CNB FINANCIAL CORP/PA 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of the consolidated financial statements of the Corporation is presented to provide insight into management’s assessment of financial results. The Corporation’s subsidiary, the Bank, provides financial services to individuals and businesses primarily within its primary market area of the Pennsylvania counties of Blair, Cambria, Cameron, Centre, Clearfield, Crawford, Elk, Indiana, Jefferson, and McKean. ERIEBANK, a division of the Bank, operates in the Pennsylvania counties of Crawford, Erie, and Warren and in the Ohio counties of Ashtabula, Cuyahoga, and Lake. FCBank, a division of the Bank, operates in the Ohio counties of Crawford, Richland, Ashland, Wayne, Marion, Morrow, Knox, Delaware, and Franklin. BankOnBuffalo, a division of the Bank, operates in Erie and Niagara counties, New York. The Bank is subject to regulation, supervision and examination by the Pennsylvania State Department of Banking as well as the FDIC. CNB Securities Corporation is incorporated in Delaware and currently maintains investments in debt and equity securities. CNB Insurance Agency, incorporated in Pennsylvania, provides for the sale of nonproprietary annuities and other insurance products. CNB Risk Management, Inc., incorporated in Delaware, is a captive insurance company that insures against certain risks unique to the operations of the Corporation and its subsidiaries and for which insurance may not be currently available or economically feasible in today's insurance marketplace. Holiday, incorporated in Pennsylvania, offers small balance unsecured loans and secured loans, primarily collateralized by automobiles and equipment, to borrowers with higher risk characteristics. The financial condition and results of operations of the Corporation and its consolidated subsidiaries are not necessarily indicative of future performance. Management’s discussion and analysis should be read in conjunction with the audited consolidated financial statements and related notes. Risk identification and management are essential elements for the successful management of the Corporation. In the normal course of business, the Corporation is subject to various types of risk, including interest rate, credit, and liquidity risk. These risks are controlled through policies and procedures established by the Corporation. Interest rate risk is the sensitivity of net interest income and the market value of financial instruments to the direction and frequency of changes in interest rates. Interest rate risk results from various repricing frequencies and the maturity structure of the financial instruments owned by the Corporation. The Corporation uses its asset-liability management policy and systems to control, monitor and manage interest rate risk. Credit risk represents the possibility that a customer may not perform in accordance with contractual terms. Credit risk results from loans to customers and the purchase of securities. The Corporation manages credit risk by following an established credit policy and using a disciplined evaluation of the adequacy of the allowance for credit losses. Also, the Corporation's investment policy limits the amount of credit risk that may be taken in the securities portfolio. Liquidity risk represents the inability to generate or otherwise obtain funds at reasonable rates to satisfy commitments to borrowers and obligations to depositors. The Corporation has established guidelines within its asset-liability management policy to manage liquidity risk. These guidelines include contingent funding alternatives. 23 Table of Contents Forward-Looking Statements The information below includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, with respect to CNB’s financial condition, liquidity, results of operations, future performance and business. These forward-looking statements are intended to be covered by the safe harbor for "forward-looking statements" provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are those that are not historical facts. Forward-looking statements include statements with respect to beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions that are subject to significant risks and uncertainties and are subject to change based on various factors (some of which are beyond CNB’s control). Forward-looking statements often include the words "believes," "expects," "anticipates," "estimates," "forecasts," "intends," "plans," "targets," "potentially," "probably," "projects," "outlook" or similar expressions or future conditional verbs such as "may," "will," "should," "would" and "could." CNB’s actual results may differ materially from those contemplated by the forward-looking statements, which are neither statements of historical fact nor guarantees or assurances of future performance. Currently, one of the most significant factors that could cause actual outcomes to differ materially from our forward-looking statements is the potential adverse effect of the current pandemic of the novel coronavirus, or COVID-19, on the financial condition, results of operations, cash flows and performance of the Corporation, our customers and the global economy and financial markets. The COVID-19 pandemic has impacted us and our customers significantly, and the extent that it continues to impact us and our customers will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic and its impact on demand for financial services, the actions governments, businesses and individuals take in response to the pandemic, the impact of the COVID-19 pandemic and actions taken in response to the pandemic on global and regional economies, national and local economic activity, and the pace of recovery when the COVID-19 pandemic subsides, among others. Moreover, investors are cautioned to interpret many of the risks identified under the section entitled "Risk Factors" in our Form 10-K for the year ended December 31, 2020 as being heightened as a result of the ongoing and numerous adverse impacts of the COVID-19 pandemic. Additional factors that could cause the actual results to differ materially from the statements, include, but are not limited to, (i) changes in general business, industry or economic conditions or competition; (ii) changes in any applicable law, rule, regulation, policy, guideline or practice governing or affecting financial holding companies and their subsidiaries or with respect to tax or accounting principles or otherwise; (iii) adverse changes or conditions in capital and financial markets; (iv) changes in interest rates; (v) higher than expected costs or other difficulties related to integration of combined or merged businesses; (vi) the effects of business combinations and other acquisition transactions, including the inability to realize our loan and investment portfolios; (vii) changes in the quality or composition of our loan and investment portfolios; (viii) adequacy of loan loss reserves; (ix) increased competition; (x) loss of certain key officers; (xi) deposit attrition; (xii) rapidly changing technology; (xiii) unanticipated regulatory or judicial proceedings and liabilities and other costs; (xiv) changes in the cost of funds, demand for loan products or demand for financial services; and (xv) other economic, competitive, governmental or technological factors affecting our operations, markets, products, services and prices. Such developments could have an adverse impact on CNB's financial position and results of operations. The forward-looking statements contained herein are based upon management’s beliefs and assumptions. Any forward-looking statement made herein speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. CNB undertakes no obligation to publicly update or revise any forward-looking statements included in this Annual Report on Form 10-K, whether as a result of new information, future events or otherwise, except to the extent required by law. In light of these risks, uncertainties and assumptions, the forward-looking events discussed might not occur and you should not put undue reliance on any forward-looking statements. General Overview This report contains references to financial measures that are not defined in GAAP. Management uses non-GAAP financial information in its analysis of the Corporation’s performance. Management believes that these non-GAAP measures provide a greater understanding of ongoing operations, enhance comparability of results of operations with prior periods and show the effects of significant gains and charges in the periods presented. The Corporation’s management believes that investors may use these non-GAAP measures to analyze the Corporation’s financial performance without the impact of unusual items or events that may obscure trends in the Corporation’s underlying performance. This non-GAAP data should be considered in addition to results prepared in accordance with GAAP, and is not a substitute for, or superior to, GAAP results. Limitations associated with non-GAAP financial measures include the risks that persons might disagree as to the appropriateness of items included in these measures and that different companies might calculate these measures differently. 