CNB FINANCIAL CORP/PA - Quarter Report: 2022 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-39472

CNB FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)


Pennsylvania						25-1450605
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

1 South Second Street

P.O. Box 42

Clearfield, Pennsylvania 16830

(Address of principal executive offices)

Registrant’s telephone number, including area code, (814) 765-9621

Securities registered pursuant to Section 12(b) of the Act:

Title of Class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, no par value

CCNE

The NASDAQ Stock Market LLC

Depositary Shares (each representing a 1/40th interest in a share of 7.125% Series A Non-Cumulative, perpetual preferred stock)

CCNEP

The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

☐

Accelerated Filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

The number of shares outstanding of the issuer’s common stock as of November 2, 2022:

COMMON STOCK, NO PAR VALUE PER SHARE: 21,120,346 SHARES

Table of Contents

INDEX

PART I.

FINANCIAL INFORMATION


			Page Number

ITEM 1 – Financial Statements

Condensed Consolidated Balance Sheets September 30, 2022 (unaudited) and December 31, 2021 (audited)			1

Condensed Consolidated Statements of Income – Three and nine months ended September 30, 2022 and 2021 (unaudited)			2

Condensed Consolidated Statements of Comprehensive Income – Three and nine months ended September 30, 2022 and 2021 (unaudited)			3

Condensed Consolidated Statements of Changes in Shareholders' Equity – Three and nine months ended September 30, 2022 and 2021 (unaudited)			4

Condensed Consolidated Statements of Cash Flows – Three and nine months ended Sept ember 30, 2022 and 2021 (unaudited)			6

Notes to Condensed Consolidated Financial Statements			8

ITEM 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations			44

ITEM 3 – Quantitative and Qualitative Disclosures about Market Risk			69

ITEM 4 – Controls and Procedures			70

PART II. OTHER INFORMATION

ITEM 1 – Legal Proceedings			71

ITEM 1A – Risk Factors			71

ITEM 2 – Unregistered Sales of Equity Securities and Use of Proceeds			71

ITEM 3 – Defaults Upon Senior Securities			71

ITEM 4 – Mine Safety Disclosures			71

ITEM 5 – Other Information			71

ITEM 6 – Exhibits			72

Signatures			73

Table of Contents

Forward-Looking Statements and Factors that Could Affect Future Results

The information below includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, with respect to the financial condition, liquidity, results of operations, future performance and business of CNB Financial Corporation (“CNB”). These forward-looking statements are intended to be covered by the safe harbor for "forward-looking statements" provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are those that are not historical facts. Forward-looking statements include statements with respect to beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions that are subject to significant risks and uncertainties and are subject to change based on various factors (some of which are beyond CNB’s control). Forward-looking statements often include the words "believes," "expects," "anticipates," "estimates," "forecasts," "intends," "plans," "targets," "potentially," "probably," "projects," "outlook" or similar expressions or future conditional verbs such as "may," "will," "should," "would" and "could." CNB’s actual results may differ materially from those contemplated by the forward-looking statements, which are neither statements of historical fact nor guarantees or assurances of future performance.

Factors that could cause the actual results to differ materially from the statements, include, but are not limited to, (i) changes in general business, industry or economic conditions or competition; (ii) changes in any applicable law, rule, regulation, policy, guideline or practice governing or affecting financial holding companies and their subsidiaries or with respect to tax or accounting principles or otherwise; (iii) adverse changes or conditions in capital and financial markets; (iv) changes in interest rates and rising inflation; (v) higher than expected costs or other difficulties related to integration of combined or merged businesses; (vi) the effects of business combinations and other acquisition transactions, including the inability to realize our loan and investment portfolios; (vii) changes in the quality or composition of our loan and investment portfolios; (viii) adequacy of loan loss reserves; (ix) increased competition; (x) loss of certain key officers; (xi) deposit attrition; (xii) rapidly changing technology; (xiii) unanticipated regulatory or judicial proceedings and liabilities and other costs; (xiv) changes in the cost of funds, demand for loan products or demand for financial services; (xv) adverse effects of the novel coronavirus, or COVID-19, pandemic or other public health crises on the financial condition, results of operations, cash flows and performance of CNB, our customers and the global economy and financial markets; and (xvi) other economic, competitive, governmental or technological factors affecting our operations, markets, products, services and prices. Such developments could have an adverse impact on CNB's financial position and results of operations.

The forward-looking statements contained herein are based upon management’s beliefs and assumptions. Any forward-looking statement made herein speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. CNB undertakes no obligation to publicly update or revise any forward-looking statements included in this Quarterly Report on Form 10-Q, whether as a result of new information, future events or otherwise, except to the extent required by law. In light of these risks, uncertainties and assumptions, the forward-looking events discussed might not occur and you should not put undue reliance on any forward-looking statements.

Table of Contents

Part I Financial Information

Item 1. Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS

Dollars in thousands, except share data



	(unaudited)
	September 30, 2022		December 31, 2021
ASSETS
Cash and due from banks	$	51,178	$	42,440
Interest-bearing deposits with Federal Reserve	153,156		684,306
Interest-bearing deposits with other financial institutions	5,462		5,452
Total cash and cash equivalents	209,796		732,198
Debt securities available-for-sale, at fair value (amortized cost of $443,516 and $698,085, respectively)	378,236		697,191
Debt securities held-to-maturity, at amortized cost (fair value $369,102 and $0, respectively)	408,209		0
Equity securities	9,235		10,366
Loans held for sale	624		849
Loans receivable
PPP loans, net of deferred processing fees	462		45,203
Syndicated loans	152,783		125,761
Loans	3,871,420		3,463,828

Total loans receivable	4,024,665		3,634,792
Less: allowance for credit losses	(41,269)		(37,588)
Net loans receivable	3,983,396		3,597,204
FHLB and other restricted stock holdings and investments	23,923		23,276
Premises and equipment, net	65,961		61,659
Operating lease right-of-use assets	28,004		19,928
Bank owned life insurance	101,974		99,719
Mortgage servicing rights	1,860		1,664
Goodwill	43,749		43,749
Core deposit intangible, net	386		460
Accrued interest receivable and other assets	61,993		40,676
Total Assets	$	5,317,346	$	5,328,939
LIABILITIES AND SHAREHOLDERS’ EQUITY
Noninterest-bearing demand deposits	$	867,662	$	792,086
Interest-bearing demand deposits	1,055,367		1,079,336
Savings	2,376,694		2,457,745
Certificates of deposit	324,088		386,452
Total deposits	4,623,811		4,715,619


Subordinated debentures	20,620		20,620
Subordinated notes, net of unamortized issuance costs	83,888		83,661
Operating lease liabilities	29,366		21,159
Accrued interest payable and other liabilities	43,533		45,033
Total liabilities	4,801,218		4,886,092
Commitments and contingent liabilities
Preferred stock, Series A non-cumulative perpetual, $0 par value; $1,000 liquidation preference; shares authorized 60,375; Shares issued 60,375 at September 30, 2022 and December 31, 2021	57,785		57,785
Common stock, no par value; 50,000,000 shares authorized; Shares issued 21,235,503 at September 30, 2022 and 16,978,057 at December 31, 2021	0		0
Additional paid in capital	221,326		127,351
Retained earnings	295,803		260,582
Treasury stock, at cost (114,919 shares at September 30, 2022 and 122,995 shares December 31, 2021)	(2,975)		(2,477)
Accumulated other comprehensive loss	(55,811)		(394)
Total shareholders’ equity	516,128		442,847
Total Liabilities and Shareholders’ Equity	$	5,317,346	$	5,328,939

See Notes to Condensed Consolidated Financial Statements

Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)

