What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2024-03-07 compared with 2023-03-03 · 170 added, 164 removed, 693 unchanged (33% of the section changed)

10 unchanged sentences

Forward-looking statements often include the words "believes," "expects," "anticipates," "estimates," "forecasts," "intends," "plans," "targets," "potentially," "probably," "projects," "outlook" or similar expressions or future conditional verbs such as "may," "will," "should," "would" and "could." CNB’s actual results may differ materially from those contemplated by the forward-looking statements, which are neither statements of historical fact nor guarantees or assurances of future performance.

Such known and unknown risks, uncertainties and other factors that could cause the actual results to differ materially from the statements, include, but are not limited to, (i) adverse changes or conditions in capital and financial markets;

(ii) changes in interest rates;

(iii) the duration and scope of a pandemic, including the ongoing COVID-19 pandemic, and the local, national and global impact of a pandemic;

(iv) changes in general business, industry or economic conditions or competition;

(v) 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;

(vi) higher than expected costs or other difficulties related to integration of combined or merged businesses;

(vii) the effects of business combinations and other acquisition transactions, including the inability to realize our loan and investment portfolios;

(viii) changes in the quality or composition of our loan and investment portfolios;

(ix) adequacy of loan loss reserves;

(x) increased competition;

(xi) loss of certain key officers;

(xii) deposit attrition;

(xiii) rapidly changing technology;

(xiv) unanticipated regulatory or judicial proceedings and liabilities and other costs;

(xv) changes in the cost or sources of funds, demand for loan and deposit products or demand for financial services;

and (xvi) other economic, competitive, governmental or technological factors affecting our operations, markets, products, services and prices.

(ii) changes in the interest rate environment;

(iii) the credit risks of lending activities, including our ability to estimate credit losses and the allowance for credit losses, as well as the effects of changes in the level of, and trends in, loan delinquencies and write-offs;

(iv) effectiveness of our data security controls in the face of cyber attacks and any reputational risks following a cybersecurity incident;

(v) the duration and scope of a pandemic, and the local, national and global impact of a pandemic;

(vi) changes in general business, industry or economic conditions or competition;

(vii) changes in any applicable law, rule, regulation, policy, guideline or practice governing or affecting financial holding companies and their subsidiaries or with respect to tax or accounting principles or otherwise;

(viii) higher than expected costs or other difficulties related to integration of combined or merged businesses;

(ix) the effects of business combinations and other acquisition transactions, including the inability to realize our loan and investment portfolios;

(x) changes in the quality or composition of our loan and investment portfolios;

(xi) adequacy of loan loss reserves;

(xii) increased competition;

(xiii) loss of certain key officers;

(xiv) deposit attrition;

(xv) rapidly changing technology;

(xvi) unanticipated regulatory or judicial proceedings and liabilities and other costs;

(xvii) changes in the cost of funds, demand for loan products or demand for financial services;

and (xviii) other economic, competitive, governmental or technological factors affecting our operations, markets, products, services and prices.

Such developments could have an adverse impact on CNB's financial position and results of operations.

6 unchanged sentences

It was incorporated under the laws of the Commonwealth of Pennsylvania in 1983 for the purpose of engaging in the business of a financial holding company.

The Corporation’s subsidiary, the Bank, provides financial services to individuals and businesses primarily within its primary market area of the Pennsylvania counties of Blair, Cambria, Cameron, Centre, Clearfield, Crawford, Elk, Indiana, Jefferson and McKean.

The Corporation’s subsidiary, the Bank, provides financial services to individuals and businesses.

The CNB Bank franchise's primary market areas are the Pennsylvania counties of Blair, Cambria, Centre, Clearfield, Elk, Indiana, Jefferson, and McKean.

ERIEBANK, a division of the Bank, operates in the Pennsylvania counties of Crawford, Erie, and Warren and in the Ohio counties of Ashtabula, Cuyahoga, Geauga, Lake, and Lorain.

1 unchanged sentence

BankOnBuffalo, a division of the Bank, operates in the New York counties of Erie and Niagara.

Ridge View Bank, a division of the Bank, operates in Southwest, Virginia.

Impressia Bank, a division of the Bank, will operate in the Bank’s primary market areas beginning in the first quarter of 2023.

Ridge View Bank, a division of the Bank, operates in the Virginia counties of Botetourt, Craig, Franklin, and Roanoke.

Impressia Bank, a division of the Bank, operates in the Bank’s primary market areas.

Although the Corporation’s strategies, through its Bank subsidiary, are executed based on the divisions discussed above, the Bank is a single Pennsylvania-chartered bank whereby all divisions of the Bank conduct their business on a doing business as basis.

14 unchanged sentences

• Tangible common equity/tangible assets;

• Adjusted allowance/loans receivable, net of Paycheck Protection Program ("PPP") related loans;

• Net interest margin (fully tax equivalent basis);

21 unchanged sentences

Cash and cash equivalents totaled $106.3 million at December 31, 2022.

The decrease in cash and cash equivalents from December 31, 2021 to December 31, 2022 was due primarily to robust loan growth coupled with an increase in investment purchases, to position a portion of the excess liquidity into higher earning assets, and a decrease in deposits.

The decrease in deposits was driven primarily by the impact of competitive pricing pressures due to the rapid increase in interest rates, as well as customers experiencing substantial increases in costs due to inflation.

The increase in cash and cash equivalents from December 31, 2022 to December 31, 2023 was primarily due to an increase in deposits coupled with a decrease in the production of the loan portfolio, offset by a decrease in the paydowns and maturities on the securities portfolio.

The increase in deposits was primarily driven by the impact of competitive pricing pressures due to the rapid increase in interest rates.

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

The Corporation expects that these sources of funds will enable it to meet cash obligations and off-balance sheet commitments as they come due.

The Corporation currently expects that these sources of funds will enable it to meet cash obligations and off-balance sheet commitments as they come due.

In addition to the above noted liquidity sources, the Corporation maintains access to the Federal Reserve discount window.

Securities AFS and equity securities totaled $381.0 million and $707.6 million at December 31, 2022 and 2021, respectively.

At December 31, 2022, the total balance of investments classified as held-to-maturity ("HTM") securities was $404.8 million.

There were no investments classified as HTM at December 31, 2021.

AFS debt securities and equity securities totaled $351.3 million and $381.0 million at December 31, 2023 and 2022, respectively.

Investments classified as held-to-maturity ("HTM") securities totaled $389.0 million and $404.8 million at December 31, 2023 and 2022, respectively.