24 Table of Contents Non-GAAP measures reflected within the discussion below include evaluations on the impact of PPP-related assets, merger costs, branch closure costs and FHLB prepayment penalties on various metrics of the Corporation’s financial performance, including calculations related to: • Tangible common equity/tangible assets; • Average loans and average earning assets utilized in the calculation of yield on loans, yield on earning assets and net interest margin; • Return on average assets, return on average common equity and return on average tangible common equity; • Efficiency ratio; • Earnings per share; • Non-performing assets/total assets and allowance for loan credit/loans. A reconciliation of these non-GAAP financial measures is provided below in the "Non-GAAP Financial Measures" section. Management looks to return on average equity, earnings per common share, asset quality, and other metrics to measure the performance of the Corporation. The interest rate environment will continue to play an important role in the future earnings of the Corporation. In order to address the challenging interest rate and competitive environments, the Corporation continues to evaluate, develop and implement strategies necessary to support its ongoing financial performance objectives. In addition, the global outbreak of COVID-19 and the public health measures that have been undertaken in response have had, and will continue to have, significant repercussions across regional and global economies and financial markets. The COVID-19 pandemic, its associated responsive measures and the resulting economic slowdown have disrupted our business and are expected to continue to have a significant impact on our business, financial performance and operating results. Since we cannot estimate when the COVID-19 pandemic and the associated responsive measures will end, we cannot estimate the ultimate operational and financial impact of COVID-19 on our business. However, management will continue to proactively implement strategies to mitigate the impact of the pandemic on the Corporation’s business, risk profile and financial performance. To address the challenges arising as a result of the COVID-19 pandemic, and in order to continue to deliver essential services to the communities the Corporation serves while maintaining a high level of safety for customers and employees, the Corporation implemented its Pandemic Response Plan. Among other things, significant actions taken include: • Implemented communication plans to ensure employees, customers and critical vendors are kept abreast of developments affecting the Corporation's operations; • Restricted all non-essential travel and instituted a mandatory quarantine period for anyone who has traveled to certain impacted areas; • Temporarily closed all branch lobbies to non-employees, except for certain limited cases by appointment only. Based on updated governmental guidelines, the Corporation re-opened its branch lobbies, while enforcing safe practices in order to serve its consumer and business customers. In addition, the Corporation continued to offer its customers alternatives through its drive-through capabilities, network of ATMs, internet banking, mobile application and telephone customer service capabilities; • Expanded remote-access availability for the Corporation's workforce to work from home or other remote locations. The Corporation has taken appropriate efforts to ensure that activities are performed in accordance with the Corporation's compliance and information security policies, which are designed to ensure customer data and other information is properly safeguarded; • Instituted mandatory social distancing policies for those employees not working remotely. Members of branch and operation teams were split into separate teams to provide a higher level of safety for employees and redundancy for key functions across the Corporation. Based upon updated governmental guidelines, the Corporation has reintegrated its branch teams and the majority of its operation teams, while continuing to require social distancing, wearing of masks and other appropriate safety precautions; and • To ensure the safety of its customers and employees, the Corporation continues to monitor the COVID-19 pandemic closely and update its response plan accordingly. 25 Table of Contents Non-interest costs are expected to increase with the growth of the Corporation; however, management’s growth strategies are also expected to result in an increase in earning assets as well as enhanced non-interest income, which is expected to more than offset increases in non-interest expenses in 2021 and beyond. Although the Corporation's discussion regarding its financial performance distinguishes between certain markets and Private Banking, it does not meet the criteria for discrete segment reporting of its operating results. Management's conclusion was based on the limited level of financial information available to segregate operating results, coupled with the fact that no operating results are available for the Corporation's Chief Operating Decision Maker to review on a regular basis. All dollar amounts are stated in thousands, except share and per share data and other amounts as indicated. Financial Condition The following table presents ending balances, growth, and the percentage change of certain measures of our financial condition for specified years (dollars in millions): 2020 Balance $ Change vs. prior year % Change vs. prior year 2019 Balance $ Change vs. prior year % Change vs. prior year 2018 Balance Total assets $ 4,729.4 $ 965.7 25.7 % $ 3,763.7 $ 542.1 16.8 % $ 3,221.5 Total loans, net of allowance for credit losses 3,337.4 552.9 19.9 % 2,784.6 329.7 13.4 % 2,454.9 Total securities 591.6 39.4 7.1 % 552.1 27.5 5.2 % 524.7 Total deposits 4,181.7 1,079.4 34.8 % 3,102.3 491.5 18.8 % 2,610.8 Total shareholders’ equity 416.1 111.2 36.5 % 305.0 42.1 16.0 % 262.8 26 Table of Contents The loan categories used to monitor and analyze interest income and yields are different than the portfolio segments used to determine the allowance for credit losses for loans. The allowance for credit losses was calculated by pooling loans of similar credit risk characteristics and credit monitoring procedures. See Note 1, "Summary of Significant Accounting Policies," and Note 4, "Loans," for more information about pooling of loans for the allowance for credit losses. The following table presents average balances of certain measures of our financial condition and net interest margin for the specified years. 12/31/2020 12/31/2019 12/31/2018 Average Balance Annual Rate Interest Inc./ Exp. Average Balance Annual Rate Interest Inc./ Exp. Average Balance Annual Rate Interest Inc./ Exp. Assets Securities: Taxable (1) $ 505,770 2.35 % $ 11,510 $ 436,122 2.77 % $ 11,973 $ 365,790 2.62 % $ 9,733 Tax-Exempt (1) (2) 55,460 3.32 % 1,772 85,802 3.40 % 2,867 97,412 3.42 % 3,326 Equity Securities (1) (2)) 12,814 5.89 % 755 18,203 6.17 % 1,123 19,133 5.89 % 1,170 Total Securities 574,044 2.53 % 14,037 540,127 2.99 % 15,963 482,335 2.91 % 14,229 Loans: Commercial (2) 1,230,615 4.80 % 59,016 987,974 5.35 % 52,868 820,547 4.98 % 40,846 Mortgage (2) 1,783,980 4.76 % 84,857 1,539,208 5.04 % 77,501 1,422,021 4.88 % 69,338 Consumer 100,576 9.71 % 9,766 102,928 10.08 % 10,373 85,776 10.16 % 8,717 Total Loans (3) 3,115,171 4.93 % 153,639 2,630,110 5.35 % 140,742 2,328,344 5.11 % 118,901 Other Earning Assets 402,861 0.21 % 852 24,674 2.02 % 499 4,536 4.14 % 188 Total earning assets 4,092,076 4.14 % $ 168,528 3,194,911 4.93 % $ 157,204 2,815,215 4.73 % $ 133,318 Non-Interest Earning Assets Cash & Due From Banks 42,001 33,218 31,498 Premises, Equipment and Right of Use Assets 75,516 68,744 49,985 Other Assets 166,511 137,519 133,115 Allowance for Credit Losses (28,962) (20,655) (21,511) Total Non-Interest Earning Assets 255,066 218,826 193,087 Total Assets $ 4,347,142 $ 3,413,737 $ 3,008,302 Liabilities and Shareholders’ Equity Interest Bearing Deposits Demand – interest bearing $ 755,200 0.24 % $ 1,781 $ 580,244 0.42 % $ 2,455 $ 582,289 0.38 % $ 2,209 Savings 1,923,214 0.66 % 12,775 1,450,653 1.39 % 20,138 1,077,210 0.85 % 9,184 Time 445,408 2.15 % 9,586 371,464 2.05 % 7,609 383,531 1.52 % 5,835 Total interest bearing deposits 3,123,822 0.77 % 24,142 2,402,361 1.26 % 30,202 2,043,030 0.84 % 17,228 Short-term borrowings 0 0.00 % 0 16,022 2.65 % 425 37,363 1.91 % 713 Long-term borrowings 221,436 2.05 % 4,534 229,377 2.15 % 4,924 250,242 2.06 % 5,143 Subordinated Debentures 70,620 5.35 % 3,780 70,620 5.63 % 3,979 70,620 5.47 % 3,866 Total interest bearing liabilities 3,415,878 0.95 % $ 32,456 2,718,380 1.45 % $ 39,530 2,401,255 1.12 % $ 26,950 Demand – non-interest bearing 516,724 360,208 327,014 Other liabilities 56,377 49,825 29,537 Total Liabilities 3,988,979 3,128,413 2,757,806 Shareholders’ Equity 358,163 285,324 250,496 Total Liabilities and Shareholders’ Equity $ 4,347,142 $ 3,413,737 $ 3,008,302 Interest Income/Earning Assets 4.14 % $ 168,528 4.93 % $ 157,204 4.73 % $ 133,318 Interest Expense/Interest Bearing Liabilities 0.95 % 32,456 1.45 % 39,530 1.12 % 26,950 Net Interest Spread 3.19 % $ 136,072 3.48 % $ 117,674 3.61 % $ 106,368 Interest Income/Earning Assets 4.14 % $ 168,528 4.93 % $ 157,204 4.73 % $ 133,318 Interest Expense/Earning Assets 0.80 % 32,456 1.24 % 39,530 0.96 % 26,950 Net Interest Margin 3.34 % $ 136,072 3.69 % $ 117,674 3.77 % $ 106,368 (1) Includes unamortized discounts and premiums. Average balance is computed using the amortized cost of securities. The average yield has been computed using the historical amortized cost average balance for available for sale securities. 