What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-03-04 compared with 2020-03-05 · 1315 added, 603 removed, 912 unchanged (68% of the section changed)

5 unchanged sentences

Total cash and cash equivalents 532,694 192,974

Securities available for sale

Debt securities available for sale, at fair value (amortized cost of $ 565,493 and $ 533,203 as of December 31, 2020 and 2019, respectively)

584,908 542,313

Trading securities 6,649 9,809

Loans held for sale 8,514 930

unearned discount

allowance for loan losses

Loans 3,371,789 2,804,035

allowance for credit losses ( 34,340 ) ( 19,473 )

Net loans 3,337,449 2,784,562

FHLB and other equity interests 21,018 27,868

Premises and equipment, net 60,064 54,867

Operating lease assets

Operating lease right-of-use assets 18,407 18,422

Bank owned life insurance 76,471 66,538

Mortgage servicing rights 1,527 1,573

Goodwill 43,749 38,730

Core deposit intangible 567 160

Accrued interest receivable and other assets 37,382 24,913

Total Assets $ 4,729,399 $ 3,763,659

LIABILITIES AND SHAREHOLDERS’ EQUITY

8 unchanged sentences

Commitments and contingent liabilities

Preferred stock, Series A non-cumulative perpetual, $ 0 par value;

$ 1,000 liquidation preference;

authorized 60,375 shares;

issued 60,375 shares at December 31, 2020 and no shares issued at December 31, 2019

Common stock, $ 0 par value;

4 unchanged sentences

Treasury stock, at cost ( 145,049 and 112,961 shares for 2020 and 2019, respectively)

( 2,967 ) ( 2,811 )

Accumulated other comprehensive income (loss) 15,074 6,939

5 unchanged sentences

Year ended December 31,

2020 2019 2018

Interest and dividend income:

Loans including fees $ 152,687 $ 139,867 $ 118,193

Securities and cash and cash equivalents:

Taxable 12,362 12,472 9,921

Tax-exempt 1,441 2,372 2,739

Dividends 677 1,017 1,017

Total interest and dividend income 167,167 155,728 131,870

Interest Expense:

Deposits 24,142 30,202 17,228

Borrowed funds 4,534 5,349 5,856

Subordinated debentures (includes $ 224 , $ 63 , and $ 164 accumulated other comprehensive income reclassification for change in fair value of interest rate swap agreements in 2020, 2019, and 2018, respectively)

3,780 3,979 3,866

Total interest expense 32,456 39,530 26,950

Net Interest Income 134,711 116,198 104,920

Provision for Loan Losses

Net Interest Income After Provision for Loan Losses

Provision for credit loss expense 15,354 6,024 6,072

Net interest income after provision for credit loss expense 119,357 110,174 98,848

Non-interest income:

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Card processing and interchange income 5,727 4,641 4,261

Gain on sale of branch

Other 1,573 2,147 1,722

Total non-interest income 28,059 25,975 20,723

Non-Interest Expenses:

Salaries 36,519 35,212 31,323

Employee benefits (includes $ 0 , $ 23 , and $ 84 accumulated other comprehensive income reclassifications for net amortization of actuarial losses in 2020, 2019, and 2018, respectively)

12,204 11,193 10,533

Net occupancy expense 12,333 11,221 10,281

3 unchanged sentences

Legal, professional and examination fees 2,990 2,514 1,851

Advertising 1,993 2,113 2,345

FDIC insurance 2,414 1,252 1,396

Directors fees and benefits 538 1,352 885

Merger costs, prepayment penalties and branch closure costs 12,642 170 0

Dues and subscriptions 2,777 1,876 1,319

Card processing and interchange expenses 3,135 2,891 2,834

Other 10,476 9,013 7,650

Total non-interest expenses 107,326 87,508 79,342

1 unchanged sentence

Income tax expense (includes $ 413 , $ 13 , and $( 52 ) income tax expense reclassification items in 2020, 2019, and 2018, respectively)

7,347 8,560 6,510

Net Income 32,743 40,081 33,719

Preferred stock dividends 1,147 0 0

Net income available to common stockholders 31,596 40,081 33,719

Earnings Per Share:

Basic $ 1.97 $ 2.63 $ 2.21

Diluted $ 1.97 $ 2.63 $ 2.21

Net income $ 32,743 $ 40,081 $ 33,719

Other comprehensive income (loss):

4 unchanged sentences

Comprehensive Income $ 40,878 $ 51,016 $ 30,066

Earnings Per Share:

See Notes to Consolidated Financial Statements

2 unchanged sentences

Dollars in thousands, except share and per share data

Preferred Stock Additional

Capital Retained

Earnings Treasury

Stock Accumulated

Comprehensive

Income (Loss)

Income (Loss) Total

Balance, January 1, 2018 $ 0 $ 97,042 $ 148,298 $ ( 1,087 ) $ ( 343 ) $ 243,910

Reclassification of certain tax effects from accumulated other comprehensive income to retained earnings

Net income 33,719 33,719

Other comprehensive income ( 3,653 ) ( 3,653 )

1 unchanged sentence

Restricted stock award grants ( 40,108 shares)

( 996 ) 996 0

Stock-based compensation expense 1,545 1,545

Issuance of common stock, net of issuance costs (834,896 shares)

Purchase of treasury stock ( 90,898 shares)

( 2,284 ) ( 2,284 )

Purchase of treasury stock for the purpose of tax withholding related to restricted stock award vesting ( 6,308 )

( 170 ) ( 170 )

Cash dividends declared ($ 0.67 per share)

( 10,237 ) ( 10,237 )

Balance, December 31, 2018 0 97,602 171,780 ( 2,556 ) ( 3,996 ) 262,830

Net income 40,081 40,081

Other comprehensive loss 10,935 10,935

1 unchanged sentence

Restricted stock award grants ( 40,978 shares)

( 1,086 ) 1,086 0

Performance based restricted stock award grants ( 798 shares)

Stock-based compensation expense 1,346 1,346

Issuance of common stock, net of issuance costs ( 52,568 shares)

Purchase of treasury stock ( 40,000 shares)

( 994 ) ( 994 )

Purchase of treasury stock for the purpose of tax withholding related to restricted stock award vesting ( 10,467 )

( 289 ) ( 289 )

Purchase of treasury stock for the purpose of tax withholding related to performance based restricted stock award vesting ( 294 )

Cash dividends declared ($ 0.68 per share)

( 10,358 ) ( 10,358 )

Balance, December 31, 2019 0 99,335 201,503 ( 2,811 ) 6,939 304,966

Cumulative-effect adjustment due to the adoption of ASU No.

2016-13 ( 3,391 ) ( 3,391 )

Net income 32,743 32,743

Other comprehensive income 8,135 8,135

Forfeiture of restricted stock award grants (2,699 shares)

Restricted stock award grants ( 36,968 shares)

( 934 ) 934 0

Performance based restricted stock award grants ( 8,351 shares)

( 217 ) 217 0

Stock-based compensation expense 1,410 1,410

1 unchanged sentence

Purchase of treasury stock ( 66,600 shares)

( 981 ) ( 981 )

Purchase of treasury stock for the purpose of tax withholding related to restricted stock award vesting ( 7,349 )

( 213 ) ( 213 )

Purchase of treasury stock for the purpose of tax withholding related to performance based restricted stock award vesting ( 3,458 )

Cash dividends declared ($0.68 per share)

( 113 ) ( 113 )

Issuance of preferred equity, net of issuance costs 57,785 57,785

Acquisition of Bank of Akron 24,667 24,667

Preferred cash dividend declared ( 1,147 ) ( 1,147 )

Common cash dividends declared ($ 0.68 per share)

( 10,981 ) ( 10,981 )

Balance, December 31, 2020 $ 57,785 $ 127,518 $ 218,727 $ ( 2,967 ) 15,074 $ 416,137

3 unchanged sentences

Year ended December 31,

2020 2019 2018

Cash Flows From Operating Activities:

Net income $ 32,743 $ 40,081 $ 33,719

Adjustments to reconcile net income to net cash provided by operations:

2 unchanged sentences

Amortization and accretion of securities premiums and discounts, deferred loan fees and costs, net yield and credit mark on acquired loans, and unearned income ( 1,955 ) ( 870 ) ( 537 )

Amortization and accretion of deferred PPP processing fees ( 5,140 ) 0 0

Deferred taxes 1,390 ( 204 ) ( 1,076 )

1 unchanged sentence

Net realized and unrealized losses (gains) on trading securities ( 328 ) ( 1,888 ) 451

Proceeds from sale of trading securities

Proceeds from sale of Visa Class B shares 0 463 0

Gain on sale of Visa Class B shares 0 ( 463 ) 0

Purchase of trading securities

Gain on sale of branch

Gain on sale of loans ( 2,961 ) ( 990 ) ( 624 )

10 unchanged sentences

Proceeds from sales of available-for-sale securities 57,185 11,403 0

Proceeds from sale of trading securities 5,935 301 455

Purchase of available-for-sale securities ( 224,080 ) ( 122,358 ) ( 189,374 )

Purchase of trading securities ( 2,447 ) ( 436 ) ( 1,542 )

Loan origination and payments, net ( 244,903 ) ( 335,965 ) ( 333,552 )

Purchase of bank owned life insurance 0 ( 8,778 ) 0

Proceeds from death benefit of BOLI policies

Net cash received from sale of branch

Purchase of FHLB and other equity interests

Net cash from business combinations 72,852 0 0

Repayment (purchase) of FHLB and other equity interests 7,268 ( 3,360 ) ( 2,991 )

Purchase of premises and equipment ( 5,644 ) ( 9,045 ) ( 3,068 )

8 unchanged sentences

Proceeds from stock offering, net of issuance costs 3,257 1,423 0

Cash dividends paid

Proceeds from preferred stock offering, net of issuance costs 57,785 0 0

Cash dividends paid on common stock ( 10,981 ) ( 10,358 ) ( 10,237 )

Cash dividends paid on preferred stock ( 1,147 ) 0 0

Proceeds from long-term borrowings 231,985 30,353 50,000

7 unchanged sentences

Cash paid during the period for:

Interest $ 32,957 $ 39,282 $ 26,551

Income taxes 9,524 8,006 7,050

Supplemental Noncash Disclosures:

21 unchanged sentences

Reclassifications had no effect on prior year net income or shareholders’ equity.

Risks and Uncertainties

The worldwide spread of COVID-19 has created significant uncertainty in the global economy.

There have been no comparable recent events that provide guidance as to the effect the spread of COVID-19 as a global pandemic may have, and, as a result, the ultimate impact of COVID-19 and the extent to which COVID-19 and the related government actions impact the Corporation’s business, results of operations and financial condition will depend on future developments, which are highly uncertain and difficult to predict.

Use of Estimates

To prepare financial statements in conformity with accounting principles generally accepted in the U.S., management makes estimates and assumptions based on available information.

These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ.

To prepare financial statements in conformity with U.S.

generally accepted accounting principles ("GAAP"), management makes estimates and assumptions based on available information.

These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided and future results could differ.

The Corporation's business is dependent upon the willingness and ability of its employees and customers to conduct banking and other financial transactions.

If the global response to contain the COVID-19 pandemic requires further restricted measures or is unsuccessful, the Corporation could experience a material adverse effect on its business, financial condition, results of operations and cash flows.

Since the extent to which the COVID-19 pandemic impacts its operations will depend on future developments that are highly uncertain, the Corporation cannot estimate the impact on its business, financial condition or near or long-term financial or operational results with reasonable certainty.

Accordingly, the Corporation is disclosing potentially material items of which it is aware.

Asset valuation :

Currently, the Corporation does not expect the COVID-19 pandemic to affect its ability to account timely for the assets on its balance sheet;

however, this could change in future periods due to any number of potential impacts from the COVID-19 pandemic.

The COVID-19 pandemic could cause a further and sustained decline in the Corporation's stock price or the occurrence of what management would deem to be a triggering event that could, under certain circumstances, cause us to perform a goodwill impairment test, resulting in an impairment charge being recorded for that period.

In the event that the Corporation concludes that all or a portion of its goodwill is impaired, a non-cash charge for the amount of such impairment would be recorded to earnings.

Such a charge would have no impact on tangible capital or regulatory capital.

The Corporation is working with customers directly affected by the COVID-19 pandemic.

The Corporation has offered assistance in accordance with regulator guidelines.

As a result of the current economic slowdown related to the COVID-19 pandemic, the Corporation is engaging in more frequent communication with borrowers to better understand their situation and the challenges faced, allowing it to respond proactively as needs and issues arise.

Determining the appropriateness of the allowance for credit losses on loans is complex and requires judgment by management about the effect of matters that are inherently uncertain.

Subsequent evaluations of the then-existing loan portfolio, in light of the factors then prevailing, may result in significant changes in the allowance for credit losses on loans in those future periods.

Should economic conditions worsen, the Corporation could experience further increases in its required allowance for credit losses and record additional provision expense.

It is possible that the Corporation's asset quality measures could worsen at future measurement periods if the effects of the COVID-19 pandemic are prolonged.

Operating Segments

1 unchanged sentence

Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment.

When purchased, securities are classified as held to maturity, trading or available for sale.

Cash and Cash Equivalents

For purposes of the consolidated statement of cash flows, the Corporation defines cash and cash equivalents as cash and due from banks, interest bearing deposits with other banks, and Federal funds sold.

Net cash flows are reported for customer loan and deposit transactions, interest bearing time deposits with other banks and borrowings with original maturities of 90 days or less.

Restrictions on Cash

Note 20, "Interest Rate Swaps," to the consolidated financial statements discloses the cash collateral balances required to be maintained in connection with the Corporation’s interest rate swaps.

Debt Securities

When purchased, debt securities are classified as held to maturity, trading or available for sale.

Debt securities are classified as held to maturity when the Corporation has the positive intent and ability to hold the securities to maturity.

1 unchanged sentence

Debt securities are classified as trading when purchased principally for the purpose of selling them in the near term, or when the fair value option has been elected.

Equity securities are classified as trading securities.

Trading securities are recorded at fair value with changes in fair value included in earnings in non-interest income.

Available for sale securities are those securities not classified as held to maturity or trading and are carried at their fair value.

Available for sale securities ("AFS") are those securities not classified as held to maturity or trading and are carried at their fair value.

Unrealized gains and losses, net of deferred tax, on securities classified as available for sale are recorded as other comprehensive income.

Management has not classified any debt securities as held to maturity.

The amortized cost of debt securities classified as held to maturity or available for sale is adjusted for the amortization of premiums and the accretion of discounts over the period through contractual maturity or, in the case of mortgage-backed securities and collateralized mortgage obligations, over the estimated life of the security.

Such amortization is included in interest income from securities.

Gains and losses on securities sold are recorded on the trade date and based on the specific identification method.

Declines in the fair value of debt securities below their cost that are other-than-temporary and attributable to credit losses are reflected in earnings.

Other-than-temporary impairment losses that are not attributable to credit losses are reported as a component of accumulated other comprehensive income.

In estimating other-than-temporary losses, management considers:

the length of time and extent that fair value has been less than cost, the financial condition and near term prospects of the issuer, and the Corporation’s intent to sell, or whether it is "more likely than not" that it will be required to sell a security in an unrealized loss position before recovery of its amortized cost basis.

If the Corporation intends to sell a security or it is "more likely than not" it will be required to sell a security before recovery of its amortized cost basis, the entire difference between amortized cost and fair value is recognized as impairment through earnings.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding.

Interest income is reported on the interest method and includes amortization of net deferred loan fees and costs over the loan term.

Interest income on commercial, industrial, and agricultural loans, commercial mortgage loans, and residential real estate loans is discontinued at the time the loan is 90 days delinquent unless the credit is well-secured and in process of collection.

Consumer loans are typically charged off no later than 180 days past due.

Interest income includes amortization of purchase premium or discount.

Premiums and discounts on securities are generally amortized on the level-yield method without anticipating prepayments, except for mortgage-backed securities where prepayments are anticipated.

Premiums on callable debt securities are amortized to their earliest call date.

Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific-identification method.

The Corporation has made a policy election to exclude accrued interest from the amortized cost basis of debt securities and report accrued interest separately in accrued interest receivable and other assets in the consolidated balance sheets.

A debt security is placed on nonaccrual status at the time any principal or interest payments become more than 90 days delinquent or if full collection of interest or principal becomes uncertain.

Accrued interest for a security placed on nonaccrual is reversed against interest income.

There was no accrued interest related to debt securities reversed against interest income for the year ended December 31, 2020.

Allowance for Credit Losses (Debt Securities Available-for Sale)

For available-for-sale debt securities in an unrealized loss position, the Corporation first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis.

If either of the criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value through income.

For debt securities available-for-sale that do not meet the aforementioned criteria, the Corporation evaluates whether the decline in fair value has resulted from credit losses or other factors.

In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors.

If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security.

If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis.

Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense.

Losses are charged against the allowance when management confirms that an available-for-sale security is uncollectable or when either of the criteria regarding intent or requirement to sell is met.

As of December 31, 2020, the Corporation determined that the unrealized loss positions in available-for-sale debt securities were not the result of credit losses, and therefore, an allowance for credit losses was not recorded.

See Note 3, "Debt Securities," and Note 6, "Fair Value Measurements," for more information about available-for-sale debt securities.

Accrued interest receivable on available-for-sale debt securities totaled $ 2.2 million at December 31, 2020 and is excluded from the estimate of credit losses.

Loans Held for Sale

Loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or fair value, as determined by outstanding commitments from investors.

Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings.

Mortgage loans held for sale are generally sold with servicing rights retained.

The carrying value of the mortgage loan sold is reduced by the amount allocated to the servicing right.

Gains and losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loan sold.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost.

Amortized cost is the principal balance outstanding, net of purchase premiums and discounts, deferred loan fees and costs.

Accrued interest receivable totaled $ 15.4 million at December 31, 2020 and was reported in Accrued interest receivable and other assets on the consolidated balance sheets and is excluded from the estimate of credit losses.

Interest income is accrued on the unpaid principal balance.

Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments.

Interest income on mortgage and commercial loans is discontinued and placed on nonaccrual status at the time the loan is 90 days delinquent unless the loan is well secured and in process of collection.

Consumer loans continue to accrue interest until they are recorded as charge-offs no later than 180 days past due unless the loan is in the process of collection.

Past-due status is based on the contractual terms of the loan.

Loans, including loans modified in a troubled debt restructuring, are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.

Nonaccrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

Loans, including loans modified in a troubled debt restructuring, are placed on nonaccrual or recorded as charge-offs at an earlier date if collection of principal or interest is considered doubtful.

All interest accrued but not received on loans placed on nonaccrual is reversed against interest income.

3 unchanged sentences

For all portfolio segments, loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Purchased Credit Deteriorated ("PCD") Loans

The Corporation has purchased loans, some of which have experienced more than insignificant credit deterioration since origination.

PCD loans are recorded at the amount paid.

An allowance for credit losses is determined using the same methodology as other loans held for investment.

The initial allowance for credit losses determined on a collective basis is allocated to individual loans.

The sum of the loan's purchase price and allowance for credit losses becomes its initial amortized cost basis.

The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan.

Subsequent changes to the allowance for credit losses are recorded through provision expense.

Troubled Debt Restructurings ("TDRs")

Loans are classified as TDRs when a borrower is experiencing financial difficulty and the Corporation has granted a concession that would not have otherwise been made for a borrower with similar credit characteristics.

Prior to granting a modification, the borrower's ability to repay the loan is evaluated, including:

current income levels and debt to income ratio, credit score, payment history and an evaluation of secondary repayment sources, if any is updated.

The Corporation's policy is to modify loans typically through a payment reduction or through an interest rate reduction for a specified period of time, usually six to twelve months.

Interest-only payments may also be approved during the modification period.

Principal forgiveness is generally not an option for modification.

The allowance for credit loss on a TDR is measured using the same method as all other loans held for investment, except the original interest rate is used to discount the expected cash flows, not the rate specified within the restructuring.

When there is a reasonable expectation, at the reporting date, that a TDR will be executed with a borrower the estimated life of the TDR reflects the extension or renewal.

Before granting approval to modify a loan in a TDR, the borrower’s ability to repay is evaluated, including:

current income levels and debt to income ratio, borrower’s credit score, payment history of the loan and updated evaluation of the secondary repayment source.

The Corporation also modifies some loans that are not classified as TDRs as the modification is due to a restructuring where the effective interest rate on the debt is reduced to reflect a decrease in market interest rates.

The Corporation's allowance for credit losses reflects the effects of a TDR when management reasonably expects at the reporting date that a TDR will be executed with an individual borrower.

The Corporation has implemented various consumer and commercial loan modification programs to provide its borrowers relief from the economic impacts of COVID-19.

In accordance with the CARES Act, loans to borrowers experiencing financial difficulty related to the COVID-19 pandemic which were granted short-term modifications after March 1, 2020 and which were not more than 30 days past due as of December 31, 2019 are exempt from TDR classification.

In addition, for loans modified in response to the COVID-19 pandemic that do not meet the above delinquency criteria (e.g., more than 30 days past due as of December 31, 2019), the Corporation applies the guidance included in an interagency statement issued by the bank regulatory agencies.

This guidance states that loan modifications performed in light of the COVID-19 pandemic, including loan payment deferrals that are up to six months in duration, that were granted to borrowers who were less than 30 days past due as of the implementation date of a loan modification program are exempt from TDR classification.

For loan modifications that include a payment deferral and are not TDRs, the borrower’s past due and nonaccrual status will not be impacted during the deferral period.

Interest income will continue to be recognized over the contractual life of the loan.

Concentration of Credit Risk

1 unchanged sentence

Therefore, the Corporation’s exposure to credit risk is significantly affected by changes in the economies of Pennsylvania, Ohio, and New York.

Purchased Loans

The Corporation purchased loans in connection with its acquisition of FC Banc Corp.

in 2013 and Lake National Bank in 2016, some of which had, at the acquisition date, shown evidence of credit deterioration since origination.

These purchased credit impaired loans were recorded at the amount paid, such that there was no carryover of the seller’s allowance for loan losses.

