CNB FINANCIAL CORP/PA 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Report of Independent Registered Public Accounting Firm To the Shareholders, Board of Directors, and Audit Committee CNB Financial Corporation Clearfield, Pennsylvania Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of CNB Financial Corporation (the “Corporation”) as of December 31, 2023, the related consolidated statements of income and comprehensive income, changes in shareholders’ equity, and cash flows for the years ended December 31, 2023 and 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Corporation as of December 31, 2023, and the results of its operations and its cash flows for the year ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Corporation’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 7, 2024, expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on the Corporation’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Corporation in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. 52 Table of Contents Allowance for Credit Losses on Loans As described in Notes 1 and 3 to the financial statements, the Corporation establishes an allowance representing the estimate of expected credit losses over the estimated life of the existing portfolio of loans. The Corporation measures expected credit losses based on a pooled loan basis when similar risk characteristics exist by primarily applying a discounted cash flow (“DCF”) model. The DCF model discounts instrument-level contractual cash flows, adjusting for prepayments and curtailments, and incorporates loss expectations based on past events, current conditions, and forecasted macroeconomic indicators using reasonable and supportable forecasts. The quantitative estimated losses provided by the DCF model are supplemented by qualitative factors that include changes related to relevant data, such as differences in underwriting standards, changes in environmental conditions, delinquency levels, segment growth rates and changes in duration within new markets, or other relevant factors not considered in the DCF model. We identified the allowance for credit losses on loans as a critical audit matter. Auditing management’s estimate of the allowance involved a high degree of subjectivity due to the significant judgment required in determining the (1) significant assumptions within the DCF model and (2) measurement of the qualitative factors applied to the loan portfolio. The primary procedures performed to address the critical audit matter included: • We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Corporation’s internal controls over the allowance for credit losses process, including controls over the qualitative elements of the allowance. This included controls over the review of the relevance and reliability of data used to determine the estimates and the review of the appropriateness of the key assumptions and judgments used in the determination of the qualitative factors. • We evaluated the completeness and accuracy of data used in the development of qualitative factors and the reasonableness of management’s judgments and the relevance of data used in applying the qualitative factors . • We evaluated the current and expected qualitative adjustments, including assessing the basis for the adjustments and the reasonableness of the significant assumptions. • We tested of the loan review function and the accuracy of loan grades determined. Specifically, utilizing internal professionals to assist us in evaluating the appropriateness of loan grades. Goodwill Impairment Assessment The Corporation has recorded goodwill of $43.7 million as of December 31, 2023. The determination of the annual goodwill impairment assessment has been identified by the Corporation as a critical accounting policy. As further described in Notes 1 and 8 to the consolidated financial statements, goodwill is tested for impairment at least annually, occurring as of November 30, or more frequently if events or circumstances warrant. At November 30, 2023, the Corporation elected to perform a quantitative assessment to determine if it was more likely than not that the fair value exceeded its carrying value, including goodwill. The Corporation engaged a third-party valuation firm to assist in performing the quantitative analysis using multiple approaches that were weighted by management. Based upon the valuation prepared, the quantitative assessment indicated that it was more likely than not that the fair value exceeded its carrying value, resulting in no impairment. We identified the Corporation’s quantitative goodwill impairment assessment, as of November 30, as a critical audit matter. The principal considerations for that determination were the degree of subjectivity and judgment required to audit management’s goodwill impairment assessment. Specifically, evaluating the valuation approaches selected and key assumptions used by management in performing its assessment, such as the selection of comparable publicly-traded companies and control premium utilized in the valuation approaches. The primary procedures we performed to address this critical audit matter included the following : • We evaluated the design and tested the operating effectiveness of controls related to management’s goodwill impairment assessment, including controls over management’s review of the quantitative analysis performed, including the key assumptions used to determine the fair value of the reporting unit. • We tested key financial data used within the valuation approaches by agreeing key inputs to internal and external sources. 53 Table of Contents • We evaluated, with the assistance of our internal valuation specialists, appropriateness of valuation approaches selected by management, the selection of a control premium and of comparable publicly-traded companies, and the overall reasonableness of the estimated fair value of the reporting unit. Other Matter The 2021 financial statements were audited by other auditors whose unqualified reports on those statements thereon, dated March 3, 2022, included an emphasis paragraph that described the change in accounting principle discussed in Note 1. /s/ FORVIS, LLP We have served as the Corporation’s auditor since 2022. Indianapolis, Indiana March 7, 2024 54 Table of Contents Report of Independent Registered Public Accounting Firm To the Shareholders, Board of Directors, and Audit Committee CNB Financial Corporation Clearfield, Pennsylvania Opinion on the Internal Control over Financial Reporting We have audited CNB Financial Corporation’s (the “Corporation”) internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheet of the Corporation as of December 31, 2023, and the related consolidated statement of income and comprehensive income, changes in shareholders’ equity, and cash flows for each of the year ended December 31, 2023, and our report dated March 7, 2024, expressed an unqualified opinion on those financial statements. Basis for Opinion The Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financing Reporting. Our responsibility is to express an opinion on the Corporation’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Corporation in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definitions and Limitations of Internal Control over Financial Reporting A corporation’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of reliable financial statements for external purposes in accordance with generally accepted accounting principles. A corporation’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the corporation; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the corporation are being made only in accordance with authorizations of management and directors of the corporation; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the corporation’s assets that could have a material effect on the financial statements. 55 Table of Contents Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. /s/ FORVIS, LLP Indianapolis, Indiana March 7, 2024 56 Table of Contents Report of Independent Registered Public Accounting Firm Shareholders and the Board of Directors of CNB Financial Corporation Clearfield, Pennsylvania Opinion on the Financial Statements We have audited the accompanying consolidated statements of income and comprehensive income, changes in shareholders’ equity, and cash flows of CNB Financial Corporation (the "Corporation") for the year ended December 31, 2021, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the results of its operations and its cash flows of the Corporation for the year ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on the Corporation’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Corporation in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. /s/ Crowe LLP We served as the Corporation's auditor from 2000 through March 3, 2022. Columbus, Ohio March 3, 2022 57 Table of Contents CONSOLIDATED BALANCE SHEETS Dollars in thousands, except share data December 31, December 31, 2023 2022 ASSETS Cash and due from banks $ 54,789 $ 58,884 Interest-bearing deposits with Federal Reserve 164,385 43,401 Interest-bearing deposits with other financial institutions 2,872 4,000 Total cash and cash equivalents 222,046 106,285 Debt securities available-for-sale, at fair value (amortized cost of $ 395,803 as of December 31, 2023 and $ 432,992 as of December 31, 2022) 341,955 371,409 Debt securities held-to-maturity, at amortized cost (fair value $ 360,570 as of December 31, 2023 and $ 367,388 , as of December 31, 2022) 388,968 404,765 Equity securities 9,301 9,615 Loans held for sale 675 231 Loans receivable PPP loans, net of deferred processing fees 48 159 Syndicated loans 108,710 156,649 Loans 4,359,718 4,118,370 Total loans receivable 4,468,476 4,275,178 Less: allowance for credit losses ( 45,832 ) ( 43,436 ) Net loans receivable 4,422,644 4,231,742 FHLB and other restricted stock holdings and investments 30,011 30,715 Premises and equipment, net 73,700 68,535 Operating lease right-of-use assets 35,699 32,307 Bank owned life insurance 114,468 111,523 Mortgage servicing rights 1,554 1,804 Goodwill and other intangible assets 43,874 43,749 Core deposit intangible 280 364 Accrued interest receivable and other assets 67,782 62,135 Total Assets $ 5,752,957 $ 5,475,179 LIABILITIES AND SHAREHOLDERS’ EQUITY Noninterest-bearing demand deposits $ 728,881 $ 898,437 Interest-bearing demand deposits 803,093 1,007,202 Savings 2,960,282 2,270,337 Certificates of deposit 506,494 446,461 Total deposits 4,998,750 4,622,437 Short-term borrowings — 132,396 Subordinated debentures 20,620 20,620 Subordinated notes, net of unamortized issuance costs 84,267 83,964 Operating lease liabilities 37,650 33,726 Accrued interest payable and other liabilities 40,423 51,274 Total liabilities 5,181,710 4,944,417 Commitments and contingent liabilities Preferred stock, Series A non-cumulative perpetual, No par value; $ 1,000 liquidation preference; shares authorized 60,375 ; Shares issued 60,375 at December 31, 2023 and 60,375 at December 31, 2022 57,785 57,785 Common stock, no par value; 50,000,000 shares authorized; Shares issued 21,235,503 shares at December 31, 2023 and 21,121,346 at December 31, 2022 — — Additional paid in capital 220,495 221,553 Retained earnings 345,935 306,911 Treasury stock, at cost ( 339,064 shares at December 31, 2023 and 114,157 shares at December 31, 2022) ( 6,890 ) ( 2,967 ) Accumulated other comprehensive loss ( 46,078 ) ( 52,520 ) Total shareholders’ equity 571,247 530,762 Total Liabilities and Shareholders’ Equity $ 5,752,957 $ 5,475,179 See Notes to Consolidated Financial Statements 58 Table of Contents CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME Dollars in thousands, except per share data Year ended December 31, 2023 2022 2021 INTEREST AND DIVIDEND INCOME: Loans including fees Interest and fees on loans $ 273,220 $ 194,149 $ 157,799 Processing fees on PPP loans 3 1,889 8,737 Securities and cash and cash equivalents: Taxable 19,279 16,672 11,680 Tax-exempt 724 871 1,125 Dividends 470 157 259 Total interest and dividend income 293,696 213,738 179,600 INTEREST EXPENSE: Deposits 97,770 19,833 15,062 Borrowed funds and finance lease liabilities 1,802 389 23 Subordinated debentures (includes $( 151 ), $ 127 , and $ 276 accumulated other comprehensive income reclassification for change in fair value of interest rate swap agreements, respectively) 4,295 3,857 4,735 Total interest expense 103,867 24,079 19,820 NET INTEREST INCOME 189,829 189,659 159,780 PROVISION FOR CREDIT LOSS EXPENSE 5,993 8,589 6,003 NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSS EXPENSE 183,836 181,070 153,777 NON-INTEREST INCOME: Service charges on deposit accounts 7,372 7,206 6,195 Other service charges and fees 3,010 3,196 2,436 Wealth and asset management fees 7,251 7,172 6,740 Net realized gains on available-for-sale securities (includes $ 52 , $ 651 , and $ 783 accumulated other comprehensive income reclassifications for net realized gains on available-for-sale securities, respectively) 52 651 783 Net realized gains on equity securities 22 — — Net unrealized gains (losses) on equity securities ( 409 ) ( 1,149 ) 790 Mortgage banking 676 1,237 3,147 Bank owned life insurance 2,945 3,433 2,638 Card processing and interchange income 8,301 7,797 7,796 Other non-interest income 4,115 5,223 2,909 Total non-interest income 33,335 34,766 33,434 NON-INTEREST EXPENSES: Compensation and benefits (includes $( 174 ), $( 113 ), and $( 43 ) accumulated other comprehensive income reclassifications for net amortization of actuarial (gains) losses, respectively) 71,062 71,460 61,175 Net occupancy expense 14,509 13,298 12,381 Technology expense 20,202 17,041 11,723 State and local taxes 4,126 4,078 4,057 Legal, professional and examination fees 4,414 4,173 3,517 Advertising 3,133 2,887 2,081 FDIC insurance 3,879 2,796 2,509 Card processing and interchange expenses 5,025 4,801 3,836 Other non-interest expenses 18,992 17,088 15,154 Total non-interest expenses 145,342 137,622 116,433 INCOME BEFORE INCOME TAXES 71,829 78,214 70,778 INCOME TAX EXPENSE (includes $ 79 , $ 134 , and $ 116 income tax expense reclassification items, respectively) 13,809 15,026 13,071 NET INCOME 58,020 63,188 57,707 PREFERRED STOCK DIVIDENDS 4,302 4,302 4,302 NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 53,718 $ 58,886 $ 53,405 PER COMMON SHARE DATA: Basic Earnings Per Common Share $ 2.56 $ 3.26 $ 3.16 Diluted Earnings Per Common Share $ 2.55 $ 3.26 $ 3.16 Cash Dividends Declared $ 0.700 $ 0.700 $ 0.685 NET INCOME $ 58,020 $ 63,188 $ 57,707 OTHER COMPREHENSIVE INCOME (LOSS): Net change in unrealized gains (losses) on available-for-sale securities, net of reclassification and tax $ 6,109 $ ( 53,576 ) $ ( 16,044 ) Amortization of unrealized gains from held-to-maturity securities, net of tax 591 875 — Change in actuarial gains (losses), for post-employment health care plan, net of amortization and tax ( 139 ) 150 275 Change in fair value of interest rate swap agreements designated as a cash flow hedge, net of interest and tax ( 119 ) 425 301 Total other comprehensive income (loss) 6,442 ( 52,126 ) ( 15,468 ) COMPREHENSIVE INCOME $ 64,462 $ 11,062 $ 42,239 See Notes to Consolidated Financial Statements 59 Table of Contents CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2023, 2022, AND 2021 Dollars in thousands, except share and per share data Preferred Stock Additional Paid-In Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Income (Loss) Total Share- holders’ Equity Balance, January 1, 2021 $ 57,785 $ 127,518 $ 218,727 $ ( 2,967 ) $ 15,074 $ 416,137 Net income — — 57,707 — — 57,707 Other comprehensive loss — — — — ( 15,468 ) ( 15,468 ) Forfeiture of restricted stock award grants ( 2,669 shares) — 64 — ( 64 ) — — Restricted stock award grants ( 55,218 shares) — ( 1,374 ) — 1,374 — — Performance based restricted stock award grants ( 10,587 shares) — ( 262 ) — 262 — — Stock-based compensation expense — 1,411 — — — 1,411 Contribution of treasury stock ( 3,000 shares) — ( 81 ) — 81 — — Stock-based contribution expense — 75 — — — 75 Purchase of treasury stock ( 36,359 shares) — — — ( 1,000 ) — ( 1,000 ) Purchase of treasury stock for the purpose of tax withholding related to restricted stock award vesting ( 6,782 shares) — — — ( 143 ) — ( 143 ) Purchase of treasury stock for the purpose of tax withholding related to performance based restricted stock award vesting ( 941 shares) — — — ( 20 ) — ( 20 ) Preferred cash dividend declared — — ( 4,302 ) — — ( 4,302 ) Cash dividends declared ($ 0.685 per share) — — ( 11,550 ) — — ( 11,550 ) Balance, December 31, 2021 57,785 127,351 260,582 ( 2,477 ) ( 394 ) 442,847 Net income — — 63,188 — — 63,188 Other comprehensive loss — — — — ( 52,126 ) ( 52,126 ) Forfeiture of restricted stock award grants ( 1,440 shares) — 36 — ( 36 ) — — Restricted stock award grants ( 57,823 shares) — ( 1,000 ) — 1,000 — — Performance based restricted stock award grants ( 11,895 shares) — ( 173 ) — 173 — — Stock-based compensation expense — 1,248 — — — 1,248 Contribution of treasury stock ( 3,000 shares) — ( 44 ) — 44 — — Stock-based contribution expense — 84 — — — 84 Issuance of common stock, net of issuance costs ( 4,257,446 shares) — 94,051 — — — 94,051 Purchase of treasury stock ( 50,166 shares) — — — ( 1,342 ) — ( 1,342 ) Purchase of treasury stock for the purpose of tax withholding related to restricted stock award vesting ( 7,568 shares) — — — ( 203 ) — ( 203 ) Purchase of treasury stock for the purpose of tax withholding related to performance based restricted stock award vesting ( 4,706 shares) — — — ( 126 ) — ( 126 ) Preferred cash dividend declared — — ( 4,302 ) — — ( 4,302 ) Common cash dividends declared ($ 0.70 per share) — — ( 12,557 ) — — ( 12,557 ) Balance, December 31, 2022 57,785 221,553 306,911 ( 2,967 ) ( 52,520 ) 530,762 See Notes to Consolidated Financial Statements 60 Table of Contents CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (continued) FOR THE YEARS ENDED DECEMBER 31, 2023, 2022, AND 2021 Dollars in thousands, except share and per share data Preferred Stock Additional Paid-In Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Income (Loss) Total Share- holders’ Equity Net income — — 58,020 — — 58,020 Other comprehensive income — — — — 6,442 6,442 Forfeiture of restricted stock award grants ( 6,391 shares) — 134 — ( 134 ) — — Restricted stock award grants ( 105,185 shares) — ( 2,743 ) — 2,743 — — Performance based restricted stock award grants ( 4,118 shares) — ( 111 ) — 111 — — Stock-based compensation expense — 1,688 — — — 1,688 Contribution of treasury stock ( 3,000 shares) — ( 81 ) — 81 — — Stock-based contribution expense — 55 — — — 55 Purchase of treasury stock ( 326,459 shares) — — — ( 6,621 ) — ( 6,621 ) Purchase of treasury stock for the purpose of tax withholding related to restricted stock award vesting ( 3,776 shares) — — — ( 89 ) — ( 89 ) Purchase of treasury stock for the purpose of tax withholding related to performance based restricted stock award vesting ( 584 shares) — — — ( 14 ) — ( 14 ) Preferred cash dividend declared — — ( 4,302 ) — — ( 4,302 ) Cash dividends declared ($ 0.70 per common share) — — ( 14,694 ) — — ( 14,694 ) Balance, December 31, 2023 $ 57,785 $ 220,495 $ 345,935 $ ( 6,890 ) $ ( 46,078 ) $ 571,247 See Notes to Consolidated Financial Statements 61 Table of Contents CONSOLIDATED STATEMENTS OF CASH FLOWS Dollars in thousands Year ended December 31, 2023 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 58,020 $ 63,188 $ 57,707 Adjustments to reconcile net income to net cash provided by operations: Provision for credit loss expense 5,993 8,589 6,003 Depreciation and amortization of premises and equipment, operating leases assets, core deposit intangible, and mortgage servicing rights 7,739 6,573 6,241 Accretion of securities, deferred loan fees and costs, net yield and credit mark on acquired loans, and unearned income ( 3,155 ) ( 3,316 ) ( 2,127 ) Net amortization of deferred costs on borrowings 303 303 177 Accretion of deferred PPP processing fees ( 3 ) ( 1,889 ) ( 8,737 ) Deferred tax (benefit) expense 1,111 ( 1,814 ) ( 1,691 ) Net realized gains on sales of available-for-sale securities ( 52 ) ( 651 ) ( 783 ) Net realized and unrealized losses (gains) on equity securities 387 1,149 ( 790 ) Gain on sale of loans held for sale ( 447 ) ( 1,285 ) ( 2,737 ) Net losses (gains) on dispositions of premises and equipment and foreclosed assets 27 ( 170 ) 230 Proceeds from sale of loans receivable 16,263 29,151 95,258 Origination of loans held for sale ( 17,874 ) ( 34,181 ) ( 95,411 ) Income on bank owned life insurance ( 2,945 ) ( 2,550 ) ( 2,184 ) Gain on bank owned life insurance (death benefit proceeds in excess of cash surrender value) — ( 883 ) ( 454 ) Restricted stock compensation expense 1,688 1,248 1,411 Stock-based contribution expense 55 84 75 Changes in: Accrued interest receivable and other assets ( 5,894 ) ( 19,065 ) ( 1,056 ) Accrued interest payable, lease liabilities, and other liabilities ( 14,193 ) 19,572 7,788 NET CASH PROVIDED BY OPERATING ACTIVITIES 47,023 64,053 58,920 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturities, prepayments and calls of available-for-sale securities 42,726 70,033 170,962 Proceeds from sales of available-for-sale securities 13,151 22,164 33,553 Proceeds from sale of equity securities 296 — — Purchase of available-for-sale securities ( 19,253 ) ( 48,433 ) ( 341,140 ) Proceeds from maturities, prepayments and calls of held-to-maturity securities 16,806 23,995 — Purchases of held-to-maturity securities — ( 213,853 ) — Purchase of equity securities ( 369 ) ( 398 ) ( 407 ) Proceeds from loans held for sale previously classified as portfolio loans 4,994 — 1,921 Net increase in loans receivable ( 197,594 ) ( 630,605 ) ( 246,043 ) Purchase of bank owned life insurance — ( 11,644 ) ( 22,000 ) Proceeds from death benefit of bank owned life insurance policies — 3,273 1,390 Redemption (purchase) of FHLB, other equity, and restricted equity interests 704 ( 7,439 ) ( 2,258 ) Purchase of premises and equipment ( 10,847 ) ( 12,290 ) ( 6,484 ) Proceeds from the sale of premises and equipment and foreclosed assets 52 496 746 Purchase of other intangibles ( 125 ) — — NET CASH USED BY INVESTING ACTIVITIES ( 149,459 ) ( 804,701 ) ( 409,760 ) CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) in checking, money market and savings accounts 316,280 ( 153,191 ) 623,967 Net increase (decrease) in certificates of deposit 60,033 60,009 ( 90,092 ) Purchase of treasury stock ( 6,724 ) ( 1,671 ) ( 1,163 ) Proceeds from common stock offering, net of issuance costs — 94,051 — Cash dividends paid, common stock ( 14,694 ) ( 12,557 ) ( 11,550 ) Cash dividends paid, preferred stock ( 4,302 ) ( 4,302 ) ( 4,302 ) Proceeds from issuance of subordinated notes, net of issuance costs — — 83,484 Repayments on long-term borrowings — — ( 50,000 ) Net change in short-term borrowings ( 132,396 ) 132,396 — NET CASH PROVIDED BY FINANCING ACTIVITIES 218,197 114,735 550,344 NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 115,761 ( 625,913 ) 199,504 CASH AND CASH EQUIVALENTS, Beginning 106,285 732,198 532,694 CASH AND CASH EQUIVALENTS, Ending $ 222,046 $ 106,285 $ 732,198 See Notes to Consolidated Financial Statements 62 Table of Contents CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) Dollars in thousands Year ended December 31, 2023 2022 2021 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 102,156 $ 26,804 $ 20,030 Income taxes 12,006 17,423 11,788 SUPPLEMENTAL NONCASH DISCLOSURES: Transfers to other real estate owned $ 874 $ 785 $ 1,470 Transfers from loans held for sale to loans held for investment 1,666 6,448 9,965 Transfers from loans held for investment to loans held for sale 166 — 1,921 Transfer of securities from available-for-sale to held-to-maturity — 220,757 — Grant of restricted stock awards from treasury stock 2,743 1,000 1,374 Grant of performance based restricted stock awards from treasury stock 111 173 262 Restricted stock forfeiture 134 36 64 Contribution of stock from treasury stock 81 44 81 Lease liabilities arising from obtaining right-of-use assets 5,001 13,371 2,643 See Notes to Consolidated Financial Statements 63 Table of Contents Notes to Consolidated Financial Statements 1. Summary of Significant Accounting Policies Unless otherwise indicated, dollar amounts in tables are stated in thousands, except for per share amounts. Business and Organization CNB Financial Corporation (the "Corporation") is headquartered in Clearfield, Pennsylvania, and provides a full range of banking and related services through its wholly owned subsidiary, CNB Bank (the "Bank"). In addition, the Bank provides wealth and asset management services, including the administration of trusts and estates, retirement plans, and other employee benefit plans as well as a full range of wealth management services. The Bank serves individual and corporate customers and is subject to competition from other financial institutions and intermediaries with respect to these services. In addition to the Bank, the Corporation also operates a consumer discount loan and finance business through its wholly owned subsidiary, Holiday Financial Services Corporation ("Holiday"). The Corporation and its other subsidiaries are subject to examination by federal and state regulators. The Corporation’s market area is primarily concentrated in the Central and Northwest regions of the Commonwealth of Pennsylvania, the Central and Northeast regions of the State of Ohio, Western region of the State of New York and the Southwest region of the Commonwealth of Virginia. Basis of Financial Presentation The financial statements are consolidated to include the accounts of the Corporation, the Bank, CNB Securities Corporation, Holiday, CNB Risk Management, Inc. and CNB Insurance Agency. All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements. Subsequent Events The Corporation has evaluated subsequent events for recognition and disclosure through the date these consolidated financial statements were issued. Use of Estimates To prepare financial statements in conformity with U.S. generally accepted accounting principles ("GAAP"), management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ. The allowance for credit losses on loans receivable and off-balance-sheet credit exposures, the fair values of financial instruments, goodwill and the status of contingencies are particularly subject to change. Operating Segments While the Corporation's Chief Operating Decision Maker ("CODM") monitors the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Corporation-wide basis, and operating divisions are aggregated into one as operating results for all divisions are similar. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment. Cash and Cash Equivalents For purposes of the consolidated statement of cash flows, the Corporation defines cash and cash equivalents as cash and due from banks and interest bearing deposits with the Federal Reserve and other financial institutions. Net cash flows are reported for customer loan and deposit transactions, interest bearing time deposits with other financial institutions and borrowings with original maturities of 90 days or less. Interest-Bearing Deposits in Other Financial Institutions Interest-bearing deposits in other financial institutions are carried at cost. 64 Table of Contents Restrictions on Cash Note 17, "Derivative Instruments," to the consolidated financial statements discloses the cash collateral balances required to be maintained in connection with the Corporation’s interest rate swaps. Debt Securities Debt securities are classified as held-to-maturity ("HTM") and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Debt securities are classified as available-for-sale ("AFS") when they might be sold before maturity. AFS debt securities are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax. Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are amortized on the level-yield method without anticipating prepayments, except for mortgage backed securities where prepayments are anticipated. Premiums on callable debt securities are amortized to their earliest call date. Gains and losses on sales are recorded on the trade date and determined using the specific identification method. The Corporation has made a policy election to exclude accrued interest from the amortized cost basis of debt securities and report accrued interest separately in accrued interest receivable and other assets in the consolidated balance sheets. A debt security is placed on nonaccrual status at the time any principal or interest payments become more than 90 days delinquent or if full collection of interest or principal becomes uncertain. Accrued interest for a security placed on nonaccrual is reversed against interest income. There was no accrued interest related to debt securities reversed against interest income for the years ended December 31, 2023 and 2022, respectively. Allowance for Credit Losses (AFS Debt Securities) For AFS debt securities in an unrealized loss position, the Corporation first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value through income. For AFS debt securities that do not meet the aforementioned criteria, the Corporation evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management confirms that an AFS security is uncollectable or when either of the criteria regarding intent or requirement to sell is met. As of December 31, 2023 and December 31, 2022, the Corporation determined that the unrealized loss positions in AFS debt securities were not the result of credit losses, and therefore, an allowance for credit losses was not recorded. See Note 2, "Securities," and Note 4, "Fair Value," for more information about AFS debt securities. Accrued interest receivable on AFS debt securities totaled $ 1.4 million and $ 1.5 million at December 31, 2023 and December 31, 2022, respectively, and was reported in accrued interest receivable and other assets on the consolidated balance sheets. 65 Table of Contents Allowance for Credit Losses (HTM Debt Securities) Management measures expected credit losses on HTM debt securities on a collective basis by major security type. Accrued interest receivable on HTM debt securities totaled $ 1.3 million and $ 1.3 million at December 31, 2023 and 2022, respectively, and was reported in accrued interest receivable and other assets on the consolidated balance sheets and is excluded from the estimate of credit losses. Management classifies the HTM portfolio into the following major security types: U.S. government sponsored entities and residential & multi-family mortgages. All of the residential & multi-family mortgages held by the Corporation are issued by U.S. government entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses. Equity Securities Equity securities are carried at fair value, with changes in fair value reported in net income. Equity securities without readily determinable fair values are carried at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment. Loans Held for Sale Loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or fair value, as determined by outstanding commitments from investors. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings. Mortgage loans held for sale are generally sold with servicing rights retained. The carrying value of the mortgage loan sold is reduced by the amount allocated to the servicing right. Gains and losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loan sold. Loans Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost. Amortized cost is the principal balance outstanding, net of purchase premiums and discounts, deferred loan fees and costs. Accrued interest receivable totaled $ 21.6 million and $ 17.3 million at December 31, 2023 and December 31, 2022, respectively, and was reported in accrued interest receivable and other assets on the consolidated balance sheets and is excluded from the estimate of credit losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments. Interest income on mortgage, consumer and commercial loans is discontinued and placed on nonaccrual status at the time the loan is 90 days delinquent unless the loan is well secured and in process of collection. Past-due status is based on the contractual terms of the loan. Loans, including loans modified in a troubled debt restructuring, are placed on nonaccrual or recorded as charge-offs at an earlier date if collection of principal or interest is considered doubtful. All interest accrued but not received on loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Under the cost-recovery method, interest income is not recognized until the loan balance is reduced to zero. Under the cash-basis method, interest income is recorded when the payment is received in cash. For all portfolio segments, loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Purchased Credit Deteriorated ("PCD") Loans The Corporation has purchased loans, some of which have experienced more than insignificant credit deterioration since origination. 66 Table of Contents PCD loans are recorded at the amount paid. An allowance for credit losses is determined using the same methodology as other loans held for investment. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The sum of the loan's purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through provision expense. Concentration of Credit Risk Most of the Corporation’s business activity is with customers located within the Commonwealth of Pennsylvania and the states of Ohio, New York and Virginia. Therefore, the Corporation’s exposure to credit risk is significantly affected by changes in the economies of Pennsylvania, Ohio, New York and Virginia. At December 31, 2023 no industry concentration existed which exceeded 10% of the total loan portfolio. Allowance for Credit Losses - Loans The allowance for credit losses on loans represents management’s estimate of expected credit losses over the estimated life of our existing portfolio of loans. The allowance for credit losses is a valuation account that is deducted from the loan's amortized cost basis to present the net amount expected to be collected on the loans. The expense for credit loss recorded through earnings is the amount necessary to maintain the allowance for credit losses on loans at the amount of expected credit losses inherent within the loan portfolio. Loans are recorded as charge-offs against the allowance when management confirms a loan balance is uncollectable. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts, and other significant qualitative and quantitative factors. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, changes in environmental conditions, delinquency level, segment growth rates and changes in duration within new markets, or other relevant factors. For further information on the allowance for credit losses on loans, see Note 3, "Loans Receivable and Allowance for Credit Losses," for additional detail. The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. The Corporation has segregated its portfolio segments based on federal call report codes which classify loans based on the primary collateral supporting the loan. The following are the Corporation's segmented portfolios: 1-4 Family Construction : The Bank originates construction loans to finance 1-4 family residential buildings. Construction loans include not only construction of new structures, but also additions or alterations to existing structures and the demolition of existing structures to make way for new structures. Construction loans are generally secured by real estate. The primary risk characteristics are specific to the uncertainty on whether the construction will be completed according to the specifications and schedules. Factors that may influence the completion of construction may be customer specific, or related to changes in general economic conditions. Other construction loans and all land development and other land loans : The Bank originates construction loans to finance land development preparatory to erecting new structures or the on-site construction of industrial, commercial, or multi-family buildings. Construction loans include not only construction of new structures, but also additions or alterations to existing structures and the demolition of existing structures to make way for new structures. Construction loans are generally secured by real estate. The primary risk characteristics are specific to the uncertainty on whether the construction will be completed according to the specifications and schedules. Factors that may influence the completion of construction may be customer specific, such as the quality and depth of property management, or related to changes in general economic conditions. Farmland (including farm residential and other improvements) : The Bank originates loans secured by farmland and improvements thereon, secured by mortgages. Farmland includes all land known to be used or usable for agricultural purposes, such as crop and livestock production. Farmland also includes grazing or pasture land, whether tillable or not and whether wooded or not. The primary risk characteristics are specific to the uncertainty on production, market, financial, environmental and human resources. 67 Table of Contents Home equity lines of credit : The primary risk characteristics associated with home equity lines of credit typically involve changes to the borrower, including unemployment or other loss of income; unexpected significant expenses, such as major medical expenses, catastrophic events, divorce and death. Home equity lines of credit are typically originated with variable or floating interest rates, which could expose the borrower to higher payments in a rising interest rate environment. Real estate values could decrease and cause the value of the underlying property to fall below the loan amount, creating additional potential loss exposure for the Bank. Residential Mortgages secured by first liens : The Bank originates one-to-four family residential mortgage loans primarily within Central and Northwest Pennsylvania, Central and Northeast Ohio, Western New York, and Southwest Virginia market. These loans are secured by first liens on a primary residence or investment property. The primary risk characteristics associated with residential mortgage loans typically involve major changes to the borrower, including unemployment or other loss of income; unexpected significant expenses, such as major medical expenses, catastrophic events, divorce or death. Residential mortgage loans that have adjustable rates could expose the borrower to higher payments in a rising interest rate environment. Real estate values could decrease and cause the value of the underlying property to fall below the loan amount, creating additional potential loss exposure for the Bank. Residential Mortgages secured by junior liens : The Bank originates loans secured by junior liens against one to four family properties primarily within Central and Northwest Pennsylvania, Central and Northeast Ohio, Western New York, and Southwest Virginia market. Loans secured by junior liens are primarily in the form of an amortizing home equity loan. These loans are subordinate to a first mortgage which may be from another lending institution. The primary risk characteristics associated with loans secured by junior liens typically involve major changes to the borrower, including unemployment or other loss of income, unexpected significant expenses, such as for major medical expenses, catastrophic events, divorce or death. Real estate values could decrease and cause the value of the property to fall below the loan amount, creating additional potential loss exposure for the Bank. Multifamily (5 or more) residential properties : The Bank originates mortgage loans for multifamily properties primarily within Central and Northwest Pennsylvania, Central and Northeast Ohio, Western New York, and Southwest Virginia market. Multifamily loans are expected to be repaid from the cash flows of the underlying property so the collective amount of rents must be sufficient to cover all operating expenses, property management and maintenance, taxes and debt service. Increases in vacancy rates, interest rates or other changes in general economic conditions can have an impact on the borrower and its ability to repay the loan. Owner-occupied, nonfarm nonresidential properties : The Bank originates mortgage loans to operating companies primarily within Central and Northwest Pennsylvania, Central and Northeast Ohio, Western New York, and Southwest Virginia market. Owner-occupied real estate properties primarily include retail buildings, medical buildings and industrial/warehouse space. Owner-occupied loans are typically repaid first by the cash flows generated by the borrower’s business operations. The primary risk characteristics are specific to the underlying business and its ability to generate sustainable profitability and positive cash flow. Factors that may influence a borrower's ability to repay their loan include demand for the business’ products or services, the quality and depth of management, the degree of competition, regulatory changes, and general economic conditions. Non-owner occupied, nonfarm nonresidential properties : The Bank originates mortgage loans for commercial real estate that is managed as an investment property primarily within Central and Northwest Pennsylvania, Central and Northeast Ohio, Western New York, and Southwest Virginia market. Commercial real estate properties primarily include retail buildings/shopping centers, hotels, office/medical buildings and industrial/warehouse space. Increases in vacancy rates, interest rates or other changes in general economic conditions can have an impact on the borrower and its ability to repay the loan. Commercial real estate loans are generally considered to have a higher degree of credit risk as they may be dependent on the ongoing success and operating viability of a fewer number of tenants who are occupying the property and who may have a greater degree of exposure to economic conditions. Agricultural production and other loans to farmers : The Bank originates loans secured or unsecured to farm owners and operators (including tenants) or to nonfarmers for the purpose of financing agricultural production, including the growing and storing of crops, the marketing or carrying of agricultural products by the growers thereof, and the breeding, raising, fattening, or marketing of livestock, and for purchases of farm machinery, equipment, and implements. The primary risk characteristics are specific to the uncertainty on production, market, financial, environmental and human resources. 68 Table of Contents Commercial and Industrial : The Bank originates lines of credit and term loans to operating companies for business purposes. The loans are generally secured by business assets such as accounts receivable, inventory, business vehicles and equipment as well as the stock of a company, if privately held. Commercial and Industrial loans are typically repaid first by the cash flows generated by the borrower’s business operations. The primary risk characteristics are specific to the underlying business and its ability to generate sustainable profitability and positive cash flow. Factors that may influence a borrower's ability to repay their loan include demand for the business’ products or services, the quality and depth of management, the degree of competition, regulatory changes, and general economic conditions. The ability of the Bank to foreclose and realize sufficient value from business assets securing these loans is often uncertain. To mitigate the risk characteristics of commercial and industrial loans, commercial real estate may be included as a secondary source of collateral. The Bank will often require more frequent reporting requirements from the borrower in order to better monitor its business performance. Credit cards : The Bank originates credit cards offered to individuals and businesses for household, family, other personal and business expenditures. Credit cards generally are floating rate loans and include both unsecured and secured lines. Credit card loans generally do not have stated maturities and are unconditionally cancellable. The primary risk characteristics associated with credit cards typically involve major changes to the borrower, including unemployment or other loss of income, unexpected significant expenses, such as for major medical expenses, catastrophic events, divorce or death. Other revolving credit plans : The Bank originates lines of credit to individuals for household, family, and other personal expenditures. Consumer loans generally have higher interest rates and shorter terms than residential loans but tend to have higher credit risk due to the type of collateral securing the loan or in some cases the absence of collateral. The primary risk characteristics associated with other revolving loans typically involve major changes to the borrower, including unemployment or other loss of income, unexpected significant expenses, such as for major medical expenses, catastrophic events, divorce or death. Automobile : The Bank originates consumer loans extended for the purpose of purchasing new and used passenger cars and other vehicles such as minivans, vans, sport-utility vehicles, pickup trucks, and similar light trucks for personal use. The primary risk characteristics associated with automobile loans typically involve major changes to the borrower, including unemployment or other loss of income, unexpected significant expenses, such as for major medical expenses, catastrophic events, divorce or death. Other consumer : The Bank originates loans to individuals for household, family, and other personal expenditures. This also represents all other loans that cannot be categorized in any of the previous mentioned consumer loan segments. Consumer loans generally have higher interest rates and shorter terms than residential loans but tend to have higher credit risk due to the type of collateral securing the loan or in some cases the absence of collateral. The primary risk characteristics associated with other consumer loans typically involve major changes to the borrower, including unemployment or other loss of income, unexpected significant expenses, such as for major medical expenses, catastrophic events, divorce or death. Obligations (other than securities and leases) of states and political subdivisions : The Bank originates various types of loans made directly to municipalities. These loans are repaid through general cash flows or through specific revenue streams, such as water and sewer fees. The primary risk characteristics associated with municipal loans are the municipality's ability to manage cash flow, balance the fiscal budget, fixed asset and infrastructure requirements. Additional risks include changes in demographics, as well as social and political conditions. Other loans : The Bank originates other loans, such as loans to nonprofit organizations, including churches, hospitals, educational and charitable institutions, clubs, and similar associations. The primary risk characteristics associated with these types of loans are repayment, demographic, social, political and reputation risks. Overdrafts : The Bank reports overdrawn customer deposit balances as loans. Methods utilized by management to estimate expected credit losses include a discounted cash flow ("DCF") model that discounts instrument-level contractual cash flows, adjusted for prepayments and curtailments, incorporating loss expectations, and a weighted average remaining maturity ("WARM") model which contemplates expected losses at a pool-level, utilizing historic loss information. Under both models, management estimates the allowance for credit losses on loans using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. After the end of the reasonable and supportable forecast period, the loss rates revert to the mean loss rate over a period of eight quarters. 69 Table of Contents Historical credit loss experience, including examination of loss experience at representative peer institutions when the Corporation’s loss history does not result in estimations that are meaningful to users of the Corporation’s Consolidated Financial Statements, provides the basis for the estimation of expected credit losses. 