27 Table of Contents (2) Average yields and interest income are stated on a fully taxable equivalent basis using the Corporation’s marginal federal income tax rate of 21% for the years end December 31, 2020, 2019 and 2018. Interest income has been increased by $1.4 million, $1.5 million, and $1.4 million for the years ended December 31, 2020, 2019, and 2018, respectively, as a result of the effect of tax-exempt interest and dividends earned by the Corporation. (3) Average balance outstanding includes the average balance outstanding of all nonaccrual loans. Loans consist of the average of total loans less average unearned income. Included in loan interest income is loan fees of $10,438, $4,048, and $3,935 for the years ended December 31, 2020, 2019, and 2018, respectively. Loan fees for the year ended December 31, 2020 included $5.1 million in Paycheck Protection Program ("PPP") deferred processing fees. The following table presents the change in net interest income for the years specified. Net Interest Income Rate-Volume Variance For Twelve Months Ended December 31, 2020 over (under) 2019 Due to Change In (1) For Twelve Months Ended December 31, 2019 over (under) 2018 Due to Change In (1) Volume Rate Net Volume Rate Net Assets Securities: Taxable $ 1,369 $ (1,832) $ (463) $ 1,691 $ 549 $ 2,240 Tax-Exempt (2) (1,026) (69) (1,095) (440) (19) (459) Equity Securities (2) (317) (51) (368) (101) 54 (47) Total Securities 26 (1,952) (1,926) 1,150 584 1,734 Loans: Commercial (2) 11,582 (5,434) 6,148 8,986 3,036 12,022 Mortgage (2) 11,666 (4,310) 7,356 5,888 2,275 8,163 Consumer (226) (381) (607) 1,725 (69) 1,656 Total Loans 23,022 (10,125) 12,897 16,599 5,242 21,841 Other Earning Assets 800 (447) 353 407 (96) 311 Total Earning Assets $ 23,848 $ (12,524) $ 11,324 $ 18,156 $ 5,730 $ 23,886 Liabilities and Shareholders’ Equity Interest Bearing Deposits Demand – Interest Bearing $ 413 $ (1,087) $ (674) $ (9) $ 255 $ 246 Savings 3,139 (10,502) (7,363) 5,184 5,770 10,954 Time 1,591 386 1,977 (247) 2,021 1,774 Total Interest Bearing Deposits 5,143 (11,203) (6,060) 4,928 8,046 12,974 Short-Term Borrowings 0 (425) (425) (566) 278 (288) Long-Term Borrowings (163) (227) (390) (448) 229 (219) Subordinated Debentures 0 (199) (199) 0 113 113 Total Interest Bearing Liabilities $ 4,980 $ (12,054) $ (7,074) $ 3,914 $ 8,666 $ 12,580 Change in Net Interest Income $ 18,868 $ (470) $ 18,398 $ 14,242 $ (2,936) $ 11,306 (1) The change in interest due to both volume and rate have been allocated entirely to volume changes. (2) Changes in interest income on tax-exempt securities and loans are presented on a fully taxable-equivalent basis, using the Corporation’s marginal federal income tax rate of 21% for the year ended December 31, 2020 and December 31, 2019. Cash and Cash Equivalents Cash and cash equivalents totaled $532.7 million at December 31, 2020, including additional excess liquidity of $483.2 million held at the Federal Reserve. Cash and cash equivalents totaled $193.0 million at December 31, 2019. The significant increase in liquidity is the result of the Corporation's growth in deposits during 2020. In addition to the Corporation's deposit growth strategies, management believes the liquidity needs of the Corporation are satisfied by the current balance of cash and cash equivalents, Federal Home Loan Bank financing availability, and the portions of the securities and loan portfolios that mature within one year. The Corporation expects that these sources of funds will enable it to meet cash obligations and off-balance sheet commitments as they come due. 28 Table of Contents Securities Securities available for sale and trading securities totaled $591.6 million and $552.1 million at December 31, 2020 and 2019, respectively. Note 3, "Securities," in the consolidated financial statements provides more detail concerning the composition of the Corporation’s securities portfolio and the process for evaluating securities for impairment. The following table sets forth the carrying value of our debt securities available-for-sale portfolio at year-end December 31, 2020, 2019, and 2018. December 31, 2020 December 31, 2019 December 31, 2018 Amortized Unrealized Market Amortized Unrealized Market Amortized Unrealized Market Cost Gains Losses Value Cost Gains Losses Value Cost Gains Losses Value Securities Available for Sale U.S. Government Sponsored Entities $ 150,404 $ 6,698 $ (60) $ 157,042 $ 124,189 $ 2,924 $ (19) $ 127,094 $ 134,010 $ 254 $ (1,570) $ 132,694 State and Political Subdivisions 67,819 3,186 (122) 70,883 101,177 3,288 (102) 104,363 134,662 1,942 (573) 136,031 Residential and multi-family mortgage 306,054 9,276 (138) 315,192 273,404 4,117 (885) 276,636 209,126 500 (3,573) 206,053 Corporate notes and bonds 15,221 105 (400) 14,926 8,350 14 (282) 8,082 12,356 22 (601) 11,777 Pooled SBA 24,975 912 (1) 25,886 25,063 274 (163) 25,174 30,163 135 (924) 29,374 Other 1,020 0 (41) 979 1,020 0 (56) 964 1,020 0 (86) 934 $ 565,493 $ 20,177 $ (762) $ 584,908 $ 533,203 $ 10,617 $ (1,507) $ 542,313 $ 521,337 $ 2,853 $ (7,327) $ 516,863 The following table sets forth the maturities of debt securities in our available-for-sale portfolio as of December 31, 2020. Maturity Distribution of Debt Securities Available-for-Sale December 31, 2020 Within One Year After One But Within Five Years After Five But Within Ten Years After Ten Years Pooled SBA, Residential and Multi- Family Mortgage and Commercial Mortgage $ Amt. Yield (1) $ Amt. Yield (1) $ Amt. Yield (1) $ Amt. Yield (1) $ Amt. Yield (1) Debt Securities Available for Sale (2) U.S. Government Sponsored Entities $ 38,695 1.82 % $ 89,331 1.58 % $ 29,016 2.96 % State and Political Subdivisions 12,547 3.47 % 20,153 3.37 % 28,852 3.11 % $ 9,331 3.07 % Corporate notes and bonds 2,206 0.91 % 2,180 0.59 % 8,875 3.33 % 1,665 5.18 % Pooled SBA $ 25,886 2.38 % Residential and multi-family mortgage 315,192 2.69 % Other 979 1.63 % Total $ 53,448 2.17 % $ 112,643 1.88 % $ 66,743 3.07 % $ 10,996 3.39 % $ 341,078 2.67 % (1) The weighted average yields are based on market value and effective yields weighted for the scheduled maturity with tax-exempt securities adjusted to a taxable-equivalent basis using a tax rate of 21%. (2) The portfolio contains no holdings of a single issuer that exceeds 10% of shareholders’ equity other than the US Treasury and governmental sponsored entities. The Corporation generally purchases debt securities over time and does not attempt to "time" its transactions, which allows for more efficient management of fluctuations in the interest rate environment. The Corporation monitors the earnings performance and the effectiveness of the liquidity of the securities portfolio on a regular basis through meetings of the ALCO. The ALCO also reviews and manages interest rate risk for the Corporation. Through active balance sheet management and analysis of the securities portfolio, a sufficient level of liquidity is maintained to satisfy depositor requirements and various credit needs of our customers. 29 Table of Contents Loans As detailed in the tables below, at December 31, 2020, the Corporation had $3.4 billion in loans outstanding, an increase of $567.8 million, or 20%, since December 31, 2019, as a result of $319.1 million of acquired loans from Bank of Akron, net of fair value adjustments, $155.5 million in PPP loans, net of PPP deferred processing fees ("PPP-related loans") and $92.7 million, or 3.3%, of organic growth, primarily from our Cleveland and Buffalo regions. Since 2016, the Corporation's loan portfolio has increased approximately $1.5 billion, primarily as a result of management's continued focus on developing and maintaining customer relationships coupled with the impact of PPP loans and the acquisition of Bank of Akron in 2020. 2020 Farmland $ 23,316 Owner-occupied, nonfarm nonresidential properties 407,924 Agricultural production and other loans to farmers 2,664 Commercial and Industrial 663,550 Obligations (other than securities and leases) of states and political subdivisions 132,818 Other loans 11,961 Other construction loans and all land development and other land loans 205,734 Multifamily (5 or more) residential properties 212,815 Non-owner occupied, nonfarm nonresidential properties 640,945 1-4 Family Construction 27,768 Home equity lines of credit 109,444 Residential Mortgages secured by first liens 777,030 Residential Mortgages secured by junior liens 53,726 Other revolving credit plans 25,507 Automobile 25,344 Other consumer 42,792 Credit cards 8,115 Overdrafts 336 Total loans $ 3,371,789 2019 2018 2017 2016 Commercial, industrial and agricultural $ 1,046,665 $ 916,297 $ 704,606 $ 567,800 Commercial mortgages 814,002 697,776 644,597 574,826 Residential real estate 814,030 771,309 713,347 652,883 Consumer 124,785 86,035 80,193 74,816 Credit cards 7,569 7,623 6,753 6,046 Overdrafts 2,146 308 352 595 Gross loans 2,809,197 2,479,348 2,149,848 1,876,966 Less: unearned income 5,162 4,791 3,889 3,430 Total loans net of unearned $ 2,804,035 $ 2,474,557 $ 2,145,959 $ 1,873,536 The Corporation has not underwritten any hybrid loans, payment option loans, or low documentation/no documentation loans. Variable rate loans are generally underwritten at the fully indexed rate. Loan underwriting policies and procedures have not changed materially between any periods presented. The Corporation expects to continue to achieve robust loan growth in 2021 as a result of its diversified markets and its focus on core customer acquisition strategies. Customer Support Strategies and Loan Portfolio Profile The Corporation participated in the PPP provided under the auspices of the Small Business Administration ("SBA"). Under this program, the Corporation lent money primarily to its existing loan and/or deposit customers, based on a predetermined SBA-developed formula, intended to incentivize small business owners to retain their employees. These loans carry a customer rate of 1.00% plus a processing fee that varies depending on the balance of the loan at origination. As of December 31, 2020, the Corporation had outstanding $159.6 million in PPP loans, or 1,528 PPP loans, at a rate of 1.00% together with deferred PPP processing fees of approximately $4.1 million. For the three and twelve months ended December 31, 2020, the Corporation recognized $4.5 million and $5.1 million, respectively, in deferred PPP processing fees ("PPP-related fees"). 