# CNB FINANCIAL CORP/PA (CCNE) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from CNB FINANCIAL CORP/PA's 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/736772/000073677224000044/ccne-20231231.htm
Accession: 0000736772-24-000044
Filing date: 2024-03-07
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/CCNE/
All MD&A years: /company/CCNE/mda/
Previous year: /company/CCNE/mda/fy2022/ (FY 2022)
Next year: /company/CCNE/mda/fy2024/ (FY 2024)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is presented to provide insight into management’s assessment of financial results and should be read in conjunction with the following parts of this Annual Report on Form 10-K: Part I, Item 1 "Business," Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," and Part II, Item 8 "Financial Statements and Supplementary Data." This section of this Annual Report on Form 10-K generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 that are not included in this Form 10-K can be found in "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2022.

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Dollar amounts in tables are stated in thousands, except for per share amounts.

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 CNB’s financial condition, liquidity, results of operations, future performance and business. 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.

Such known and unknown risks, uncertainties and other 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, 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 Annual Report on Form 10-K, 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.

Overview

The Corporation is a financial holding company registered under the BHC Act. It was incorporated under the laws of the Commonwealth of Pennsylvania in 1983 for the purpose of engaging in the business of a financial holding company. The Corporation’s subsidiary, the Bank, provides financial services to individuals and businesses. The CNB Bank franchise's primary market areas are the Pennsylvania counties of Blair, Cambria, Centre, Clearfield, 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 and Niagara. Ridge View Bank, a division of the Bank, operates in the Virginia counties of Botetourt, Craig, 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.

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In addition to the Bank, the Corporation has four other subsidiaries. CNB Securities Corporation is incorporated in Delaware and currently 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., incorporated in Delaware, is a captive insurance company that 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.

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 common 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 available-for-sale ("AFS") securities.

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, tangible book value 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.

Financial Condition

The following table presents ending balances, growth, and the percentage change of certain measures of our financial condition for specified years (dollars in millions):

[[GREPCENT_TABLE]]
[["","2023 Balance","","2022 Balance","","$ Change vs. prior year","","% Change vs. prior year"],["Total assets","$","5,753.0","","","$","5,475.2","","","$","277.8","","","5.1","%"],["Total loans, net of allowance for credit losses","4,422.6","","","4,231.7","","","190.9","","","4.5"],["Total securities","740.2","","","785.8","","","(45.6)","","","(5.8)"],["Total deposits","4,998.8","","","4,622.4","","","376.3","","","8.1"],["Total shareholders\u2019 equity","571.2","","","530.8","","","40.5","","","7.6"]]
[[/GREPCENT_TABLE]]

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Cash and Cash Equivalents

Cash and cash equivalents totaled $222.0 million at December 31, 2023, including $164.4 million held at the Federal Reserve. Cash and cash equivalents totaled $106.3 million at December 31, 2022. The increase in cash and cash equivalents from December 31, 2022 to December 31, 2023 was primarily due to an increase in deposits coupled with a decrease in the production of the loan portfolio, offset by a decrease in the paydowns and maturities on the securities portfolio. The increase in deposits was primarily driven by the impact of competitive pricing pressures due to the rapid increase in interest rates.

Management believes the liquidity needs of the Corporation are satisfied primarily by the current balance of cash and cash equivalents, customer deposits, FHLB financing, other funding sources and the portions of the securities and loan portfolios that mature within one year. The Corporation currently 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

AFS debt securities and equity securities totaled $351.3 million and $381.0 million at December 31, 2023 and 2022, respectively. Investments classified as held-to-maturity ("HTM") securities totaled $389.0 million and $404.8 million at December 31, 2023 and 2022, respectively. During 2022, as a result of the Corporation’s asset/liability and capital management strategies, securities with a combined amortized cost of $220.8 million and a fair value of $213.7 million were transferred from AFS to HTM. These HTM portfolio bonds continue to support liquidity through pledging and can be utilized as collateral against borrowings. In addition to these internal portfolio transfers, some of the investment purchases made by the Corporation during 2022 were also classified as HTM debt securities.

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 2, "Securities," in the consolidated financial statements provides more detail concerning the composition of the Corporation’s investment securities portfolio and the process for evaluating securities for impairment.

The following table summarizes the maturity distribution schedule with corresponding weighted-average yields of AFS debt securities as of December 31, 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.

[[GREPCENT_TABLE]]
[["","December 31, 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","$","4,747","","","3.98","%","","$","241","","","1.29","%","","$","\u2014","","","\u2014","%","","$","\u2014","","","\u2014","%","","$","4,988","","","3.85","%"],["State and Political Subdivisions","3,163","","","3.08","","","27,565","","","2.55","","","44,803","","","2.11","","","16,278","","","2.29","","","91,809","","","2.31"],["Residential and multi-family mortgage","59","","","3.00","","","13,542","","","3.11","","","17,701","","","2.24","","","160,217","","","1.58","","","191,519","","","1.75"],["Corporate notes and bonds","4,992","","","3.17","","","10,945","","","5.66","","","27,202","","","4.48","","","\u2014","","","\u2014","","","43,139","","","4.63"],["Pooled SBA","23","","","4.83","","","181","","","5.40","","","8,770","","","2.59","","","1,526","","","2.11","","","10,500","","","2.57"],["Total","$","12,984","","","3.45","%","","$","52,474","","","3.35","%","","$","98,476","","","2.83","%","","$","178,021","","","1.65","%","","$","341,955","","","2.32","%"]]
[[/GREPCENT_TABLE]]

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The following table summarizes the maturity distribution schedule with corresponding weighted-average yields of HTM debt securities as of December 31, 2023.

[[GREPCENT_TABLE]]
[["","December 31, 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","$","68,745","","","1.61","%","","$","188,794","","","1.52","%","","$","45,406","","","1.81","%","","$","\u2014","","","\u2014","%","","$","302,945","","","1.58","%"],["Residential and multi-family mortgage","3,010","","","2.68","","","548","","","2.87","","","2,249","","","3.23","","","80,216","","","2.58","","","86,023","","","2.60"],["Total","$","71,755","","","1.65","%","","$","189,342","","","1.52","%","","$","47,655","","","1.88","%","","$","80,216","","","2.58","%","","$","388,968","","","1.81","%"]]
[[/GREPCENT_TABLE]]

The following table summarizes the weighted average modified duration of AFS debt securities as of December 31, 2023.

[[GREPCENT_TABLE]]
[["","Weighted Average Modified Duration (in Years)"],["U.S. Government Sponsored Entities","0.37"],["State and Political Subdivisions","5.70"],["Residential and multi-family mortgage","6.00"],["Corporate notes and bonds","4.38"],["Pooled SBA","2.57"],["Total","5.53"]]
[[/GREPCENT_TABLE]]

The following table summarizes the weighted average modified duration of HTM debt securities as of December 31, 2023.

[[GREPCENT_TABLE]]
[["","Weighted Average Modified Duration (in Years)"],["U.S. Government Sponsored Entities","2.54"],["Residential and multi-family mortgage","6.42"],["Total","3.40"]]
[[/GREPCENT_TABLE]]

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

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 and shorter durations that complement the current portfolio investment ladder, coupled with 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 3, "Loans Receivable and Allowance for Credit Losses," to the consolidated financial statements provides more detail concerning the loan portfolio of the Corporation.

At December 31, 2023, loans totaled $4.4 billion, excluding the balances of (i) syndicated loans, and (ii) any remaining balances on Paycheck Protection Program ("PPP") loans, net of PPP-related fees (such loans being referred to as the "PPP-related loans"). This adjusted total of $4.4 billion in loans represented an increase of $241.3 million, or 5.86%, compared to the same adjusted total loans measured as of December 31, 2022. Loan growth for the year ended December 31, 2023 primarily resulted from growth in the Corporation's recent expansion markets of Cleveland, Ohio, Roanoke, Virginia, and Buffalo, New York combined with growth in the portfolios related to the Columbus, Ohio market and CNB Bank’s Private Banking division.

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At December 31, 2023, the Corporation's balance sheet reflected a decrease in syndicated lending balances of $49.9 million compared to December 31, 2022, reflecting scheduled paydowns or early payoffs of certain syndicated credits during 2023. The syndicated loan portfolio totaled $108.7 million, or 2.43% of total loans, excluding PPP-related loans, at December 31, 2023, compared to $156.6 million, or 3.66% 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.