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. The DCF model uses inputs of current and forecasted macroeconomic indicators to predict future loss rates. The current macroeconomic indicator utilized by the Corporation is the Federal unemployment rate and the S&P/Case-Shiller U.S. National Home Price Index for select collective residential related pools. In building the current expected credit loss methodology utilized in the DCF model, a correlation between this indicator and historic loss levels was developed, enabling a prediction of future loss rates related to future Federal unemployment rates and S&P/Case-Shiller U.S. National Home Price Index. The portfolio segments utilizing the DCF methodology comprised 85.9 % and 86.0 % of the amortized cost of loans as of December 31, 2023 and December 31, 2022, respectively, and included: • Farmland • Home equity lines of credit • Residential Mortgages secured by first liens • Residential Mortgages secured by junior liens • Multifamily (5 or more) residential properties • Owner-occupied, nonfarm nonresidential properties • Non-owner occupied, nonfarm nonresidential properties • Agricultural production and other loans to farmers • Commercial and Industrial • Automobile • Obligations (other than securities and leases) of states and political subdivisions • Other loans The WARM model uses combined historic loss rates for the Corporation and peer institutions, if necessary, gathered from call report filings. The selected period for which historic loss rates are used is dependent on management's evaluation of current conditions and expectations of future loss conditions. The portfolio segments utilizing the WARM methodology comprised 14.1 % and 14.0 % of the amortized cost of loans as of December 31, 2023 and December 31, 2022, respectively, and included: • 1-4 Family Construction • Other construction loans and all land development and other land loans • Credit cards • Other revolving credit plans • Other consumer Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not also included in the collective evaluation and typically represent collateral dependent loans but may also include other nonperforming loans or borrowers experiencing financial difficulty. The Corporation uses the practical expedient to measure individually evaluated loans as collateral dependent and/or when repayment is expected to be provided substantially through the operation or sale of the collateral. Expected credit losses are based on the fair value at the reporting date, adjusted for selling costs as appropriate. For collateral dependent loans, credit loss is measured as the difference between the amortized cost basis in the loan and the fair value of the underlying collateral. The fair value of the collateral is adjusted for the estimated cost to sell if repayment or satisfaction of a loan is dependent on the sale (rather than only on the operation) of the collateral. 70 Table of Contents Allowance for Credit Losses on Off-Balance Sheet Credit Exposures Management estimates expected credit losses over the contractual period in which the Corporation is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Corporation. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. Management estimates the amount of expected losses by calculating a commitment usage factor over the contractual period for exposures that are not unconditionally cancellable by the Bank and applying the loss factors used in the allowance for credit losses on loans methodology to the results of the usage calculation to estimate the liability for credit losses related to unfunded commitments for each loan segment. The estimate of credit losses on OBS credit exposures is $ 759 thousand and $ 603 thousand at December 31, 2023 and 2022, respectively, and was reported in accrued interest payable and other liabilities on the consolidated balance sheets . Mortgage Servicing Rights When mortgage loans are sold with servicing retained, servicing rights are initially recorded at fair value with the income statement effect recorded in mortgage banking income. Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, the custodial earnings rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses. The Corporation compares the valuation model inputs and results to published industry data in order to validate the model results and assumptions. All classes of servicing assets are subsequently measured using the amortization method which requires servicing rights to be amortized into non-interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans. Servicing rights are evaluated for impairment based upon the fair value of the rights as compared to carrying amount. Impairment is determined by stratifying rights into groupings based on predominant risk characteristics, such as interest rate, loan type and investor type. Impairment is recognized through a valuation allowance, to the extent that fair value is less than the carrying amount. If the Corporation later determines that all or a portion of the impairment no longer exists, a reduction of the allowance may be recorded as an increase to income. Changes in valuation allowances are reported with mortgage banking income on the income statement. The fair values of servicing rights are subject to significant fluctuations as a result of changes in estimated and actual prepayment speeds and default rates and losses. Servicing fee income, which is reported on the income statement as mortgage banking income, is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income when earned. The amortization of mortgage servicing rights is netted against loan servicing fee income. Late fees and ancillary fees related to loan servicing are not material. Transfers of Financial Assets Transfers of financial assets are accounted for as sales when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Corporation, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Corporation does not maintain effective control over the transferred assets. Foreclosed Assets Foreclosed assets are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. Physical possession of residential real estate property collateralizing a consumer mortgage loan occurs when legal title is obtained upon completion of foreclosure or when the borrower conveys all interest in the property to satisfy the loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. If fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense. Operating costs after acquisition are expensed. 71 Table of Contents Premises and Equipment Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. Depreciation of premises and equipment is computed principally by the straight line method. In general, useful lives range from 3 to 39 years with lives for furniture, fixtures and equipment ranging from 3 to 10 years and lives of buildings and building improvements ranging from 15 to 39 years. Amortization of leasehold improvements is computed using the straight-line method over useful lives of the leasehold improvements or the term of the lease, whichever is shorter. Maintenance, repairs and minor renewals are charged to expense as incurred. Leases The Corporation leases real estate property for branches and certain equipment. The Corporation determines if an arrangement is a lease at inception and if the lease is an operating lease or a finance lease. Operating lease right-of-use assets represent the Corporation's right to use an underlying asset during the lease term and operating lease liabilities represent the Corporation's obligation to make lease payments arising from the lease. The period over which the right-of-use asset is amortized is generally the lesser of the expected remaining term or the remaining useful life of the leased asset. The lease liability is decreased as periodic lease payments are made. The Corporation performs impairment assessments for right-of-use assets when events or changes in circumstances indicate that their carrying values may not be recoverable. The calculated amounts of the right-of-use assets and lease liabilities are impacted by the length of the lease term and the discount rate used to calculate the present value of the minimum remaining lease payments. The Corporation's lease agreements often include one or more options to renew at the Corporation's discretion. If, at lease inception, the Corporation considers the exercising of a renewal option to be reasonably certain, the Corporation includes the extended term in the calculation of the right-of-use asset and lease liability. Generally, the Corporation cannot practically determine the interest rate implicit in the lease so the Corporation's incremental borrowing rate is used as the discount rate for the lease. The Corporation uses Federal Home Loan Bank ("FHLB") of Pittsburgh advance interest rates, which have been deemed as the Corporation's incremental borrowing rate, at lease inception based upon the term of the lease. The Corporation's lease agreements do not contain any material residual value guarantees or material restrictive covenants. Lease expense, variable lease expense and short-term lease expense are included in occupancy expense in the Corporation's consolidated statements of income. For facility-related leases, the Corporation elected, by lease class, to not separate lease and non-lease components. Lease expense is recognized on a straight-line basis over the lease term. Variable lease expense primarily represents payments such as common area maintenance, real estate taxes, and utilities and are recognized as expense in the period when those payments are incurred. Short-term lease expense relates to leases with an initial term of 12 months or less. The Corporation has elected to not record a right-of-use asset or lease liability for short-term leases. Federal Home Loan Bank Stock As a member of the FHLB of Pittsburgh, the Corporation is required to purchase and hold stock in the FHLB to satisfy membership and borrowing requirements. This stock is restricted in that it can only be sold to the FHLB or to another member institution, and all sales of FHLB stock must be at par. As a result of these restrictions, FHLB stock is unlike other investment securities insofar as there is no trading market for FHLB stock and the transfer price is determined by FHLB membership rules and not by market participants. FHLB stock is held as a long-term investment, is valued at its cost basis and is analyzed for impairment based on the ultimate recoverability of the par value. The Corporation evaluates impairment quarterly. The decision of whether impairment exists is a matter of judgment that reflects our view of the FHLB’s long-term performance, which includes factors such as the following: • its operating performance; • the severity and duration of declines in the fair value of its net assets related to its capital stock amount; • its commitment to make payments required by law or regulation and the level of such payments in relation to its operating performance; • the impact of legislative and regulatory changes on the FHLB, and accordingly, on the members of FHLB; and • its liquidity and funding position. Both cash and stock dividends are reported as income. 72 Table of Contents Qualified Affordable Housing Project Investments The Corporation has investments in various real estate limited partnerships that acquire, develop, own and operate low and moderate-income housing. These investments are made directly in Low Income Housing Tax Credit ("LIHTC") partnerships formed by third parties. As a limited partner in these operating partnerships, the Corporation receives tax credits and tax deductions for losses incurred by the underlying properties. The Corporation accounts for its ownership interest in LIHTC partnerships in accordance with Accounting Standards Update ("ASU") 2014-01, "Investments – Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects." The standard permits an entity to amortize the initial cost of the investment in proportion to the amount of the tax credits and other tax benefits received and recognize the net investment performance in the income statement as a component of income tax expense. There were no impairment losses during the year resulting from the forfeiture or ineligibility of tax credits related to qualified affordable housing project investments. Bank Owned Life Insurance The Corporation has purchased life insurance policies on certain key employees. Bank-owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement. Goodwill and Other Intangible Assets Goodwill resulting from business combinations prior to January 1, 2009 represents the excess of the purchase price over the fair value of the net assets of businesses acquired. Goodwill resulting from business combinations after January 1, 2009 is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interest in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually or more frequently if events and circumstances exists that indicate that a goodwill impairment test should be performed. The Corporation has no intangible assets with an indefinite useful life. During the fourth quarter of 2023, the Corporation elected to change the timing of its annual goodwill impairment test from December 31 to November 30. The selection of November 30 as the annual testing date for the impairment of goodwill is intended to move the testing to a time period outside of the Corporation's annual financial reporting process to allow the Corporation additional time to complete the analysis. The Corporation believes that this change is preferable under the circumstances, and that this change does not accelerate, delay or avoid an impairment charge. The Corporation has also determined that a change in the annual testing date did not result in adjustments to the consolidated financial statements when applied retrospectively. Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Goodwill is an intangible asset with an indefinite life on the Corporation’s balance sheet. Other intangible assets consist of core deposit intangible assets arising from the acquisition of Bank of Akron in 2020 and naming rights associated with the formation of Ridge View Bank, a division of the Bank in 2023. The core deposit intangible assets from these acquisitions are amortized using an accelerated method over their estimated useful lives, which range from four years to ten years , respectively. The naming rights have an indefinite useful life. Loan Commitments and Related Financial Instruments Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded. Derivatives Derivative financial instruments are recognized as assets or liabilities at fair value. The Corporation has interest rate swap agreements which are used as part of its asset liability management to help manage interest rate risk. The Corporation does not use derivatives for trading purposes. 73 Table of Contents At the inception of a derivative contract, the Corporation designates the derivative as one of three types based on the Corporation's intentions and belief as to likely effectiveness as a hedge. These three types are (1) a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment ("fair value hedge"), (2) a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability ("cash flow hedge"), or (3) an instrument with no hedging designation ("stand-alone derivative"). For a fair value hedge, the gain or loss on the derivative, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk, are recognized in current earnings as fair values change. For a cash flow hedge, the gain or loss on the derivative is reported in other comprehensive income (loss) and is reclassified into earnings in the same periods during which the hedged transaction affects earnings. Changes in the fair value of derivatives that do not qualify for hedge accounting are reported currently in earnings, as non-interest income. Accrued settlements on derivatives that qualify for hedge accounting are recorded in interest income or interest expense, based on the item being hedged. Accrued settlements on derivatives not designated or that do not qualify for hedge accounting are reported in non-interest income. Cash flows on hedges are classified in the cash flow statement the same as the cash flows of the items being hedged. The Corporation formally documents the relationship between derivatives and hedged items, as well as the risk-management objective and the strategy for undertaking hedge transactions, at the inception of the hedging relationship. This documentation includes linking fair value or cash flow hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. The Corporation also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivative instruments that are used are highly effective in offsetting changes in fair values or cash flows of the hedged items. The Corporation discontinues hedge accounting when it determines that the derivative is no longer effective in offsetting changes in the fair value or cash flows of the hedged item, the derivative is settled or terminates, a hedged forecasted transaction is no longer probable, a hedged firm commitment is no longer firm, or treatment of the derivative as a hedge is no longer appropriate or intended. When hedge accounting is discontinued, subsequent changes in fair value of the derivative are recorded as non-interest income. When a fair value hedge is discontinued, the hedged asset or liability is no longer adjusted for changes in fair value and the existing basis adjustment is amortized or accreted over the remaining life of the asset or liability. When a cash flow hedge is discontinued but the hedged cash flows or forecasted transactions are still expected to occur, gains or losses that were accumulated in other comprehensive income are amortized into earnings over the same periods which the hedged transactions will affect earnings. The Corporation is exposed to losses if a counterparty fails to make its payments under a contract in which the Corporation is in the net receiving position. The Corporation anticipates that the counterparties will be able to fully satisfy their obligations under the agreements. All the contracts to which the Corporation is a party settle monthly or quarterly. In addition, the Corporation obtains collateral above certain thresholds of the fair value of its hedges for each counterparty based upon their credit standing and the Corporation has netting agreements with the dealers with which it does business. Stock-Based Compensation Compensation cost is recognized for restricted stock awards issued to employees, based on the fair value of these awards at the date of grant. The market price of the Corporation’s common stock at the date of grant is used for restricted stock awards. Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. Certain of the restricted stock awards are performance based and costs are recognized based upon certain performance conditions. The Corporation's accounting policy is to recognize forfeitures as they occur Income Taxes Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. 74 Table of Contents A tax position is recognized as a benefit only if it is "more likely than not" that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the "more likely than not" test, no tax benefit is recorded. The Corporation recognizes interest and/or penalties, if any, related to income tax matters in income tax expense. Retirement Plans Post retirement obligation expense is the net of service and interest cost, return on plan assets and amortization of gains and losses not immediately recognized. The Corporation’s expense associated with its 401(k) plan is determined under the provisions of the plan document and includes both matching and profit sharing components. Deferred compensation and supplemental retirement plan expenses allocate the benefits over years of service. Earnings Per Common Share Basic earnings per common share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the applicable period, excluding outstanding participating securities. Diluted earnings per common share is computed using the weighted average number of common shares determined for the basic computation plus the dilutive effect of potential common shares issuable under certain stock compensation plans. Unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are included in the computation of earnings per share pursuant to the two-class method. The Corporation has determined that its outstanding non-vested time-based restricted stock awards are participating securities. Comprehensive Income The Corporation presents comprehensive income as part of the Consolidated Statements of Income and Comprehensive Income. Other comprehensive income and loss consists of unrealized holding gains and losses on the AFS debt securities portfolio, amortization of AFS debt securities transferred to HTM, changes in the unrecognized actuarial gain and transition obligation related to the Corporation’s post retirement benefits plans, and changes in the fair value of the Corporation’s interest rate swaps, net of tax. Loss Contingencies Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there now are such matters that will have a material effect on the financial statements. Treasury Stock The purchase of the Corporation’s common stock is recorded at cost. Purchases of the stock are made in the open market based on market prices. At the date of subsequent reissue, the treasury stock account is reduced by the cost of such stock on a first-in-first-out basis. Dividend Restriction Banking regulations require maintaining certain capital levels and may limit the dividends paid by the bank to the holding company or by the holding company to shareholders. Fair Value of Financial Instruments Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in a separate note. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates. 75 Table of Contents Revenue Recognition The Corporation recognizes revenues when earned based upon (i) contractual terms as transactions occur, or (ii) as related services are provided and collectability is reasonably assured. The largest source of revenue for the Corporation is interest income, which is primarily recognized on an accrual basis according to a written contract, such as loan and lease agreements or investment securities contracts. The Corporation earns non-interest income through a variety of financial and transactional services such as security gains, loan servicing, gains on the sale of loans, commitment fees, fees from financial guarantees, certain credit card fees, gains (losses) on sale of other real estate owned not financed by the Corporation, is not within the scope of ASU 2014-9. The types of non-interest income within the scope of the standard that are material to the consolidated financial statements are services charges on deposit accounts, wealth and asset management fee income, card processing and interchange income, and other income and are discussed in greater detail below: Service charges on deposit accounts : The Corporation earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services. Transaction-based fees, which include services such as ATM use fees, stop payment charges, statement rendering, and ACH fees, are recognized at the time the transaction is executed, as that is the point in time the Corporation fulfills the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Corporation satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Services charges on deposits are withdrawn from the customer’s account balance. Wealth and asset management fees : The Corporation earns wealth and asset management fees from its contracts with trust and brokerage customers to manage assets for investment, and/or to transact on their accounts. These fees are primarily earned over time as the Corporation provides the contracted monthly or quarterly services and are generally assessed based on a tiered scale of the market value of assets under management at month end. Fees for these services are billed to customers on a monthly or quarterly basis and are recorded as revenue at the end of the period for which the wealth and asset management services have been performed. Other performance obligations, such as the delivery of account statements to customers, are generally considered immaterial to the overall transaction price. Card processing and interchange income : The Corporation earns interchange fees from check card and credit card transactions conducted through the Visa payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder. Other income : The Corporation's other income includes sources such as bank owned life insurance, changes in fair value and realized gains on sales of equity securities, certain service fees, gains (losses) on sales of fixed assets, and gains (losses) on sale of other real estate owned. The service fees are recognized in the same manner as the service charges mentioned above. While gains (losses) on the sale of other real estate owned are within the scope of ASU 2014-9 if financed by the Corporation, the Corporation does not finance the sale of transactions. The revenue on the sale is recorded upon the transfer of control of the property to the buyer and the other real estate owned asset is derecognized. The Corporation does not exercise significant judgements in the recognition of income, as typically income is not recognized until the performance obligation has been satisfied. The Corporation has not recognized any assets from the costs to obtain or fulfill a contract with customers for revenue streams that fall within the guidance of Topic 606. Adoption of New Accounting Standards Accounting Standards Adopted in 2021 In August 2018, the FASB issued ASU 2018-14, "Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans." ASU 2018-14 amends ASC 715-20, "Compensation - Retirement Benefits - Defined Benefit Plans - General." The amended guidance modifies the disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans by removing and adding certain disclosures for these plans. The eliminated disclosures include (a) the amounts in accumulated Other Comprehensive Income expected to be recognized in net periodic benefit costs over the next fiscal year, and (b) the effects of a one percentage point change in assumed health care cost trend rates on the net periodic benefit costs and the benefit obligation for post-retirement health care benefits. Additional disclosures include descriptions of significant gains 76 Table of Contents and losses affecting the benefit obligation for the period. ASU 2018-14 was effective for the Corporation on January 1, 2021 and did not have a material impact on the Corporation's financial statements and related disclosures. In December 2019, the FASB issued ASU 2019-12 "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." These amendments remove specific exceptions to the general principles in Topic 740 in GAAP. It eliminates the need for an organization to analyze whether the following apply in a given period: exception to the incremental approach for intraperiod tax allocation; exceptions to accounting for basis differences where there are ownership changes in foreign investments; and exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses. It also improves financial statement preparers' application of income tax- related guidance and simplifies GAAP for: franchise taxes that are partially based on income; transactions with a government that result in a step up in the tax basis of goodwill; separate financial statements of legal entities that are not subject to tax; and enacts changes in tax laws in interim periods. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted. ASU 2019-12 was effective for the Corporation on January 1, 2021 and did not have a material impact on the Corporation's financial statements and related disclosures. In January 2020, the FASB issued ASU 2020-01 - Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. ASU 2020-01 represents changes to clarify certain interactions between the guidance to account for certain equity securities under Topic 321, the guidance to account for investments under the equity method of accounting in Topic 323, and the guidance in Topic 815. These amendments improve current U.S. GAAP by reducing diversity in practice and increasing comparability of the accounting for these transactions. ASU 2020-01 was effective for the Corporation on January 1, 2021 and did not have a material impact on the Corporation's financial statements and related disclosures. In October 2020, the FASB issued ASU 2020-08 - Codification Improvements to Subtopic 310-20, Receivables - Nonrefundable Fees and Other Costs. ASU 2020-08 clarifies that an entity should reevaluate whether a callable debt security is within the scope of paragraph 310-20-35-33 for each reporting period. ASU 2020-08 was effective for the Corporation on January 1, 2021 and did not have a material impact on the Corporation's financial statements and related disclosures. In January 2021, the FASB issued ASU 2021-01 - Reference Rate Reform (Topic 848). ASU 2021-01 expands and clarifies the scope of ASU 2020-04 to include derivatives affected by changes in interest rates used for margining, discounting, or contract price alignment, commonly referred to as the "discounting transaction." Derivatives impacted by the discounting transaction will be eligible for certain optional expedients and exceptions related to contract modifications and hedge accounting as defined in Topic 848. The amendments in this update are effective for all entities as of March 12, 2020, and based upon the amendments provided in ASU 2022-06 discussed below, can generally be applied through December 31, 2024. The adoption of ASU 2021-01 did not significantly impact the Corporation's financial statements and related disclosures. In August 2021, FASB issued ASU 2021-06 - Presentation of Financial Statements (Topic 205), Financial Services—Depository and Lending (Topic 942), and Financial Services—Investment Companies (Topic 946). ASU 2021-06 updates the codification to align with SEC Final Rule Releases No. 33-10786 and No. 33-10835. Specific to financial institutions, these SEC releases updated required annual statistical disclosures. The amendments in ASU 2021-06 were effective immediately. The updates to the statistical disclosures are reflected in the Corporation's Annual Report on Form 10-K for the fiscal year ending December 31, 2021, to align with this guidance. Accounting Standards Adopted in 2022 In December 2022, FASB issued ASU 2022-06 - Reference Rate Reform (Topic 848). ASU 2022-06 extends the period of time preparers can utilize the reference rate reform relief guidance provided by ASU 2020-04 and ASU 2021-01, which are discussed above. ASU 2022-06, which was effective upon issuance, defers the sunset date of this prior guidance from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the relief guidance in Topic 848. ASU 2022-06 did not have a material impact on the Corporation's financial statements and related disclosures. Accounting Standards Adopted in 2023 In October 2021, the FASB issued ASU 2021-08, "Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers." This ASU requires that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, "Revenue from Contracts with Customers." ASU 2021-08 was effective for the Corporation on January 1, 2023 and did not have a material impact on its consolidated financial statements and related disclosures. 77 Table of Contents In March 2022, the FASB issued ASU 2022-01, "Derivatives and Hedging (Topic 815): Fair Value Hedging - Portfolio Layer Method." Under prior guidance, entities can apply the last-of-layer hedging method to hedge the exposure of a closed portfolio of prepayable financial assets to fair value changes due to changes in interest rates for a portion of the portfolio that is not expected to be affected by prepayments, defaults, and other events affecting the timing and amount of cash flows. ASU 2022-01 expands the last-of-layer method, which permits only one hedge layer, to allow multiple hedged layers of a single closed portfolio. To reflect that expansion, the last-of-layer method is renamed the portfolio layer method. ASU 2022-01 also (i) expands the scope of the portfolio layer method to include non-prepayable financial assets, (ii) specifies eligible hedging instruments in a single-layer hedge, (iii) provides additional guidance on the accounting for and disclosure of hedge basis adjustments under the portfolio layer method and (iv) specifies how hedge basis adjustments should be considered when determining credit losses for the assets included in the closed portfolio. ASU 2022-01 was effective for the Corporation on January 1, 2023 and did not have a material impact on its consolidated financial statements and related disclosures. In March 2022, the FASB issued ASU 2022-02, "Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures." This ASU eliminates the separate recognition and measurement guidance for Troubled Debt Restructurings ("TDRs") by creditors. The elimination of the TDRs guidance may be adopted prospectively for loan modifications after adoption or on a modified retrospective basis, which would also apply to loans previously modified, resulting in a cumulative effect adjustment to retained earnings in the period of adoption for changes in the allowance for credit losses. ASU 2022-02 was effective for the Corporation on January 1, 2023 and did not have a material impact on its consolidated financial statements and related disclosures. In July 2023, FASB issued ASU 2023-03, "Presentation of Financial Statements (Topic 205), Income Statement - Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation - Stock Compensation (Topic 718): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 Emerging Issues Task Force ("EITF") Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 - General Revision of Regulation S-X: Income or Loss Applicable to Common Stock." This ASU amends the FASB Accounting Standards Codification for SEC updates pursuant to SEC Staff Accounting Bulletin No. 120; SEC Staff Announcement at the March 24, 2022 EITF Meeting; and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 - General Revision of Regulation S-X: Income or Loss Applicable to Common Stock. The updates were effective immediately. These updates did not have a material impact on the Corporation's consolidated financial statements and related disclosures. Effects of Newly Issued But Not Yet Effective Accounting Standards In June 2022, FASB issued ASU 2022-03, "Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions." In this ASU, a contractual restriction on the sale of an equity security is not considered in measuring the security's fair value. The ASU also requires certain disclosures for equity securities that are subject to contractual restrictions. This guidance is effective for the Corporation on January 1, 2024, with early adoption permitted. The Corporation is evaluating the effect that ASU 2022-03 will have on its consolidated financial statements and related disclosures. In March 2023, FASB issued ASU 2023-01, "Leases (Topic 842): Common Control Arrangements." This ASU requires the Corporation to amortize leasehold improvements associated with common control leases over the useful life to the common control group. This guidance is effective for the Corporation on January 1, 2024 with early adoption permitted. The Corporation is evaluating the effect that ASU 2023-01 will have on its consolidated financial statements and related disclosures. In March 2023, FASB issued ASU 2023-02, "Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method." In this ASU, these amendments allow the Corporation to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. This guidance is effective for the Corporation on January 1, 2024 with early adoption permitted. The Corporation is evaluating the effect that ASU 2023-02 will have on its consolidated financial statements and related disclosures. 78 Table of Contents In August 2023, FASB issued ASU 2023-05, "Business Combinations - Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement." ASU 2023-05 requires certain joint ventures to apply a new basis of accounting upon formation by recognizing and initially measuring most of their assets and liabilities at fair value. The objectives of the amendments are to provide decision-useful information to investors and other allocators of capital in a joint venture’s financial statements and also to reduce diversity in practice. ASU 2023-05 should be applied prospectively and is effective for all newly formed joint venture entities with a formation date on or after January 1, 2025. Early adoption is permitted, and joint ventures formed prior to the adoption date may elect to apply the new guidance retrospectively back to their original formation date. The Corporation is evaluating the effect that ASU 2023-05 will have on its consolidated financial statements and related disclosures. In October 2023, FASB issued ASU 2023-06, "Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative." The ASU amends the ASC to incorporate certain disclosure requirements from SEC Release No. 33-10532 - Disclosure Update and Simplification that was issued in 2018. The effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. The Corporation is evaluating the effect that ASU 2023-06 will have on its consolidated financial statements and related disclosures. In November 2023, FASB issued ASU 2023-07, "Improvements to Reportable Segment Disclosures (Topic 280)." This ASU updates reportable segment disclosure requirements by requiring disclosures of significant reportable segment expenses that are regularly provided to the CODM and included within each reported measure of a segment's profit or loss. This ASU also requires disclosure of the title and position of the individual identified as the CODM and an explanation of how the CODM uses the reported measures of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources. The ASU is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Adoption of the ASU should be applied retrospectively to all prior periods presented in the financial statements. Early adoption is also permitted. The Corporation is evaluating the effect that ASU 2023-07 will have on its consolidated financial statements and related disclosures. In December 2023, the FASB issued ASU 2023-09, "Improvements to Income Tax Disclosures (Topic 740)." The ASU requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional information on income taxes paid. The ASU is effective on a prospective basis for annual periods beginning after December 15, 2024. Early adoption is also permitted for annual financial statements that have not yet been issued or made available for issuance. The Corporation is evaluating the effect that ASU 2023-09 will have on its consolidated financial statements and related disclosures. 2. Securities AFS debt securities at December 31, 2023 and 2022 were as follows: December 31, 2023 Amortized Gross Unrealized Allowance For Fair Cost Gains Losses Credit Losses Value U.S. Gov’t sponsored entities $ 5,024 $ — $ ( 36 ) $ — $ 4,988 State & political subdivisions 105,102 22 ( 13,315 ) — 91,809 Residential & multi-family mortgage 225,871 1 ( 34,353 ) — 191,519 Corporate notes & bonds 48,459 13 ( 5,333 ) — 43,139 Pooled SBA 11,347 — ( 847 ) — 10,500 Total $ 395,803 $ 36 $ ( 53,884 ) $ — $ 341,955 December 31, 2022 Amortized Gross Unrealized Allowance For Fair Cost Gains Losses Credit Losses Value U.S. Gov’t sponsored entities $ 3,213 $ — $ ( 84 ) $ — $ 3,129 State & political subdivisions 112,734 24 ( 17,095 ) — 95,663 Residential & multi-family mortgage 256,111 — ( 38,564 ) — 217,547 Corporate notes & bonds 47,111 — ( 4,720 ) — 42,391 Pooled SBA 13,823 — ( 1,144 ) — 12,679 Total $ 432,992 $ 24 $ ( 61,607 ) $ — $ 371,409 HTM debt securities at December 31, 2023 and 2022 are as follows: 79 Table of Contents December 31, 2023 Amortized Gross Unrealized Allowance For Fair Cost Gains Losses Credit Losses Value U.S. Gov’t sponsored entities $ 302,945 $ — $ ( 19,038 ) $ — $ 283,907 Residential & multi-family mortgage 86,023 — ( 9,360 ) — 76,663 Total $ 388,968 $ — $ ( 28,398 ) $ — $ 360,570 December 31, 2022 Amortized Gross Unrealized Allowance For Fair Cost Gains Losses Credit Losses Value U.S. Gov’t sponsored entities $ 307,711 $ — $ ( 27,276 ) $ — $ 280,435 Residential & multi-family mortgage 97,054 — ( 10,101 ) — 86,953 Total $ 404,765 $ — $ ( 37,377 ) $ — $ 367,388 The Corporation elected to transfer 74 AFS debt securities with an aggregate fair value of $ 213.7 million to a classification of HTM during the year ended December 31, 2022. In accordance with FASB ASC 320-10-55-24, the transfer from AFS to HTM must be recorded at the fair value of the AFS debt securities at the time of transfer. The net unrealized holding loss of $ 5.6 million, net of tax, at the date of transfer was retained in accumulated other comprehensive income (loss), with the associated pre-tax amount retained in the carrying value of the HTM debt securities. Such amounts will be amortized to comprehensive income over the remaining life of the securities. Information pertaining to security sales is as follows: Year ended December 31 Proceeds Gross Gains Gross Losses 2023 $ 13,151 $ 52 $ — 2022 22,164 651 — 2021 33,553 783 — The tax provision related to these net realized gains at December 31, 2023, 2022 and 2021 were $ 11 thousand, $ 137 thousand, and $ 164 thousand, respectively. The following is a schedule of the contractual maturity of AFS and HTM debt securities, excluding equity securities, at December 31, 2023: Available-for-sale Held-to-maturity Amortized Cost Fair Value Amortized Cost Fair Value 1 year or less $ 13,023 $ 12,902 $ 68,745 $ 67,413 1 year – 5 years 40,995 38,750 188,794 177,158 5 years – 10 years 83,131 72,006 45,406 39,336 After 10 years 21,436 16,278 — — 158,585 139,936 302,945 283,907 Residential and multi-family mortgage 225,871 191,519 86,023 76,663 Pooled SBA 11,347 10,500 — — Total debt securities $ 395,803 $ 341,955 $ 388,968 $ 360,570 Mortgage securities and pooled SBA securities are not due at a single date; periodic payments are received based on the payment patterns of the underlying collateral. On December 31, 2023 and 2022, securities carried at $ 489.0 million and $ 561.8 million, respectively, were pledged to secure public deposits and for other purposes as provided by law. At December 31, 2023 and 2022, there were no holdings of securities by any one issuer, other than U.S. Government sponsored entities, in an amount greater than 10 % of shareholders’ equity. 80 Table of Contents AFS debt securities with unrealized losses at December 31, 2023 and 2022, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows: December 31, 2023 Less than 12 Months 12 Months or More Total Description of Securities Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss U.S. Gov’t sponsored entities $ 2,487 $ ( 1 ) $ 1,956 $ ( 35 ) $ 4,443 $ ( 36 ) State & political subdivisions 749 — 84,828 ( 13,315 ) 85,577 ( 13,315 ) Residential & multi-family mortgage — — 191,436 ( 34,353 ) 191,436 ( 34,353 ) Corporate notes & bonds 978 ( 22 ) 41,488 ( 5,311 ) 42,466 ( 5,333 ) Pooled SBA — — 10,409 ( 847 ) 10,409 ( 847 ) Total $ 4,214 $ ( 23 ) $ 330,117 $ ( 53,861 ) $ 334,331 $ ( 53,884 ) December 31, 2022 Less than 12 Months 12 Months or More Total Description of Securities Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss U.S. Gov’t sponsored entities $ 3,129 $ ( 84 ) $ — $ — $ 3,129 $ ( 84 ) State & political subdivisions 34,667 ( 1,887 ) 54,546 ( 15,208 ) 89,213 ( 17,095 ) Residential and multi-family mortgage 48,996 ( 3,122 ) 168,551 ( 35,442 ) 217,547 ( 38,564 ) Corporate notes & bonds 31,730 ( 3,403 ) 10,661 ( 1,317 ) 42,391 ( 4,720 ) Pooled SBA 5,107 ( 314 ) 7,572 ( 830 ) 12,679 ( 1,144 ) Total $ 123,629 $ ( 8,810 ) $ 241,330 $ ( 52,797 ) $ 364,959 $ ( 61,607 ) HTM debt securities with unrealized losses at December 31, 2023 and 2022, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows: December 31, 2023 Less than 12 Months 12 Months or More Total Description of Securities Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss U.S. Gov’t sponsored entities $ — $ — $ 283,907 $ ( 19,038 ) $ 283,907 $ ( 19,038 ) Residential & multi-family mortgage — — 76,663 ( 9,360 ) 76,663 ( 9,360 ) Total $ — $ — $ 360,570 $ ( 28,398 ) $ 360,570 $ ( 28,398 ) December 31, 2022 Less than 12 Months 12 Months or More Total Description of Securities Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss U.S. Gov’t sponsored entities $ 143,556 $ ( 10,063 ) $ 136,879 $ ( 17,213 ) $ 280,435 $ ( 27,276 ) State & political subdivisions 24,132 ( 2,253 ) 62,821 ( 7,848 ) 86,953 ( 10,101 ) Total $ 167,688 $ ( 12,316 ) $ 199,700 $ ( 25,061 ) $ 367,388 $ ( 37,377 ) The Corporation evaluates securities for possible credit allowance on a quarterly basis, or more frequently when economic or market conditions warrant such an evaluation. As of December 31, 2023 and 2022, management performed an assessment for allowance for credit losses on the Corporation’s AFS debt securities in an unrealized loss position and as of December 31, 2023 management performed an assessment for allowance for credit losses on the Corporation's HTM debt securities. 81 Table of Contents First an assessment was performed to determine if the Corporation intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost. Management determined it does not intend to sell and will not be required to sell any of the securities before recovery of its amortized cost. Next, management performed an evaluation relying on information obtained from various sources, including publicly available financial data, ratings by external agencies, brokers and other sources. For the securities that comprise corporate notes and bonds and the securities that are issued by state and political subdivisions, management monitors publicly available financial information, such as filings with the Securities and Exchange Commission, in order to evaluate the securities credit quality and ability to repay its debt obligations. For financial institution issuers, management monitors information from quarterly "call" report filings that are used to generate Uniform Bank Performance Reports. All other securities that were in an unrealized loss position at the balance sheet date were reviewed by management, and issuer-specific documents were reviewed as appropriate given the following considerations; the financial condition and near-term prospects of the issuer and whether downgrades by bond rating agencies have occurred. Based on the results of the assessment, management believes the decline in fair value is not the result of credit losses. As a result no credit allowance is required as of December 31, 2023. As of December 31, 2023 and 2022 management concluded that the securities described in the previous paragraph did not decline in fair value due to credit factors for the following reasons: • There is no indication of any significant deterioration of the creditworthiness of the institutions that issued the securities. • All contractual interest payments on the securities have been received as scheduled, and no information has come to management’s attention through the processes previously described which would lead to a conclusion that future contractual payments will not be timely received. In addition, the rise in interest rates is the primary driver of the decline in fair value below amortized cost as of December 31, 2023. Equity securities at December 31, 2023 and 2022 were as follows: December 31, 2023 December 31, 2022 Corporate equity securities $ 5,341 $ 6,973 Mutual funds 2,223 1,406 Money market 1,103 479 Corporate notes 634 757 Total $ 9,301 $ 9,615 During the year ended December 31, 2023, 2022, and 2021, the proceeds from sold equity securities were $ 296 thousand in December 31, 2023, zero in December 31, 2022 and zero in December 31, 2021, resulting in net realized gains of $ 22 thousand in December 31, 2023, zero in December 31, 2022, and zero in December 31, 2021. 82 Table of Contents 3. Loans Receivable and Allowance for Credit Losses Total net loans receivable at December 31, 2023 and 2022 are summarized as follows: 2023 Percentage of Total 2022 Percentage of Total Farmland $ 31,869 0.7 % $ 32,168 0.8 % Owner-occupied, nonfarm nonresidential properties 493,064 11.0 468,493 11.0 Agricultural production and other loans to farmers 1,652 — 1,198 — Commercial and Industrial 1 726,442 16.3 791,911 18.5 Obligations (other than securities and leases) of states and political subdivisions 152,201 3.4 145,345 3.4 Other loans 25,507 0.6 24,710 0.6 Other construction loans and all land development and other land loans 491,539 11.0 446,685 10.5 Multifamily (5 or more) residential properties 254,342 5.7 257,696 6.0 Non-owner occupied, nonfarm nonresidential properties 896,043 20.1 795,315 18.6 1-4 Family Construction 51,207 1.1 51,171 1.2 Home equity lines of credit 130,700 2.9 124,892 2.9 Residential Mortgages secured by first liens 990,986 22.2 942,531 22.0 Residential Mortgages secured by junior liens 91,063 2.0 74,638 1.7 Other revolving credit plans 42,877 1.0 36,372 0.9 Automobile 25,315 0.6 21,806 0.5 Other consumer 51,592 1.1 49,144 1.1 Credit cards 11,785 0.3 10,825 0.3 Overdrafts 292 — 278 — Total loans $ 4,468,476 100.0 % $ 4,275,178 100.0 % Less: Allowance for credit losses ( 45,832 ) ( 43,436 ) Loans, net $ 4,422,644 $ 4,231,742 Net deferred loan origination fees (costs) included in the above loan table $ 2,448 $ 4,463 1 PPP loans, net of deferred PPP processing fees, both those disbursed in 2020 and those disbursed in 2021, are included in the Commercial and Industrial classification. The Corporation’s outstanding loans receivable and related unfunded commitments are primarily concentrated within Central and Northwest Pennsylvania, Central and Northeast Ohio, Western New York and Southwest Virginia. The Bank attempts to limit concentrations within specific industries by utilizing dollar limitations to single industries or customers, and by entering into participation agreements with third parties. Collateral requirements are established based on management’s assessment of the customer. The Corporation maintains lending policies to control the quality of the loan portfolio. These policies delegate the authority to extend loans under specific guidelines and underwriting standards. These policies are prepared by the Corporation’s management and reviewed and approved annually by the Corporation’s Board of Directors. Syndicated loans, net of deferred fees and costs, are included in the commercial and industrial classification and totaled $ 108.7 million and $ 156.6 million as of December 31, 2023 and 2022, respectively. 