Dollars in thousands, except per share data



	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
INTEREST AND DIVIDEND INCOME:
Loans receivable including fees
Interest and fees on loans receivable	$	50,552	$	39,573	$	136,368	$	116,876
Processing fees on PPP loans	74		2,447		1,870		6,817
Securities:
Taxable	4,413		3,125		12,281		8,465
Tax-exempt	219		268		665		889
Dividends	40		35		109		224
Total interest and dividend income	55,298		45,448		151,293		133,271
INTEREST EXPENSE:
Deposits	4,408		3,433		9,601		11,785
Finance lease liabilities	5		6		15		18
Subordinated notes and debentures (includes $26, $73, $144 and $204 accumulated other comprehensive income reclassification for change in fair value of interest rate swap agreements, respectively)	977		1,714		2,851		3,747
Total interest expense	5,390		5,153		12,467		15,550
NET INTEREST INCOME	49,908		40,295		138,826		117,721
PROVISION FOR CREDIT LOSS EXPENSE	1,091		1,100		5,639		5,189
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSS EXPENSE	48,817		39,195		133,187		112,532
NON-INTEREST INCOME:
Service charges on deposit accounts	1,872		1,595		5,400		4,389
Other service charges and fees	814		614		2,253		1,705
Wealth and asset management fees	1,870		1,734		5,456		5,021
Net realized gains on available-for-sale securities (includes $0, $0, $651 and $0 accumulated other comprehensive income reclassifications for net realized gains on available-for-sale securities, respectively)	0		0		651		0
Net realized and unrealized gains (losses) on equity securities	(398)		7		(1,433)		477
Mortgage banking	298		844		1,065		2,615
Bank owned life insurance	694		558		2,778		2,002
Card processing and interchange income	1,975		1,958		5,776		5,871
Other non-interest income	834		1,104		3,813		2,430
Total non-interest income	7,959		8,414		25,759		24,510
NON-INTEREST EXPENSES:
Compensation and benefits	18,901		15,351		52,660		43,442
Net occupancy expense	3,375		2,950		9,940		9,154

Technology expense	4,552		2,894		11,948		8,452
State and local taxes	1,036		1,050		3,121		3,096
Legal, professional, and examination fees	1,019		735		3,032		2,785
Advertising	709		488		1,866		1,318
FDIC insurance premiums	709		647		2,142		1,820
Dues and subscriptions	476		602		1,610		1,501
Card processing and interchange expenses	1,201		728		3,486		2,816

Other non-interest expenses	4,122		3,754		10,796		9,584
Total non-interest expenses	36,100		29,199		100,601		83,968
INCOME BEFORE INCOME TAXES	20,676		18,410		58,345		53,074
INCOME TAX EXPENSE (includes $(7), $(15), $106 and $(43) income tax expense from reclassification items, respectively)	4,051		3,503		11,037		9,996
NET INCOME	16,625		14,907		47,308		43,078
PREFERRED STOCK DIVIDENDS	1,076		1,076		3,226		3,226
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS	$	15,549	$	13,831	$	44,082	$	39,852

PER COMMON SHARE DATA:
Basic Earnings Per Common Share	$	0.90	$	0.82	$	2.59	$	2.36
Diluted Earnings Per Common Share	$	0.90	$	0.82	$	2.59	$	2.36

Cash Dividends Declared	$	0.175	$	0.170	$	0.525	$	0.510

See Notes to Condensed Consolidated Financial Statements

Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)

Dollars in thousands



	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
NET INCOME	$	16,625	$	14,907	$	47,308	$	43,078
Other comprehensive income (loss), net of tax:
Net change in fair value of derivative instruments:
Unrealized gain (loss) on interest rate swaps, net of tax $(19), $1, $(79) and $(7), respectively	69		(5)		297		26
Reclassification adjustment for losses recognized in earnings, net of tax $(7), $(15), $(31) and $(43), respectively	19		58		113		161
	88		53		410		187
Net change in debt securities:
Unrealized holding losses on available-for-sale securities arising during the period, net of tax of $3,945, $970, $14,881 and $2,903, respectively	(14,838)		(3,660)		(55,984)		(10,924)
Amortization of unrealized gains from held-to-maturity securities, net of tax of $(80), $0, $(178) and $0, respectively	300		0		671		0
Reclassification adjustment for realized losses included in net income, net of tax of $0, $0, $137 and $0, respectively	0		0		(514)		0
	(14,538)		(3,660)		(55,827)		(10,924)


Other comprehensive income (loss)	(14,450)		(3,607)		(55,417)		(10,737)
COMPREHENSIVE INCOME (LOSS)	$	2,175	$	11,300	$	(8,109)	$	32,341

See Notes to Condensed Consolidated Financial Statements

Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited)

Dollars in thousands, except share and per share data


	Preferred Stock		Additional Paid-In Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total Share- holders’ Equity
Balance, July 1, 2022	$	57,785	$	126,986	$	283,204	$	(3,026)	$	(41,361)	$	423,588
Net income					16,625						16,625
Other comprehensive loss									(14,450)		(14,450)
Forfeiture of restricted stock award grants (112 shares)			3				(3)				0
Restricted stock award grants (664 shares)			(10)				10				0

Stock-based compensation expense			256								256
Issuance of common stock, net of issuance costs (4,257,446 shares)			94,051								94,051

Contribution of treasury stock (3,000 shares)			(44)				44				0
Stock-based contribution expense			84								84




Preferred cash dividend declared					(1,076)						(1,076)
Cash dividends declared ($0.175 per common share)					(2,950)						(2,950)
Balance, September 30, 2022	$	57,785	$	221,326	$	295,803	$	(2,975)	$	(55,811)	$	516,128

Balance, July 1, 2021	$	57,785	$	126,875	$	239,017	$	(1,672)	$	7,944	$	429,949
Net income					14,907						14,907
Other comprehensive gain									(3,607)		(3,607)

Restricted stock award grants (2,203 shares)			(57)				57				0

Stock-based compensation expense			312								312
Contribution of treasury stock (3,000 shares)			(81)				81				0
Stock-based contribution expense			75								75


Purchase of treasury stock for the purpose of tax withholding related to restricted stock award vesting (28 shares)							(1)				(1)

Preferred cash dividend declared					(1,076)						(1,076)
Cash dividends declared ($0.170 per common share)					(2,870)						(2,870)
Balance, September 30, 2021	$	57,785	$	127,124	$	249,978	$	(1,535)	$	4,337	$	437,689

Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited) (continued)

Dollars in thousands, except share and per share data


	Preferred Stock		Additional Paid-In Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total Share- holders’ Equity
Balance, January 1, 2022	$	57,785	$	127,351	$	260,582	$	(2,477)	$	(394)	$	442,847
Net income					47,308						47,308
Other comprehensive loss									(55,417)		(55,417)
Forfeiture of restricted stock award grants (1,202 shares)			30				(30)				0
Restricted stock award grants (56,823 shares)			(986)				986				0
Performance based restricted stock award grants (11,895 shares)			(173)				173				0
Stock-based compensation expense			1,013								1,013
Contribution of treasury stock (3,000 shares)			(44)				44				0
Stock-based contribution expense			84								84
Issuance of common stock, net of issuance costs (4,257,446 shares)			94,051								94,051
Purchase of treasury stock (50,166 shares)							(1,342)				(1,342)
Purchase of treasury stock for the purpose of tax withholding related to restricted stock award vesting (7,568 shares)							(203)				(203)
Purchase of treasury stock for the purpose of tax withholding related to performance based restricted stock award vesting (4,706 shares)							(126)				(126)


Preferred cash dividend declared					(3,226)						(3,226)
Cash dividends declared ($0.525 per common share)					(8,861)						(8,861)
Balance, September 30, 2022	$	57,785	$	221,326	$	295,803	$	(2,975)	$	(55,811)	$	516,128