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 and inflationary 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 ratings and structures applied to the Corporation's outstanding commercial office credit extensions when initially underwritten and when funding or commitments were made. The Corporation monitors numerous relevant sensitivity elements at both underwriting and through and beyond the funding period, including projects occupancy, 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 December 31, 2023, the Corporation had the following key metrics related to its commercial office portfolio:

•Commercial office loans outstanding consisted of 118 loans, totaling $114.7 million, or 2.57% of total loans outstanding;

•Nonaccrual commercial office loans (one customer relationship) totaled $508 thousand, or 0.44% of total office loans outstanding. One customer relationship had a related specific loss reserve of $289 thousand, at December 31, 2023; and

•The average outstanding balance per commercial office loan was $972 thousand.

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

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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 December 31, 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.

[[GREPCENT_TABLE]]
[["","December 31, 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","$","\u2014","","","$","1,776","","","$","7,787","","","$","\u2014","","","$","9,563"],["Owner-occupied, nonfarm nonresidential properties","16,525","","","31,513","","","19,875","","","4,665","","","72,578"],["Agricultural production and other loans to farmers","9","","","135","","","\u2014","","","\u2014","","","144"],["Commercial and Industrial","19,955","","","257,755","","","27,165","","","\u2014","","","304,875"],["Obligations (other than securities and leases) of states and political subdivisions","3,033","","","18,298","","","83,960","","","8,417","","","113,708"],["Other loans","19","","","581","","","544","","","12,384","","","13,528"],["Other construction loans and all land development and other land loans (1)","41,948","","","44,049","","","10,976","","","1,376","","","98,349"],["Multifamily (5 or more) residential properties","2,143","","","36,796","","","2,868","","","4,400","","","46,207"],["Non-owner occupied, nonfarm nonresidential properties","23,938","","","96,791","","","56,139","","","802","","","177,670"],["1-4 Family Construction (1)","238","","","\u2014","","","392","","","1,335","","","1,965"],["Home equity lines of credit","3","","","57","","","549","","","263","","","872"],["Residential Mortgages secured by first liens","4,257","","","34,061","","","223,322","","","130,139","","","391,779"],["Residential Mortgages secured by junior liens","589","","","7,966","","","60,734","","","13,824","","","83,113"],["Other revolving credit plans","6","","","7","","","19","","","\u2014","","","32"],["Automobile","447","","","17,726","","","7,142","","","\u2014","","","25,315"],["Other consumer","4,507","","","34,771","","","7,401","","","4,737","","","51,416"],["Credit cards","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Overdrafts","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Total","$","117,617","","","$","582,282","","","$","508,873","","","$","182,342","","","$","1,391,114"],["Loans Receivable with Variable or Floating Interest Rate"],["Farmland","$","303","","","$","3,962","","","$","9,622","","","$","8,419","","","$","22,306"],["Owner-occupied, nonfarm nonresidential properties","17,382","","","59,275","","","283,594","","","60,235","","","420,486"],["Agricultural production and other loans to farmers","674","","","157","","","677","","","\u2014","","","1,508"],["Commercial and Industrial","260,487","","","95,025","","","64,691","","","1,364","","","421,567"],["Obligations (other than securities and leases) of states and political subdivisions","\u2014","","","3,319","","","10,877","","","24,297","","","38,493"],["Other loans","430","","","3,007","","","8,542","","","\u2014","","","11,979"],["Other construction loans and all land development and other land loans (1)","81,654","","","160,574","","","140,659","","","10,303","","","393,190"],["Multifamily (5 or more) residential properties","30,687","","","17,336","","","155,247","","","4,865","","","208,135"],["Non-owner occupied, nonfarm nonresidential properties","44,188","","","254,453","","","357,789","","","61,943","","","718,373"],["1-4 Family Construction (1)","15,614","","","2,432","","","7,289","","","23,907","","","49,242"],["Home equity lines of credit","7,858","","","6,034","","","48,488","","","67,448","","","129,828"],["Residential Mortgages secured by first liens","9,194","","","30,679","","","145,561","","","413,773","","","599,207"],["Residential Mortgages secured by junior liens","1,944","","","558","","","4,633","","","815","","","7,950"],["Other revolving credit plans","5,522","","","2,405","","","33,576","","","1,342","","","42,845"],["Automobile","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Other consumer","\u2014","","","36","","","79","","","61","","","176"],["Credit cards","11,785","","","\u2014","","","\u2014","","","\u2014","","","11,785"],["Overdrafts","292","","","\u2014","","","\u2014","","","\u2014","","","292"],["Total","$","488,014","","","$","639,252","","","$","1,271,324","","","$","678,772","","","$","3,077,362"],["11-4 family construction loans and other construction loans and all land development and other land loans segments may include loans that have a permanent financing period as part of the original term of the loan. Upon completion of the construction period the loans are reclassified to their permanent financing loan segment."]]
[[/GREPCENT_TABLE]]

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Loan Concentration

At December 31, 2023, no industry concentration existed which exceeded 10% of the total loan portfolio.

Loan Quality

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

[[GREPCENT_TABLE]]
[["","December 31, 2023","","December 31, 2022"],["Nonaccrual loans","$","29,639","","","$","20,986"],["Accrual loans greater than 90 days past due","55","","","1,121"],["Total nonperforming loans","29,694","","","22,107"],["Other real estate owned","2,111","","","1,439"],["Total nonperforming assets","$","31,805","","","$","23,546"],["Total loans","$","4,468,476","","","$","4,275,178"],["Nonaccrual loans as a percentage of loans","0.66","%","","0.49","%"],["Total assets","$","5,752,957","","","$","5,475,179"],["Nonperforming assets as a percentage of total assets","0.55","%","","0.43","%"],["Allowance for credit losses on loans","$","45,832","","","$","43,436"],["Allowance for credit losses / Total loans","1.03","%","","1.02","%"],["Ratio of allowance for credit losses on loans to nonaccrual loans","154.63","%","","206.98","%"]]
[[/GREPCENT_TABLE]]

Total nonperforming assets were approximately $31.8 million, or 0.55% of total assets, as of December 31, 2023, compared to $23.5 million, or 0.43% of total assets, as of December 31, 2022. The increase in nonperforming assets for the year ended December 31, 2023 was primarily due to one commercial and industrial relationship consisting of 12 loans totaling $3.2 million being placed on nonaccrual status during the fourth quarter of 2023, coupled with one commercial real estate relationship consisting of two loans totaling $6.6 million being placed on nonaccrual status during the third quarter of 2023, as previously disclosed by the Corporation. The commercial relationship with two loans placed on nonaccrual status in the third quarter has a related combined specific loss reserve of $472 thousand at December 31, 2023. While this loan relationship was placed on non-accrual status during the third quarter of 2023, based on collateral value support coupled with the specific reserve recorded against this loan relationship, management currently does not believe there is risk of significant additional loss exposure beyond the specific reserve related to this loan relationship.

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 significant classified assets and nonaccrual loans annually.

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.

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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" and Note 3, "Loans and Allowance for Credit Losses" to these consolidated financial statements.

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

[[GREPCENT_TABLE]]
[["","December 31, 2023"],["","Amount of Allowance Allocated","","Percent of Loans in Each Category to Total Loans","","Total Loans","","Ratio of Allowance Allocated to Loans in Each Category"],["Farmland","$","126","","","0.7","%","","$","31,869","","","0.40","%"],["Owner-occupied, nonfarm nonresidential properties","3,949","","","11.0","","","493,064","","","0.80"],["Agricultural production and other loans to farmers","7","","","\u2014","","","1,652","","","0.42"],["Commercial and Industrial","9,433","","","16.3","","","726,442","","","1.30"],["Obligations (other than securities and leases) of states and political subdivisions","2,613","","","3.4","","","152,201","","","1.72"],["Other loans","387","","","0.6","","","25,507","","","1.52"],["Other construction loans and all land development and other land loans","4,033","","","11.0","","","491,539","","","0.82"],["Multifamily (5 or more) residential properties","1,030","","","5.7","","","254,342","","","0.40"],["Non-owner occupied, nonfarm nonresidential properties","9,170","","","20.1","","","896,043","","","1.02"],["1-4 Family Construction","356","","","1.1","","","51,207","","","0.70"],["Home equity lines of credit","831","","","2.9","","","130,700","","","0.64"],["Residential Mortgages secured by first liens","8,050","","","22.2","","","990,986","","","0.81"],["Residential Mortgages secured by junior liens","1,476","","","2.0","","","91,063","","","1.62"],["Other revolving credit plans","973","","","1.0","","","42,877","","","2.27"],["Automobile","358","","","0.6","","","25,315","","","1.41"],["Other consumer","2,653","","","1.1","","","51,592","","","5.14"],["Credit cards","95","","","0.3","","","11,785","","","0.81"],["Overdrafts","292","","","\u2014","","","292","","","100.00"],["Total loans","$","45,832","","","100.0","%","","$","4,468,476","","","1.03","%"]]
[[/GREPCENT_TABLE]]