During 2022, as a result of the Corporation’s asset/liability and capital management strategies, securities with a combined amortized cost of $220.8 million and a fair value of $213.7 million were transferred from AFS to HTM.

These HTM portfolio bonds continue to support liquidity through pledging and can be utilized as collateral against borrowings.

In addition to these internal portfolio transfers, some of the investment purchases made by the Corporation during 2022 were also classified as HTM securities.

In addition to these internal portfolio transfers, some of the investment purchases made by the Corporation during 2022 were also classified as HTM debt securities.

The Corporation’s objective is to maintain the investment securities portfolio at an appropriate level to balance the earnings and liquidity provided by the portfolio.

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

The following table summarizes the maturity distribution schedule with corresponding weighted-average yields of securities AFS as of December 31, 2022.

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

Weighted-average yields have been computed on a fully taxable-equivalent basis using a tax rate of 21%.

10 unchanged sentences

Total $ 12,984 3.45 % $ 52,474 3.35 % $ 98,476 2.83 % $ 178,021 1.65 % $ 341,955 2.32 %

The following table summarizes the maturity distribution schedule with corresponding weighted-average yields of securities HTM as of December 31, 2022.

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

December 31, 2023

5 unchanged sentences

Total $ 71,755 1.65 % $ 189,342 1.52 % $ 47,655 1.88 % $ 80,216 2.58 % $ 388,968 1.81 %

The following table summarizes the weighted average modified duration of securities AFS as of December 31, 2022.

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

Weighted Average Modified Duration

4 unchanged sentences

Pooled SBA 2.57

The following table summarizes the weighted average modified duration of securities HTM as of December 31, 2022.

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

Weighted Average Modified Duration

9 unchanged sentences

Loans Receivable

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

At December 31, 2022, loans, excluding the impact of (i) syndicated loans, and (ii) PPP loans, net of PPP-related fees (such loans being referred to as the "PPP-related loans"), totaled $4.1 billion, representing an increase of $654.5 million, or 18.9%, from December 31, 2021.

This favorable loan growth, which was experienced across the Corporation's footprint, continued to reflect the Corporation's ongoing expansion in the Cleveland and Southwest Virginia regions, as well as new opportunities from its new loan production office in Rochester, New York, combined with growth in the portfolio related to its Private Banking division.

For the twelve months ended December 31, 2022, the Corporation's balance sheet reflected an increase in syndicated lending balances of $30.9 million compared to December 31, 2021.

Note 3, "Loans Receivable and Allowance for Credit Losses," to the consolidated financial statements provides more detail concerning the loan portfolio of the Corporation.

At December 31, 2023, loans totaled $4.4 billion, excluding the balances of (i) syndicated loans, and (ii) any remaining balances on Paycheck Protection Program ("PPP") loans, net of PPP-related fees (such loans being referred to as the "PPP-related loans").

This adjusted total of $4.4 billion in loans represented an increase of $241.3 million, or 5.86%, compared to the same adjusted total loans measured as of December 31, 2022.

Loan growth for the year ended December 31, 2023 primarily resulted from growth in the Corporation's recent expansion markets of Cleveland, Ohio, Roanoke, Virginia, and Buffalo, New York combined with growth in the portfolios related to the Columbus, Ohio market and CNB Bank’s Private Banking division.

At December 31, 2023, the Corporation's balance sheet reflected a decrease in syndicated lending balances of $49.9 million compared to December 31, 2022, reflecting scheduled paydowns or early payoffs of certain syndicated credits during 2023.

The syndicated loan portfolio totaled $108.7 million, or 2.43% of total loans, excluding PPP-related loans, at December 31, 2023, compared to $156.6 million, or 3.66% of total loans, excluding PPP-related loans at December 31, 2022.

8 unchanged sentences

As discussed more fully above, syndicated loan purchases are underwritten utilizing the same process as the Corporation’s originated loans.

The Corporation has begun to explore the credit and reputational risks associated with climate change and their potential impact on the foregoing, while closely monitoring regulatory developments on climate risk.

The Corporation continues to explore the credit and reputational risks associated with climate change and their potential impact on the foregoing, while closely monitoring regulatory developments on climate risk.

This includes, among other things, researching and developing a formalized approach to considering climate change related risks in the Corporation's underwriting processes.

1 unchanged sentence

One of the objectives of these efforts is to enable the Corporation to better understand the climate change related risks associated with the Corporation's customers' business activities and to be able to monitor their response to those risks and their ultimate impact on the Corporation's customers.

Loan Portfolio Profile

As part of our lending policy and risk management activities, the Corporation tracks lending exposure by industry classification and type to determine potential risks associated with industry concentrations, and if any risk issues could lead to additional credit loss exposure.

In the current post-pandemic and inflationary economic environment, the Corporation has determined that office commercial real estate ("commercial office") inherently could pose a higher level of credit risk, even given the historical high credit quality ratings and structures applied to the Corporation's outstanding commercial office credit extensions when initially underwritten and when funding or commitments were made.

The Corporation monitors numerous relevant sensitivity elements at both underwriting and through and beyond the funding period, including projects occupancy, loan-to-value, absorption and cap rates, debt service coverage and covenant compliance, and developer/lessor financial strength both in the project and globally.

At December 31, 2023, the Corporation had the following key metrics related to its commercial office portfolio:

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

• Nonaccrual commercial office loans (one customer relationship) totaled $508 thousand, or 0.44% of total office loans outstanding.

One customer relationship had a related specific loss reserve of $289 thousand, at December 31, 2023;

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

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

Maturities and Sensitivities of Loans Receivable to Changes in Interest Rate

21 unchanged sentences

Non-owner occupied, nonfarm nonresidential properties 23,938 96,791 56,139 802 177,670

13,647 63,163 58,292 1,316 136,418

1-4 Family Construction (1)

25 unchanged sentences

Non-owner occupied, nonfarm nonresidential properties 44,188 254,453 357,789 61,943 718,373

89,170 172,890 329,264 67,573 658,897

1-4 Family Construction (1)

20 unchanged sentences

Total nonperforming assets $ 31,805 $ 23,546

Loans modified in a troubled debt restructuring ("TDR"):

Performing TDR loans $ 6,006 $ 9,006

Nonperforming TDR loans (1)

Total TDR loans $ 12,383 $ 16,606

Total loans $ 4,468,476 $ 4,275,178

5 unchanged sentences

Ratio of allowance for credit losses on loans to nonaccrual loans 154.63 % 206.98 %

(1) Nonperforming TDR loans are also included in the balance of nonaccrual loans.

