CITIZENS & NORTHERN CORP 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain statements in this section and elsewhere in this Annual Report on Form 10-K are forward-looking statements. Citizens & Northern Corporation and its wholly-owned subsidiaries (collectively, the Corporation) intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Reform Act of 1995. Forward-looking statements, which are not historical facts, are based on certain assumptions and describe future plans, business objectives and expectations, and are generally identifiable by the use of words such as, "should", “likely”, "expect", “plan”, "anticipate", “target”, “forecast”, and “goal”. These forward-looking statements are subject to risks and uncertainties that are difficult to predict, may be beyond management’s control and could cause results to differ materially from those expressed or implied by such forward-looking statements. Factors which could have a material, adverse impact on the operations and future prospects of the Corporation include, but are not limited to, the following: ● changes in monetary and fiscal policies of the Federal Reserve Board and the U.S. Government, particularly related to changes in interest rates ● changes in general economic conditions ● recent adverse developments in the banking industry highlighted by high-profile bank failures and the potential impact of such developments on customer confidence, sources of liquidity and capital funding, and regulatory responses to these developments ● the Corporation’s credit standards and its on-going credit assessment processes might not protect it from significant credit losses ● legislative or regulatory changes ● downturn in demand for loan, deposit and other financial services in the Corporation’s market area ● increased competition from other banks and non-bank providers of financial services ● technological changes and increased technology-related costs ● information security breach or other technology difficulties or failures ● changes in accounting principles, or the application of generally accepted accounting principles ● failure to achieve merger-related synergies and difficulties in integrating the business and operations of acquired institutions ● fraud and cyber malfunction risks as usage of artificial intelligence continues to expand ​ These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. ​ 13 Table of Contents EARNINGS OVERVIEW 2023 vs. 2022 Net income for the year ended December 31, 2023 was $24,148,000, or $1.57 per diluted share, as compared to $26,618,000, or $1.71 per diluted share, for the year ended December 31, 2022. As described in more detail below, the results for 2023 included the impact of a $1.3 million charge, or $0.08 per diluted share, related to the repositioning of available-for-sale securities and BOLI investments. Significant variances were as follows: ● In December 2023 , the Corporation repositioned its available-for-sale securities portfolio and its investments in bank-owned life insurance (“BOLI”). As a result of the repositioning, the Corporation recognized a net charge to earnings of approximately $1.3 million, or $0.08 per diluted share in the fourth quarter 2023 reflecting the net impact of: (1) a $3.0 million pre-tax loss and after-tax loss of $2.4 million from the sale of available-for-sale debt securities with an amortized cost basis of $45.5 million, (2) a tax charge of $950,000 from initiating the surrender of BOLI with a book value of $14.3 million, and (3) noninterest income of $2.1 million from a one-time enhancement on a $30 million purchase of new BOLI. Proceeds from the sale of securities were used in the $30 million purchase of BOLI as noted and in purchases totaling $13.7 million of debt securities in December 2023. Management expects to recover the fourth quarter 2023 loss in less than one year from reinvestment in assets with higher yields as compared to the yields on the assets sold or surrendered. ● For the year ended December 31, 2023, net interest income totaled $80,400,000, $2,728,000 lower than in 2022. The interest rate spread decreased 0.66%, as the average rate on interest-bearing liabilities was higher by 1.36% while the average yield on earning assets increased 0.70%. The net interest margin was 3.47% in 2023, down from 3.77% in 2022. Average total earning assets increased $101,418,000 in 2023 over 2022, including an increase in average loans receivable of $164,055,000, or 10.1%. Average interest-bearing deposits increased $27,528,000 while average total deposits decreased $8,486,000, or 0.4%, in 2023 as compared to 2022. ● For the year ended December 31, 2023, there was a provision for credit losses of $186,000, a decrease of $7,069,000 in expense compared to $7,255,000 in 2022. The provision for 2023 included expense related to loans receivable of $753,000 and a credit related to off-balance sheet exposures of $567,000. The expense related to loans receivable was mainly attributable to qualitative adjustments of the Corporation’s historical loss experience in estimating the allowance for credit losses (“ACL”) and the impact of an economic forecast, as well as a reduction in the Corporation’s average net charge-off experience used in the calculation of the ACL. The ACL as a percentage of gross loans receivable was 1.04% at December 31, 2023 as compared to 1.08% at January 1, 2023 upon the initial adoption of CECL. For the year ended December 31, 2023, net charge-offs totaled $264,000 or 0.01% of gross loans receivable as compared to $4,177,000 or 0.26% of gross loans receivable in 2022. ● Noninterest income, excluding realized (losses) gains on available-for-sale debt securities, totaled $27,453,000 for the year ended December 31, 2023, up $3,041,000 from the comparable category for the year ended December 31, 2022. Significant variances included the following: Ø Increase in cash surrender value of life insurance of $2,703,000 increased $2,158,000 in 2023 from 2022 including $2,100,000 in income from a one-time enhancement on a $30 million purchase of new BOLI as previously discussed. ​ Ø Other noninterest income of $4,610,000 increased $912,000 as dividends on FHLB-Pittsburgh stock totaled $1,138,000, an increase of $541,000. Additionally, in 2023, the Corporation recognized income of $156,000 from dividends on Federal Reserve Bank stock with no comparable amount in 2022 and income of $234,000, with no comparable amount in 2022, from a conversion assistance payment received related to a change in wealth management platform for providing brokerage and investment advisory services. ​ Ø Service charges on deposit accounts of $5,567,000 increased $548,000 as the volume of consumer and business overdraft activity increased and included in 2022 was a reduction in income of $290,000 related to refunds of consumer overdraft fees as the result of updated regulatory guidance on certain overdraft fees. ​ Ø Trust revenue of $7,413,000 increased $419,000 reflecting revenue from new business. ​ 14 Table of Contents Ø Brokerage and insurance revenue of $1,675,000 decreased $616,000 due to a reduction in sales volume. ​ Ø Loan servicing fees, net, of $602,000 decreased $358,000, as the fair value of servicing rights decreased $200,000 in 2023 as compared to an increase of $126,000 in 2022. ​ ● Net losses on available-for-sale debt securities were $3,036,000 for the year ended December 31, 2023, compared to net gains on available-for-sale debt securities of $20,000 for the year ended December 31, 2022. The net losses on available-for-sale debt securities of $3,036,000 for the year ended December 31, 2023, were primarily from the sales in the fourth quarter related to the previously described repositioning of the portfolio. ● Noninterest expense totaled $74,148,000 for the year ended December 31, 2023, an increase of $6,193,000 from the total for the year ended December 31, 2022. Significant variances included the following: Ø Other noninterest expense of $11,233,000 increased $3,012,000. Within this category, significant variances included the following: ◾ Other operational losses included net increase in expense of $854,000 to $505,000 in other losses in 2023 from a net reduction in expense of $349,000 in 2022. Included in 2023 is $427,000 related to a trust department tax compliance matter while most of the reduction in other losses in 2022 was from recoveries or reversals of previously recorded charges related to trust department tax compliance matters. Also included in other operational losses was $232,000 of expenses related to check fraud in 2023 with no comparable amount in 2022. ◾ FDIC insurance expense increased $481,000, reflecting the impact of an increase in base deposit insurance assessment rate applicable to all banks. ◾ Legal fees totaled $759,000 in 2023, an increase of $261,000, mainly due to fees incurred related to non-litigation-related corporate matters. ◾ In 2023, the allowance for disallowed SBA claims decreased $90,000, resulting in a reduction in expense of the same amount, reflecting better than previously estimated claims experience. The comparable amount in 2022 was a reduction in expense of $367,000. At December 31, 2023, there was no remaining allowance for disallowed SBA claims. ◾ Included in 2022 was a reduction of $172,000 in expense related to credit losses on off balance sheet exposures. In 2023, the net credit for credit losses related to off-balance sheet exposures of $211,000 is included in the provision for credit losses in the consolidated statements of income. Ø Salaries and employee benefits expense of $44,195,000 increased $2,362,000, including increases in base salaries expense of $1,713,000, or 6.0% and in estimated cash and stock-based incentive compensation expense of $670,000 consistent with comparisons in both years of the Corporation’s earnings performance to that of defined peer groups . Ø Data processing and telecommunications expense of $7,582,000 increased $776,000, including the impact of increases in software licensing and maintenance costs as well as costs related to enhancements of data management capabilities. ​ Ø Professional fees of $2,497,000 increased $492,000, including $389,000 of conversion costs related to a change in wealth management platform for providing brokerage and investment advisory services. ​ Ø Pennsylvania shares tax expense of $1,602,000 in 2023 is lower by $354,000, consistent with a reduction in C&N Bank’s equity that provides the base for determining the annual tax. ​ ● The income tax provision of $6,335,000, or 20.8% of pre-tax income for the year ended December 31, 2023 increased $603,000 from $5,732,000, or 17.7% of pre-tax income for the year ended December 31, 2022. The higher effective rate in 2023 includes: (1) the tax charge of $950,000 for the initiated surrender of BOLI; (2) an increase in nondeductible interest expense; (3) the impact of the increase in trust department tax compliance-related penalties; and (4) the impact of the permanent difference related to stock-based compensation resulting in an increase in taxable income in 2023 as compared to a deduction in 2022 due to the reduction in CZNC stock price. Partially offsetting the higher effective rate in 2023 was the non-taxable income of $2,100,000 from a one-time enhancement on $30 million purchase of new BOLI. 15 Table of Contents 2022 vs. 2021 Net income for the year ended December 31, 2022 was $26,618,000, or $1.71 per diluted share as compared to 2021 net income of $30,554,000 or $1.92 per share. Significant variances were as follows: ● Net interest income of $83,128,000 in 2022 was up $5,189,000 over the 2021 total. The net interest margin increased to 3.77% in 2022 from 3.69% in 2021. Interest income from available-for-sale debt securities, on a fully taxable-equivalent basis, increased $3,610,000 in 2022 as compared to 2021, as the average balance (at amortized cost) of available-for-sale debt securities increased $168.2 million. Total interest and fees on loans increased $4,289,000 in 2022 as compared to 2021. Interest and fees on loans included $1,852,000 in 2022 and $231,000 in 2021 from repayments received on purchased credit impaired loans in excess of previous carrying amounts. Total interest and fees from the Small Business Administration’s Paycheck Protection Program (“PPP”) loans were $958,000 in 2022, a decrease of $5,572,000 from the 2021 total of $6,530,000. Average outstanding loans increased $31.3 million, despite a reduction in average PPP loans of $89.2 million. Average loans, excluding PPP loans, were up $120.6 million (8.0%) in 2022 as compared to 2021. Average total deposits increased $75.0 million (3.9%) in 2022 as compared to 2021. ● The provision for loan losses of $7,255,000 for 2022 was higher than the 2021 provision by $3,594,000. In 2022, the provision includes the impact of partial charge-offs totaling $3,942,000 on a commercial real estate secured participation loan to a borrower in the health care industry. In total, the provision for 2022 includes $3,890,000 related to specific loans (net charge-offs of $4,177,000 and net decrease in specific allowances on loans of $287,000), an increase of $3,036,000 in the collectively determined portion of the allowance and a $329,000 increase in the