30 Table of Contents In addition to participating in the PPP, during the year ended December 31, 2020, the Corporation deferred loan payments for several of its commercial and consumer customers, as determined by the financial needs of each customer. As of December 31, 2020, the COVID-19 related loans with deferred loan payment arrangements, totaled $151.0 million, or 4.5% of total loans outstanding, consisting of 112 loans, totaling $107.2 million, for which principal and interest were deferred, and 55 loans, totaling $43.8 million, for which principal only was deferred. Loan payment deferrals by loan type were as follows: • Commercial and industrial loans – 44 loans, totaling $39.1 million; • Commercial real estate loans – 23 loans, totaling $101.8 million; • Residential mortgage loans – 88 loans, totaling $9.9 million; and • Consumer loans – 12 loans, totaling $154 thousand. The Corporation tracks lending exposure by industry classification to determine potential risk associated with industry concentrations, if any, that could lead to additional credit loss exposure. As a result of the COVID-19 pandemic, the Corporation has determined the Hotels/Motels and Restaurants/Fast Foods industries represent a potentially higher level of credit risk, as many of these customers have incurred a significant negative impact to their businesses as a result of governmental stay-at-home orders as well as travel limitations. At December 31, 2020, the Corporation had loan concentrations for these industries as follows, excluding PPP-related loans: • Hotels/Motels – $206.6 million, or 6.42% of total loans outstanding, excluding PPP-related loans; and • Restaurants/Fast Foods – $30.1 million, or 0.94% of total loans outstanding, excluding PPP-related loans. Maturity Distribution of Loans A previously mentioned, the loan categories used to monitor and analyze interest income and yields are different than the portfolio segments used to determine the allowance for credit losses for loans. Commercial and mortgage loans are the largest classification within earning assets, representing 73.7% at December 31, 2020, compared to 79.1% at December 31, 2019. The following table presents the maturity distribution and rate sensitivity of commercial and mortgage loans at December 31, 2020 and an analysis of these loans that have fixed and variable or floating interest rates. December 31, 2020 One Year or Less One Through Five Years Over Five Years Total Gross Loans Commercial Loans Loans With Fixed Interest Rate $ 178,005 $ 109,837 $ 147,467 $ 435,309 Loans With Variable or Floating Interest Rates 216,096 140,888 467,948 824,932 $ 394,101 $ 250,725 $ 615,415 $ 1,260,241 Mortgage Loans Loans With Fixed Interest Rate $ 51,864 $ 168,885 $ 441,179 $ 661,928 Loans With Variable or Floating Interest Rates 134,469 227,535 994,297 1,356,301 $ 186,333 $ 396,420 $ 1,435,476 $ 2,018,229 Loan Concentration At December 31, 2020, no concentration existed within our commercial or mortgage loan portfolios which exceeded 10% of the total loan portfolio. Loan Quality The Corporation has established written lending policies and procedures that require underwriting standards, loan documentation, and credit analysis standards to be met prior to funding a loan. Subsequent to the funding of a loan, ongoing review of credits is required. Credit reviews are performed quarterly by an outsourced loan review firm and cover approximately 65% of the commercial loan portfolio on an annual basis. In addition, the external independent loan review firm reviews classified assets, past due loans and nonaccrual loans quarterly. Note 1, "Summary of Significant Accounting Policies," in the consolidated financial statements provides a discussion of the Corporation's policy for placing loans on nonaccrual status. The following table presents information concerning loan delinquency and other nonperforming assets at December 31, 2020, 2019, 2018, 2017, and 2016: 31 Table of Contents 2020 2019 2018 2017 2016 Nonaccrual loans $ 30,359 $ 21,736 $ 14,262 $ 15,653 $ 12,510 Accrual loans greater than 90 days past due 325 61 887 616 172 Total nonperforming loans 30,684 21,797 15,149 16,269 12,682 Other real estate owned 862 1,633 418 710 1,015 Total nonperforming assets $ 31,546 $ 23,430 $ 15,567 $ 16,979 $ 13,697 Loans modified in a troubled debt restructuring (TDR): Performing TDR loans $ 10,457 $ 7,359 $ 8,201 $ 8,344 $ 8,710 Nonperforming TDR loans (1) 4,631 3,592 6,425 8,959 3,120 Total TDR loans $ 15,088 $ 10,951 $ 14,626 $ 17,303 $ 11,830 Total loans $ 3,371,789 $ 2,804,035 $ 2,474,557 $ 2,145,959 $ 1,873,536 Nonperforming loans as a percentage of loans 0.91 % 0.78 % 0.61 % 0.76 % 0.68 % Total assets $ 4,729,399 $ 3,763,659 $ 3,221,521 $ 2,768,773 $ 2,573,821 Nonperforming assets as a percentage of total assets 0.67 % 0.62 % 0.48 % 0.61 % 0.53 % Non-performing assets / Total assets, net of PPP-related assets (2) 0.71 % 0.62 % 0.48 % 0.61 % 0.53 % (1) Nonperforming TDR loans are also included in the balance of nonaccrual loans. (2) A reconciliation of this non-GAAP financial measures is provided in the "Non-GAAP Financial Measures" section below. Total non-performing assets were $31.5 million, or 0.67%, of total assets, as of December 31, 2020. Total assets at December 31, 2020 include approximately $315.1 million in PPP-related assets. Excluding the PPP-related assets, the ratio of total non-performing assets to total assets was 0.71% as of December 31, 2020 compared to 0.62% as of December 31, 2019. The increase from December 31, 2019, was primarily due to one commercial real estate loan relationship totaling approximately $8.7 million. During the three months ended March 31, 2020, this loan was downgraded to substandard and placed on non-accrual as a result of a covenant violation. Management performed an evaluation of the collateral supporting the loan and concluded to charge-off $1.0 million in the fourth quarter of 2020. Potential problem loans consist of loans that are performing in accordance with contractual terms but for which management has concerns about the ability of a borrower to continue to comply with repayment terms because of the borrower’s potential operating or financial difficulties. Management monitors these "watchlist" loans on a monthly basis to determine potential losses within the commercial loan portfolio. The "watchlist" is comprised of all credits risk rated special mention, substandard and doubtful. Allowance for Credit Losses The 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 quantitative and qualitative 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 allowance for credit losses on loans, Note 1, "Summary of Significant Accounting Policies," and Note 4, "Loans," in the consolidated financial statements provides additional disclosure on the allowance for credit losses. As a result of the adoption of ASC 326 effective January 1, 2020, there is a lack of comparability in both the allowance and provision 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. Note 1, "Summary of Significant Accounting Policies," in the consolidated financial statements provides additional disclosure on the adoption of ASC 326. 32 Table of Contents Beginning Allowance (Before ASC 326 Adoption) Impact of ASC 326 Adoption Initial Allowance on Loans Purchased with Credit Deterioration (Charge-offs) Recoveries Net (Charge-Offs) Recoveries Provision (Benefit) for Credit Loss Expense Ending Allowance (After ASC 326 Adoption) Farmland $ 190 $ 61 $ 0 $ 0 $ 0 $ 0 $ (30) $ 221 Owner-occupied, nonfarm nonresidential properties 2,390 (754) 82 (61) 12 (49) 2,031 3,700 Agricultural production and other loans to farmers 25 5 0 0 0 0 (6) 24 Commercial and Industrial 4,105 (631) 216 (2,779) 39 (2,740) 5,283 6,233 Obligations (other than securities and leases) of states and political subdivisions 1,022 (231) 0 0 0 0 207 998 Other loans 41 8 0 0 0 0 19 68 Other construction loans and all land development and other land loans 2,327 780 228 0 125 125 (1,504) 1,956 Multifamily (5 or more) residential properties 1,087 312 24 0 0 0 1,301 2,724 Non-owner occupied, nonfarm nonresidential properties 3,980 2,547 335 (1,522) 52 (1,470) 3,266 8,658 1-4 Family Construction 56 (35) 0 0 0 0 61 82 Home equity lines of credit 180 421 22 (6) 1 (5) 367 985 Residential Mortgages secured by first liens 1,220 1,100 73 (285) 65 (220) 2,366 4,539 Residential Mortgages secured by junior liens 114 135 0 (158) 2 (156) 148 241 Other revolving credit plans 296 378 0 (137) 21 (116) (51) 507 Automobile 156 (96) 0 (29) 2 (27) 99 132 Other consumer 1,960 1,021 0 (1,513) 130 (1,383) 1,364 2,962 Credit cards 84 (58) 0 (153) 14 (139) 179 66 Overdrafts 240 0 0 (435) 185 (250) 254 244 Total loans $ 19,473 $ 4,963 $ 980 $ (7,078) $ 648 $ (6,430) $ 15,354 $ 34,340 Loans $ 3,371,789 Allowance to loans 1.02 % Allowance to loans, net of PPP-related loans (1) 1.07 % Percentage of net charge-offs during the period to average loans outstanding 0.21 % (1) A reconciliation of this non-GAAP financial measures is provided in the "Non-GAAP Financial Measures" section below. Prior to January 1, 2020, the Corporation calculated the allowance for loan losses using the probable incurred methodology. The activity in our allowance for loan losses was as follows during the years ended December 31, 2019, 2018, 2017, and 2016: 33 Table of Contents 2019 2018 2017 2016 Balance at beginning of period $ 19,704 $ 19,693 $ 16,330 $ 16,737 Charge-offs: Commercial, industrial, and agricultural (205) (253) (544) (601) Commercial mortgages (3,391) (3,337) (116) (201) Residential real estate (386) (315) (466) (499) Consumer (2,200) (2,279) (2,555) (3,324) Credit cards (116) (90) (144) (96) Overdrafts (453) (319) (252) (240) (6,751) (6,593) (4,077) (4,961) Recoveries: Commercial, industrial, and agricultural 17 171 235 89 Commercial mortgages 124 30 197 8 Residential real estate 73 67 78 93 Consumer 154 141 161 122 Credit cards 15 33 27 22 Overdrafts 113 90 87 71 496 532 785 405 Net charge-offs (6,255) (6,061) (3,292) (4,556) Provision for loan losses 6,024 6,072 6,655 4,149 Balance at end of period $ 19,473 $ 19,704 $ 19,693 $ 16,330 Loans, net of unearned income $ 2,804,035 $ 2,474,557 $ 2,145,959 $ 1,873,536 Allowance to net loans 0.69 % 0.80 % 0.92 % 0.87 % Percentage of net charge-offs during the period to average loans outstanding 0.24 % 0.26 % 0.16 % 0.27 % The allowance for credit losses measured as a percentage of loans as of December 31, 2020 was 1.02%. Total loans at December 31, 2020 include approximately $155.5 million in PPP-related loans. Excluding PPP-related loans, the allowance for credit losses measured as a percentage of loans, net of unearned income, was 1.07% as of December 31, 2020 compared to 0.69% as of December 31, 2019. The increase in the allowance for credit losses from December 31, 2019 to December 31, 2020 resulted primarily from the adoption of CECL, coupled with the impact of ongoing trends in CNB’s loan portfolio and the COVID-19 pandemic. The adequacy of the allowance for credit losses is subject to a formal analysis by the Credit Administration and Finance Departments of the Corporation. Note 1, "Summary of Significant Accounting Policies" in the consolidated financial statements provides additional disclosure on the allowance for credit losses. 