33

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[[GREPCENT_TABLE]]
[["","December 31, 2022"],["","Amount of Allowance Allocated","","Percent of Loans in Each Category to Total Loans","","Total Loans","","Ratio of Allowance Allocated to Loans 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","","","\u2014","","","1,198","","","0.50"],["Commercial and Industrial","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","","","\u2014","","","278","","","100.00"],["Total loans","$","43,436","","","100.0","%","","$","4,275,178","","","1.02","%"]]
[[/GREPCENT_TABLE]]

The allowance for credit losses measured as a percentage of total loans was 1.03% as of December 31, 2023, compared to 1.02% as of 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 year ended December 31, 2023, the allowance for credit losses increased primarily 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. The year-over-year increase in reserves experienced in 2022 was primarily due to loan growth, the impact of net charge-offs, and the provision for credit losses recorded in 2022. 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 3, "Loans Receivable and Allowance for Credit Losses," to the consolidated financial statements provides further disclosure of loan balances by portfolio segment as of December 31, 2023 and 2022, as well as the nature and scope of loan modifications to borrowers experiencing financial difficulty and loans modified in a troubled debt restructuring during 2023 and 2022, respectively, and the related effect on provision for credit expense and allowance for credit losses.

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Additional information related to credit loss expense and net (charge-offs) recoveries at December 31, 2023, 2022, and 2021 is presented in the tables below.

[[GREPCENT_TABLE]]
[["","Year Ended December 31, 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","$","(33)","","","$","\u2014","","","$","34,397","","","\u2014","%"],["Owner-occupied, nonfarm nonresidential properties","1,041","","","3","","","502,925","","","\u2014"],["Agricultural production and other loans to farmers","1","","","\u2014","","","1,255","","","\u2014"],["Commercial and Industrial","(379)","","","46","","","777,991","","","0.01"],["Obligations (other than securities and leases) of states and political subdivisions","750","","","\u2014","","","154,225","","","\u2014"],["Other loans","(69)","","","\u2014","","","30,410","","","\u2014"],["Other construction loans and all land development and other land loans","780","","","\u2014","","","435,967","","","\u2014"],["Multifamily (5 or more) residential properties","(1,264)","","","(59)","","","259,557","","","(0.02)"],["Non-owner occupied, nonfarm nonresidential properties","2,201","","","(684)","","","838,674","","","(0.08)"],["1-4 Family Construction","29","","","\u2014","","","55,392","","","\u2014"],["Home equity lines of credit","(337)","","","(5)","","","124,865","","","\u2014"],["Residential Mortgages secured by first liens","(320)","","","(114)","","","966,225","","","(0.01)"],["Residential Mortgages secured by junior liens","441","","","\u2014","","","84,803","","","\u2014"],["Other revolving credit plans","340","","","(89)","","","41,417","","","(0.21)"],["Automobile","142","","","(55)","","","25,044","","","(0.22)"],["Other consumer","1,836","","","(1,848)","","","49,631","","","(3.72)"],["Credit cards","199","","","(171)","","","13,261","","","(1.29)"],["Overdrafts","479","","","(465)","","","302","","","(153.97)"],["Total","$","5,837","","","$","(3,441)","","","$","4,396,341","","","(0.08)","%"]]
[[/GREPCENT_TABLE]]

(1) Excludes provision for credit losses totaling $759 thousand related to unfunded commitments. Note 18, "Off-Balance Sheet Commitments and Contingencies," in the consolidated financial statements provides more detail concerning the provision for credit losses related to unfunded commitments of the Corporation.

35

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[[GREPCENT_TABLE]]
[["","Year Ended December 31, 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","$","8","","","$","\u2014","","","$","32,075","","","\u2014","%"],["Owner-occupied, nonfarm nonresidential properties","(428)","","","(6)","","","467,606","","","\u2014"],["Agricultural production and other loans to farmers","(3)","","","\u2014","","","1,254","","","\u2014"],["Commercial and Industrial","965","","","(36)","","","762,585","","","\u2014"],["Obligations (other than securities and leases) of states and political subdivisions","214","","","\u2014","","","149,253","","","\u2014"],["Other loans","307","","","\u2014","","","16,861","","","\u2014"],["Other construction loans and all land development and other land loans","1,055","","","\u2014","","","334,450","","","\u2014"],["Multifamily (5 or more) residential properties","64","","","\u2014","","","227,715","","","\u2014"],["Non-owner occupied, nonfarm nonresidential properties","1,171","","","1","","","697,930","","","\u2014"],["1-4 Family Construction","169","","","\u2014","","","41,849","","","\u2014"],["Home equity lines of credit","(8)","","","12","","","115,682","","","0.01"],["Residential Mortgages secured by first liens","1,564","","","(23)","","","874,675","","","\u2014"],["Residential Mortgages secured by junior liens","489","","","\u2014","","","63,362","","","\u2014"],["Other revolving credit plans","236","","","(42)","","","29,398","","","(0.14)"],["Automobile","34","","","(26)","","","20,677","","","(0.13)"],["Other consumer","1,653","","","(1,534)","","","50,196","","","(3.06)"],["Credit cards","36","","","(61)","","","11,872","","","(0.51)"],["Overdrafts","460","","","(423)","","","282","","","(150.00)"],["Total","$","7,986","","","$","(2,138)","","","$","3,897,722","","","(0.05)","%"]]
[[/GREPCENT_TABLE]]

(1) Excludes provision for credit losses totaling $603 thousand related to unfunded commitments. Note 18, "Off-Balance Sheet Commitments and Contingencies," in the consolidated financial statements provides more detail concerning the provision for credit losses related to unfunded commitments of the Corporation.

[[GREPCENT_TABLE]]
[["","","","","","","","Year Ended December 31, 2021"],["","","","","","","","Provision (Benefit) for Credit Loss Expense","","Net (Charge-Offs) Recoveries","","Average Loans","","Ratio of Annualized Net (Charge-Offs) Recoveries to Average Loans"],["Farmland","","","","","","","$","(70)","","","$","\u2014","","","$","22,970","","","\u2014","%"],["Owner-occupied, nonfarm nonresidential properties","","","","","","","213","","","(574)","","","428,377","","","(0.13)"],["Agricultural production and other loans to farmers","","","","","","","(15)","","","\u2014","","","2,245","","","\u2014"],["Commercial and Industrial","","","","","","","2,564","","","40","","","680,368","","","0.01"],["Obligations (other than securities and leases) of states and political subdivisions","","","","","","","1,028","","","(377)","","","138,604","","","(0.27)"],["Other loans","","","","","","","81","","","\u2014","","","12,187","","","\u2014"],["Other construction loans and all land development and other land loans","","","","","","","524","","","(282)","","","246,583","","","(0.11)"],["Multifamily (5 or more) residential properties","","","","","","","(435)","","","\u2014","","","218,285","","","\u2014"],["Non-owner occupied, nonfarm nonresidential properties","","","","","","","(2,128)","","","(49)","","","627,595","","","(0.01)"],["1-4 Family Construction","","","","","","","76","","","\u2014","","","30,513","","","\u2014"],["Home equity lines of credit","","","","","","","186","","","(2)","","","106,214","","","\u2014"],["Residential Mortgages secured by first liens","","","","","","","2,436","","","(32)","","","795,747","","","\u2014"],["Residential Mortgages secured by junior liens","","","","","","","308","","","(3)","","","55,063","","","(0.01)"],["Other revolving credit plans","","","","","","","49","","","(28)","","","25,751","","","(0.11)"],["Automobile","","","","","","","154","","","(23)","","","23,027","","","(0.10)"],["Other consumer","","","","","","","637","","","(1,053)","","","42,634","","","(2.47)"],["Credit cards","","","","","","","120","","","(94)","","","9,532","","","(0.99)"],["Overdrafts","","","","","","","275","","","(278)","","","224","","","(124.11)"],["Total loans","","","","","","","$","6,003","","","$","(2,755)","","","$","3,465,919","","","(0.08)","%"]]
[[/GREPCENT_TABLE]]

36

Table of Contents

During the year ended December 31, 2023, the Corporation recorded a provision for credit losses of $6.0 million compared to $8.6 million for the year ended December 31, 2022. Included in the provision for credit losses for the year ended December 31, 2023, was a $156 thousand expense related to the allowance for unfunded commitments compared to a $603 thousand expense for the year ended December 31, 2022. The $2.6 million reduction in the provision expense for the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily a result of the decrease in loan portfolio growth. Net charge-offs during the year ended December 31, 2023 were $3.4 million, or 0.08% of average total loans and loans held for sale, compared to $2.1 million, or 0.05% of average total loans and loans held for sale, during the year ended December 31, 2022.