Such purchased credit impaired loans are accounted for individually, and the Corporation estimates the amount and timing of expected cash flows for each loan.

The expected cash flows in excess of the amount paid is recorded as interest income over the remaining life of the loan (accretable yield).

The excess of the loan’s contractual principal and interest over expected cash flows is not recorded (nonaccretable difference).

Over the life of the loan, expected cash flows continue to be estimated.

If the present value of expected cash flows is less than the carrying amount, a loss is recorded.

If the present value of the expected cash flows is greater than the carrying amount, it is recognized as part of future interest income.

For loans purchased that did not show evidence of credit deterioration, the difference between the fair value of the loan at the acquisition date and the loan’s face value is being amortized as a yield adjustment over the estimated remaining life of the loan using the effective interest method.

Loans Held for Sale

Loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or fair value, as determined by outstanding commitments from investors.

Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings.

Mortgage loans held for sale are generally sold with servicing rights retained.

The carrying value of the mortgage loan sold is reduced by the amount allocated to the servicing right.

Gains and losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loan sold.

Allowance for Loan Losses

The allowance for loan losses is a valuation allowance for probable incurred credit losses.

Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed.

Subsequent recoveries, if any, are credited to the allowance account.

Management determines the adequacy of the allowance based on historical patterns of charge-offs and recoveries, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, industry experience, economic conditions, and other qualitative factors relevant to the collectability of the loan portfolio.

While management believes that the allowance is adequate to absorb probable loan losses incurred at the balance sheet date, future adjustments may be necessary due to circumstances that differ substantially from the assumptions used in evaluating the adequacy of the allowance for loan losses.

The allowance consists of specific and general components.

The specific component relates to loans that are individually classified as impaired.

A loan is impaired when, based on current information and events, it is probable that the Corporation will be unable to collect all amounts due according to the contractual terms of the loan agreement.

Loans for which the terms have been modified, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired.

Commercial and commercial real estate loans are individually evaluated for impairment.

If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral.

Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans, are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures.

Troubled debt restructurings are measured at the present value of estimated future cash flows using the loan’s effective rate at inception.

If a troubled debt restructuring is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral.

For troubled debt restructurings that subsequently default, the Corporation determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses.

The general component of the allowance for loan losses covers non-impaired loans and loans collectively evaluated for impairment and is based on historical loss experience adjusted for current factors.

The historical loss experience is determined by portfolio segment, further delineated by risk rating, and is based on a weighted average quarterly loss rate for the most recent eight quarters, subject to a floor.

This actual loss experience is supplemented with other qualitative factors based on the risks present for each portfolio segment.

These qualitative loss factors include consideration of the following:

levels of and trends in delinquencies, trends in volume and terms of loans;

effects of any changes in lending policies and procedures;

experience, ability, and depth of management;

national and local economic trends and conditions;

and concentrations of credit.

The following portfolio segments, which are the same as the Corporation’s portfolio classifications and associated risk characteristics, have been identified:

Commercial, industrial, and agricultural – risk characteristics include below average economic and employment conditions in many of the markets served by the Corporation, which has limited consumer spending.

Commercial mortgages – the most significant risk characteristic is the subjectivity involved in real estate valuations for properties located in areas with low growth economies.

Residential real estate – risk characteristics include slightly higher than historical levels of delinquencies and less than robust housing markets.

Consumer – risk characteristics include continuing weakness in industrial employment in many of the markets served by the Corporation and low wage growth.

Credit cards – the most significant risk characteristic is the unsecured nature of credit card loans.

Overdrafts – risk characteristics include the Corporation’s continued deposit growth and overall economic conditions which may lead to a greater likelihood of overdrawn deposit accounts.

Allowance for Credit Losses - Loans

The allowance for credit losses on loans represents management’s estimate of expected credit losses over the estimated life of our existing portfolio of loans.

The allowance for credit losses is a valuation account that is deducted from the loan's amortized cost basis to present the net amount expected to be collected on the loans.

The expense for credit loss recorded through earnings is the amount necessary to maintain the allowance for credit losses on loans at the amount of expected credit losses inherent within the loan portfolio.

Loans are recorded as charge-offs against the allowance when management confirms a loan balance is uncollectable.

Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts, and other significant qualitative and quantitative factors.

Historical credit loss experience provides the basis for the estimation of expected credit losses.

Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, changes in environmental conditions, delinquency level, segment growth rates and changes in duration within new markets, or other relevant factors.

For further information on the ACL on loans, see Note 4, "Loans," for additional detail.

The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist.

The Corporation has segregated its portfolio segments based on federal call report codes which classify loans based on the primary collateral supporting the loan.

The following are the Corporation's segmented portfolios:

1-4 Family Construction :

The Bank originates construction loans to finance 1-4 family residential buildings.

Construction loans include not only construction of new structures, but also additions or alterations to existing structures and the demolition of existing structures to make way for new structures.

Construction loans are generally secured by real estate.

The primary risk characteristics are specific to the uncertainty on whether the construction will be completed according to the specifications and schedules.

Factors that may influence the completion of construction may be customer specific, or related to changes in general economic conditions.

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

The Bank originates construction loans to finance land development preparatory to erecting new structures or the on-site construction of industrial, commercial, or multi-family buildings.

Construction loans include not only construction of new structures, but also additions or alterations to existing structures and the demolition of existing structures to make way for new structures.

Construction loans are generally secured by real estate.

The primary risk characteristics are specific to the uncertainty on whether the construction will be completed according to the specifications and schedules.

Factors that may influence the completion of construction may be customer specific, such as the quality and depth of property management, or related to changes in general economic conditions.

Farmland (including farm residential and other improvements) :

The Bank originates loans secured by farmland and improvements thereon, secured by mortgages.

Farmland includes all land known to be used or usable for agricultural purposes, such as crop and livestock production.

Farmland also includes grazing or pasture land, whether tillable or not and whether wooded or not.

The primary risk characteristics are specific to the uncertainty on production, market, financial, environmental and human resources.

Home equity lines of credit :

The primary risk characteristics associated with home equity lines of credit typically involve changes to the borrower, including unemployment or other loss of income;

unexpected significant expenses, such as major medical expenses, catastrophic events, divorce and death.

Home equity lines of credit are typically originated with variable or floating interest rates, which could expose the borrower to higher payments in a rising interest rate environment.

Real estate values could decrease and cause the value of the underlying property to fall below the loan amount, creating additional potential loss exposure for the Bank.

Residential Mortgages secured by first liens :

The Bank originates one-to-four family residential mortgage loans primarily within central and northwest Pennsylvania, central and northeast Ohio and western New York.

These loans are secured by first liens on a primary residence or investment property.

The primary risk characteristics associated with residential mortgage loans typically involve major changes to the borrower, including unemployment or other loss of income;

unexpected significant expenses, such as major medical expenses, catastrophic events, divorce or death.

Residential mortgage loans that have adjustable rates could expose the borrower to higher payments in a rising interest rate environment.

Real estate values could decrease and cause the value of the underlying property to fall below the loan amount, creating additional potential loss exposure for the Bank.

Residential Mortgages secured by junior liens :

The Bank originates loans secured by junior liens against one to four family properties primarily within central and northwest Pennsylvania, central and northeast Ohio and western New York.

Loans secured by junior liens are primarily in the form of an amortizing home equity loan.

These loans are subordinate to a first mortgage which may be from another lending institution.

The primary risk characteristics associated with loans secured by junior liens typically involve major changes to the borrower, including unemployment or other loss of income, unexpected significant expenses, such as for major medical expenses, catastrophic events, divorce or death.

Real estate values could decrease and cause the value of the property to fall below the loan amount, creating additional potential loss exposure for the Bank.

Multifamily (5 or more) residential properties :

The Bank originates mortgage loans for multifamily properties primarily within central and northwest Pennsylvania, central and northeast Ohio and western New York.

Multifamily loans are expected to be repaid from the cash flows of the underlying property so the collective amount of rents must be sufficient to cover all operating expenses, property management and maintenance, taxes and debt service.

Increases in vacancy rates, interest rates or other changes in general economic conditions can have an impact on the borrower and its ability to repay the loan.

Owner-occupied, nonfarm nonresidential properties :

The Bank originates mortgage loans to operating companies primarily within central and northwest Pennsylvania, central and northeast Ohio and western New York.

Owner-occupied real estate properties primarily include retail buildings, medical buildings and industrial/warehouse space.

Owner-occupied loans are typically repaid first by the cash flows generated by the borrower’s business operations.

The primary risk characteristics are specific to the underlying business and its ability to generate sustainable profitability and positive cash flow.

Factors that may influence a borrower's ability to repay their loan include demand for the business’ products or services, the quality and depth of management, the degree of competition, regulatory changes, and general economic conditions.

Non-owner occupied, nonfarm nonresidential properties :

The Bank originates mortgage loans for commercial real estate that is managed as an investment property primarily within central and northwest Pennsylvania, central and northeast Ohio and western New York.

Commercial real estate properties primarily include retail buildings/shopping centers, hotels, office/medical buildings and industrial/warehouse space.

Increases in vacancy rates, interest rates or other changes in general economic conditions can have an impact on the borrower and its ability to repay the loan.

Commercial real estate loans are generally considered to have a higher degree of credit risk as they may be dependent on the ongoing success and operating viability of a fewer number of tenants who are occupying the property and who may have a greater degree of exposure to economic conditions.

Agricultural production and other loans to farmers :

The Bank originates loans secured or unsecured to farm owners and operators (including tenants) or to nonfarmers for the purpose of financing agricultural production, including the growing and storing of crops, the marketing or carrying of agricultural products by the growers thereof, and the breeding, raising, fattening, or marketing of livestock, and for purchases of farm machinery, equipment, and implements.

The primary risk characteristics are specific to the uncertainty on production, market, financial, environmental and human resources.

Commercial and Industrial :

The Bank originates lines of credit and term loans to operating companies for business purposes.

The loans are generally secured by business assets such as accounts receivable, inventory, business vehicles and equipment as well as the stock of a company, if privately held.

Commercial and Industrial loans are typically repaid first by the cash flows generated by the borrower’s business operations.

The primary risk characteristics are specific to the underlying business and its ability to generate sustainable profitability and positive cash flow.

The ability of the Bank to foreclose and realize sufficient value from business assets securing these loans is often uncertain.

To mitigate the risk characteristics of commercial and industrial loans, commercial real estate may be included as a secondary source of collateral.

The Bank will often require more frequent reporting requirements from the borrower in order to better monitor its business performance.

Credit cards :

The Bank originates credit cards offered to individuals and businesses for household, family, other personal and business expenditures.

Credit cards generally are floating rate loans and include both unsecured and secured lines.

Credit card loans generally do not have stated maturities and are unconditionally cancellable.

The primary risk characteristics associated with credit cards typically involve major changes to the borrower, including unemployment or other loss of income, unexpected significant expenses, such as for major medical expenses, catastrophic events, divorce or death.

Other revolving credit plans :

The Bank originates lines of credit to individuals for household, family, and other personal expenditures.

Consumer loans generally have higher interest rates and shorter terms than residential loans but tend to have higher credit risk due to the type of collateral securing the loan or in some cases the absence of collateral.

The primary risk characteristics associated with other revolving loans typically involve major changes to the borrower, including unemployment or other loss of income, unexpected significant expenses, such as for major medical expenses, catastrophic events, divorce or death.

The Bank originates consumer loans extended for the purpose of purchasing new and used passenger cars and other vehicles such as minivans, vans, sport-utility vehicles, pickup trucks, and similar light trucks for personal use.

The primary risk characteristics associated with automobile loans typically involve major changes to the borrower, including unemployment or other loss of income, unexpected significant expenses, such as for major medical expenses, catastrophic events, divorce or death.

Other consumer :

The Bank originates loans to individuals for household, family, and other personal expenditures.

This also represents all other loans that cannot be categorized in any of the previous mentioned consumer loan segments.

Obligations (other than securities and leases) of states and political subdivisions :

The Bank originates various types of loans made directly to municipalities.

These loans are repaid through general cash flows or through specific revenue streams, such as water and sewer fees.

The primary risk characteristics associated with municipal loans are the municipalities ability to manage cash flow, balance the fiscal budget, fixed asset and infrastructure requirements.

Additional risks include changes in demographics, as well as social and political conditions.

Other loans :

The Bank originates other loans, such as loans to nonprofit organizations, including churches, hospitals, educational and charitable institutions, clubs, and similar associations.

The primary risk characteristics associated with these types of loans are repayment, demographic, social, political and reputation risks.

The Bank reports overdrawn customer deposit balances as loans.

Methods utilized by management to estimate expected credit losses include a discounted cash flow ("DCF") model that discounts instrument-level contractual cash flows, adjusted for prepayments and curtailments, incorporating loss expectations, and a weighted average remaining maturity ("WARM") model which contemplates expected losses at a pool-level, utilizing historic loss information.

Under both models, management estimates the allowance for credit losses on loans using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.

After the end of the reasonable and supportable forecast period, the loss rates revert to the mean loss rate over a period of eight quarters.

Historical credit loss experience, including examination of loss experience at representative peer institutions when the Corporation’s loss history does not result in estimations that are meaningful to users of the Corporation’s Consolidated Financial Statements, provides the basis for the estimation of expected credit losses.

The DCF model uses inputs of current and forecasted macroeconomic indicators to predict future loss rates.

The current macroeconomic indicator utilized by the Corporation is the Federal unemployment rate and the S&P/Case-Shiller U.S.

National Home Price Index for select collective residential related pools.

In building the CECL methodology utilized in the DCF model, a correlation between this indicator and historic loss levels was developed, enabling a prediction of future loss rates related to future Federal unemployment rates and S&P/Case-Shiller U.S.

National Home Price Index.

The portfolio segments utilizing the DCF methodology comprised 90.8 % of the amortized cost of loans as of December 31, 2020, and included:

• Home equity lines of credit

• Residential Mortgages secured by first liens

• Residential Mortgages secured by junior liens

• Multifamily (5 or more) residential properties

• Owner-occupied, nonfarm nonresidential properties

• Non-owner occupied, nonfarm nonresidential properties

• Agricultural production and other loans to farmers

• Commercial and Industrial

• Obligations (other than securities and leases) of states and political subdivisions

• Other loans

The WARM model uses combined historic loss rates for the Corporation and peer institutions, if necessary, gathered from call report filings.

The selected period for which historic loss rates are used is dependent on management's evaluation of current conditions and expectations of future loss conditions.

The portfolio segments utilizing the WARM methodology comprised 9.2 % of the amortized cost of loans as of December 31, 2020, and included:

• 1-4 Family Construction

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

• Credit cards

• Other revolving credit plans

• Other consumer

Loans that do not share risk characteristics are evaluated on an individual basis.

Loans evaluated individually are not also included in the collective evaluation and typically represent collateral dependent loans but may also include other non-performing loans or TDRs.

The Corporation uses the practical expedient to measure individually evaluated loans as collateral dependent and/or when repayment is expected to be provided substantially through the operation or sale of the collateral.

Expected credit losses are based on the fair value at the reporting date, adjusted for selling costs as appropriate.

For collateral dependent loans, credit loss is measured as the difference between the amortized cost basis in the loan and the fair value of the underlying collateral.

The fair value of the collateral is adjusted for the estimated cost to sell if repayment or satisfaction of a loan is dependent on the sale (rather than only on the operation) of the collateral.

Allowance for Credit Losses on Off-Balance Sheet ("OBS") Credit Exposures

Management estimates expected credit losses over the contractual period in which the Corporation is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Corporation.

The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life.

Management estimates the amount of expected losses by calculating a commitment usage factor over the contractual period for exposures that are not unconditionally cancellable by the Bank and applying the loss factors used in the allowance for credit losses on loans methodology to the results of the usage calculation to estimate the liability for credit losses related to unfunded commitments for each loan segment.

The estimate of credit losses on OBS credit exposures is not material at December 31, 2020.

Federal Home Loan Bank Stock

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• its liquidity and funding position.

Both cash and stock dividends are reported as income.

Foreclosed Assets

Foreclosed assets are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis.

Physical possession of residential real estate property collateralizing a consumer mortgage loan occurs when legal title is obtained upon completion of foreclosure or when the borrower conveys all interest in the property to satisfy the loan through completion of a deed in lieu of foreclosure or through a similar legal agreement.

These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell.

If fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense.

Operating costs after acquisition are expensed.

Premises and Equipment

Land is carried at cost.

Premises and equipment are stated at cost less accumulated depreciation.

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Maintenance, repairs and minor renewals are charged to expense as incurred.

Foreclosed Assets

Assets acquired through or in lieu of loan foreclosure are initially recorded at fair value less estimated selling costs when acquired, establishing a new cost basis.

These assets are subsequently accounted for at the lower of cost or fair value, less estimated costs to sell.

If fair value declines, a valuation allowance is recorded through expense.

Costs after acquisition are expensed.

Bank Owned Life Insurance

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Goodwill resulting from business combinations after January 1, 2009 is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interest in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date.

Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually or more frequently if events and circumstances exist that indicate an impairment test should be performed.

Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually or more frequently if events and circumstances exists that indicate that a goodwill impairment test should be performed.

The Corporation has no intangible assets with an indefinite useful life.

The Corporation has selected December 31 as the date to perform the annual impairment test.

Intangible assets with definite useful lives are amortized over their estimated useful lives.

Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values.

Goodwill is the only intangible asset with an indefinite life on the Corporation’s balance sheet.

Other intangible assets consist of core deposit intangible assets arising from the acquisition of FC Banc Corp.

in 2013 and Lake National Bank in 2016.

The core deposit intangible assets from these acquisitions are amortized using an accelerated method over their estimated useful lives of seven years and four years , respectively.

in 2013, Lake National Bank in 2016 and Bank of Akron in 2020.

The core deposit intangible assets from these acquisitions are amortized using an accelerated method over their estimated useful lives, which range from four years to ten years , respectively.

Long-term Assets

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The Corporation does not use derivatives for trading purposes.

At the inception of a derivative contract, the Corporation designates the derivative as one of three types based on the purpose of the contract and belief as to its effectiveness as a hedge.

At the inception of a derivative contract, the Corporation designates the derivative as one of three types based on the Corporation's intentions and belief as to likely effectiveness as a hedge.

These three types are (1) a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment ("fair value hedge"), (2) a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability ("cash flow hedge"), or (3) an instrument with no hedging designation ("stand-alone derivative").

For a fair value hedge, the gain or loss on the derivative, as well as the offsetting loss or gain on the hedged item, are recognized in current earnings as fair values change.

For a fair value hedge, the gain or loss on the derivative, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk, are recognized in current earnings as fair values change.

For a cash flow hedge, the gain or loss on the derivative is reported in other comprehensive income and is reclassified into earnings in the same periods during which the hedged transaction affects earnings.

For both types of hedges, changes in the fair value of derivatives that are not highly effective in hedging the changes in fair value or expected cash flows of the hedged item are recognized immediately in current earnings.

Changes in the fair value of derivatives that do not qualify for hedge accounting are reported currently in earnings, as non-interest income.

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When a cash flow hedge is discontinued but the hedged cash flows or forecasted transactions are still expected to occur, gains or losses that were accumulated in other comprehensive income are amortized into earnings over the same periods which the hedged transactions will affect earnings.

The Corporation is exposed to losses if a counterparty fails to make its payments under a contract in which the Corporation is in the net receiving position.

The Corporation anticipates that the counterparties will be able to fully satisfy their obligations under the agreements.

All the contracts to which the Corporation is a party settle monthly or quarterly.

In addition, the Corporation obtains collateral above certain thresholds of the fair value of its hedges for each counterparty based upon their credit standing and the Corporation has netting agreements with the dealers with which it does business.

Mortgage Servicing Rights

Servicing rights are recognized separately when they are acquired through sales of loans.

Servicing rights are initially recorded at fair value with the income statement effect recorded in mortgage banking income.

When mortgage loans are sold with servicing retained, servicing rights are initially recorded at fair value with the income statement effect recorded in mortgage banking income.

Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income.

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Stock-Based Compensation

The Corporation has a stock incentive plan, which is administered by a committee of the Board of Directors and which permits the Corporation to provide various types of stock-based compensation to its key employees, directors, and/or consultants, including time-based and performance-based shares of restricted stock.

The Corporation previously maintained the CNB Financial Corporation 2009 Stock Incentive Plan, which terminated in accordance with its terms on February 10, 2019, and currently maintains the CNB Financial Corporation 2019 Omnibus Incentive Plan (the "2019 Stock Incentive Plan"), which was approved by the Corporation’s shareholders and became effective on April 16, 2019.

The 2019 Stock Incentive Plan provides for up to 507,671 shares of common stock to be awarded in the form of nonqualified options or restricted stock.

For key employees, the vesting of time-based restricted stock is one-third, one-fourth, or one-fifth of the granted restricted shares per year, beginning one year after the grant date, with 100 % vesting on the third, fourth or fifth anniversary of the grant date, respectively.

Prior to 2018, for non-employee directors, the vesting schedule was one-third of the granted restricted shares per year, beginning one year after the grant date, with 100 % vested on the third anniversary of the grant date.

Beginning in 2018, stock compensation received by non-employee directors vests immediately.

All stock-based compensation grants during the years ending December 31, 2019, 2018 and 2017 and outstanding at December 31, 2019, 2018 and 2017 were restricted stock.

In addition to the time-based restricted stock disclosed above, the Corporation’s Board of Directors grants performance-based restricted stock awards (“PBRSAs”) to key employees.

The number of PBRSAs will depend on certain performance conditions earned over a three year period and are also subject to service-based vesting.

In 2019, awards with a maximum of 16,681 shares in aggregate were granted to key employees.

In 2018, awards with a maximum of 15,657 shares in aggregate were granted to key employees.

In 2017, an award with a maximum of 7,109 shares was granted to a key employee.

During 2019 , 2018 , and 2017 , the Executive Compensation and Personnel Committee of the Corporation's Board of Directors granted a total of 40,978 , 40,108 and 39,673 shares, respectively, of restricted common stock to certain key employees and all independent directors of the Corporation.

