or other employees who have a

significant role in the registrant’s internal control over financial reporting.

Date: August 2, 2023


/s/ Michael D. Peduzzi
Michael D. Peduzzi
President and Chief Executive Officer
(Principal Executive Officer)

EX-31.2 3 ccne06302023ex312.htm EX-31.2 Document

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Tito L. Lima, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of CNB Financial Corporation.

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

Date: August 2, 2023



/s/ Tito L. Lima
Tito L. Lima
Treasurer
(Principal Financial Officer)

EX-32.1 4 ccne06302023ex321.htm EX-32.1 Document

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, Michael D. Peduzzi, President and Chief Executive Officer of CNB Financial Corporation (the "Corporation"), hereby certify that the Corporation's Quarterly Report on Form 10-Q, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.



/s/ Michael D. Peduzzi
Michael D. Peduzzi
President and Chief Executive Officer

Dated: August 2, 2023

EX-32.2 5 ccne06302023ex322.htm EX-32.2 Document

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION OF CHIEF FINANCIAL OFFICER

Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, Tito L. Lima, Chief Financial Officer of CNB Financial Corporation (the "Corporation"), hereby certify that the Corporation's Quarterly Report on Form 10-Q, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.



/s/ Tito L. Lima
Tito L. Lima
Chief Financial Officer

Dated: August 2, 2023