Total nonperforming assets were $23.5 million, or 0.43% of total assets, as of December 31, 2022, compared to $20.3 million, or 0.38% of total assets, as of December 31, 2021.

In addition, the allowance for credit losses as a percentage of nonaccrual loans was 207.0% as of December 31, 2022, compared to 193.6% as of December 31, 2021.

Total nonperforming assets were approximately $31.8 million, or 0.55% of total assets, as of December 31, 2023, compared to $23.5 million, or 0.43% of total assets, as of December 31, 2022.

The increase in nonperforming assets for the year ended December 31, 2023 was primarily due to one commercial and industrial relationship consisting of 12 loans totaling $3.2 million being placed on nonaccrual status during the fourth quarter of 2023, coupled with one commercial real estate relationship consisting of two loans totaling $6.6 million being placed on nonaccrual status during the third quarter of 2023, as previously disclosed by the Corporation.

The commercial relationship with two loans placed on nonaccrual status in the third quarter has a related combined specific loss reserve of $472 thousand at December 31, 2023.

While this loan relationship was placed on non-accrual status during the third quarter of 2023, based on collateral value support coupled with the specific reserve recorded against this loan relationship, management currently does not believe there is risk of significant additional loss exposure beyond the specific reserve related to this loan relationship.

The Corporation has established written lending policies and procedures that require underwriting standards, loan documentation, and credit analysis standards to be met prior to funding a loan.

1 unchanged sentence

Credit reviews are performed quarterly by an outsourced loan review firm and cover approximately 65% of the commercial loan portfolio on an annual basis.

In addition, the external independent loan review firm reviews past due loans and all classified assets and nonaccrual loans annually.

In addition, the external independent loan review firm reviews past due loans and all significant classified assets and nonaccrual loans annually.

Potential problem loans consist of loans that are performing in accordance with contractual terms but for which management has concerns about the ability of a borrower to continue to comply with contractual repayment terms because of the borrower’s potential operating or financial difficulties.

7 unchanged sentences

The adequacy of the allowance for credit losses is subject to a formal analysis by the Credit Administration and Finance Departments of the Corporation.

For additional information regarding the Corporation's accounting policies related to credit losses, refer to Note 1, "Summary of Significant Accounting Policies" and Note 4, "Loans and Allowance for Credit Losses" in these consolidated financial statements.

For additional information regarding the Corporation's accounting policies related to credit losses, refer to Note 1, "Summary of Significant Accounting Policies" and Note 3, "Loans and Allowance for Credit Losses" to these consolidated financial statements.

The table below provides an allocation of the allowance for credit losses on loans by loan portfolio segment at December 31, 2023 and 2022;

16 unchanged sentences

Non-owner occupied, nonfarm nonresidential properties 9,170 20.1 896,043 1.02

7,653 18.6 795,315 0.96

1-4 Family Construction 356 1.1 51,207 0.70

8 unchanged sentences

Total loans $ 45,832 100.0 % $ 4,468,476 1.03 %

Excluding PPP loans, net of deferred processing fees $ 43,436 $ 4,275,019 1.02 %

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

December 31, 2022

14 unchanged sentences

Non-owner occupied, nonfarm nonresidential properties 7,653 18.6 795,315 0.96

6,481 18.2 663,062 0.98

1-4 Family Construction 327 1.2 51,171 0.64

8 unchanged sentences

Total loans $ 43,436 100.0 % $ 4,275,178 1.02 %

Excluding PPP loans, net of deferred processing fees $ 37,588 $ 3,589,589 1.05 %

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

The allowance for credit losses measured as a percentage of total loans was 1.03% as of December 31, 2023, compared to 1.02% as of December 31, 2022.

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

For the year ended December 31, 2022, the allowance for credit losses increased due to the growth in the Corporation's loan portfolio, including growth in new market areas.

For the year ended December 31, 2023, the allowance for credit losses increased primarily due to the growth in the Corporation's loan portfolio, including growth in new market areas.

This was partially offset by improvements in the Corporation's historical loss rates, as well as the impact of net charge-offs.

There is still a significant amount of uncertainty related to the domestic and global economy, continued supply chain challenges, persistent inflation and the COVID-19 pandemic.

The year-over-year increase in reserves experienced in 2022 was primarily due to loan growth, the impact of net charge-offs, and the provision for credit losses recorded in 2022.

There is still a significant amount of uncertainty related to the domestic and global economy, tightening credit conditions, persistent inflation, and higher interest rates.

Management will continue to proactively evaluate its estimate of expected credit losses as new information becomes available.

Note 4, "Loans Receivable and Allowance for Credit Losses," to the consolidated financial statements provides further disclosure of loan balances by portfolio segment as of December 31, 2022 and 2021, as well as the nature and scope of loans modified in a troubled debt restructuring during 2022 and 2021 and the related effect on provision for credit expense and allowance for credit losses.

Note 3, "Loans Receivable and Allowance for Credit Losses," to the consolidated financial statements provides further disclosure of loan balances by portfolio segment as of December 31, 2023 and 2022, as well as the nature and scope of loan modifications to borrowers experiencing financial difficulty and loans modified in a troubled debt restructuring during 2023 and 2022, respectively, and the related effect on provision for credit expense and allowance for credit losses.

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

7 unchanged sentences

Agricultural production and other loans to farmers

(3) — 1,254 —

Commercial and Industrial

7 unchanged sentences

Non-owner occupied, nonfarm nonresidential properties 2,201 (684) 838,674 (0.08)

1,171 1 697,930 —

1-4 Family Construction 29 — 55,392 —

28 unchanged sentences

Non-owner occupied, nonfarm nonresidential properties 1,171 1 697,930 —

(2,128) (49) 627,595 (0.01)

1-4 Family Construction 169 — 41,849 —

8 unchanged sentences

Total $ 7,986 $ (2,138) $ 3,897,722 (0.05) %

(1) Excludes provision for credit losses totaling $603 thousand related to unfunded commitments.

Note 18, "Off-Balance Sheet Commitments and Contingencies," in the consolidated financial statements provides more detail concerning the provision for credit losses related to unfunded commitments of the Corporation.

Year Ended December 31, 2021

18 unchanged sentences

Non-owner occupied, nonfarm nonresidential properties (2,128) (49) 627,595 (0.01)

3,266 (1,470) 532,088 (0.28)

1-4 Family Construction 76 — 30,513 —

8 unchanged sentences

Total loans $ 6,003 $ (2,755) $ 3,465,919 (0.08) %

During the year ended December 31, 2022, the Corporation recorded a provision for credit losses of $8.6 million, as compared to a provision for credit losses of $6.0 million for the year ended December 31, 2021.