Compensation expense for the restricted stock awards is recognized over the requisite service period based on the fair value of the shares at the date of grant on a straight-line basis.

Nonvested restricted stock awards are recorded as a reduction of additional paid-in-capital in shareholders’ equity until earned.

Compensation expense resulting from time-based, performance-based and director restricted stock awards was $ 1,346 , $ 1,545 and $ 928 for the years ended December 31, 2019 , 2018 , and 2017 , respectively.

The total income tax benefit related to the recognized compensation cost of vested restricted stock awards was $ 283 , $ 324 and $ 325 for the years ended December 31, 2019, 2018 and 2017, respectively.

Compensation cost is recognized for restricted stock awards issued to employees, based on the fair value of these awards at the date of grant.

Compensation cost is recognized over the required service period, generally defined as the vesting period.

For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award.

The Corporation's accounting policy is to recognize forfeitures as they occur.

Comprehensive Income

The Corporation presents comprehensive income as part of the Consolidated Statement of Income and Comprehensive Income.

Other comprehensive income (loss) consists of unrealized holding gains (losses) on the available for sale securities portfolio, changes in the unrecognized actuarial gain and transition obligation related to the Corporation’s post retirement benefits plans, and changes in the fair value of the Corporation’s interest rate swaps, net of tax.

The Corporation presents comprehensive income as part of the Consolidated Statements of Income and Comprehensive Income.

Other comprehensive income and loss consists of unrealized holding gains and losses on the available for sale securities portfolio, changes in the unrecognized actuarial gain and transition obligation related to the Corporation’s post retirement benefits plans, and changes in the fair value of the Corporation’s interest rate swaps, net of tax.

Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities.

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Deferred compensation and supplemental retirement plan expenses allocate the benefits over years of service.

Earnings Per Share

Basic earnings per share is computed by dividing net income available to common shareholders by the weighted average number of shares outstanding during the applicable period, excluding outstanding participating securities.

Diluted earnings per share is computed using the weighted average number of shares determined for the basic computation plus the dilutive effect of potential common shares issuable under certain stock compensation plans.

Earnings Per Common Share

Basic earnings per common share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the applicable period, excluding outstanding participating securities.

Diluted earnings per common share is computed using the weighted average number of common shares determined for the basic computation plus the dilutive effect of potential common shares issuable under certain stock compensation plans.

Unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are included in the computation of earnings per share pursuant to the two-class method.

The Corporation has determined that its outstanding non-vested stock awards are participating securities.

Cash and Cash Equivalents

Net cash flows are reported for customer loan and deposit transactions, interest bearing time deposits with other banks and borrowings with original maturities of 90 days or less.

Restrictions on Cash

The Bank is required to maintain average reserve balances with the Federal Reserve Bank or in vault cash.

The average amount of these non-interest bearing reserve balances for the year ended December 31, 2019 and 2018 was $ 50 , which was maintained in vault cash.

Note 20 to the consolidated financial statements discloses the cash collateral balances required to be maintained in connection with the Corporation’s interest rate swaps.

Loss Contingencies

Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated.

Note 15 to the consolidated financial statements discloses a loss contingency in connection with a sales tax notice of assessment from the Pennsylvania Department of Revenue.

Management does not believe there now are such matters that will have a material effect on the financial statements.

Fair Value of Financial Instruments

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Adoption of New Accounting Standards

As of January 1, 2019, the Corporation adopted certain accounting standard updates related to accounting for leases (Topic 842 - Leases), primarily ASU 2016-02 and subsequent updates.

This guidance requires a lessee to recognize the following for all leases (with the exception of short-term leases) at the commencement date:

(1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis;

and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.

Under the new guidance, lessor accounting is largely unchanged.

Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model.

The Corporation elected several practical expedients made available by the FASB.

Specifically, the Corporation elected the transition practical expedient to not recast comparative periods upon the adoption of the new guidance.

In addition, the Corporation elected to apply certain practical adoption expedients provided under the updates whereby we did not reassess (1) whether any expired or existing contracts are or contain leases, (2) the lease classification for any expired or existing leases and (3) initial direct costs for any existing leases.

As a result, the Corporation recognized approximately $ 12.5 million of right of use assets, approximately $ 800 thousand in prepaid rent, and $ 13.3 million of related lease liabilities as of January 1, 2019.

In March 2017, the FASB issued an update (ASU 2017-08, “Receivables-Nonrefundable Fees and Other Costs:

Premium Amortization on Purchased Callable Debt Securities") which amends the amortization period for certain purchased callable debt securities held at a premium.

FASB has shortened the amortization period for the premium to the earliest call date.

Under legacy GAAP, entities generally amortized the premium as an adjustment of yield over the contractual life of the instrument.

The amendments in this update became effective for annual periods and interim periods within those annual periods beginning after December 15, 2018.

The Corporation adopted this new accounting standard on January 1, 2019.

The effect of adoption was immaterial in the consolidated financial statements.

In August 2017, the FASB issued an updated (ASU 2017-12, “Derivatives and Hedging:

Targeted Improvements to Accounting for Hedging Activities”) which updated guidance to better align a company's financial reporting for hedging activities with the economic objectives of those activities.

ASU 2017-12 is effective for public business entities for fiscal years beginning after December 15, 2018, with early adoption, including adoption in an interim period, permitted.

The Corporation adopted ASU 2017-12 on January 1, 2019.

The effect of adoption was immaterial in the consolidated financial statements.

Effects of Newly Issued But Not Yet Effective Accounting Standards

In June 2016, the FASB issued an update (ASU 2016-13, "Financial Instruments – Credit Losses") which will require recognition of an entity’s current estimate of all expected credit losses for assets measured at amortized cost.

The amendment requires the measurement of all expected credit losses for financial assets held at the reporting date, based on historical credit loss experience, current market conditions, and reasonable and supportable forecast.

This eliminates the probable initial recognition threshold in current GAAP.

The update will be effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted for interim and annual reporting periods beginning after December 15, 2018.

In November 2018, the FASB issued ASU 2018-19, "Codification Improvements to Topic 326, Financial Instruments – Credit Losses." The amendment clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20 and should be accounted for in accordance with Topic 842, "Leases." In April 2019, ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments,” was issued to address certain codification improvements and to provide certain accounting policy electives related to accrued interest as well as disclosure related to credit losses, among other things.

In May 2019, ASU 2019-05, “Financial Instruments—Credit Losses (Topic 326):

Targeted Transition Relief,” was issued to provide transition relief in connection with the adoption of ASU 2016-03 whereby entities would have the option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis.

CNB has adopted ASU No.

2016-13 effective January 1, 2020.

The Corporation formed a committee comprised of individuals from different disciplines, including credit administration, finance, commercial lending, loan servicing and information technology, to evaluate the requirements of the new standard and the impact it will have on current processes.

Management partnered with a third-party vendor to develop a model that calculates expected credit losses over the life of each loan.

The Corporation selected the discounted cash flow method or a remaining life method to estimate expected credit losses based upon each identified pool of financial assets with similar risk characteristics.

Management will select reasonable and supportable economic variables from reputable and independent third parties it believes to be most relevant based on the composition of the loan portfolio and the loan segment.

The Corporation anticipates it will forecast over a one year period and in the second year the Corporation will use straight-line reversion to historical losses.

While management continues to work through their implementation plan, management has completed its assessment and mapping of key data fields into the model and parallel runs.

Management is in the process of reviewing the results of a model validation, completing documentation of processes and internal controls and policy development with the assistance of third-parties.

Based upon the Corporation's fourth quarter parallel run, assessment of the composition, characteristics and credit quality of the Corporation's loan and investment securities portfolio, as well as the economic conditions in effect as of the adoption date, management estimates the adoption of ASU 2016-13 will result in an increase of approximately 20-30% to the Corporation's allowance for credit losses, as reported in its Annual Report Form 10-K, for the fiscal year ended December 31, 2019.

The adjustment recorded upon adoption to record the allowance for credit losses may fall outside of management’s estimated increase based on material changes in the economic forecast and conditions and composition of the loan portfolio used in calculating the allowance for credit losses upon adoption.

The Corporation does not expect a material impact to the allowance for credit losses related to its available-for-sale debt securities portfolio under the newly codified available-for-sale debt security impairment model.

The majority of these securities are government agency-backed securities for which risk of credit loss is minimal.

In August 2018, the FASB issued ASU 2018-14, "Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans." ASU 2018-14 amends ASC 715-20, "Compensation - Retirement Benefits - Defined Benefit Plans - General." The amended guidance modifies the disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans by removing and adding certain disclosures for these plans.

The eliminated disclosures include (a) the amounts in accumulated Other Comprehensive Income ("OCI") expected to be recognized in net periodic benefit costs over the next fiscal year, and (b) the effects of a one percentage point change in assumed health care cost trend rates on the net periodic benefit costs and the benefit obligation for post-retirement health care benefits.

Additional disclosures include descriptions of significant gains and losses affecting the benefit obligation for the period.

The update will be effective for annual reporting periods beginning after December 15, 2020, with early adoption permitted for annual reporting periods beginning after December 15, 2019.

Management is currently evaluating the impact of the adoption of ASU 2018-14 on the Corporation’s footnote disclosures included in the financial statements.

On January 1, 2020, the Corporation adopted ASU 2016-13 Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments , which replaces the incurred loss methodology with an expected loss methodology that is referred to as the CECL methodology.

The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities.

It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments.

standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842 on leases.

In addition, ASC 326 made changes to the accounting for available-for-sale debt securities.

One such change is to require credit losses to be presented as an allowance rather than as a write-down on available-for-sale debt securities management does not intend to sell or believes that it is more likely than not they will be required to sell.

The Corporation adopted ASC 326 using the modified retrospective approach method for all financial assets measured at amortized cost and OBS credit exposures.

Results for reporting periods beginning after January 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP.

In conjunction with the adoption of CECL, the Corporation has revised its segmentation to align with the methodology applied in determining the ACL for loans under CECL, which is based on federal call report codes which classify loans based on the primary collateral supporting the loan.

Segmentation prior to the adoption of CECL was based on product type or purpose.

Upon adoption, the Corporation's total allowance for credit losses increased by $ 5.0 million, or 25.5 %.

The increase in the total allowance for credit losses resulted in a $ 3.4 million decrease to retained earnings, net of deferred taxes.

The overall change in total allowance for credit losses upon adoption was primarily due to the move to a life of loan reserve estimate as well as methodology changes required under CECL.

The Corporation adopted ASC 326 using the prospective transition approach for financial assets purchased with credit deterioration that were previously classified as purchased credit impaired ("PCI") and accounted for under ASC 310-30.

In accordance with the standard, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption.

On January 1, 2020, the amortized cost basis of the PCD assets were adjusted to reflect the addition of $ 670 thousand of the allowance for credit losses.

The remaining noncredit discount (based on the adjusted amortized cost basis) will be accreted into interest income at the effective interest rate as of January 1, 2020.

The following tables illustrates the impact of ASC 326.

January 1, 2020

Pre-CECL Adoption Reclassification to CECL

Portfolio Segmentation Pre-CECL

Portfolio Segmentation Post-CECL

Portfolio Segmentation Impact of

Commercial, industrial and agricultural $ 1,046,665 $ ( 1,046,665 ) $ 0 $ 0 $ 0

0 27,199 27,199 27,199 0

Owner-occupied, nonfarm nonresidential properties

0 333,117 333,117 333,117 0

Agricultural production and other loans to farmers

0 3,407 3,407 3,407 0

Commercial and Industrial

0 474,614 474,614 474,614 0

Obligations (other than securities and leases) of states and political subdivisions

0 139,052 139,052 139,052 0

0 5,740 5,740 5,740 0

Commercial mortgages 814,002 ( 814,002 ) 0 0 0

Other construction loans and all land development and other land loans 0 277,412 277,412 277,412 0

Multifamily (5 or more) residential properties

0 124,390 124,390 124,390 0

Non-owner occupied, nonfarm nonresidential properties

0 467,852 467,852 468,522 670

Residential real estate 814,030 ( 814,030 ) 0 0 0

1-4 Family Construction 0 22,427 22,427 22,427 0

Home equity lines of credit 0 95,089 95,089 95,089 0

Residential Mortgages secured by first liens 0 646,199 646,199 646,199 0

Residential Mortgages secured by junior liens 0 57,965 57,965 57,965 0

Consumer, net of unearned discount 119,623 ( 119,623 ) 0 0 0

Other revolving credit plans 0 52,353 52,353 52,353 0

Automobile 0 27,807 27,807 27,807 0

Other consumer 0 39,697 39,697 39,697 0

Credit cards 7,569 0 7,569 7,569 0

Overdrafts 2,146 0 2,146 2,146 0

Total loans $ 2,804,035 $ 0 $ 2,804,035 $ 2,804,705 $ 670

January 1, 2020

Pre-CECL Adoption Reclassification to CECL

Portfolio Segmentation Pre-CECL

Portfolio Segmentation Post-CECL

Portfolio Segmentation Impact of

Allowance for credit losses on loans:

Commercial, industrial and agricultural $ 8,287 $ ( 8,287 ) $ 0 $ 0 $ 0

0 190 190 251 61

Owner-occupied, nonfarm nonresidential properties

0 2,390 2,390 1,636 ( 754 )

Agricultural production and other loans to farmers

Commercial and Industrial

0 4,105 4,105 3,474 ( 631 )

Obligations (other than securities and leases) of states and political subdivisions

0 1,022 1,022 791 ( 231 )

Commercial mortgages 6,952 ( 6,952 ) 0 0 0

Other construction loans and all land development and other land loans 0 2,327 2,327 3,107 780

Multifamily (5 or more) residential properties

0 1,087 1,087 1,399 312

Non-owner occupied, nonfarm nonresidential properties

0 3,980 3,980 6,527 2,547

Residential real estate 1,499 ( 1,499 ) 0 0 0

1-4 Family Construction 0 56 56 21 ( 35 )

Home equity lines of credit 0 180 180 601 421

Residential Mortgages secured by first liens 0 1,220 1,220 2,320 1,100

Residential Mortgages secured by junior liens 0 114 114 249 135

Consumer 2,411 ( 2,411 ) 0 0 0

Other revolving credit plans 0 296 296 674 378

Automobile 0 156 156 60 ( 96 )

Other consumer 0 1,960 1,960 2,981 1,021

Credit cards 84 0 84 26 ( 58 )

Overdrafts 240 0 240 240 0

Total allowance for credit losses on loans $ 19,473 $ 0 $ 19,473 $ 24,436 $ 4,963

Retained earnings:

Total increase in allowance for credit losses on loans $ 4,963

Balance sheet reclassification ( 670 )

Total pre-tax impact 4,293

Tax effect ( 902 )

Decrease in retained earnings $ 3,391

In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment" ("ASU 2017-04").

ASU 2017-04 simplifies the accounting for goodwill impairment for all entities by requiring impairment charges to be based on the first step in the previous two-step impairment test.

Under the new guidance, if a reporting unit’s carrying amount exceeds its fair value, an entity will record an impairment charge based on that difference.

The impairment charge will be limited to the amount of goodwill allocated to that reporting unit.

The standard eliminates the prior requirement to calculate a goodwill impairment charge using Step 2, which requires an entity to calculate any impairment charge by comparing the implied fair value of goodwill with its carrying amount.

ASU 2017-04 was effective for the Corporation on January 1, 2020 and did not have a material impact on the Corporation's financial statements.

In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820):

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All other amendments should be applied retrospectively to all periods presented upon their effective date.

Management is currently evaluating the impact of the adoption of ASU 2018-13 on the Corporation’s footnote disclosures included in the financial statements.

ASU 2018-13 was effective for the Corporation on January 1, 2020 and did not have a material impact on the Corporation's financial statement disclosures.

The eliminated disclosures include (a) the amounts in accumulated Other Comprehensive Income expected to be recognized in net periodic benefit costs over the next fiscal year, and (b) the effects of a one percentage point change in assumed health care cost trend rates on the net periodic benefit costs and the benefit obligation for post-retirement health care benefits.

Additional disclosures include descriptions of significant gains and losses affecting the benefit obligation for the period.

ASU 2018-14 was effective for the Corporation on January 1, 2020 and did not have a material impact on the Corporation's financial statement disclosures.

In August 2018, the FASB issued ASU 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract" ("ASU 2018-15").

ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license).

The accounting for the service element of a hosting arrangement that is a service contract is not affected by these amendments.

ASU 2018-15 was effective for the Corporation on January 1, 2020 and did not have a material impact on the Corporation's financial statements.

Effects of Newly Issued But Not Yet Effective Accounting Standards

In December 2019, the FASB issued ASU 2019-12 "Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes." These amendments remove specific exceptions to the general principles in Topic 740 in GAAP.

It eliminates the need for an organization to analyze whether the following apply in a given period:

exception to the incremental approach for intraperiod tax allocation;

exceptions to accounting for basis differences where there are ownership changes in foreign investments;

and exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses.

It also improves financial statement preparers' application of income tax- related guidance and simplifies GAAP for:

franchise taxes that are partially based on income;

transactions with a government that result in a step up in the tax basis of goodwill;

separate financial statements of legal entities that are not subject to tax;

and enacts changes in tax laws in interim periods.

The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.

Early adoption is permitted.

The Corporation is currently evaluating the impact of ASU 2019-12 on the Corporation's consolidated financial statements.

In March 2020, the FASB issued ASU No.

2020-04, "Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting." The amendments in this update provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting.

It provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.

The amendments in this update are effective for all entities as of March 12, 2020 through December 31, 2022.

The Corporation is currently evaluating the impact of the reference rate reform on the Corporation's consolidated financial statements.

Reclassifications

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Business Combinations

On December 18, 2019, CNB Financial Corporation (“CNB"), CNB Bank (“CNB Bank") and Bank of Akron (“Akron") entered into an Agreement and Plan of Merger (the “Agreement"), pursuant to which CNB will acquire Akron.

Under the terms of the Agreement, Akron will be merged with and into CNB Bank (the “Merger") with CNB Bank continuing as the surviving entity.

At September 30, 2019, Akron had $ 388.9 million in assets, $ 339.7 million in deposits and $ 38.4 million in shareholders' equity.

Following the completion of the Merger, Akron will operate as part of CNB’s BankOnBuffalo division.

The Agreement provides that shareholders of Akron will have the right to elect to receive, for each share of Akron common stock, either (x) $ 215.00 in cash or (y) 6.6729 shares of CNB common stock.

Elections will be subject to proration procedures whereby at least 75 % of Akron shares will be exchanged for CNB common stock.

The transaction is subject to customary closing conditions, including the receipt of approval from the shareholders of Akron and regulatory approvals, and is expected to be completed in the third quarter of 2020.

Securities available-for-sale at December 31, 2019 and 2018 are as follows:

December 31, 2019

December 31, 2018

On July 17, 2020, the Corporation completed its previously announced acquisition of Bank of Akron, pursuant to the Merger Agreement.

Under the terms of the Merger Agreement, Bank of Akron merged with and into CNB Bank (the "Merger"), with CNB Bank continuing as the surviving entity.

Banking offices of Bank of Akron will operate under the trade name BankOnBuffalo, a division of CNB Bank.

Pursuant to the Merger Agreement, for each share of Bank of Akron common stock, Bank of Akron shareholders were entitled to elect to receive either (x) $ 215.00 in cash or (y) 6.6729 shares of the Corporation's common stock and also received cash in lieu of fractional shares.

Elections were subject to proration procedures whereby at least 75 % of the shares of Bank of Akron common stock were exchanged for shares of the Corporation's common stock.

Based on the elections and proration procedures, the total consideration payable to Bank of Akron shareholders was approximately $ 40.8 million, comprised of approximately $ 16.1 million in cash and 1,501,321 shares of the Corporation's common stock, net of fractional shares, valued at approximately $ 24.7 million based on the July 17, 2020 closing price of $ 16.43 per share of the Corporation's common stock.

Bank of Akron's results of operations were included in the Corporation's results of operations beginning July 17, 2020.

The Corporation incurred $ 4.0 million of merger-related expenses during the year ended December 31, 2020, consisting largely of professional services of attorneys, accountants, investment bankers and other advisors.

There were $ 170 thousand in merger-related expenses incurred during the year ended December 31, 2019.

July 17, 2020

Merger consideration

Value of stock consideration assigned to Bank of Akron common shares exchanged for stock paid to shareholders

Value of cash consideration for Bank of Akron common stock exchanged for cash

Total merger consideration $ 40,793

Core deposit intangible ("CDI") of $ 613 thousand and goodwill of $ 5.0 million were recognized as a result of the acquisition.

Goodwill represents the future economic benefits arising from net assets acquired that are not individually identified and separately recognized and is attributable to synergies expected to be derived from the combination of the two entities.

Goodwill recognized in this transaction is not deductible for income tax purposes.

July 17, 2020

Identifiable net assets acquired, at fair value

Assets acquired

Cash and due from banks $ 78,830

Interest bearing deposits with other banks 10,148

Investment securities 29,407

Loans, net of allowance for credit losses on PCD loans 319,063

Premises and equipment, net 4,265

Core deposit intangible 613

Deferred tax assets 2,777

Bank owned life insurance 8,187

Accrued interest receivable and other assets 5,307

Total assets acquired $ 458,597

Liabilities assumed

Deposits $ 419,475

Accrued interest payable and other liabilities 3,348

Total liabilities assumed 422,823

Total fair value of identifiable net assets 35,774

Total merger consideration 40,793

Goodwill recognized $ 5,019

The Corporation accounted for this transaction under the acquisition method of accounting in accordance with ASC 805, Business Combinations, which requires purchased assets and liabilities assumed and consideration exchanged to be recorded at their respective estimated fair values at the date of acquisition.

The determination of estimated fair values required management to make certain estimates about discount rates, future expected cash flows, market conditions at the time of the acquisition and other future events that are highly subjective in nature and subject to refinement for up to one year after the closing date of acquisition as additional information relative to the closing date fair values becomes available and such information is considered final, whichever is earlier.