34 Table of Contents As a result of the application of these procedures, the allocation of the allowance for credit losses was as follows at December 31, 2020: 2020 Amount % of Loans in each Category Farmland $ 221 0.7 % Owner-occupied, nonfarm nonresidential properties 3,700 12.1 % Agricultural production and other loans to farmers 24 0.1 % Commercial and Industrial 6,233 19.7 % Obligations (other than securities and leases) of states and political subdivisions 998 3.9 % Other loans 68 0.4 % Other construction loans and all land development and other land loans 1,956 6.1 % Multifamily (5 or more) residential properties 2,724 6.3 % Non-owner occupied, nonfarm nonresidential properties 8,658 19.0 % 1-4 Family Construction 82 0.8 % Home equity lines of credit 985 3.2 % Residential Mortgages secured by first liens 4,539 23.0 % Residential Mortgages secured by junior liens 241 1.6 % Other revolving credit plans 507 0.8 % Automobile 132 0.8 % Other consumer 2,962 1.3 % Credit cards 66 0.2 % Overdrafts 244 0.0 % Total loans $ 34,340 100.0 % As a result of the application of these procedures, the allocation of the allowance for loan losses was as follows at December 31, 2019, 2018, 2017 and 2016: 2019 2018 2017 2016 Amount % of Loans in each Category Amount % of Loans in each Category Amount % of Loans in each Category Amount % of Loans in each Category Commercial, industrial, and agricultural $ 8,287 37.26 % $ 7,341 36.96 % $ 6,160 32.77 % $ 5,428 30.25 % Commercial mortgages 6,952 28.98 % 7,490 28.14 % 9,007 29.98 % 6,753 30.63 % Residential real estate 1,499 28.98 % 2,156 31.11 % 2,033 33.18 % 1,653 34.78 % Consumer 2,411 4.44 % 2,377 3.47 % 2,179 3.73 % 2,215 3.99 % Credit Cards 84 0.27 % 103 0.31 % 120 0.31 % 93 0.32 % Overdrafts 240 0.08 % 237 0.01 % 194 0.02 % 188 0.03 % Total $ 19,473 100.00 % $ 19,704 100.00 % $ 19,693 100.00 % $ 16,330 100.00 % Throughout 2020, the Corporation evaluated its provision and allowance for credit losses in light of changes in reserves required for loans individually evaluated and the degree of uncertainty related to the COVID-19 pandemic and its potential impact on the economy. The Corporation also included a qualitative factor specifically related to the loans deferred due to the COVID-19 pandemic. As of December 31, 2020, the specific COVID-19 qualitative factor totaled approximately $1.5 million, which was reflected in the Corporation’s provision expense for the twelve months ended December 31, 2020 and the related allowance for credit losses during the same period. The Corporation will continue to evaluate this factor and update its analysis, as necessary, as developments related to the COVID-19 pandemic and its impact on the economy evolve. Note 4, "Loans," to the consolidated financial statements provides further disclosure of loan balances by portfolio segment as of December 31, 2020 and 2019, as well as the nature and scope of loans modified in a troubled debt restructuring during 2020 and 2019 and the related effect on provision for credit expense and allowance for credit losses. During the year ended December 31, 2020, the Corporation recorded a provision for credit losses of $15.4 million, as compared to a provision for loan losses of $6.0 million for the year ended December 31, 2019. Net chargeoffs during the year ended December 31, 2020 were $6.4 million, compared to net chargeoffs of $6.3 million during the year ended December 31, 2019. The ratio of net chargeoffs to average loans was 0.21% and 0.24% for the years ended December 31, 2020 and 2019, respectively. 35 Table of Contents The Bank's net chargeoffs totaled $5.1 million, or 0.17% of average loans, and $4.4 million, or 0.17% of average loans, during the years ended December 31, 2020 and 2019, respectively. Holiday, the Bank's consumer discount company, recorded net chargeoffs totaling $1.3 million and $1.9 million during the years ended December 31, 2020 and 2019, respectively. During the second quarter of 2020, the Bank recorded a chargeoff of $2.6 million, related to a secured commercial and industrial loan relationship with a borrower who is now deceased, and a $1.0 million charge-off in the fourth quarter of 2020, related to one commercial real estate loan. During the third quarter of 2019, the Bank recorded a chargeoff of the remaining balance of the commercial real estate loan, which had been previously fully reserved at the time of the charge-off. Additionally, during the fourth quarter of 2019, the Bank recorded a partial charged-off of $739 thousand related to one commercial real estate loan, which had been previously fully reserved. The remaining fully reserved balance on this loan was $681 thousand at December 31, 2019. Following the adoption of CECL beginning on January 1, 2020, provision expense may become more volatile due to changes in CECL model assumptions of credit quality, macroeconomic factors and conditions, and loan composition, all of which have a significant impact on the balance of the allowance for credit losses. Management believes the provision for credit losses recorded during the twelve months ended December 31, 2020 and 2019, in conjunction with the resultant allowance for credit losses at December 31, 2020 and 2019, were sufficient to support credit losses embedded in its loan portfolio at December 31, 2020 and 2019. Premises and Equipment During the years ended December 31, 2020 and 2019, the Corporation invested $5.6 million and $9.0 million, respectively, in its physical infrastructure through the purchase of land, buildings, and equipment. The year ended December 31, 2020, includes premises and equipment related to the Bank of Akron acquisition. In 2019, the Corporation primarily invested in the completion of leasehold improvements for a permanent BankOnBuffalo branch in Niagara Falls, New York and infrastructure improvements to the BankOnBuffalo headquarters in Buffalo, New York. Bank Owned Life Insurance The Corporation has periodically purchased Bank Owned Life Insurance ("BOLI"). The policies cover executive officers and a select group of other employees with the Bank being named as beneficiary. Earnings from BOLI assist the Corporation in offsetting its benefit costs. The Corporation made no purchases of BOLI during the twelve months ended December 31, 2020, while it purchased $8.8 million of BOLI during the twelve months ended December 31, 2019. The year ended December 31, 2020, includes $8.2 million of BOLI related to the Bank of Akron acquisition. Funding Sources The following table sets forth the average balances of and the average rates paid on deposits for the period indicated. Year Ended December 31, 2020 2019 2018 Average Amount Annual Rate Average Amount Annual Rate Average Amount Annual Rate Demand – Non-Interest Bearing $ 516,724 $ 360,208 $ 327,014 Demand – Interest Bearing 755,200 0.24 % 580,244 0.42 % 582,289 0.38 % Savings Deposits 1,923,214 0.66 % 1,450,653 1.39 % 1,077,210 0.85 % Time Deposits 445,408 2.15 % 371,464 2.05 % 383,531 1.52 % Total $ 3,640,546 $ 2,762,569 $ 2,370,044 The maturity of certificates of deposits and other time deposits in denominations of $100,000 or more as of December 31, 2020 is as follows: 3 months or less $ 18,854 Over 3 through 6 months 29,524 Over 6 through 12 months 68,040 Over 12 months 148,319 Total $ 264,737 36 Table of Contents Although the Corporation considers short-term borrowings and long-term debt when evaluating funding sources, traditional deposits continue to be the main source for funding. 2020 Percentage change 2020 vs. 2019 2019 Percentage change 2019 vs. 2018 2018 Demand, Non interest bearing $ 627,114 64.1% $ 382,259 7.1% $ 356,797 Demand, Interest bearing 951,903 51.4% 628,579 4.8% 600,046 Savings deposits 2,126,183 27.8% 1,663,673 32.2% 1,258,506 Time deposits 476,544 11.4% 427,816 8.2% 395,437 Total $ 4,181,744 34.8% $ 3,102,327 18.8% $ 2,610,786 Deposits totaled $4.2 billion at December 31, 2020, a $1.1 billion, or 34.8%, increase from December 31, 2019 as a result of $419.5 million of acquired deposits from Bank of Akron, net of fair value adjustments, an estimated $159.6 million in PPP deposits and $500.3 million, or 16.1%, of organic growth in deposits across all our regions, including our Private Banking division. Periodically, the Corporation utilizes term borrowings from the FHLB and other lenders to meet funding obligations or match fund certain loan assets. The terms of these borrowings are detailed in Note 12, "Borrowings," to the consolidated financial statements. There were no FHLB or other long-term borrowings as of December 31, 2020, compared to $227.9 million at December 31, 2019. As a result of its strong deposit growth, during the third and fourth quarters of 2020, the Corporation prepaid the entire balance of its borrowings from the FHLB. The combined prepayment penalty associated with these prepayments totaled $7.9 million. The weighted average rate associated with these borrowings was 2.20%. Shareholders’ Equity, Capital Ratios and Metrics The Corporation’s capital continues to provide a source of strength for the Corporation's growth, strategies and profitability. As of December 31, 2020, CNB’s total shareholders’ equity was $416.1 million, an increase of $111.2 million, or 36.5%, from December 31, 2019 primarily as a result of an increase in additional paid in capital related to the Bank of Akron acquisition, combined with the issuance of preferred equity, an increase in accumulated other comprehensive income and growth in organic earnings, partially offset by the adoption of CECL and payment of common and preferred stock dividends to our shareholders during the twelve months ended December 31, 2020. During the second quarter of 2020, the Corporation announced the termination of its "at-the-market" equity offering program (the "ATM Program"), pursuant to which the Corporation could offer and sell up to $40 million of its common stock through Keefe, Bruyette & Woods, Inc., the sales agent. The Corporation elected to terminate the ATM Program due to market conditions and to limit uncertainty and unfavorable dilution for its shareholders during this period of global economic volatility. Prior to termination, the Corporation had sold 168,358 shares of its common stock, raising approximately $5.1 million in gross proceeds. On July 17, 2020, the Corporation completed its acquisition of Bank of Akron. Under the terms of the Merger Agreement, Bank of Akron merged with and into CNB Bank, with CNB Bank as the surviving entity. Banking offices of Bank of Akron operate under the trade name BankOnBuffalo, a division of CNB Bank. Based on the elections and proration procedures set forth in the Merger Agreement, the total consideration payable to Bank of Akron shareholders was approximately $40.8 million, comprised of approximately $16.1 million in cash and 1,501,402 shares of the Corporation's common stock, net of fractional shares, valued at $24.7 million based on the July 17, 2020 closing price of $16.43 per share of the Corporation's common stock. During the three months ended September 30, 2020, the Corporation raised $57.8 million, net of issuance costs, from the issuance of depositary shares, each representing a 1/40th ownership interest in a share of the Corporation's 7.125% Series A fixed rate non-cumulative perpetual preferred stock, no par value, with a liquidation preference of $1,000 per share of preferred stock. As of December 31, 2020 all of the Corporation’s regulatory capital ratios reflected increases from December 31, 2019. The Corporation’s Tier 1 Leverage ratio of 8.06% at December 31, 2020, included the impact of average PPP-related loans, of $203.1 million. 