Included in the provision for credit losses for the year ended December 31, 2022 was $603 thousand expense related to the allowance for unfunded commitments compared to no accrual towards the allowance for unfunded commitments for the year ended December 31, 2021.

Net charge-offs during the year ended December 31, 2022 were $2.1 million, compared to net charge-offs of $2.8 million during the year ended December 31, 2021.

The increase of $2.6 million in provision for credit losses, from the year ended December 31, 2021 to the year ended December 31, 2022 was primarily due to loan growth, the impact of net charge-offs and the provision for credit losses recorded in 2022, related to the allowance for unfunded commitments.

During the year ended December 31, 2023, the Corporation recorded a provision for credit losses of $6.0 million compared to $8.6 million for the year ended December 31, 2022.

Included in the provision for credit losses for the year ended December 31, 2023, was a $156 thousand expense related to the allowance for unfunded commitments compared to a $603 thousand expense for the year ended December 31, 2022.

The $2.6 million reduction in the provision expense for the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily a result of the decrease in loan portfolio growth.

Net charge-offs during the year ended December 31, 2023 were $3.4 million, or 0.08% of average total loans and loans held for sale, compared to $2.1 million, or 0.05% of average total loans and loans held for sale, during the year ended December 31, 2022.

Premises and Equipment

4 unchanged sentences

Earnings from BOLI assist the Corporation in offsetting its benefit costs.

The Corporation made $11.6 million in purchases of BOLI during the twelve months ended December 31, 2022, while the Corporation made $22.0 million purchases of BOLI during the twelve months ended December 31, 2021.

The Corporation made no purchases of BOLI during the year ended December 31, 2023, while the Corporation made $11.6 million purchases of BOLI during the year ended December 31, 2022.

Funding Sources

2 unchanged sentences

December 31, 2023 December 31, 2022 Percentage change

Demand, Non interest bearing $ 898,437 $ 792,086 13.4%

Demand, Interest bearing 1,007,202 1,079,336 (6.7)

Savings deposits 2,270,337 2,457,745 (7.6)

Time deposits 446,461 386,452 15.5

Noninterest-bearing demand deposits $ 728,881 $ 898,437 (18.9)%

Interest-bearing demand deposits 803,093 1,007,202 (20.3)

Savings 2,960,282 2,270,337 30.4

Certificates of deposit 506,494 446,461 13.4

Total $ 4,998,750 $ 4,622,437 8.1%

At December 31, 2022, total deposits were $4.6 billion, reflecting a decrease of $93.2 million, or 2.0%, from December 31, 2021.

During the same timeframe, while non interest-bearing deposits increased approximately $106.4 million, or 13.4%, total interest-bearing deposits decreased approximately $199.5 million, or 5.1%, from December 31, 2021.

At December 31, 2023, total deposits were $5.0 billion, reflecting an increase of $376.3 million, or 8.1%, from December 31, 2022.

The increase in deposits was due to continued growth in the Corporation's treasury management customer base and resulting increases in municipal and institutional/corporate deposits, including new wealth and asset management deposit relationships resulting from CNB's participation in deposit insurance sharing programs.

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

4 unchanged sentences

Amount Annual

Demand – Non-Interest Bearing $ 847,793 — % $ 724,839 — % $ 516,724 — %

Demand – Interest Bearing 1,061,452 0.20 978,279 0.18 755,200 0.24

Savings Deposits 2,383,918 0.54 2,309,560 0.22 1,923,214 0.66

Time Deposits 351,272 1.40 445,488 1.82 445,408 2.15

Noninterest-bearing demand deposits $ 793,713 — % $ 847,793 — % $ 724,839 — %

Interest-bearing demand deposits 853,632 0.54 1,061,452 0.20 978,279 0.18

Savings 2,666,905 2.92 2,383,918 0.54 2,309,560 0.22

Certificates of deposit 517,017 2.97 351,272 1.40 445,488 1.82

Total $ 4,831,267 $ 4,644,435 $ 4,458,166

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

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

2 unchanged sentences

Total deposits not covered by deposit insurance 1,438,944 1,864,886

At December 31, 2023, the total estimated uninsured deposits for CNB Bank were approximately $1.4 billion, or approximately 28.2% of total CNB Bank deposits.

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

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

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

Scheduled maturities of time deposits not covered by deposit insurance at December 31, 2023 were as follows:

7 unchanged sentences

The terms of these borrowings are detailed in Note 10, "Borrowings," to the consolidated financial statements.

There were $132.4 million in short-term FHLB borrowings as of December 31, 2022, compared to zero at December 31, 2021.

There were zero in short-term FHLB borrowings as of December 31, 2023, compared to $132.4 million at December 31, 2022.

On October 18, 2021, the Corporation announced that it had completed the redemption of $50 million aggregate principal amount of its 5.75% Fixed-to-Floating Rate Subordinated Notes due October 15, 2026 (the "2026 Notes"), representing all outstanding 2026 Notes.

6 unchanged sentences

The ability of a financial institution to meet its current financial obligations is a function of its balance sheet structure, its ability to liquidate assets and its access to alternative sources of funds.

The Corporation’s expected material cash requirements for the twelve months ended December 31, 2023 and thereafter consist of withdrawals by depositors, credit commitments to borrowers, shareholder dividends, share repurchases, operating expenses and capital expenditures.

The Corporation expects to satisfy these short-term and long-term cash requirements through deposit growth, principal and interest payments from loans and investment securities, maturing loans and investment securities, as well as wholesale funding sources maintained by the Corporation.

The Corporation’s expected material cash requirements for the year ended December 31, 2024 and thereafter consist of withdrawals by depositors, credit commitments to borrowers, shareholder dividends, share repurchases, operating expenses and capital expenditures that are pursuant to the Corporation's strategic initiatives.

The Corporation expects to satisfy these short-term and long-term cash requirements through deposit growth, principal and interest payments from loans and investment securities, maturing loans and investment securities, as well as by maintaining access to wholesale funding sources.

The objective of the Corporation's liquidity management is to manage cash flow and liquidity reserves so that they are adequate to fund the Corporation's operations and to meet cash obligations and other commitments on a timely basis and at a reasonable cost.

2 unchanged sentences

Asset liquidity is provided by liquid assets which are readily marketable or pledgeable or which will mature in the near future.

Liquid assets include cash, interest-bearing deposits in banks, including the Federal Reserve, and securities AFS.