The calculation of goodwill is subject to change for up to one year after closing date of the transaction as additional information relative to closing date estimates and uncertainties becomes available.

Financial assets acquired in a business combination after January 1, 2020 are recorded in accordance with ASC Topic 326, after which acquired assets are separated into two types.

Purchased credit deteriorated ("PCD") assets are acquired assets that, as of the acquisition date, have experienced a more-than-insignificant deterioration in credit quality since origination.

Non-PCD assets are acquired assets that have experienced no or insignificant deterioration in credit quality since origination.

To distinguish between the two types of acquired assets, the Corporation evaluates risk characteristics that have been determined to be indicators of deteriorated credit quality.

In the case of loans, the determining criteria may involve general characteristics, such as loan payment history or changes in creditworthiness since the loan was originated, while others are relevant to recent economic conditions, such as borrowers in industries impacted by the COVID-19 pandemic.

The estimated fair values of the securities were calculated utilizing Level 2 inputs.

The securities acquired are bought and sold in active markets.

Prices for these instruments were obtained through security industry sources that actively participate in the buying and selling of securities.

Bank of Akron’s loan portfolio was recorded at fair value at the date of acquisition.

A valuation of Bank of Akron’s loan portfolio was performed as of the acquisition date in accordance with ASC 820 to assess the fair value of the loan portfolio, considering adjustments for market discount rates, credit, and liquidity.

The loan portfolio was segmented into two groups:

non-PCD loans and PCD loans.

The non-PCD loans were pooled based on similar characteristics, such as loan type, fixed or adjustable interest rates, payment type, index rate and caps/floors, and non-accrual status.

The PCD loans were valued on a pooled basis and at the loan level with similar characteristics noted above.

Premises and Equipment

Fair values are based upon appraisal values.

In addition to owned properties, Bank of Akron operated one property subject to a lease agreement.

Core deposit intangible

The CDI on non-maturing deposits was determined by evaluating the underlying characteristics of the deposit relationships, including customer attrition, deposit interest rates and maintenance costs, fee income and costs of alternative funding using the discounted cash flow approach.

The core deposit intangibles represent the costs saved by the Corporation between maintaining the existing deposits and obtaining alternative funds over the life of the deposit base.

Fixed maturity deposits

In determining the fair value of certificates of deposit, the cash flows of the contractual interest payments during the specific period of the certificates of deposit and scheduled principal payout were discounted to present value at market-based interest rates.

Supplemental Pro Forma Financial Information

The following table presents certain unaudited pro forma financial information for illustrative purposes only, for the year ended December 31, 2020 and 2019, respectively, as if Bank of Akron had been acquired on January 1, 2019.

This unaudited pro forma information combines the historical results of Bank of Akron with the Corporation’s consolidated historical results and includes certain adjustments reflecting the estimated impact of certain fair value adjustments for the respective periods.

The pro forma information is not indicative of what would have occurred had the acquisition occurred as of the beginning of the year prior to the acquisition.

The unaudited pro forma information does not consider any changes to the provision expense resulting from recording loan assets at fair value, cost savings or business synergies.

As a result, actual amounts would have differed from the unaudited pro forma information presented and the differences could be significant.

December 31, 2020 December 31, 2019

Net interest income $ 137,097 $ 119,062

Net income $ 34,628 $ 42,343

Basic earnings per common share $ 2.01 $ 2.54

Diluted earnings per common share $ 2.01 $ 2.54

Securities available-for-sale at December 31, 2020 and December 31, 2019 are as follows:

December 31, 2020 December 31, 2019

Amortized Gross Unrealized Fair Amortized Unrealized Fair

Cost Gains Losses Value Cost Gains Losses Value

Gov’t sponsored entities $ 150,404 $ 6,698 $ ( 60 ) $ 157,042 $ 124,189 $ 2,924 $ ( 19 ) $ 127,094

2 unchanged sentences

Corporate notes & bonds 15,221 105 ( 400 ) 14,926 8,350 14 ( 282 ) 8,082

At December 31, 2019 and 2018 , there were no holdings of securities by any one issuer, other than U.S.

Government sponsored entities, in an amount greater than 10 % of shareholders’ equity.

The Corporation’s residential and multi-family mortgage securities are issued by government sponsored entities, and the Corporation holds one commercial mortgage security that is private label.

Trading securities at December 31, 2019 and 2018 are as follows:

Corporate equity securities

Certificates of deposit

Corporate notes and bonds

Government sponsored entities

Securities with unrealized losses at December 31, 2019 and 2018 , aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows:

Pooled SBA 24,975 912 ( 1 ) 25,886 25,063 274 ( 163 ) 25,174

Other 1,020 0 ( 41 ) 979 1,020 0 ( 56 ) 964

Total $ 565,493 $ 20,177 $ ( 762 ) $ 584,908 $ 533,203 $ 10,617 $ ( 1,507 ) $ 542,313

Information pertaining to security sales is as follows:

Year ended December 31 Proceeds Gross Gains Gross Losses

2020 $ 57,185 $ 2,257 $ 67

2019 11,403 152 4

The tax provision related to these net realized gains at December 31, 2020, 2019 and 2018 was $ 460 , $ 31 , and $ 0 , respectively.

The following is a schedule of the contractual maturity of securities available for sale, excluding other securities, at December 31, 2020:

December 31, 2020

Less than 12 Months

12 Months or More

Description of Securities

Amortized Cost Fair Value

1 year or less $ 53,144 $ 53,448

1 year – 5 years 109,071 112,643

5 years – 10 years 61,604 66,743

After 10 years 10,645 10,996

234,464 243,830

Residential and multi-family mortgage 306,054 315,192

Pooled SBA 24,975 25,886

Total debt securities $ 565,493 $ 584,908

Mortgage securities and pooled SBA securities are not due at a single date;

periodic payments are received based on the payment patterns of the underlying collateral.

On December 31, 2020 and December 31, 2019, securities carried at $ 453,407 and $ 405,200 , respectively, were pledged to secure public deposits and for other purposes as provided by law.

At December 31, 2020 and December 31, 2019, there were no holdings of securities by any one issuer, other than U.S.

Government sponsored entities, in an amount greater than 10 % of shareholders’ equity.

Securities with unrealized losses at December 31, 2020 and December 31, 2019, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows:

December 31, 2020 Less than 12 Months 12 Months or More Total

Description of Securities Fair

Value Unrealized

Gov’t sponsored entities $ 24,991 $ ( 60 ) 0 0 $ 24,991 $ ( 60 )

2 unchanged sentences

Corporate notes & bonds 0 0 4,545 ( 400 ) 4,545 ( 400 )

December 31, 2018

Less than 12 Months

12 Months or More

Description of Securities

Pooled SBA 525 ( 1 ) 0 0 525 ( 1 )

Other 0 0 979 ( 41 ) 979 ( 41 )

$ 73,462 $ ( 199 ) $ 8,965 $ ( 563 ) $ 82,427 $ ( 762 )

December 31, 2019 Less than 12 Months 12 Months or More Total

Description of Securities Fair

Value Unrealized

Gov’t sponsored entities 7,040 ( 3 ) 14,989 ( 16 ) 22,029 ( 19 )

2 unchanged sentences

Corporate notes & bonds 0 0 4,718 ( 282 ) 4,718 ( 282 )

Pooled SBA 8,560 ( 80 ) 6,075 ( 83 ) 14,635 ( 163 )

Other 0 0 964 ( 56 ) 964 ( 56 )

58,267 ( 434 ) 59,985 ( 1,073 ) 118,252 ( 1,507 )

The Corporation evaluates securities for other-than-temporary impairment on a quarterly basis, or more frequently when economic or market conditions warrant such an evaluation.

During 2017 , two structured pooled trust preferred securities with an adjusted amortized cost of $ 800 were sold, resulting in a gain of $ 1,383 .

A roll-forward of the other-than-temporary impairment amount related to credit losses for the years ended December 31, 2019 , 2018 , and 2017 is as follows:

Balance of credit losses on debt securities for which a portion of other-than-temporary impairment was recognized in earnings, beginning of period

Credit losses previously recognized on securities sold during the period

Additional credit loss for which other-than-temporary impairment was not previously recognized

Additional credit loss for which other-than-temporary impairment was previously recognized

Balance of credit losses on debt securities for which a portion of other-than-temporary impairment was recognized in earnings, end of period

At December 31, 2020 and 2019, management performed an assessment for possible other-than-temporary impairment of the Corporation’s debt securities, relying on information obtained from various sources, including publicly available financial data, ratings by external agencies, brokers and other sources.

Based on the results of the assessment, management believes impairment of these debt securities at December 31, 2020 and 2019 to be temporary.

For the securities that comprise corporate notes and bonds and the securities that are issued by state and political subdivisions, management monitors publicly available financial information, such as filings with the Securities and Exchange Commission, in order to evaluate the securities for other-than-temporary impairment.

1 unchanged sentence

All other securities that were in an unrealized loss position at the balance sheet date were reviewed by management, and issuer-specific documents were reviewed as appropriate given the following considerations;

When reviewing securities for other-than-temporary impairment, management considers the financial condition and near-term prospects of the issuer and whether downgrades by bond rating agencies have occurred.

Management also considers the length of time and extent to which fair value has been less than cost, and whether management does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery.

the financial condition and near-term prospects of the issuer and whether downgrades by bond rating agencies have occurred, and whether management does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery.

As of December 31, 2020 and 2019, management concluded that the securities described in the previous paragraph were not other-than-temporarily impaired for the following reasons:

2 unchanged sentences

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

On December 31, 2019 and 2018 , securities carried at $ 268,447 and $ 290,717 , respectively, were pledged to secure public deposits and for other purposes as provided by law.

The following is a schedule of the contractual maturity of securities available for sale, excluding other securities, at December 31, 2019 :

December 31, 2019

Amortized Cost

1 year or less

1 year – 5 years

5 years – 10 years

After 10 years

Residential and multi-family mortgage

Total debt securities

Mortgage securities and pooled SBA securities are not due at a single date;

periodic payments are received based on the payment patterns of the underlying collateral.

Information pertaining to security sales is as follows:

Year ended December 31

The tax provision related to these net realized gains at December 31, 2019, 2018 and 2017 was $ 31 , $ 0 , and $ 540 , respectively.

During 2019 , 2018 , and 2017 , the Corporation sold trading securities.

Proceeds were $ 301 in 2019 , $ 455 in 2018 and $ 1,091 in 2017 , resulting in net realized gains of $ 16 in 2019 , $ 151 in 2018 , and $ 93 in 2017 .

Trading securities at December 31, 2020 and December 31, 2019 are as follows:

December 31, 2020 December 31, 2019

Corporate equity securities $ 4,343 $ 7,946

Mutual funds 1,283 807

Money market 404 350

Corporate notes and bonds 569 655

Government sponsored entities 50 51

Total $ 6,649 $ 9,809

During December 31, 2020, December 31, 2019, and December 31, 2018, the Corporation sold trading securities.

Proceeds were $ 5,935 in December 31, 2020, $ 301 in December 31, 2019 and $ 455 in December 31, 2018, resulting in net realized gains of $ 75 in December 31, 2020, $ 16 in December 31, 2019, and $ 151 in December 31, 2018.

During 2019, the Corporation sold Visa Class B shares.

The proceeds and realized gain related to the sale of the Visa Class B shares were $ 463 .

Total net loans at December 31, 2019 and 2018 are summarized as follows:

Total net loans at December 31, 2020 and December 31, 2019 are summarized as follows:

2020 Percentage

$ 23,316 0.7 %

Owner-occupied, nonfarm nonresidential properties

407,924 12.1 %

Agricultural production and other loans to farmers

Commercial and Industrial

663,550 19.7 %

Obligations (other than securities and leases) of states and political subdivisions

132,818 3.9 %

Other construction loans and all land development and other land loans 205,734 6.1 %

Multifamily (5 or more) residential properties

212,815 6.3 %

Non-owner occupied, nonfarm nonresidential properties

640,945 19.0 %

1-4 Family Construction 27,768 0.8 %

Home equity lines of credit 109,444 3.2 %

Residential Mortgages secured by first liens 777,030 23.0 %

Residential Mortgages secured by junior liens 53,726 1.6 %

Other revolving credit plans 25,507 0.8 %

Automobile 25,344 0.8 %

Other consumer 42,792 1.3 %

Credit cards 8,115 0.2 %

Overdrafts 336 0.0 %

Total loans $ 3,371,789 100.0 %

Allowance for credit losses ( 34,340 )

Loans, net $ 3,337,449

Net deferred loan origination fees (costs) and unearned discount included in the above loan table $ 8,789

2019 Percentage

Commercial, industrial, and agricultural $ 1,046,665 37.3 %

1 unchanged sentence

Residential real estate 814,030 29.0 %

Consumer 124,785 4.5 %

Credit cards 7,569 0.3 %

Overdrafts 2,146 0.1 %

unearned discount ( 5,162 ) ( 0.2 ) %

Total loans $ 2,804,035 100.0 %

Allowance for loan losses ( 19,473 )

At December 31, 2019 and 2018 net unamortized fees of $ 3,092 and $ 3,175 , respectively, have been included in the carrying value of loans.

Loans, net $ 2,784,562

Net deferred loan origination fees (costs) included in the above loan table $ 3,092

The Corporation’s outstanding loans and related unfunded commitments are primarily concentrated within central and northwest Pennsylvania, central and northeast Ohio, and western New York.

4 unchanged sentences

These policies are prepared by the Corporation’s management and reviewed and ratified annually by the Corporation’s Board of Directors.

Pursuant to the Corporation’s lending policies, management considers a variety of factors when determining whether to extend credit to a customer, including loan-to-value ratios, FICO scores, quality of the borrower’s financial statements, and the ability to obtain personal guarantees.

Commercial, industrial, and agricultural loans comprised 37 % and 37 % of the Corporation’s total loan portfolio at December 31, 2019 and 2018 , respectively.

Commercial mortgage loans comprised 29 % and 28 % of the Corporation’s total loan portfolio at December 31, 2019 and 2018 , respectively.

Management assigns a risk rating to all commercial loans at loan origination.

The loan-to-value policy guidelines for commercial, industrial, and agricultural loans are generally a maximum of 80 % of the value of business equipment, a maximum of 75 % of the value of accounts receivable, and a maximum of 60 % of the value of business inventory at loan origination.

The loan-to-value policy guideline for commercial mortgage loans is generally a maximum of 85 % of the appraised value of the real estate.

Residential real estate loans comprised 29 % and 31 % of the Corporation’s total loan portfolio at December 31, 2019 and 2018 , respectively.

The loan-to-value policy guidelines for residential real estate loans vary depending on the collateral position and the specific type of loan.

Higher loan-to-value terms may be approved with the appropriate private mortgage insurance coverage.

The Corporation also originates and prices loans for sale into the secondary market.

Loans so originated are classified as loans held for sale and are excluded from residential real estate loans reported above.

The rationale for these sales is to mitigate interest rate risk associated with holding lower rate, long-term residential mortgages in the loan portfolio and to generate fee revenue from sales and servicing the loan.

The Corporation also offers a variety of unsecured and secured consumer loan and credit card products which represent less than 5 % of the total loan portfolio at both December 31, 2019 and 2018 .

Terms and collateral requirements vary depending on the size and nature of the loan.

Transactions in the allowance for loan losses for the year ended December 31, 2019 were as follows:

Industrial, and

Allowance for loan losses, January 1, 2019

Provision for loan losses

Allowance for loan losses, December 31, 2019

As a result of the adoption of ASC 326 effective January 1, 2020, there is a lack of comparability in both the allowance and provisions for credit losses for the periods presented.

Results for reporting periods beginning after January 1, 2020 (as reflected in the table below) are presented using the CECL methodology, while comparative period information continues to be reported in accordance with the incurred loss methodology in effect for prior fiscal years.

See Note 1, "Summary of Significant Accounting Policies," for details regarding the adoption of ASC 326.

At December 31, 2020, the Corporation incorporated the loans acquired through Bank of Akron and evaluated its qualitative factors as a result of the COVID-19 pandemic.

As a result, at December 31, 2020, the Corporation added a qualitative factor related to the unfavorable economic environment driven by the COVID-19 pandemic.

Management evaluates the factor based upon internal and external expectations of economic activity.

Management also included a qualitative factor related to loans with payment deferrals specifically related to the COVID-19 pandemic.

Transactions in the allowance for credit losses for the year ended December 31, 2020 were as follows:

(Before ASC 326 Adoption) Impact of ASC 326 Adoption Initial Allowance on Loans Purchased with Credit Deterioration (Charge-offs) Recoveries Provision (Benefit) for Credit Loss Expense Ending Allowance (After ASC 326 Adoption)

$ 190 $ 61 $ 0 $ 0 $ 0 $ ( 30 ) $ 221

Owner-occupied, nonfarm nonresidential properties

2,390 ( 754 ) 82 ( 61 ) 12 2,031 3,700

Agricultural production and other loans to farmers

25 5 0 0 0 ( 6 ) 24

Commercial and Industrial

4,105 ( 631 ) 216 ( 2,779 ) 39 5,283 6,233

Obligations (other than securities and leases) of states and political subdivisions

1,022 ( 231 ) 0 0 0 207 998

41 8 0 0 0 19 68

Other construction loans and all land development and other land loans 2,327 780 228 0 125 ( 1,504 ) 1,956

Multifamily (5 or more) residential properties

1,087 312 24 0 0 1,301 2,724

Non-owner occupied, nonfarm nonresidential properties

3,980 2,547 335 ( 1,522 ) 52 3,266 8,658

1-4 Family Construction 56 ( 35 ) 0 0 0 61 82

Home equity lines of credit 180 421 22 ( 6 ) 1 367 985

Residential Mortgages secured by first liens 1,220 1,100 73 ( 285 ) 65 2,366 4,539

Residential Mortgages secured by junior liens 114 135 0 ( 158 ) 2 148 241

Other revolving credit plans 296 378 0 ( 137 ) 21 ( 51 ) 507

Automobile 156 ( 96 ) 0 ( 29 ) 2 99 132

Other consumer 1,960 1,021 0 ( 1,513 ) 130 1,364 2,962

Credit cards 84 ( 58 ) 0 ( 153 ) 14 179 66

Overdrafts 240 0 0 ( 435 ) 185 254 244

Total loans $ 19,473 $ 4,963 $ 980 $ ( 7,078 ) $ 648 $ 15,354 $ 34,340

Transactions in the allowance for loan losses for the year ended December 31, 2019 were as follows:

Industrial, and

Agricultural Commercial

Mortgages Residential

Estate Consumer Credit

Cards Overdrafts Total

Allowance for loan losses, January 1, 2019 $ 7,341 $ 7,490 $ 2,156 $ 2,377 $ 103 $ 237 $ 19,704

Charge-offs ( 205 ) ( 3,391 ) ( 386 ) ( 2,200 ) ( 116 ) ( 453 ) ( 6,751 )

Recoveries 17 124 73 154 15 113 496

Provision for loan losses 1,134 2,729 ( 344 ) 2,080 82 343 6,024

2 unchanged sentences

Industrial, and

Agricultural Commercial

Mortgages Residential

Estate Consumer Credit

Cards Overdrafts Total

Allowance for loan losses, January 1, 2018 $ 6,160 $ 9,007 $ 2,033 $ 2,179 $ 120 $ 194 $ 19,693

Charge-offs ( 253 ) ( 3,337 ) ( 315 ) ( 2,279 ) ( 90 ) ( 319 ) ( 6,593 )

Recoveries 171 30 67 141 33 90 532

Provision for loan losses 1,263 1,790 371 2,336 40 272 6,072

Allowance for loan losses, December 31, 2018 $ 7,341 $ 7,490 $ 2,156 $ 2,377 $ 103 $ 237 $ 19,704

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and is based on the Corporation’s impairment method as of December 31, 2019 and 2018 .

The recorded investment in loans excludes accrued interest and unearned discounts due to their insignificance.

December 31, 2019

Industrial, and

Allowance for loan losses:

Ending allowance balance attributable to loans:

Individually evaluated for impairment

Collectively evaluated for impairment

Acquired with deteriorated credit quality

Modified in a troubled debt restructuring

Total ending allowance balance

Individually evaluated for impairment

Collectively evaluated for impairment

Acquired with deteriorated credit quality

Modified in a troubled debt restructuring

Total ending loans balance

December 31, 2018

December 31, 2019 Commercial,

Industrial, and

Agricultural Commercial

Mortgages Residential

Estate Consumer Credit

Cards Overdrafts Total

Allowance for loan losses:

10 unchanged sentences

Total ending loans balance $ 1,046,665 $ 814,002 $ 814,030 $ 124,785 $ 7,569 $ 2,146 $ 2,809,197

The following tables present information related to loans individually evaluated for impairment, including loans modified in troubled debt restructurings, by portfolio segment as of December 31, 2019 and 2018 and for the years ended December 31, 2019 , 2018 , and 2017 , respectively.

December 31, 2019

Unpaid Principal Balance

Recorded Investment

Allowance for Loan Losses Allocated

With an allowance recorded:

Commercial, industrial, and agricultural

Commercial mortgage

Residential real estate

With no related allowance recorded:

Commercial, industrial, and agricultural

Commercial mortgage

Residential real estate

December 31, 2018

Unpaid Principal Balance

Recorded Investment

Allowance for Loan Losses Allocated

With an allowance recorded:

Commercial, industrial, and agricultural

Commercial mortgage

Residential real estate

With no related allowance recorded:

Commercial, industrial, and agricultural

Commercial mortgage

Residential real estate

The unpaid principal balance of impaired loans includes the Corporation's recorded investment in the loan and the amount that have been charged off.

Year Ended December 31, 2019

The following tables present information related to loans individually evaluated for impairment, including loans modified in troubled debt restructurings, by portfolio segment as of December 31, 2019 and for the years ended December 31, 2019, and December 31, 2018, respectively.