Balance, January 1, 2021	$	57,785	$	127,518	$	218,727	$	(2,967)	$	15,074	$	416,137
Net income					43,078						43,078
Other comprehensive loss									(10,737)		(10,737)
Forfeiture of restricted stock award grants (1,578 shares)			35				(35)				0
Restricted stock award grants (52,309 shares)			(1,285)				1,285				0
Performance based restricted stock award grants (10,587 shares)			(262)				262				0
Stock-based compensation expense			1,124								1,124
Contribution of treasury stock (3,000 shares)			(81)				81				0
Stock-based contribution expense			75								75


Purchase of treasury stock for the purpose of tax withholding related to restricted stock award vesting (6,691 shares)							(141)				(141)
Purchase of treasury stock for the purpose of tax withholding related to performance based restricted stock award vesting (941 shares)							(20)				(20)
Preferred cash dividend declared					(3,226)						(3,226)
Cash dividends declared ($0.51 per common share)					(8,601)						(8,601)
Balance, September 30, 2021	$	57,785	$	127,124	$	249,978	$	(1,535)	$	4,337	$	437,689

See Notes to Condensed Consolidated Financial Statements

Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

Dollars in thousands



	Nine Months Ended September 30,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	47,308	$	43,078
Adjustments to reconcile net income to net cash provided by operations:
Provision for credit loss expense	5,639		5,189
Depreciation and amortization of premises and equipment, operating leases assets, core deposit intangible, and mortgage servicing rights	5,256		5,075
Accretion of securities, deferred loan fees and costs, net yield and credit mark on acquired loans, and unearned income	(2,246)		(1,251)
Net amortization of deferred costs on borrowings	227		101
Accretion of deferred PPP processing fees	(1,870)		(6,817)
Net realized gains on sales of available-for-sale securities	(651)		0
Net realized and unrealized (gains) losses on equity securities	1,433		(477)
Gain on sale of loans held for sale	(1,176)		(2,315)
Net losses on dispositions of premises and equipment and foreclosed assets	40		245
Proceeds from sale of loans receivable	25,435		67,739
Origination of loans held for sale	(30,838)		(69,311)
Income on bank owned life insurance	(1,895)		(1,548)
Gain on bank owned life insurance (death benefit proceeds in excess of cash surrender value)	(883)		(454)
Restricted stock compensation expense	1,013		1,124
Stock-based contribution expense	84		75
Increase in accrued interest receivable and other assets	(20,953)		(2,870)
Increase in accrued interest payable, lease liabilities, and other liabilities	12,359		1,070
NET CASH PROVIDED BY OPERATING ACTIVITIES	38,282		38,653
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities, prepayments and calls of available-for-sale securities	59,673		124,140
Proceeds from sales of available-for-sale securities	22,164		0
Purchase of available-for-sale securities	(48,383)		(290,130)
Proceeds from maturities, prepayments and calls of held-to-maturity securities	20,235		0
Purchases of held-to-maturity securities	(213,853)		0

Purchase of equity securities	(302)		(292)
Proceeds from loans held for sale previously classified as portfolio loans	0		1,627
Net increase in loans receivable	(380,348)		(126,411)
Purchase of bank owned life insurance	(2,750)		(22,000)
Proceeds from death benefit of bank owned life insurance policies	3,273		1,390

Purchase of FHLB, other equity, and restricted equity interests	(647)		(1,241)
Purchase of premises and equipment	(8,278)		(5,358)
Proceeds from the sale of premises and equipment and foreclosed assets	47		591
NET CASH USED BY INVESTING ACTIVITIES	(549,169)		(317,684)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in checking, money market and savings accounts	(29,444)		451,405
Net decrease in certificates of deposit	(62,364)		(39,521)

Purchase of treasury stock	(1,671)		(161)
Cash dividends paid, common stock	(8,861)		(8,601)
Cash dividends paid, preferred stock	(3,226)		(3,226)

Proceeds from common stock offering, net of issuance costs	94,051		0

Proceeds from issuance of subordinated notes, net of issuance costs	0		83,491



NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES	(11,515)		483,387
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(522,402)		204,356
CASH AND CASH EQUIVALENTS, Beginning	732,198		532,694
CASH AND CASH EQUIVALENTS, Ending	$	209,796	$	737,050

Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (continued)

Dollars in thousands






























































	Nine Months Ended September 30,
	2022		2021
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	13,878	$	15,296
Income taxes	12,743		9,846
SUPPLEMENTAL NONCASH DISCLOSURES:
Transfers to other real estate owned	$	520	$	1,450
Transfers from loans held for sale to loans held for investment	6,352		9,335
Transfers from loans held for investment to loans held for sale	0		2,484
Transfers from available-for-sale to held-to-maturity	220,757		0
Grant of restricted stock awards from treasury stock	986		1,285
Grant of performance based restricted stock awards from treasury stock	173		262
Restricted stock forfeiture	30		0
Contribution of stock from treasury stock	44		81
Lease liabilities arising from obtaining right-of-use assets	9,066		0

See Notes to Condensed Consolidated Financial Statements

Table of Contents

CNB FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

CNB Financial Corporation (the "Corporation") is headquartered in Clearfield, Pennsylvania, and provides a full range of banking and related services through its wholly owned subsidiary, CNB Bank (the "Bank"). In addition, the Bank provides wealth and asset management services, including the administration of trusts and estates, retirement plans, and other employee benefit plans as well as a full range of wealth management services. The Bank serves individual and corporate customers and is subject to competition from other financial institutions and intermediaries with respect to these services. In addition to the Bank, the Corporation also operates a consumer discount loan and finance business through its wholly owned subsidiary, Holiday Financial Services Corporation ("Holiday"). The Corporation and its other subsidiaries are subject to examination by federal and state regulators. The Corporation’s market area is primarily concentrated in the Central and Northwest regions of the Commonwealth of Pennsylvania, the Central and Northeast regions of the state of Ohio, Western New York and Southwest Virginia.

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared pursuant to rules and regulations of the SEC and in compliance with U.S. generally accepted accounting principles ("GAAP"). Because this report is based on an interim period, certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with GAAP have been condensed or omitted.

In the opinion of management of the registrant, the accompanying condensed consolidated financial statements as of September 30, 2022 and for the three and nine months ended September 30, 2022 and 2021 include all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the financial condition and the results of operations for the periods presented. The financial performance reported for the Corporation for the three and nine months ended September 30, 2022 is not necessarily indicative of the results to be expected for the full year. This information should be read in conjunction with the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2021 (the "2021 Form 10-K"). Certain amounts appearing in the condensed consolidated financial statements and notes thereto for prior periods have been reclassified to conform with the current presentation. The reclassifications had no effect on net income or shareholders’ equity as previously reported. Dollar amounts in tables are stated in thousands, except for per share amounts.

Use of Estimates

To prepare financial statements in conformity with GAAP, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided and future results could differ.

Operating Segments

While the Corporation monitors the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Corporation-wide basis, and operating segments are aggregated into one as operating results for all segments are similar. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment.

Debt Securities

Debt securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Debt securities are classified as available for sale when they might be sold before maturity. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income (loss), net of tax.

Table of Contents

Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are amortized on the level-yield method without anticipating prepayments, except for mortgage backed securities where prepayments are anticipated. Gains and losses on sales are recorded on the settlement date and determined using the specific identification method.

The Corporation has made a policy election to exclude accrued interest from the amortized cost basis of debt securities and report accrued interest separately in accrued interest receivable and other assets in the condensed consolidated balance sheets. A debt security is placed on nonaccrual status at the time any principal or interest payments become more than 90 days delinquent or if full collection of interest or principal becomes uncertain. Accrued interest for a security placed on nonaccrual is reversed against interest income. There was no accrued interest related to debt securities reversed against interest income for the three and nine months ended September 30, 2022 and 2021.

2. RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Standards Adopted in 2021

In August 2018, the FASB issued ASU 2018-14, "Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans." ASU 2018-14 amends ASC 715-20, "Compensation - Retirement Benefits - Defined Benefit Plans - General." The amended guidance modifies the disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans by removing and adding certain disclosures for these plans. The eliminated disclosures include (a) the amounts in accumulated Other Comprehensive Income expected to be recognized in net periodic benefit costs over the next fiscal year, and (b) the effects of a one percentage point change in assumed health care cost trend rates on the net periodic benefit costs and the benefit obligation for post-retirement health care benefits. Additional disclosures include descriptions of significant gains and losses affecting the benefit obligation for the period. ASU 2018-14 was effective for the Corporation on January 1, 2021 and did not have a material impact on its consolidated financial statements and related disclosures.

In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." These amendments remove specific exceptions to the general principles in Topic 740 in GAAP. It eliminates the need for an organization to analyze whether the following apply in a given period: exception to the incremental approach for intraperiod tax allocation; exceptions to accounting for basis differences where there are ownership changes in foreign investments; and exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses. It also improves financial statement preparers' application of income tax- related guidance and simplifies GAAP for: franchise taxes that are partially based on income; transactions with a government that result in a step up in the tax basis of goodwill; separate financial statements of legal entities that are not subject to tax; and enacts changes in tax laws in interim periods. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted. ASU 2019-12 was effective for the Corporation on January 1, 2021 and did not have a material impact on its consolidated financial statements and related disclosures.

In January 2020, the FASB issued ASU 2020-01, "Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815." ASU 2020-01 represents changes to clarify certain interactions between the guidance to account for certain equity securities under Topic 321, the guidance to account for investments under the equity method of accounting in Topic 323, and the guidance in Topic 815. These amendments improve current U.S. GAAP by reducing diversity in practice and increasing comparability of the accounting for these transactions. ASU 2020-01 was effective for the Corporation on January 1, 2021 and did not have a material impact on its consolidated financial statements and related disclosures.

In October 2020, the FASB issued ASU 2020-08, "Codification Improvements to Subtopic 310-20, Receivables - Nonrefundable Fees and Other Costs." ASU 2020-08 clarifies that an entity should reevaluate whether a callable debt security is within the scope of paragraph 310-20-35-33 for each reporting period. ASU 2020-08 was effective for the Corporation on January 1, 2021 and did not have a material impact on its consolidated financial statements and related disclosures.

In August 2021, FASB issued ASU 2021-06, "Presentation of Financial Statements (Topic 205), Financial Services—Depository and Lending (Topic 942), and Financial Services—Investment Companies (Topic 946)." ASU 2021-06 updates the codification to align with SEC Final Rule Releases No. 33-10786 and No. 33-10835. Specific to financial institutions, these SEC releases updated required annual statistical disclosures. The amendments in ASU 2021-06 were effective immediately. The updates to the statistical disclosures are reflected in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2021, to align with this guidance.

Table of Contents

Accounting Pronouncements Pending Adoption

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." ASU 2020-04 provides optional expedients and exceptions for accounting related to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. ASU 2020-04 applies only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform and do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The amendments in this update are effective for all entities as of March 12, 2020 through December 31, 2022. The Corporation is currently evaluating the effect of the reference rate reform on its consolidated financial statements.

In January 2021, the FASB issued ASU 2021-01, "Reference Rate Reform (Topic 848)." ASU 2021-01 expands and clarifies the scope of ASU No. 2020-04 to include derivatives affected by changes in interest rates used for margining, discounting, or contract price alignment, commonly referred to as the “discounting transaction.” Derivatives impacted by the discounting transaction will be eligible for certain optional expedients and exceptions related to contract modifications and hedge accounting as defined in Topic 848. The amendments in this update are effective for all entities as of March 12, 2020 through December 31, 2022. The Corporation is currently evaluating the effect of the reference rate reform on its consolidated financial statements and related disclosures.

In March 2022, the FASB issued ASU No. 2022-02, "Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures." This ASU eliminates the separate recognition and measurement guidance for Troubled Debt Restructurings ("TDRs") by creditors. The elimination of the TDR guidance may be adopted prospectively for loan modifications after adoption or on a modified retrospective basis, which would also apply to loans previously modified, resulting in a cumulative effect adjustment to retained earnings in the period of adoption for changes in the allowance for credit losses. This guidance is effective for the Corporation for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. The Corporation is evaluating the effect that ASU 2022-02 will have on its consolidated financial statements and related disclosures.

In June 2022, FASB issued ASU No. 2022-03, "Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions." In this ASU, a contractual restriction on the sale of an equity security is not considered in measuring the security's fair value. The ASU also requires certain disclosures for equity securities that are subject to contractual restrictions. This guidance is effective for the Corporation for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, with early adoption permitted. The Corporation is evaluating the effect that ASU 2022-03 will have on its consolidated financial statements and related disclosures.

3. SECURITIES

Debt securities available-for-sale ("AFS") at September 30, 2022 and December 31, 2021 are as follows:


	September 30, 2022								December 31, 2021
	Amortized		Unrealized				Fair		Amortized		Unrealized				Fair
	Cost		Gains		Losses		Value		Cost		Gains		Losses		Value
U.S. Government sponsored entities	$	3,166	$	0	$	(88)	$	3,078	$	110,788	$	2,728	$	(1,768)	$	111,748
State & political subdivisions	114,082		24		(18,124)		95,982		103,232		2,162		(1,682)		103,712
Residential & multi-family mortgage	263,957		2		(41,163)		222,796		437,021		4,127		(6,513)		434,635
Corporate notes & bonds	47,103		0		(4,649)		42,454		28,257		250		(443)		28,064
Pooled SBA	15,208		0		(1,282)		13,926		18,787		283		(38)		19,032

Total	$	443,516	$	26	$	(65,306)	$	378,236	$	698,085	$	9,550	$	(10,444)	$	697,191

Table of Contents

Debt securities held-to-maturity ("HTM") at September 30, 2022 and December 31, 2021 are as follows:


	September 30, 2022								December 31, 2021
	Amortized		Unrealized				Fair		Amortized		Unrealized				Fair
	Cost		Gains		Losses		Value		Cost		Gains		Losses		Value
U.S. Government sponsored entities	$	307,672	$	0	$	(28,325)	$	279,347	$	0	$	0	$	0	$	0
Residential & multi-family mortgage	100,537		0		(10,782)		89,755		0		0		0		0





Total	$	408,209	$	0	$	(39,107)	$	369,102	$	0	$	0	$	0	$	0

The Corporation elected to transfer 23 AFS securities with an aggregate fair value of $101.1 million to a classification of HTM on January 1, 2022. In accordance with FASB ASC 320-10-55-24, the transfer from AFS to HTM must be recorded at the fair value of the AFS securities at the time of transfer. The net unrealized holding gain of $373 thousand, net of tax, at the date of transfer was retained in accumulated other comprehensive income (loss), with the associated pre-tax amount retained in the carrying value of the HTM securities. Such amounts will be amortized to comprehensive income over the remaining life of the securities.

The Corporation elected to transfer 51 AFS securities with an aggregate fair value of $112.6 million to a classification of HTM on April 1, 2022. The net unrealized holding loss of $6.0 million, net of tax, at the date of transfer was retained in accumulated other comprehensive income (loss), with the associated pre-tax amount retained in the carrying value of the HTM securities. Such amounts will be amortized to comprehensive income over the remaining life of the securities.

Information pertaining to security sales on AFS securities is as follows:


	Proceeds		Gross Gains		Gross Losses
Three months ended September 30, 2022	$	0	$	0	$	0
Three months ended September 30, 2021	0		0		0
Nine months ended September 30, 2022	22,164		651		0
Nine months ended September 30, 2021	0		0		0

The tax provision related to these net realized gains was zero and $137 thousand for the three and nine months ended September 30, 2022 and zero during the three and nine months ended September 30, 2021, respectively.