Premises and Equipment

During the years ended December 31, 2023 and 2022, the Corporation invested $10.8 million and $12.3 million, respectively, in its physical infrastructure through the purchase of land, buildings, and equipment.

Bank Owned Life Insurance

The Corporation has periodically purchased Bank Owned Life Insurance ("BOLI"). The policies cover executive officers and a select group of other employees with the Bank being named as beneficiary. Earnings from BOLI assist the Corporation in offsetting its benefit costs. The Corporation made no purchases of BOLI during the year ended December 31, 2023, while the Corporation made $11.6 million purchases of BOLI during the year ended December 31, 2022.

Funding Sources

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.

[[GREPCENT_TABLE]]
[["","December 31, 2023","","December 31, 2022","","Percentage change 2023 vs. 2022"],["Noninterest-bearing demand deposits","$","728,881","","","$","898,437","","","(18.9)%"],["Interest-bearing demand deposits","803,093","","","1,007,202","","","(20.3)"],["Savings","2,960,282","","","2,270,337","","","30.4"],["Certificates of deposit","506,494","","","446,461","","","13.4"],["Total","$","4,998,750","","","$","4,622,437","","","8.1%"]]
[[/GREPCENT_TABLE]]

At December 31, 2023, total deposits were $5.0 billion, reflecting an increase of $376.3 million, or 8.1%, from December 31, 2022. The increase in deposits was due to 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 CNB's participation in deposit insurance sharing programs.

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

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2023","","2022","","2021"],["","Average Amount","","Annual Rate","","Average Amount","","Annual Rate","","Average Amount","","Annual Rate"],["Noninterest-bearing demand deposits","$","793,713","","","\u2014","%","","$","847,793","","","\u2014","%","","$","724,839","","","\u2014","%"],["Interest-bearing demand deposits","853,632","","","0.54","","","1,061,452","","","0.20","","","978,279","","","0.18"],["Savings","2,666,905","","","2.92","","","2,383,918","","","0.54","","","2,309,560","","","0.22"],["Certificates of deposit","517,017","","","2.97","","","351,272","","","1.40","","","445,488","","","1.82"],["Total","$","4,831,267","","","","","$","4,644,435","","","","","$","4,458,166"]]
[[/GREPCENT_TABLE]]

37

Table of Contents

At December 31, 2023, the average deposit balance per account for CNB Bank was approximately $33 thousand.

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

[[GREPCENT_TABLE]]
[["","December 31, 2023","","December 31, 2022"],["Time deposits not covered by deposit insurance","$","44,665","","","$","69,874"],["Total deposits not covered by deposit insurance","1,438,944","","","1,864,886"]]
[[/GREPCENT_TABLE]]

At December 31, 2023, the total estimated uninsured deposits for CNB Bank were approximately $1.4 billion, or approximately 28.2% of total CNB Bank deposits. However, when excluding affiliate company deposits of $101.3 million and pledged-investment collateralized deposits of $400.5 million, the adjusted amount and percentage of total estimated uninsured deposits was approximately $937.1 million, or approximately 18.37% of total CNB Bank deposits as of December 31, 2023.

At December 31, 2022, the total estimated uninsured deposits for CNB Bank were approximately $1.9 billion, or approximately 39.1% of total CNB Bank deposits. However, 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 December 31, 2023 were as follows:

[[GREPCENT_TABLE]]
[["","December 31, 2023"],["3 months or less","$","6,903"],["Over 3 through 6 months","18,501"],["Over 6 through 12 months","17,061"],["Over 12 months","2,200"],["Total","$","44,665"]]
[[/GREPCENT_TABLE]]

Borrowings

Periodically, the Corporation utilizes term borrowings from the FHLB and other lenders to meet funding obligations or match fund certain loan assets. The terms of these borrowings are detailed in Note 10, "Borrowings," to the consolidated financial statements. There were zero in short-term FHLB borrowings as of December 31, 2023, compared to $132.4 million at December 31, 2022.

On October 18, 2021, the Corporation announced that it had completed the redemption of $50 million aggregate principal amount of its 5.75% Fixed-to-Floating Rate Subordinated Notes due October 15, 2026 (the "2026 Notes"), representing all outstanding 2026 Notes. The 2026 Notes were redeemed pursuant to their terms at a price equal to 100% of the principal amount, plus accrued and unpaid interest up to, but excluding, October 15, 2021. The Corporation financed the redemption of the 2026 Notes with cash on hand, including net proceeds from the issuance and sale of $85.0 million aggregate principal amount of the Corporation’s 3.25% Fixed-to-Floating Rate Subordinated Notes due 2031 completed in June 2021. Additional details about our subordinated debentures and notes are included in Note 10, "Borrowings" in the accompanying notes to consolidated financial statements.

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 year ended December 31, 2024 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 from loans and investment securities, maturing loans and investment securities, as well as by maintaining access to wholesale funding sources.

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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 AFS debt securities. Liability liquidity is provided by access to funding sources which include core deposits, correspondent banks and other wholesale funding sources.

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.

At December 31, 2023, the Corporation’s cash and cash equivalents position was approximately $222.0 million, including liquidity of $164.4 million held at the Federal Reserve. These excess funds, when combined with (i) available borrowing capacity of $3.6 billion from the Federal Home Loan Bank of Pittsburgh ("FHLB") and the 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, resulted in the total on-hand and contingent liquidity sources for the Corporation being approximately 4.0 times the estimated amount of adjusted uninsured deposit balances discussed above.

The following table summarizes the Corporation's net available liquidity and borrowing capacities as of December 31, 2023:

[[GREPCENT_TABLE]]
[["","Net Available"],["FHLB borrowing capacity (1)","$","993,798"],["Federal Reserve borrowing capacity (2)","463,547"],["Brokered deposits (3)","1,871,289"],["Other third-party funding channels (3) (4)","243,790"],["Total net available liquidity and borrowing capacity","$","3,572,424"]]
[[/GREPCENT_TABLE]]

(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 December 31, 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 December 31, 2023. The Corporation’s material contractual obligations as of December 31, 2023 consist of (i) long-term borrowings - Note 10, "Borrowings," (ii) operating leases - Note 7, "Leases," (iii) time deposits with stated maturity dates - Note 9, "Deposits," and (iv) commitments to extend credit and standby letters of credit - Note 18, "Off-Balance Sheet Activities."

39

Table of Contents

Shareholders’ Equity, Capital Ratios and Metrics

Shareholders' Equity

On September 21, 2022, the Corporation successfully completed a common stock offering 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. The net proceeds from the capital raise will be used for general corporate purposes, including working capital and funding the Corporation's organic growth across its multiple geographic markets, or evaluating potential acquisition opportunities.

As of December 31, 2023, the Corporation’s total shareholders’ equity was $571.2 million, representing an increase of $40.5 million, or 7.6%, from December 31, 2022. The increase was primarily due to (i) improvements in accumulated other comprehensive losses resulting primarily from a reduction in after-tax temporary unrealized losses in the AFS investment portfolio, and (ii) an increase in the Corporation's retained earnings (quarterly net income, partially offset by the common and preferred dividends paid in the quarter). These were partially offset by an increase in the Corporation's treasury stock as a result of the Corporation's repurchase of 326,459 common shares during the twelve months of 2023.

Preferred Stock

During the year ended December 31, 2020, the Corporation raised $57.8 million, net of issuance costs, from the issuance of depositary shares, each representing a 1/40th ownership interest in a share of the Corporation's 7.125% Series A fixed rate non-cumulative perpetual preferred stock, no par value, with a liquidation preference of $1,000 per share of preferred stock. The $57.8 million qualifies as Tier 1 capital for regulatory capital purposes.

Capital Ratios and Metrics

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.