December 31, 2019 Unpaid Principal Balance Recorded Investment Allowance for Loan Losses Allocated

With an allowance recorded:

6 unchanged sentences

Residential real estate 0 0 0

Total $ 24,431 $ 20,755 $ 2,301

The unpaid principal balance of impaired loans includes the Corporation's recorded investment in the loan and the amount that have been recorded as charge-offs.

Year Ended December 31, 2019

Investment Interest

Recognized Cash Basis

With an allowance recorded:

2 unchanged sentences

Residential real estate 191 13 13

Overdrafts 0 0 0

With no related allowance recorded:

2 unchanged sentences

Residential real estate 294 11 11

Overdrafts 0 0 0

Total $ 17,725 $ 599 $ 599

Year Ended December 31, 2018

Investment Interest

Recognized Cash Basis

With an allowance recorded:

2 unchanged sentences

Residential real estate 304 20 19

Overdrafts 2 0 0

With no related allowance recorded:

2 unchanged sentences

Residential real estate 0 0 0

The following table presents the recorded investment in nonaccrual loans and loans past due over 90 days still on accrual by class of loans as of December 31, 2019 and 2018 :

December 31, 2019

Total $ 20,715 $ 915 $ 886

The following tables present the amortized cost basis of loans on nonaccrual status and loans past due over 89 days still accruing as of December 31, 2020:

Nonaccrual Nonaccrual With No Allowance for Credit Loss Loans Past Due over 89 Days Still Accruing

$ 1,844 $ 51 $ 0

Owner-occupied, nonfarm nonresidential properties

Commercial and Industrial

Other construction loans and all land development and other land loans 2,349 77 0

Multifamily (5 or more) residential properties

Non-owner occupied, nonfarm nonresidential properties

Home equity lines of credit 685 685 0

Residential Mortgages secured by first liens 4,175 3,495 283

Residential Mortgages secured by junior liens 114 114 0

Other revolving credit plans 6 6 0

Automobile 32 32 0

Other consumer 496 496 8

Credit cards 0 0 34

Total loans $ 30,359 $ 6,723 $ 325

The following table presents the recorded investment in nonaccrual loans and loans past due over 90 days still on accrual by class of loans as of December 31, 2019:

December 31, 2019

Still on Accrual

Nonaccrual Past Due

Still on Accrual

2 unchanged sentences

Residential real estate 4,724 59

Consumer 835 0

Credit cards 0 2

Total $ 21,736 $ 61

Nonaccrual loans and loans past due over 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

The following table presents the aging of the recorded investment in past due loans as of December 31, 2019 and 2018 by class of loans.

December 31, 2019

Commercial, industrial, and agricultural

Commercial mortgages

Residential real estate

December 31, 2018

The following tables present the amortized cost basis of collateral-dependent loans by class of loans as of December 31, 2020:

Real Estate Collateral Non-Real Estate Collateral

Owner-occupied, nonfarm nonresidential properties

Commercial and Industrial

Other construction loans and all land development and other land loans 2,272 0

Multifamily (5 or more) residential properties

Non-owner occupied, nonfarm nonresidential properties

Residential Mortgages secured by first liens 1,135 0

Total loans $ 15,439 $ 7,067

The following table presents the aging of the amortized cost basis in past-due loans as of December 31, 2020 by class of loans:

Days Past Due 60 - 89

Days Past Due Greater Than 89

Days Past Due Total Past Due Loans Not Past Due Total

$ 195 $ 0 $ 1,211 $ 1,406 $ 21,910 $ 23,316

Owner-occupied, nonfarm nonresidential properties

10 885 732 1,627 406,297 407,924

Agricultural production and other loans to farmers

0 0 0 0 2,664 2,664

Commercial and Industrial

476 335 3,887 4,698 658,852 663,550

Obligations (other than securities and leases) of states and political subdivisions

0 0 0 0 132,818 132,818

0 0 0 0 11,961 11,961

Other construction loans and all land development and other land loans 0 0 1,917 1,917 203,817 205,734

Multifamily (5 or more) residential properties

0 0 0 0 212,815 212,815

Non-owner occupied, nonfarm nonresidential properties

314 156 10,184 10,654 630,291 640,945

1-4 Family Construction 0 0 0 0 27,768 27,768

Home equity lines of credit 166 235 486 887 108,557 109,444

Residential Mortgages secured by first liens 2,834 629 1,911 5,374 771,656 777,030

Residential Mortgages secured by junior liens 8 0 66 74 53,652 53,726

Other revolving credit plans 36 19 0 55 25,452 25,507

Automobile 73 0 9 82 25,262 25,344

Other consumer 246 132 245 623 42,169 42,792

Credit cards 72 39 34 145 7,970 8,115

Overdrafts 0 0 0 0 336 336

Total loans $ 4,430 $ 2,430 $ 20,682 $ 27,542 $ 3,344,247 $ 3,371,789

The following table presents the aging of the recorded investment in past due loans as of December 31, 2019 by class of loans.

December 31, 2019 30-59 Days

Past Due 60-89 Days

Past Due Greater Than

Past Due Total

Past Due Loans Not

Past Due Total

Commercial, industrial, and agricultural $ 1,273 $ 548 $ 3,784 $ 5,605 $ 1,041,060 $ 1,046,665

1 unchanged sentence

Residential real estate 3,383 1,270 2,714 7,367 806,663 814,030

Consumer 412 311 415 1,138 123,647 124,785

Credit cards 48 54 2 104 7,465 7,569

Overdrafts 0 0 0 0 2,146 2,146

Total $ 5,278 $ 2,366 $ 9,509 $ 17,153 $ 2,792,044 $ 2,809,197

Troubled Debt Restructurings

During the years ended December 31, 2019 and 2018 , the terms of certain loans were modified as troubled debt restructurings.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without a loan modification.

This evaluation is performed using the Corporation’s internal underwriting policies.

The Corporation has no further loan commitments to customers whose loans are classified as a troubled debt restructuring.

During the years ended December 31, 2020 and December 31, 2019, the terms of certain loans were modified as troubled debt restructurings.

The modification of the terms of such loans included either or both of the following:

1 unchanged sentence

or an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk.

The following table presents the number of loans, loan balances, and specific reserves for loans that have been restructured in a troubled debt restructuring as of December 31, 2019 and December 31, 2018 .

December 31, 2019

December 31, 2018

Commercial, industrial, and agricultural

Commercial mortgages

Residential real estate

The following table presents loans by class modified as troubled debt restructurings that occurred during the years ended December 31, 2019 , 2018 , and 2017 :

The Corporation had an amortized cost in troubled debt restructurings of $ 15,088 and $ 10,951 as of December 31, 2020 and 2019, respectively.

The following table presents loans by class modified as troubled debt restructurings that occurred during the years ended December 31, 2020, December 31, 2019, and December 31, 2018:

Year Ended December 31, 2020

Pre-Modification

Loans Pre-Modification

Outstanding Recorded

Post-Modification

Investment Post-Modification

Outstanding Recorded

Commercial, industrial, and agricultural

Commercial mortgages

Residential real estate

Owner-occupied, nonfarm nonresidential properties

1 $ 260 $ 260

Commercial and Industrial

6 1,140 1,140

Other construction loans and all land development and other land loans 1 46 46

Non-owner occupied, nonfarm nonresidential properties

1 3,684 3,684

Residential Mortgages secured by first liens 2 309 309

Total loans 11 $ 5,439 $ 5,439

Year Ended December 31, 2019

Pre-Modification

Loans Pre-Modification

Outstanding Recorded

Post-Modification

Investment Post-Modification

Outstanding Recorded

2 unchanged sentences

Residential real estate 0 0 0

Consumer 0 0 0

Credit cards 0 0 0

Total 1 $ 383 $ 383

Year Ended December 31, 2018

Pre-Modification

Loans Pre-Modification

Outstanding Recorded

Post-Modification

Investment Post-Modification

Outstanding Recorded

2 unchanged sentences

Residential real estate 0 0 0

The troubled debt restructurings described above increased the allowance for loan losses by $ 0 , $ 351 and $ 4,024 during the years ended December 31, 2019 , 2018 , and 2017 , respectively.

Modifications involving a reduction of the stated interest rate of the loan were for periods ranging from 4 - 18 years .

Modifications involving an extension of the maturity date were for periods ranging from 4 - 18 years .

Consumer 0 0 0

Credit cards 0 0 0

Total 5 $ 1,570 $ 1,570

The troubled debt restructurings described above increased the allowance for credit losses by $ 0 , $ 0 and $ 351 during the years ended December 31, 2020, December 31, 2019, and December 31, 2018, respectively.

A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.

Except as discussed below, all loans modified in troubled debt restructurings are performing in accordance with their modified terms as of December 31, 2019 and 2018 and no principal balances were forgiven in connection with the loan restructurings.

During the year ended December 31, 2019 one impaired commercial real estate loan with a balance of $ 381 as of December 31, 2019 was modified in troubled debt restructurings.

The Corporation recorded no additional provision for loan losses and there was no chargeoff for this loan during the year ended December 31, 2019 .

During the year ended December 31, 2018 five impaired commercial real estate loans totaling $ 1,677 were modified in troubled debt restructurings.

The Corporation recorded an additional provision for loan losses of $ 351 and there were no chargeoffs for these loans during the year ended December 31, 2018.

During the year ended December 31, 2018, one impaired commercial real estate loan that was modified in a troubled debt restructuring in 2017 began not to perform in accordance with its modified terms.

As a result, an additional provision for loan losses of $ 1,847 was recorded, and the Corporation recorded a partial chargeoff of the loan of $ 3,336 during the year ended December 31, 2018.

During the year ended December 31, 2017 four impaired commercial industrial loans totaling $ 2,750 were modified in troubled debt restructurings.

The Corporation did no t record any additional provision for loan losses and there were no chargeoffs or defaults for these loans during the year ended December 31, 2017.

During the year ended December 31, 2017 two impaired commercial real estate loans totaling $ 6,421 were modified in troubled debt restructurings.

The Corporation recorded an additional provision for loan losses of $ 3,895 and there were no chargeoffs or defaults for these loans during the year ended December 31, 2017.

This evaluation is performed using the Corporation’s internal underwriting policies.

The Corporation has no further loan commitments to customers whose loans are classified as a troubled debt restructuring.

All loans modified in troubled debt restructurings are performing in accordance with their modified terms as of December 31, 2020 and December 31, 2019 and no principal balances were forgiven in connection with the loan restructurings.

Generally, nonperforming troubled debt restructurings are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time (generally six months) and the ultimate collectability of the total contractual principal and interest is no longer in doubt.

Credit Quality Indicators

The Corporation classifies commercial, industrial, and agricultural loans and commercial mortgage loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors.

The Corporation categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as:

current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors.

The Corporation analyzes loans individually to classify the loans as to credit risk.

The Corporation uses the following definitions for risk ratings:

6 unchanged sentences

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

The following tables detail the amortized cost of loans, by year of origination (for term loans) and by risk grade within each portfolio segment as of December 31, 2020.

The current period originations may include modifications, extensions and renewals.

Term Loans Amortized Cost Basis by Origination Year

2020 2019 2018 2017 2016 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total

Pass $ 1,617 $ 4,448 $ 3,767 $ 3,648 $ 894 $ 5,280 $ 662 $ 0 $ 20,316

Special mention 1,156 0 0 0 0 0 0 0 1,156

Substandard 0 0 0 51 582 1,211 0 0 1,844

Doubtful 0 0 0 0 0 0 0 0 0

Total $ 2,773 $ 4,448 $ 3,767 $ 3,699 $ 1,476 $ 6,491 $ 662 $ 0 $ 23,316

Owner-occupied, nonfarm nonresidential properties

Pass $ 86,694 $ 109,228 $ 52,818 $ 56,948 $ 26,119 $ 50,839 $ 9,253 $ 0 $ 391,899

Special mention 0 452 74 541 318 1,310 131 0 2,826

Substandard 1,021 2,449 2,438 938 3,675 2,430 248 0 13,199

Doubtful 0 0 0 0 0 0 0 0 0

Total $ 87,715 $ 112,129 $ 55,330 $ 58,427 $ 30,112 $ 54,579 $ 9,632 $ 0 $ 407,924

Agricultural production and other loans to farmers

Pass $ 267 $ 155 $ 601 $ 0 $ 54 $ 0 $ 1,587 $ 0 $ 2,664

Special mention 0 0 0 0 0 0 0 0 0

Substandard 0 0 0 0 0 0 0 0 0

Doubtful 0 0 0 0 0 0 0 0 0

Total $ 267 $ 155 $ 601 $ 0 $ 54 $ 0 $ 1,587 $ 0 $ 2,664

Commercial and Industrial

Pass $ 318,323 $ 54,620 $ 46,854 $ 32,426 $ 7,197 $ 7,265 $ 170,386 $ 0 $ 637,071

Special mention 127 1,017 3,489 712 300 1,033 4,690 0 11,368

Substandard 801 1,916 1,212 112 37 4,858 6,175 0 15,111

Doubtful 0 0 0 0 0 0 0 0 0

Total $ 319,251 $ 57,553 $ 51,555 $ 33,250 $ 7,534 $ 13,156 $ 181,251 $ 0 $ 663,550

Obligations (other than securities and leases) of states and political subdivisions

Pass $ 10,722 $ 12,279 $ 35,176 $ 20,891 $ 19,365 $ 24,789 $ 8,888 $ 0 $ 132,110

Special mention 0 0 0 0 0 0 0 0 0

Substandard 708 0 0 0 0 0 0 0 708

Doubtful 0 0 0 0 0 0 0 0 0

Total $ 11,430 $ 12,279 $ 35,176 $ 20,891 $ 19,365 $ 24,789 $ 8,888 $ 0 $ 132,818

Pass $ 7,268 $ 1,237 $ 386 $ 0 $ 0 $ 0 $ 3,070 $ 0 $ 11,961

Special mention 0 0 0 0 0 0 0 0 0

Substandard 0 0 0 0 0 0 0 0 0

Doubtful 0 0 0 0 0 0 0 0 0

Total $ 7,268 $ 1,237 $ 386 $ 0 $ 0 $ 0 $ 3,070 $ 0 $ 11,961

Term Loans Amortized Cost Basis by Origination Year

2020 2019 2018 2017 2016 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total

Other construction loans and all land development and other land loans

Pass $ 119,380 $ 52,078 $ 19,977 $ 2,300 $ 28 $ 1,895 $ 2,548 $ 0 $ 198,206

Special mention 1,417 672 29 3,303 0 190 0 0 5,611

Substandard 0 0 0 0 0 1,840 77 0 1,917

Doubtful 0 0 0 0 0 0 0 0 0

Total $ 120,797 $ 52,750 $ 20,006 $ 5,603 $ 28 $ 3,925 $ 2,625 $ 0 $ 205,734

Multifamily (5 or more) residential properties

Pass $ 73,572 $ 39,633 $ 26,230 $ 49,178 $ 4,086 $ 16,957 $ 1,907 $ 0 $ 211,563

Special mention 0 0 0 0 0 0 0 0 0

Substandard 6 753 288 205 0 0 0 0 1,252

Doubtful 0 0 0 0 0 0 0 0 0

Total $ 73,578 $ 40,386 $ 26,518 $ 49,383 $ 4,086 $ 16,957 $ 1,907 $ 0 $ 212,815

Non-owner occupied, nonfarm nonresidential properties

Pass $ 161,045 $ 127,518 $ 89,520 $ 55,966 $ 44,959 $ 105,962 $ 9,633 $ 0 $ 594,603

Special mention 99 895 2,111 3,969 835 4,137 450 0 12,496

Substandard 0 12,325 326 7,584 722 12,289 600 0 33,846

Doubtful 0 0 0 0 0 0 0 0 0

Total $ 161,144 $ 140,738 $ 91,957 $ 67,519 $ 46,516 $ 122,388 $ 10,683 $ 0 $ 640,945

Loans not rated as special mention, substandard, or doubtful are considered to be pass rated loans.

All loans included in the following tables have been assigned a risk rating within 12 months of the balance sheet date.

December 31, 2019

Commercial, industrial, and agricultural

Commercial mortgages

December 31, 2018

December 31, 2019 Pass Special

Mention Substandard Doubtful Total

Commercial, industrial, and agricultural $ 1,004,445 $ 16,696 $ 25,524 $ 0 $ 1,046,665

Commercial mortgages 780,798 18,837 14,367 0 814,002

The Corporation considers the performance of the loan portfolio and its impact on the allowance for loan losses.

For residential real estate, consumer, and credit card loan classes, the Corporation also evaluates credit quality based on the performance status of the loan, which was previously presented, and by payment activity.

Total $ 1,785,243 $ 35,533 $ 39,891 $ 0 $ 1,860,667

The Corporation considers the performance of the loan portfolio and its impact on the allowance for credit losses.

For 1-4 family construction, home equity lines of credit, residential mortgages secured by first liens, residential mortgages secured by junior liens, automobile, credit cards, other revolving credit plans and other consumer segments, the Corporation also evaluates credit quality based on the performance status the loan, which was previously presented, and by payment activity.

Nonperforming loans include loans on nonaccrual status and loans past due over 90 days and still accruing interest.

The following table presents the recorded investment in residential, consumer, and credit card loans based on performance status as of December 31, 2019 and December 31, 2018 :

The following tables detail the amortized cost of loans, by year of origination (for term loans) and by risk grade within each portfolio segment as of December 31, 2020.

The current period originations may include modifications, extensions and renewals.

Term Loans Amortized Cost Basis by Origination Year

2020 2019 2018 2017 2016 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total

1-4 Family Construction

Payment performance

Performing $ 16,081 $ 11,547 $ 140 $ 0 $ 0 $ 0 $ 0 $ 0 $ 27,768

Nonperforming 0 0 0 0 0 0 0 0 0

Total $ 16,081 $ 11,547 $ 140 $ 0 $ 0 $ 0 $ 0 $ 0 $ 27,768

Home equity lines of credit

Payment performance

Performing $ 19,764 $ 12,823 $ 12,842 $ 8,793 $ 8,182 $ 42,514 $ 3,841 $ 0 $ 108,759

Nonperforming 0 0 0 302 33 350 0 0 685

Total $ 19,764 $ 12,823 $ 12,842 $ 9,095 $ 8,215 $ 42,864 $ 3,841 $ 0 $ 109,444

Residential mortgages secured by first lien

Payment performance

Performing $ 211,910 $ 136,181 $ 93,588 $ 99,520 $ 62,312 $ 163,556 $ 5,505 $ 0 $ 772,572

Nonperforming 0 84 887 143 61 3,261 22 0 4,458

Total $ 211,910 $ 136,265 $ 94,475 $ 99,663 $ 62,373 $ 166,817 $ 5,527 $ 0 $ 777,030

Residential mortgages secured by junior liens

Payment performance

Performing $ 14,552 $ 12,255 $ 7,031 $ 5,660 $ 3,347 $ 10,389 $ 378 $ 0 $ 53,612

Nonperforming 0 0 0 0 19 95 0 0 114

Total $ 14,552 $ 12,255 $ 7,031 $ 5,660 $ 3,366 $ 10,484 $ 378 $ 0 $ 53,726

Other revolving credit plans

Payment performance

Performing $ 4,088 $ 4,516 $ 3,320 $ 3,149 $ 1,301 $ 9,127 $ 0 $ 0 $ 25,501

Nonperforming 0 0 4 0 0 2 0 0 6

Total $ 4,088 $ 4,516 $ 3,324 $ 3,149 $ 1,301 $ 9,129 $ 0 $ 0 $ 25,507

Payment performance

Performing $ 8,965 $ 8,595 $ 4,652 $ 1,635 $ 764 $ 701 $ 0 $ 0 $ 25,312

Nonperforming 0 4 0 6 0 22 0 0 32

Total $ 8,965 $ 8,599 $ 4,652 $ 1,641 $ 764 $ 723 $ 0 $ 0 $ 25,344

Other consumer

Payment performance

Performing $ 24,857 $ 11,183 $ 3,579 $ 796 $ 218 1 $ 1,654 $ 0 $ 0 $ 42,288

Nonperforming 82 264 75 13 0 70 0 0 504

Total $ 24,939 $ 11,447 $ 3,654 $ 809 $ 218 $ 1,724 $ 0 $ 0 $ 42,792

December 31, 2020

Payment performance

Performing $ 8,081

Nonperforming 34

Total $ 8,115

The following table presents the recorded investment in residential, consumer, and credit card loans based on performance status as of December 31, 2019:

December 31, 2019

Real Estate Consumer Credit

Performing $ 809,247 $ 123,950 $ 7,567

Nonperforming 4,783 835 2

Total $ 814,030 $ 124,785 $ 7,569

Purchased Credit Deteriorated Loans

The Corporation has purchased loans, for which there was, at acquisition, evidence of more than insignificant deterioration of credit quality since origination.

The carrying amount of those loans is as follows:

July 17, 2020

Purchase price of loans at acquisition $ 21,768

Allowance for credit losses at acquisition 980

Non-credit discount / (premium) at acquisition 1,063

Par value of acquired loans at acquisition $ 23,811

The Corporation’s portfolio of residential real estate and consumer loans maintained within Holiday Financial Services Corporation ("Holiday"), a subsidiary that offers small balance unsecured and secured loans, primarily collateralized by automobiles and equipment, to borrowers with higher risk characteristics than are typical in the Bank’s consumer loan portfolio, are considered to be subprime loans.

Holiday’s loan portfolio, included in consumer and residential loans above, is summarized as follows at December 31, 2019 and 2018 :

unearned discount

Foreclosed Assets

Foreclosed real estate is reported net of a valuation allowance and included in accrued interest receivable and other assets in the accompanying consolidated balance sheets.

Activity for the years ended December 31, 2019 , 2018 , and 2017 is as follows:

Holiday’s loan portfolio, included in consumer loans above, is summarized as follows at December 31, 2020 and December 31, 2019:

December 31, 2020 December 31, 2019

Gross consumer loans $ 27,998 $ 28,122

unearned discounts ( 5,181 ) ( 5,162 )

Total consumer loans, net of unearned discounts $ 22,817 $ 22,960

Real Estate Owned

Real estate owned is reported net of a valuation allowance and included in accrued interest receivable and other assets in the accompanying consolidated balance sheets.