83 Table of Contents Transactions in the allowance for credit losses for the year ended December 31, 2023 were as follows: Beginning Allowance (Charge-offs) Recoveries Provision (Benefit) for Credit Losses on Loans Receivable (1) Ending Allowance Farmland $ 159 $ — $ — $ ( 33 ) $ 126 Owner-occupied, nonfarm nonresidential properties 2,905 ( 26 ) 29 1,041 3,949 Agricultural production and other loans to farmers 6 — — 1 7 Commercial and Industrial 9,766 ( 392 ) 438 ( 379 ) 9,433 Obligations (other than securities and leases) of states and political subdivisions 1,863 — — 750 2,613 Other loans 456 — — ( 69 ) 387 Other construction loans and all land development and other land loans 3,253 — — 780 4,033 Multifamily (5 or more) residential properties 2,353 ( 65 ) 6 ( 1,264 ) 1,030 Non-owner occupied, nonfarm nonresidential properties 7,653 ( 694 ) 10 2,201 9,170 1-4 Family Construction 327 — — 29 356 Home equity lines of credit 1,173 ( 10 ) 5 ( 337 ) 831 Residential Mortgages secured by first liens 8,484 ( 117 ) 3 ( 320 ) 8,050 Residential Mortgages secured by junior liens 1,035 — — 441 1,476 Other revolving credit plans 722 ( 119 ) 30 340 973 Automobile 271 ( 56 ) 1 142 358 Other consumer 2,665 ( 1,982 ) 134 1,836 2,653 Credit cards 67 ( 189 ) 18 199 95 Overdrafts 278 ( 604 ) 139 479 292 Total loans $ 43,436 $ ( 4,254 ) $ 813 $ 5,837 $ 45,832 (1) Excludes provision for credit losses 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. The Corporation's allowance for credit losses is influenced by loan volumes, risk rating migration, delinquency status and other conditions influencing loss expectations, such as reasonable and supportable forecasts of economic conditions. Transactions in the allowance for credit losses for the year ended December 31, 2022 were as follows: Beginning Allowance (Charge-offs) Recoveries Provision (Benefit) for Credit Losses on Loans Receivable (1) Ending Allowance Farmland $ 151 $ — $ — $ 8 $ 159 Owner-occupied, nonfarm nonresidential properties 3,339 ( 21 ) 15 ( 428 ) 2,905 Agricultural production and other loans to farmers 9 — — ( 3 ) 6 Commercial and Industrial 8,837 ( 175 ) 139 965 9,766 Obligations (other than securities and leases) of states and political subdivisions 1,649 — — 214 1,863 Other loans 149 — — 307 456 Other construction loans and all land development and other land loans 2,198 — — 1,055 3,253 Multifamily (5 or more) residential properties 2,289 — — 64 2,353 Non-owner occupied, nonfarm nonresidential properties 6,481 ( 335 ) 336 1,171 7,653 1-4 Family Construction 158 — — 169 327 Home equity lines of credit 1,169 — 12 ( 8 ) 1,173 Residential Mortgages secured by first liens 6,943 ( 51 ) 28 1,564 8,484 Residential Mortgages secured by junior liens 546 — — 489 1,035 Other revolving credit plans 528 ( 92 ) 50 236 722 Automobile 263 ( 28 ) 2 34 271 Other consumer 2,546 ( 1,623 ) 89 1,653 2,665 Credit cards 92 ( 99 ) 38 36 67 Overdrafts 241 ( 561 ) 138 460 278 Total loans $ 37,588 $ ( 2,985 ) $ 847 $ 7,986 $ 43,436 (1) Excludes provision for credit losses 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. 84 Table of Contents Transactions in the allowance for credit losses for the year ended December 31, 2021 were as follows: Beginning Allowance (Charge-offs) Recoveries Provision (Benefit) for Credit Losses on Loans Receivable (1) Ending Allowance Farmland $ 221 $ — $ — $ ( 70 ) $ 151 Owner-occupied, nonfarm nonresidential properties 3,700 ( 584 ) 10 213 3,339 Agricultural production and other loans to farmers 24 — — ( 15 ) 9 Commercial and Industrial 6,233 ( 163 ) 203 2,564 8,837 Obligations (other than securities and leases) of states and political subdivisions 998 ( 407 ) 30 1,028 1,649 Other loans 68 — — 81 149 Other construction loans and all land development and other land loans 1,956 ( 282 ) — 524 2,198 Multifamily (5 or more) residential properties 2,724 — — ( 435 ) 2,289 Non-owner occupied, nonfarm nonresidential properties 8,658 ( 49 ) — ( 2,128 ) 6,481 1-4 Family Construction 82 — — 76 158 Home equity lines of credit 985 ( 7 ) 5 186 1,169 Residential Mortgages secured by first liens 4,539 ( 79 ) 47 2,436 6,943 Residential Mortgages secured by junior liens 241 ( 3 ) — 308 546 Other revolving credit plans 507 ( 41 ) 13 49 528 Automobile 132 ( 26 ) 3 154 263 Other consumer 2,962 ( 1,193 ) 140 637 2,546 Credit cards 66 ( 112 ) 18 120 92 Overdrafts 244 ( 438 ) 160 275 241 Total loans $ 34,340 $ ( 3,384 ) $ 629 $ 6,003 $ 37,588 (1) Excludes provision for credit losses 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. For the year ended December 31, 2023, the allowance for credit losses increased primarily due to the growth in the Corporation's loan portfolio, including growth in new market areas. This was partially offset by improvements in the Corporation's historical loss rates, as well as the impact of net charge-offs. The year-over-year increase in reserves experienced in 2022 was primarily due to loan growth, the impact of net charge-offs, and the provision for credit losses recorded in 2022. There is still a significant amount of uncertainty related to the domestic and global economy, tightening credit conditions, persistent inflation, and higher interest rates. Management will continue to proactively evaluate its estimate of expected credit losses as new information becomes available. Provision for credit losses was $ 6.0 million for the year ended December 31, 2023, compared to $ 8.6 million and $ 6.0 million for the years ended December 31, 2022 and 2021, respectively. Included in the provision for credit losses for the year ended December 31, 2023 was $ 156 thousand related to the allowance for unfunded commitments compared to $ 603 thousand and zero provision towards the allowance for unfunded commitments for the years ended December 31, 2022 and 2021, respectively. 85 Table of Contents The following tables present the amortized cost basis of loans on nonaccrual status and loans past due over 89 days still accruing as of December 31, 2023 and 2022, respectively: December 31, 2023 Nonaccrual Nonaccrual With No Allowance for Credit Loss Loans Past Due over 89 Days Still Accruing Farmland $ 1,083 $ 1,083 $ — Owner-occupied, nonfarm nonresidential properties 2,673 1,488 — Commercial and Industrial 7,512 4,389 — Other construction loans and all land development and other land loans 1,653 104 — Multifamily (5 or more) residential properties 305 305 — Non-owner occupied, nonfarm nonresidential properties 9,076 6,716 — Home equity lines of credit 940 940 — Residential Mortgages secured by first liens 5,316 4,902 23 Residential Mortgages secured by junior liens 123 123 — Other revolving credit plans 81 81 — Automobile 79 79 — Other consumer 798 798 — Credit cards — — 32 Total loans $ 29,639 $ 21,008 $ 55 December 31, 2022 Nonaccrual Nonaccrual With No Allowance for Credit Loss Loans Past Due over 89 Days Still Accruing Farmland $ 1,011 $ 1,011 $ 994 Owner-occupied, nonfarm nonresidential properties 2,055 1,987 — Commercial and Industrial 5,485 2,366 71 Other construction loans and all land development and other land loans 567 567 — Multifamily (5 or more) residential properties 1,066 423 — Non-owner occupied, nonfarm nonresidential properties 5,081 2,665 — Home equity lines of credit 475 475 — Residential Mortgages secured by first liens 4,329 3,882 48 Residential Mortgages secured by junior liens 91 91 — Other revolving credit plans 26 26 — Automobile 19 19 — Other consumer 781 781 — Credit cards — — 8 Total loans $ 20,986 $ 14,293 $ 1,121 All payments received while on nonaccrual status are applied against the principal balance of the loan. The Corporation does not recognize interest income while loans are on nonaccrual status. 86 Table of Contents The following tables present the amortized cost basis of loans receivable that are individually evaluated and collateral-dependent by class of loans as of December 31, 2023 and 2022, respectively: December 31, 2023 Real Estate Collateral Non-Real Estate Collateral Farmland $ 736 $ — Owner-occupied, nonfarm nonresidential properties 6,890 4 Commercial and Industrial 5,489 4,291 Other construction loans and all land development and other land loans 1,549 — Multifamily (5 or more) residential properties 305 — Non-owner occupied, nonfarm nonresidential properties 8,291 — Home equity lines of credit 308 — Residential Mortgages secured by first liens 1,070 — Total loans $ 24,638 $ 4,295 December 31, 2022 Real Estate Collateral Non-Real Estate Collateral Farmland $ 829 $ — Owner-occupied, nonfarm nonresidential properties 1,296 4 Commercial and Industrial — 1,904 Other construction loans and all land development and other land loans 501 — Multifamily (5 or more) residential properties 1,066 — Non-owner occupied, nonfarm nonresidential properties 5,874 — Home equity lines of credit 335 — Residential Mortgages secured by first liens 1,150 — Total loans $ 11,051 $ 1,908 87 Table of Contents The following table presents the aging of the amortized cost basis in past-due loans as of December 31, 2023 by class of loans: 30 - 59 Days Past Due 60 - 89 Days Past Due Greater Than 89 Days Past Due Total Past Due Loans Not Past Due Total Farmland $ — $ 182 $ 129 $ 311 $ 31,558 $ 31,869 Owner-occupied, nonfarm nonresidential properties 120 — 1,390 1,510 491,554 493,064 Agricultural production and other loans to farmers — — — — 1,652 1,652 Commercial and Industrial 64 379 314 757 725,685 726,442 Obligations (other than securities and leases) of states and political subdivisions — — — — 152,201 152,201 Other loans — — — — 25,507 25,507 Other construction loans and all land development and other land loans — 41 1,612 1,653 489,886 491,539 Multifamily (5 or more) residential properties — — 305 305 254,037 254,342 Non-owner occupied, nonfarm nonresidential properties 95 299 2,031 2,425 893,618 896,043 1-4 Family Construction — — — — 51,207 51,207 Home equity lines of credit 582 682 339 1,603 129,097 130,700 Residential Mortgages secured by first liens 2,360 1,094 1,651 5,105 985,881 990,986 Residential Mortgages secured by junior liens 21 38 60 119 90,944 91,063 Other revolving credit plans 114 41 14 169 42,708 42,877 Automobile 62 5 67 134 25,181 25,315 Other consumer 452 453 354 1,259 50,333 51,592 Credit cards 110 17 32 159 11,626 11,785 Overdrafts — — — — 292 292 Total loans $ 3,980 $ 3,231 $ 8,298 $ 15,509 $ 4,452,967 $ 4,468,476 88 Table of Contents The following table presents the aging of the amortized cost basis in past-due loans as of December 31, 2022 by class of loans. 30 - 59 Days Past Due 60 - 89 Days Past Due Greater Than 89 Days Past Due Total Past Due Loans Not Past Due Total Farmland $ — $ — $ 1,136 $ 1,136 $ 31,032 $ 32,168 Owner-occupied, nonfarm nonresidential properties 185 27 734 946 467,547 468,493 Agricultural production and other loans to farmers — — — — 1,198 1,198 Commercial and Industrial 246 93 611 950 790,961 791,911 Obligations (other than securities and leases) of states and political subdivisions — — — — 145,345 145,345 Other loans — — — — 24,710 24,710 Other construction loans and all land development and other land loans 1,522 — 501 2,023 444,662 446,685 Multifamily (5 or more) residential properties 706 — 90 796 256,900 257,696 Non-owner occupied, nonfarm nonresidential properties 113 60 879 1,052 794,263 795,315 1-4 Family Construction — — — — 51,171 51,171 Home equity lines of credit 203 10 49 262 124,630 124,892 Residential Mortgages secured by first liens 1,302 538 1,775 3,615 938,916 942,531 Residential Mortgages secured by junior liens 5 — 51 56 74,582 74,638 Other revolving credit plans 65 27 — 92 36,280 36,372 Automobile 36 — — 36 21,770 21,806 Other consumer 361 188 473 1,022 48,122 49,144 Credit cards 196 18 8 222 10,603 10,825 Overdrafts — — — — 278 278 Total loans $ 4,940 $ 961 $ 6,307 $ 12,208 $ 4,262,970 $ 4,275,178 Loan Modifications The Corporation adopted ASU 2022-02, Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures effective January 1, 2023. The amendments in ASU 2022-02 eliminated the recognition and measure of troubled debt restructurings and enhanced disclosures for loan modifications to borrowers experiencing financial difficulty. Occasionally, the Corporation modifies loans to borrowers in financial distress by providing principal forgiveness, term extension, an other-than-insignificant payment delay or interest rate reduction. When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit losses. In some cases, the Corporation provides multiple types of concessions on one loan. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted. For the loans included in the “combination” columns below, multiple types of modifications have been made on the same loan within the current reporting period. The combination is at least two of the following: a term extension, principal forgiveness, an other-than-insignificant payment delay and/or an interest rate reduction. 89 Table of Contents The following table presents the amortized cost basis of loans at December 31, 2023 that were both experiencing financial difficulty and modified during the year ended December 31, 2023, by class and by type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financing receivable is also presented below: Principal Forgiveness Payment Delay Term Extension Interest Rate Reduction Combination Payment Delay and Term Extension Total Class of Financing Receivable Owner-occupied, nonfarm nonresidential properties $ — $ 5,934 $ — $ — $ — 1.2 % Commercial and Industrial — 7,794 524 320 — 1.2 Non-owner occupied, nonfarm nonresidential properties — 5,911 — — 785 0.7 Residential Mortgages secured by first liens — — 414 — — — Residential Mortgages secured by junior liens — — 29 — — — Total $ — $ 19,639 $ 967 $ 320 $ 785 0.5 % The Corporation has zero in unfunded available credit to customers whose loan receivables are included in the previous table. The Corporation closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table presents the performance of such loans that have been modified during the year ended December 31, 2023: Current 30 - 59 Days Past Due 60 - 89 Days Past Due Greater Than 89 Days Past Due Total Past Due Owner-occupied, nonfarm nonresidential properties $ 5,934 $ — $ — $ — $ — Commercial and Industrial 8,638 — — — — Non-owner occupied, nonfarm nonresidential properties 6,696 — — — — Residential Mortgages secured by first liens 414 — — — — Residential Mortgages secured by junior liens 29 — — — — Total $ 21,711 $ — $ — $ — $ — The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the year ended December 31, 2023: Principal Forgiveness Weighted Average Term Extension (in years) Weighted Average Interest Rate Reduction Commercial and Industrial $ — 1.00 0.5 % Non-owner occupied, nonfarm nonresidential properties — 0.75 — Residential Mortgages secured by first liens — 0.50 — Residential Mortgages secured by junior liens — 0.50 — Total $ — 0.76 0.5 % The following table presents the amortized cost basis of loans that had a payment default during the year ended December 31, 2023 and were modified in the twelve months prior to that default to borrowers experiencing financial difficulty: Principal Forgiveness Payment Delay Term Extension Interest Rate Reduction Combination Payment Delay and Term Extension Other construction loans and all land development and other land loans $ — $ 1,549 $ — $ — $ — Non-owner occupied, nonfarm nonresidential properties — — 1,523 — — Total $ — $ 1,549 $ 1,523 $ — $ — 90 Table of Contents If the Corporation determines that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is written off and the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount. Troubled Debt Restructurings Prior to the Adoption of ASU 2022-02 In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without a loan modification. This evaluation is performed using the Corporation’s internal underwriting policies. The Corporation has no further loan commitments to customers whose loan receivables are classified as a TDR. As of December 31, 2022, the terms of certain loans were modified as TDRs. The modification of the terms of such loans included either or both of the following: a reduction of the stated interest rate of the loan; or an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk. The Corporation had an amortized cost in TDRs of $ 12.4 million and $ 16.6 million as of December 31, 2022 and 2021, respectively. The Corporation has allocated $ 2.2 million and $ 2.6 million of allowance for those loans as of December 31, 2022 and 2021, respectively. The following tables presents loans by class modified as troubled debt restructurings that occurred during the years ended December 31, 2022, and 2021: Year Ended December 31, 2022 Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Type of Modification Commercial and Industrial 1 $ 96 $ 96 Extend Amortization Non-owner occupied, nonfarm nonresidential properties 1 1,784 1,784 Modify Rate and Extend Amortization Total loans 2 $ 1,880 $ 1,880 Year Ended December 31, 2021 Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Type of Modification Commercial and Industrial 2 3,336 3,336 Modify Payment Multifamily (5 or more) residential properties 1 717 717 Modify Payment Non-owner occupied, nonfarm nonresidential properties 1 1,604 1,604 Modify Payment Total loans 4 $ 5,657 $ 5,657 The TDRs described above increased the allowance for credit losses by immaterial amounts for the years ended December 31, 2022, and 2021, respectively. A loan receivable is considered to be in payment default once it is 90 days contractually past due under the modified terms. There were no loans receivable modified as TDRs for which there was a payment default within twelve months following the modification during the years ended December 31, 2022 and 2021, respectively, and no principal balances were forgiven in connection with the loan receivable restructurings. As discussed above, effective for January 1, 2023, the Corporation adopted prospectively Accounting Standard Update 2022-02, which eliminated the separate recognition and measurement guidance for TDRs by creditors. Credit Quality Indicators The Corporation categorizes loans receivable into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Corporation analyzes loans individually to classify the loans as to credit risk. 91 Table of Contents The Corporation uses the following definitions for risk ratings: Special Mention : A loan classified as special mention has a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Corporation’s credit position at some future date. Substandard : A loan classified as substandard is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. The loan has a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. A substandard loan is characterized by the distinct possibility that the Corporation will sustain some loss if the deficiencies are not corrected. Doubtful : A loan classified as doubtful has all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The following tables represent the Corporation's commercial credit risk profile by risk rating as of December 31, 2023 and 2022, respectively. Loans receivable not rated as special mention, substandard, or doubtful are considered to be pass rated loans. December 31, 2023 Non-Pass Rated Pass Special Mention Substandard Doubtful Total Non-Pass Total Farmland $ 30,786 $ — $ 1,083 $ — $ 1,083 $ 31,869 Owner-occupied, nonfarm nonresidential properties 461,554 20,177 11,333 — 31,510 493,064 Agricultural production and other loans to farmers 1,652 — — — — 1,652 Commercial and Industrial 653,981 52,030 20,431 — 72,461 726,442 Obligations (other than securities and leases) of states and political subdivisions 139,014 13,187 — — 13,187 152,201 Other loans 25,507 — — — — 25,507 Other construction loans and all land development and other land loans 484,620 5,307 1,612 — 6,919 491,539 Multifamily (5 or more) residential properties 252,199 1,346 797 — 2,143 254,342 Non-owner occupied, nonfarm nonresidential properties 869,264 3,008 23,771 — 26,779 896,043 Total loans $ 2,918,577 $ 95,055 $ 59,027 $ — $ 154,082 $ 3,072,659 December 31, 2022 Non-Pass Rated Pass Special Mention Substandard Doubtful Total Non-Pass Total Farmland $ 29,706 $ 1,450 $ 1,012 $ — $ 2,462 $ 32,168 Owner-occupied, nonfarm nonresidential properties 433,467 27,796 7,230 — 35,026 468,493 Agricultural production and other loans to farmers 1,198 — — — — 1,198 Commercial and Industrial 765,821 14,740 10,037 1,313 26,090 791,911 Obligations (other than securities and leases) of states and political subdivisions 145,345 — — — — 145,345 Other loans 24,710 — — — — 24,710 Other construction loans and all land development and other land loans 443,300 1,296 2,089 — 3,385 446,685 Multifamily (5 or more) residential properties 256,120 510 1,066 — 1,576 257,696 Non-owner occupied, nonfarm nonresidential properties 772,450 2,791 20,074 — 22,865 795,315 Total loans $ 2,872,117 $ 48,583 $ 41,508 $ 1,313 $ 91,404 $ 2,963,521 92 Table of Contents The following tables detail the amortized cost of loans receivable, by year of origination (for term loans) and by risk grade within each portfolio segment as of December 31, 2023. Current period originations may include modifications. Term Loans Amortized Cost Basis by Origination Year 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total Farmland Risk rating Pass $ 3,153 $ 11,393 $ 6,845 $ 1,465 $ 815 $ 6,813 $ 302 $ — $ 30,786 Special mention — — — — — — — — — Substandard — — 306 — — 777 — — 1,083 Total $ 3,153 $ 11,393 $ 7,151 $ 1,465 $ 815 $ 7,590 $ 302 $ — $ 31,869 Current period gross write offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Owner-occupied, nonfarm nonresidential properties Risk rating Pass $ 62,529 $ 121,722 $ 103,698 $ 44,286 $ 45,749 $ 73,649 $ 9,921 $ — $ 461,554 Special mention 320 1,304 1,180 13,623 407 210 3,133 — 20,177 Substandard 848 — 696 292 6,738 2,593 166 — 11,333 Total $ 63,697 $ 123,026 $ 105,574 $ 58,201 $ 52,894 $ 76,452 $ 13,220 $ — $ 493,064 Current period gross write offs $ — $ — $ — $ — $ — $ 26 $ — $ — $ 26 Agricultural production and other loans to farmers Risk rating Pass $ 703 $ 34 $ 89 $ 60 $ 5 $ 159 $ 602 $ — $ 1,652 Special mention — — — — — — — — — Substandard — — — — — — — — — Total $ 703 $ 34 $ 89 $ 60 $ 5 $ 159 $ 602 $ — $ 1,652 Current period gross write offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Commercial and Industrial Risk rating Pass $ 78,325 $ 140,178 $ 141,439 $ 33,475 $ 6,662 $ 14,709 $ 239,193 $ — $ 653,981 Special mention 7,718 7,803 2,795 65 139 21 33,489 — 52,030 Substandard — 385 4,281 396 3,476 1,655 10,238 — 20,431 Total $ 86,043 $ 148,366 $ 148,515 $ 33,936 $ 10,277 $ 16,385 $ 282,920 $ — $ 726,442 Current period gross write offs $ 50 $ — $ — $ 191 $ — $ — $ 151 $ — $ 392 Obligations (other than securities and leases) of states and political subdivisions Risk rating Pass $ 24,964 $ 16,791 $ 31,768 $ 12,399 $ 4,190 $ 45,331 $ 3,571 $ — $ 139,014 Special mention — — — — — 13,187 — — 13,187 Substandard — — — — — — — — — Total $ 24,964 $ 16,791 $ 31,768 $ 12,399 $ 4,190 $ 58,518 $ 3,571 $ — $ 152,201 Current period gross write offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Other loans Risk rating Pass $ 3,649 $ 12,211 $ 5,289 $ 1,809 $ 288 $ — $ 2,261 $ — $ 25,507 Special mention — — — — — — — — — Substandard — — — — — — — — — Total $ 3,649 $ 12,211 $ 5,289 $ 1,809 $ 288 $ — $ 2,261 $ — $ 25,507 Current period gross write offs $ — $ — $ — $ — $ — $ — $ — $ — $ — 93 Table of Contents Term Loans Amortized Cost Basis by Origination Year 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total Other construction loans and all land development and other land loans Risk rating Pass $ 111,843 $ 269,531 $ 69,470 $ 19,028 $ 6,086 $ 1,262 $ 7,400 $ — $ 484,620 Special mention — 5,307 — — — — — — 5,307 Substandard — — — — 1,549 — 63 — 1,612 Total $ 111,843 $ 274,838 $ 69,470 $ 19,028 $ 7,635 $ 1,262 $ 7,463 $ — $ 491,539 Current period gross write offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Multifamily (5 or more) residential properties Risk rating Pass $ 37,366 $ 95,635 $ 63,203 $ 24,527 $ 10,928 $ 19,786 $ 754 $ — $ 252,199 Special mention 1,346 — — — — — — — 1,346 Substandard 797 — — — — — — — 797 Total $ 39,509 $ 95,635 $ 63,203 $ 24,527 $ 10,928 $ 19,786 $ 754 $ — $ 254,342 Current period gross write offs $ — $ — $ — $ — $ — $ 65 $ — $ — $ 65 Non-owner occupied, nonfarm nonresidential properties Risk rating Pass $ 192,826 $ 297,394 $ 151,365 $ 39,585 $ 54,388 $ 125,532 $ 8,174 $ — $ 869,264 Special mention — — — 1,887 — 688 433 — 3,008 Substandard 778 1,134 488 5,911 3,266 10,484 1,710 — 23,771 Total $ 193,604 $ 298,528 $ 151,853 $ 47,383 $ 57,654 $ 136,704 $ 10,317 $ — $ 896,043 Current period gross write offs $ — $ 358 $ — $ — $ 88 $ — $ 248 $ — $ 694 94 Table of Contents The following tables detail the amortized cost of loans receivable, by year of origination (for term loans) and by risk grade within each portfolio segment as of December 31, 2022. Current period originations may include modifications. Term Loans Amortized Cost Basis by Origination Year 2022 2021 2020 2019 2018 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total Farmland Risk rating Pass $ 12,321 $ 7,635 $ 1,536 $ 871 $ 3,277 $ 3,523 $ 543 $ — $ 29,706 Special mention — — — — — 1,450 — — 1,450 Substandard — 347 — — 142 523 — — 1,012 Total $ 12,321 $ 7,982 $ 1,536 $ 871 $ 3,419 $ 5,496 $ 543 $ — $ 32,168 Owner-occupied, nonfarm nonresidential properties Risk rating Pass $ 116,701 $ 113,575 $ 50,226 $ 55,040 $ 25,327 $ 60,810 $ 11,788 $ — $ 433,467 Special mention 3,402 — 15,613 872 4,097 814 2,998 — 27,796 Substandard — — 355 1,864 862 4,149 — — 7,230 Total $ 120,103 $ 113,575 $ 66,194 $ 57,776 $ 30,286 $ 65,773 $ 14,786 $ — $ 468,493 Agricultural production and other loans to farmers Risk rating Pass $ 105 $ 140 $ 80 $ 42 $ 179 $ — $ 652 $ — $ 1,198 Special mention — — — — — — — — — Substandard — — — — — — — — — Total $ 105 $ 140 $ 80 $ 42 $ 179 $ — $ 652 $ — $ 1,198 Commercial and Industrial Risk rating Pass $ 195,955 $ 213,433 $ 51,695 $ 16,730 $ 9,051 $ 19,116 $ 259,841 $ — $ 765,821 Special mention 241 — 6,691 273 81 45 7,409 — 14,740 Substandard 299 1,809 689 379 324 913 5,624 — 10,037 Doubtful (1) — 1,313 — — — — — — 1,313 Total $ 196,495 $ 216,555 $ 59,075 $ 17,382 $ 9,456 $ 20,074 $ 272,874 $ — $ 791,911 Obligations (other than securities and leases) of states and political subdivisions Risk rating Pass $ 20,840 $ 37,527 $ 13,868 $ 4,584 $ 13,518 $ 50,050 $ 4,958 $ — $ 145,345 Special mention — — — — — — — — — Substandard — — — — — — — — — Total $ 20,840 $ 37,527 $ 13,868 $ 4,584 $ 13,518 $ 50,050 $ 4,958 $ — $ 145,345 Other loans Risk rating Pass $ 14,248 $ 5,358 $ 2,278 $ 363 $ — $ — $ 2,463 $ — $ 24,710 Special mention — — — — — — — — — Substandard — — — — — — — — — Total $ 14,248 $ 5,358 $ 2,278 $ 363 $ — $ — $ 2,463 $ — $ 24,710 (1) Consists of one loan relationship originated in 2015 and modified in 2021. The modification met the requirements to disclose the loan relationship as a new loan during 2021. 