The table below illustrates the maturity distribution of debt securities at amortized cost and fair value as of September 30, 2022:


	Available-for-sale				Held-to-maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
1 year or less	$	4,744	$	4,722	$	5,092	$	4,972
1 year – 5 years	40,445		38,367		242,851		224,129
5 years – 10 years	91,164		77,651		54,242		45,773
After 10 years	27,998		20,774		5,487		4,473
	164,351		141,514		307,672		279,347
Residential & multi-family mortgage	263,957		222,796		100,537		89,755
Pooled SBA	15,208		13,926		0		0

Total debt securities	$	443,516	$	378,236	$	408,209	$	369,102

Mortgage securities and pooled SBA securities are not due at a single date; periodic payments are received based on the payment patterns of the underlying collateral.

On September 30, 2022 and December 31, 2021, securities carried at $561.2 million and $461.5 million, respectively, were pledged to secure public deposits and for other purposes as provided by law.

At September 30, 2022 and December 31, 2021, there were no holdings of securities of any one issuer, other than the U.S. Government sponsored entities, in an amount greater than 10% of shareholders’ equity. The Corporation’s residential and multi-family mortgage securities are issued by government sponsored entities.

Table of Contents

AFS debt securities with unrealized losses at September 30, 2022 and December 31, 2021, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows:

September 30, 2022


	Less than 12 Months				12 Months or More				Total
Description of Securities	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
U.S. Government sponsored entities	$	3,078	$	(88)	$	0	$	0	$	3,078	$	(88)
State & political subdivisions	44,052		(5,329)		45,418		(12,795)		89,470		(18,124)
Residential & multi-family mortgage	78,017		(7,116)		144,421		(34,047)		222,438		(41,163)
Corporate notes & bonds	34,567		(3,750)		6,887		(899)		41,454		(4,649)
Pooled SBA	11,334		(955)		2,592		(327)		13,926		(1,282)

	$	171,048	$	(17,238)	$	199,318	$	(48,068)	$	370,366	$	(65,306)

December 31, 2021


	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
U.S. Government sponsored entities	$	23,733	$	(553)	$	37,911	$	(1,215)	$	61,644	$	(1,768)
State & political subdivisions	55,636		(1,399)		5,026		(283)		60,662		(1,682)
Residential & multi-family mortgage	248,690		(4,837)		45,185		(1,676)		293,875		(6,513)
Corporate notes & bonds	6,466		(249)		3,806		(194)		10,272		(443)
Pooled SBA	4,394		(37)		127		(1)		4,521		(38)

	$	338,919	$	(7,075)	$	92,055	$	(3,369)	$	430,974	$	(10,444)

HTM debt securities with unrealized losses at September 30, 2022 and December 31, 2021, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows:

September 30, 2022


	Less than 12 Months				12 Months or More				Total
Description of Securities	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
U.S. Government sponsored entities	$	225,598	$	(20,668)	$	53,749	$	(7,657)	$	279,347	$	(28,325)
Residential & multi-family mortgage	45,766		(4,417)		43,989		(6,365)		89,755		(10,782)





	$	271,364	$	(25,085)	$	97,738	$	(14,022)	$	369,102	$	(39,107)

December 31, 2021


	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
U.S. Government sponsored entities	$	0	$	0	$	0	$	0	$	0	$	0
Residential & multi-family mortgage	0		0		0		0		0		0





	$	0	$	0	$	0	$	0	$	0	$	0

At September 30, 2022 and December 31, 2021, management performed an assessment for possible impairment related to credit losses of the Corporation’s debt securities, relying on information obtained from various sources, including publicly available financial data, ratings by external agencies, brokers and other sources. Based on the results of the assessment, management believes there is no credit related impairment of these debt securities at September 30, 2022 and December 31, 2021.

Table of Contents

For the securities that comprise corporate notes and bonds and the securities that are issued by state and political subdivisions, management monitors publicly available financial information, such as filings with the Securities and Exchange Commission, in order to evaluate the securities for potential credit impairment. For financial institution issuers, management monitors information from quarterly “call” report filings that are used to generate Uniform Bank Performance Reports. All other securities that were in an unrealized loss position at the balance sheet date were reviewed by management, and issuer-specific documents were reviewed as appropriate given the following considerations; the financial condition and near-term prospects of the issuer and whether downgrades by bond rating agencies have occurred, the length of time and extent to which fair value has been less than cost, and whether management does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery.

As of September 30, 2022 and December 31, 2021, management concluded the debt securities described in the previous paragraphs were not impaired for reasons due to credit quality for the following reasons:

•There is no indication of any significant deterioration of the creditworthiness of the institutions that issued the securities.

•All contractual interest payments on the securities have been received as scheduled, and no information has come to management’s attention through the processes previously described which would lead to a conclusion that future contractual payments will not be timely received.

•The unrealized losses were deemed to be temporary changes in value related to market movements in interest yields.

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

Equity securities at September 30, 2022 and December 31, 2021 are as follows:


	September 30, 2022		December 31, 2021
Corporate equity securities	$	5,995	$	6,715
Mutual funds	2,582		2,566
Certificates of deposit	0		506
Corporate notes and bonds	658		579

Total	$	9,235	$	10,366

Table of Contents

4. LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES

Total net loans receivable at September 30, 2022 and December 31, 2021 are summarized as follows:


	September 30, 2022		Percentage of Total		December 31, 2021		Percentage of Total
Farmland	$	30,738	0.8	%	$	23,768	0.7	%
Owner-occupied, nonfarm nonresidential properties	461,709		11.5	%	434,672		12.0	%
Agricultural production and other loans to farmers	1,097		0.0	%	1,379		0.0	%
Commercial and Industrial 1	760,975		18.9	%	708,989		19.5	%
Obligations (other than securities and leases) of states and political subdivisions	147,956		3.7	%	140,887		3.9	%
Other loans	13,654		0.3	%	13,979		0.4	%
Other construction loans and all land development and other land loans	349,286		8.7	%	298,869		8.2	%
Multifamily (5 or more) residential properties	248,694		6.2	%	216,143		5.9	%
Non-owner occupied, nonfarm nonresidential properties	742,214		18.4	%	663,062		18.2	%
1-4 Family Construction	40,426		1.0	%	37,822		1.0	%
Home equity lines of credit	124,022		3.1	%	104,517		2.9	%
Residential Mortgages secured by first liens	921,180		22.9	%	826,729		22.7	%
Residential Mortgages secured by junior liens	68,494		1.7	%	56,689		1.6	%
Other revolving credit plans	29,374		0.7	%	26,536		0.7	%
Automobile	21,041		0.5	%	20,862		0.6	%
Other consumer	52,653		1.3	%	49,676		1.4	%
Credit cards	10,916		0.3	%	9,935		0.3	%
Overdrafts	236		0.0	%	278		0.0	%
Total loans receivable	$	4,024,665	100.0	%	$	3,634,792	100.0	%
Less: Allowance for credit losses	(41,269)				(37,588)
Loans receivable, net	$	3,983,396			$	3,597,204

Net deferred loan origination fees included in the above table	$	4,393			$	5,667

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

The Corporation’s outstanding loans receivable and related unfunded commitments are primarily concentrated within Central and Northwest Pennsylvania, Central and Northeast Ohio, Western New York and Southwest Virginia. The Bank attempts to limit concentrations within specific industries by utilizing dollar limitations to single industries or customers, and by entering into participation agreements with third parties. Collateral requirements are established based on management’s assessment of the customer. The Corporation maintains lending policies to control the quality of the loan portfolio. These policies delegate the authority to extend loans under specific guidelines and underwriting standards. These policies are prepared by the Corporation’s management and reviewed and approved annually by the Corporation’s Board of Directors.