Liquid assets include cash, interest-bearing deposits in banks, including the Federal Reserve, and AFS debt securities.

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

4 unchanged sentences

At December 31, 2023, the Corporation’s cash and cash equivalents position was approximately $222.0 million, including liquidity of $164.4 million held at the Federal Reserve.

The Corporation also has the ability to borrow funds as a member of the FHLB.

At December 31, 2022, based upon available, pledgeable collateral, the Corporation's total borrowing capacity with the FHLB was approximately $757.8 million.

Furthermore, at December 31, 2022, the Corporation had approximately $177.0 million in securities that were unencumbered by a pledge and could be used to support additional borrowings through the Federal Reserve discount window, as needed.

These excess funds, when combined with (i) available borrowing capacity of $3.6 billion from the Federal Home Loan Bank of Pittsburgh ("FHLB") and the Federal Reserve, and (ii) available unused commitments from brokered deposit sources and other third-party funding channels, including previously established lines of credit from correspondent banks, resulted in the total on-hand and contingent liquidity sources for the Corporation being approximately 4.0 times the estimated amount of adjusted uninsured deposit balances discussed above.

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

Net Available

FHLB borrowing capacity (1)

Federal Reserve borrowing capacity (2)

Brokered deposits (3)

Other third-party funding channels (3) (4)

Total net available liquidity and borrowing capacity $ 3,572,424

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

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

(3) Availability contingent on internal borrowing guidelines

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

As of December 31, 2023, management is not aware of any events that are reasonably likely to have a material adverse effect on the Corporation's liquidity, capital resources or operations.

5 unchanged sentences

Shareholders' Equity

On September 21, 2022, the Corporation successfully completed a common stock offering resulting in the issuance of 4,257,446 shares of common stock at $23.50 per share and net proceeds of $94.1 million after the deducting the underwriting discount and customary offering expenses.

On September 21, 2022, the Corporation successfully completed a common stock offering resulting in the issuance of 4,257,446 shares of common stock at $23.50 per share and net proceeds of $94.1 million after deducting the underwriting discount and customary offering expenses.

The net proceeds from the capital raise will be used for general corporate purposes, including working capital and funding the Corporation's organic growth across its multiple geographic markets, or evaluating potential acquisition opportunities.

As of December 31, 2023, the Corporation’s total shareholders’ equity was $571.2 million, representing an increase of $40.5 million, or 7.6%, from December 31, 2022.

This increase was primarily due to the $94.1 million increase in additional paid in capital as a result of the Corporation's common stock offering described above coupled with $63.2 million from the Corporation's earnings for the year ended 2022, partially offset by approximately $16.9 million in both, common dividends and preferred dividends, as well as an increase of $51.7 million in accumulated other comprehensive loss, resulting primarily from the temporary unrealized reduction in the value on the AFS investment portfolio during the twelve months ended December 31, 2022.

The increase was primarily due to (i) improvements in accumulated other comprehensive losses resulting primarily from a reduction in after-tax temporary unrealized losses in the AFS investment portfolio, and (ii) an increase in the Corporation's retained earnings (quarterly net income, partially offset by the common and preferred dividends paid in the quarter).

These were partially offset by an increase in the Corporation's treasury stock as a result of the Corporation's repurchase of 326,459 common shares during the twelve months of 2023.

Preferred Stock

13 unchanged sentences

Leverage ratio 10.54 % 10.74 %

Common shareholders' equity/total assets 8.93 % 8.64 %

Tangible common equity/tangible assets (1)

9 unchanged sentences

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.

A reconciliation of these non-GAAP financial measures is provided in the "Non-GAAP Financial Measures" section in Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations.

Average Balances, Interest Rates and Yields

1 unchanged sentence

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 Receivable and Allowance for Credit Losses," for more information about pooling of loans for the allowance for credit losses.

See Note 1, "Summary of Significant Accounting Policies," and Note 3, "Loans Receivable and Allowance for Credit Losses," to the consolidated financial statements for more information about pooling of loans for the allowance for credit losses.

The following table presents average balances of certain measures of our financial condition and net interest margin for the specified years.

37 unchanged sentences

Short-term borrowings 35,224 5.07 1,787 8,793 4.20 369 — — —

Long-term borrowings — — — — — — 220,849 2.04 4,507

Finance lease liabilities 339 4.42 15 426 4.69 20 507 4.54 23

14 unchanged sentences

(2) Average yields are stated on a fully taxable equivalent basis (calculated using statutory rates of 21%) resulting from tax-free municipal securities in the investment portfolio and tax-free municipal loans in the commercial loan portfolio.

The taxable equivalent adjustment to net interest income for the years ended December 31, 2022, 2021 and 2020 were $1.2 million, $953 thousand and $1.4 million, respectively.

The taxable equivalent adjustment to net interest income for the years ended December 31, 2023, 2022, and 2021 were $997 thousand, $1.2 million and $953 thousand, respectively.

(3) Average loans receivable outstanding includes the average balance outstanding of all nonaccrual loans.

1 unchanged sentence

In addition, loans receivable interest income consists of loans receivable fees, including PPP deferred processing fees.

(4) Average balance is computed using the fair value of AFS securities and amortized cost of HTM securities.

Average yield has been computed using amortized cost average balance for AFS and HTM securities.

(4) Average balance is computed using the fair value of AFS debt securities and amortized cost of HTM debt securities.

Average yield has been computed using amortized cost average balance for AFS and HTM debt securities.

The adjustment to the average balance for securities in the calculation of average yield for the years ended December 31, 2023, 2022, and 2021 were $(61.1) million, $(40.3) million and $9.9 million, respectively.

2 unchanged sentences

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, 2022 over (under) 2021 Due to Change In (1)

For Twelve Months Ended December 31, 2021 over (under) 2020 Due to Change In (1)

Analysis of Year-to-Year Changes in Net Interest Income

2023 compared to.

2022 2022 compared to.

Increase (Decrease)

Due to Change in (1)

Increase (Decrease)

Due to Change in (1)

Volume Rate Net Volume Rate Net

19 unchanged sentences

Short-Term Borrowings 1,112 306 1,418 — 369 369

Long-Term Borrowings — — — — (4,507) (4,507)

Finance Lease Liabilities — — — (4) 1 (3)

8 unchanged sentences

Overview of the Statements of Income and Comprehensive Income

Net income available to common shareholders ("earnings") was $58.9 million, or $3.26 per diluted share, for the twelve months ended December 31, 2022, compared to $53.4 million, or $3.16 per diluted share, for the twelve months ended December 31, 2021, reflecting increases of $5.5 million, or 10.3%, and $0.10 per diluted share, or 3.2%.