95 Table of Contents Term Loans Amortized Cost Basis by Origination Year 2022 2021 2020 2019 2018 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total Other construction loans and all land development and other land loans Risk rating Pass $ 272,118 $ 86,894 $ 56,782 $ 6,918 $ 8,644 $ 916 $ 11,028 $ — $ 443,300 Special mention 1,296 — — — — — — — 1,296 Substandard — 2,023 — — — — 66 — 2,089 Total $ 273,414 $ 88,917 $ 56,782 $ 6,918 $ 8,644 $ 916 $ 11,094 $ — $ 446,685 Multifamily (5 or more) residential properties Risk rating Pass $ 114,454 $ 49,794 $ 46,784 $ 11,854 $ 6,764 $ 23,841 $ 2,629 $ — $ 256,120 Special mention — — — — — 510 — — 510 Substandard 643 — — — 333 90 — — 1,066 Total $ 115,097 $ 49,794 $ 46,784 $ 11,854 $ 7,097 $ 24,441 $ 2,629 $ — $ 257,696 Non-owner occupied, nonfarm nonresidential properties Risk rating Pass $ 339,151 $ 153,613 $ 51,709 $ 66,592 $ 45,211 $ 107,988 $ 8,186 $ — $ 772,450 Special mention — 488 — 273 498 1,068 464 — 2,791 Substandard 2,227 800 — 4,090 1,314 9,587 2,056 — 20,074 Total $ 341,378 $ 154,901 $ 51,709 $ 70,955 $ 47,023 $ 118,643 $ 10,706 $ — $ 795,315 The Corporation considers the performance of the loan portfolio and its impact on the allowance for credit losses. For 1-4 family construction, home equity lines of credit, residential mortgages secured by first liens, residential mortgages secured by junior liens, automobile, credit cards, other revolving credit plans and other consumer segments, the Corporation evaluates credit quality based on the performance status of the loan, which was previously presented, and by payment activity. Nonperforming loans include loans receivable on nonaccrual status and loans receivable past due over 89 days and still accruing interest. December 31, 2023 December 31, 2022 Performing Nonperforming Total Performing Nonperforming Total 1-4 Family Construction $ 51,207 $ — $ 51,207 $ 51,171 $ — $ 51,171 Home equity lines of credit 129,760 940 130,700 124,417 475 124,892 Residential Mortgages secured by first liens 985,647 5,339 990,986 938,154 4,377 942,531 Residential Mortgages secured by junior liens 90,940 123 91,063 74,547 91 74,638 Other revolving credit plans 42,796 81 42,877 36,346 26 36,372 Automobile 25,236 79 25,315 21,787 19 21,806 Other consumer 50,794 798 51,592 48,363 781 49,144 Total loans $ 1,376,380 $ 7,360 $ 1,383,740 $ 1,294,785 $ 5,769 $ 1,300,554 96 Table of Contents The following tables detail the amortized cost of loans receivable, by year of origination (for term loans) and by payment activity within each portfolio segment as of December 31, 2023. The current period originations may include modifications, extensions and renewals. Term Loans Amortized Cost Basis by Origination Year 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total 1-4 Family Construction Payment performance Performing $ 23,465 $ 14,915 $ 10,079 $ 1,206 $ 685 $ 58 $ 799 $ — $ 51,207 Nonperforming — — — — — — — — — Total $ 23,465 $ 14,915 $ 10,079 $ 1,206 $ 685 $ 58 $ 799 $ — $ 51,207 Current period gross write offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Home equity lines of credit Payment performance Performing $ 27,110 $ 32,027 $ 11,437 $ 9,844 $ 6,781 $ 30,467 $ 7,479 $ 4,615 $ 129,760 Nonperforming — — — — — 14 — 926 940 Total $ 27,110 $ 32,027 $ 11,437 $ 9,844 $ 6,781 $ 30,481 $ 7,479 $ 5,541 $ 130,700 Current period gross write offs $ — $ — $ — $ — $ 10 $ — $ — $ — $ 10 Residential mortgages secured by first lien Payment performance Performing $ 134,522 $ 233,346 $ 199,997 $ 143,318 $ 77,293 $ 194,010 $ 3,161 $ — $ 985,647 Nonperforming 497 174 787 615 492 2,736 38 — 5,339 Total $ 135,019 $ 233,520 $ 200,784 $ 143,933 $ 77,785 $ 196,746 $ 3,199 $ — $ 990,986 Current period gross write offs $ — $ — $ — $ — $ — $ 22 $ 95 $ — $ 117 Residential mortgages secured by junior liens Payment performance Performing $ 28,685 $ 27,032 $ 14,027 $ 7,102 $ 3,888 $ 8,833 $ 1,373 $ — $ 90,940 Nonperforming — 38 — — — 42 43 — 123 Total $ 28,685 $ 27,070 $ 14,027 $ 7,102 $ 3,888 $ 8,875 $ 1,416 $ — $ 91,063 Current period gross write offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Other revolving credit plans Payment performance Performing $ 8,684 $ 8,027 $ 2,732 $ 11,274 $ 1,634 $ 10,445 $ — $ — $ 42,796 Nonperforming — 29 5 — — 47 — — 81 Total $ 8,684 $ 8,056 $ 2,737 $ 11,274 $ 1,634 $ 10,492 $ — $ — $ 42,877 Current period gross write offs $ — $ — $ 50 $ 4 $ 16 $ 49 $ — $ — $ 119 Automobile Payment performance Performing $ 12,545 $ 6,800 $ 2,597 $ 1,472 $ 1,025 $ 797 $ — $ — $ 25,236 Nonperforming 16 51 — 7 5 — — — 79 Total $ 12,561 $ 6,851 $ 2,597 $ 1,479 $ 1,030 $ 797 $ — $ — $ 25,315 Current period gross write offs $ 18 $ 23 $ — $ 8 $ 7 $ — $ — $ — $ 56 Other consumer Payment performance Performing $ 27,202 $ 12,261 $ 5,255 $ 3,107 $ 1,471 $ 1,498 $ — $ — $ 50,794 Nonperforming 283 330 116 12 6 51 — — 798 Total $ 27,485 $ 12,591 $ 5,371 $ 3,119 $ 1,477 $ 1,549 $ — $ — $ 51,592 Current period gross write offs $ 210 $ 1,164 $ 467 $ 96 $ 33 $ 12 $ — $ — $ 1,982 97 Table of Contents The following tables detail the amortized cost of loans receivable, by year of origination (for term loans) and by payment activity within each portfolio segment as of December 31, 2022. The current period originations may include modifications, extensions and renewals. Term Loans Amortized Cost Basis by Origination Year 2022 2021 2020 2019 2018 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total 1-4 Family Construction Payment performance Performing $ 30,451 $ 16,360 $ 2,577 $ 752 $ 62 $ — $ 969 $ — $ 51,171 Nonperforming — — — — — — — — — Total $ 30,451 $ 16,360 $ 2,577 $ 752 $ 62 $ — $ 969 $ — $ 51,171 Home equity lines of credit Payment performance Performing $ 34,738 $ 13,654 $ 12,903 $ 8,587 $ 7,924 $ 38,127 $ 8,484 $ — $ 124,417 Nonperforming — — — 10 — 465 — — 475 Total $ 34,738 $ 13,654 $ 12,903 $ 8,597 $ 7,924 $ 38,592 $ 8,484 $ — $ 124,892 Residential mortgages secured by first lien Payment performance Performing $ 229,842 $ 222,522 $ 159,651 $ 91,238 $ 49,587 $ 181,939 $ 3,375 $ — $ 938,154 Nonperforming — 771 273 581 416 2,150 186 — 4,377 Total $ 229,842 $ 223,293 $ 159,924 $ 91,819 $ 50,003 $ 184,089 $ 3,561 $ — $ 942,531 Residential mortgages secured by junior liens Payment performance Performing $ 31,837 $ 17,163 $ 8,326 $ 4,956 $ 3,073 $ 8,395 $ 797 $ — $ 74,547 Nonperforming — — — — — 47 44 — 91 Total $ 31,837 $ 17,163 $ 8,326 $ 4,956 $ 3,073 $ 8,442 $ 841 $ — $ 74,638 Other revolving credit plans Payment performance Performing $ 10,778 $ 2,820 $ 7,911 $ 2,264 $ 2,265 $ 10,308 $ — $ — $ 36,346 Nonperforming — — — 4 14 8 — — 26 Total $ 10,778 $ 2,820 $ 7,911 $ 2,268 $ 2,279 $ 10,316 $ — $ — $ 36,372 Automobile Payment performance Performing $ 10,146 $ 4,637 $ 2,945 $ 2,349 $ 1,117 $ 593 $ — $ — $ 21,787 Nonperforming — — 10 7 2 — — — 19 Total $ 10,146 $ 4,637 $ 2,955 $ 2,356 $ 1,119 $ 593 $ — $ — $ 21,806 Other consumer Payment performance Performing $ 26,699 $ 12,120 $ 5,333 $ 2,176 $ 776 $ 1,259 $ — $ — $ 48,363 Nonperforming 403 220 85 22 6 45 — — 781 Total $ 27,102 $ 12,340 $ 5,418 $ 2,198 $ 782 $ 1,304 $ — $ — $ 49,144 December 31, 2023 December 31, 2022 Credit card Payment performance Performing $ 11,753 $ 10,817 Nonperforming 32 8 Total $ 11,785 $ 10,825 Current period gross write offs $ 189 98 Table of Contents Holiday’s loan portfolio, included in other consumer loans above, is summarized as follows at December 31, 2023 and 2022: December 31, 2023 December 31, 2022 Gross consumer loans $ 31,242 $ 31,821 Less: unearned discounts ( 5,696 ) ( 5,972 ) Total consumer loans, net of unearned discounts $ 25,546 $ 25,849 4. Fair Value Fair Value Measurement Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The following three levels of inputs are used to measure fair value: Level 1 : Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. Level 2 : Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 3 : Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. The Corporation used the following methods and significant assumptions to estimate fair value: Investment Securities : The fair values for investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2), using matrix pricing. Matrix pricing is a mathematical technique commonly used to price debt securities that are not actively traded, values debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3). Loans Held for Sale : Loans held for sale are carried at the lower of cost or fair value, which is evaluated on a loan-level basis. The fair value of loans held for sale is determined using quoted prices for similar assets, adjusted for specific attributes of that loan or other observable market data, such as outstanding commitments from third party investors (Level 2). Derivatives : The fair values of derivatives are based on valuation models using observable market data as of the measurement date (Level 2). The Corporation's derivatives are traded in an over-the-counter market where quoted market prices are not always available. Therefore, the fair values of derivatives are determined using quantitative models that utilize multiple market inputs. The inputs will vary based on the type of derivative, but could include interest rates, prices, and indices to generate continuous yield or pricing curves, prepayment rates, and volatility factors to value the position. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions, and third-party pricing services. 99 Table of Contents Individually Evaluated Loans : The fair value of individually evaluated loans with specific allocations of the allowance for credit losses is generally based on recent real estate appraisals prepared by third-parties. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Management also adjusts appraised values based on the length of time that has passed since the appraisal date and other factors. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower's financial statements, or aging reports, adjusted or discounted based on management's historical knowledge, changes in market conditions from the time of the valuation, and management's expertise and knowledge of the client and client's business, resulting in a Level 3 fair value classification. Individually evaluated loans are evaluated on a quarterly basis for additional impairment and adjusted in accordance with the allowance policy. Assets and liabilities measured at fair value on a recurring basis were as follows at December 31, 2023 and 2022: Fair Value Measurements at December 31, 2023 Using Description Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets: Securities Available-For-Sale: U.S. Government sponsored entities (1) $ 4,988 $ 4,988 $ — $ — States and political subdivisions 91,809 — 91,809 — Residential and multi-family mortgage 191,519 — 191,519 — Corporate notes and bonds 43,139 — 43,139 — Pooled SBA 10,500 — 10,500 — Total Securities Available-For-Sale $ 341,955 $ 4,988 $ 336,967 $ — Interest rate swaps $ 1,013 $ — $ 1,013 $ — Equity Securities: Corporate equity securities $ 5,341 $ 5,341 $ — $ — Mutual funds 2,223 2,223 — — Money market 1,103 1,103 — — Corporate notes 634 — 634 — Total Equity Securities $ 9,301 $ 8,667 $ 634 $ — Liabilities Interest rate swaps $ ( 1,013 ) $ — $ ( 1,013 ) $ — (1) In 2023, the Corporation transitioned to a new pricing provider, leading to the reclassification of United States Treasury investments as Level 1 pricing instruments. Fair Value Measurements at December 31, 2022 Using Description Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets: Securities Available-For-Sale: U.S. Government sponsored entities $ 3,129 $ — $ 3,129 $ — States and political subdivisions 95,663 — 95,663 — Residential and multi-family mortgage 217,547 — 217,547 — Corporate notes and bonds 42,391 — 42,391 — Pooled SBA 12,679 — 12,679 — Total Securities Available-For-Sale $ 371,409 $ — $ 371,409 $ — Interest rate swaps $ 1,850 $ — $ 1,850 $ — Equity Securities: Corporate equity securities $ 6,973 $ 6,973 $ — $ — Mutual funds 1,406 1,406 — — Money market 479 479 — — Corporate notes 757 757 — — Total Equity Securities $ 9,615 $ 9,615 $ — $ — Liabilities Interest rate swaps $ ( 1,700 ) $ — $ ( 1,700 ) $ — 100 Table of Contents Assets and liabilities measured at fair value on a non-recurring basis are as follows at December 31, 2023 and 2022: Fair Value Measurements at December 31, 2023 Using Description Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets: Collateral-dependent loans: Farmland $ 736 $ — $ — $ 736 Owner-occupied, nonfarm nonresidential properties 5,589 — — 5,589 Commercial and industrial 7,425 — — 7,425 Other construction loans and all land development loans and other land loans 1,299 — — 1,299 Multifamily (5 or more) residential properties 305 — — 305 Non-owner occupied, nonfarm nonresidential 7,216 — — 7,216 Home equity lines of credit 308 — — 308 Residential mortgages secured by first liens 871 — — 871 Fair Value Measurements at December 31, 2022 Using Description Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets: Collateral-dependent loans: Farmland $ 829 $ — $ — $ 829 Owner-occupied, nonfarm nonresidential properties 1,071 — — 1,071 Commercial and industrial 1,631 — — 1,631 Other construction loans and all land development loans and other land loans 501 — — 501 Multifamily (5 or more) residential properties 613 — — 613 Non-owner occupied, nonfarm nonresidential 3,867 — — 3,867 Home equity lines of credit 335 — — 335 Residential mortgages secured by first liens 944 — — 944 A loan is considered to be a collateral dependent loan when, based on current information and events, the Corporation expects repayment of the financial assets to be provided substantially through the operation or sale of the collateral and the Corporation has determined that the borrower is experiencing financial difficulty as of the measurement date. The allowance for credit losses is measured by estimating the fair value of the loan based on the present value of expected cash flows, the market price of the loan, or the underlying fair value of the loan’s collateral. For real estate loans, fair value of the loan’s collateral is determined by third-party appraisals, which are then adjusted for the estimated selling and closing costs related to liquidation of the collateral. For this asset class, the actual valuation methods (income, sales comparable, or cost) vary based on the status of the project or property. For example, land is generally based on the sales comparable method while construction is based on the income and/or sales comparable methods. The unobservable inputs may vary depending on the individual assets with no one of the three methods being the predominant approach. The Corporation reviews the third-party appraisal for appropriateness and may adjust the value downward to consider selling and closing costs. For non-real estate loans, fair value of the loan’s collateral may be determined using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business. 101 Table of Contents The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at December 31, 2023: Fair value Valuation Technique Unobservable Inputs Range (Weighted Average) Collateral-dependent loans receivable: Farmland $ 736 Valuation of third party appraisal on underlying collateral Loss severity rates 29 %- 31 % ( 30 %) Owner-occupied, nonfarm nonresidential properties 5,589 Valuation of third party appraisal on underlying collateral Loss severity rates 9 %- 100 % ( 14 %) Commercial and industrial 7,425 Valuation of third party appraisal on underlying collateral Loss severity rates 8 %- 75 % ( 31 %) Other construction loans and all land development loans and other land loans 1,299 Valuation of third party appraisal on underlying collateral Loss severity rates 32 % ( 32 %) Multifamily (5 or more) residential properties 305 Valuation of third party appraisal on underlying collateral Loss severity rates 28 % ( 28 %) Non-owner occupied, nonfarm nonresidential 7,216 Valuation of third party appraisal on underlying collateral Loss severity rates 32 %- 48 % ( 43 %) Home equity lines of credit 308 Valuation of third party appraisal on underlying collateral Loss severity rates 15 %- 17 % ( 15 %) Residential mortgages secured by first liens 871 Valuation of third party appraisal on underlying collateral Loss severity rates 17 %- 42 % ( 31 %) The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at December 31, 2022: Fair value Valuation Technique Unobservable Inputs Range (Weighted Average) Collateral-dependent loans receivable: Farmland $ 829 Valuation of third party appraisal on underlying collateral Loss severity rates 20 % ( 20 %) Owner-occupied, nonfarm nonresidential properties 1,071 Valuation of third party appraisal on underlying collateral Loss severity rates 25 %- 100 % ( 29 %) Commercial and industrial 1,631 Valuation of third party appraisal on underlying collateral Loss severity rates 3 %- 49 % ( 23 %) Other construction loans and all land development loans and other land loans 501 Valuation of third party appraisal on underlying collateral Loss severity rates 33 % ( 33 %) Multifamily (5 or more) residential properties 613 Valuation of third party appraisal on underlying collateral Loss severity rates 19 %- 25 % ( 23 %) Non-owner occupied, nonfarm nonresidential 3,867 Valuation of third party appraisal on underlying collateral Loss severity rates 15 %- 53 % ( 35 %) Home equity lines of credit 335 Valuation of third party appraisal on underlying collateral Loss severity rates 15 % ( 15 %) Residential mortgages secured by first liens 944 Valuation of third party appraisal on underlying collateral Loss severity rates 17 %- 42 % ( 31 %) 102 Table of Contents Fair Value of Financial Instruments The following table presents the carrying amount and fair value of financial instruments at December 31, 2023: Carrying Amount Fair Value Measurement Using: Total Fair Value Level 1 Level 2 Level 3 Assets: Cash and cash equivalents $ 222,046 $ 222,046 $ — $ — $ 222,046 Debt securities available-for-sale (1) 341,955 4,988 336,967 — 341,955 Debt securities held-to-maturity (1) 388,968 104,141 256,429 — 360,570 Equity securities 9,301 8,667 634 — 9,301 Loans held for sale 675 — 677 — 677 Net loans receivable 4,422,644 — — 4,323,476 4,323,476 FHLB and other restricted stock holdings and investments 30,011 n/a n/a n/a n/a Interest rate swaps 1,013 — 1,013 — 1,013 Accrued interest receivable 24,318 410 2,319 21,589 24,318 Liabilities: Deposits $ ( 4,998,750 ) $ ( 4,492,256 ) $ ( 508,181 ) $ — $ ( 5,000,437 ) Subordinated debentures ( 104,887 ) — ( 134,298 ) — ( 134,298 ) Interest rate swaps ( 1,013 ) — ( 1,013 ) — ( 1,013 ) Accrued interest payable ( 3,550 ) — ( 3,550 ) — ( 3,550 ) (1) In 2023, the Corporation transitioned to a new pricing provider, leading to the reclassification of United States Treasury investments as Level 1 pricing instruments. The following table presents the carrying amount and fair value of financial instruments at December 31, 2022: Carrying Amount Fair Value Measurement Using: Total Fair Value Level 1 Level 2 Level 3 Assets: Cash and cash equivalents $ 106,285 $ 106,285 $ — $ — $ 106,285 Debt securities available-for-sale 371,409 — 371,409 — 371,409 Debt securities held-to-maturity 404,765 — 367,388 — 367,388 Equity securities 9,615 9,615 9,615 Loans held for sale 231 — 231 — 231 Net loans 4,231,742 — — 4,157,843 4,157,843 FHLB and other equity interests 30,715 n/a n/a n/a n/a Interest rate swaps 1,850 — 1,850 — 1,850 Accrued interest receivable 20,194 — 2,867 17,327 20,194 Liabilities: Deposits $ ( 4,622,437 ) $ ( 4,175,976 ) $ ( 445,788 ) $ — $ ( 4,621,764 ) FHLB and other borrowings ( 132,396 ) — ( 132,396 ) — ( 132,396 ) Subordinated debentures ( 104,584 ) — ( 117,378 ) — ( 117,378 ) Interest rate swaps ( 1,700 ) — ( 1,700 ) — ( 1,700 ) Accrued interest payable ( 1,839 ) — ( 1,839 ) — ( 1,839 ) While estimates of fair value are based on management’s judgment of the most appropriate factors as of the balance sheet dates, there is no assurance that the estimated fair values would have been realized if the assets had been disposed of or the liabilities settled at that date, since market values may differ depending on various circumstances. The estimated fair values would also not apply to subsequent dates. The fair value of other equity interests is based on the net asset values provided by the underlying investment partnership. ASU 2015-7 removes the requirement to categorize within the fair value hierarchy all investments measured using the net asset value per share practical expedient and related disclosures. In addition, other assets and liabilities that are not financial instruments, such as premises and equipment, are not included in the disclosures. Also, non-financial assets such as, among other things, the estimated earnings power of core deposits, the earnings potential of trust accounts, the trained workforce, and customer goodwill, which typically are not recognized on the balance sheet, may have value but are not included in the fair value disclosures. 103 Table of Contents 5. Secondary Market Mortgage Activities Total loans serviced for others were $ 258.5 million and $ 264.5 million for the years ended December 31, 2023 and 2022, respectively. The following summarizes secondary market mortgage activities for the years ended December 31, 2023, 2022, and 2021: December 31, 2023 December 31, 2022 December 31, 2021 Loans originated for resale $ 17,874 $ 34,181 $ 95,411 Proceeds from sales of loans held for sale 16,263 29,151 97,179 Net gains on sales of loans held for sale 447 1,285 2,737 Loan servicing fees 744 781 720 The following summarizes activity for capitalized mortgage servicing rights for the years ended December 31, 2023, 2022, and 2021: December 31, 2023 December 31, 2022 December 31, 2021 Balance, beginning of year $ 1,804 $ 1,664 $ 1,527 Additions 114 232 514 Servicing rights acquired — — — Amortization ( 364 ) ( 92 ) ( 377 ) Balance, end of year $ 1,554 $ 1,804 $ 1,664 The fair value of mortgage servicing rights is based on market prices for comparable mortgage servicing contracts, when available, or alternatively based on a valuation model that calculates the present value of estimated future net servicing income. The fair value of mortgage servicing rights was not materially different than amortized cost at December 31, 2023 and 2022, respectively. No valuation allowance was deemed necessary at December 31, 2023, 2022, and 2021. The fair value of interest rate lock commitments and forward commitments to sell loans were not material at December 31, 2023 or 2022. 