As of December 31, 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 December 31, 2023 and 2022 were as follows:

[[GREPCENT_TABLE]]
[["","","December 31, 2023","","December 31, 2022"],["Total risk-based capital ratio","","15.99","%","","16.08","%"],["Tier 1 capital ratio","","13.20","%","","13.24","%"],["Common equity tier 1 ratio","","11.49","%","","11.42","%"],["Leverage ratio","","10.54","%","","10.74","%"],["Common shareholders' equity/total assets","","8.93","%","","8.64","%"],["Tangible common equity/tangible assets (1)","","8.22","%","","7.90","%"],["Book value per common share","","$","24.57","","","$","22.39"],["Tangible book value per common share (1)","","$","22.46","","","$","20.30"]]
[[/GREPCENT_TABLE]]

(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 in the "Non-GAAP Financial Measures" section in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

40

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Average Balances, Interest Rates and Yields

The loan 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. The allowance for credit losses was calculated by pooling loans of similar credit risk characteristics and credit monitoring procedures. See Note 1, "Summary of Significant Accounting Policies," and Note 3, "Loans Receivable and Allowance for Credit Losses," to the consolidated financial statements for more information about pooling of loans 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 specified years.

[[GREPCENT_TABLE]]
[["","December 31, 2023","","December 31, 2022","","December 31, 2021"],["","Average Balance","Annual Rate","Interest Inc./ Exp.","","Average Balance","Annual Rate","Interest Inc./ Exp.","","Average Balance","Annual Rate","Interest Inc./ Exp."],["ASSETS:"],["Securities:"],["Taxable (1) (4)","$","720,818","","1.89","%","$","14,766","","","$","768,959","","1.80","%","$","14,560","","","$","624,330","","1.70","%","$","10,500"],["Tax-exempt (1) (2) (4)","30,153","","2.59","","844","","","35,965","","2.87","","1,080","","","42,658","","3.43","","1,403"],["Equity securities (1) (2)","10,005","","5.09","","509","","","8,248","","2.13","","176","","","8,136","","3.58","","291"],["Total securities (4)","760,976","","1.96","","16,119","","","813,172","","1.85","","15,816","","","675,124","","1.83","","12,194"],["Loans receivable:"],["Commercial (2) (3)","1,501,202","","6.63","","99,587","","","1,429,634","","5.08","","72,684","","","1,284,750","","4.95","","63,642"],["Mortgage (2) (3) (5)","2,765,484","","5.77","","159,606","","","2,355,662","","4.78","","112,583","","","2,080,000","","4.51","","93,738"],["Consumer (3)","129,655","","11.47","","14,868","","","112,426","","10.48","","11,778","","","101,169","","9.98","","10,098"],["Total loans receivable (3)","4,396,341","","6.23","","274,061","","","3,897,722","","5.06","","197,045","","","3,465,919","","4.83","","167,478"],["Other earning assets","74,800","","6.03","","4,513","","","243,653","","1.16","","2,112","","","626,997","","0.14","","881"],["Total earning assets","5,232,117","","5.57","","$","294,693","","","4,954,547","","4.30","","$","214,973","","","4,768,040","","3.79","","$","180,553"],["Noninterest-bearing assets:"],["Cash and due from banks","54,824","","","","","51,670","","","","","48,673"],["Premises and equipment","107,635","","","","","89,940","","","","","79,807"],["Other assets","251,725","","","","","227,991","","","","","199,107"],["Allowance for credit losses","(44,930)","","","","","(39,935)","","","","","(36,727)"],["Total noninterest-bearing assets","369,254","","","","","329,666","","","","","290,860"],["TOTAL ASSETS","$","5,601,371","","","","","$","5,284,213","","","","","$","5,058,900"],["LIABILITIES AND SHAREHOLDERS\u2019 EQUITY:"],["Demand\u2014interest-bearing","$","853,632","","0.54","%","$","4,626","","","$","1,061,452","","0.20","%","$","2,131","","","$","978,279","","0.18","%","$","1,783"],["Savings","2,666,905","","2.92","","77,782","","","2,383,918","","0.54","","12,772","","","2,309,560","","0.22","","5,164"],["Time","517,017","","2.97","","15,362","","","351,272","","1.40","","4,930","","","445,488","","1.82","","8,115"],["Total interest-bearing deposits","4,037,554","","2.42","","97,770","","","3,796,642","","0.52","","19,833","","","3,733,327","","0.40","","15,062"],["Short-term borrowings","35,224","","5.07","","1,787","","","8,793","","4.20","","369","","","\u2014","","\u2014","","\u2014"],["Finance lease liabilities","339","","4.42","","15","","","426","","4.69","","20","","","507","","4.54","","23"],["Subordinated notes and debentures","104,735","","4.10","","4,295","","","104,432","","3.69","","3,857","","","108,963","","4.35","","4,735"],["Total interest-bearing liabilities","4,177,852","","2.49","","$","103,867","","","3,910,293","","0.62","","$","24,079","","","3,842,797","","0.52","","$","19,820"],["Demand\u2014noninterest-bearing","793,713","","","","","847,793","","","","","724,839"],["Other liabilities","79,473","","","","","70,379","","","","","60,202"],["Total liabilities","5,051,038","","","","","4,828,465","","","","","4,627,838"],["Shareholders\u2019 equity","550,333","","","","","455,748","","","","","431,062"],["TOTAL LIABILITIES AND SHAREHOLDERS\u2019 EQUITY","$","5,601,371","","","","","$","5,284,213","","","","","$","5,058,900"],["Interest income/Earning assets","","5.57","%","$","294,693","","","","4.30","%","$","214,973","","","","3.79","%","$","180,553"],["Interest expense/Interest-bearing liabilities","","2.49","","103,867","","","","0.62","","24,079","","","","0.52","","19,820"],["Net interest spread","","3.08","%","$","190,826","","","","3.68","%","$","190,894","","","","3.27","%","$","160,733"],["Interest income/Earning assets","","5.57","%","$","294,693","","","","4.30","%","$","214,973","","","","3.79","%","$","180,553"],["Interest expense/Earning assets","","1.96","","103,867","","","","0.48","","24,079","","","","0.41","","19,820"],["Net interest margin (fully tax-equivalent)","","3.61","%","$","190,826","","","","3.82","%","$","190,894","","","","3.38","%","$","160,733"]]
[[/GREPCENT_TABLE]]

(1) Includes unamortized discounts and premiums.

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(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 years ended December 31, 2023, 2022, and 2021 were $997 thousand, $1.2 million and $953 thousand, respectively.

(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 debt securities and amortized cost of HTM debt securities. Average yield has been computed using amortized cost average balance for AFS and HTM debt securities. The adjustment to the average balance for securities in the calculation of average yield for the years ended December 31, 2023, 2022, and 2021 were $(61.1) million, $(40.3) million and $9.9 million, respectively.

(5) Includes loans held for sale.

Volume Analysis of Changes in Net Interest Income

The following table presents the change in net interest income for the years specified.

[[GREPCENT_TABLE]]
[["","Analysis of Year-to-Year Changes in Net Interest Income"],["","2023 compared to. 2022","","2022 compared to. 2021"],["","Increase (Decrease)Due to Change in (1)","","","","Increase (Decrease)Due to Change in (1)"],["","Volume","","Rate","","Net","","Volume","","Rate","","Net"],["Assets"],["Securities:"],["Taxable","$","(443)","","","$","649","","","$","206","","","$","3,291","","","$","769","","","$","4,060"],["Tax-Exempt (2)","(152)","","","(84)","","","(236)","","","(122)","","","(201)","","","(323)"],["Equity Securities (2)","37","","","296","","","333","","","5","","","(120)","","","(115)"],["Total Securities","(558)","","","861","","","303","","","3,174","","","448","","","3,622"],["Loans:"],["Commercial (2)","3,634","","","23,269","","","26,903","","","7,183","","","1,859","","","9,042"],["Mortgage (2)","19,645","","","27,378","","","47,023","","","12,485","","","6,360","","","18,845"],["Consumer","1,806","","","1,284","","","3,090","","","1,118","","","562","","","1,680"],["Total Loans","25,085","","","51,931","","","77,016","","","20,786","","","(8,781)","","","29,567"],["Other Earning Assets","(1,242)","","","3,643","","","2,401","","","(1,254)","","","2,485","","","1,231"],["Total Earning Assets","$","23,285","","","$","56,435","","","$","79,720","","","$","22,706","","","$","11,714","","","$","34,420"],["Liabilities and Shareholders\u2019 Equity"],["Interest Bearing Deposits"],["Demand \u2013 Interest Bearing","$","(417)","","","$","2,912","","","$","2,495","","","$","152","","","$","196","","","$","348"],["Savings","1,516","","","63,494","","","65,010","","","166","","","7,442","","","7,608"],["Time","2,326","","","8,106","","","10,432","","","(1,716)","","","(1,469)","","","(3,185)"],["Total Interest Bearing Deposits","3,425","","","74,512","","","77,937","","","(1,398)","","","6,169","","","4,771"],["Short-Term Borrowings","1,112","","","306","","","1,418","","","\u2014","","","369","","","369"],["Finance Lease Liabilities","\u2014","","","\u2014","","","\u2014","","","(4)","","","1","","","(3)"],["Subordinated Debentures","(4)","","","(1)","","","(5)","","","(197)","","","(681)","","","(878)"],["Total Interest Bearing Liabilities","$","4,533","","","$","74,817","","","$","79,350","","","$","(1,599)","","","$","5,858","","","$","4,259"],["Change in Net Interest Income","$","18,752","","","$","(18,382)","","","$","370","","","$","24,305","","","$","5,856","","","$","30,161"]]
[[/GREPCENT_TABLE]]

(1) The change in interest due to both volume and rate have been allocated entirely to volume changes.