The 2022 full-year earnings per share was partially impacted by the effect of the Corporation's common stock offering completed in September of 2022, resulting in the issuance of 4,257,446 shares of common stock at $23.50 per share and net proceeds of $94.1 million after deducting the underwriting discount and customary offering expenses.

PPNR, a non-GAAP measure, was $86.8 million for the year ended December 31, 2022, compared to $76.8 million for the year ended December 31, 2021, reflecting an increase of $10.0 million, or 13.1%.

The increase in PPNR for the year ended December 31, 2022 was primarily driven by growth in loans and expansion of the Corporation's net interest margin.

Net income available to common shareholders ("earnings") was $53.7 million, or $2.55 per diluted share, for the year ended December 31, 2023, compared to earnings of $58.9 million, or $3.26 per diluted share, for the year ended December 31, 2022.

The decrease in diluted earnings per share in the year ended December 31, 2023 was primarily due to the rise in deposit costs year over year, as well as the dilutive effect of the Corporation's common stock offering completed in September 2022, which resulted in the issuance of over 4.2 million shares of common stock, an increase of approximately 25% in total common shares outstanding.

In addition, during the year ended December 31, 2023, the Corporation repurchased 326,459 common shares at a weighted average price per share of $20.08, compared to repurchases of 50,166 common shares at a weighted average price per share of $26.75 during the year ended December 31, 2022.

PPNR, a non-GAAP measure, was $77.8 million for the year ended December 31, 2023, compared to $86.8 million for the year ended December 31, 2022.

The decrease in PPNR for the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily driven by the increase in deposit costs combined with the growth in technology expenses due to investments in applications aimed at enhancing both customer relationship management and customer online experience, as well as expanding service delivery channels.

In addition, the Corporation had a year-over-year decrease in non-interest income as a result of lower pass-through income from small business investment companies ("SBICs").

Return on average equity was 10.54% for the year ended December 31, 2023, compared to 13.86% for the year ended December 31, 2022.

Return on average tangible common equity, a non-GAAP measure, was 16.64% and 16.23% for the same periods in 2022 and 2021, respectively.

The Corporation's efficiency ratio was 61.32% and 61.87% for the twelve and three months ended December 31, 2022, respectively, compared to 60.26% and 63.68% for the twelve and three months ended December 31, 2021, respectively.

The efficiency ratio on a fully tax-equivalent basis, a non-GAAP ratio, was 60.87% and 61.40% for the twelve and three months ended December 31, 2022, respectively, compared to 59.76% and 63.19% for the twelve and three months ended December 31, 2021, respectively.

The increase for the twelve months ended December 31, 2022 was primarily a result of expected increasing costs associated with the Corporation’s expanding franchise investments into the Cleveland and Southwest Virginia markets, coupled with its continued strategic investments in technologies focused on customer sales management and connectivity capabilities.

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

The Corporation's efficiency ratio was 65.13% for the year ended December 31, 2023, compared to 61.32% for the year ended December 31, 2022.

The efficiency ratio on a fully tax-equivalent basis, a non-GAAP ratio, was 64.45% for the year ended December 31, 2023, compared to 60.87% the year ended December 31, 2022.

The increase was primarily the result of rising deposit costs coupled with higher occupancy costs and technology expenses.

Interest Income and Expense

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

Included in net interest income were PPP-related fees, which totaled approximately $1.9 million for the year ended December 31, 2022, compared to $8.7 million for the year ended December 31, 2021.

Net interest margin was 3.83% and 3.35% for the twelve months ended December 31, 2022 and 2021, respectively.

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

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

The cost of interesting-bearing liabilities increased 10 basis points from 0.52% for the year ended December 31, 2021 to 0.62% for the year ended December 31, 2022, primarily as a result of the Corporation's targeted interest-bearing deposit rate increases.

Net interest income of $189.8 million for the year ended December 31, 2023, compared to $189.7 million for the year ended December 31, 2022.

The increase of $170 thousand, or 0.09%, was primarily due to loan growth and the benefits of the impact of rising interest rates resulting in greater income on variable-rate loans and new loan production, which was substantially offset by an increase in the Corporation's interest expense as a result of both (i) targeted interest-bearing deposit rate increases to ensure both deposit growth and retention, and (ii) a year-over-year increase in the average balance of short-term borrowings through the FHLB.

In addition, as previously mentioned, net interest income for the year ended December 31, 2023 included $1.4 million in nonrecurring interest income related primarily to payoffs in the syndicated loan portfolio.

Net interest margin was 3.63% and 3.83% for the years ended December 31, 2023 and 2022, respectively.

Net interest margin on a fully tax-equivalent basis, a non-GAAP measure, was 3.61% and 3.82% for the years ended December 31, 2023 and 2022, respectively.

Included in the net interest margin and the net interest margin on a fully tax-equivalent basis for the year ended December 31, 2023 was approximately $1.4 million, or three basis points, in one-time realized interest income related primarily to payoffs in the syndicated loan portfolio.

The yield on earning assets for the year ended December 31, 2023 was 5.57%, an increase of 127 basis points from December 31, 2022.

The increase was primarily a result of loan growth and the net benefit of higher interest rates on both variable-rate loans and new loan production.

The yield on earning assets for the year ended December 31, 2023 included the previously mentioned $1.4 million, or three basis points, in one-time syndicated loan interest income.

Provision for Credit Losses

The Corporation recorded a provision for credit losses of $6.0 million in 2023 compared to $8.6 million in 2022.

Included in the provision for credit losses for the year ended December 31, 2023, was a $156 thousand expense related to the allowance for unfunded commitments compared to $603 thousand for the year ended December 31, 2022.

The $2.6 million reduction in the provision expense for the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily a result of the lower loan portfolio growth.

Net loan charge-offs were $3.4 million during the year ended December 31, 2023, compared to $2.1 million during the year ended December 31, 2022.

2 unchanged sentences

Non-Interest Income

Total non-interest income was $34.8 million for the year ended December 31, 2022, representing an increase of $1.3 million, or 4.0%, from the same period in 2021.

Included in non-interest income for the years ended December 31, 2022 and 2021 was $651 thousand and $783 thousand, respectively, in net realized gains on AFS securities.

Non-interest income excluding net realized gains on AFS securities, a non-GAAP measure, for the year ended December 31, 2022 and the year ended December 31, 2021, increased $1.5 million, or 4.5%, from the same period in 2021.