37 Table of Contents As of December 31, 2020, the Corporation’s ratio of Tangible Common Equity to Tangible Assets reflected the impact of approximately $155.5 million in PPP-related loans. Excluding PPP-related loans, the Corporation’s ratio of Tangible Common Equity to Tangible Assets of 6.93% decreased 21 bps from December 31, 2019, primarily as a result of the impact of the acquisition of Bank of Akron and the adoption of CECL, partially offset by a net increase in earnings, net of common dividends, and an increase in accumulated other comprehensive income. The Corporation has complied with the standards of capital adequacy mandated by government regulations. Bank regulators have established "risk-based" capital requirements designed to measure capital adequacy. Risk-based capital ratios reflect the relative risks of various assets banks hold in their portfolios. The Corporation’s capital ratios and book value per common share at December 31, 2020 and 2019 are as follows: December 31, 2020 December 31, 2019 Total risk-based capital ratio 14.32 % 12.51 % Tier 1 capital ratio 11.91 % 10.03 % Common equity tier 1 ratio 9.50 % 9.32 % Leverage ratio 8.11 % 7.86 % Tangible common common equity/tangible assets (1) 6.70 % 7.14 % Book value per common share $ 21.29 $ 20.00 Tangible book value per common share (1) $ 18.66 $ 17.45 (1) Tangible common equity, tangible assets and tangible book value per common share are non-GAAP financial measures calculated using GAAP amounts. Tangible common equity is calculated by excluding the balance of goodwill and other intangible assets from the calculation of stockholders’ equity. Tangible assets is calculated by excluding the balance of goodwill and other intangible assets from the calculation of total assets. Tangible book value per common share is calculated by dividing tangible common equity by the number of shares outstanding. The Corporation believes that these non-GAAP financial measures provide information to investors that is useful in understanding its financial condition. Because not all companies use the same calculation of tangible common equity and tangible assets, this presentation may not be comparable to other similarly titled measures calculated by other companies. A reconciliation of these non-GAAP financial measures is provided below. Liquidity Liquidity measures an organization’s ability to meet its cash obligations as they come due. The consolidated statements of cash flows included in the accompanying financial statements provide analysis of the Corporation’s cash and cash equivalents and the sources and uses of cash. Additionally, the portion of the loan portfolio that matures within one year and securities with maturities within one year in the investment portfolio are considered part of the Corporation’s liquid assets. Liquidity is monitored by both management and the Board’s ALCO, which establishes and monitors ranges of acceptable liquidity. The Bank has a borrowing capacity with the FHLB at December 31, 2020 of approximately $797.4 million. 38 Table of Contents Results of Operations Year Ended December 31, 2020 vs. Year Ended December 31, 2019 Overview of the Statements of Income and Comprehensive Income Net income was $32.7 million, or $1.97 per diluted common share, for the year ended December 31, 2020. Pre-tax pre-provision ("PTPP") income was $55.4 million, for the twelve months ended December 31, 2020. Excluding after-tax merger costs related to CNB's acquisition of Bank of Akron, FHLB prepayment penalties and branch closure costs totaling a combined $10.2 million, net income was $42.9 million, or $2.60 per diluted common share, for the year ended December 31, 2020, compared to $40.2 million, or $2.64 per diluted share, for the year ended December 31, 2019, reflecting an increase of $2.7 million, or 6.7%, and a decrease of $0.04 per diluted common share, or 1.5%. For the year ended December 31, 2020, excluding the impact of merger, prepayment penalties and branch closure costs PTPP income was $68.1 million, representing an increase of approximately $13.3 million, or 24.2%, from the same period in 2019. 1 For the twelve months ended December 31, 2020, return on equity was 9.14%, while return on average common equity was 9.35% and return on average tangible common equity was 10.67%. Excluding after-tax merger costs, prepayment penalties and branch closure costs, adjusted return on average tangible common equity was 14.10% for the year ended December 31, 2020, compared to 16.34% for the year ended December 31, 2019. For the twelve months ended December 31, 2020, return on average assets was 0.75%. Excluding after-tax merger costs, prepayment penalties and branch closure costs, adjusted return on average assets was 0.99% for the year ended December 31, 2020, compared to 1.18% for the year ended December 31, 2019. As a measure of the Corporation’s efficiency in management of its expenses, the efficiency ratio was 65.10% for twelve months ended December 31, 2020. Excluding after-tax merger costs, prepayment penalties and branch closure costs, the adjusted efficiency ratio was 57.41% for the twelve months ended December 31, 2020, compared to 60.07% for the comparable period in 2019. The improvement in efficiency ratio resulted from the impact of PPP-related fees, coupled with an overall lower level of business activity resulting from the pandemic and the Corporation’s internal cost management initiatives focusing on travel restrictions, a hiring freeze, lower marketing expenditures and other expense management initiatives. Interest Income and Expense Net interest income for the twelve months ended December 31, 2020 increased 15.9% to $134.7 million from the twelve months ended December 31, 2019, driven by an organic growth of $560.9 million in earning assets, coupled with $336.3 million in PPP-related loans, estimated PPP-related deposits and Paycheck Protection Program Lending Facility ("PPPLF") related assets (collectively the "PPP-related assets"). In addition, the twelve months ended December 31, 2020 included PPP-related fees totaling approximately $5.1 million. Net interest margin on a fully tax-equivalent basis was 3.34% and 3.69% for the twelve months ended December 31, 2020 and 2019, respectively, Excluding $336.3 million in PPP-related assets, the net interest margin on a fully-tax equivalent basis was 3.50% for the twelve months ended December 31, 2020. The yield on earning assets of 4.15% for the twelve months ended December 31, 2020 included $336.3 million in PPP-related assets. Excluding PPP-related assets and PPP-related fees, the yield on earning assets was 4.37% for the twelve months ended December 31, 2020, a decrease of 56 basis points from 4.93% for the twelve months ended December 31, 2019, primarily as a result of the lower interest rate environment. The cost of interest-bearing liabilities decreased 50 basis points to 0.95% for the twelve months ended December 31, 2020 from 1.45% for the twelve months ended December 31, 2019 primarily as a result of the Corporation’s targeted deposit rate reductions. Provision for Credit Losses The Corporation recorded a provision for credit losses of $15.4 million in 2020 compared to $6.0 million in 2019. Net loan charge-offs were $6.4 million during the year ended December 31, 2020, compared to $6.3 million during the year ended December 31, 2019. As disclosed in "Allowance for Credit Losses" discussion above, Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts, and other significant qualitative and quantitative factors. Management believes the charges to the provision in 2020 are appropriate and the allowance for credit losses is adequate to absorb losses in the loan portfolio at December 31, 2020. 39 Table of Contents Non-Interest Income Total non-interest income was $28.1 million for the twelve months ended December 31, 2020, an increase of $2.1 million, or 8.0%, from the twelve months ended December 31, 2019. Total non-interest income includes net realized and unrealized losses on trading securities, which combined totaled $2.5 million for the twelve months ended December 31, 2020 compared to $2.0 million for the twelve months ended December 31, 2019. The remainder of the $2.1 million increase was primarily due to continued growth in Wealth and Asset Management fees, increased mortgage banking activity coupled with higher card processing and interchange income, partially offset by a decrease in service charges on deposits and other fees resulting from lower business activity and CNB’s response to the pandemic. Non-Interest Expense For the twelve months ended December 31, 2020, total non-interest expense was $107.3 million. Excluding merger costs, prepayment penalties and branch closure costs, total non-interest expense was $94.7 million for the twelve months ended December 31, 2020, an increase of $7.3 million, or 8.4%, from the twelve months ended December 31, 2019, including a $1.6 million impact from the acquisition of Bank of Akron. The remaining $5.7 million increase was the result of the Corporation’s ongoing investments in technology and other general expenditures to support long-term growth. The ratio of non-interest expenses to average assets was 2.47% at December 31, 2020. Excluding merger costs, prepayment penalties and branch closure costs and average PPP-related assets, the ratio of non-interest expenses to average assets was 2.36% at December 31, 2020 compared to 2.56% at December 31, 2019. 