unallocated portion. In comparison, the provision for loan losses in 2021 includes $1,324,000 related to specific loans (net charge-offs of $1,509,000 and a decrease in specific allowances on loans of $185,000), an increase of $2,251,000 in the collectively determined portion of the allowance and an $86,000 increase in the unallocated portion. ● Noninterest income decreased $1,449,000, or 5.6% in 2022 from 2021. Significant variances include the following: Ø Net gains from sales of loans of $757,000 decreased $2,671,000 reflecting a reduction in volume of residential mortgage loans sold. ​ Ø Trust revenue of $6,994,000 decreased $240,000 reflecting the impact of market value depreciation of assets under management. ​ Ø Brokerage and insurance revenue of $2,291,000 increased $431,000 due to commissions on higher transaction volumes for the year. ​ Ø Service charges on deposit accounts of $5,019,000 increased $386,000 as the volume of consumer and business overdraft and other activity increased partially offset by the impact of refunds resulting from updated regulatory guidance on certain consumer overdraft fees. ​ Ø Interchange revenue from debit card transactions of $4,148,000 increased $293,000, reflecting an increase in transaction volumes. ​ Ø Loan servicing fees, net of $960,000 increased $266,000, reflecting growth in volume of residential mortgage loans sold with servicing retained. Further, the fair value of servicing rights increased $126,000 in 2022 as compared to a decrease of $68,000 in 2021 mainly due to changes in assumptions related to prepayments of mortgage loans. ​ Ø Other noninterest income of $3,699,000 increased $119,000, including increases in income from interest rate swap fees on commercial loans of $268,000, credit card interchange income of $107,000 and dividend income from Federal Home Loan Bank stock of $83,000. Offsetting decreases include a $147,000 reduction in income from title agencies and an increase in unrealized fair value depreciation on a marketable equity security of $83,000. ​ ● Noninterest expense increased $5,483,000, or 8.8% in 2022 over 2021. Significant variances included the following: 16 Table of Contents Ø Salaries and employee benefits of $41,833,000 increased $4,230,000, including an increase in base salaries expense of $3.8 million reflecting merit-based salary increases and an increase in number of personnel related to expansion of the Southcentral PA market with the opening of an office in Lancaster. Additional increases include an increase in health care expense of $658,000 due to higher claims on the Corporation’s partially self-insured plan, $327,000 related to savings, retirement and pension plan contribution expenses, $249,000 related to payroll taxes and $131,000 due to a lower portion of payroll costs capitalized (added to the carrying value of loans) due to the higher volume of PPP loans originated in 2021. Decreases include a reduction in estimated cash and stock-based incentive compensation expense of $822,000 consistent with a comparison of the Corporation’s earnings performance to that of defined peer groups and a reduction in severance expense of $232,000. Ø Data processing and telecommunications of $6,806,000 increased $903,000, including the impact of increases in software licensing and maintenance costs as well as costs related to enhancements of data management capabilities. Ø Net occupancy and equipment expense of $5,533,000 increased $549,000, including accelerated depreciation expense of $329,000 related to the closure of two branches in November 2022. Ø Automated teller machine and interchange expense increased $168,000 reflecting increased volume of activity. Ø Professional fees of $1,601,000 decreased $238,000, mainly due to decreases in recruiting services and PPP loan processing-related professional fees. Ø Other noninterest expense totaled $8,221,000, a decrease of $134,000 from 2021. Within this category, significant variances included the following: ● There was a net reduction in other operational losses of $348,000 in 2022 as compared to expense of $199,000 in 2021. In 2022, there was a reduction in expense resulting from abatement of Trust Department tax compliance penalties for which expense was recorded in 2020 and a favorable outcome on appeal of a Trust Department state tax reporting matter for which expense was also recorded in 2020. ● There was a reduction in expense related to credit losses on off balance sheet exposures related to residential mortgage loans sold of $172,000 in 2022 as compared to a provision for credit losses of $135,000 in 2021. ● The allowance for SBA claim adjustments decreased, reflecting more favorable claim results than previously estimated, resulting in a reduction in expense of $367,000 in 2022 as compared to a reduction in expense of $236,000 in 2021. ● Travel and entertainment expenses totaled $457,000 in 2022, an increase of $236,000 over 2021, as the volume of travel and related costs for meetings with customers and internal meetings increased. ​ ● The income tax provision of $5,732,000, or 17.7% of pre-tax income for the year ended December 31, 2022, decreased $1,401,000 from $7,133,000, or 18.9% of pre-tax income for the year ended December 31, 2021. The lower provision in 2022 includes the impact of a reduction in pre-tax income. The lower effective tax rate in 2022 includes the impact of higher tax-exempt interest as a percentage of pre-tax income, a larger permanent difference (deduction) related to restricted stock compensation and the benefit of a $340,000 reduction in expense from the reversal of tax penalties being non-deductible. More detailed information concerning the Corporation’s earnings results are provided in other sections of Management’s Discussion and Analysis. CRITICAL ACCOUNTING POLICIES The presentation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect many of the reported amounts and disclosures. Actual results could differ from these estimates. Allowance for Credit Losses on Loans – A material estimate that is particularly susceptible to significant change is the determination of the allowance for credit losses (ACL) on loans. The Corporation maintains an ACL on loans which represents management’s estimate of expected net charge-offs over the life of the loans. The ACL includes two primary components: (i) an allowance established on loans which share similar risk characteristics collectively evaluated for credit losses (collective basis), and (ii) an allowance established on loans which do not share similar risk characteristics with any loan segment and which are individually evaluated for credit losses 17 Table of Contents (individual basis). Management considers the determination of the ACL on loans to be critical because it requires significant judgment regarding estimates of expected credit losses based on the Corporation’s historical loss experience, current conditions and economic forecasts. Management’s evaluation is based upon a continuous review of the Corporation’s loans, with consideration given to evaluations resulting from examinations performed by regulatory authorities. Notes 1 and 7 to the consolidated financial statements provide an overview of the process management uses for determining the ACL, and additional discussion of the ACL is provided in a separate section of Management’s Discussion and Analysis. The ACL may increase or decrease due to changes in economic conditions affecting borrowers and macroeconomic variables, including new information regarding existing problem loans, identification of additional problem loans, changes in the fair value of underlying collateral, unforeseen events such as natural disasters and pandemics, and other factors. Because current economic conditions and forecasts can change and future events are inherently difficult to predict, the anticipated amount of estimated credit losses on loans, and therefore the appropriateness of the ACL, could change significantly. Fair Value of Available-For-Sale Debt Securities – Another material estimate is the calculation of fair values of the Corporation’s debt securities. For most of the Corporation’s debt securities, the Corporation receives estimated fair values of debt securities from an independent valuation service, or from brokers. In developing fair values, the valuation service and the brokers use estimates of cash flows, based on historical performance of similar instruments in similar interest rate environments. Based on experience, management is aware that estimated fair values of debt securities tend to vary among brokers and other valuation services. NET INTEREST INCOME The Corporation’s primary source of operating income is net interest income, which is equal to the difference between the amounts of interest income and interest expense. Tables I, II and III include information regarding the Corporation’s net interest income in 2023, 2022 and 2021. In each of these tables, the amounts of interest income earned on tax-exempt securities and loans have been adjusted to a fully taxable-equivalent basis. The Corporation believes presentation of net interest income on a fully taxable-equivalent basis provides investors with meaningful information for purposes of comparing returns on tax-exempt securities and loans with returns on taxable securities and loans. Accordingly, the net interest income amounts reflected in these tables exceed the amounts presented in the consolidated financial statements. The discussion that follows is based on amounts in the tables. 2023 vs. 2022 Fully taxable equivalent net interest income was $81,319,000 in 2023, $3,035,000 (3.6%) lower than in 2022. The decrease in net interest income reflected an increase in interest expense of $23,585,000 (includes $17,595,000 interest on deposits and $5,990,000 in interest on borrowings) and an increase of $20,550,000 in total interest income as compared to 2022. As presented in Table II, the Net Interest Margin was 3.47% in 2023, as compared to 3.77% in 2022, and the “Interest Rate Spread” (excess of average rate of return on earning assets over average cost of funds on interest-bearing liabilities) decreased to 2.91% in 2023 from 3.57% in 2022. The average yield on earning assets of 4.89% was 0.70% higher in 2023 as compared to 2022, while the average rate on interest bearing liabilities of 1.98% was 1.36% higher in 2023 as compared to 2022. Table III shows the net impact of changes in volume of earning assets and interest-bearing liabilities increased net interest income for 2023 over 2022 by $2,679,000, while the net impact of changes in interest rates (primarily increases) decreased net interest income by $5,714,000. Income from purchase accounting-related adjustments in 2023 had a positive effect on net interest income of $697,000, including an increase in income on loans of $623,000 and a net reduction in interest expense on time deposits and borrowed funds totaling $74,000. The positive impact of purchase accounting-related adjustments to the net interest margin was 0.03% in 2023. In comparison, the net positive impact of purchase accounting-related adjustments was $1,621,000, with a positive impact on the net interest margin of 0.07% in 2022. INTEREST INCOME AND EARNING ASSETS Interest income totaled $114,423,000 in 2023, an increase of $20,550,000, or 21.9%, from 2022. Interest and fees from loans receivable increased $20,540,000 in 2023 as compared to 2022. In 2023, the fully taxable equivalent yield on loans was 5.67%, up from 4.98% in 2022, reflecting the effects of rising interest rates on the loan portfolio. Average outstanding loans receivable increased $164,055,000 (10.1%) to $1,792,149,000 in 2023 from $1,628,094,000 in 2022. The Corporation has 18 Table of Contents experienced growth in outstanding commercial real estate and residential mortgage loans over the last three quarters of 2022 and in 2023. Income from interest-bearing due from banks totaled $1,379,000 in 2023, an increase of $734,000 from the total for 2022. The average yield on interest-bearing due from banks was 4.22% in 2023 and 1.25% in 2022. The average balance of interest-bearing due from banks was $32,709,000 in 2023 as compared to $51,407,000 in 2022. The average balance of interest-bearing due from banks fell to 1.4% of average earning assets in 2023 from 2.3% in 2022 as excess funds were invested primarily in loans. Within this category, the largest asset balance in 2023 and 2022 has been interest-bearing deposits held with the Federal Reserve. Interest income from available-for-sale debt securities, on a fully taxable-equivalent basis, decreased $711,000 in 2023 as compared to 2022, as the average balance (at amortized cost) of available-for-sale debt securities decreased $43.0 million as indicated in Table II. The average yield on available-for-sale debt securities was 2.21% for 2023, up from 2.16% in 2022. INTEREST EXPENSE AND INTEREST-BEARING LIABILITIES Interest expense increased $23,585,000 to $33,104,000 in 2023 from $9,519,000 in 2022. Interest expense on deposits increased $17,595,000, as the average rate on interest-bearing deposits increased to 1.66% in 2023 from 0.46% in 2022 reflecting the impact of increases in market rates in 2023. Average total deposits (interest-bearing and noninterest-bearing) amounted to $1,971,926,000 for 2023, down $8,486,000 (0.4%) from $1,980,412,000 in 2022. Within average deposits, average brokered deposits were $47,424,000 at an average rate of 4.78% for 2023 as compared to $33,458,000 at an average rate of 1.71% in 2022. The deposit mix changed significantly in 2023. Average time deposits increased $96,224,000 and average interest checking deposits increased $45,654,000, while the average total balance of money market accounts decreased $95,954,000, the average balance of noninterest bearing demand deposits decreased $36,014,000 and average savings deposits decreased $18,396,000. Interest expense on short-term borrowings in 2023 was $2,811,000 as compared to $429,000 in 2022 as the average balance of short-term borrowings increased to $62,926,000 in 2023 from $21,766,000 in 2022. The average rate on short-term borrowings was 5.15% in 2023 compared to 1.97% in 2022. Interest expense on long-term borrowings (FHLB advances) increased $3,334,000 to $4,230,000 in 2023 from $896,000 in 2022. The average balance of long-term borrowings was $110,943,000 in 2023, up from an average balance of $40,194,000 in 2022. Borrowings are classified as long-term within the Tables based on their term at origination or assumption in business combinations. The average rate on long-term borrowings was 3.81% in 2023 compared to 2.23% in 2022. Interest expense on senior notes issued in May 2021 totaled $479,000 in 2023 as compared to $477,000 in 2022. The average rate on senior notes was 3.24% in 2023 and in 2022. Interest expense on subordinated debt decreased $157,000 to $922,000 in 2023 from $1,079,000 in 2022. The average balance of subordinated debt decreased to $24,662,000 in 2023 from $27,116,000 in 2022 and the average rate on subordinated debt decreased to 3.74% in 2023 from 3.98% in 2022 reflecting the repayment of subordinated debt assumed in an acquisition of $8,500,000 in the second quarter 2022. 