Activity for the years ended December 31, 2020, December 31, 2019, and December 31, 2018 is as follows:

December 31, 2020 December 31, 2019 December 31, 2018

Balance, beginning of year $ 1,633 $ 418 $ 710

Sales (at carrying value)

Loans transferred to real estate owned 241 2,066 228

Sales of real estate owned (at carrying value) ( 1,012 ) ( 851 ) ( 520 )

Balance, end of year $ 862 $ 1,633 $ 418

Expenses related to foreclosed real estate include:

Net gain on sale

December 31, 2020 December 31, 2019 December 31, 2018

Net loss (gain) on sales $ 346 $ ( 377 ) $ ( 310 )

Operating expenses, net of rental income 240 316 283

$ 586 $ ( 61 ) $ ( 27 )

Fair Value Measurement

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

A fair value hierarchy has also been established which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

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

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

The fair values of most trading securities and securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).

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

Investment Securities :

The fair values of most trading securities and debt securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather relying on the securities’ relationship to other benchmark quoted securities (Level 2).

These models utilize the market approach with standard inputs that include, but are not limited to benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data.

For certain securities that observable inputs about the specific issuer are not available, fair values are estimated using observable data from other securities presumed to be similar or other market data on other similar securities (Level 3 inputs).

Derivatives :

The Corporation’s derivative instruments are interest rate swaps that are similar to those that trade in liquid markets.

As such, significant fair value inputs can generally be verified and do not typically involve significant management judgments (Level 2 inputs).

The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals prepared by third-parties.

As such, significant fair value inputs can generally be verified and do not typically involve significant management judgments (Level 2).

Individually Evaluated Loans :

The fair value of individually evaluated loans with specific allocations of the allowance for credit losses is generally based on recent real estate appraisals prepared by third-parties.

These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach.

2 unchanged sentences

Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

Assets and liabilities measured at fair value on a recurring basis are as follows at December 31, 2019 and 2018 :

Non-real estate collateral may be valued using an appraisal, net book value per the borrower's financial statements, or aging reports, adjusted or discounted based on management's historical knowledge, changes in market conditions from the time of the valuation, and management's expertise and knowledge of the client and client's business, resulting in a Level 3 fair value classification.

Individually evaluated loans are evaluated on a quarterly basis for additional impairment and adjusted in accordance with the allowance policy.

Assets and liabilities measured at fair value on a recurring basis are as follows at December 31, 2020 and December 31, 2019:

Fair Value Measurements at December 31, 2020 Using

Quoted Prices in

Description Total Quoted Prices in

Active Markets for

Identical Assets

Significant Other

Inputs (Level 2)

(Level 1) Significant Other

Inputs (Level 2) Significant

Securities Available For Sale:

3 unchanged sentences

Corporate notes and bonds 14,926 0 14,926 0

Pooled SBA 25,886 0 25,886 0

Other 979 979 0 0

Total Securities Available For Sale $ 584,908 $ 16,018 $ 568,826 $ 64

2 unchanged sentences

Corporate equity securities $ 4,343 $ 4,343 $ 0 $ 0

Mutual funds 1,283 1,283 0 0

Certificates of deposit 404 404 0 0

4 unchanged sentences

Fair Value Measurements at December 31, 2019 Using

Quoted Prices in

Description Total Quoted Prices in

Active Markets for

Identical Assets

Significant Other

Inputs (Level 2)

(Level 1) Significant Other

Inputs (Level 2) Significant

Securities Available For Sale:

3 unchanged sentences

Corporate notes and bonds 8,082 0 8,082 0

Pooled SBA 25,174 0 25,174 0

Other 964 964 0 0

Total Securities Available For Sale $ 542,313 $ 964 $ 538,554 $ 2,795

2 unchanged sentences

Corporate equity securities $ 7,946 $ 7,946 $ 0 $ 0

Mutual funds 807 807 0 0

Certificates of deposit 350 350 0 0

3 unchanged sentences

Interest rate swaps $ ( 2,362 ) $ 0 $ ( 2,362 ) $ 0

The table below presents a reconciliation of the fair value of securities available for sale measured on a recurring basis using significant unobservable inputs (Level 3) for the year ended December 31, 2019:

Residential and Multi-Family Mortgage

States and Political Subdivisions Residential & Multi-Family Mortgage

Balance, January 1, 2020 $ 0 $ 2,795

Purchases 422 0

Total gains or (losses):

Included in other comprehensive income (loss) 0 0

Transfers out of Level 3 ( 358 ) $ ( 2,795 )

Balance, December 31, 2020 $ 64 $ 0

There were no Level 3 financial instruments carried at fair value on a recurring basis at December 31, 2018.

Assets and liabilities measured at fair value on a non-recurring basis are as follows at December 31, 2019 and 2018 :

Residential & Multi-Family Mortgage

Balance, January 1, 2019 $ 0

Purchases 2,796

Total gains or (losses):

Included in other comprehensive income (loss) ( 1 )

Balance, December 31, 2019 $ 2,795

Assets and liabilities measured at fair value on a non-recurring basis are as follows at December 31, 2020 and December 31, 2019:

Fair Value Measurements at December 31, 2020 Using

Quoted Prices in

Description Total Quoted Prices in

Active Markets for

Identical Assets

Significant Other

(Level 1) Significant Other

Observable Inputs

Impaired loans:

Commercial, industrial, and agricultural

Commercial mortgages

(Level 2) Significant

Collateral-dependent loans:

Farmland $ 659 0 0 $ 659

Owner-occupied, nonfarm nonresidential properties 329 0 0 329

Commercial and industrial 3,680 0 0 3,680

Other construction loans and all land development loans and other land loans 1,790 0 0 1,790

Multifamily (5 or more) residential properties 0 0 0 0

Non-owner occupied, nonfarm nonresidential 9,622 0 0 9,622

Residential mortgages secured by first liens 659 0 0 659

Fair Value Measurements at December 31, 2019 Using

Quoted Prices in

Description Total Quoted Prices in

Active Markets for

Identical Assets

Significant Other

(Level 1) Significant Other

Observable Inputs

(Level 2) Significant

Impaired loans:

1 unchanged sentence

Commercial mortgages 1,147 0 0 1,147

The estimated fair values of impaired collateral dependent loans such as commercial or residential mortgages are determined primarily through third-party appraisals.

When a collateral dependent loan, such as a commercial or residential mortgage loan, becomes impaired, a decision is made regarding whether an updated certified appraisal of the real estate is necessary.

This decision is based on various considerations, including the age of the most recent appraisal, the loan-to-value ratio based on the original appraisal, and the condition of the property.

Appraised values are discounted to arrive at the estimated selling price of the collateral and a further reduction for estimated costs to sell the property is applied, which results in an amount that is considered to be the estimated fair value.

If a loan becomes impaired and the appraisal of related loan collateral is outdated, management applies an appropriate adjustment factor based on its experience with current valuations of similar collateral in determining the loan’s estimated fair value and resulting allowance for loan losses.

Third-party appraisals are not customarily obtained in respect of unimpaired loans, unless in management’s view changes in circumstances warrant obtaining an updated appraisal.

A loan is considered to be a collateral dependent loan when, based on current information and events, the Corporation expects repayment of the financial assets to be provided substantially through the operation or sale of the collateral and the Corporation has determined that the borrower is experiencing financial difficulty as of the measurement date.

The allowance for credit losses is measured by estimating the fair value of the loan based on the present value of expected cash flows, the market price of the loan, or the underlying fair value of the loan’s collateral.

For real estate loans, fair value of the loan’s collateral is determined by third-party appraisals, which are then adjusted for the estimated selling and closing costs related to liquidation of the collateral.

For this asset class, the actual valuation methods (income, sales comparable, or cost) vary based on the status of the project or property.

For example, land is generally based on the sales comparable method while construction is based on the income and/or sales comparable methods.

The unobservable inputs may vary depending on the individual assets with no one of the three methods being the predominant approach.

The Corporation reviews the third-party appraisal for appropriateness and may adjust the value downward to consider selling and closing costs.

For non-real estate loans, fair value of the loan’s collateral may be determined using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business.

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at December 31, 2020:

Unobservable Inputs

Impaired loans – commercial, industrial, and agricultural

Valuation of third party appraisal on underlying collateral

Loss severity rates

0%-100% (54%)

Impaired loans – commercial mortgages

Valuation of third party appraisal on underlying collateral

Loss severity rates

25%-100% (52%)

value Valuation

Technique Unobservable Inputs Range

Collateral-dependent loans - Farmland $ 659 Valuation of third party appraisal on underlying collateral Loss severity rates 45 %- 54 % ( 47 %)

Collateral-dependent loans - Owner-occupied, nonfarm nonresidential properties 329 Valuation of third party appraisal on underlying collateral Loss severity rates 60 %- 90 % ( 80 %)

Collateral-dependent loans - Commercial and industrial 3,680 Valuation of third party appraisal on underlying collateral Loss severity rates 0 %- 100 % ( 39 %)

Collateral-dependent loans - Other construction loans and all land development loans and other land loans 1,790 Valuation of third party appraisal on underlying collateral Loss severity rates 25 %- 41 % ( 28 %)

Collateral-dependent loans - Multifamily (5 or more) residential properties 0 Valuation of third party appraisal on underlying collateral Loss severity rates 58 % ( 58 %)

Collateral-dependent loans - Non-owner occupied, nonfarm nonresidential 9,622 Valuation of third party appraisal on underlying collateral Loss severity rates 25 %- 100 % ( 29 %)

Collateral-dependent loans - Residential mortgages secured by first liens 659 Valuation of third party appraisal on underlying collateral Loss severity rates 31 % ( 31 %)

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at December 31, 2019:

Unobservable Inputs

Range (Weighted

Impaired loans – commercial, industrial, and agricultural

Valuation of third party appraisal on underlying collateral

Loss severity rates

20%-60% (34%)

Impaired loans – commercial mortgages

Valuation of third party appraisal on underlying collateral

Loss severity rates

15%-39% (33%)

value Valuation

Technique Unobservable Inputs Range (Weighted

Impaired loans – commercial, industrial, and agricultural $ 2,910 Valuation of third party appraisal on underlying collateral Loss severity rates 0 %- 100 % ( 54 %)

Impaired loans – commercial mortgages $ 1,147 Valuation of third party appraisal on underlying collateral Loss severity rates 25 %- 100 % ( 52 %)

Fair Value of Financial Instruments

The following table presents the carrying amount and fair value of financial instruments at December 31, 2020:

Fair Value Measurement Using:

Amount Fair Value Measurement Using:

Level 1 Level 2 Level 3

Cash and cash equivalents $ 532,694 $ 532,694 $ 0 $ 0 $ 532,694

2 unchanged sentences

Loans held for sale 8,514 0 8,617 0 8,617

FHLB and other equity interests

Net loans 3,337,449 0 0 3,339,482 3,339,482

FHLB and other equity interests 21,018 n/a n/a n/a n/a

Interest rate swaps 4,017 0 4,017 0 4,017

Accrued interest receivable 17,659 61 2,152 15,446 17,659

Deposits $ ( 4,181,744 ) $ ( 3,705,200 ) $ ( 488,000 ) $ 0 $ ( 4,193,200 )

FHLB and other borrowings 0 0 0 0 0

3 unchanged sentences

The following table presents the carrying amount and fair value of financial instruments at December 31, 2019:

Fair Value Measurement Using:

Amount Fair Value Measurement Using:

Level 1 Level 2 Level 3

Cash and cash equivalents $ 192,974 $ 192,974 $ 0 $ 0 $ 192,974

2 unchanged sentences

Loans held for sale 930 0 933 0 933

FHLB and other equity interests

Net loans 2,784,562 0 0 2,778,914 2,778,914

FHLB and other equity interests 27,868 n/a n/a n/a n/a

Interest rate swaps 1,877 0 1,877 0 1,877

Accrued interest receivable 11,486 6 3,238 8,242 11,486

Deposits $ ( 3,102,327 ) $ ( 2,674,511 ) $ ( 432,287 ) $ 0 $ ( 3,106,798 )

FHLB and other borrowings ( 227,907 ) 0 ( 230,679 ) 0 ( 230,679 )

5 unchanged sentences

The fair value of other equity interests is based on the net asset values provided by the underlying investment partnership.

ASU 2015-7 removes the requirement to categorize within the fair value hierarchy all investments measured using the net asset value per share practical expedient and related disclosures.In addition, other assets and liabilities that are not financial instruments, such as premises and equipment, are not included in the disclosures.

ASU 2015-7 removes the requirement to categorize within the fair value hierarchy all investments measured using the net asset value per share practical expedient and related disclosures.

In addition, other assets and liabilities that are not financial instruments, such as premises and equipment, are not included in the disclosures.

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

Secondary Market Mortgage Activities

The following summarizes secondary market mortgage activities for the years ended December 31, 2019 , 2018 , and 2017 :

Total loans serviced for others were $ 224,296 and $ 188,648 December 31, 2020 and December 31, 2019, respectively.

The following summarizes secondary market mortgage activities for the years ended December 31, 2020, December 31, 2019, and December 31, 2018:

December 31, 2020 December 31, 2019 December 31, 2018

Loans originated for resale $ 87,528 $ 43,458 $ 22,990

2 unchanged sentences

Loan servicing fees 726 634 600

Total loans serviced for others were $ 188,648 and $ 166,332 December 31, 2019 and 2018 , respectively.

The following summarizes activity for capitalized mortgage servicing rights for the years ended December 31, 2019 , 2018 , and 2017 :

The following summarizes activity for capitalized mortgage servicing rights for the years ended December 31, 2020, December 31, 2019, and December 31, 2018:

December 31, 2020 December 31, 2019 December 31, 2018

Balance, beginning of year $ 1,573 $ 1,495 $ 1,387

Additions 540 292 315

Servicing rights acquired 0 0 0

Amortization ( 586 ) ( 214 ) ( 207 )

Balance, end of year $ 1,527 $ 1,573 $ 1,495

The fair value of mortgage servicing rights is based on market prices for comparable mortgage servicing contracts, when available, or alternatively based on a valuation model that calculates the present value of estimated future net servicing income.

The fair value of mortgage servicing rights was not materially different than amortized cost at December 31, 2019 and 2018 , respectively.

No valuation allowance was deemed necessary at December 31, 2019 , 2018 , and 2017 .

The fair value of interest rate lock commitments and forward commitments to sell loans was not material at December 31, 2019 or 2018 .

The fair value of mortgage servicing rights was not materially different than amortized cost at December 31, 2020 and December 31, 2019, respectively.

No valuation allowance was deemed necessary at December 31, 2020, December 31, 2019, and December 31, 2018.

The fair value of interest rate lock commitments and forward commitments to sell loans was not material at December 31, 2020 or December 31, 2019.

Premises and Equipment

The following summarizes premises and equipment at December 31, 2019 and 2018 :

The following summarizes premises and equipment at December 31, 2020 and December 31, 2019:

December 31, 2020 December 31, 2019

Land $ 8,016 $ 8,301

Premises and leasehold improvements 68,346 57,131

1 unchanged sentence

Construction in process 1,556 2,747

115,121 99,032

accumulated depreciation 55,057 44,165

7 unchanged sentences

Most leases include one or more options to renew and the exercise of the lease renewal options are at the Corporation's sole discretion.

The Corporation includes lease extension and termination options in the lease term if, after considering relevant economic factors, it is is reasonably certain the Corporation will exercise the option.

The Corporation includes lease extension and termination options in the lease term if, after considering relevant economic factors, it is reasonably certain the Corporation will exercise the option.

Certain lease agreements of the Corporation include rental payments adjusted periodically for changes in the consumer price index.

Classification

December 31, 2019

Operating lease assets

Finance lease assets

Premises and equipment, net (1)

Leases Classification December 31, 2020 December 31, 2019

Operating lease assets Operating lease assets $ 18,407 $ 18,422

Finance lease assets Premises and equipment, net (1)

Total leased assets $ 18,836 $ 18,923

Operating lease liabilities

Finance lease liabilities

Accrued interest payable and other liabilities

Operating lease liabilities Operating lease liabilities $ 19,449 $ 19,363

Finance lease liabilities Accrued interest payable and other liabilities 550 629

Total leased liabilities $ 19,999 $ 19,992

(1) Finance lease assets are recorded net of accumulated amortization of $ 715 as of December 31, 2019.

The components of the Corporation's net lease expense for the year ended December 31, 2019 were as follows:

Classification

December 31, 2019

Operating lease cost

Net occupancy expense

Variable lease cost

Net occupancy expense

(1) Finance lease assets are recorded net of accumulated amortization of $ 787 and $ 715 as of December 31, 2020 and 2019, respectively.

The components of the Corporation's net lease expense for the year ended December 31, 2020 and December 31, 2019 were as follows:

Lease Cost Classification December 31, 2020 December 31, 2019

Operating lease cost Net occupancy expense $ 1,785 $ 1,666

Variable lease cost Net occupancy expense 87 98

Finance lease cost:

Amortization of leased assets

Net occupancy expense

Interest on lease liabilities

Interest expense - borrowed funds

Amortization of leased assets Net occupancy expense 72 72

Interest on lease liabilities Interest expense - borrowed funds 27 30

Sublease income (1)

2 unchanged sentences

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

Rental expense, net of rental income, charged to occupancy expense for 2018 and 2017was $ 932 and $ 870 , respectively.

Rental expense, net of rental income, charged to occupancy expense for 2018 was $ 932 .

The following table sets forth future minimum rental payments under noncancelable leases with terms in excess of one year as of December 31, 2020:

Maturity of Lease Liabilities as of December 31, 2019

Operating Leases

Finance Leases

Maturity of Lease Liabilities as of December 31, 2020 Operating Leases Finance Leases Total

2021 $ 1,560 $ 105 $ 1,665

2022 1,661 105 1,766

2023 1,550 105 1,655

2024 1,515 105 1,620

2025 1,505 105 1,610

After 2025 19,281 104 19,385

Total lease payments 27,072 629 27,701

Interest 7,623 79 7,702

Present value of lease liabilities $ 19,449 $ 550 $ 19,999

Other information related to the Corporation's lease liabilities as of December 31, 2019 was as follows:

Lease Term and Discount Rate

December 31, 2019

Other information related to the Corporation's lease liabilities as of December 31, 2020 and December 31, 2019 was as follows:

Lease Term and Discount Rate December 31, 2020 December 31, 2019

Weighted-average remaining lease term (years)

4 unchanged sentences

Finance leases 4.49 % 4.49 %

Other Information

December 31, 2019

Other information related to the Corporation's lease liabilities as of December 31, 2020 and December 31, 2019 as follows:

Other Information December 31, 2020 December 31, 2019

Cash paid for amounts included in the measurement of lease liabilities

1 unchanged sentence

Goodwill and Intangible Assets

The change in the carrying amount of goodwill for the years ended December 31, 2019 and 2018 is as follows:

The change in the carrying amount of goodwill for the years ended December 31, 2020 and December 31, 2019 is as follows:

December 31, 2020 December 31, 2019

Balance, beginning of year $ 38,730 $ 38,730

1 unchanged sentence

Balance, end of year $ 43,749 $ 38,730

Impairment exists when a reporting unit’s carrying value of goodwill exceeds its fair value, which is determined through a two-step impairment test.

Step 1 includes the determination of the carrying value of our single reporting unit, including the existing goodwill and intangible assets, and estimating the fair value of the reporting unit.

We determined the fair value of our reporting unit exceeded its carrying amount.

If the carrying amount of the reporting unit exceeds its fair value, we are required to perform a second step to the impairment test.

Our annual impairment analysis at December 31, 2019 and 2018 indicated that the Step 2 analysis was not necessary.

Impairment exists when a reporting unit's carrying value of goodwill exceeds its fair value.

Goodwill is evaluated for impairment on an annual basis as of December 31 of each year, or whenever events or changes in circumstances indicate that the fair value of a reporting unit may be below its carrying value.

The Corporation engaged a third party to perform a quantitative analysis of its goodwill at June 30, 2020 due to the on-going economic market disruption caused by the COVID-19 pandemic and the resultant impact on the Corporation's stock price.

In addition, interim qualitative analyses were performed as of March 31, 2020 and September 30, 2020 as a result of COVID-19 and for the annual impairment analysis at December 31, 2020.

The results of the quantitative analysis and the qualitative analyses did not indicate the Corporation's goodwill was impaired.

Intangible Assets

1 unchanged sentence

in 2013, the Corporation recorded a core deposit intangible asset of $ 4,834 .

During the years ended December 31, 2019 , 2018 , and 2017 , the Corporation recorded amortization expense of $ 316 , $ 489 and $ 662 , respectively.

During the years ended December 31, 2020, December 31, 2019, and December 31, 2018, the Corporation recorded amortization expense of $ 94 , $ 316 and $ 489 , respectively.

The net carrying values at December 31, 2020 and December 31, 2019 were $ 0 and $ 94 , respectively.

1 unchanged sentence

In connection with its acquisition of Lake National Bank in 2016, the Corporation recorded a core deposit intangible asset of $ 1,583 .

During the year ended December 31, 2019 , 2018 , and 2017 , the Corporation recorded amortization expense of $ 251 , $ 409 , and $ 567 , respectively.

The net carrying values at December 31, 2019 and 2018 were $ 66 and $ 317 , respectively.

During the year ended December 31, 2020, December 31, 2019, and December 31, 2018, the Corporation recorded amortization expense of $ 66 , $ 251 , and $ 409 , respectively.

The net carrying values at December 31, 2020 and December 31, 2019 were $ 0 and $ 66 , respectively.

No other intangible assets were required to be recorded in connection with the acquisition of Lake National Bank.

The estimated remaining amortization expense of core deposit intangible assets is $ 160 and will be amortized in 2020.

In connection with its acquisition of Bank of Akron in 2020, the Corporation recorded a core deposit intangible asset of $ 613 .

During the year ended December 31, 2020, the Corporation recorded amortization expense of $ 46 .