During the year ended December 31, 2022, Wealth and Asset Management fees increased $432 thousand, or 6.4%, compared to the year ended December 31, 2021, as the Corporation benefited from an increased number of wealth management relationships.

Other notable increases during the year ended December 31, 2022 included increased income from service charges on deposits, other service charges and fees, pass-through income from small business investment companies ("SBICs") and bank owned life insurance mostly due to an $883 thousand gain resulting from death benefit proceeds.

These were partially offset by unrealized losses on equity securities and decreased mortgage banking activity.

Total non-interest income was $33.3 million for the year ended December 31, 2023, compared to $34.8 million for the year ended December 31, 2022.

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

Non-Interest Expense

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

For the year ended December 31, 2023, total non-interest expense was $145.3 million, compared to $137.6 million for the year ended December 31, 2022.

The increase of $7.7 million, or 5.61%, from the year ended December 31, 2022 was primarily a result of higher occupancy costs combined with higher technology expenses.

In addition, other non-interest expenses increased primarily due to business generation related expenses and consulting fees.

Furthermore, full-year base-salary and related benefit increases, intended to account for inflationary merit increases and the addition of personnel to staff new offices in 2023, were substantially offset by an approximately $8.1 million reduction in incentive-related expenses.

Year Ended December 31, 2022 vs.

2 unchanged sentences

Earnings were $58.9 million, or $3.26 per diluted share, for the year ended December 31, 2022, compared to $53.4 million, or $3.16 per diluted share, for the year ended December 31, 2021, reflecting increases of $5.5 million, or 10.3%, and $0.10 per diluted share, or 3.2%.

The primary drivers of the increase in net income were the growth in earning assets and PPP related fees.

In addition, included in net income for the year ended December 31, 2020 was the after-tax impact of $10.2 million, or $0.63 per diluted share, in merger costs, FHLB prepayment penalties and branch closure costs.

Partially offsetting were the growth in operating expenses to support the Corporation's growth, as well as a lower net interest margin as a result of the low interest rate environment.

The 2022 full-year earnings per share was partially impacted by the effect of the Corporation's common stock offering completed in September 2022, resulting in the issuance of 4,257,446 shares of common stock at $23.50 per share and net proceeds of $94.1 million after deducting the underwriting discount and customary offering expenses.

PPNR, a non-GAAP measure, was $86.8 million for the year ended December 31, 2022, compared to $76.8 million for the year ended December 31, 2021, reflecting an increase of $10.0 million, or 13.1%.

Included in PPNR for the year ended December 31, 2020 was $12.6 million in merger costs, prepayment penalties and branch closure costs.

The increase in PPNR for the year ended December 31, 2022 was primarily driven by growth in loans and expansion of the Corporation's net interest margin.

Return on average equity was 13.86% for the year ended December 31, 2022, compared to 13.39% for the year ended December 31, 2021.

Return on average tangible common equity, a non-GAAP measure, was 16.64% and 16.23% for the same periods in 2022 and 2021, respectively.

Excluding after-tax merger costs, FHLB prepayment penalties and branch closure costs, adjusted return on average equity and average tangible common equity were 11.98% and 14.10% for the year ended December 31, 2020, respectively.

As a measure of the Corporation’s efficiency in management of its expenses, the efficiency ratio on a fully tax-equivalent basis, a non-GAAP ratio, was 59.76% for the year ended December 31, 2021, compared to 65.10% for the year ended December 31, 2020.

The efficiency ratio for the year ended December 31, 2020 included $12.6 million in merger costs, FHLB prepayment penalties and branch closure costs.

The Corporation's efficiency ratio was 61.32% for the year ended December 31, 2022, compared to 60.26% for the year ended December 31, 2021, respectively.

The efficiency ratio on a fully tax-equivalent basis, a non-GAAP ratio, was 60.87% for the year ended December 31, 2022, compared to 59.76% for the year ended December 31, 2021, respectively.

The increase for the year ended December 31, 2022 was primarily a result of expected increasing costs associated with the Corporation’s expanding franchise investments into the Cleveland, Ohio and Southwest Virginia markets, coupled with its continued strategic investments in technologies focused on customer sales management and connectivity capabilities.

Interest Income and Expense

Net interest income for the year ended December 31, 2021 increased $25.1 million, or 18.6%, to $159.8 million from the year ended December 31, 2020, primarily as a result of loan growth, various deposit pricing and liquidity strategies.

Included in net interest income were PPP-related fees, which totaled approximately $1.9 million for the year ended December 31, 2022, compared to $8.7 million for the year ended December 31, 2021.

Net interest margin on a fully tax-equivalent basis, a non-GAAP measure, was 3.38% and 3.34% for the year ended December 31, 2021 and 2020, respectively.

The yield on earning assets of 3.79% for the year ended December 31, 2021 decreased 35 basis points from 4.14% for the year ended December 31, 2020, primarily as a result of the lower interest rate environment and higher level of excess cash at the Federal Reserve, partially offset by higher PPP-related fees.

The cost of interest-bearing liabilities decreased 43 basis points from 0.95% for the year ended December 31, 2020 to 0.52% for the year ended December 31, 2021, primarily as a result of the Corporation’s targeted deposit rate reductions and the prepayment of the Corporation's remaining FHLB borrowings, which were approximately $160 million at a weighted average interest rate of 2.24%, in the fourth quarter of 2020.

Net interest margin was 3.83% and 3.35% for the years ended December 31, 2022 and 2021, respectively.

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

Provision for Credit Losses

The Corporation recorded a provision for credit losses of $8.6 million in 2022 compared to $6.0 million in 2021.

Net loan charge-offs were $2.1 million during the year ended December 31, 2022, compared to $2.8 million during the year ended December 31, 2021.

As disclosed in "Allowance for Credit Losses" discussion above, management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts, and other significant qualitative and quantitative factors.

As disclosed in "Allowance for Credit Losses" discussion above, management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, reasonable and supportable forecasts, and other significant qualitative and quantitative factors.

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

Non-Interest Income

Total non-interest income was $33.4 million for the year ended December 31, 2021 compared to $28.1 million from the same period in 2020, reflecting an increase of $5.4 million, or 19.2%.

Included in non-interest income for the year ended December 31, 2021 and 2020 were $783 thousand and $2.2 million, respectively, in net realized gains on AFS securities.

Non-interest income excluding net realized gains on AFS securities, a non-GAAP measure, for the year ended December 31, 2021, increased $6.8 million, or 26.2%, from the same period in 2020.