2022 vs. 2021 Fully taxable equivalent net interest income was $84,354,000 in 2022, $5,280,000 (6.7%) higher than in 2021. Interest income was $8,237,000 higher in 2022 as compared to 2021; interest expense was higher by $2,957,000 in comparing the same periods. As presented in Table II, the Net Interest Margin was 3.77% in 2022, as compared to 3.69% in 2021, and the “Interest Rate Spread” (excess of average rate of return on earning assets over average cost of funds on interest-bearing liabilities) increased slightly to 3.57% in 2022 from 3.55% in 2021. The average yield on earning assets of 4.19% was 0.20% higher in 2022 as compared to 2021, and the average rate on interest bearing liabilities of 0.62% was 0.18% higher in 2022 as compared to 2021. Table III shows that, in the aggregate, rising interest rates in 2022 had a positive impact on net interest income as the portion of the increase attributable to changes in rate was $4,976,000. Income from purchase accounting-related adjustments in 2022 had a positive effect on net interest income of $1,621,000, including an increase in income on loans of $1,216,000 and a net reduction in interest expense on time deposits and borrowed funds totaling $405,000. 19 Table of Contents The positive impact of purchase accounting-related adjustments to the net interest margin was 0.07% in 2022. In comparison, the net positive impact of purchase accounting-related adjustments was $2,659,000, with a positive impact on the net interest margin of 0.13% in 2021. INTEREST INCOME AND EARNING ASSETS Interest income totaled $93,873,000 in 2022, an increase of $8,237,000, or 9.6% from 2021. Interest income from available-for-sale debt securities, on a fully taxable-equivalent basis, increased $3,610,000 in 2022 as compared to 2021, as the average balance (at amortized cost) of available-for-sale debt securities increased $168.2 million as indicated in Table II. The average yield on available-for-sale debt securities was 2.16% for 2022, down slightly from 2.17% in 2021. Interest and fees from loans receivable increased $4,289,000 in 2022 as compared to 2021. Total interest and fees from loans excluding PPP loans increased $9,861,000 in 2022 as compared to 2021. Interest and fees on PPP loans totaled $958,000 in 2022, a decrease of $5,572,000 from 2021, as previously deferred fees were recognized in income upon the SBA’s repayment of loans based on forgiveness of the underlying borrowers. In 2022, total interest and fees on loans included $1,852,000 from repayments received on purchased credit impaired loans in excess of previous carrying amounts as compared to income from similar repayments of $231,000 in 2021. Average outstanding loans receivable increased $31,338,000 (2.0%) to $1,628,094,000 in 2022 from $1,596,756,000 in 2021, despite a reduction in average PPP loans of $89,246,000. Average total loans outstanding, excluding PPP loans, increased $120,584,000 (8.0%). The fully taxable equivalent yield on loans in 2022 was 4.98% compared to 4.81% in 2021. The average yield on loans included the positive impact of the income on PCI loans in 2022. The comparatively high yield on PPP loans provided a benefit to the margin in both periods though the higher volume resulted in a larger benefit in 2021. Excluding PPP loans and income from excess repayments on purchased credit impaired loans, the adjusted yield on loans was 4.83% in 2022, up from the similarly adjusted yield of 4.67% in 2021. Income from interest-bearing due from banks totaled $645,000 in 2022, an increase of $327,000 from the total for 2021. The average yield on interest-bearing due from banks was 1.25% in 2022 and 0.20% in 2021. The average balance of interest-bearing due from banks was $51,407,000 in 2022 as compared to $156,152,000 in 2021. The average balance of interest-bearing due from banks fell to 2.3% of average earning assets in 2022 from 7.3% in 2021 as excess funds were invested in securities and loans. INTEREST EXPENSE AND INTEREST-BEARING LIABILITIES Interest expense increased $2,957,000, or 45.1%, to $9,519,000 in 2022 from $6,562,000 in 2021. Interest expense on deposits increased $2,100,000. Table II shows the average rate on interest-bearing deposits increased to 0.46% in 2022 from 0.33% in 2021 reflecting the impact of increases in market rates in 2022. Average total deposits (interest-bearing and noninterest-bearing) increased $75,012,000 (3.9%) to $1,980,412,000 in 2022 from $1,905,400 in 2021. Average time deposits decreased $42,552,000, while the average total balance of other categories increased $117,564,000, or 7.5%. The increase in average deposits included the impact of growth in commercial deposits, reflecting higher average balances maintained and new business. Interest expense on short-term borrowings in 2022 was $429,000 as compared to $23,000 in 2021. The average balance of short-term borrowings increased to $21,766,000 in 2022 from $6,269,000 in 2021. The average rate on short-term borrowings was 1.97% in 2022 compared to 0.37% in 2021. Interest expense on long-term borrowings (FHLB advances) increased $497,000 to $896,000 in 2022 from $399,000 in 2021. The average balance of long-term borrowings was $40,194,000 in 2022, down from an average balance of $44,026,000 in 2021. The average rate on long-term borrowings was 2.23% in 2022 compared to 0.91% in 2021. Interest expense on senior notes issued in May 2021 totaled $477,000 in 2022 as compared to $293,000 in 2021. The average balance of the senior notes increased to $14,733,000 in 2022 from $9,129,000 in 2021. The average rate on senior notes was 3.24% in 2022 and 3.21% in 2021. 20 Table of Contents Interest expense on subordinated debt decreased $230,000 to $1,079,000 in 2022 from $1,309,000 in 2021. The average balance of subordinated debt decreased slightly to $27,116,000 in 2022 from $27,399,000 in 2021. The average rate on subordinated debt decreased to 3.98% in 2022 from 4.78% in 2021 including the net impact of a new issue of subordinated debt of $24,437,000, net, at an effective rate of 3.74% in May 2021 and the redemption of subordinated notes totaling $8,000,000 in the second quarter 2021 and $8,500,000 in the second quarter 2002. ​ 21 Table of Contents TABLE I - ANALYSIS OF INTEREST INCOME AND EXPENSE ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ Increase/(Decrease) (In Thousands) 2023 2022 ​ 2021 ​ 2023/2022 2022/2021 INTEREST INCOME ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest-bearing due from banks ​ $ 1,379 ​ $ 645 ​ $ 318 ​ $ 734 ​ $ 327 Available-for-sale debt securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Taxable ​ 8,555 ​ 8,360 ​ 5,114 ​ 195 ​ 3,246 Tax-exempt ​ 2,815 ​ 3,721 ​ 3,357 ​ (906) ​ 364 Total available-for-sale debt securities ​ 11,370 ​ 12,081 ​ 8,471 ​ (711) ​ 3,610 Loans receivable: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Taxable ​ 98,843 ​ 77,641 ​ 68,019 ​ 21,202 ​ 9,622 Paycheck Protection Program ​ ​ 11 ​ ​ 54 ​ ​ 3,476 ​ ​ (43) ​ ​ (3,422) Tax-exempt ​ 2,756 ​ 2,471 ​ 2,232 ​ 285 ​ 239 Total loans receivable ​ 101,610 ​ 81,070 ​ 76,781 ​ 20,540 ​ 4,289 Other earning assets ​ 64 ​ 77 ​ 66 ​ (13) ​ 11 Total Interest Income ​ 114,423 ​ 93,873 ​ 85,636 ​ 20,550 ​ 8,237 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ INTEREST EXPENSE ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest-bearing deposits: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest checking ​ 7,668 ​ 1,833 ​ 897 ​ 5,835 ​ 936 Money market ​ 5,686 ​ 2,088 ​ 1,156 ​ 3,598 ​ 932 Savings ​ 243 ​ 257 ​ 231 ​ (14) ​ 26 Time deposits ​ 10,636 ​ 2,460 ​ 2,254 ​ 8,176 ​ 206 Total interest-bearing deposits ​ 24,233 ​ 6,638 ​ 4,538 ​ 17,595 ​ 2,100 Borrowed funds: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Short-term ​ 3,240 ​ 429 ​ 23 ​ 2,811 ​ 406 Long-term - FHLB advances ​ 4,230 ​ 896 ​ 399 ​ 3,334 ​ 497 Senior notes, net ​ ​ 479 ​ ​ 477 ​ ​ 293 ​ ​ 2 ​ ​ 184 Subordinated debt, net ​ 922 ​ 1,079 ​ 1,309 ​ (157) ​ (230) Total borrowed funds ​ 8,871 ​ 2,881 ​ 2,024 ​ 5,990 ​ 857 Total Interest Expense ​ 33,104 ​ 9,519 ​ 6,562 ​ 23,585 ​ 2,957 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net Interest Income ​ $ 81,319 ​ $ 84,354 ​ $ 79,074 ​ $ (3,035) ​ $ 5,280 ​ (1) Interest income from tax-exempt securities and loans has been adjusted to a fully taxable-equivalent basis (a non-GAAP measure), using the Corporation’s marginal federal income tax rate of 21%. (2) Fees on loans are included with interest on loans and amounted to $1,856,000 in 2023, $2,958,000 in 2022 and $7,958,000 in 2021. (3) The table that follows is a reconciliation of net interest income under U.S. GAAP as compared to net interest income as adjusted to a fully taxable-equivalent basis. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) ​ Year Ended ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ Increase/(Decrease) ​ ​ 2023 2022 ​ 2021 ​ 2023/2022 2022/2021 Net Interest Income Under U.S. GAAP ​ $ 80,400 ​ $ 83,128 ​ $ 77,939 ​ $ (2,728) ​ $ 5,189 Add: fully taxable-equivalent interest income adjustment from tax-exempt securities ​ ​ 388 ​ ​ 720 ​ ​ 673 ​ ​ (332) ​ ​ 47 Add: fully taxable-equivalent interest income adjustment from tax-exempt loans ​ ​ 531 ​ ​ 506 ​ ​ 462 ​ ​ 25 ​ ​ 44 Net Interest Income as adjusted to a fully taxable-equivalent basis ​ $ 81,319 ​ $ 84,354 ​ $ 79,074 ​ $ (3,035) ​ $ 5,280 22 Table of Contents TABLE II - ANALYSIS OF AVERAGE DAILY BALANCES AND RATES ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Dollars In Thousands) Year ​ ​ ​ ​ Year ​ ​ ​ ​ Year ​ ​ ​ ​ ​ Ended ​ Rate of ​ ​ Ended ​ Rate of ​ ​ Ended ​ Rate of ​ ​ 12/31/2023 ​ Return/ ​ ​ 12/31/2022 ​ Return/ ​ ​ 12/31/2021 ​ Return/ ​ ​ Average ​ Cost of ​ Average ​ Cost of ​ Average ​ Cost of ​ ​ Balance Funds% ​ Balance Funds% ​ Balance Funds% ​ EARNING ASSETS ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest-bearing due from banks $ 32,709 ​ ​ 4.22 % ​ $ 51,407 ​ ​ 1.25 % ​ $ 156,152 ​ ​ 0.20 % Available-for-sale debt securities, at amortized cost: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Taxable 389,456 ​ 2.20 % ​ 410,033 ​ 2.04 % ​ 262,880 ​ 1.95 % Tax-exempt 125,920 ​ 2.24 % ​ 148,344 ​ 2.51 % ​ 127,283 ​ 2.64 % Total available-for-sale debt securities 515,376 ​ 2.21 % ​ 558,377 ​ 2.16 % ​ 390,163 ​ 2.17 % Loans receivable: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Taxable 1,703,697 ​ 5.80 % ​ 1,533,417 ​ 5.06 % ​ 1,426,150 ​ 4.77 % Paycheck Protection Program ​ 142 ​ ​ 7.75 % ​ ​ 8,406 ​ ​ 11.40 % ​ ​ 97,652 ​ ​ 6.69 % Tax-exempt 88,310 ​ 3.12 % ​ 86,271 ​ 2.86 % ​ 72,954 ​ 3.06 % Total loans receivable 1,792,149 ​ 5.67 % ​ 1,628,094 ​ 4.98 % ​ 1,596,756 ​ 4.81 % Other earning assets 1,383 ​ 4.63 % ​ 2,321 ​ 3.32 % ​ 2,404 ​ 2.75 % Total Earning Assets 2,341,617 ​ 4.89 % ​ 2,240,199 ​ 4.19 % ​ 2,145,475 ​ 3.99 % Cash 22,108 ​ ​ ​ 22,685 ​ ​ ​ 24,132 ​ ​ Unrealized (loss) gain on securities (63,118) ​ ​ ​ (38,784) ​ ​ ​ 10,676 ​ ​ Allowance for credit losses (18,498) ​ ​ ​ (14,962) ​ ​ ​ (12,354) ​ ​ Bank-owned life insurance ​ 31,808 ​ ​ ​ ​ ​ ​ 30,925 ​ ​ ​ ​ ​ ​ 30,373 ​ ​ ​ ​ Bank premises and equipment 21,330 ​ ​ ​ ​ 21,559 ​ ​ ​ ​ 20,814 ​ ​ ​ Intangible assets 55,176 ​ ​ ​ ​ 55,599 ​ ​ ​ ​ 56,086 ​ ​ ​ Other assets 72,433 ​ ​ ​ ​ 55,567 ​ ​ ​ ​ 44,032 ​ ​ ​ Total Assets $ 2,462,856 ​ ​ ​ ​ ​ $ 2,372,788 ​ ​ ​ ​ ​ $ 2,319,234 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ INTEREST-BEARING LIABILITIES ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest-bearing deposits: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest checking $ 488,761 ​ ​ 1.57 % ​ $ 443,107 ​ ​ 0.41 % ​ $ 399,130 ​ ​ 0.22 % Money market ​ 347,130 ​ ​ 1.64 % ​ ​ 443,084 ​ ​ 0.47 % ​ ​ 433,508 ​ ​ 0.27 % Savings ​ 238,760 ​ ​ 0.10 % ​ ​ 257,156 ​ ​ 0.10 % ​ ​ 228,411 ​ ​ 0.10 % Time deposits ​ 381,488 ​ ​ 2.79 % ​ ​ 285,264 ​ ​ 0.86 % ​ ​ 327,816 ​ ​ 0.69 % Total interest-bearing deposits 1,456,139 ​ 1.66 % ​ 1,428,611 ​ 0.46 % ​ 1,388,865 ​ 0.33 % Borrowed funds: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Short-term 62,926 ​ 5.15 % ​ 21,766 ​ 1.97 % ​ 6,269 ​ 0.37 % Long-term - FHLB advances 110,943 ​ 3.81 % ​ 40,194 ​ 2.23 % ​ 44,026 ​ 0.91 % Senior notes, net ​ 14,798 ​ 3.24 % ​ ​ 14,733 ​ 3.24 % ​ ​ 9,129 ​ 3.21 % Subordinated debt, net 24,662 ​ 3.74 % ​ 27,116 ​ 3.98 % ​ 27,399 ​ 4.78 % Total borrowed funds 213,329 ​ 4.16 % ​ 103,809 ​ 2.78 % ​ 86,823 ​ 2.33 % Total Interest-bearing Liabilities. 