The net carrying value at December 31, 2020 was $ 567 .

No other intangible assets were required to be recorded in connection with the acquisition of Bank of Akron.

Estimated amortization expense of core deposit intangible assets for each of the next five years is as follows:

Thereafter 144

The following table reflects time certificates of deposit accounts included in total deposits and their remaining maturities at December 31, 2020:

Time deposits maturing:

Certificates of deposit of $250 or more totaled $ 112,818 and $ 105,626 at December 31, 2019 and 2018 , respectively.

The Corporation had $ 8,097 and $ 3,219 in reciprocal brokered deposits at December 31, 2019 and 2018 .

At December 31, 2019 and 2018 , the Corporation had available one $ 10 million unsecured line of credit with an unaffiliated institution, at a variable interest rate with a floor as defined in the agreement.

There were no borrowings on the line of credit at December 31, 2019 and 2018 .

2021 $ 212,301

Thereafter 9,881

Certificates of deposit of $250 or more totaled $ 128,202 and $ 112,818 at December 31, 2020 and December 31, 2019, respectively.

The Corporation had $ 23,636 and $ 8,097 in reciprocal ICS deposits at December 31, 2020 and December 31, 2019.

At December 31, 2020 and December 31, 2019, the Corporation had available one $ 10 million unsecured line of credit with an unaffiliated institution, at a variable interest rate with a floor as defined in the agreement.

There were no borrowings on the line of credit at December 31, 2020 and December 31, 2019.

FHLB Borrowings

At December 31, 2019 , the Bank had remaining borrowing capacity with the FHLB of $ 422,490 .

At December 31, 2019 , borrowings with the FHLB are secured by a pledge of certain loans with a balance of $ 900,132 .

At December 31, 2019 and 2018 , advances from the FHLB are as follows:

Maturities range from 6/29/2020 through 2/11/2033;

rates fixed at a range of 1.27% to 5.24%;

weighted average rate is 2.13% as of December 31, 2019.

At December 31, 2020, the Bank had a borrowing capacity with the FHLB of $ 797,367 secured by a pledge of certain loans with a balance of $ 1,182,510 .

At December 31, 2020 and December 31, 2019, advances from the FHLB are as follows:

Maturities range from 6/29/2020 through 2/11/2033;

1 unchanged sentence

weighted average rate is 2.13 % as of December 31, 2019.

$ 0 $ 227,907

Open Repo borrowing at an interest rate of 0.41 % at December 31, 2020.

The maximum amount of the Open Repo borrowing available is $ 150,000 .

Each advance is payable at its maturity date, with a prepayment penalty for fixed rate advances.

Total $ 0 $ 227,907

During 2020 CNB prepaid the entire balance of its borrowings from the FHLB, totaling $ 190,401 .

The pre-payment penalty associated with these prepayments totaled approximately $ 7,851 .

At December 31, 2020 and 2019, municipal deposit letters of credit issued by the FHLB on behalf of the Bank naming applicable municipalities as beneficiaries were $ 57,250 and zero , respectively.

The letters of credit were utilized in place of securities pledged to the municipalities for their deposits maintained at the Bank.

Other Borrowings

At December 31, 2019 and 2018 , the Bank had no outstanding borrowings from unaffiliated institutions under overnight borrowing agreements.

At December 31, 2020 and December 31, 2019, the Bank had no outstanding borrowings from unaffiliated institutions under overnight borrowing agreements.

Subordinated Debentures

In 2007, the Corporation issued two $ 10,000 floating rate trust preferred securities as part of a pooled offering of such securities.

The interest rate on each offering is determined quarterly and floats based on the 3 month LIBOR plus 1.55 % and was 3.44 % at December 31, 2019 and 4.36 % at December 31, 2018 .

The interest rate on each offering is determined quarterly and floats based on the 3 month LIBOR plus 1.55 %.

The all-in rate was 1.80 % at December 31, 2020 and 3.44 % at December 31, 2019.

The Corporation issued subordinated debentures to the trusts in exchange for the proceeds of the offerings, which debentures represent the sole assets of the trusts.

5 unchanged sentences

Instead, the Corporation reports as liabilities the subordinated debentures issued by the Corporation and held by the trusts, since the liabilities are not eliminated in consolidation.

The trust preferred securities were designated to qualify as Tier 1 capital under the Federal Reserve’s capital guidelines.

In September 2016, the Corporation completed a private placement of $ 50,000 in aggregate principal amount of fixed-to-floating rate subordinated notes.

1 unchanged sentence

These subordinated notes were designed to qualify as Tier 2 capital under the Federal Reserve’s capital guidelines and were given an investment grade rating of BBB- by Kroll Bond Rating Agency.

The amount of the subordinated notes that qualify for Tier 2 capital will be reduced by $ 10,000 , or 20 %, beginning in the third quarter of 2021.

Maturity Schedule of All Borrowed Funds

The following is a schedule of maturities of all borrowed funds as of December 31, 2020:

Thereafter 70,620

Total borrowed funds $ 70,620

Employee Benefit Plans

The Corporation sponsors a contributory defined contribution Section 401(k) plan in which substantially all employees participate.

The plan permits employees to make pre-tax contributions which are matched by the Corporation at 100 % for every 1 % contributed up to 3 % then 50 % for every 1 % contributed up to the next 2 % in total of the employee’s compensation.

The Corporation’s matching contribution and related expenses were $ 906 , $ 810 and $ 802 in 2019 , 2018 , and 2017 , respectively.

Profit sharing contributions to this plan, based on current year compensation, are 6.0 % of total compensation plus 5.7 % of the compensation in excess of $ 133 .

The Corporation recognized profit sharing expense of $ 1,949 , $ 1,530 and $ 1,755 in 2019 , 2018 , and 2017 respectively.

The Corporation sponsors a contributory defined contribution Section 401(k) plan.

The plan permits eligible employees to make pre-tax and Roth contributions up to 70 % of salary.

Employees 21 years of age or over with a minimum of one-year with 1,000 hours of service are eligible for matching contributions by the Corporation at 100 % for every 1 % contributed up to 3 % then 50 % for every 1 % contributed up to the next 2 % in total of the employee’s compensation.

The Corporation’s matching contribution and related expenses were $ 1,050 , $ 906 and $ 810 for the years ended December 31, 2020, December 31, 2019, and December 31, 2018, respectively.

A profit sharing discretionary non-contributory pension plan component is in place for employees 21 years of age or over with a minimum of one-year with 1,000 hours of service and allows employer contributions in an amount equal to a percentage of eligible compensation plus 5.7 % of the compensation in excess of $ 138 , subject to a $ 285 salary limit.

The Corporation recognized profit sharing expense of $ 1,936 , $ 1,949 and $ 1,530 for the year ended December 31, 2020, December 31, 2019, and December 31, 2018 respectively.

The Corporation has adopted a non-qualified supplemental executive retirement plan ("SERP") for certain executives to compensate those executive participants in the Corporation’s retirement plan whose benefits are limited by compensation limitations under current tax law.

The SERP is considered an unfunded plan for tax and ERISA purposes and all obligations arising under the SERP are payable from the general assets of the Corporation.

At December 31, 2019 and 2018 , obligations of $ 6,333 and $ 5,867 , respectively, were included in other liabilities for this plan.

Expenses related to this plan were $ 724 in 2019 , $ 776 in 2018 and $ 648 in 2017 .

At December 31, 2020 and December 31, 2019, obligations of $ 7,007 and $ 6,333 , respectively, were included in other liabilities for this plan.

Expenses related to this plan were $ 992 for the year ended December 31, 2020, $ 724 for the year ended December 31, 2019 and $ 776 for the year ended December 31, 2018.

The Corporation has established a Survivor Benefit Plan for the benefit of outside directors.

1 unchanged sentence

The plan is considered an unfunded plan for tax and ERISA purposes and all obligations arising under the plan are payable from the general assets of the Corporation.

At December 31, 2019 and 2018 , obligations of $ 1,330 and $ 1,330 , respectively, were included in other liabilities for this plan.

Expenses (benefits) related to this plan were $( 1 ) in 2019 , $ 66 in 2018 and $ 89 in 2017 .

At December 31, 2020 and December 31, 2019, obligations of $ 1,433 and $ 1,330 , respectively, were included in other liabilities for this plan.

Expenses (benefits) related to this plan were $ 253 for the year ended December 31, 2020, $( 1 ) for the year ended December 31, 2019 and $ 66 for the year ended December 31, 2018.

The Corporation has an unfunded post retirement benefits plan which provides certain health care benefits for retired employees who have reached the age of 60 and retired with 30 years of service.

1 unchanged sentence

Benefits are provided for these retired employees and their qualifying dependents from the age of 60 through the age of 65 .

The following table sets forth the change in the benefit obligation of the plan as of and for the years ended December 31, 2019 , 2018 , and 2017 :

The following table sets forth the change in the benefit obligation of the plan as of and for the years ended December 31, 2020 and December 31, 2019:

December 31, 2020 December 31, 2019

Benefit obligation at beginning of year $ 2,030 $ 2,427

Interest cost 51 89

Service cost 61 74

Actual claims ( 36 ) ( 42 )

Actuarial (gain) loss

Actuarial gain ( 277 ) ( 518 )

Benefit obligation at end of year $ 1,829 $ 2,030

Amounts recognized in accumulated other comprehensive income at December 31, 2019 and 2018 consist of:

Net actuarial gain (loss)

The accumulated benefit obligation was $ 2,030 and $ 2,427 at December 31, 2019 and 2018 , respectively.

Amounts recognized in accumulated other comprehensive income at December 31, 2020 and December 31, 2019 consist of:

December 31, 2020 December 31, 2019

Net actuarial gain $ 435 $ 158

Tax effect ( 92 ) ( 34 )

The accumulated benefit obligation was $ 1,828 and $ 2,030 at December 31, 2020 and December 31, 2019, respectively.

The following table sets forth the components of net periodic benefit cost and other amounts recognized in other comprehensive income:

December 31, 2020 December 31, 2019 December 31, 2018

Service cost $ 61 $ 74 $ 87

Interest cost 51 89 83

1 unchanged sentence

Net periodic benefit cost 112 186 254

Net gain ( 277 ) ( 518 ) ( 404 )

Amortization 0 ( 23 ) ( 84 )

Total recognized in other comprehensive income ( 277 ) ( 541 ) ( 488 )

1 unchanged sentence

The estimated net gain that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year is zero .

The weighted average discount rate used to calculate net periodic benefit cost was 3.78 % in 2019 , 3.13 % in 2018 , and 3.49 % in 2017 .

The weighted average rate used to calculate accrued benefit obligations was 2.59 % in 2019 , 3.78 % in 2018 , and 3.13 % in 2017 .

The weighted average discount rate used to calculate net periodic benefit cost was 2.59 % for year ended December 31, 2020, 3.78 % for year ended December 31, 2019, and 3.13 % for year ended December 31, 2018.

The weighted average rate used to calculate accrued benefit obligations was 1.55 % for year ended December 31, 2020, 2.59 % for year ended December 31, 2019, and 3.78 % for year ended December 31, 2018.

The health care cost trend rate used to measure the expected costs of benefits is 5.0 % for 2021 and thereafter.

6 unchanged sentences

A summary of changes in the deferred compensation plan liability follows:

December 31, 2020 December 31, 2019 December 31, 2018

Balance, beginning of year $ 3,234 $ 2,408 $ 2,503

Deferrals, dividends, and changes in fair value recorded as an expense

Deferrals, dividends, and changes in fair value ( 70 ) 904 64

Deferred compensation payments ( 79 ) ( 78 ) ( 159 )

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The Corporation remitted the remaining balance due of $ 15 prior to December 31, 2019 and reversed previously recognized expense of $ 181 .

The Tax Cuts and Jobs Act was enacted on December 22, 2017.

Among other things, the new law (i) establishes a new, flat corporate federal statutory income tax rate of 21%, (ii) eliminates the corporate alternative minimum tax and allows the use of any such carryforwards to offset regular tax liability for any taxable year, (iii) limits the deduction for net interest expense incurred by U.S.

corporations, (iv) allows businesses to immediately expense, for tax purposes, the cost of new investments in certain qualified depreciable assets, (v) eliminates or reduces certain deductions related to meals and entertainment expenses, (vi) modifies the limitation on excessive employee remuneration to eliminate the exception for performance-based compensation and clarifies the definition of a covered employee and (vii) limits the deductibility of deposit insurance premiums.

The Tax Cuts and Jobs Act also significantly changes U.S.

tax law related to foreign operations, however, such changes do not currently impact the Corporation.

The following is a summary of income tax expense for the years ended December 31, 2019 , 2018 , and 2017 :

The following is a summary of income tax expense for the years ended December 31, 2020, December 31, 2019, and December 31, 2018:

December 31, 2020 December 31, 2019 December 31, 2018

Current – federal $ 8,290 $ 8,265 $ 7,520

1 unchanged sentence

Deferred – federal ( 1,672 ) ( 204 ) ( 1,076 )

Deferred tax adjustment related to reduction in U.S.

federal statutory income tax rate

Income tax expense $ 7,347 $ 8,560 $ 6,510

The reconciliation of income tax attributable to pre-tax income at the federal statutory tax rates to income tax expense is as follows:

December 31, 2020 % December 31, 2019 % December 31, 2018 %

Tax at statutory rate $ 8,419 21.0 $ 10,214 21.0 $ 8,448 21.0

Tax exempt income, net ( 1,223 ) ( 3.1 ) ( 1,382 ) ( 2.8 ) ( 1,403 ) ( 3.5 )

Deferred tax adjustment related to reduction in U.S.

federal statutory income tax rate

Bank owned life insurance ( 367 ) ( 0.9 ) ( 276 ) ( 0.6 ) ( 296 ) ( 0.7 )

Effect of state tax 576 1.4 394 0.8 52 0.1

Other ( 58 ) ( 0.1 ) ( 390 ) ( 0.8 ) ( 291 ) ( 0.7 )

Income tax expense $ 7,347 18.3 $ 8,560 17.6 $ 6,510 16.2

Income tax expense for the year ended December 31, 2017 was impacted by the adjustment of our deferred tax assets and liabilities related to the reduction in the U.S.

federal statutory income tax rate to 21% under the Tax Cuts and Jobs Act of 2017, which was enacted on December 22, 2017.

Accordingly, the Corporation recognized additional tax expense totaling $ 3,009 in 2017, as detailed in the table above.

The following table sets forth deferred taxes as of December 31, 2019 and 2018 based on the enacted U.S.

The following table sets forth deferred taxes as of December 31, 2020 and December 31, 2019 based on the U.S.

statutory federal income tax rate of 21%.

December 31, 2020 December 31, 2019

Deferred tax assets:

Allowance for loan losses

Allowance for credit losses $ 6,751 $ 4,014

Fair value adjustments – business combination 1,685 854

Deferred compensation 2,787 2,405

Net operating loss carryover 346 0

Post-retirement benefits 722 754

3 unchanged sentences

Deferred fees and costs 1,613 472

Unrealized loss on securities available for sale

Operating lease liability 4,214 4,216

Other 300 381

19,738 14,965

Deferred tax liabilities:

5 unchanged sentences

Operating lease asset 4,079 4,136

Other 293 259

14,460 11,372

Net deferred tax asset $ 5,278 $ 3,593

At December 31, 2019 and 2018 , the Corporation had no unrecognized tax benefits.

At December 31, 2020 and December 31, 2019, the Corporation had no unrecognized tax benefits.

The Corporation does not expect the total amount of unrecognized tax benefits to significantly increase in the next twelve months.

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Related Party Transactions

In the ordinary course of business, the Bank has transactions, including loans and credit cards, with its officers, directors, and their affiliated companies.

The aggregate of such loans and credit cards totaled $ 16,337 on December 31, 2019 compared to $ 8,596 on December 31, 2018 .

During 2019 , $ 9,007 in new loans were made, $ 28 were added for the net change in outstanding credit card balances, and repayments totaled $ 1,294 .

Deposits from principal officers, directors, and their affiliates were $ 40,931 and $ 36,214 at December 31, 2019 and 2018 , respectively.

Loans to principal officers, directors, and their affiliates during 2020 were as follows:

Beginning balance $ 35,527

New loans and advances 4,937

Effect of changes in composition of related parties 259

Repayments ( 3,058 )

Ending balance $ 37,665

Deposits from principal officers, directors, and their affiliates were $ 24,482 and $ 40,931 at December 31, 2020 and December 31, 2019, respectively.

Stock-Based Compensation

A summary of changes in nonvested restricted stock awards follows:

Weighted-average

Nonvested at January 1, 2019

Nonvested at December 31, 2019

The above table excludes 13,850 shares in restricted stock awards that were granted at a weighted average fair value of $ 25.27 and immediately vested.

As of December 31, 2019 and 2018 , there was $ 1,026 and $ 1,182 , respectively, of total unrecognized compensation cost related to nonvested shares granted under the restricted stock award plan.

The fair value of shares vesting during 2019 , 2018 , and 2017 was $ 1,462 , $ 1,535 and $ 1,035 , respectively.

Compensation expense for restricted stock awards was $ 1,346 in 2019 , $ 1,545 in 2018 and $ 928 in 2017 .

The 2019 Stock Incentive Plan provides for up to 507,671 shares of common stock to be awarded in the form of nonqualified options or restricted stock.

Beginning in 2018, stock compensation received by non-employee directors vests immediately.

All stock-based compensation grants during the years ending December 31, 2020 , December 31, 2019 and December 31, 2018 and outstanding at December 31, 2020 , December 31, 2019 and December 31, 2018 were restricted stock.

During December 31, 2020, December 31, 2019, and December 31, 2018, the Executive Compensation and Personnel Committee of the Corporation's Board of Directors granted a total of 36,968 , 40,978 and 40,108 shares, respectively, of restricted common stock to certain key employees and all independent directors of the Corporation.

Compensation expense for the restricted stock awards is recognized over the requisite service period based on the fair value of the shares at the date of grant on a straight-line basis.

Non-vested restricted stock awards are recorded as a reduction of additional paid-in-capital in shareholders’ equity until earned.

Compensation expense resulting from time-based, performance-based and director restricted stock awards was $ 1,410 , $ 1,346 and $ 1,545 for the years ended December 31, 2020, December 31, 2019, and December 31, 2018, respectively.

The total income tax benefit related to the recognized compensation cost of vested restricted stock awards was $ 296 , $ 283 and $ 324 for the years ended December 31, 2020, 2019 and 2018, respectively.

The number of authorized stock-based awards still available for grant as of December 31, 2019 was 506,483 .

A summary of changes in non-vested restricted stock awards follows:

Shares Weighted-average

Non-vested at January 1, 2020 58,370 $ 24.96

Granted 25,466 28.64

Vested ( 27,530 ) 24.11

Non-vested at December 31, 2020 56,306 $ 27.14

The above table excludes 11,502 shares in restricted stock awards that were granted at a weighted average fair value of $ 29.56 and immediately vested.

As of December 31, 2020 and December 31, 2019, there was $ 1,055 and $ 1,026 , respectively, of total unrecognized compensation cost related to non-vested shares granted under the restricted stock award plan.

The fair value of shares vesting during December 31, 2020, December 31, 2019, and December 31, 2018 was $ 1,123 , $ 1,462 and $ 1,535 , respectively.

In addition to the time-based restricted stock disclosed above, the Corporation’s Board of Directors grants performance-based restricted stock awards ("PBRSAs") to key employees.

The number of PBRSAs will depend on certain performance conditions and are also subject to service-based vesting.

The number of PBRSAs will depend on certain performance conditions earned over a three year period and are also subject to service-based vesting.

In 2020, awards with a maximum of 18,100 shares in aggregate were granted to key employees.

In 2019, awards with a maximum of 16,681 shares in aggregate were granted to key employees.

In 2017, an award with a maximum of 7,109 shares was granted to a key employee.

In 2019, key employees retired resulting in 726 and 1,314 shares vesting related to their 2019 and 2018 PBRSA, in accordance with the agreements.

Of the 2,040 shares that vested related to the 2019 and 2018 PBRSA grants, 798 shares were distributed in 2019 and the remaining 1,242 shares will be distributed in 2020.

In 2018, awards with a maximum of 15,657 shares in aggregate were granted to key employees.

In 2019, the 2017 PBRSAs were fully earned and in 2020, 7,109 shares were fully distributed.

The fair value of the 7,109 shares distributed in 2020 was $ 233 .

The 2017 PBRSAs were fully earned and will be distributed in 2020.

Total compensation expense related to the PBRSAs and included in the above compensation expense total was $ 384 , $ 221 and $ 314 for 2020, 2019 and 2018.

Estimated unearned compensation related to PBRSAs at December 31, 2020 was $ 539 .

The number of authorized stock-based awards still available for grant as of December 31, 2020 was 457,448 .

Capital Requirements and Restrictions on Retained Earnings

3 unchanged sentences

Failure to meet capital requirements can result in regulatory enforcement actions.

Under the Basel III rules, the Corporation and the Bank must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios.

The capital conservation buffer is being phased in from 0.0 % for 2015 to 2.50 % by 2019.

The capital conservation buffer for 2019 was 2.500 % and for 2018 was 1.875 % .

The final rules implementing Basel Committee on Banking Supervision’s capital guidelines for U.S.

banks (Basel III rules) became effective for the Corporation on January 1, 2015 with full compliance with all of the requirements being phased in over a multi-year schedule, and fully phased in by January 1, 2019.

The net unrealized gain or loss on available for sale securities are excluded from computing regulatory capital.

6 unchanged sentences

and capital restoration plans are required.

As of December 31, 2019 and 2018 , the most recent regulatory notifications categorized the Bank as well capitalized under the PCA regulatory framework.

As of December 31, 2020 and December 31, 2019, the most recent regulatory notifications categorized the Bank as well capitalized under the PCA regulatory framework.

There are no events or conditions since this notification that management believes have changed the Bank’s capital category.

Actual and required capital amounts and ratios are presented below as of December 31, 2019 and 2018 .