40 Table of Contents Year Ended December 31, 2019 vs. Year Ended December 31, 2018 Overview of the Statements of Income and Comprehensive Income The Corporation had net income of $40.1 million for 2019 compared to $33.7 million for 2018, reflecting an increase of $6.4 million, or 18.9%. Net interest income increased $11.3 million, or 10.7%, and non-interest income increased $5.3 million, or 25.3%. The provision for loan losses remained stable at approximately $6.0 million, while non-interest expenses increased by $8.2 million, or 10.3%. Earnings per diluted share were $2.63 in 2019 and $2.21 in 2018, reflecting an increase of $0.42 per diluted share, or 19.0%, over the same period. For the twelve months ended December 31, 2019, return on average assets and the return on average equity were 1.17% and 14.05%, respectively, compared to 1.12% and 13.46%, respectively for 2018. As a measure of the Corporation’s efficiency in management of its expenses, the efficiency ratio of 60.19% for the twelve months ended December 31, 2019 improved from 61.37% during the same period in 2018. Interest Income and Expense Net interest margin on a fully tax equivalent basis was 3.69% and 3.77% for the years ended December 31, 2019 and 2018, respectively. The yield on earning assets increased 20 basis points to 4.93% for the year ended December 31, 2019 from 4.73% for the year ended December 31, 2018. The cost of interest-bearing liabilities increased 33 basis points to 1.45% for the year ended December 31, 2019 from 1.12% for the year ended December 31, 2018. Provision for Loan Losses The Corporation recorded a provision for loan losses of $6.0 million in 2019 compared to $6.1 million in 2018. Net loan charge-offs were $6.3 million during the year ended December 31, 2019 compared to $6.1 million during the year ended December 31, 2018. As disclosed in "Allowance for Loan Losses" discussion above, the Corporation recorded the provision for loan losses based on management’s evaluation of impaired loans and consideration of trends in criticized and classified loans and historical loan losses. Management believes the charges to the provision in 2019 are appropriate and the allowance for loan losses is adequate to absorb probable incurred losses in the loan portfolio at December 31, 2019. Non-Interest Income Total non-interest income of $26.0 million, for the twelve months ended December 31, 2019, includes gains associated with the sale of available-for-sale securities, net realized and unrealized gains on trading securities and realized gains on the sale of Visa Class B shares, which combined totaled $2.5 million for the year ended December 31, 2019 compared to a loss of $451 thousand for the year ended December 31, 2018. Excluding the items discussed above, non-interest income for the twelve months ended December 31, 2019 totaled $23.5 million, reflecting an increase of $2.3 million or 10.9%, from the same period in 2018. As a result of the Corporation’s continued organic growth, it experienced an increase in service charges on deposit accounts of $643 thousand, or 11.2%, for the year ended December 31, 2019 compared to the year ended December 31, 2018. In addition, Wealth and Asset Management fees increased $455 thousand, or 10.9%, over the same period, primarily as a result of growth in assets under management. Non-Interest Expense Total non-interest expenses were $87.5 million, for the twelve months ended December 31, 2019, reflecting an increase of $8.2 million, or 10.3%. Salaries and benefits expense increased $4.5 million, or 10.9%, during the year ended December 31, 2019 compared to the year ended December 31, 2018. In addition to compensation increases incurred in the normal course of business, as a result of the Corporation exceeding certain growth and profitability targets used in calculating incentive compensation, incentive compensation expense increased by $2.2 million in the twelve months ended December 31, 2019, when compared to the same period in 2018. The remainder of the increase in non-interest expenses is primarily a result of expansion of staffing levels in several areas including business development, customer service and risk management, as well as other costs required to service a larger customer base. Total households serviced at December 31, 2019 were 68,892, compared to 63,920 households at December 31, 2018, reflecting an organic increase of 7.8%. The ratio of non-interest expenses to average assets was 2.56% and 2.64% during the years ended December 31, 2019 and 2018, respectively. 41 Table of Contents Income Tax Expense Income tax expense of $7.3 million in 2020, compared to $8.6 million in 2019 and $6.5 million in 2018. The effective tax rates were 18.3%, 17.6%, and 16.2% for 2020, 2019, and 2018, respectively. The effective tax rate for the periods differed from the federal statutory rate of 21.0% principally as a result of tax-exempt income from securities and loans as well as earnings from bank owned life insurance. The higher effective tax rate in 2020 when compared to 2019 and 2018 is primarily the result of increased revenue from taxable activities in 2020. Contractual Obligations and Commitments The Corporation has various financial obligations, including contractual obligations and commitments that may require future cash payments. The following table presents, as of December 31, 2020, significant fixed and determinable contractual obligations to third parties by payment date. Further discussion of the nature of each obligation is included in the referenced note to the consolidated financial statements. Payments Due In Note Reference One Year or Less One to Three Years Three to Five Years Over Five Years Total Deposits without a stated maturity $ 3,705,200 $ 0 $ 0 $ 0 $ 3,705,200 Certificates of deposit 11 212,301 227,575 26,787 9,881 476,544 Right of use liabilities 9 1,560 3,211 3,020 19,281 27,072 Subordinated debentures 12 0 0 0 70,620 70,620 The Corporation also has obligations under its postretirement plan for health care and supplemental executive retirement plan as described in Note 13, "Employee Benefit Plans," to the consolidated financial statements. The postretirement benefit payments represent actuarially determined future benefit payments to eligible plan participants. The supplemental executive retirement plan allocates expenses over the participant’s service period. The Corporation reserves the right to terminate these plans at any time. Off-Balance Sheet Arrangements See Note 21,"Off-Balance Sheet Activities," to the consolidated financial statements for information about our off-balance sheet arrangements. Applications of Critical Accounting Policies The Corporation’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the U.S. and follow general practices within the industries in which the Corporation operates. Application of these principles requires management to make estimates or judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates or judgments. Certain policies inherently have a greater reliance on the use of estimates, and as such have a greater possibility of producing results that could be materially different than originally reported. Estimates or judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not carried on the financial statements at fair value warrants an impairment write-down or valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon a future event. Carrying assets and liabilities at fair value inherently results in more financial statement volatility. The fair values and the information used to record valuation adjustments for certain assets and liabilities are based either on quoted market prices or are provided by other third party sources, when available. When third-party information is not available, valuation adjustments are estimated in good faith by management primarily through the use of internal cash flow modeling techniques. The most significant accounting policies used by the Corporation are presented in Note 1, "Summary of Significant Accounting Policies," to the consolidated financial statements. These policies, along with the disclosures presented in the other financial statement notes and in this financial review, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Management views critical accounting policies to be those which are highly dependent on subjective or complex judgments, estimates and assumptions, and where changes in those estimates and assumptions could have a significant impact on the financial statements. 42 Table of Contents A material estimate that is susceptible to significant change is the determination of the allowance for credit losses. The Corporation’s methodology for determining the allowance for credit losses is described previously in "Management's Discussion and analysis of Financial Condition and Results of Operations." Given the subjective nature of identifying and valuing loan losses, it is likely that well-informed individuals could make materially different assumptions and could therefore calculate a materially different allowance value. While management uses available information to recognize losses on loans, changes in economic conditions may necessitate revisions in future years. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Corporation’s allowance for credit losses. Such agencies may require the Corporation to recognize adjustments to the allowance based on their judgments of information available to them at the time of their examination. Another material estimate is the calculation of fair values of the Corporation’s debt securities. For most of the Corporation’s debt securities, the Corporation receives estimated fair values from an independent valuation service or from brokers. In developing fair values, the valuation service and the brokers use estimates of cash flows, based on historical performance of similar instruments in similar interest rate environments. Based on experience, management is aware that estimated fair values of debt securities tend to vary among brokers and other valuation services. Finally, the fair value of assets acquired and liabilities assumed in connection with the acquisition of FC Banc Corp., Lake National Bank and Bank of Akron, including the associated goodwill that was recorded, required the use of material estimates. Specifically, the fair values of loans, the core deposit intangible asset, premises and equipment, and time deposits were susceptible to estimation and management’s judgment about real estate and equipment values, as well as the amount and timing of future cash flows associated with loans and deposits. Non-GAAP Financial Measures The following tables reconcile the non-GAAP financial measures to their most directly comparable measures under GAAP. Non-GAAP Reconciliations: December 31, 2020 December 31, 2019 Calculation of tangible book value per share and tangible common equity/tangible assets: Shareholders' equity $ 416,137 $ 304,966 Less: preferred equity 57,785 0 Less: goodwill 43,749 38,730 Less: core deposit intangible 567 160 Tangible common equity $ 314,036 $ 266,076 Total assets $ 4,729,399 $ 3,763,659 Less: goodwill 43,749 38,730 Less: core deposit intangible 567 160 Tangible assets $ 4,685,083 $ 3,724,769 Ending shares outstanding 16,833,008 15,247,985 Tangible book value per common share $ 18.66 $ 17.45 Tangible common equity/Tangible assets 6.70 % 7.14 % Calculation of tangible common equity/tangible assets, net of PPP-related loans: Tangible common equity $ 314,036 $ 266,076 Tangible assets $ 4,685,083 $ 3,724,769 Less: PPP-related loans 155,529 0 Adjusted tangible assets $ 4,529,554 $ 3,724,769 Adjusted tangible common equity/tangible assets 6.93 % 7.14 % 43 Table of Contents December 31, 2020 December 31, 2019 Calculation of non-performing assets / Total assets, net of PPP-related assets: Non-performing assets $ 31,546 $ 23,430 Total assets $ 4,729,399 $ 3,763,659 Less: PPP-related loans 155,529 0 Less: estimated PPP deposits held at the Federal Reserve 159,584 0 Adjusted total assets, net of PPP-related assets (non-GAAP) $ 4,414,286 $ 3,763,659 Adjusted non-performing assets / total assets, net of PPP-related assets (non-GAAP) 0.71 % 0.62 % Calculation of allowance / loans, net of PPP-related loans: Total allowance for credit losses $ 34,340 $ 19,473 Total loans net of unearned income $ 3,371,789 $ 2,804,035 Less: PPP-related loans 155,529 0 Adjusted total loans, net of unearned income, PPP-related loans (non-GAAP) $ 3,216,260 $ 2,804,035 Adjusted allowance / loans, net of PPP-related loans (non-GAAP) 1.07 % 0.69 % Non-GAAP Reconciliations: Twelve Months Ended December 31, 2020 2019 Calculation of average total earning assets, net of PPP-related assets: Average total earning assets $ 4,092,076 $ 3,194,911 Less: average PPP-related loans 150,075 0 Less: estimated average PPP deposits held at the Federal Reserve 154,124 0 Less: average PPPLF deposits held at the Federal Reserve 32,119 0 Adjusted average total earning assets, net of PPP-related assets (non-GAAP) $ 3,755,758 $ 3,194,911 Calculation of average total assets, net of PPP-related assets: Average total assets $ 4,347,142 $ 3,413,737 Less: average PPP-related loans 150,075 0 Less: estimated average PPP deposits held at the Federal Reserve 154,124 0 Less: average PPPLF deposits held at the Federal Reserve 32,119 0 Adjusted average total assets, net of PPP-related assets (non-GAAP) $ 4,010,824 $ 3,413,737 Calculation of average yield on earning assets, net of unearned income, PPP-related assets and PPP-related fees: Investment income (tax equivalent) $ 14,037 $ 15,963 Add: loan income (tax equivalent) 153,639 140,742 Add: other earning asset income (tax equivalent) 852 499 Less: PPP-related fees 5,140 0 Total income related to earning assets (tax equivalent) (non-GAAP) $ 163,388 $ 157,204 Adjusted average total earning assets, net of PPP-related assets (non-GAAP) $ 3,755,758 $ 3,194,911 Less: average mark to market adjustment on investments (non-GAAP) 18,884 5,631 Adjusted average total earning assets, net of market to market, PPP-related assets (non-GAAP) $ 3,736,874 3,189,280 Adjusted average yield on earning assets, net of unearned income, PPP-related assets and PPP-related fees (non-GAAP) (annualized) 4.37 % 4.93 % 44 Table of Contents Twelve Months Ended December 31, 2020 2019 Calculation of net interest margin (fully tax equivalent basis): Interest income (fully tax equivalent basis) (non-GAAP) $ 168,528 $ 157,204 Interest expense (fully tax equivalent basis) (non-GAAP) 32,456 39,530 Net interest income (fully tax equivalent basis) (non-GAAP) $ 136,072 $ 117,674 Average total earning assets $ 4,092,076 $ 3,194,911 Less: average mark to market adjustment on investments 18,884 5,631 Adjusted average total earning assets, net of mark to market (non-GAAP) $ 4,073,192 $ 3,189,280 Net interest margin, fully tax equivalent basis (non-GAAP) (annualized) 3.34 % 3.69 % Calculation of net interest margin (fully tax equivalent basis), net of PPP-related assets and PPP-related fees: Net interest income (fully tax equivalent basis) (non-GAAP) $ 136,072 $ 117,674 Less: Recognized PPP-related fees 5,140 0 Adjusted interest income (fully tax equivalent basis), net of PPP-related fees (non-GAAP) $ 130,932 $ 117,674 Adjusted average total earning assets, net of market to market, PPP-related assets (non-GAAP) $ 3,736,874 $ 3,189,280 Net interest margin, fully tax equivalent basis, net of PPP-related assets and PPP-related fees (non-GAAP) (annualized) 3.50 % 3.69 % 45 Table of Contents Non-GAAP Reconciliations: Twelve Months Ended December 31, 2020 2019 Calculation of adjusted earnings per common share, net of merger costs, prepayment penalties and branch closure costs: Net earnings allocated to common stock $ 31,496 $ 39,934 Add: Merger costs, prepayment penalties and branch closure costs, after-tax allocated to common stock 10,138 134 Adjusted net earnings allocated to common stock (non-GAAP) $ 41,634 $ 40,068 Weighted average common shares outstanding 16,048 15,219 Less: Average participating shares 48 55 Add: Dilutive shares 0 0 Weighted average shares and dilutive potential common shares 16,000 15,164 Adjusted diluted earnings per common share, net of merger costs, prepayment penalties and branch closure costs $ 2.60 $ 2.64 Calculation of PTPP income: Net income $ 32,743 $ 40,081 Add: Provision expense 15,354 6,024 Add: Income tax expense 7,347 8,560 PTPP income (non-GAAP) $ 55,444 $ 54,665 Calculation of PTPP income before merger costs, prepayment penalties and branch closure costs: PTPP income (non-GAAP) $ 55,444 $ 54,665 Add: Merger costs, prepayment penalties and branch closure costs 12,642 170 PTPP before merger costs, prepayment penalties and branch closure costs (non-GAAP) $ 68,086 $ 54,835 Calculation of non-interest expenses excluding merger costs, prepayment penalties and branch closure costs: Non-interest expense $ 107,326 $ 87,508 Less: Merger costs, prepayment penalties and branch closure costs 12,642 170 Non-interest expense excluding merger costs, prepayment penalties and branch closure costs (non-GAAP) $ 94,684 $ 87,338 Calculation of non-interest expenses excluding merger costs, prepayment penalties and branch closure costs to average assets, net of PPP-related assets: Non-interest expense excluding merger costs, prepayment penalties and branch closure costs (non-GAAP) $ 94,684 $ 87,338 Adjusted average total assets, net of PPP-related assets (non-GAAP) $ 4,010,824 $ 3,413,737 Non-interest expenses excluding merger costs, prepayment penalties and branch closure costs to average assets, net of PPP-related assets (non-GAAP) 2.36 % 2.56 % 46 Table of Contents Non-GAAP Reconciliations: Twelve Months Ended December 31, 2020 2019 Calculation of adjusted efficiency ratio, net of merger costs, prepayment penalties and branch closure costs: Non-interest expense $ 107,326 $ 87,508 Less: core deposit intangible amortization 206 567 Less: merger costs, prepayment penalties and branch closure costs 12,642 170 Adjusted non-interest expense (non-GAAP) $ 94,478 $ 86,771 Non-interest income $ 28,059 $ 25,975 Net interest income $ 134,711 $ 116,198 Less: tax exempt investment and loan income, net of TEFRA (non-GAAP) 5,703 6,664 Add: tax exempt investment and loan income (non-GAAP) (tax-equivalent) 7,490 8,946 Adjusted net interest income (non-GAAP) 136,498 118,480 Adjusted net revenue (non-GAAP) (tax-equivalent) $ 164,557 $ 144,455 Adjusted efficiency ratio, net of merger costs, prepayment penalties and branch closure costs 57.41 % 60.07 % Calculation of adjusted return on average total assets, net of merger costs, prepayment penalties, branch closure costs and PPP-related assets: Net income $ 32,743 $ 40,081 Add: merger costs, prepayment penalties and branch closure costs (net of tax) 10,168 134 Adjusted net income (non-GAAP)(net of tax) $ 42,911 $ 40,215 Average total assets $ 4,347,142 $ 3,413,737 Adjusted return on average total assets, net of merger costs, prepayment penalties, branch closure costs and PPP-related assets (non-GAAP)(annualized) 0.99 % 1.18 % Calculation of adjusted return on average tangible common equity, net of merger costs, prepayment penalties and branch closure costs: Net income available to common stockholders $ 31,596 $ 40,081 Add: merger costs, prepayment penalties and branch closure costs (net of tax) 10,168 134 Adjusted net income (non-GAAP)(net of tax) $ 41,764 $ 40,215 Average tangible shareholders' common equity $ 296,142 $ 246,161 Adjusted return on average tangible common equity, net of merger costs, prepayment penalties and branch closure costs (non-GAAP)(annualized) 14.10 % 16.34 %