(2) Changes in interest income on tax-exempt securities and loans are presented on a fully taxable-equivalent basis, using the Corporation’s marginal federal income tax rate of 21% for the year ended December 31, 2023 and 2022.

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Results of Operations

Year Ended December 31, 2023 vs. Year Ended December 31, 2022

Overview of the Statements of Income and Comprehensive Income

Net income available to common shareholders ("earnings") was $53.7 million, or $2.55 per diluted share, for the year ended December 31, 2023, compared to earnings of $58.9 million, or $3.26 per diluted share, for the year ended December 31, 2022. The decrease in diluted earnings per share in the year ended December 31, 2023 was primarily due to the rise in deposit costs year over year, as well as the dilutive effect of the Corporation's common stock offering completed in September 2022, which resulted in the issuance of over 4.2 million shares of common stock, an increase of approximately 25% in total common shares outstanding. In addition, during the year ended December 31, 2023, the Corporation repurchased 326,459 common shares at a weighted average price per share of $20.08, compared to repurchases of 50,166 common shares at a weighted average price per share of $26.75 during the year ended December 31, 2022. PPNR, a non-GAAP measure, was $77.8 million for the year ended December 31, 2023, compared to $86.8 million for the year ended December 31, 2022. The decrease in PPNR for the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily driven by the increase in deposit costs combined with the growth in technology expenses due to investments in applications aimed at enhancing both customer relationship management and customer online experience, as well as expanding service delivery channels. In addition, the Corporation had a year-over-year decrease in non-interest income as a result of lower pass-through income from small business investment companies ("SBICs").

Return on average equity was 10.54% for the year ended December 31, 2023, compared to 13.86% for the year ended December 31, 2022. Return on average tangible common equity, a non-GAAP measure, was 11.98% for the year ended December 31, 2023, compared to 16.64% for the year ended December 31, 2022.

The Corporation's efficiency ratio was 65.13% for the year ended December 31, 2023, compared to 61.32% for the year ended December 31, 2022. The efficiency ratio on a fully tax-equivalent basis, a non-GAAP ratio, was 64.45% for the year ended December 31, 2023, compared to 60.87% the year ended December 31, 2022. The increase was primarily the result of rising deposit costs coupled with higher occupancy costs and technology expenses.

Interest Income and Expense

Net interest income of $189.8 million for the year ended December 31, 2023, compared to $189.7 million for the year ended December 31, 2022. The increase of $170 thousand, or 0.09%, was primarily due to loan growth and the benefits of the impact of rising interest rates resulting in greater income on variable-rate loans and new loan production, which was substantially 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. In addition, as previously mentioned, net interest income for the year ended December 31, 2023 included $1.4 million in nonrecurring interest income related primarily to payoffs in the syndicated loan portfolio.

Net interest margin was 3.63% and 3.83% for the years ended December 31, 2023 and 2022, respectively. Net interest margin on a fully tax-equivalent basis, a non-GAAP measure, was 3.61% and 3.82% for the years ended December 31, 2023 and 2022, respectively. Included in the net interest margin and the net interest margin on a fully tax-equivalent basis for the year ended December 31, 2023 was approximately $1.4 million, or three basis points, in one-time realized interest income related primarily to payoffs in the syndicated loan portfolio.

The yield on earning assets for the year ended December 31, 2023 was 5.57%, an increase of 127 basis points from December 31, 2022. The increase was primarily a result of loan growth and the net benefit of higher interest rates on both variable-rate loans and new loan production. The yield on earning assets for the year ended December 31, 2023 included the previously mentioned $1.4 million, or three basis points, in one-time syndicated loan interest income.

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Provision for Credit Losses

The Corporation recorded a provision for credit losses of $6.0 million in 2023 compared to $8.6 million in 2022. Included in the provision for credit losses for the year ended December 31, 2023, was a $156 thousand expense related to the allowance for unfunded commitments compared to $603 thousand for the year ended December 31, 2022. The $2.6 million reduction in the provision expense for the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily a result of the lower loan portfolio growth. Net loan charge-offs were $3.4 million during the year ended December 31, 2023, compared to $2.1 million during the year ended December 31, 2022. As disclosed in "Allowance for Credit Losses" discussion above, management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, reasonable and supportable forecasts, and other significant qualitative and quantitative factors.

Management believes the charges to the provision for credit losses in 2023 were appropriate and the allowance for credit losses was adequate to absorb losses in the loan portfolio at December 31, 2023.

Non-Interest Income

Total non-interest income was $33.3 million for the year ended December 31, 2023, compared to $34.8 million for the year ended December 31, 2022. During the year ended December 31, 2023, notable changes compared to the year ended December 31, 2022 included lower net realized gains on the sale of AFS debt securities, lower mortgage banking income from reduced mortgage loan production volume in the higher-rate environment, lower level of full-year bank owned life insurance income and pass-through income from SBICs, partially offset by an increase in card processing and interchange income and a favorable variance in unrealized losses on equity securities.

Non-Interest Expense

For the year ended December 31, 2023, total non-interest expense was $145.3 million, compared to $137.6 million for the year ended December 31, 2022. The increase of $7.7 million, or 5.61%, from the year ended December 31, 2022 was primarily a result of higher occupancy costs combined with higher technology expenses. In addition, other non-interest expenses increased primarily due to business generation related expenses and consulting fees. Furthermore, full-year base-salary and related benefit increases, intended to account for inflationary merit increases and the addition of personnel to staff new offices in 2023, were substantially offset by an approximately $8.1 million reduction in incentive-related expenses.

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Year Ended December 31, 2022 vs. Year Ended December 31, 2021

Overview of the Statements of Income and Comprehensive Income

Earnings were $58.9 million, or $3.26 per diluted share, for the year ended December 31, 2022, compared to $53.4 million, or $3.16 per diluted share, for the year ended December 31, 2021, reflecting increases of $5.5 million, or 10.3%, and $0.10 per diluted share, or 3.2%. The 2022 full-year earnings per share was partially impacted by the 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. PPNR, a non-GAAP measure, was $86.8 million for the year ended December 31, 2022, compared to $76.8 million for the year ended December 31, 2021, reflecting an increase of $10.0 million, or 13.1%. The increase in PPNR for the year ended December 31, 2022 was primarily driven by growth in loans and expansion of the Corporation's net interest margin.

Return on average equity was 13.86% for the year ended December 31, 2022, compared to 13.39% for the year ended December 31, 2021. Return on average tangible common equity, a non-GAAP measure, was 16.64% and 16.23% for the same periods in 2022 and 2021, respectively.

The Corporation's efficiency ratio was 61.32% for the year ended December 31, 2022, compared to 60.26% for the year ended December 31, 2021, respectively. The efficiency ratio on a fully tax-equivalent basis, a non-GAAP ratio, was 60.87% for the year ended December 31, 2022, compared to 59.76% for the year ended December 31, 2021, respectively. The increase for the year ended December 31, 2022 was primarily a result of expected increasing costs associated with the Corporation’s expanding franchise investments into the Cleveland, Ohio and Southwest Virginia markets, coupled with its continued strategic investments in technologies focused on customer sales management and connectivity capabilities.

Interest Income and Expense

Net interest income of $189.7 million for the year ended December 31, 2022 increased $29.9 million, or 18.7%, from the year ended December 31, 2021, primarily as a result of loan growth throughout 2022 and the benefits of the impact of rising interest rates in 2022 resulting in greater income on variable-rate loans, coupled with net growth in the Corporation's investment portfolio. Included in net interest income were PPP-related fees, which totaled approximately $1.9 million for the year ended December 31, 2022, compared to $8.7 million for the year ended December 31, 2021.