Actual and required capital amounts and ratios are presented below as of December 31, 2020 and December 31, 2019.

The capital adequacy ratio includes the capital conservation buffer.

Adequacy Purposes

To Be Well Capitalized

Actual For Capital

Adequacy Purposes To Be Well Capitalized

Under Prompt Corrective

Action Provisions

Amount Ratio Amount Ratio Amount Ratio

December 31, 2020

Total Capital to Risk Weighted Assets

Consolidated $ 462,457 14.32 % $ 339,107 10.50 % N/A

Bank $ 434,598 13.52 % $ 337,554 10.50 % $ 321,480 10.00 %

Tier 1 (Core) Capital to Risk Weighted Assets

Consolidated $ 384,650 11.91 % $ 274,516 8.50 % N/A

Bank $ 408,693 12.71 % $ 273,258 8.50 % $ 257,184 8.00 %

Common equity Tier 1 to Risk Weighted Assets

Consolidated $ 306,865 9.50 % $ 226,072 7.00 % N/A

Bank $ 401,314 12.48 % $ 225,036 7.00 % $ 208,962 6.50 %

Tier 1 (Core) Capital to Average Assets

Consolidated $ 384,650 8.11 % $ 189,728 4.00 % N/A

Bank $ 408,693 8.66 % $ 188,690 4.00 % $ 235,863 5.00 %

December 31, 2019

Total Capital to Risk Weighted Assets

Consolidated $ 350,806 12.51 % $ 294,407 10.50 % N/A

Bank $ 330,321 11.87 % $ 292,271 10.50 % $ 278,353 10.00 %

Tier 1 (Core) Capital to Risk Weighted Assets

Consolidated $ 281,333 10.03 % $ 238,330 8.50 % N/A

Bank $ 312,795 11.24 % $ 236,600 8.50 % $ 222,682 8.00 %

Common equity Tier 1 to Risk Weighted Assets

Consolidated $ 261,333 9.32 % $ 196,272 7.00 % N/A

Bank $ 305,416 10.97 % $ 194,847 7.00 % $ 180,929 6.50 %

Tier 1 (Core) Capital to Average Assets

Consolidated $ 281,333 7.86 % $ 143,189 4.00 % N/A

Bank $ 312,795 8.79 % $ 142,301 4.00 % $ 177,876 5.00 %

Certain restrictions exist regarding the ability of the Bank to transfer funds to the Corporation in the form of cash dividends, loans or advances.

8 unchanged sentences

The interest rate swap involved the receipt of variable-rate amounts in exchange for fixed-rate payments from September 15, 2013 to September 15, 2018 without exchange of the underlying notional amount.

As of December 31, 2019 and 2018 , no derivatives were designated as fair value hedges or hedges of net investments in foreign operations.

As of December 31, 2020 and December 31, 2019, no derivatives were designated as fair value hedges or hedges of net investments in foreign operations.

Additionally, the Corporation does not use derivatives for trading or speculative purposes and currently does not have any derivatives that are not designated as hedges.

The following tables provide information about the amounts and locations of activity related to the interest rate swaps designated as cash flow hedges within the Corporation’s consolidated balance sheet and statement of income as of December 31, 2019 and 2018 and for the years ended December 31, 2019 , 2018 , and 2017 :

As of December 31

Liability Derivative

Balance Sheet

Interest rate contract

Accrued interest payable and other liabilities

For the Year Ended December 31, 2019

Interest rate contract

Interest expense – subordinated debentures

The following tables provide information about the amounts and locations of activity related to the interest rate swaps designated as cash flow hedges within the Corporation’s consolidated balance sheet and statement of income as of December 31, 2020 and December 31, 2019 and for the years ended December 31, 2020, December 31, 2019, and December 31, 2018:

As of December 31 Liability Derivative

Balance Sheet Fair value

Location December 31, 2020 December 31, 2019

Interest rate contract Accrued interest payable and other liabilities $( 768 ) $( 485 )

For the Year Ended December 31, 2020 (a) (b) (c) (d) (e)

Interest rate contract $( 224 ) Interest expense – subordinated debentures $( 224 ) Other

For the Year Ended December 31, 2019

Interest rate contract

Interest expense – subordinated

Interest rate contract $( 225 ) Interest expense – subordinated

debentures $( 63 ) Other

For the Year Ended December 31, 2018

Interest rate contract

Interest expense – subordinated debentures

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

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

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

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

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

Interest rate contract $( 32 ) Interest expense – subordinated debentures $( 164 ) Other

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

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

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

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

Amounts reported in accumulated other comprehensive loss related to the interest rate swap will be reclassified to interest expense as interest payments are made on the subordinated debentures.

Such amounts reclassified from accumulated other comprehensive loss to interest expense in the next twelve months are expected to be $ 273 .

As of December 31, 2019 and 2018 , a cash collateral balance of $ 750 and $ 200 , respectively, was maintained with the counterparty to the interest rate swaps.

As of December 31, 2020 and December 31, 2019, a cash collateral balance of $ 1,050 and $ 750 , respectively, was maintained with the counterparty to the interest rate swaps.

These balances are included in interest bearing deposits with other banks on the consolidated balance sheets.

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The Corporation may be required to post additional collateral to swap counterparties in the future in proportion to potential increases in unrealized loss positions.

The following table provides information about the amounts and locations of activity related to the back-to-back interest rate swaps within the Corporation’s consolidated balance sheet as of December 31, 2019 and 2018 :

Average Variable Rate

Amount Average

(in years) Weighted

Fixed Rate Weighted

Average Variable Rate Fair

December 31, 2020

1 unchanged sentence

$ 34,089 6.7 4.13 % 1 month LIBOR + 2.27 %

Customer interest rate swaps

1 month LIBOR + 2.27%

Customer interest rate swaps ( 34,089 ) 6.7 4.13 % 1 month LIBOR + 2.27 %

( 4,017 ) (b)

December 31, 2019

1 unchanged sentence

$ 35,382 7.7 4.13 % 1 month LIBOR + 2.27 %

Customer interest rate swaps

1 month LIBOR + 2.24%

Reported in accrued interest receivable and other assets within the consolidated balance sheets

Reported in accrued interest payable and other liabilities within the consolidated balance sheets

Customer interest rate swaps ( 35,382 ) 7.7 4.13 % 1 month LIBOR + 2.27 %

( 1,877 ) (b)

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

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

Off-Balance Sheet Activities

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The same credit policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of the commitment.

The contractual amount of financial instruments with off-balance sheet risk was as follows at December 31, 2019 and 2018 :

Variable Rate

The contractual amount of financial instruments with off-balance sheet risk was as follows at December 31, 2020 and December 31, 2019:

December 31, 2020 December 31, 2019

Fixed Rate Variable Rate Fixed Rate Variable Rate

Commitments to make loans $ 52,073 $ 266,336 $ 21,375 $ 184,106

2 unchanged sentences

Commitments to make loans are generally made for periods of 60 days or less.

The fixed rate loan commitments at December 31, 2019 have interest rates ranging from 2.53 % to 18.00 % and maturities ranging from one year to 30 years .

The fixed rate loan commitments at December 31, 2020 have interest rates ranging from 1.24 % to 18.00 % and maturities ranging from four months to 35 years.

The fixed rate loan commitments at December 31, 2019 have interest rates ranging from 2.53 % to 18.00 % and maturities ranging from one year to 30 years.

The Corporation makes investments in limited partnerships, including certain small business investment corporations and low income housing partnerships.

As of December 31, 2019 and 2018, unfunded capital commitments totaled $ 5,831 and $ 3,905 , respectively for the small business investment corporations and $ 4,190 and $ 1,434 for the low income housing partnerships, respectively.

At December 31, 2019 and 2018, capital contributions to the small business investment corporations were $ 9,669 and $ 6,595 , respectively and capital contributions to the low income housing partnerships were $ 4,810 and $ 4,566 , respectively.

Capital contributions for investments in small business corporations, reported in FHLB and other equity interests on the consolidated balance sheet, as of December 31, 2020 and December 31, 2019 were $ 11,835 and $ 9,669 , respectively.

Unfunded capital commitments in investments in small business corporations totaled $ 3,665 and $ 5,831 as of December 31, 2020 and December 31, 2019, respectively.

The carrying value of investments in the low income housing partnerships, reported in FHLB and other equity interests on the consolidated balance sheet, as of December 31, 2020 and December 31, 2019 were $ 6,015 and 6,649 , respectively.

The related amortization for the twelve months ended December 31, 2020, December 31, 2019 and December 31, 2018 were $ 634 , $ 531 and $ 533 , respectively.

Unfunded commitments, reported in accrued interest payable and other liabilities on the consolidated balance sheet, as of December 31, 2020 and December 31, 2019 were $ 3,624 and $ 4,190 , respectively.

Parent Company Only Financial Information

CONDENSED BALANCE SHEETS

CONDENSED BALANCE SHEETS December 31,

Cash $ 10,729 $ 750

Trading securities 2,692 683

2 unchanged sentences

Deferreds and current receivable 1,788 1,576

Other assets 1,264 1,479

Total assets $ 488,685 $ 378,401

Borrowings from subsidiary $ 0 $ 850

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Total liabilities and stockholders' equity $ 488,685 $ 378,401

CONDENSED STATEMENTS OF INCOME

Year Ended December 31,

CONDENSED STATEMENTS OF INCOME Year Ended December 31,

2020 2019 2018

Dividends from:

1 unchanged sentence

Non-bank subsidiaries 10,350 0 3,000

Other 216 208 212

Total income 27,268 12,904 15,241

Expenses ( 6,838 ) ( 5,518 ) ( 5,184 )

Income before income taxes and equity in undistributed net income of subsidiaries:

20,430 7,386 10,057

Change in net unrealized holdings gains (losses) on equity securities not held for trading ( 31 ) 24 0

Income tax benefit 1,306 1,177 1,116

1 unchanged sentence

Equity in undistributed (distributions in excess) of net income of non-bank subsidiaries ( 7,159 ) 3,914 ( 1,485 )

CONDENSED STATEMENTS OF CASH FLOWS

Year Ended December 31,

Net income 32,743 40,081 33,719

Dividends on preferred stock ( 1,147 ) 0 0

Net income available to common stockholders $ 31,596 $ 40,081 $ 33,719

Comprehensive income attributable to the parent $ 32,519 $ 39,856 $ 33,687

CONDENSED STATEMENTS OF CASH FLOWS Year Ended December 31,

2020 2019 2018

Adjustments to reconcile net income to net cash provided by $ 32,743 $ 40,081 $ 33,719

9 unchanged sentences

Investment in non-bank subsidiaries 0 0 ( 400 )

Outlays for business acquisition ( 16,126 ) 0 0

Investment in bank subsidiaries ( 41,500 ) 0 0

1 unchanged sentence

Cash flows from financing activities:

Dividends paid

Dividends paid on common stock ( 10,981 ) ( 10,358 ) ( 10,237 )

Dividends paid on preferred stock ( 1,147 ) 0 0

Purchase of treasury stock ( 1,307 ) ( 1,291 ) ( 2,454 )

Net proceeds from the issuance of preferred stock 57,785 0 0

Net proceeds from issuance of common stock 3,257 1,423 0

5 unchanged sentences

Earnings Per Share

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

There were no anti-dilutive stock options for the years ended December 31, 2019 , 2018 , and 2017 .

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

There were no anti-dilutive stock options for the years ended December 31, 2020, December 31, 2019, and December 31, 2018.

Years Ended December 31,

2020 2019 2018

Basic earnings per common share computation

16 unchanged sentences

Other Comprehensive Income

Other comprehensive income components and related tax effects were as follows for the years ended December 31, 2019 , 2018 , and 2017 :

Other comprehensive income components and related tax effects were as follows for the years ended December 31, 2020, December 31, 2019, and December 31, 2018:

December 31, 2020 December 31, 2019 December 31, 2018

Unrealized holding gains (losses) on available for sale securities $ 12,494 $ 13,732 $ ( 5,073 )

1 unchanged sentence

Net unrealized gains (losses) 10,304 13,584 ( 5,073 )

Net-of-tax amount

Unrealized holding gains (losses) on available for sale securities for which a portion of an other-than-temporary impairment has been recognized in earnings

Less reclassification adjustment for gains recognized in earnings

Net unrealized gains

Tax effect ( 2,164 ) ( 2,852 ) 1,066

Net-of-tax amount 8,140 10,732 ( 4,007 )

2 unchanged sentences

Net unrealized gain (loss) on postemployment health care plan 277 541 488

Tax effect ( 58 ) ( 113 ) ( 102 )

Net-of-tax amount 219 428 386

2 unchanged sentences

Net unrealized gain (loss) ( 284 ) ( 284 ) ( 40 )

Tax effect 60 59 8

Net-of-tax amount ( 224 ) ( 225 ) ( 32 )

Other comprehensive income (loss) $ 8,135 $ 10,935 $ ( 3,653 )

The following is a summary of the change in the accumulated other comprehensive income (loss) balance, net of tax, for the years ended December 31, 2019 , 2018 , and 2017 .

The following is a summary of the change in the accumulated other comprehensive income (loss) balance, net of tax, for the years ended December 31, 2020, December 31, 2019, and December 31, 2018.

12/31/19 Comprehensive

Income (Loss)

Reclassification of

Income (Loss) Reclassification of

Disproportionate

Tax Effect Balance

Unrealized gains (losses) on securities available for sale $ 7,198 $ 8,140 $ 0 $ 15,338

1 unchanged sentence

Unrealized loss on interest rate swap ( 383 ) ( 224 ) 0 ( 607 )

Total $ 6,939 $ 8,135 $ 0 $ 15,074

12/31/18 Comprehensive

Income (Loss)

Reclassification of

Income (Loss) Reclassification of

Disproportionate

Tax Effect Balance

Unrealized gains (losses) on securities available for sale $ ( 3,534 ) $ 10,732 $ 0 $ 7,198

1 unchanged sentence

Unrealized loss on interest rate swap ( 158 ) ( 225 ) 0 ( 383 )

Total $ ( 3,996 ) $ 10,935 $ 0 $ 6,939

1/1/18 Comprehensive

Income (Loss)

Reclassification of

Income (Loss) Reclassification of

Disproportionate

Tax Effect Balance

Unrealized gains (losses) on securities available for sale $ 473 $ ( 4,007 ) $ 0 $ ( 3,534 )

1 unchanged sentence

Unrealized loss on interest rate swap ( 126 ) ( 32 ) 0 ( 158 )

Total $ ( 343 ) $ ( 3,653 ) $ 0 $ ( 3,996 )

Quarterly Financial Data (Unaudited)

3 unchanged sentences

In order to obtain a more accurate indication of performance, one should review the financial and operating results, changes in stockholders' equity and cash flows for a period of several years.

Quarters Ended in 2019

Quarters Ended in 2018

Beginning with the quarter ended December 31, 2020 the Corporation adopted ASC 326.

Prior to the quarter ended December 31, 2020, the results were based on incurred loss methodology and these results have not been restated.

Quarters Ended in December 31, 2020 Quarters Ended in December 31, 2019

31 June 30 Sept.

Total interest and dividend income $ 40,090 $ 38,073 $ 42,356 $ 46,648 $ 36,753 $ 38,282 $ 40,085 $ 40,608

Net interest income 29,994 29,938 34,664 40,115 27,758 28,794 29,901 29,745

Provision for loan losses

Provision for credit losses 3,079 5,680 3,306 3,289 1,306 1,788 2,118 812

Non-interest income 5,364 7,949 6,778 7,968 6,153 6,792 6,276 6,754

Non-interest expense 21,742 22,199 28,368 35,017 21,175 21,984 21,444 22,905

Net income 8,813 8,246 7,785 7,899 9,473 9,767 10,357 10,484

Net income per share, basic 0.57 0.54 0.47 0.40 0.62 0.64 0.68 0.69

1 unchanged sentence

Revenue from Contracts with Customers

All of the Company’s revenue from contracts with customers in the scope of ASC 606 is recognized within Non-Interest Income.

The following table presents the Corporation's Non-Interest Income by revenue stream and reportable segment for the years ended December 31, 2019 and 2018 .

All of the Corporation’s revenue from contracts with customers in the scope of ASC 606 is recognized within Non-Interest Income.

The following table presents the Corporation's Non-Interest Income by revenue stream and reportable segment for the years ended December 31, 2020 and December 31, 2019.

Items outside the scope of ASC 606 are noted as such.

December 31, 2019

December 31, 2018

December 31, 2017

December 31, 2020 December 31, 2019 December 31, 2018

Non-interest Income

2 unchanged sentences

Mortgage banking (1)

3,354 1,412 1,019

Card processing and interchange income 5,727 4,641 4,261

Net realized gains on available-for-sale securities (1)

Other income 6,196 8,745 5,512

Total non-interest income $ 28,059 $ 25,975 $ 20,723

(1) Not within scope of ASU 2014-9

The Corporation elected the modified retrospective approach of adoption;

therefore, prior period balances are presented under legacy GAAP and may not be comparable to current year presentation.

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

As a result, no changes were made during the period related to these sources of revenue.

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

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

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The service fees are recognized in the same manner as the service charges mentioned above.

While gains on the sale of other real estate owned are generally within the scope of ASU 2014-9, the Corporation does not finance the sale of transactions and as such there is no change in revenue recognition.

While gains (losses) on the sale of other real estate owned are within the scope of ASU 2014-9 if financed by the Corporation, the Corporation does not finance the sale of transactions.

The revenue on the sale is recorded upon the transfer of control of the property to the buyer and the other real estate owned asset is derecognized.

Report of Independent Registered Public Accounting Firm

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Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of CNB Financial Corporation (the "Corporation") as of December 31, 2019 and 2018, the related consolidated statements of income and comprehensive income, changes in shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes (collectively referred to as the "financial statements").

We have audited the accompanying consolidated balance sheets of CNB Financial Corporation (the "Corporation") as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively referred to as the "financial statements").

We also have audited the Corporation’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework:

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Also in our opinion, the Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework:

(2013) issued by COSO.

(2013) issued

Change in Accounting Principle

As discussed in Note 1 to the financial statements, the Corporation has changed its method of accounting for credit losses effective January 1, 2020 due to the adoption of ASU 2016-13 Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments .

The Corporation adopted the new credit loss standard using the modified retrospective method such that prior period amounts are not adjusted and continue to be reported in accordance with previously applicable generally accepted accounting principles.

The adoption of the new credit loss standard and its subsequent application is also communicated as a critical audit matter below.

Basis for Opinions

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Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Credit Losses – Adoption and Qualitative Factors

In accordance with Accounting Standards Update (the "ASU") 2016-13, Financial Instruments —Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments , the Corporation adopted Accounting Standards Codification ("ASC") 326 as of January 1, 2020 as described in Notes 1 and 4 of the consolidated financial statements.

See also the explanatory paragraph above.

The allowance for credit losses (the "ACL") is an accounting estimate of expected credit losses over the estimated life of financial assets carried at amortized cost and off-balance-sheet credit exposures.

The ASU requires a financial asset (or a group of financial assets), including the Corporation's loan portfolio, measured at amortized cost, to be presented at the net amount expected to be collected.

Estimates of expected credit losses for loans are based on historical experience, current conditions and reasonable and supportable forecasts over the estimated life of the loans.

In order to estimate the expected credit losses, the Corporation implemented a new loss estimation model.

The Corporation disclosed the impact of adoption of this standard on January 1, 2020 with a $4.3 million increase to the allowance for credit losses and a $3.4 million decrease to retained earnings for the cumulative effect adjustment recorded upon adoption.

Provision for credit losses expense for the year ending December 31, 2020 was $15.4 million and the Allowance for Credit Losses at December 31, 2020 was $34.3 million.

The Corporation measures expected credit losses based on pooled loans when similar risk characteristics exist.

The Corporation uses a discounted cash flow ("DCF") model for approximately 91% of the amortized cost of loans and a weighted average remaining maturity ("WARM") model for approximately 9% of the amortized cost of loans.

The DCF model discounts instrument-level cash flows, adjusting for prepayments and curtailments, and incorporates loss expectations based on inputs of current and forecasted macroeconomic indicators.

The WARM model contemplates expected losses at a pool-level utilizing historic loss information.

The Corporation adjusts its quantitative model for certain qualitative factors to reflect the extent to which management expects current conditions and reasonable and supportable forecasts to differ from the conditions that existed for the period over which historical information was evaluated.

The qualitative framework reflects changes related to relevant data, such as differences in underwriting standards, changes in environmental conditions, delinquency levels, segment growth rates and changes in duration within new markets, or other relevant factors not considered in the base model.

The adoption of the allowance for credit losses and application of the qualitative factors was identified by us as a critical audit matter because of the extent of auditor judgment applied and significant audit effort to evaluate the subjective and complex judgments made by management throughout the initial adoption and subsequent application processes related to the qualitative factors.

The principal considerations resulting in our determination included the following:

• Significant auditor judgment and audit effort to evaluate the significant assumptions input into the DCF model.

• Significant auditor judgment and audit effort were used in evaluating the qualitative factors used in the calculation.

The primary procedures performed to address the critical audit matter included:

• Testing the effectiveness of controls included:

◦ Testing management’s selection of the DCF model, including evaluation of the relevance and reliability of the loss driver analysis and probability of default and loss given default curves input into the model.

◦ Testing management’s review controls over the Corporation’s key assumptions and judgments used in the determination of qualitative factors.

• Substantive testing included:

◦ Evaluating the appropriateness of the Corporation's policies, methodologies, and elections involved in the adoption of ASC 326.

◦ Utilizing the assistance of specialists to evaluate the appropriateness and mathematical accuracy of the loss driver analysis used in the adoption of the DCF model, and the relevance and reliability of the data used in the development of the loss rate forecasts in the DCF model.

◦ Evaluating management’s process and judgments for developing and applying qualitative factors and assessing relevance of data used to develop factors, including evaluating their assumptions for reasonableness.

/s/ Crowe LLP

We have served as the Corporation’s auditor since 2000.

Cleveland, Ohio

Columbus, Ohio

March 4, 2021

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data