1,669,468 ​ 1.98 % ​ 1,532,420 ​ 0.62 % ​ 1,475,688 ​ 0.44 % Demand deposits ​ 515,787 ​ ​ ​ ​ ​ ​ 551,801 ​ ​ ​ ​ ​ ​ 516,535 ​ ​ ​ ​ Other liabilities ​ 29,107 ​ ​ ​ ​ ​ ​ 23,474 ​ ​ ​ ​ ​ ​ 25,785 ​ ​ ​ ​ Total Liabilities ​ 2,214,362 ​ ​ ​ ​ ​ ​ 2,107,695 ​ ​ ​ ​ ​ ​ 2,018,008 ​ ​ ​ ​ Stockholders' equity, excluding accumulated other comprehensive (loss) income ​ 297,894 ​ ​ ​ ​ ​ ​ 295,447 ​ ​ ​ ​ ​ ​ 292,683 ​ ​ ​ ​ Accumulated other comprehensive (loss) income ​ (49,400) ​ ​ ​ ​ ​ ​ (30,354) ​ ​ ​ ​ ​ ​ 8,543 ​ ​ ​ ​ Total Stockholders' Equity ​ 248,494 ​ ​ ​ ​ ​ ​ 265,093 ​ ​ ​ ​ ​ ​ 301,226 ​ ​ ​ ​ Total Liabilities and Stockholders' Equity $ 2,462,856 ​ ​ ​ ​ ​ $ 2,372,788 ​ ​ ​ ​ ​ $ 2,319,234 ​ ​ ​ ​ Interest Rate Spread ​ ​ ​ ​ 2.91 % ​ ​ ​ ​ ​ 3.57 % ​ ​ ​ ​ ​ 3.55 % Net Interest Income/Earning Assets ​ ​ ​ ​ 3.47 % ​ ​ ​ ​ ​ 3.77 % ​ ​ ​ ​ ​ 3.69 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Deposits (Interest-bearing and Demand) $ 1,971,926 ​ ​ ​ ​ ​ $ 1,980,412 ​ ​ ​ ​ ​ $ 1,905,400 ​ ​ ​ ​ (1) Rates of return on tax-exempt securities and loans are presented on a fully taxable-equivalent basis, using the Corporation’s marginal federal income tax rate of 21%. (2) Nonaccrual loans have been included with loans for the purpose of analyzing net interest earnings. ​ ​ ​ 23 Table of Contents TABLE III - ANALYSIS OF VOLUME AND RATE CHANGES ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) Year Ended 12/31/2023 vs. 12/31/2022 . ​ Year Ended 12/31/2022 vs. 12/31/2021 ​ Change in ​ Change in ​ Total ​ Change in ​ Change in ​ Total ​ Volume Rate Change ​ Volume Rate Change EARNING ASSETS ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest-bearing due from banks ​ $ (309) ​ $ 1,043 ​ $ 734 ​ ​ $ (339) ​ $ 666 ​ $ 327 Available-for-sale debt securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Taxable ​ (433) ​ 628 ​ 195 ​ ​ 2,989 ​ 257 ​ 3,246 Tax-exempt ​ (527) ​ (379) ​ (906) ​ ​ 534 ​ (170) ​ 364 Total available-for-sale debt securities ​ (960) ​ 249 ​ (711) ​ ​ 3,523 ​ 87 ​ 3,610 Loans receivable: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Taxable ​ 9,165 ​ ​ 12,037 ​ 21,202 ​ ​ 5,289 ​ 4,333 ​ 9,622 Paycheck Protection Program ​ ​ (714) ​ ​ (233) ​ ​ (947) ​ ​ ​ (4,664) ​ ​ 1,242 ​ ​ (3,422) Tax-exempt ​ 59 ​ 226 ​ 285 ​ ​ 388 ​ (149) ​ 239 Total loans receivable ​ 8,510 ​ 12,030 ​ 20,540 ​ ​ (2,756) ​ 7,045 ​ 4,289 Other earning assets ​ (37) ​ ​ 24 ​ (13) ​ ​ (2) ​ 13 ​ 11 Total Interest Income ​ 7,204 ​ 13,346 ​ 20,550 ​ ​ 426 ​ 7,811 ​ 8,237 ​ ​ ​ ​ ​ ​ ​ ​ INTEREST-BEARING LIABILITIES ​ ​ ​ ​ ​ ​ ​ Interest-bearing deposits: ​ ​ ​ ​ ​ ​ ​ Interest checking ​ 208 ​ 5,627 ​ 5,835 ​ ​ 109 ​ 827 ​ 936 Money market ​ (542) ​ 4,140 ​ 3,598 ​ ​ 27 ​ 905 ​ 932 Savings ​ (14) ​ 0 ​ (14) ​ ​ 29 ​ (3) ​ 26 Time deposits ​ 1,073 ​ 7,103 ​ 8,176 ​ ​ (318) ​ 524 ​ 206 Total interest-bearing deposits ​ 725 ​ 16,870 ​ 17,595 ​ ​ (153) ​ 2,253 ​ 2,100 Borrowed funds: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Short-term ​ 1,517 ​ 1,294 ​ 2,811 ​ ​ 146 ​ 260 ​ 406 Long-term - FHLB advances ​ 2,375 ​ 959 ​ 3,334 ​ ​ (38) ​ 535 ​ 497 Senior notes, net ​ ​ 2 ​ ​ 0 ​ ​ 2 ​ ​ ​ 181 ​ ​ 3 ​ ​ 184 Subordinated debt, net ​ (94) ​ (63) ​ (157) ​ ​ (14) ​ (216) ​ (230) Total borrowed funds ​ 3,800 ​ 2,190 ​ 5,990 ​ ​ 275 ​ 582 ​ 857 Total Interest Expense ​ 4,525 ​ 19,060 ​ 23,585 ​ ​ 122 ​ 2,835 ​ 2,957 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net Interest Income ​ $ 2,679 ​ $ (5,714) ​ $ (3,035) ​ ​ $ 304 ​ $ 4,976 ​ $ 5,280 (1) Changes in income on tax-exempt securities and loans are presented on a fully taxable-equivalent basis, using the Corporation’s marginal federal income tax rate of 21%. (2) The change in interest due to both volume and rates has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each. ​ ​ 24 Table of Contents NONINTEREST INCOME TABLE IV - COMPARISON OF NONINTEREST INCOME ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Dollars in Thousands) ​ Year Ended ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ $ ​ % ​ 2023 ​ 2022 ​ Change ​ Change Trust revenue ​ $ 7,413 ​ $ 6,994 ​ $ 419 ​ 6.0 % Brokerage and insurance revenue ​ 1,675 ​ ​ 2,291 ​ ​ (616) ​ (26.9) % Service charges on deposit accounts ​ 5,567 ​ ​ 5,019 ​ ​ 548 ​ 10.9 % Interchange revenue from debit card transactions ​ 4,160 ​ ​ 4,148 ​ ​ 12 ​ 0.3 % Net gains from sales of loans ​ 723 ​ ​ 757 ​ ​ (34) ​ (4.5) % Loan servicing fees, net ​ 602 ​ ​ 960 ​ ​ (358) ​ (37.3) % Increase in cash surrender value of life insurance ​ 2,703 ​ ​ 545 ​ ​ 2,158 ​ 396.0 % Other noninterest income ​ 4,610 ​ ​ 3,698 ​ ​ 912 ​ 24.7 % Realized (losses) gains on available-for-sale debt securities, net ​ ​ (3,036) ​ ​ 20 ​ ​ (3,056) ​ N/M % Total noninterest income ​ $ 24,417 ​ $ 24,432 ​ $ (15) ​ (0.1) % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Dollars in Thousands) ​ Year Ended ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ $ ​ % ​ 2022 ​ 2021 ​ Change ​ Change Trust revenue ​ $ 6,994 ​ $ 7,234 ​ $ (240) ​ (3.3) % Brokerage and insurance revenue ​ 2,291 ​ ​ 1,860 ​ ​ 431 ​ 23.2 % Service charges on deposit accounts ​ 5,019 ​ ​ 4,633 ​ ​ 386 ​ 8.3 % Interchange revenue from debit card transactions ​ 4,148 ​ ​ 3,855 ​ ​ 293 ​ 7.6 % Net gains from sales of loans ​ 757 ​ ​ 3,428 ​ ​ (2,671) ​ (77.9) % Loan servicing fees, net ​ 960 ​ ​ 694 ​ ​ 266 ​ 38.3 ​ Increase in cash surrender value of life insurance ​ 545 ​ ​ 573 ​ ​ (28) ​ (4.9) % Other noninterest income ​ 3,698 ​ ​ 3,580 ​ ​ 118 ​ 3.3 % Realized gains on available-for-sale debt securities, net ​ ​ 20 ​ ​ 24 ​ ​ (4) ​ (16.7) % Total noninterest income ​ $ 24,432 ​ $ 25,881 ​ $ (1,449) ​ (5.6) % ​ NONINTEREST EXPENSE TABLE V - COMPARISON OF NONINTEREST EXPENSE ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Dollars in Thousands) ​ Year Ended ​ ​ ​ ​ ​ ​ ​ December 31, ​ $ ​ % ​ ​ 2023 ​ 2022 ​ Change ​ Change Salaries and employee benefits $ 44,195 $ 41,833 $ 2,362 5.6 % Net occupancy and equipment expense ​ 5,357 ​ 5,533 ​ (176) (3.2) % Data processing and telecommunications expense ​ 7,582 ​ 6,806 ​ 776 11.4 % Automated teller machine and interchange expense ​ 1,682 ​ 1,601 ​ 81 5.1 % Pennsylvania shares tax ​ 1,602 ​ 1,956 ​ (354) (18.1) % Professional fees ​ 2,497 ​ 2,005 ​ 492 24.5 % Other noninterest expense ​ 11,233 ​ 8,221 ​ 3,012 36.6 % Total noninterest expense ​ $ 74,148 ​ $ 67,955 ​ $ 6,193 9.1 % ​ ​ 25 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Dollars in Thousands) ​ Year Ended ​ ​ ​ ​ ​ ​ ​ December 31, ​ $ ​ % ​ ​ 2022 ​ 2021 ​ Change ​ Change Salaries and employee benefits $ 41,833 $ 37,603 $ 4,230 11.2 % Net occupancy and equipment expense ​ 5,533 ​ 4,984 ​ 549 11.0 % Data processing and telecommunications expense ​ 6,806 ​ 5,903 ​ 903 15.3 % Automated teller machine and interchange expense ​ 1,601 ​ 1,433 ​ 168 11.7 % Pennsylvania shares tax ​ 1,956 ​ 1,951 ​ 5 0.3 % Professional fees ​ 2,005 ​ 2,243 ​ (238) (10.6) % Other noninterest expense ​ 8,221 ​ 8,355 ​ (134) (1.6) % Total noninterest expense ​ $ 67,955 ​ $ 62,472 ​ $ 5,483 8.8 % ​ Additional detailed information concerning fluctuations in the Corporation’s earnings results and other financial information are provided in other sections of Management’s Discussion and Analysis. INCOME TAXES The effective income tax rate was 20.8% of pre-tax income in 2023, up from 17.7% in 2022 and 18.9% in 2021. The higher effective income tax rate in 2023 as compared to 2022 includes: (1) a tax charge of $950,000 for the initiated surrender of BOLI; (2) an increase in nondeductible interest expense; (3) an increase in non-deductible trust department tax compliance-related penalties; and (4) a permanent difference related to stock-based compensation resulting in an increase in taxable income in 2023 as compared to a deduction in 2022 due to the reduction in CZNC stock price. Partially offsetting the higher effective rate in 2023 was the non-taxable income of $2,100,000 from a one-time enhancement on $30 million purchase of new BOLI. The Corporation’s effective tax rates differed from the federal statutory rate of 21% mainly because of the effects of tax-exempt interest income for 2022 and 2021. The lower effective income tax rate in 2022 as compared to 2021 resulted mainly from an increase in the proportion of tax-exempt interest income to total pre-tax income. The Corporation recognizes deferred tax assets and liabilities based on differences between the financial statement carrying amounts and the tax basis of assets and liabilities. At December 31, 2023, the net deferred tax asset was $17,441,000, down from the balance at December 31, 2022 of $20,884,000. The most significant change in temporary difference components was a decrease of $3,056,000 in the net deferred tax asset related to the unrealized loss on available-for-sale debt securities, consistent with a decrease in interest rates. The Corporation regularly reviews deferred tax assets for recoverability based on history of earnings, expectations for future earnings and expected timing of reversals of temporary differences. Realization of deferred tax assets ultimately depends on the existence of sufficient taxable income, including taxable income in prior carryback years, as well as future taxable income. Further, the value of the benefit from realization of deferred tax assets would be impacted if income tax rates were changed from currently enacted levels. Management believes the recorded net deferred tax asset at December 31, 2023 is fully realizable; however, if management determines the Corporation will be unable to realize all or part of the net deferred tax asset, the Corporation would adjust the deferred tax asset, which would negatively impact earnings. Additional information related to income taxes is presented in Note 13 to the consolidated financial statements. SECURITIES Management continually evaluates several objectives in determining the size, securities mix and other characteristics of the available-for-sale debt securities (investment) portfolio. Key objectives include supporting liquidity needs, maximizing return on earning assets within reasonable risk parameters and providing a means to hedge the Corporation’s overall asset-sensitive interest rate risk exposure, while maintaining high credit quality. Table VI shows the composition of the available-for-sale debt securities portfolio at December 31, 2023, 2022 and 2021. The total amortized cost of available-for-sale debt securities decreased $96,826,000 to $464,968,000 at December 31, 2023 from $561,794,000 at December 31, 2022. The decrease in 2023 followed an increase of $50,202,000 at December 31, 2022 as compared to December 31, 2021. The decrease in the amortized cost basis of the securities portfolio at December 31, 2023 resulted from maturities and proceeds 26 Table of Contents from sales which included the sale of available-for-sale debt securities with an amortized cost basis of $45.5 million as part of the repositioning of its available-for-sale securities portfolio in December 2023. In 2022, the increase in the amortized cost basis of the securities portfolio resulted from management’s decision to invest excess funds available mainly due to growth in deposits. At December 31, 2023, the largest categories of securities held as a percentage of total amortized cost, were as follows: (1) tax-exempt and taxable municipal bonds, 37.0%; (2) residential mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies, including pass-through securities and collateralized mortgage obligations, 33.5%; and (3) commercial mortgage-backed securities issued or guaranteed by U.S. Government sponsored agencies, 16.4%. The composition of the available-for-sale debt securities portfolio at December 31, 2023, December 31, 2022 and December 31, 2021 is as follows: TABLE VI - INVESTMENT SECURITIES ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 ​ 2022 ​ 2021 ​ ​ Amortized ​ Fair ​ Amortized ​ Fair ​ Amortized ​ Fair (In Thousands) Cost Value ​ Cost Value Cost Value ​ AVAILABLE-FOR-SALE DEBT SECURITIES: ​ ​ ​ ​ ​ ​ ​ ​ Obligations of the U.S. Treasury ​ $ 12,325 ​ $ 11,290 ​ $ 35,166 ​ $ 31,836 ​ $ 25,058 ​ $ 24,912 ​ Obligations of U.S. Government agencies ​ ​ 11,119 ​ ​ 9,946 ​ ​ 25,938 ​ ​ 23,430 ​ ​ 23,936 ​ ​ 24,091 ​ Bank holding company debt securities ​ ​ 28,952 ​ ​ 23,500 ​ ​ 28,945 ​ ​ 25,386 ​ ​ 18,000 ​ ​ 17,987 ​ Obligations of states and political subdivisions: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Tax-exempt ​ 113,464 ​ 104,199 ​ 146,149 ​ 132,623 ​ 143,427 ​ 148,028 ​ Taxable ​ 58,720 ​ 50,111 ​ 68,488 ​ 56,812 ​ 72,182 ​ 72,765 ​ Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies: ​ ​ ​ ​ ​ ​ ​ Residential pass-through securities ​ 105,549 ​ 95,405 ​ 112,782 ​ 99,941 ​ 98,048 ​ 98,181 ​ Residential collateralized mortgage obligations ​ 50,212 ​ 46,462 ​ 44,868 ​ 40,296 ​ 44,015 ​ 44,247 ​ Commercial mortgage-backed securities ​ 76,412 ​ 66,682 ​ 91,388 ​ 79,686 ​ 86,926 ​ 87,468 ​ Private label commercial mortgage-backed securities ​ 8,215 ​ 8,160 ​ 8,070 ​ 8,023 ​ 0 ​ 0 ​ Total Available-for-Sale Debt Securities ​ $ 464,968 ​ $ 415,755 ​ $ 561,794 ​ $ 498,033 ​ $ 511,592 ​ $ 517,679 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Aggregate Unrealized (Loss) Gain ​ ​ ​ ​ $ (49,213) ​ ​ ​ ​ $ (63,761) ​ ​ ​ ​ $ 6,087 ​ Aggregate Unrealized (Loss) Gain as a % of Amortized Cost ​ ​ ​ ​ ​ (10.6) % ​ ​ ​ ​ (11.3) % ​ ​ ​ ​ 1.2 % Market Yield on 5-Year U.S. Treasury Obligations (a) ​ ​ ​ ​ ​ 3.84 % ​ ​ ​ ​ 3.99 % ​ ​ ​ ​ 1.26 % ​ (a) Source: Treasury.gov (Daily Treasury Par Yield Curve Rates) As reflected in the table above, the fair value of available-for-sale securities was lower than the amortized cost basis by $49,213,000, or 10.6% at December 31, 2023 and $63,761,000 or 11.3% at December 31, 2022 while the aggregate unrealized gain position was $6,087,000 (1.2%) at December 31, 2021. The volatility in the fair value of the portfolio, including the significant reduction in fair value, resulted from changes in interest rates. As shown above, the market yield on the 5-year U.S. Treasury Note was 0.15% lower at December 31, 2023 in comparison to December 31, 2022, and 2.58% higher than at December 31, 2021. Additional information regarding the potential impact of interest rate changes on all of the Corporation’s financial instruments is provided in Item 7A, Quantitative and Qualitative Disclosures about Market Risk. As described in Note 6 to the consolidated financial statements, management determined the Corporation does not have the intent to sell, nor is it more likely than not that it will be required to sell, available-for-sale debt securities in an unrealized loss position at December 31, 2023 before it is able to recover the amortized cost basis. Further, management reviewed the Corporation’s holdings as of December 31, 2023 and concluded there were no credit-related declines in fair value. Additional information related to the types of securities held at December 31, 2023, other than securities issued or guaranteed by U.S. Government entities or agencies, is as follows: 27 Table of Contents ● Bank holding company debt securities – All of the Corporation’s holdings of bank holding company debt securities were investment grade and there have been no payment defaults. There were seven securities with face amounts ranging from $3 million to $5 million, including one senior security and six subordinated securities. All of the issuers have publicly traded common stock . At December 31, 2023, the securities have external ratings ranging from BBB-/Baa3 to A-. ● Obligations of states and political subdivisions (municipal bonds) – All of the Corporation’s holdings of municipal bonds were investment grade and there have been no payment defaults. Summary ratings information at December 31, 2023, based on the amortized cost basis and reflecting the lowest enhanced or underlying rating by Moody’s, Standard & Poors or Fitch, is as follows: AAA or pre-refunded – 21% of the portfolio; AA – 72%; A – 7%. ● Private label commercial mortgage-backed securities (PLCMBS) – There were two PLCMBS securities, both of which were from the most senior payment (subordination) classes of their respective issuances. These securities were investment grade (rated Aaa), and there have been no payment defaults on these securities. Based on the results of management’s assessment, there was no ACL required on available-for-sale debt securities in an unrealized loss position at December 31, 2023. The following table presents the contractual maturities and the weighted-average yields (calculated based on amortized cost) of investment securities as of December 31, 2023. Yields on tax-exempt securities are presented on a fully taxable-equivalent basis. For callable securities, yields on securities purchased at a discount are based on yield-to-maturity, while yields on securities purchased at a premium are based on yield to the first call date. Yields on mortgage-backed securities are estimated and include the effects of prepayment assumptions. Actual maturities may differ from contractual maturities because counterparties may have the right to call or prepay obligations with or without call or prepayment penalties. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Within ​ One- ​ Five- ​ After ​ ​ ​ ​ ​ ​ One ​ ​ ​ Five ​ ​ ​ Ten ​ ​ ​ Ten ​ ​ ​ ​ ​ ​ ​ (Dollars In Thousands) ​ Year ​ Yield ​ Years ​ Yield ​ Years ​ Yield ​ Years ​ Yield ​ Total ​ Yield AVAILABLE-FOR-SALE DEBT SECURITIES: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Obligations of the U.S. Treasury ​ $ 4,238 ​ 1.13 % $ 3,075 ​ 1.20 % $ 5,012 ​ 1.51 % $ 0 ​ 0.00 % $ 12,325 ​ 1.30 % Obligations of U.S. Government agencies ​ ​ 0 0.00 % ​ 0 0.00 % ​ 7,412 2.54 % ​ 3,707 3.45 % ​ 11,119 2.84 % Bank holding company debt securities ​ ​ 0 0.00 % ​ 0 0.00 % ​ 28,952 3.47 % ​ 0 0.00 % ​ 28,952 3.47 % Obligations of states and political subdivisions: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Tax-exempt ​ 1,684 2.07 % 14,899 2.40 % 23,065 2.73 % 73,816 2.29 % 113,464 2.39 % Taxable ​ 7,278 1.42 % 9,977 2.13 % 12,805 2.25 % 28,660 2.43 % 58,720 2.21 % Sub-total ​ $ 13,200 1.41 % $ 27,951 2.17 % $ 77,246 2.83 % $ 106,183 2.37 % $ 224,580 2.45 % Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies: ​ ​ ​ ​ ​ ​ ​ Residential pass-through securities ​ ​ ​ ​ ​ ​ ​ ​ 105,549 2.18 % Residential collateralized mortgage obligations ​ ​ ​ ​ ​ ​ ​ ​ 50,212 2.91 % Commercial mortgage-backed securities ​ ​ ​ ​ ​ ​ ​ ​ 76,412 2.03 % Private label commercial mortgage-backed securities ​ ​ ​ ​ ​ ​ ​ ​ 8,215 5.49 % Total ​ ​ ​ ​ ​ ​ ​ ​ $ 464,968 2.42 % ​ The Corporation’s mortgage-backed securities and collateralized mortgage obligations have stated maturities that may differ from actual maturities due to borrowers’ ability to prepay obligations. Cash flows from such investments are dependent upon the performance of the underlying mortgage loans and are generally influenced by the level of interest rates. As rates increase, cash flows generally decrease as prepayments on the underlying mortgage loans decrease. As rates decrease, cash flows generally increase as prepayments increase due to increased refinance activity and other factors. In the table above, the entire balances and weighted-average rates for mortgage-backed securities and collateralized mortgage obligations are shown in one period. FINANCIAL CONDITION This section includes information regarding the Corporation’s lending activities or other significant changes or exposures that are not otherwise addressed in Management’s Discussion and Analysis. Significant changes in the average balances of the Corporation’s earning 28 Table of Contents assets and interest-bearing liabilities are described in the Net Interest Income section of Management’s Discussion and Analysis. Other significant balance sheet items, including securities, the allowance for credit losses for loans and stockholders’ equity, are discussed in separate sections of Management’s Discussion and Analysis. There are no significant concerns that have arisen related to the Corporation’s off-balance sheet loan commitments or outstanding letters of credit at December 31, 2023, and management does not expect the amount of purchases of bank premises and equipment to have a material, detrimental effect on the Corporation’s financial condition in 2024. Table VII shows the composition of the loan portfolio at year-end from 2019 through 2023. The significant loan growth in 2019 and 2020 reflects the impact of acquisitions located in Southeastern Pennsylvania. Primarily as a result of the acquisitions, as well as expansion by opening two offices in Southcentral Pennsylvania, the mix of the loan portfolio has changed to become predominantly commercial in nature. At December 31, 2023, commercial loans represented 75% of the portfolio while residential loans totaled 22% of the portfolio. The segments presented in Table VII have been revised from those used in prior year disclosures to be consistent with the pools used in determining the collectively evaluated portion of the allowance for credit losses based on the CECL methodology in 2023. As presented in Table VII, total loans outstanding at December 31, 2023 were $1,848,139,000 which is an increase of $108,099,000 (6.2%) from total loans at December 31, 2022. In comparing outstanding balances at December 31, 2023 and 2022, total commercial loans were up $82,697,000 (6.4%), reflecting growth in non-owner occupied commercial real estate loans of $61,745,000 and owner occupied commercial real estate loans of $31,336,000 and a net decrease of $10,384,000 in other commercial loans. Within other commercial loans, the outstanding balance of commercial construction and land loans increased $43,231,000, offset by decreases in the outstanding balances of commercial and industrial, commercial lines of credit, loans to political subdivisions and other commercial loans. Total residential mortgage loans were up $20,132,000 (5.1%) and total consumer loans increased $5,270,000 (9.6% ). Also included in Table VII is additional detail regarding the composition of the non-owner occupied commercial real estate loan portfolio at December 31, 2023. The data in Table VII shows the recorded investment in non-owner occupied commercial real estate loans for which the primary purpose is utilization of office space by third parties was $94,341,000, or 5.1% of gross loans receivable. At December 31, 2023, within this segment there were two loans with a total recorded investment of $3,908,000 in nonaccrual status with specific allowances totaling $524,000. The remainder of the non-owner occupied commercial real estate loans with a primary purpose of office space utilization were in accrual status with no specific allowance at December 31, 2023. The Provision and Allowance for Credit Losses section of Management’s Discussion and Analysis provides additional related discussion. While the Corporation’s lending activities are primarily concentrated in its market areas, a portion of the Corporation’s commercial loan segment consists of participation loans. Participation loans represent portions of larger commercial transactions for which other institutions are the “lead banks”. Although not the lead bank, the Corporation conducts detailed underwriting and monitoring of participation loan opportunities. Participation loans are included in the “Commercial and industrial”, “Commercial loans secured by real estate”, “Political subdivisions” and “Other commercial” classes in the loan tables presented in this Form 10-K. Total participation loans outstanding amounted to $38,652,000 at December 31, 2023, down from $44,723,000 at December 31, 2022. The Corporation originates and sells residential mortgage loans to the secondary market through the MPF Xtra program administered by the Federal Home Loan Banks of Pittsburgh and Chicago. Residential mortgages originated and sold through the MPF Xtra program consist primarily of conforming, prime loans sold to the Federal National Mortgage Association (Fannie Mae), a quasi-government entity. The Corporation also originates and sells residential mortgage loans to the secondary market through the MPF Original program, administered by the Federal Home Loan Banks of Pittsburgh and Chicago. Residential mortgages originated and sold through the MPF Original program consist primarily of conforming, prime loans sold to the Federal Home Loan Bank of Pittsburgh. The Corporation also may originate and sell larger-balance, nonconforming mortgages under the MPF Direct Program. The Corporation does not retain servicing rights for loans sold under the MPF Direct Program. Through December 31, 2023, the Corporation’s activity under the MPF Direct Program has been minimal. For loan sales originated under the MPF programs, the Corporation provides customary representations and warranties to investors that specify, among other things, that the loans have been underwritten to the standards established by the investor. The Corporation may be required to repurchase a loan and reimburse a portion of fees received or reimburse the investor for a credit loss incurred on a loan, if it is determined that the representations and warranties have not been met. Such repurchases or reimbursements generally result from an underwriting or documentation deficiency. At December 31, 2023, the total outstanding balance of loans the Corporation has repurchased as a result of identified instances of noncompliance amounted to $1,335,000 compared to $1,515,000 at December 31, 2022. 