During the second quarter of 2020, the Corporation began originating loans to qualified small businesses under the Paycheck Protection Program ("PPP") administered by the Small Business Administration (“SBA”) under the provisions of the Coronavirus Aid, Relief, and Economic Security Act. PPP loans, both those disbursed in 2020 and those disbursed in 2021, are included in the commercial and industrial classification and, as the PPP loans are fully guaranteed by the SBA, no allowance for credit losses was required to be recorded against the PPP loans, net of deferred PPP processing fees, outstanding of $462 thousand and $45.2 million as of September 30, 2022 and December 31, 2021, respectively.

Syndicated loans, net of deferred fees and costs, are included in the commercial and industrial classification and totaled $152.8 million and $125.8 million as of September 30, 2022 and December 31, 2021, respectively.

Table of Contents

Transactions in the allowance for credit losses for the three months ended September 30, 2022 were as follows:


	Beginning Allowance		(Charge-offs)		Recoveries		Provision (Benefit) for Credit Losses on Loans Receivable(1)		Ending Allowance
Farmland	$	191	$	0	$	0	$	(8)	$	183
Owner-occupied, nonfarm nonresidential properties	3,714		0		3		(272)		3,445
Agricultural production and other loans to farmers	7		0		0		(2)		5
Commercial and Industrial	9,555		0		32		(21)		9,566
Obligations (other than securities and leases) of states and political subdivisions	1,665		0		0		97		1,762
Other loans	167		0		0		(2)		165
Other construction loans and all land development and other land loans	2,328		0		0		208		2,536
Multifamily (5 or more) residential properties	2,277		0		0		(171)		2,106
Non-owner occupied, nonfarm nonresidential properties	6,748		(169)		336		215		7,130
1-4 Family Construction	236		0		0		(56)		180
Home equity lines of credit	1,353		0		1		26		1,380
Residential Mortgages secured by first liens	7,664		(4)		1		198		7,859
Residential Mortgages secured by junior liens	628		0		0		338		966
Other revolving credit plans	598		(28)		12		58		640
Automobile	242		(7)		2		27		264
Other consumer	2,704		(404)		22		437		2,759
Credit cards	110		(15)		25		(33)		87
Overdrafts	356		(152)		35		(3)		236
Total	$	40,543	$	(779)	$	469	$	1,036	$	41,269

(1) Excludes provision for credit losses related to unfunded commitments. Note 8, "Off-Balance Sheet Commitments and Contingencies," in the condensed consolidated financial statements provides more detail concerning the provision for credit losses related to unfunded commitments of the Corporation.

Transactions in the allowance for credit losses for the nine months ended September 30, 2022 were as follows:


	Beginning Allowance		(Charge-offs)		Recoveries		Provision (Benefit) for Credit Losses on Loans Receivable(1)		Ending Allowance
Farmland	$	151	$	0	$	0	$	32	$	183
Owner-occupied, nonfarm nonresidential properties	3,339		(21)		12		115		3,445
Agricultural production and other loans to farmers	9		0		0		(4)		5
Commercial and Industrial	8,837		(85)		123		691		9,566
Obligations (other than securities and leases) of states and political subdivisions	1,649		0		0		113		1,762
Other loans	149		0		0		16		165
Other construction loans and all land development and other land loans	2,198		0		0		338		2,536
Multifamily (5 or more) residential properties	2,289		0		0		(183)		2,106
Non-owner occupied, nonfarm nonresidential properties	6,481		(169)		336		482		7,130
1-4 Family Construction	158		0		0		22		180
Home equity lines of credit	1,169		0		11		200		1,380
Residential Mortgages secured by first liens	6,943		(51)		13		954		7,859
Residential Mortgages secured by junior liens	546		0		0		420		966
Other revolving credit plans	528		(73)		46		139		640
Automobile	263		(20)		2		19		264
Other consumer	2,546		(1,174)		63		1,324		2,759
Credit cards	92		(74)		33		36		87
Overdrafts	241		(398)		109		284		236
Total	$	37,588	$	(2,065)	$	748	$	4,998	$	41,269

Table of Contents

Transactions in the allowance for credit losses for the three months ended September 30, 2021 were as follows:


	Beginning Allowance		(Charge-offs)		Recoveries		Provision (Benefit) for Credit Losses on Loans Receivable(1)		Ending Allowance
Farmland	$	124	$	0	$	0	$	(26)	$	98
Owner-occupied, nonfarm nonresidential properties	2,880		0		3		154		3,037
Agricultural production and other loans to farmers	12		0		0		(5)		7
Commercial and Industrial	7,312		(23)		52		989		8,330
Obligations (other than securities and leases) of states and political subdivisions	2,325		(157)		0		(289)		1,879
Other loans	117		0		0		(15)		102
Other construction loans and all land development and other land loans	2,364		(282)		0		287		2,369
Multifamily (5 or more) residential properties	2,314		0		0		(219)		2,095
Non-owner occupied, nonfarm nonresidential properties	10,162		(18)		0		(2,865)		7,279
1-4 Family Construction	110		0		0		116		226
Home equity lines of credit	1,029		(7)		1		197		1,220
Residential Mortgages secured by first liens	4,398		(5)		2		2,030		6,425
Residential Mortgages secured by junior liens	408		(3)		0		144		549
Other revolving credit plans	459		(5)		4		70		528
Automobile	241		(12)		0		49		278
Other consumer	2,402		(268)		25		331		2,490
Credit cards	68		(5)		6		43		112
Overdrafts	183		(127)		41		109		206
Total	$	36,908	$	(912)	$	134	$	1,100	$	37,230

Transactions in the allowance for credit losses for the nine months ended September 30, 2021 were as follows:


	Beginning Allowance		(Charge-offs)		Recoveries		Provision (Benefit) for Credit Losses on Loans Receivable(1)		Ending Allowance
Farmland	$	221	$	0	$	0	$	(123)	$	98
Owner-occupied, nonfarm nonresidential properties	3,700		(531)		8		(140)		3,037
Agricultural production and other loans to farmers	24		0		0		(17)		7
Commercial and Industrial	6,233		(93)		72		2,118		8,330
Obligations (other than securities and leases) of states and political subdivisions	998		(407)		0		1,288		1,879
Other loans	68		0		0		34		102
Other construction loans and all land development and other land loans	1,956		(282)		0		695		2,369
Multifamily (5 or more) residential properties	2,724		0		0		(629)		2,095
Non-owner occupied, nonfarm nonresidential properties	8,658		(18)		0		(1,361)		7,279
1-4 Family Construction	82		0		0		144		226
Home equity lines of credit	985		(7)		3		239		1,220
Residential Mortgages secured by first liens	4,539		(75)		34		1,927		6,425
Residential Mortgages secured by junior liens	241		(3)		0		311		549
Other revolving credit plans	507		(28)		9		40		528
Automobile	132		(17)		3		160		278
Other consumer	2,962		(829)		120		237		2,490
Credit cards	66		(77)		17		106		112
Overdrafts	244		(318)		120		160		206
Total	$	34,340	$	(2,685)	$	386	$	5,189	$	37,230

Table of Contents

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

For the three and nine months ended September 30, 2022, the allowance for credit losses increased due to the growth in the Corporation's loan portfolio, including growth in new market areas. This was partially offset by improvements in the Corporation's historical loss rates, as well as the impact of net charge-offs. There is still a significant amount of uncertainty related to the domestic and global economy, continued supply chain challenges, persistent inflation and the COVID-19 pandemic. Management will continue to proactively evaluate its estimate of expected credit losses as new information becomes available.

Provision for credit losses was $1.1 million and $5.6 million for the three and nine months ended September 30, 2022, respectively, compared to $1.1 million and $5.2 million for the three and nine months ended September 30, 2021. The increase in provision for the nine months ended September 30, 2022 was primarily due to the growth in commercial loans. Included in the provision for credit losses for the three and nine months ended September 30, 2022 was $55 thousand and $641 thousand, respectively, related to the allowance for unfunded commitments compared to no accrual towards the allowance for unfunded commitments for the nine months ended September 30, 2021.