6. Premises and Equipment The following summarizes premises and equipment at December 31, 2023 and 2022: December 31, 2023 December 31, 2022 Land $ 9,043 $ 8,534 Premises and leasehold improvements 87,591 74,873 Furniture and equipment 45,703 42,513 Construction in process 2,047 7,582 144,384 133,502 Less: accumulated depreciation 70,684 64,967 Premises and equipment, net $ 73,700 $ 68,535 Depreciation on premises and equipment amounted to $ 5.7 million in 2023, $ 5.3 million in 2022 and $ 5.3 million in 2021. 7. Leases Operating lease assets represent the Corporation's right to use an underlying asset during the lease term and operating lease liabilities represent the Corporation's obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents the Corporation's incremental borrowing rate at the lease commencement date. Operating lease cost, which is comprised of amortization of the operating lease asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term, and is recorded in net occupancy expense in the consolidated statements of income. 104 Table of Contents The Corporation leases certain full-service branch offices, land and equipment. Leases with an initial term of twelve months or less are not recorded on the balance sheet. Most leases include one or more options to renew and the exercise of the lease renewal options are at the Corporation's sole discretion. The Corporation includes lease extension and termination options in the lease term if, after considering relevant economic factors, it is reasonably certain the Corporation will exercise the option. Certain lease agreements of the Corporation include rental payments adjusted periodically for changes in the consumer price index. Leases Classification December 31, 2023 December 31, 2022 Assets: Operating lease assets Operating lease right-of-use assets $ 35,699 $ 32,307 Finance lease assets Premises and equipment, net (1) 215 286 Total leased assets $ 35,914 $ 32,593 Liabilities: Operating lease liabilities Operating lease liabilities $ 37,650 $ 33,726 Finance lease liabilities Accrued interest payable and other liabilities 294 383 Total leased liabilities $ 37,944 $ 34,109 (1) Finance lease assets are recorded net of accumulated amortization of $ 1.0 million and $ 930 thousand as of December 31, 2023 and 2022, respectively. The components of the Corporation's net lease expense for the years ended December 31, 2023, 2022, and 2021 were as follows: Lease Cost Classification December 31, 2023 December 31, 2022 December 31, 2021 Operating lease cost Net occupancy expense $ 2,963 $ 2,264 $ 1,801 Variable lease cost Net occupancy expense 92 59 55 Finance lease cost: Amortization of leased assets Net occupancy expense 72 72 72 Interest on lease liabilities Interest expense - borrowed funds 15 19 23 Sublease income (1) Net occupancy expense ( 93 ) ( 79 ) ( 71 ) Net lease cost $ 3,049 $ 2,335 $ 1,880 (1) Sublease income excludes rental income from owned properties. The following table sets forth future minimum rental payments under noncancelable leases with terms in excess of one year as of December 31, 2023: Maturity of Lease Liabilities as of December 31, 2023 Operating Leases (1) Finance Leases Total 2024 $ 2,554 $ 105 $ 2,659 2025 2,579 105 2,684 2026 2,567 105 2,672 2027 2,543 — 2,543 2028 2,563 — 2,563 After 2028 47,677 — 47,677 Total lease payments 60,483 315 60,798 Less: Interest 22,833 21 22,854 Present value of lease liabilities $ 37,650 $ 294 $ 37,944 (1) Operating lease payments include payments related to options to extend lease terms that are reasonably certain of being exercised and exclude $ 8.2 million of legally binding minimum lease payments for leases signed, but not yet commenced. Other information related to the Corporation's lease liabilities as of December 31, 2023 and 2022 was as follows: Lease Term and Discount Rate December 31, 2023 December 31, 2022 Weighted-average remaining lease term (years) Operating leases 23.0 23.9 Finance leases 3.0 4.0 Weighted-average discount rate Operating leases 4.05 % 3.83 % Finance leases 4.49 % 4.49 % 105 Table of Contents Other information related to the Corporation's lease liabilities as of December 31, 2023 and 2022 was as follows: Other Information December 31, 2023 December 31, 2022 Cash paid for amounts included in the measurement of lease liabilities Operating cash flows used by operating leases $ 1,134 $ 1,183 8. Goodwill and Intangible Assets Goodwill The change in the carrying amount of goodwill for the years ended December 31, 2023 and 2022 was as follows: December 31, 2023 December 31, 2022 Balance, beginning of year $ 43,749 $ 43,749 Acquired during the year — — Balance, end of year $ 43,749 $ 43,749 Impairment exists when the carrying value of goodwill exceeds its fair value. The Corporation completed its annual goodwill impairment test as of December 31, 2022 and concluded that no impairment charges were required as of that date. During the fourth quarter of 2023, the Corporation elected to change the timing of its annual goodwill impairment test from December 31 to November 30. The selection of November 30 as the annual testing date for the impairment of goodwill is intended to move the testing to a time period outside of the Corporation's annual financial reporting process to allow the Corporation additional time to complete the analysis. The Corporation believes that this change is preferable under the circumstances, and that this change does not accelerate, delay or avoid an impairment charge. The Corporation has also determined that a change in the annual testing date did not result in adjustments to the consolidated financial statements when applied retrospectively. At November 30, 2023, the Corporation elected to perform a quantitative assessment to determine if it was more likely than not that the fair value exceeded its carrying value, including goodwill. The Corporation engaged a third party valuation firm to assist in performing the quantitative analysis using multiple approaches, reflecting assumptions that were provided and weighted by management. The primary methodology used was the discounted cash flow approach while also considering a market approach of comparing the multiples of the Corporation to multiples of similar public companies and market price with control premiums. In addition, the value relied upon projections and growth rates prepared by management. Based upon the valuation prepared, the quantitative assessment indicated that it was more likely than not that the fair value exceeded its carrying value, resulting in no impairment. Intangible Assets In connection with its acquisition of Bank of Akron in 2020, the Corporation recorded a core deposit intangible asset of $ 613 thousand. During the year ended December 31, 2023, 2022, and 2021, the Corporation recorded amortization expense of $ 84 thousand, $ 96 thousand, and $ 107 thousand, respectively. The net carrying value at December 31, 2023 and 2022 was $ 280 thousand and $ 364 thousand, respectively. No other intangible assets were required to be recorded in connection with the acquisition of Bank of Akron. Estimated amortization expense of core deposit intangible assets for each of the next five years is as follows: 2024 $ 73 2025 62 2026 51 2027 40 2028 29 Thereafter 25 Total $ 280 106 Table of Contents In connection with the formation of Ridge View Bank, a division of the Bank, the Corporation recorded an intangible asset related to naming rights in 2023. The naming rights have an indefinite useful life. The Corporation does not amortize intangible assets with indefinite lives but assesses them for impairment annually or more frequently if events or changes in circumstances indicate potential impairment. As of December 31, 2023, the carrying amount of naming rights intangible assets was $ 125 thousand and no impairment indicators were identified during the year ended December 31, 2023. Management evaluates events or changes in circumstances that may impact the indefinite useful life assessment of the naming rights intangible asset. If impairment indicators are identified, the Corporation will perform a qualitative or quantitative impairment test, as applicable. 9. Deposits The following table reflects time certificates of deposit accounts included in total deposits and their remaining maturities at December 31, 2023: Time deposits maturing: 2024 $ 405,920 2025 80,856 2026 8,671 2027 6,472 2028 2,865 Thereafter 1,710 Total $ 506,494 Certificates of deposit of $250 thousand or more totaled $ 100.2 million and $ 135.4 million at December 31, 2023 and 2022, respectively. The Corporation had $ 208.3 million in brokered deposits as of December 31, 2023 compared to $ 24.1 million at December 31, 2022. In addition, the Corporation had $ 739.3 million and $ 4.6 million in reciprocal deposits at December 31, 2023 and December 31, 2022, respectively. 10. Borrowings At December 31, 2023 and 2022, the Corporation had available one $ 10 million unsecured line of credit with an unaffiliated institution. Borrowings under the line of credit bear interest at a variable rate equal to the Secured Overnight Finance Rate ("SOFR") plus 2.85 %. There were no borrowings on the line of credit at December 31, 2023 and 2022. FHLB Borrowings The Bank has the ability to borrow funds from the FHLB. The Bank maintains a $ 250.0 million line-of-credit (Open Repo Plus) with the FHLB which is a revolving term commitment available on an overnight basis. The term of this commitment may not exceed 364 days and it reprices daily at market rates. Under terms of a blanket collateral agreement with the FHLB, the line-of-credit and long term advances are secured by FHLB stock and the Bank pledges its single-family residential mortgage loan portfolio, certain commercial real estate loans, and certain agriculture real estate loans as security for any advances. Total loans pledged to the FHLB at December 31, 2023 and 2022, were $ 1.8 billion and $ 1.6 billion, respectively. The Bank could obtain advances of up to approximately $ 993.8 million from the FHLB at December 31, 2023 and $ 757.8 million at December 31, 2022. At December 31, 2023 and December 31, 2022, outstanding advances from the FHLB were as follows: 2023 2022 Open Repo borrowing at an interest rate of 5.68 % and 4.45 % at December 31, 2023 and December 31, 2022. The maximum amount of the Open Repo borrowing available is $ 250,000 . $ — $ 132,396 Total $ — $ 132,396 107 Table of Contents At December 31, 2023 and 2022, municipal deposit letters of credit issued by the FHLB on behalf of the Bank naming applicable municipalities as beneficiaries were $ 155.7 million and $ 75.5 million, respectively. The letters of credit were utilized in place of securities pledged to the municipalities for their deposits maintained at the Bank. Federal Reserve Borrowings In June 2023, the Bank was approved by the Federal Reserve Bank of Philadelphia (the "Federal Reserve") for its Borrower-in-Custody ("BIC") program. At December 31, 2023, the Bank had borrowing capacity through the Federal Reserve BIC program of $ 255.5 million. Borrowings under the BIC program are overnight advances with interest chargeable at the discount window ("primary credit") borrowing rate. At December 31, 2023, the Bank has pledged certain qualifying loans with an unpaid principal balance of $ 282.7 million and securities with a carrying value of $ 78.5 million as collateral. Other Borrowings At December 31, 2023 and 2022, the Bank had no outstanding borrowings from unaffiliated institutions under overnight borrowing agreements. Subordinated Debentures In 2007, the Corporation issued two $ 10.0 million floating rate trust preferred securities as part of a pooled offering of such securities. The interest rate on each offering was determined quarterly and floated based on the three-month LIBOR plus 1.55 %. Effective September 15, 2023, the interest rate calculation method was revised. The interest rate is now determined quarterly, and floats based on the three-month SOFR plus a credit spread adjustment of 0.26161 % plus 1.55 %. This change reflects the transition from LIBOR to SOFR as the reference rate. The all-in rate was 7.20 % at December 31, 2023 and 6.32 % at December 31, 2022. The Corporation issued subordinated debentures to the trusts in exchange for the proceeds of the offerings, which debentures represent the sole assets of the trusts. The subordinated debentures must be redeemed no later than 2037. The Corporation may redeem the debentures, in whole or in part, at face value at any time. The Corporation has the option to defer interest payments from time to time for a period not to exceed five consecutive years. Although the trusts are variable interest entities, the Corporation is not the primary beneficiary. As a result, because the trusts are not consolidated with the Corporation, the Corporation does not report the securities issued by the trusts as liabilities. Instead, the Corporation reports as liabilities the subordinated debentures issued by the Corporation and held by the trusts, since the liabilities are not eliminated in consolidation. The trust preferred securities were designated to qualify as Tier 1 capital under the Federal Reserve’s capital guidelines. Subordinated Notes In June 2021, the Corporation sold $ 85.0 million aggregate principal amount of its fixed-to-floating rate subordinated notes to eligible purchasers in a private offering in reliance on the exemption from the registration requirements of Section 4(a)(2) of the Securities Act and the provisions of Rule 506 of Regulation D thereunder. The notes will mature in June 2031, and initially bear interest at a fixed rate of 3.25 % per annum, payable semi-annually in arrears, to, but excluding, June 15, 2026, and thereafter to, but excluding, the maturity date or earlier redemption, the interest rate will reset quarterly to an interest rate per annum equal to the then current three-month average SOFR plus 2.58 %. The net proceeds from the sale were approximately $ 83.5 million, after deducting offering expenses. These subordinated notes were designed to qualify as Tier 2 capital under the Federal Reserve’s capital guidelines and were given an investment grade rating of BBB- by Kroll Bond Rating Agency. The unamortized debt issuance costs were $ 0.7 million and $ 1.0 million as of December 31, 2023 and December 31, 2022, respectively. 108 Table of Contents 11. Employee Benefit Plans The Corporation sponsors a contributory defined contribution Section 401(k) plan. The plan permits eligible employees to make pre-tax and Roth contributions up to 70 % of salary. Employees 21 years of age or over with a minimum of 90 days of service are eligible for matching contributions by the Corporation at 100 % for every 1 % contributed up to 3 % then 50 % for every 1 % contributed up to the next 2 % in total of the employee’s compensation. The Corporation’s matching contribution and related expenses were $ 1.8 million, $ 1.6 million and $ 1.2 million for the years ended December 31, 2023, 2022, and 2021, respectively. A profit sharing discretionary non-contributory pension plan component is in place for employees 21 years of age or over with a minimum of one-year with 1,000 hours of service and allows employer contributions in an amount equal to a percentage of eligible compensation plus 5.7 % of the compensation in excess of $ 160 thousand, subject to a $ 330 thousand salary limit. The Corporation recognized profit sharing expense of $ 3.6 million, $ 2.9 million and $ 2.0 million for the year ended December 31, 2023, 2022, and 2021 respectively. The Corporation has adopted a non-qualified supplemental executive retirement plan ("SERP") for certain executives to compensate those executive participants in the Corporation’s retirement plan whose benefits are limited by compensation limitations under current tax law. The SERP is considered an unfunded plan for tax and ERISA purposes and all obligations arising under the SERP are payable from the general assets of the Corporation. At December 31, 2023 and 2022, obligations of $ 10.0 million and $ 9.7 million, respectively, were included in other liabilities for this plan. Expenses related to this plan were $ 565 thousand for the year ended December 31, 2023, $ 1.3 million for the year ended December 31, 2022, and $ 2.1 million for the year ended December 31, 2021. The Corporation has established a Survivor Benefit Plan for the benefit of outside directors. The purpose of the plan is to provide life insurance benefits to beneficiaries of the Corporation’s directors who at the time of their death are participants in the plan. The plan is considered an unfunded plan for tax and ERISA purposes and all obligations arising under the plan are payable from the general assets of the Corporation. At December 31, 2023 and 2022, obligations of $ 1.3 million and $ 1.6 million, respectively, were included in other liabilities for this plan. Expenses (benefits) related to this plan were $( 213 ) thousand for the year ended December 31, 2023, $ 81 thousand for the year ended December 31, 2022 and $ 196 thousand for the year ended December 31, 2021. On December 31, 2021, the Corporation adopted a Defined Contribution Plan for several employees (the "Plan"), pursuant to which the Corporation will make certain annual contributions to the Plan on the employee's behalf, which will be paid to the employee following their termination of employment from the Corporation or, if earlier, upon the employee becoming disabled. The Plan became effective as of January 2, 2022. 12. Deferred Compensation Plans Deferred compensation plans cover all directors and certain officers. Under the plans, the Corporation pays each participant, or their beneficiary, the value of the participant’s account over a maximum period of 10 years, beginning with the individual’s termination of service. A liability is accrued for the obligation under these plans. A summary of changes in the deferred compensation plan liability follows: December 31, 2023 December 31, 2022 December 31, 2021 Balance, beginning of year $ 3,650 $ 3,675 $ 3,085 Deferrals, dividends, and changes in fair value 638 ( 2 ) 1,084 Deferred compensation payments ( 180 ) ( 23 ) ( 494 ) Balance, end of year $ 4,108 $ 3,650 $ 3,675 109 Table of Contents 13. Income Taxes The following is a summary of income tax expense for the years ended December 31, 2023, 2022, and 2021: December 31, 2023 December 31, 2022 December 31, 2021 Current – federal $ 11,446 $ 15,494 $ 13,494 Current – state 1,252 1,346 1,268 Deferred – federal 1,110 ( 1,618 ) ( 1,025 ) Deferred – state 1 ( 196 ) ( 666 ) Income tax expense $ 13,809 $ 15,026 $ 13,071 The reconciliation of income tax attributable to pre-tax income at the federal statutory tax rates to income tax expense is as follows: December 31, 2023 % December 31, 2022 % December 31, 2021 % Tax at statutory rate $ 15,084 21.0 % $ 16,425 21.0 % $ 14,863 21.0 % Tax exempt income, net ( 1,090 ) ( 1.5 ) ( 1,036 ) ( 1.3 ) ( 1,016 ) ( 1.4 ) Bank owned life insurance ( 619 ) ( 0.9 ) ( 721 ) ( 0.9 ) ( 554 ) ( 0.8 ) Tax credits, net of amortization ( 173 ) ( 0.3 ) ( 193 ) ( 0.3 ) ( 215 ) ( 0.3 ) Effect of state tax 990 1.4 908 1.2 476 0.7 Other ( 383 ) ( 0.5 ) ( 357 ) ( 0.5 ) ( 483 ) ( 0.7 ) Income tax expense $ 13,809 19.2 % $ 15,026 19.2 % $ 13,071 18.5 % The following table sets forth deferred taxes as of December 31, 2023 and 2022: December 31, 2023 December 31, 2022 Deferred tax assets: Allowance for credit losses $ 10,515 $ 9,154 Fair value adjustments – business combination 771 917 Deferred compensation 3,693 3,448 Net operating loss carryover 516 344 Post-retirement benefits 605 647 Unrealized loss on equity securities 129 — Nonaccrual loan interest 476 348 Accrued expenses 579 2,300 Deferred fees and costs 557 997 Unrealized loss on securities available-for-sale 11,308 12,914 Unrealized loss on securities held-to-maturity 1,108 1,265 Operating lease liability 8,509 7,645 Other 453 671 39,219 40,650 Deferred tax liabilities: Premises and equipment 3,761 3,409 Unrealized gain on equity securities — 119 Intangibles – section 197 2,487 2,492 Mortgage servicing rights 345 399 Unrealized gain on interest rate swap — 32 Operating lease asset 8,128 7,397 Other 571 68 15,292 13,916 Net deferred tax asset $ 23,927 $ 26,734 At December 31, 2023 and 2022, the Corporation had no unrecognized tax benefits. The Corporation does not expect the total amount of unrecognized tax benefits to significantly increase in the next twelve months. 110 Table of Contents At December 31, 2023, the Corporation had state net operating loss carryforwards of $ 15.2 million related to the acquisition of Bank of Akron, which will expire at various dates from 2034 to 2039. The Corporation's ability to utilize carryforwards is limited to $ 363 thousand per year. Due to this limitation, management has determined it is more likely than not that approximately $ 9.5 million of net operating loss carryforwards will expire unutilized. The Corporation recognizes interest and/or penalties related to income tax matters as part of income tax expense. At December 31, 2023, 2022, and 2021, there were no amounts accrued for interest and/or penalties and no amounts recorded as expense for the years ending December 31, 2023, 2022, and 2021. The Corporation and its subsidiaries are subject to U.S. federal income tax, as well as filing various state returns. The Corporation is no longer subject to U.S. federal income tax examinations by the taxing authorities for years prior to 2020. Tax years 2020 through 2023 are open to examination. 14. Related Party Transactions Loans to principal officers, directors, and their affiliates during 2023 were as follows: Beginning balance $ 44,998 New loans and advances 2,716 Effect of changes in composition of related parties 462 Repayments ( 8,047 ) Ending balance $ 40,129 Deposits from principal officers, directors, and their affiliates were $ 11.4 million and $ 13.7 million at December 31, 2023 and 2022, respectively. 15. Stock-Based Compensation The Corporation has a stock incentive plan, which is administered by a committee of the Board of Directors and which permits the Corporation to provide various types of stock-based compensation to its key employees, directors, and/or consultants, including time-based and performance-based shares of restricted stock. The Corporation previously maintained the CNB Financial Corporation 2009 Stock Incentive Plan, which terminated in accordance with its terms on February 10, 2019, and currently maintains the CNB Financial Corporation 2019 Omnibus Incentive Plan (the "2019 Stock Incentive Plan"), which was approved by the Corporation’s shareholders and became effective on April 16, 2019. The 2019 Stock Incentive Plan provides for up to 507,671 shares of common stock to be awarded in the form of nonqualified options or restricted stock. For key employees, the vesting of time-based restricted stock is one-third, one-fourth, or one-fifth of the granted restricted shares per year, beginning one year after the grant date, with 100 % vesting on the third, fourth or fifth anniversary of the grant date, respectively. Prior to 2018, for non-employee directors, the vesting schedule was one-third of the granted restricted shares per year, beginning one year after the grant date, with 100 % vested on the third anniversary of the grant date. Beginning in 2018, stock compensation received by non-employee directors vests immediately. All stock-based compensation grants during the years ending December 31, 2023 , 2022, and 2021 and outstanding at December 31, 2023 , 2022 and 2021 were time-based and performance-based restricted stock. During the years ended December 31, 2023, 2022, and 2021, the Executive Compensation and Personnel Committee of the Corporation's Board of Directors granted a total of 105,185 , 57,823 , and 55,218 shares, respectively, of time-based restricted common stock to certain key employees and all independent directors of the Corporation. Compensation expense for the restricted stock awards is recognized over the requisite service period based on the fair value of the shares at the date of grant on a straight-line basis. Non-vested restricted stock awards are recorded as a reduction of additional paid-in-capital in shareholders’ equity until earned. Compensation expense resulting from time-based, performance-based and director restricted stock awards was $ 1.7 million, $ 1.2 million and $ 1.4 million for the years ended December 31, 2023, 2022, and 2021, respectively. The total income tax benefit related to the recognized compensation cost of vested restricted stock awards was $ 354 thousand, $ 262 thousand, and $ 296 thousand for the years ended December 31, 2023 , 2022 and 2021, respectively. 