Net interest margin was 3.83% and 3.35% for the years ended December 31, 2022 and 2021, respectively. Net interest margin on a fully tax-equivalent basis, a non-GAAP measure, was 3.82% and 3.38% for the years ended December 31, 2022 and 2021, respectively.

The yield on earning assets of 4.30% for the year ended December 31, 2022 increased 51 basis points from 3.79% for the year ended December 31, 2021, primarily as a result of loan growth, the repricing of variable rate loans, and the Corporation's redeployment of excess cash at the Federal Reserve to investment securities, partially offset by lower PPP-related fees in 2022 compared to 2021. The cost of interesting-bearing liabilities increased 10 basis points from 0.52% for the year ended December 31, 2021 to 0.62% for the year ended December 31, 2022, primarily as a result of the Corporation's targeted interest-bearing deposit rate increases.

Provision for Credit Losses

The Corporation recorded a provision for credit losses of $8.6 million in 2022 compared to $6.0 million in 2021. Included in the provision for credit losses for the year ended December 31, 2022 was $603 thousand expense related to the allowance for unfunded commitments compared to no accrual towards the allowance for unfunded commitments for the year ended December 31, 2021. Net loan charge-offs were $2.1 million during the year ended December 31, 2022, compared to $2.8 million during the year ended December 31, 2021. As disclosed in "Allowance for Credit Losses" discussion above, management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, reasonable and supportable forecasts, and other significant qualitative and quantitative factors.

Management believes the charges to the provision for credit losses in 2022 were appropriate and the allowance for credit losses was adequate to absorb losses in the loan portfolio at December 31, 2022.

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Non-Interest Income

Total non-interest income was $34.8 million for the year ended December 31, 2022, representing an increase of $1.3 million, or 4.0%, from the same period in 2021. Included in non-interest income for the years ended December 31, 2022 and 2021 was $651 thousand and $783 thousand, respectively, in net realized gains on AFS debt securities. Non-interest income excluding net realized gains on AFS debt securities, a non-GAAP measure, for the year ended December 31, 2022 and the year ended December 31, 2021, increased $1.5 million, or 4.5%, from the same period in 2021. During the year ended December 31, 2022, Wealth and Asset Management fees increased $432 thousand, or 6.4%, compared to the year ended December 31, 2021, as the Corporation benefited from an increased number of wealth management relationships. Other notable increases during the year ended December 31, 2022 included increased income from service charges on deposits, other service charges and fees, pass-through income from SBICs and bank owned life insurance mostly due to an $883 thousand gain resulting from death benefit proceeds. These were partially offset by unrealized losses on equity securities and decreased mortgage banking activity.

Non-Interest Expense

For the year ended December 31, 2022, total non-interest expense was $137.6 million, reflecting an increase of $21.2 million, or 18.2%, from the year ended December 31, 2021, primarily as a result of (i) expansion of the Corporation's workforce in its growth regions of Cleveland, Ohio, Southwest Virginia, and Rochester, New York, (ii) increased investments in technology aimed at both enhancing customer experience and expanding service delivery channels, and (iii) the Corporation's sales management and increased legal and professional expenses.

Income Tax Expense

Income tax expense was $13.8 million in 2023, compared to $15.0 million in 2022 and $13.1 million in 2021. The effective tax rates were 19.2%, 19.2%, and 18.5% for 2023, 2022, and 2021, respectively. The effective tax rate for the periods differed from the federal statutory rate of 21.0% principally as a result of tax-exempt income from securities and loans as well as earnings from bank owned life insurance.

Off-Balance Sheet Arrangements

Assets under management and assets under custody are held in fiduciary or custodial capacity for the Corporation's clients. In accordance with GAAP, these assets are not included on the Corporation's balance sheet.

The Corporation is also party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of the Corporation's clients. These financial instruments include commitments to extend credit and standby letters of credit. Further discussion of these commitments is included Note 18, "Off-Balance Sheet Commitments and Contingencies."

Critical Accounting Policies and Estimates

The Corporation's consolidated financial statements are prepared in accordance with accounting principles GAAP and follow general practices within the industries in which the Corporation operates. The most significant accounting policies used by the Corporation are presented in Note 1, "Summary of Significant Accounting Policies," to the consolidated financial statements. Application of these principles requires management to make estimates or judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates or judgments. In management’s opinion, some of these estimates and assumptions have a more significant impact than others on the Corporation's financial reporting. For the Corporation, these estimates and assumptions include accounting for the allowance for credit losses and goodwill.

Allowance for Credit Losses

The Corporation's allowance for credit losses is a critical accounting policy that requires the most significant judgments and estimates used in preparation of its consolidated financial statements. In determining the appropriate estimate for the allowance for credit losses, management considers a number of factors relative to both individually evaluated credits in the loan portfolio and macro-economic factors relative to the economy of the U.S. as a whole and the economies of the areas in which the Corporation does business.

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Management performs a quarterly evaluation of the adequacy of the allowance for credit losses. Management considers a variety of factors in establishing this estimate. This evaluation is inherently subjective as it requires material estimates by management that may be susceptible to significant change based on changes in economic and real estate market conditions.

The evaluation is comprised of specific and pooled components. The specific component is the Corporation's evaluation of credit loss on individually evaluated loans based on the fair value of the collateral less estimated selling costs if collateral dependent or based on the present value of expected future cash flows discounted at the loan's initial effective interest rate if not collateral dependent. The majority of the Corporation's loans subject to individual evaluation are considered collateral dependent. All other loans are evaluated collectively for credit loss by pooling loans based on similar risk characteristics.

As a significant percentage of the Corporation's loan portfolio is collateralized by real estate, appraisals of the underlying value of property securing loans are critical in determining the charge-offs for specific loans. Assumptions are instrumental in determining the value of properties. Overly optimistic assumptions or negative changes to assumptions could significantly affect the valuation of a property securing a loan and the related allowance determined. Management carefully reviews the assumptions supporting such appraisals to determine that the resulting values reasonably reflect amounts realizable on the related loans.

The pooled component of the evaluation is determined by applying reasonable and supportable economic forecasts and historical averages to the remaining loans segmented by similar risk characteristics. The key assumptions used in projecting future loss rates include the economic forecast, the forecast and reversion to mean time periods, and prepayment and curtailment assumptions. The assumptions are used to calculate and aggregate estimated cash flows for the time period that remains in each loan's contractual life. The cash flows are discounted back to the balance sheet date using each loan's effective yield, to arrive at a present value of future cash flows, which is compared to the amortized cost basis of the loan pool to determine the amount of allowance for credit loss required by the calculation.

One of the most significant judgments used in projecting loss rates when estimating the allowance for credit loss is the macro-economic forecast provided by a third party. The economic indices sourced from the macro-economic forecast and used in projecting loss rates are national unemployment rate and changes in home values. The economic index used in the calculation to which the calculation is most sensitive is the national unemployment rate. Changes in the macro-economic forecast, especially for the national unemployment rate, could significantly impact the calculated estimated credit losses between reporting periods.

Other key assumptions in the calculation of the allowance for credit loss include the forecast and reversion to mean time periods and prepayment and curtailment assumptions. The macro-economic forecast is applied for a reasonable and supportable time period before reverting to long-term historical averages for each economic index. The forecast and reversion to mean time period used for each economic index at December 31, 2023 were four quarters and eight quarters, respectively. Prepayment and curtailment assumptions are based on the Corporation's historical experience over the trailing 12 months and are adjusted by management as deemed necessary. The prepayment and curtailment assumptions vary based on segment.

The quantitative estimated losses are supplemented by more qualitative factors that impact potential losses. Qualitative factors include changes in underwriting standards, changes in environmental conditions, delinquency level, segment growth rates and changes in duration within new markets, or other relevant factors. The allowance for credit loss may be materially affected by these qualitative factors, especially during periods of economic uncertainty, for items not reflected in the lifetime credit loss calculation, but which are deemed appropriate by management's current assessment of the risks related to the loan portfolio and/or external factors. The qualitative factors applied at December 31, 2023, and the importance and levels of the qualitative factors applied, may change in future periods depending on the level of changes to items such as the uncertainty of economic conditions and management's assessment of the level of credit risk within the loan portfolio as a result of such changes, compared to the amount of allowance for credit loss calculated by the model. The evaluation of qualitative factors is inherently imprecise and requires significant management judgment.