29 Table of Contents At December 31, 2023, outstanding balances of loans sold and serviced through the MPF Xtra and Original programs totaled $323,298,000, including loans sold through the MPF Xtra program of $150,015,000 and loans sold through the Original program of $173,283,000. At December 31, 2022, outstanding balances of loans sold and serviced through the MPF Xtra and Original programs totaled $325,677,000, including loans sold through the MPF Xtra program of $155,506,000 and loans sold through the Original program of $170,171,000. Based on the fairly limited volume of required repurchases to date, no allowance has been established for representation and warranty exposures as of December 31, 2023 and December 31, 2022. TABLE VII – Five-year Summary of Loans by Type ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Dollars In Thousands) 2023 % ​ 2022 % ​ 2021 % ​ 2020 % ​ 2019 % Commercial real estate - non-owner occupied: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Non-owner occupied ​ $ 499,104 ​ 27.0 ​ $ 454,386 ​ 26.1 ​ $ 358,352 ​ 22.9 ​ $ 328,662 ​ 20.0 ​ $ 208,579 ​ 17.6 Multi-family (5 or more) residential ​ ​ 64,076 ​ 3.5 ​ ​ 55,406 ​ 3.2 ​ ​ 49,054 ​ 3.1 ​ ​ 54,893 ​ 3.3 ​ ​ 30,474 ​ 2.6 1-4 Family - commercial purpose ​ 174,162 9.4 ​ ​ 165,805 9.5 ​ ​ 175,027 11.2 ​ ​ 198,918 12.1 ​ ​ 147,121 12.4 Total commercial real estate - non-owner occupied ​ 737,342 39.9 ​ 675,597 38.8 ​ 582,433 37.2 ​ 582,473 35.4 ​ 386,174 32.6 Commercial real estate - owner occupied ​ ​ 237,246 ​ 12.8 ​ ​ 205,910 ​ 11.8 ​ ​ 196,083 ​ 12.5 ​ ​ 191,075 ​ 11.6 ​ ​ 78,729 ​ 6.7 All other commercial loans: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial and industrial ​ 78,832 4.3 ​ 95,368 5.5 ​ 118,488 7.6 ​ 222,923 13.6 ​ 67,288 5.7 Commercial lines of credit ​ 117,236 6.3 ​ 141,444 8.1 ​ 106,338 6.8 ​ 105,802 6.4 ​ 92,509 7.8 Political subdivisions ​ 79,031 4.3 ​ 86,663 5.0 ​ 75,401 4.8 ​ 46,295 2.8 ​ 46,054 3.9 Commercial construction and land ​ 104,123 5.6 ​ 60,892 3.5 ​ 59,505 3.8 ​ 41,000 2.5 ​ 32,717 2.8 Other commercial loans ​ 20,471 1.2 ​ 25,710 1.5 ​ 26,498 1.8 ​ 29,310 1.9 ​ 28,735 2.4 Total all other commercial loans ​ 399,693 21.7 ​ 410,077 23.6 ​ 386,230 24.8 ​ 445,330 27.2 ​ 267,303 22.6 Residential mortgage loans: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1-4 Family - residential ​ ​ 389,262 21.1 ​ ​ 363,005 ​ 20.9 ​ ​ 327,593 ​ 20.9 ​ ​ 356,532 ​ 21.7 ​ ​ 388,415 ​ 32.9 1-4 Family residential construction ​ ​ 24,452 1.3 ​ ​ 30,577 1.8 ​ ​ 23,151 1.5 ​ ​ 18,736 1.1 ​ ​ 14,640 1.2 Total residential mortgage ​ 413,714 22.4 ​ 393,582 22.7 ​ 350,744 22.4 ​ 375,268 22.8 ​ 403,055 34.1 Consumer loans: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Consumer lines of credit (including HELOCs) ​ 41,503 2.2 ​ 36,650 2.1 ​ 33,522 2.1 ​ 34,566 2.1 ​ 30,810 2.6 All other consumer ​ ​ 18,641 1.0 ​ 18,224 1.0 ​ 15,837 1.0 ​ 15,497 0.9 ​ 16,151 1.4 Total consumer ​ 60,144 3.2 ​ 54,874 3.1 ​ 49,359 3.1 ​ 50,063 3.0 ​ 46,961 4.0 Total ​ 1,848,139 100.0 ​ 1,740,040 100.0 ​ 1,564,849 100.0 ​ 1,644,209 100.0 ​ 1,182,222 100.0 Less: allowance for credit losses on loans ​ (19,208) ​ ​ (16,615) ​ ​ (13,537) ​ ​ (11,385) ​ ​ (9,836) ​ Loans, net ​ $ 1,828,931 ​ ​ ​ $ 1,723,425 ​ ​ ​ $ 1,551,312 ​ ​ ​ $ 1,632,824 ​ ​ ​ $ 1,172,386 ​ ​ ​ Additional details regarding the composition of the non-owner occupied commercial real estate loan portfolio at December 31, 2023 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) ​ December 31, ​ % of Non-owner ​ % of ​ ​ 2023 ​ Occupied CRE ​ Total Loans Industrial ​ $ 109,160 ​ 21.9 % ​ 5.9 % Retail ​ ​ 94,824 ​ 19.0 % ​ 5.1 % Office ​ ​ 94,341 ​ 18.9 % ​ 5.1 % Hotels ​ ​ 73,094 ​ 14.6 % ​ 4.0 % Mixed Use ​ ​ 59,687 ​ 12.0 % ​ 3.2 % Other ​ ​ 67,998 ​ 13.6 % ​ 3.7 % Total Non-owner Occupied CRE Loans ​ $ 499,104 ​ ​ ​ ​ ​ ​ Total Gross Loans ​ $ 1,848,139 ​ ​ ​ ​ ​ ​ ​ ​ 30 Table of Contents TABLE VIII – LOAN MATURITY DISTRIBUTION ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, 2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fixed-Rate Loans ​ ​ Variable- or Adjustable-Rate Loans ​ All Loans ​ ​ 1 Year ​ 1-5 ​ >5 ​ ​ ​ ​ ​ 1 Year ​ 1-5 ​ >5 ​ ​ ​ ​ ​ ​ (In Thousands) or Less Years Years Total or Less Years Years Total ​ ​ Total Commercial Real Estate- Nonowner Occupied: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Non-owner occupied ​ $ 30,180 ​ $ 181,360 ​ $ 27,690 ​ $ 239,230 ​ ​ $ 70,947 ​ $ 183,009 ​ $ 5,918 ​ $ 259,874 ​ ​ $ 499,104 Multi-family (5 or more) residential ​ 5,775 ​ 20,151 ​ 2,157 ​ 28,083 ​ ​ 7,166 ​ 28,526 ​ 301 ​ 35,993 ​ ​ ​ 64,076 1-4 Family - commercial purpose ​ ​ 14,537 ​ ​ 51,672 ​ ​ 10,784 ​ ​ 76,993 ​ ​ 14,906 ​ 81,862 ​ 401 ​ 97,169 ​ ​ ​ 174,162 Total commercial real estate - non-owner occupied ​ ​ 50,492 ​ ​ 253,183 ​ ​ 40,631 ​ ​ 344,306 ​ ​ ​ 93,019 ​ ​ 293,397 ​ ​ 6,620 ​ ​ 393,036 ​ ​ ​ 737,342 Commercial real estate - owner occupied ​ ​ 11,425 ​ ​ 76,136 ​ ​ 25,997 ​ ​ 113,559 ​ ​ ​ 22,281 ​ ​ 100,449 ​ ​ 957 ​ ​ 123,687 ​ ​ ​ 237,246 All other commercial loans: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial and industrial ​ ​ 1,453 ​ ​ 44,794 ​ ​ 7,719 ​ ​ 53,966 ​ ​ ​ 10,552 ​ ​ 13,686 ​ ​ 628 ​ ​ 24,866 ​ ​ ​ 78,832 Commercial lines of credit ​ ​ 6,122 ​ ​ 0 ​ ​ 0 ​ ​ 6,122 ​ ​ ​ 106,505 ​ ​ 1,003 ​ ​ 3,606 ​ ​ 111,114 ​ ​ ​ 117,236 Political subdivisions ​ ​ 919 ​ ​ 19,150 ​ ​ 56,213 ​ ​ 76,282 ​ ​ ​ 15 ​ ​ 2,639 ​ ​ 95 ​ ​ 2,749 ​ ​ ​ 79,031 Commercial construction and land ​ ​ 7,112 ​ ​ 21,889 ​ ​ 746 ​ ​ 29,747 ​ ​ ​ 57,370 ​ ​ 17,006 ​ ​ 0 ​ ​ 74,376 ​ ​ ​ 104,123 Other commercial loans ​ ​ 981 ​ ​ 3,725 ​ ​ 2,404 ​ ​ 7,110 ​ ​ ​ 6,320 ​ ​ 7,041 ​ ​ 0 ​ ​ 13,361 ​ ​ ​ 20,471 Total all other commercial loans ​ ​ 16,587 ​ ​ 89,558 ​ ​ 67,082 ​ ​ 173,227 ​ ​ ​ 180,762 ​ ​ 41,375 ​ ​ 4,329 ​ ​ 226,466 ​ ​ ​ 399,693 Residential mortgage loans: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1-4 Family - residential ​ ​ 402 ​ ​ 7,566 ​ ​ 149,915 ​ ​ 157,883 ​ ​ ​ 17,120 ​ ​ 62,189 ​ ​ 152,070 ​ ​ 231,379 ​ ​ ​ 389,262 1-4 Family residential construction ​ ​ 138 ​ ​ 918 ​ ​ 9,490 ​ ​ 10,546 ​ ​ ​ 0 ​ ​ 0 ​ ​ 13,906 ​ ​ 13,906 ​ ​ ​ 24,452 Total residential mortgage ​ ​ 540 ​ ​ 8,484 ​ ​ 159,405 ​ ​ 168,429 ​ ​ ​ 17,120 ​ ​ 62,189 ​ ​ 165,976 ​ ​ 245,285 ​ ​ ​ 413,714 Consumer loans: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 0 Consumer lines of credit (including HELOCs) ​ ​ 334 ​ ​ 0 ​ ​ 2 ​ ​ 336 ​ ​ ​ 41,167 ​ ​ 0 ​ ​ 0 ​ ​ 41,167 ​ ​ ​ 41,503 All other consumer ​ ​ 751 ​ ​ 12,014 ​ ​ 2,360 ​ ​ 15,125 ​ ​ ​ 3,516 ​ ​ 0 ​ ​ 0 ​ ​ 3,516 ​ ​ ​ 18,641 Total consumer ​ ​ 1,085 ​ ​ 12,014 ​ ​ 2,362 ​ ​ 15,461 ​ ​ ​ 44,683 ​ ​ 0 ​ ​ 0 ​ ​ 44,683 ​ ​ ​ 60,144 Total ​ $ 80,129 ​ $ 439,375 ​ $ 295,477 ​ $ 814,982 ​ ​ $ 357,865 ​ $ 497,410 ​ $ 177,882 ​ $ 1,033,157 ​ ​ $ 1,848,139 ​ PROVISION AND ALLOWANCE FOR CREDIT LOSSES On January 1, 2023, the Corporation adopted ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASC 326). This standard replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (CECL) methodology. CECL requires an estimate of credit losses for the remaining estimated life of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts. Note 1 to the consolidated financial statements provides a detailed explanation of the Corporation’s adopted accounting policies related to the application of CECL. Effective January 1, 2023, the Corporation adopted ASC 326 using the modified retrospective approach for all financial assets measured at amortized cost and off-balance sheet credit exposures. Results for 2023 are presented under CECL while prior period amounts continue to be reported in accordance with previously applicable accounting standards (“Incurred Loss”). At January 1, 2023, the impact of adopting CECL included an increase in gross loans receivable of $806,000 as compared to December 31, 2022 and an increase in the 31 Table of Contents allowance for credit losses of $2,104,000 as compared to the allowance for loan losses determined under the Incurred Loss method at December 31, 2022. A summary of the provision for credit losses for the year ended December 31, 2023, is as follows: ​ ​ ​ ​ ​ (In Thousands) ​ Year ​ ​ ​ Ended ​ ​ ​ December 31, ​ ​ ​ 2023 ​ Provision for credit losses: ​ ​ ​ ​ Loans receivable ​ $ 753 ​ Off-balance sheet exposures (1) ​ (567) ​ Tota provision for credit losses ​ $ 186 ​ ​ (1) The (credit) provision for credit losses on off-balance sheet exposures prior to January 1, 2023 was included in other noninterest expense in the consolidated statements of income. For the year ended December 31, 2023, there was a provision for credit losses of $186,000, a decrease of $7,069,000 in expense compared to a provision for loan losses of $7,255,000 in 2022. The provision for 2023 included expense related to loans receivable of $753,000 and a credit related to off-balance sheet exposures of $567,000. The expense related to loans receivable was mainly attributable to qualitative adjustments of the Corporation’s historical loss experience in estimating the ACL and the impact of an economic forecast, as well as a reduction in the Corporation’s average net charge-off experience, used in the calculation of the ACL. The ACL as a percentage of gross loans receivable was 1.04% at December 31, 2023 as compared to 1.08% at January 1, 2023 upon the initial adoption of CECL. Table XI shows that total nonperforming assets as a percentage of total assets was 0.75% at December 31, 2023, down from 1.04% at December 31, 2022 and lower than that at year-end 2019 through 2021. Total nonperforming assets were $18.8 million at December 31, 2023, down from $25.6 million at December 31, 2022. Similarly, total loans individually evaluated for credit loss decreased to $11.3 million at December 31, 2023 from $19.4 million at December 31, 2022. The net decrease in nonperforming assets at December 31, 2023 compared to December 31, 2022 included the impact of a $10.0 million payoff in the first quarter 2023 on a commercial loan relationship that was classified as nonaccrual at December 31, 2022. The reduction also included paydowns totaling $2,302,000 in 2023 on a commercial loan for which partial charge-offs totaling $3,942,000 were recorded in 2022. The remaining carrying value of this loan was $352,000 at December 31, 2023. These reductions were partially offset by the addition to nonaccrual of two commercial loan relationships totaling $4,457,000, including two commercial real estate loans with a primary purpose of office space utilization totaling $3,908,000, at December 31, 2023. In 2023, net charge-offs were low by historical standards, totaling $264,000, or 0.01% of average outstanding loans. Table IX shows annual average net charge-off rates ranging from a high of 0.26% in 2022 to a low of 0.03% in 2019. Over the period 2019-2023, each period includes a few large commercial relationships that have required significant monitoring and workout efforts. As a result, a limited number of relationships may significantly impact the total amount of allowance required on individual loans and may significantly impact the provision for credit losses and the amount of total charge-offs reported in any one period. Management believes it has been conservative in its decisions concerning identification of loans requiring individual evaluation for credit loss, estimates of loss, and nonaccrual status; however, the actual losses realized from these relationships could vary materially from the allowances calculated as of December 31, 2023. Management continues to closely monitor its commercial loan relationships for possible credit losses and will adjust its estimates of loss and decisions concerning nonaccrual status, if appropriate. Tables IX through XII present historical data related to loans and the allowance for credit losses. . ​ 32 Table of Contents ​ TABLE IX - ANALYSIS OF THE ALLOWANCE FOR CREDIT LOSSES ON LOANS ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Dollars In Thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2023 2022 2021 2020 2019 Balance, beginning of year $ 16,615 ​ $ 13,537 ​ $ 11,385 ​ $ 9,836 ​ $ 9,309 ​ Adoption of ASU 2016-13 (CECL) 2,104 ​ 0 ​ 0 ​ 0 ​ 0 ​ Charge-offs (356) ​ (4,245) ​ (1,575) ​ (2,465) ​ (379) ​ Recoveries 92 ​ 68 ​ 66 ​ 101 ​ 57 ​ Net charge-offs (264) ​ (4,177) ​ (1,509) ​ (2,364) ​ (322) ​ Provision for credit losses 753 ​ 7,255 ​ 3,661 ​ 3,913 ​ 849 ​ Balance, end of year $ 19,208 ​ $ 16,615 ​ $ 13,537 ​ $ 11,385 ​ $ 9,836 ​ Net charge-offs as a % of average loans 0.01 % 0.26 % 0.09 % 0.16 % 0.03 % ​ ​ TABLE X - COMPONENTS OF THE ALLOWANCE FOR CREDIT LOSSES ​ UPON ADOPTION OF CECL ​ ​ ​ ​ ​ ​ ​ (In Thousands) ​ December 31, ​ January 1, ​ ​ 2023 ​ 2023 Loans individually evaluated ​ $ 743 ​ $ 751 Loans collectively evaluated: ​ ​ ​ ​ ​ ​ Commercial real estate - nonowner occupied ​ ​ 10,379 ​ ​ 9,641 Commercial real estate - owner occupied ​ ​ 2,111 ​ ​ 1,765 All other commercial loans ​ ​ 3,811 ​ ​ 3,914 Residential mortgage ​ ​ 1,764 ​ ​ 2,407 Consumer ​ ​ 400 ​ ​ 241 Total Allowance ​ $ 19,208 ​ $ 18,719 ​ PRIOR TO CECL ADOPTION ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) ​ As of December 31, ​ 2022 2021 2020 2019 ASC 310 - Impaired loans - individually evaluated ​ $ 453 ​ $ 740 ​ $ 925 ​ $ 1,051 ASC 450 - Collectively evaluated: ​ ​ ​ ​ Commercial ​ 10,845 ​ 7,553 ​ 5,545 ​ 3,913 Residential mortgage ​ 4,073 ​ 4,338 ​ 4,091 ​ 4,006 Consumer ​ 244 ​ 235 ​ 239 ​ 281 Unallocated ​ 1,000 ​ 671 ​ 585 ​ 585 Total Allowance ​ $ 16,615 ​ $ 13,537 ​ $ 11,385 ​ $ 9,836 ​ ​ 33 Table of Contents TABLE XI - PAST DUE AND NONPERFORMING ASSETS ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Dollars In Thousands) As of December 31, ​ 2023 2022 2021 2020 2019 Loans individually evaluated with a valuation allowance $ 7,786 ​ $ 3,460 ​ $ 6,540 ​ $ 8,082 ​ $ 3,375 ​ Loans individually evaluated without a valuation allowance 3,478 ​ 14,871 ​ 2,636 ​ 2,895 ​ 1,670 ​ Purchased credit impaired loans ​ 0 ​ ​ 1,027 ​ ​ 6,558 ​ ​ 6,841 ​ ​ 441 ​ Total individually evaluated loans $ 11,264 ​ $ 19,358 ​ $ 15,734 ​ $ 17,818 ​ $ 5,486 ​ Total loans past due 30-89 days and still accruing $ 9,275 ​ $ 7,079 ​ $ 5,106 ​ $ 5,918 ​ $ 8,889 ​ Nonperforming assets: ​ ​ ​ ​ ​ Purchased credit impaired loans $ 0 ​ $ 1,027 ​ $ 6,558 ​ $ 6,841 ​ $ 441 ​ Other nonaccrual loans ​ 15,177 ​ ​ 22,058 ​ ​ 12,441 ​ ​ 14,575 ​ ​ 8,777 ​ Total nonaccrual loans ​ 15,177 ​ ​ 23,085 ​ ​ 18,999 ​ ​ 21,416 ​ ​ 9,218 ​ Total loans past due 90 days or more and still accruing 3,190 ​ 2,237 ​ 2,219 ​ 1,975 ​ 1,207 ​ Total nonperforming loans 18,367 ​ 25,322 ​ 21,218 ​ 23,391 ​ 10,425 ​ Foreclosed assets held for sale (real estate) 478 ​ 275 ​ 684 ​ 1,338 ​ 2,886 ​ Total nonperforming assets $ 18,845 ​ $ 25,597 ​ $ 21,902 ​ $ 24,729 ​ $ 13,311 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total nonperforming loans as a % of loans 0.99 % 1.46 % 1.36 % 1.42 % 0.88 % Total nonperforming assets as a % of assets 0.75 % 1.04 % 0.94 % 1.10 % 0.80 % Allowance for credit losses as a % of total loans 1.04 % 0.95 % 0.87 % 0.69 % 0.83 % ​ ​ ​ 34 Table of Contents TABLE XII – FIVE-YEAR HISTORY OF LOAN LOSSES ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Dollars In Thousands) 2023 2022 2021 2020 2019 Average Average gross loans ​ $ 1,792,149 ​ $ 1,628,094 ​ $ 1,596,756 ​ $ 1,445,098 ​ $ 1,057,559 ​ $ 1,503,931 ​ Year-end gross loans ​ 1,848,139 ​ 1,740,040 ​ 1,564,849 ​ 1,644,209 ​ 1,182,222 ​ $ 1,595,892 ​ Year-end allowance for credit losses on loans ​ 19,208 ​ 16,615 ​ 13,537 ​ 11,385 ​ 9,836 ​ $ 14,116 ​ Year-end nonaccrual loans ​ 15,177 ​ 23,085 ​ 18,999 ​ 21,416 ​ 9,218 ​ $ 17,579 ​ Year-end loans 90 days or more past due and still accruing ​ 3,190 ​ 2,237 ​ 2,219 ​ 1,975 ​ 1,207 ​ 2,166 ​ Net charge-offs ​ 264 ​ 4,177 ​ 1,509 ​ 2,364 ​ 322 ​ 1,727 ​ Provision for credit losses on loans ​ 753 ​ 7,255 ​ 3,661 ​ 3,913 ​ 849 ​ 3,286 ​ Earnings coverage of charge-offs ​ 119 x 8 x 26 x 10 x 76 x 18 x Allowance coverage of charge-offs ​ 73 x 4 x 9 x 5 x 31 x 8 x Net charge-offs as a % of provision for credit losses on loans ​ 35.06 % 57.57 % 41.22 % 60.41 % 37.93 % 52.31 % Net charge-offs as a % of average gross loans ​ 0.01 % 0.26 % 0.09 % 0.16 % 0.03 % 0.11 % Income before income taxes on a fully taxable equivalent basis ​ 31,402 ​ 33,576 ​ 38,822 ​ 24,192 ​ 24,453 ​ 30,489 ​ ​ CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS The Corporation’s significant fixed and determinable contractual obligations as of December 31, 2023 include repayment obligations related to time deposits and borrowed funds. Information related to maturities of time deposits is provided in Note 10 to the consolidated financial statements. Information related to maturities of borrowed funds is provided in Note 11 to the consolidated financial statements. The Corporation’s operating lease commitments with terms of one year or less and other commitments at December 31, 2023 are immaterial. Information concerning operating lease commitments with terms greater than one year is provided in Note 15 to the consolidated financial statements. The Corporation’s significant off-balance sheet arrangements include commitments to extend credit and standby letters of credit. Off-balance sheet arrangements are described in Note 15 and the allowance for credit losses on off-balance sheet exposures is described in Note 7 to the consolidated financial statements. As described in more detail in the Financial Condition section of Management’s Discussion and Analysis, the Corporation sells residential mortgage loans for which the Corporation provides customary representations and warranties to investors that specify, among other things, that the loans have been underwritten to the standards established by the investor. The Corporation may be required to repurchase a loan and reimburse a portion of fees received or reimburse the investor for a credit loss incurred on a loan, if it is determined that the representations and warranties have not been met. At December 31, 2023, outstanding balances of such loans sold totaled $323,298,000. LIQUIDITY Liquidity is the ability to quickly raise cash at a reasonable cost. An adequate liquidity position permits the Corporation to pay creditors, compensate for unforeseen deposit fluctuations and fund unexpected loan demand. The Corporation maintains overnight borrowing facilities with several correspondent banks that provide a source of day-to-day liquidity. Also, the Corporation maintains borrowing facilities with the Federal Home Loan Bank of Pittsburgh, secured by various mortgage loans. The Corporation has a line of credit with the Federal Reserve Bank of Philadelphia’s Discount Window. Management intends to use this line of credit as a contingency funding source. As collateral for the line, the Corporation has pledged available-for-sale securities with a carrying value of $20,829,000 at December 31, 2023. 35 Table of Contents The Corporation’s outstanding, available, and total credit facilities at December 31, 2023 and 2022 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Outstanding ​ Available ​ Total Credit (In Thousands) December 31, December 31, December 31, December 31, December 31, December 31, ​ ​ 2023 ​ 2022 ​ 2023 ​ 2022 ​ 2023 ​ 2022 Federal Home Loan Bank of Pittsburgh ​ $ 189,021 ​ $ 150,099 ​ $ 737,824 ​ $ 689,279 ​ $ 926,845 ​ $ 839,378 Federal Reserve Bank Discount Window ​ 0 ​ 0 ​ 19,982 ​ 23,107 ​ 19,982 ​ 23,107 Other correspondent banks ​ 0 ​ 0 ​ 75,000 ​ 95,000 ​ 75,000 ​ 95,000 Total credit facilities ​ $ 189,021 ​ $ 150,099 ​ $ 832,806 ​ $ 807,386 ​ $ 1,021,827 ​ $ 957,485 ​ At December 31, 2023, the Corporation’s outstanding credit facilities with the Federal Home Loan Bank of Pittsburgh consisted of overnight and short-term borrowings of $31,500,000, long-term borrowings with par values totaling $138,313,000 and letters of credit totaling $19,208,000. At December 31, 2022, the Corporation’s outstanding credit facilities with the Federal Home Loan Bank of Pittsburgh consisted of overnight borrowing of $77,000,000, long-term borrowings of $62,272,000 and letters of credit totaling $10,827,000. Additionally, the Corporation uses “RepoSweep” arrangements to borrow funds from commercial banking customers on an overnight basis. If required to raise cash in an emergency situation, the Corporation could utilize available-for-sale debt securities as collateral for borrowings or sell securities to meet its obligations. At December 31, 2023, the carrying value of available-for-sale debt securities in excess of amounts required to meet pledging or repurchase agreement obligations was $256,058,000. Deposits totaled $2,014,806,000 at December 31, 2023, up $17,213,000 (0.9%) from $1,997,593,000 at December 31, 2022. Average total deposits were 0.4% lower for the year ended December 31, 2023, as compared to the year ended December 31, 2022. Excluding brokered deposits, adjusted total deposits at December 31, 2023 were lower by $26,173,000 (1.3%) as compared to December 31, 2022. Brokered deposits, consisting mainly of short-term certificates of deposit, totaled $64,369,000 at December 31, 2023, an increase of $43,386,000 from December 31, 2022. The reduction in total deposits, excluding brokered deposits, included a reduction in the estimated amount of deposits in excess of FDIC insurance levels (uninsured deposit balances) of $97.2 million as compared to December 31, 2022. The net reduction in uninsured deposits resulted from several factors, including the impact of customer funds transferred to higher-yielding investment alternatives and increased use of reciprocal deposits that allow C&N Bank to place customer funds in excess of the FDIC insurance limit with other financial institutions through a deposit placement network in exchange for a matching amount of deposits from other network financial institutions. Reciprocal deposits totaled $223.5 million at December 31, 2023, up $121.7 million from December 31, 2022. As shown in the table below, at December 31, 2023, estimated uninsured deposits totaled $592.2 million, or 29.2% of total deposits, down from $689.4 million or 34.2% of total deposits at December 31, 2022. Included in uninsured deposits are deposits collateralized by securities (almost exclusively municipal deposits) totaling $151.0 million at December 31, 2023. As shown in the table below, total uninsured and uncollateralized deposits amounted to 21.7% of total deposits at December 31, 2023, down from 24.0% at December 31, 2022. As summarized in the table that immediately follows, the Corporation’s highly liquid sources of available funds described above, including unused borrowing capacity with the Federal Home Loan Bank of Pittsburgh, unused availability on the Federal Reserve Bank of Philadelphia’s discount window, available federal funds lines with other banks and unencumbered available-for-sale debt securities totaled $1.1 billion at December 31, 2023, 2023. Available funding from these sources totaled 183.9% of uninsured deposits and 246.8% of total uninsured and uncollateralized deposits at December 31, 2023. ​ 36 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ Uninsured Deposits Information ​ December 31, December 31, ​ ​ 2023 2022 Total Deposits - C&N Bank ​ $ 2,030,909 ​ $ 2,016,666 ​ ​ ​ ​ ​ ​ ​ ​ ​ Estimated Total Uninsured Deposits ​ $ 592,206 ​ $ 689,435 ​ Portion of Uninsured Deposits that are ​ ​ ​ ​ ​ ​ ​ Collateralized ​ ​ 151,031 ​ ​ 205,886 ​ Uninsured and Uncollateralized Deposits ​ $ 441,175 ​ $ 483,549 ​ ​ ​ ​ ​ ​ ​ ​ ​ Uninsured and Uncollateralized Deposits as ​ ​ ​ ​ ​ ​ ​ a % of Total Deposits ​ ​ 21.7 % ​ 24.0 % ​ ​ ​ ​ ​ ​ ​ ​ Available Funding from Credit Facilities ​ $ 832,806 ​ $ 807,386 ​ Fair Value of Available-for-sale Debt ​ ​ ​ ​ ​ ​ ​ Securities in Excess of Pledging Obligations ​ ​ 256,058 ​ ​ 272,475 ​ Highly Liquid Available Funding ​ $ 1,088,864 ​ $ 1,079,861 ​ ​ ​ ​ ​ ​ ​ ​ ​ Highly Liquid Available Funding as a % of ​ ​ ​ ​ ​ ​ ​ Uninsured Deposits ​ ​ 183.9 % ​ 156.6 % ​ ​ ​ ​ ​ ​ ​ ​ Highly Liquid Available Funding as a % of ​ ​ ​ ​ ​ ​ ​ Uninsured and Uncollateralized Deposits ​ ​ 246.8 % ​ 223.3 % ​ Despite the reduction in deposits, excluding brokered deposits, in 2023, based on the ample sources of highly liquid funds as described above, management believes the Corporation is well-positioned to meet its short-term and long-term funding obligations. STOCKHOLDERS’ EQUITY AND CAPITAL ADEQUACY Details concerning capital ratios at December 31, 2023 and December 31, 2022 are presented in Note 17 to the consolidated financial statements. Management believes, as of December 31, 2023, that C&N Bank meets all capital adequacy requirements to which it is subject and maintains a capital conservation buffer (described in more detail below) that allows the Bank to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers. Further, the Corporation’s and C&N Bank’s capital ratios at December 31, 2023 and December 31, 2022 exceed the Corporation’s Board policy threshold levels. Management expects C&N Bank to maintain capital levels that exceed the regulatory standards for well-capitalized institutions for the next 12 months and for the foreseeable future. ​ Future dividend payments and repurchases of common stock will depend upon maintenance of a strong financial condition, future earnings and capital and regulatory requirements. In addition, the Corporation and C&N Bank are subject to restrictions on the amount of dividends that may be paid without approval of banking regulatory authorities. These restrictions are described in Note 17 to the consolidated financial statements. Further, although the Corporation is no longer subject to the specific consolidated capital requirements described herein, the Corporation’s ability to pay dividends, repurchase stock or engage in other activities may be limited by the Federal Reserve if the Corporation fails to hold sufficient capital commensurate with its overall risk profile. To avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, C&N Bank must hold a capital conservation buffer composed of common equity tier 1 capital above its minimum risk-based capital requirements. The buffer is measured relative to risk-weighted assets. At December 31, 2023, the minimum risk-based capital ratios, and the capital ratios including the capital conservation buffer, are as