The following tables presents the amortized cost basis of loans receivable on nonaccrual status and loans receivable past due over 89 days still accruing as of September 30, 2022 and December 31, 2021, respectively:


	September 30, 2022
	Nonaccrual		Nonaccrual With No Allowance for Credit Loss		Loans Receivable Past Due over 89 Days Still Accruing
Farmland	$	1,043	$	1,043	$	995
Owner-occupied, nonfarm nonresidential properties	1,665		1,593		0

Commercial and Industrial	6,101		2,882		0


Other construction loans and all land development and other land loans	68		68		0
Multifamily (5 or more) residential properties	1,085		435		0
Non-owner occupied, nonfarm nonresidential properties	3,828		2,610		0

Home equity lines of credit	486		194		0
Residential Mortgages secured by first liens	4,311		3,565		0
Residential Mortgages secured by junior liens	114		114		0
Other revolving credit plans	34		34		0
Automobile	22		22		0
Other consumer	751		751		0
Credit cards	0		0		56

Total	$	19,508	$	13,311	$	1,051

Table of Contents


	December 31, 2021
	Nonaccrual		Nonaccrual With No Allowance for Credit Loss		Loans Receivable Past Due over 89 Days Still Accruing
Farmland	$	965	$	965	$	0
Owner-occupied, nonfarm nonresidential properties	850		762		0

Commercial and Industrial	7,060		1,653		8


Other construction loans and all land development and other land loans	516		77		0
Multifamily (5 or more) residential properties	1,270		5		0
Non-owner occupied, nonfarm nonresidential properties	3,771		2,143		0

Home equity lines of credit	824		824		0
Residential Mortgages secured by first liens	3,410		3,410		137
Residential Mortgages secured by junior liens	147		147		0
Other revolving credit plans	13		13		0
Automobile	36		36		0
Other consumer	558		558		0
Credit cards	0		0		23

Total	$	19,420	$	10,593	$	168

All payments received while on nonaccrual status are applied against the principal balance of the loan. The Corporation does not recognize interest income while a loan is on nonaccrual status.

The following table presents the amortized cost basis of loans receivable that are individually evaluated and collateral-dependent by class of loans as of September 30, 2022:


	Real Estate Collateral		Non-Real Estate Collateral
Farmland	$	854	$	0
Owner-occupied, nonfarm nonresidential properties	1,332		6

Commercial and Industrial	91		2,018



Multifamily (5 or more) residential properties	1,085		0
Non-owner occupied, nonfarm nonresidential properties	5,264		0

Home equity lines of credit	341		0
Residential Mortgages secured by first liens	1,167		0






Total	$	10,134	$	2,024

The following table presents the amortized cost basis of loans receivable that are individually evaluated and collateral-dependent by class of loans as of December 31, 2021:


	Real Estate Collateral		Non-Real Estate Collateral
Farmland	$	920	$	0
Owner-occupied, nonfarm nonresidential properties	194		9

Commercial and Industrial	1,488		2,351


Other construction loans and all land development and other land loans	438		0
Multifamily (5 or more) residential properties	1,265		0
Non-owner occupied, nonfarm nonresidential properties	3,378		0


Residential Mortgages secured by first liens	435		0






Total	$	8,118	$	2,360

Table of Contents

The following table presents the aging of the amortized cost basis in past-due loans receivable as of September 30, 2022 by class of loans:


	30 - 59 Days Past Due		60 - 89 Days Past Due		Greater Than 89 Days Past Due		Total Past Due		Loans Receivable Not Past Due		Total
Farmland	$	0	$	0	$	1,142	$	1,142	$	29,596	$	30,738
Owner-occupied, nonfarm nonresidential properties	230		99		334		663		461,046		461,709
Agricultural production and other loans to farmers	0		0		0		0		1,097		1,097
Commercial and Industrial	117		230		715		1,062		759,913		760,975
Obligations (other than securities and leases) of states and political subdivisions	0		0		0		0		147,956		147,956
Other loans	0		0		0		0		13,654		13,654
Other construction loans and all land development and other land loans	0		68		0		68		349,218		349,286
Multifamily (5 or more) residential properties	0		0		90		90		248,604		248,694
Non-owner occupied, nonfarm nonresidential properties	114		0		1,037		1,151		741,063		742,214
1-4 Family Construction	0		0		0		0		40,426		40,426
Home equity lines of credit	113		50		49		212		123,810		124,022
Residential Mortgages secured by first liens	698		239		1,590		2,527		918,653		921,180
Residential Mortgages secured by junior liens	11		0		52		63		68,431		68,494
Other revolving credit plans	14		24		4		42		29,332		29,374
Automobile	19		0		1		20		21,021		21,041
Other consumer	416		230		351		997		51,656		52,653
Credit cards	54		22		56		132		10,784		10,916
Overdrafts	0		0		0		0		236		236
Total	$	1,786	$	962	$	5,421	$	8,169	$	4,016,496	$	4,024,665

Table of Contents

The following table presents the aging of the amortized cost basis in past-due loans receivable as of December 31, 2021 by class of loans:


	30 - 59 Days Past Due		60 - 89 Days Past Due		Greater Than 89 Days Past Due		Total Past Due		Loans Receivable Not Past Due		Total
Farmland	$	348	$	0	$	0	$	348	$	23,420	$	23,768
Owner-occupied, nonfarm nonresidential properties	278		18		414		710		433,962		434,672
Agricultural production and other loans to farmers	0		0		0		0		1,379		1,379
Commercial and Industrial	377		13		333		723		708,266		708,989
Obligations (other than securities and leases) of states and political subdivisions	0		0		0		0		140,887		140,887
Other loans	0		0		0		0		13,979		13,979
Other construction loans and all land development and other land loans	0		0		77		77		298,792		298,869
Multifamily (5 or more) residential properties	0		10		209		219		215,924		216,143
Non-owner occupied, nonfarm nonresidential properties	0		0		1,792		1,792		661,270		663,062
1-4 Family Construction	0		0		0		0		37,822		37,822
Home equity lines of credit	506		50		172		728		103,789		104,517
Residential Mortgages secured by first liens	1,286		1,145		1,647		4,078		822,651		826,729
Residential Mortgages secured by junior liens	32		24		1		57		56,632		56,689
Other revolving credit plans	56		17		4		77		26,459		26,536
Automobile	45		3		23		71		20,791		20,862
Other consumer	283		158		295		736		48,940		49,676
Credit cards	26		12		23		61		9,874		9,935
Overdrafts	0		0		0		0		278		278
Total	$	3,237	$	1,450	$	4,990	$	9,677	$	3,625,115	$	3,634,792

Troubled Debt Restructurings

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without a loan modification. This evaluation is performed using the Corporation’s internal underwriting policies. The Corporation has no further loan commitments to customers whose loan receivables are classified as a TDR.

As of September 30, 2022 and December 31, 2021, the terms of certain loans were modified as TDRs. The modification of the terms of such loans included either or both of the following: a reduction of the stated interest rate of the loan; or an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk. The Corporation had an amortized cost in TDRs of $13.5 million and $16.6 million as of September 30, 2022 and December 31, 2021, respectively. The Corporation has allocated $2.2 million and $2.6 million of allowance for those loans as of September 30, 2022 and December 31, 2021, respectively.

There was one loan modified as TDRs during the three months ended September 30, 2022.


	Three Months Ended September 30, 2022
	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Type of Modification



Commercial and Industrial	1	$	96	$	96	Extend Amortization














Total	1	$	96	$	96

Table of Contents

There were two loans modified as a TDR during the nine months ended September 30, 2022:


	Nine Months Ended September 30, 2022
	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Type of Modification



Commercial and Industrial	1	$	96	$	96	Extend Amortization




Non-owner occupied, nonfarm nonresidential properties	1	1,784		1,784		Modify Rate and Extend Amortization









Total	2	$	1,880	$	1,880

There were no loans modified as TDRs during the three months ended September 30, 2021. There were three loans modified as TDRs during the nine months ended September 30, 2021.