The increase was partially driven by growth in Wealth and Asset Management fees, as assets under management increased by $135.2 million, or 11.9%, from December 31, 2020, to $1.3 billion as of December 31, 2021.

Other significant factors that contributed to the increase included income from investments in SBICs, card processing and interchange income and service charges on deposits from increased business activity as well as an increase in bank owned life insurance income.

Total non-interest income was $34.8 million for the year ended December 31, 2022, representing an increase of $1.3 million, or 4.0%, from the same period in 2021.

Included in non-interest income for the years ended December 31, 2022 and 2021 was $651 thousand and $783 thousand, respectively, in net realized gains on AFS debt securities.

Non-interest income excluding net realized gains on AFS debt securities, a non-GAAP measure, for the year ended December 31, 2022 and the year ended December 31, 2021, increased $1.5 million, or 4.5%, from the same period in 2021.

Other notable increases during the year ended December 31, 2022 included increased income from service charges on deposits, other service charges and fees, pass-through income from SBICs and bank owned life insurance mostly due to an $883 thousand gain resulting from death benefit proceeds.

These were partially offset by unrealized losses on equity securities and decreased mortgage banking activity.

Non-Interest Expense

For the year ended December 31, 2021, total non-interest expense was $116.4 million, reflecting an increase of $9.1 million, or 8.5%, from the year ended December 31, 2020.

Included in non-interest expense for the year ended December 31, 2020 was $12.6 million in merger costs, prepayment penalties and branch closure costs.

In addition, non-interest expense for the year ended December 31, 2021 included expenses related to hiring additional personnel in the Corporation's growth regions of Cleveland, Buffalo and Ridge View (Roanoke) as well as investments in technology aimed at enhancing customer experience.

Also, included in the fourth quarter 2021 is approximately $2.3 million in additional personnel costs primarily from increased incentive compensation accruals and certain retirement benefit expenses.

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

Income Tax Expense

2 unchanged sentences

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.

Included in the 18.3% effective tax rate for the year ended December 31, 2020 were merger costs, FHLB prepayment penalties and branch closure costs, all of which reduced the effective tax rate.

Off-Balance Sheet Arrangements

Assets under management and assets under custody are held in fiduciary or custodial capacity for the Corporation's clients.

In accordance with U.S.

generally accepted accounting principles, these assets are not included on the Corporation's balance sheet.

In accordance with GAAP, these assets are not included on the Corporation's balance sheet.

The Corporation is also party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of the Corporation's clients.

2 unchanged sentences

Critical Accounting Policies and Estimates

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.

The Corporation's consolidated financial statements are prepared in accordance with accounting principles GAAP and follow general practices within the industries in which the Corporation operates.

The most significant accounting policies used by the Corporation are presented in Note 1, "Summary of Significant Accounting Policies," to the consolidated financial statements.

42 unchanged sentences

The Corporation uses fair value measurements to record certain financial instruments and to determine fair value disclosures.

AFS securities, mortgage loans held for sale, and interest rate swap agreements are financial instruments recorded at fair value on a recurring basis.

Equity securities, AFS debt securities, mortgage loans held for sale, and interest rate swap agreements are financial instruments recorded at fair value on a recurring basis.

Additionally, from time to time, the Corporation may be required to record at fair value other financial assets on a nonrecurring basis.

9 unchanged sentences

Therefore, when market data is not available, we use valuation techniques that require more management judgment to estimate the appropriate fair value measurement.

Fair value is discussed further in Note 1, "Summary of Significant Accounting Policies" and in Note 6, "Fair Value Measurements."

Fair value is discussed further in Note 1, "Summary of Significant Accounting Policies" and in Note 4, "Fair Value".

Certain intangible assets generated in connection with acquisitions are periodically assessed for impairment.

10 unchanged sentences

Common shareholders' equity 513,462 472,977

goodwill 43,749 43,749

goodwill and other intangibles 43,874 43,749

core deposit intangible 280 364

1 unchanged sentence

Total assets $ 5,752,957 $ 5,475,179

goodwill 43,749 43,749

goodwill and other intangibles 43,874 43,749

core deposit intangible 280 364

5 unchanged sentences

Tangible common equity / Tangible assets (non-GAAP) 8.22 % 7.90 %

December 31, December 31,

Calculation of allowance for credit losses / total loans, net of PPP-related loans (non-GAAP):

Total allowance for credit losses $ 43,436 $ 37,588

Total loans $ 4,275,178 $ 3,634,792

PPP-related loans 159 45,203

Adjusted total loans, net of PPP-related loans (non-GAAP) $ 4,275,019 $ 3,589,589

Allowance for credit losses / total loans (GAAP) 1.02 % 1.03 %

Adjusted allowance for credit losses / total loans, net of PPP-related loans (non-GAAP) 1.02 % 1.05 %

Twelve Months Ended

Calculation of net interest margin:

3 unchanged sentences

Average total earning assets $ 5,232,117 $ 4,954,547

Net interest margin (GAAP) (annualized) 3.83 % 3.35 %

Net interest margin (GAAP) 3.63 % 3.83 %

Calculation of net interest margin (fully tax equivalent basis) (non-GAAP):

7 unchanged sentences

Adjusted average total earning assets, net of mark to market (non-GAAP) $ 5,293,206 $ 4,994,818

Net interest margin, fully tax equivalent basis (non-GAAP) (annualized) 3.82 % 3.38 %

Twelve Months Ended

Net interest margin, fully tax equivalent basis (non-GAAP) 3.61 % 3.82 %

Calculation of PPNR (non-GAAP):

4 unchanged sentences

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

Twelve Months Ended

Calculation of efficiency ratio:

15 unchanged sentences

Efficiency ratio (fully tax equivalent basis) (non-GAAP) 64.45 % 60.87 %

Twelve Months Ended

Calculation of return on average tangible common equity (non-GAAP):

6 unchanged sentences

Tangible common shareholders' equity (non-GAAP) $ 448,355 $ 353,800

Return on average equity (GAAP) (annualized) 13.86 % 13.39 %

Return on average common equity (GAAP) (annualized) 12.92 % 12.39 %

Return on average tangible common equity (non-GAAP) (annualized) 16.64 % 16.23 %

Twelve Months Ended

Return on average equity (GAAP) 10.54 % 13.86 %

Return on average common equity (GAAP) 9.76 % 12.92 %

Return on average tangible common equity (non-GAAP) 11.98 % 16.64 %

Calculation of non-interest income excluding net realized gains on available-for-sale securities (non-GAAP):

3 unchanged sentences

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 7. Management’s Discussion and Analysis