follows: ​ ​ ​ ​ ​ Minimum common equity tier 1 capital ratio 4.5 % Minimum common equity tier 1 capital ratio plus capital conservation buffer 7.0 % Minimum tier 1 capital ratio 6.0 % Minimum tier 1 capital ratio plus capital conservation buffer 8.5 % Minimum total capital ratio 8.0 % Minimum total capital ratio plus capital conservation buffer 10.5 % 37 Table of Contents ​ A banking organization with a buffer greater than 2.5% over the minimum risk-based capital ratios would not be subject to additional limits on dividend payments or discretionary bonus payments; however, a banking organization with a buffer less than 2.5% would be subject to increasingly stringent limitations as the buffer approaches zero. Also, a banking organization is prohibited from making dividend payments or discretionary bonus payments if its eligible retained income is negative in that quarter and its capital conservation buffer ratio was less than 2.5% as of the beginning of that quarter. Eligible net income is defined as net income for the four calendar quarters preceding the current calendar quarter, net of any distributions and associated tax effects not already reflected in net income. A summary of payout restrictions based on the capital conservation buffer is as follows: ​ ​ ​ ​ ​ Capital Conservation Buffer Maximum Payout (as a % of risk-weighted assets) ​ (as a % of eligible retained income) Greater than 2.5% ​ No payout limitation applies ​ ≤2.5% and >1.875% ​ 60 % ≤1.875% and >1.25% ​ 40 % ≤1.25% and >0.625% ​ 20 % ≤0.625% ​ 0 % ​ At December 31, 2023, C&N Bank’s Capital Conservation Buffer (determined based on the minimum total capital ratio) was 6.89%. On September 25, 2023, the Corporation announced a new treasury stock repurchase program. Under the newly approved program, the Corporation is authorized to repurchase up to 750,000 shares of the Corporation’s common stock, or slightly less than 5% of the Corporation’s issued and outstanding shares at August 4, 2023. The new program was effective when publicly announced and will continue thereafter until suspended or terminated by the Board of Directors, in its sole discretion. All shares of common stock repurchased pursuant to the new program shall be held as treasury shares and be available for use and reissuance for purposes as and when determined by the Board of Directors including, without limitation, pursuant to the Corporation’s Dividend Reinvestment and Stock Purchase Plans and its equity compensation program. Through December 31, 2023, no shares were repurchased under the new program. The Corporation’s total stockholders’ equity is affected by fluctuations in the fair values of available-for-sale debt securities. The difference between amortized cost and fair value of available-for-sale debt securities, net of deferred income tax, is included in accumulated other comprehensive loss within stockholders’ equity. Accumulated other comprehensive loss is excluded from the Bank’s and Corporation’s regulatory capital ratios. The balance in accumulated other comprehensive loss related to unrealized losses on available-for-sale debt securities, net of deferred income tax, amounted to $38,878,000 at December 31, 2023 and $50,370,000 at December 31, 2022 as compared to the balance in accumulated other comprehensive income related to unrealized gains on available-for-sale debt securities, net of deferred income tax of $ 4,809,000 at December 31, 2021. The volatility in stockholders’ equity related to accumulated other comprehensive loss from available-for-sale debt securities has been caused by significant fluctuations in interest rates including overall significant increases in rates as compared to market rates when most of the Corporation’s securities were purchased. The securities section of Management’s Discussion and Analysis and Note 6 to the consolidated financial statements provide additional information concerning information management considered in evaluating debt and equity securities for credit losses at December 31, 2023. ​ ITEM 7A. QUANTITA TIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ​ MARKET RISK Market risk is the risk of loss arising from adverse changes in market rates and prices of the Corporation’s financial instruments. In addition to the effects of interest rates, the market prices of the Corporation’s available-for-sale debt securities are affected by fluctuations in the risk premiums (amounts of spread over risk-free rates) demanded by investors. Management attempts to limit the risk that economic conditions would force the Corporation to sell securities for realized losses by maintaining a strong capital position (discussed in the “Stockholders’ Equity and Capital Adequacy” section of Management’s Discussion and Analysis) and ample sources of liquidity (discussed in the “Liquidity” section of Management’s Discussion and Analysis). The Corporation’s major category of market risk, interest rate risk, is discussed in the following section. 38 Table of Contents INTEREST RATE RISK The Corporation uses a simulation model to calculate the potential effects of interest rate fluctuations on net interest income and the economic value of equity. For purposes of these calculations, the economic value of equity includes the discounted present values of financial instruments, such as securities, loans, deposits and borrowed funds, and the book values of nonfinancial assets and liabilities, such as premises and equipment and accrued expenses. The model measures and projects the amount of potential changes in net interest income, and calculates the discounted present value of anticipated cash flows of financial instruments, assuming an immediate increase or decrease in interest rates. Management ordinarily runs a variety of scenarios within a range of plus or minus 100-400 basis points of current rates. The projected results based on the model includes the impact of estimates, at each level of interest rate change, regarding cash flows from principal repayments on loans and mortgage-backed securities and call activity on other investment securities. Further, the projected results are impacted by assumptions regarding the run-off and the extent of sensitivity to interest rate changes of deposits with no stated maturity (checking, savings and money market accounts). Actual results could vary significantly from these estimates, which could result in significant differences in the calculations of projected changes in net interest income and economic value of equity. Also, the model does not make estimates related to changes in the composition of the deposit portfolio that could occur due to rate competition, and the table does not necessarily reflect changes that management would make to realign the portfolio as a result of changes in interest rates. The Corporation’s Board of Directors has established policy guidelines for acceptable levels of interest rate risk, based on an immediate increase or decrease in interest rates. The policy limits acceptable fluctuations in net interest income from the baseline (flat rates) one-year scenario and variances in the economic value of equity from the baseline values based on current rates. ​ Table XIII, which follows this discussion, is based on the results of calculations performed using the simulation model as of December 31, 2023 and 2022. In the analysis based on December 31, 2023 data, the amounts of net interest income decrease, as compared to the amounts based on current interest rates, in both the upward and downward rate scenarios. Further, the economic value of equity is modeled to decrease in both the rising and falling rate scenarios. The results based on December 31, 2023 data as presented in Table XIII are significantly different from the results based on the modeling performed using December 31, 2022 data which showed the net interest income profile to be asset-sensitive. In the analysis based on December 31, 2023 data, management assumed that, in rising rate scenarios, the average rate to be paid on interest checking, savings and money market accounts would increase by a higher percentage of the baseline scenario as compared to the assumptions used in the December 31, 2022 analysis. This change reflects management’s assessment that, in light of significant increases in short-term interest rates that have occurred over the course of 2022 and 2023, the Corporation’s deposit rates would increase to a greater extent if such scenarios would occur. The change in results also reflects changes in deposit mix, as the carrying amount of total deposits without stated maturities was $112.0 million lower at December 31, 2023 as compared to December 31, 2022, while time deposits were higher by $129.3 million. Further, results in the downward rate scenarios reflect limitations on the benefit of falling rates on some deposit types due to a 0% assumed floor. The Table also shows that as of the respective dates, despite the impact of the modeling changes and changes in deposit mix, the changes in net interest income and changes in economic value were within the policy limits in all scenarios. ​ Under U.S. generally accepted accounting principles, available-for-sale debt securities are carried at fair value as of each balance sheet date. The difference between amortized cost and fair value of available-for-sale debt securities, net of deferred income tax, is included in accumulated other comprehensive income (loss) within stockholders’ equity. Increases in interest rates have caused the fair value of the Corporation’s available-for-sale debt securities to decrease, resulting in an accumulated other comprehensive loss of $38.9 million at December 31, 2023. In contrast, most of the Corporation’s other financial instruments, including loans receivable (held for investment), deposits and borrowed funds are carried on the balance sheet at historical cost without adjustment for the impact of changes in interest rates. . ​ ​ ​ ​ ​ ​ ​ 39 Table of Contents ​ TABLE XIII – THE EFFECT OF HYPOTHETICAL CHANGES IN INTEREST RATES ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 Data ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) ​ Period Ending December 31, 2024 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basis Point ​ ​ Interest ​ ​ Interest ​ ​ Net Interest ​ NII ​ ​ NII ​ Change in Rates ​ ​ Income ​ ​ Expense ​ ​ Income (NII) ​ % Change ​ ​ Risk Limit ​ +400 ​ $ 148,407 ​ $ 81,707 ​ $ 66,700 ​ (21.5) % ​ 25.0 % +300 ​ ​ 143,333 ​ ​ 70,165 ​ ​ 73,168 ​ (13.9) % ​ 20.0 % +200 ​ ​ 138,291 ​ ​ 59,859 ​ ​ 78,432 ​ (7.7) % ​ 15.0 % +100 ​ ​ 133,224 ​ ​ 50,797 ​ ​ 82,427 ​ (3.0) % ​ 10.0 % 0 ​ ​ 127,920 ​ ​ 42,979 ​ ​ 84,941 ​ 0.0 % ​ 0.0 % -100 ​ ​ 122,446 ​ ​ 37,701 ​ ​ 84,745 ​ (0.2) % ​ 10.0 % -200 ​ ​ 116,922 ​ ​ 32,462 ​ ​ 84,460 ​ (0.6) % ​ 15.0 % -300 ​ ​ 110,919 ​ ​ 27,710 ​ ​ 83,209 ​ (2.0) % ​ 20.0 % -400 ​ ​ 104,495 ​ ​ 23,067 ​ ​ 81,428 ​ (4.1) % ​ 25.0 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Economic Value of Equity at December 31, 2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Present ​ ​ Present ​ ​ Present ​ ​ ​ ​ ​ ​ Basis Point ​ ​ Value ​ ​ Value ​ ​ Value ​ ​ ​ ​ ​ ​ Change in Rates ​ ​ Equity ​ ​ % Change ​ ​ Risk Limit ​ ​ ​ ​ ​ ​ +400 ​ $ 330,130 ​ ​ (21.2) % ​ 50.0 % ​ ​ ​ ​ ​ +300 ​ ​ 359,302 ​ ​ (14.3) % ​ 45.0 % ​ ​ ​ ​ ​ +200 ​ ​ 385,045 ​ ​ (8.1) % ​ 35.0 % ​ ​ ​ ​ ​ +100 ​ ​ 405,178 ​ ​ (3.3) % ​ 25.0 % ​ ​ ​ ​ ​ 0 ​ ​ 419,199 ​ ​ 0.0 % ​ 0.0 % ​ ​ ​ ​ ​ -100 ​ ​ 406,957 ​ ​ (2.9) % ​ 25.0 % ​ ​ ​ ​ ​ -200 ​ ​ 406,145 ​ ​ (3.1) % ​ 35.0 % ​ ​ ​ ​ ​ -300 ​ ​ 385,859 ​ ​ (8.0) % ​ 45.0 % ​ ​ ​ ​ ​ -400 ​ ​ 363,763 ​ ​ (13.2) % ​ 50.0 % ​ ​ ​ ​ ​ ​ ​ 40 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 Data ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In Thousands) ​ Period Ending December 31, 2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basis Point ​ ​ Interest ​ ​ Interest ​ ​ Net Interest ​ NII ​ ​ NII ​ Change in Rates ​ ​ Income ​ ​ Expense ​ ​ Income (NII) ​ % Change ​ ​ Risk Limit ​ +400 ​ $ 131,145 ​ $ 34,767 ​ $ 96,378 ​ 8.9 % ​ 25.0 % +300 ​ ​ 125,127 ​ ​ 30,816 ​ ​ 94,311 ​ 6.6 % ​ 20.0 % +200 ​ ​ 119,561 ​ ​ 26,864 ​ ​ 92,697 ​ 4.8 % ​ 15.0 % +100 ​ ​ 113,703 ​ ​ 22,912 ​ ​ 90,791 ​ 2.6 % ​ 10.0 % 0 ​ ​ 107,451 ​ ​ 18,961 ​ ​ 88,490 ​ 0.0 % ​ 0.0 % -100 ​ ​ 101,048 ​ ​ 15,516 ​ ​ 85,532 ​ (3.3) % ​ 10.0 % -200 ​ ​ 94,854 ​ ​ 13,240 ​ ​ 81,614 ​ (7.8) % ​ 15.0 % -300 ​ ​ 89,405 ​ ​ 11,325 ​ ​ 78,080 ​ (11.8) % ​ 20.0 % -400 ​ ​ 85,076 ​ ​ 9,439 ​ ​ 75,637 ​ (14.5) % ​ 25.0 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Economic Value of Equity at December 31, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Present ​ ​ Present ​ ​ Present ​ ​ ​ ​ ​ ​ Basis Point ​ ​ Value ​ ​ Value ​ ​ Value ​ ​ ​ ​ ​ ​ Change in Rates ​ ​ Equity ​ ​ % Change ​ ​ Risk Limit ​ ​ ​ ​ ​ ​ +400 ​ $ 498,368 ​ ​ 0.3 % ​ 50.0 % ​ ​ ​ ​ ​ +300 ​ ​ 496,186 ​ ​ (0.1) % ​ 45.0 % ​ ​ ​ ​ ​ +200 ​ ​ 501,422 ​ ​ 1.0 % ​ 35.0 % ​ ​ ​ ​ ​ +100 ​ ​ 501,991 ​ ​ 1.1 % ​ 25.0 % ​ ​ ​ ​ ​ 0 ​ ​ 496,650 ​ ​ 0.0 % ​ 0.0 % ​ ​ ​ ​ ​ -100 ​ ​ 485,332 ​ ​ (2.3) % ​ 25.0 % ​ ​ ​ ​ ​ -200 ​ ​ 468,195 ​ ​ (5.7) % ​ 35.0 % ​ ​ ​ ​ ​ -300 ​ ​ 445,129 ​ ​ (10.4) % ​ 45.0 % ​ ​ ​ ​ ​ -400 ​ ​ 417,505 ​ ​ (15.9) % ​ 50.0 % ​ ​ ​ ​ ​ ​ ​ ​ 41 Table of Contents