While management utilizes its best judgment and information available, the adequacy of the allowance for credit loss is determined by certain factors outside of the Corporation's control, such as the performance of the Corporation's portfolios, changes in the economic environment including economic uncertainty, changes in interest rates, and the view of the regulatory authorities toward classification of assets and the level of allowance for credit loss. Additionally, the level of allowance for credit loss may fluctuate based on the balance and mix of the loan portfolio. If actual results differ significantly from management's assumptions, the Corporation's allowance for credit loss may not be sufficient to cover inherent losses in the Corporation's loan portfolio, resulting in additions to the Corporation's allowance for credit loss and an increase in the provision for credit losses.

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Fair Value Measurements

The Corporation uses fair value measurements to record certain financial instruments and to determine fair value disclosures. Equity securities, AFS debt securities, mortgage loans held for sale, and interest rate swap agreements are financial instruments recorded at fair value on a recurring basis. Additionally, from time to time, the Corporation may be required to record at fair value other financial assets on a nonrecurring basis. These nonrecurring fair value adjustments typically involve write-downs of, or specific reserves against, individual assets. GAAP establishes a three-level hierarchy for disclosure of assets and liabilities recorded at fair value. The classification of assets and liabilities within the hierarchy is based on whether the inputs to the valuation methodology used in the measurement are observable or unobservable. Observable inputs reflect market-driven or market-based information obtained from independent sources, while unobservable inputs reflect our estimates about market data.

The degree of management judgment involved in determining the fair value of a financial instrument is dependent upon the availability of quoted market prices or observable market data. For financial instruments that trade actively and have quoted market prices or observable market data, there is minimal subjectivity involved in measuring fair value. When observable market prices and data are not fully available, management judgment is necessary to estimate fair value. In addition, changes in the market conditions may reduce the availability of quoted prices or observable data. For example, reduced liquidity in the capital markets or changes in secondary market activities could result in observable market inputs becoming unavailable. Therefore, when market data is not available, we use valuation techniques that require more management judgment to estimate the appropriate fair value measurement. Fair value is discussed further in Note 1, "Summary of Significant Accounting Policies" and in Note 4, "Fair Value".

Goodwill

Certain intangible assets generated in connection with acquisitions are periodically assessed for impairment. Goodwill is tested at least annually for impairment, and if certain events occur which indicate goodwill might be impaired between annual tests, goodwill must be tested when such events occur. In making this assessment, the Corporation considers a number of factors including operating results, business plans, economic projections, anticipated future cash flows, current market data, stock price, etc. There are inherent uncertainties related to these factors and the Corporation's judgment in applying them to the analysis of goodwill impairment. Future changes in economic and operating conditions could result in goodwill impairment in subsequent periods.

Non-GAAP Financial Measures

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

[[GREPCENT_TABLE]]
[["","December 31,","","December 31,"],["","2023","","2022"],["Calculation of tangible book value per common share and tangible common equity / tangible assets (non-GAAP):"],["Shareholders' equity","$","571,247","","","$","530,762"],["Less: preferred equity","57,785","","","57,785"],["Common shareholders' equity","513,462","","","472,977"],["Less: goodwill and other intangibles","43,874","","","43,749"],["Less: core deposit intangible","280","","","364"],["Tangible common equity (non-GAAP)","$","469,308","","","$","428,864"],["Total assets","$","5,752,957","","","$","5,475,179"],["Less: goodwill and other intangibles","43,874","","","43,749"],["Less: core deposit intangible","280","","","364"],["Tangible assets (non-GAAP)","$","5,708,803","","","$","5,431,066"],["Ending shares outstanding","20,896,439","","","21,121,346"],["Book value per common share (GAAP)","$","24.57","","","$","22.39"],["Tangible book value per common share (non-GAAP)","$","22.46","","","$","20.30"],["Common shareholders' equity / Total assets (GAAP)","8.93","%","","8.64","%"],["Tangible common equity / Tangible assets (non-GAAP)","8.22","%","","7.90","%"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","","","Years Ended"],["","","","December 31,"],["","","","","","2023","","2022"],["Calculation of net interest margin:"],["Interest income","","","","","$","293,696","","","$","213,738"],["Interest expense","","","","","103,867","","","24,079"],["Net interest income","","","","","$","189,829","","","$","189,659"],["Average total earning assets","","","","","$","5,232,117","","","$","4,954,547"],["Net interest margin (GAAP)","","","","","3.63","%","","3.83","%"],["Calculation of net interest margin (fully tax equivalent basis) (non-GAAP):"],["Interest income","","","","","$","293,696","","","$","213,738"],["Tax equivalent adjustment (non-GAAP)","","","","","997","","","1,235"],["Adjusted interest income (fully tax equivalent basis) (non-GAAP)","","","","","294,693","","","214,973"],["Interest expense","","","","","103,867","","","24,079"],["Net interest income (fully tax equivalent basis) (non-GAAP)","","","","","$","190,826","","","$","190,894"],["Average total earning assets","","","","","$","5,232,117","","","$","4,954,547"],["Less: average mark to market adjustment on investments (non-GAAP)","","","","","(61,089)","","","(40,271)"],["Adjusted average total earning assets, net of mark to market (non-GAAP)","","","","","$","5,293,206","","","$","4,994,818"],["Net interest margin, fully tax equivalent basis (non-GAAP)","","","","","3.61","%","","3.82","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","","Years Ended"],["","","","December 31,"],["","","","","","2023","","2022"],["Calculation of PPNR (non-GAAP): (1)"],["Net interest income","","","","","$","189,829","","","$","189,659"],["Add: Non-interest income","","","","","33,335","","","34,766"],["Less: Non-interest expense","","","","","145,342","","","137,622"],["PPNR (non-GAAP)","","","","","$","77,822","","","$","86,803"],["(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."]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","","","Years Ended"],["","","","December 31,"],["","","","","","2023","","2022"],["Calculation of efficiency ratio:"],["Non-interest expense","","","","","$","145,342","","","$","137,622"],["Non-interest income","","","","","$","33,335","","","$","34,766"],["Net interest income","","","","","189,829","","","189,659"],["Total revenue","","","","","$","223,164","","","$","224,425"],["Efficiency ratio","","","","","65.13","%","","61.32","%"],["Calculation of efficiency ratio (fully tax equivalent basis) (non-GAAP):"],["Non-interest expense","","","","","$","145,342","","","$","137,622"],["Less: core deposit intangible amortization","","","","","84","","","96"],["Adjusted non-interest expense (non-GAAP)","","","","","$","145,258","","","$","137,526"],["Non-interest income","","","","","$","33,335","","","$","34,766"],["Net interest income","","","","","189,829","","","189,659"],["Less: tax exempt investment and loan income, net of TEFRA (non-GAAP)","","","","","5,425","","","5,011"],["Add: tax exempt investment and loan income (fully tax equivalent basis) (non-GAAP)","","","","","7,635","","","6,509"],["Adjusted net interest income (fully tax equivalent basis) (non-GAAP)","","","","","192,039","","","191,157"],["Adjusted net revenue (fully tax equivalent basis) (non-GAAP)","","","","","$","225,374","","","$","225,923"],["Efficiency ratio (fully tax equivalent basis) (non-GAAP)","","","","","64.45","%","","60.87","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","","Years Ended"],["","","","December 31,"],["","","","","","2023","","2022"],["Calculation of return on average tangible common equity (non-GAAP):"],["Net income","","","","","$","58,020","","","$","63,188"],["Less: preferred stock dividends","","","","","4,302","","","4,302"],["Net income available to common shareholders","","","","","$","53,718","","","$","58,886"],["Average shareholders' equity","","","","","$","550,333","","","$","455,748"],["Less: average goodwill & intangibles","","","","","44,193","","","44,163"],["Less: average preferred equity","","","","","57,785","","","57,785"],["Tangible common shareholders' equity (non-GAAP)","","","","","$","448,355","","","$","353,800"],["Return on average equity (GAAP)","","","","","10.54","%","","13.86","%"],["Return on average common equity (GAAP)","","","","","9.76","%","","12.92","%"],["Return on average tangible common equity (non-GAAP)","","","","","11.98","%","","16.64","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","","Years Ended"],["","","","December 31,"],["","","","","","2023","","2022"],["Calculation of non-interest income excluding net realized gains on available-for-sale securities (non-GAAP):"],["Non-interest income","","","","","$","33,335","","","$","34,766"],["Less: net realized gains on available-for-sale securities","","","","","52","","","651"],["Adjusted non-interest income (non-GAAP)","","","","","$","33,283","","","$","34,115"]]
[[/GREPCENT_TABLE]]

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