111 Table of Contents A summary of changes in time-based unvested restricted stock awards follows: Shares Weighted-average Grant Date Fair Value Non-vested at January 1, 2023 69,746 $ 25.21 Granted 90,675 23.63 Forfeited ( 6,391 ) 24.34 Vested ( 29,096 ) 25.28 Non-vested at December 31, 2023 124,934 $ 24.09 The above table excludes 14,510 shares in restricted stock awards that were granted to the Corporation’s Board of Directors at a weighted average fair value of $ 24.12 and immediately vested. As of December 31, 2023 and 2022, there was $ 2.1 million and $ 1.2 million, respectively, of total unrecognized compensation cost related to non-vested shares granted under the 2019 Stock Incentive Plan. The fair value of shares vesting during the year end December 31, 2023, 2022, and 2021 was $ 1.0 million, $ 1.4 million and $ 835 thousand, respectively. In addition to the time-based restricted stock disclosed above, the Corporation’s Board of Directors grants performance-based restricted stock awards ("PBRSAs") to key employees. The number of PBRSAs will depend on certain performance conditions earned over a three year period and are also subject to service-based vesting. Awards with a maximum of 23,124 shares, 13,761 shares, and 18,210 shares in aggregate were granted to key employees in 2023, 2022, and 2021, respectively. Total compensation expense related to the PBRSAs and included in the above compensation expense total was $ 235 thousand, $ 91 thousand and $ 378 thousand for 2023, 2022, and 2021. Estimated remaining unearned compensation related to PBRSAs at December 31, 2023 was $ 442 thousand. In 2022, the 2020 PBRSAs were fully earned and in 2023, 4,118 shares were fully distributed. The fair value of the 4,118 shares distributed in 2023 was $ 99 thousand. In 2021, the 2019 PBRSAs were fully earned and in 2022, 11,895 shares were fully distributed. The fair value of the 11,895 shares distributed in 2022 was $ 318 thousand. The number of authorized stock-based awards still available for grant as of December 31, 2023 was 165,165 . 16. Regulatory Capital Matters Banks and financial holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, for the Bank, prompt corrective action ("PCA") regulations involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can result in regulatory enforcement actions. The net unrealized gain or loss on AFS debt securities is excluded from computing regulatory capital. Management believes as of December 31, 2023 the Corporation and the Bank meet all capital adequacy requirements to which they are subject. The PCA regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms alone do not represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion; brokered deposits may not be accepted, renewed or rolled over; and capital restoration plans are required. As of December 31, 2023 and 2022, the most recent regulatory notifications categorized the Bank as well capitalized under the PCA. There are no events or conditions since this notification that management believes have changed the Bank’s capital category. 112 Table of Contents Actual and required capital amounts and ratios are presented below as of December 31, 2023 and 2022. The capital adequacy ratio includes the capital conservation buffer. Actual For Capital Adequacy Purposes (1) To Be Well Capitalized Under Prompt Corrective Action Provisions Amount Ratio Amount Ratio Amount Ratio December 31, 2023 Total Capital to Risk Weighted Assets Consolidated $ 725,091 15.99 % $ 476,235 10.50 % N/A N/A Bank 603,409 13.36 474,339 10.50 $ 451,751 10.00 % Tier 1 (Core) Capital to Risk Weighted Assets Consolidated 598,785 13.20 385,523 8.50 N/A N/A Bank 563,412 12.47 383,989 8.50 361,401 8.00 Common equity Tier 1 to Risk Weighted Assets Consolidated 521,000 11.49 317,490 7.00 N/A N/A Bank 556,033 12.31 316,226 7.00 293,638 6.50 Tier 1 (Core) Capital to Average Assets Consolidated 598,785 10.54 227,231 4.00 N/A N/A Bank 563,412 9.86 228,573 4.00 285,716 5.00 December 31, 2022 Total Capital to Risk Weighted Assets Consolidated $ 688,164 16.08 % $ 449,370 10.50 % N/A N/A Bank 525,048 12.32 447,436 10.50 $ 426,130 10.00 % Tier 1 (Core) Capital to Risk Weighted Assets Consolidated 566,454 13.24 363,776 8.50 N/A N/A Bank 489,374 11.48 362,210 8.50 340,904 8.00 Common equity Tier 1 to Risk Weighted Assets Consolidated 488,669 11.42 299,580 7.00 N/A N/A Bank 481,995 11.31 298,291 7.00 276,984 6.50 Tier 1 (Core) Capital to Average Assets Consolidated 566,454 10.74 210,988 4.00 N/A N/A Bank 489,374 9.22 212,283 4.00 265,354 5.00 (1) The minimum amounts and ratios as of December 31, 2023 and 2022 include the full phase in of the capital conservation buffer of 2.5 percent required by the Basel III framework. Certain restrictions exist regarding the ability of the Bank to transfer funds to the Corporation in the form of cash dividends, loans or advances. During 2023, $ 421.5 million of accumulated net earnings of the Bank included in consolidated shareholders’ equity, plus any 2024 net profits retained to the date of the dividend declared, is available for distribution to the Corporation as dividends without prior regulatory approval, subject to regulatory capital requirements described above. 17. Derivative Instruments On September 7, 2018, the Corporation executed an interest rate swap agreement with a 5-year term and an effective date of September 15, 2018 in order to hedge cash flows associated with $ 10.0 million of a subordinated note that was issued by the Corporation during 2007 and elected cash flow hedge accounting for the agreement. The Corporation’s objective in using this derivative is to add stability to interest expense and to manage its exposure to interest rate risk. The interest rate swap involves the receipt of variable-rate amounts in exchange for fixed-rate payments from September 15, 2018 to September 15, 2023 without the exchange of the underlying notional amount. The swap that expired on September 15, 2023 was not renewed. As of December 31, 2023 and 2022, no derivatives were designated as fair value hedges or hedges of net investments in foreign operations. Additionally, the Corporation does not use derivatives for trading or speculative purposes and currently does not have any derivatives that are not designated as hedges. 113 Table of Contents The following tables provide information about the amounts and locations of activity related to the interest rate swaps designated as cash flow hedges within the Corporation’s consolidated balance sheet and statement of income as of December 31, 2023 and 2022 and for the years ended December 31, 2023, 2022, and 2021: Liability Derivative Balance Sheet Fair value Location December 31, 2023 December 31, 2022 Interest rate contract Accrued interest receivable (payable) and other assets (liabilities) $ — $ 150 For the Year Ended December 31, 2023 (a) (b) (c) (d) (e) Interest rate contract $( 119 ) Interest expense – subordinated debentures $ 151 Other income $ — For the Year Ended December 31, 2022 Interest rate contract 425 Interest expense – subordinated debentures ( 127 ) Other income — For the Year Ended December 31, 2021 Interest rate contract 301 Interest expense – subordinated debentures ( 276 ) Other income — (a) Amount of Gain or (Loss) Recognized in Other Comprehensive Loss on Derivative (Effective Portion), net of tax (b) Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion) (c) Amount of Loss Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion) (d) Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing) (e) Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing) As of December 31, 2023 and 2022, a cash collateral balance of zero and $ 200 thousand, respectively, was maintained with the counterparty to the interest rate swaps. These balances are included in interest bearing deposits with other banks on the consolidated balance sheets. The Corporation entered into certain interest rate swap contracts that are not designated as hedging instruments. These derivative contracts relate to transactions in which the Corporation enters into an interest rate swap with a customer while at the same time entering into an offsetting interest rate swap with another financial institution. In connection with each swap transaction, the Corporation agrees to pay interest to the customer on a notional amount at a variable interest rate and receive interest from the customer on a similar notional amount at a fixed interest rate. Concurrently, the Corporation agrees to pay another financial institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. The transaction allows the Corporation’s customers to effectively convert a variable rate loan to a fixed rate. Because the Corporation acts as an intermediary for its customer, changes in the fair value of the underlying derivative contracts offset each other and do not impact the Corporation’s results of operations. The Corporation pledged cash collateral to another financial institution with a balance $ 173 thousand as of December 31, 2023 and $ 173 thousand as of December 31, 2022. This balance is included in cash and due from banks on the consolidated balance sheets. The Corporation may require its customers to post cash or securities as collateral on its program of back-to-back swaps depending upon the specific facts and circumstances surrounding each loan and individual swap. In addition, certain language is included in the International Swaps and Derivatives Association agreement and loan documents where, in default situations, the Corporation is permitted to access collateral supporting the loan relationship to recover any losses suffered on the derivative asset or liability. The Corporation may be required to post additional collateral to swap counterparties in the future in proportion to potential increases in unrealized loss positions. Effective on September 30, 2023, the Corporation amended all of the back-to-back swap contracts to reference the 1-month SOFR plus a credit spread adjustment of 11.448 basis points "Fallback SOFR." 114 Table of Contents The following table provides information about the amounts and locations of activity related to the back-to-back interest rate swaps within the Corporation’s consolidated balance sheet as of December 31, 2023 and 2022: Current Notional Amount Average Maturity (in years) Weighted Average Fixed Rate Weighted Average Variable Rate Fair Value December 31, 2023 3 rd Party interest rate swaps $ 21,302 4.9 4.19 % 1 month Fallback SOFR + 1.79 % $ 1,013 (a) Customer interest rate swaps ( 21,302 ) 4.9 4.19 % 1 month Fallback SOFR + 1.79 % ( 1,013 ) (b) December 31, 2022 3 rd Party interest rate swaps $ 31,417 4.9 4.12 % 1 month LIBOR + 1.68 % $ 1,700 (a) Customer interest rate swaps ( 31,417 ) 4.9 4.12 % 1 month LIBOR + 1.68 % ( 1,700 ) (b) (a) Reported in accrued interest receivable and other assets within the consolidated balance sheets (b) Reported in accrued interest payable and other liabilities within the consolidated balance sheets Risk Participation Agreements The Corporation entered into Risk Participation Agreement ("RPA") swaps with other financial institution related to loans in which the Corporation is a participant. The RPAs provide credit protection to the financial institutions should the borrower fail to perform on its interest rate derivative contracts with the financial institutions. The notional amounts of these contingent agreements total $ 21.7 million as of December 31, 2023, and zero as of December 31, 2022. 18. Off-Balance Sheet Commitments and Contingencies The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The Corporation's exposure to credit loss in the event of nonperformance by the other party of the financial instrument for commitments to extend credit and standby letters of credit is represented by the contract or notional amount of those instruments. The Corporation uses the same credit policies for underwriting all loans, including these commitments and conditional obligations. As of December 31, 2023 and 2022, the Corporation did not own or trade other financial instruments with significant off-balance sheet risk including derivatives such as futures, forwards, option contracts and the like, although such instruments may be appropriate to use in the future to manage interest rate risk. See Note 17, “Derivative Instruments,” for a description of interest rate derivatives entered into by the Corporation. Standby letters of credit are conditional commitments issued by the Corporation to guarantee the performance of a customer to a third party. The contract or notional amount of these instruments reflects the maximum amount of future payments that the Corporation could be required to pay under the guarantees if there were a total default by the guaranteed parties, without consideration for possible recoveries under recourse provisions or from collateral held or pledged. In addition, many of these commitments are expected to expire without being drawn upon; therefore, the total commitment amounts do not necessarily represent future cash requirements. The Corporation's maximum obligation to extend credit for loan commitments (unfunded loans and unused lines of credit) and standby letters of credit outstanding as of December 31, 2023 and 2022 were as follows: December 31, 2023 December 31, 2022 Fixed Rate Variable Rate Fixed Rate Variable Rate Commitments to make loans $ 111,526 $ 370,437 $ 126,594 $ 441,008 Unused lines of credit 11,219 789,534 7,444 725,277 Standby letters of credit 18,649 2,480 16,124 1,603 115 Table of Contents Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Corporation evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Corporation upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral that is held varies but may include securities, accounts receivable, inventory, property, plant and equipment, and residential and income-producing commercial properties. Allowance for Credit Losses on Unfunded Loan Commitments The Corporation maintains an allowance for credit losses on unfunded commercial lending commitments and letters of credit to provide for the risk of loss inherent in these arrangements. The allowance is computed using a methodology similar to that used to determine the allowance for credit losses for loans receivable, modified to take into account the probability of a draw-down on the commitment. The provision for credit losses on unfunded loan commitments is included in the provision for credit losses on the Corporation's consolidated statements of income. The allowance for unfunded commitments is included in other liabilities in the consolidated balance sheets. Note 3, "Loans Receivable and Allowance for Credit Losses," in the consolidated financial statements provides more detail concerning the provision for credit losses related to the loan portfolio of the Corporation. The following table presents activity in the allowance for credit losses on unfunded loan commitments for the years ended December 31, 2023, 2022, and 2021, respectively: Year ended December 31, 2023 2022 2021 Beginning balance $ 603 $ — $ — Provision for credit losses on unfunded loan commitments (1) 156 603 — Ending balance $ 759 $ 603 $ — (1) Excludes provision for credit losses related to the loan portfolio. Other Off-Balance Sheet Commitments The Corporation makes investments in limited partnerships, including certain small business investment corporations and low income housing partnerships. Capital contributions for investments in small business companies ("SBIC") and other limited partnerships, reported in FHLB and other restricted stock holdings and investments on the consolidated balance sheet, as of December 31, 2023 and 2022, were $ 21.7 million and $ 17.0 million, respectively. Unfunded capital commitments in investments in SBIC's and other limited partnerships totaled $ 6.8 million and $ 5.5 million as of December 31, 2023 and 2022, respectively. These investments are accounted for under the equity method of accounting. Qualified Affordable Housing Project Investments The carrying value of investments in the low income housing partnerships, reported in FHLB and other restricted stock holdings and investments on the consolidated balance sheet, as of December 31, 2023 and 2022 were $ 3.8 million and $ 4.5 million, respectively. The related amortization for the years ended December 31, 2023, 2022, and 2021 were $ 747 thousand, $ 803 thousand, and $ 691 thousand, respectively. Unfunded commitments, reported in accrued interest payable and other liabilities on the consolidated balance sheet, as of December 31, 2023 and 2022, were $ 796 thousand and $ 1.0 million, respectively. Litigation The Corporation is subject to claims and lawsuits that arise primarily in the ordinary course of business. It is the opinion of management the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the consolidated financial position, results of operations and cash flows of the Corporation. 116 Table of Contents 19. Parent Company Only Financial Information CONDENSED BALANCE SHEETS December 31, 2023 2022 Assets Cash $ 100,427 $ 142,832 Equity securities 1,795 2,750 Investment in bank subsidiary 548,493 466,268 Investment in non-bank subsidiaries 23,262 21,566 Deferred assets and current receivables 1,894 1,782 Other assets 925 931 Total assets $ 676,796 $ 636,129 Liabilities Subordinated debentures $ 104,887 $ 104,584 Other liabilities 662 783 Total liabilities 105,549 105,367 Stockholders' equity 571,247 530,762 Total liabilities and stockholders' equity $ 676,796 $ 636,129 CONDENSED STATEMENTS OF INCOME Year Ended December 31, Income: 2023 2022 2021 Dividends from: Bank subsidiary $ 22,295 $ 21,225 $ 22,165 Non-bank subsidiaries 1,325 1,431 1,700 Other 240 198 210 Total income 23,860 22,854 24,075 Expenses ( 7,084 ) ( 6,112 ) ( 6,657 ) Income before income taxes and equity in undistributed net income of subsidiaries: 16,776 16,742 17,418 Change in net unrealized holdings gains (losses) on equity securities not held for trading ( 722 ) ( 132 ) 121 Income tax benefit 1,606 1,422 1,381 Equity in undistributed net income of bank subsidiary 38,702 43,846 37,178 Equity in undistributed (distributions in excess) of net income of non-bank subsidiaries 1,658 1,310 1,609 Net income 58,020 63,188 57,707 Dividends on preferred stock ( 4,302 ) ( 4,302 ) ( 4,302 ) Net income available to common stockholders $ 53,718 $ 58,886 $ 53,405 Comprehensive income attributable to the parent $ 58,020 $ 63,613 $ 58,008 117 Table of Contents CONDENSED STATEMENTS OF CASH FLOWS Year Ended December 31, 2023 2022 2021 Net income Adjustments to reconcile net income to net cash provided by $ 58,020 $ 63,188 $ 57,707 Operating activities: Equity in undistributed net income of bank subsidiary ( 38,702 ) ( 43,846 ) ( 37,178 ) (Equity in undistributed) distributions in excess of net income of non–bank subsidiaries ( 1,658 ) ( 1,310 ) ( 1,609 ) Net realized and unrealized (gains) losses on equity securities 700 132 ( 121 ) Decrease in other assets ( 230 ) 609 60 Increase in other liabilities 2,064 1,571 978 Net cash provided by operating activities 20,194 20,344 19,837 Cash flows from investing activities: Purchase of equity securities ( 41 ) ( 32 ) — Sales and maturities of equity securities with readily determinable fair value 296 — — Investment in bank subsidiaries ( 37,000 ) — — Net cash used in investing activities ( 36,745 ) ( 32 ) — Cash flows from financing activities: Dividends paid on common stock ( 14,694 ) ( 12,557 ) ( 11,550 ) Dividends paid on preferred stock ( 4,302 ) ( 4,302 ) ( 4,302 ) Proceeds from issuance of long term debt — — 83,484 Repayment of long term debt — — ( 50,000 ) Purchase of treasury stock ( 6,858 ) ( 1,707 ) ( 1,163 ) Net proceeds from issuance of common stock — 94,051 — Net cash provided by financing activities ( 25,854 ) 75,485 16,469 Net (decrease) increase in cash ( 42,405 ) 95,797 36,306 Cash beginning of year 142,832 47,035 10,729 Cash end of year $ 100,427 $ 142,832 $ 47,035 20. Earnings Per Share The computation of basic and diluted earnings per common share is shown below. There were no anti-dilutive stock options for the years ended December 31, 2023, 2022, and 2021. Years Ended December 31, 2023 2022 2021 Basic earnings per common share computation Net income per consolidated statements of income $ 53,718 $ 58,886 $ 53,405 Net earnings allocated to participating securities ( 283 ) ( 229 ) ( 183 ) Net earnings allocated to common stock $ 53,435 $ 58,657 $ 53,222 Distributed earnings allocated to common stock $ 14,607 $ 12,508 $ 11,514 Undistributed earnings allocated to common stock 38,828 46,149 41,708 Net earnings allocated to common stock $ 53,435 $ 58,657 $ 53,222 Weighted average common shares outstanding, including shares considered participating securities 21,010 18,057 16,875 Less: Average participating securities ( 106 ) ( 70 ) ( 55 ) Weighted average shares 20,904 17,987 16,820 Basic earnings per common share $ 2.56 $ 3.26 $ 3.16 Diluted earnings per common share computation Net earnings allocated to common stock $ 53,435 $ 58,657 $ 53,222 Weighted average common shares outstanding for basic earnings per common share 20,904 17,987 16,820 Add: Dilutive effects of performance based-shares 40 33 — Weighted average shares and dilutive potential common shares 20,944 18,020 16,820 Diluted earnings per common share $ 2.55 $ 3.26 $ 3.16 118 Table of Contents 21. Other Comprehensive Income Other comprehensive income components and related tax effects were as follows for the years ended December 31, 2023, 2022, and 2021: December 31, 2023 December 31, 2022 December 31, 2021 Unrealized holding gains (losses) on available-for-sale securities $ 7,785 $ ( 67,167 ) $ ( 19,526 ) Less reclassification adjustment for gains recognized in earnings ( 52 ) ( 651 ) ( 783 ) Net unrealized gains (losses) 7,733 ( 67,818 ) ( 20,309 ) Tax effect ( 1,624 ) 14,242 4,265 Net-of-tax amount 6,109 ( 53,576 ) ( 16,044 ) Amortization of unrealized gains from held-to-maturity securities 748 1,107 — Tax effect ( 157 ) ( 232 ) — Net-of-tax amount 591 875 — Actuarial gains (losses) on postemployment health care plan ( 2 ) 303 391 Net amortization of transition obligation and actuarial gain ( 174 ) ( 113 ) ( 43 ) Net unrealized gains (losses) on postemployment health care plan ( 176 ) 190 348 Tax effect 37 ( 40 ) ( 73 ) Net-of-tax amount ( 139 ) 150 275 Unrealized gains on interest rate swap — 411 105 Less reclassification adjustment for gains (losses) recognized in earnings ( 151 ) 127 276 Net unrealized gains (losses) ( 151 ) 538 381 Tax effect 32 ( 113 ) ( 80 ) Net-of-tax amount ( 119 ) 425 301 Other comprehensive income (loss) $ 6,442 $ ( 52,126 ) $ ( 15,468 ) The following is a summary of the change in the accumulated other comprehensive income (loss) balance, net of tax, for the years ended December 31, 2023, 2022, and 2021. Balance December 31, 2022 Comprehensive Income (Loss) Balance December 31, 2023 Unrealized gains on securities available-for-sale $ ( 54,282 ) $ 6,109 $ ( 48,173 ) Amortization of unrealized gains from held-to-maturity securities 875 591 1,466 Unrealized gains (losses) on postretirement benefits plan 768 ( 139 ) 629 Unrealized gains (losses) on interest rate swap 119 ( 119 ) — Total $ ( 52,520 ) $ 6,442 $ ( 46,078 ) Balance December 31, 2021 Comprehensive Income (Loss) Balance December 31, 2022 Unrealized losses on securities available-for-sale $ ( 706 ) $ ( 53,576 ) $ ( 54,282 ) Amortization of unrealized gains from held-to-maturity securities — 875 875 Unrealized gains on postretirement benefits plan 618 150 768 Unrealized gains (losses) on interest rate swap ( 306 ) 425 119 Total $ ( 394 ) $ ( 52,126 ) $ ( 52,520 ) Balance January 1, 2021 Comprehensive Income (Loss) Balance December 31, 2021 Unrealized gains (losses) on securities available-for-sale $ 15,338 $ ( 16,044 ) $ ( 706 ) Unrealized gains on postretirement benefits plan 343 275 618 Unrealized gains (losses) on interest rate swap ( 607 ) 301 ( 306 ) Total $ 15,074 $ ( 15,468 ) $ ( 394 ) 119 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.