	Nine Months Ended September 30, 2021
	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Type of Modification



Commercial and Industrial	1	$	578	$	578	Modify Payment



Multifamily (5 or more) residential properties	1	717		717		Modify Payment
Non-owner occupied, nonfarm nonresidential properties	1	1,604		1,604		Modify Payment









Total	3	$	2,899	$	2,899

The TDRs described above increased the allowance for credit losses by an immaterial amount for the three and nine months ended September 30, 2022 and 2021, respectively.

A loan receivable is considered to be in payment default once it is 90 days contractually past due under the modified terms. There were no loans modified as TDRs for which there was a payment default within a twelve-month cycle following the modification during the three and nine months ended September 30, 2022 and 2021, respectively. There were no principal balances forgiven in connection with the loans restructurings.

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

Credit Quality Indicators

The Corporation categorizes loans receivable into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Corporation analyzes loans individually to classify the loans as to credit risk.

The Corporation uses the following definitions for risk ratings:

Special Mention: A loan classified as special mention has a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Corporation’s credit position at some future date.

Substandard: A loan classified as substandard is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. The loan has a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. A substandard loan is characterized by the distinct possibility that the Corporation will sustain some loss if the deficiencies are not corrected.

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

Table of Contents

The following tables represent the Corporation's commercial credit risk profile by risk rating. Loans receivable not rated as special mention, substandard, or doubtful are considered to be pass rated loans.


	September 30, 2022
			Non-Pass Rated
	Pass		Special Mention		Substandard		Doubtful		Total Non-Pass		Total
Farmland	$	28,245	$	1,450	$	1,043	$	0	$	2,493	$	30,738
Owner-occupied, nonfarm nonresidential properties	448,691		5,877		7,141		0		13,018		461,709
Agricultural production and other loans to farmers	1,097		0		0		0		0		1,097
Commercial and Industrial	742,819		6,376		10,443		1,337		18,156		760,975
Obligations (other than securities and leases) of states and political subdivisions	147,956		0		0		0		0		147,956
Other loans	13,654		0		0		0		0		13,654
Other construction loans and all land development and other land loans	347,704		1,514		68		0		1,582		349,286
Multifamily (5 or more) residential properties	247,609		0		1,085		0		1,085		248,694
Non-owner occupied, nonfarm nonresidential properties	716,589		2,625		23,000		0		25,625		742,214









Total	$	2,694,364	$	17,842	$	42,780	$	1,337	$	61,959	$	2,756,323


	December 31, 2021
			Non-Pass Rated
	Pass		Special Mention		Substandard		Doubtful		Total Non-Pass		Total
Farmland	$	21,286	$	1,514	$	968	$	0	$	2,482	$	23,768
Owner-occupied, nonfarm nonresidential properties	419,368		6,723		8,581		0		15,304		434,672
Agricultural production and other loans to farmers	1,379		0		0		0		0		1,379
Commercial and Industrial	687,010		7,946		12,654		1,379		21,979		708,989
Obligations (other than securities and leases) of states and political subdivisions	140,887		0		0		0		0		140,887
Other loans	13,979		0		0		0		0		13,979
Other construction loans and all land development and other land loans	294,103		4,221		545		0		4,766		298,869
Multifamily (5 or more) residential properties	214,772		100		1,271		0		1,371		216,143
Non-owner occupied, nonfarm nonresidential properties	631,534		9,628		21,900		0		31,528		663,062









Total	$	2,424,318	$	30,132	$	45,919	$	1,379	$	77,430	$	2,501,748

Table of Contents

The following tables detail the amortized cost of loans receivable, by year of origination (for term loans) and by risk grade within each portfolio segment as of September 30, 2022. The current period originations may include modifications, extensions and renewals.


	Term Loans Amortized Cost Basis by Origination Year
	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
Farmland
Risk rating
Pass	$	8,744	$	7,732	$	1,583	$	2,733	$	3,328	$	3,736	$	389	$	0	$	28,245
Special mention	0		0		0		0		0		1,450		0		0		1,450
Substandard	0		347		0		0		147		549		0		0		1,043
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	8,744	$	8,079	$	1,583	$	2,733	$	3,475	$	5,735	$	389	$	0	$	30,738
Owner-occupied, nonfarm nonresidential properties
Risk rating
Pass	$	97,380	$	115,207	$	67,363	$	56,604	$	25,856	$	65,843	$	20,438	$	0	$	448,691
Special mention	0		0		0		880		4,146		841		10		0		5,877
Substandard	0		0		371		2,393		400		3,977		0		0		7,141
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	97,380	$	115,207	$	67,734	$	59,877	$	30,402	$	70,661	$	20,448	$	0	$	461,709
Agricultural production and other loans to farmers
Risk rating
Pass	$	149	$	145	$	88	$	51	$	182	$	0	$	482	$	0	$	1,097
Special mention	0		0		0		0		0		0		0		0		0
Substandard	0		0		0		0		0		0		0		0		0
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	149	$	145	$	88	$	51	$	182	$	0	$	482	$	0	$	1,097
Commercial and Industrial
Risk rating
Pass	$	159,525	$	226,900	$	63,413	$	18,933	$	10,118	$	21,378	$	242,552	$	0	$	742,819
Special mention	0		0		149		296		325		60		5,546		0		6,376
Substandard	313		1,894		712		408		341		1,002		5,773		0		10,443
Doubtful(1)	0		1,337		0		0		0		0		0		0		1,337
Total	$	159,838	$	230,131	$	64,274	$	19,637	$	10,784	$	22,440	$	253,871	$	0	$	760,975
Obligations (other than securities and leases) of states and political subdivisions
Risk rating
Pass	$	17,175	$	36,577	$	15,983	$	4,680	$	13,647	$	55,089	$	4,805	$	0	$	147,956
Special mention	0		0		0		0		0		0		0		0		0
Substandard	0		0		0		0		0		0		0		0		0
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	17,175	$	36,577	$	15,983	$	4,680	$	13,647	$	55,089	$	4,805	$	0	$	147,956
Other loans
Risk rating
Pass	$	2,204	$	5,411	$	2,395	$	377	$	0	$	0	$	3,267	$	0	$	13,654
Special mention	0		0		0		0		0		0		0		0		0
Substandard	0		0		0		0		0		0		0		0		0
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	2,204	$	5,411	$	2,395	$	377	$	0	$	0	$	3,267	$	0	$	13,654

(1) Consists of one loan relationship that was originated in 2015 and modified in 2021. The modification met the requirements to disclose the loan relationship as a new loan during the current period.

Table of Contents


	Term Loans Amortized Cost Basis by Origination Year
	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
Other construction loans and all land development and other land loans
Risk rating
Pass	$	162,843	$	87,702	$	69,273	$	7,154	$	9,103	$	969	$	10,660	$	0	$	347,704
Special mention	0		1,514		0		0		0		0		0		0		1,514
Substandard	0		0		0		0		0		0		68		0		68
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	162,843	$	89,216	$	69,273	$	7,154	$	9,103	$	969	$	10,728	$	0	$	349,286
Multifamily (5 or more) residential properties
Risk rating
Pass	$	99,684	$	51,694	$	48,900	$	11,976	$	6,815	$	25,770	$	2,770	$	0	$	247,609
Special mention	0		0		0		0		0		0		0		0		0
Substandard	650		0		0		0		345		90		0		0		1,085
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	100,334	$	51,694	$	48,900	$	11,976	$	7,160	$	25,860	$	2,770	$	0	$	248,694
Non-owner occupied, nonfarm nonresidential properties
Risk rating
Pass	$	258,817	$	157,824	$	53,483	$	70,548	$	45,859	$	121,425	$	8,633	$	0	$	716,589
Special mention	0		0		0		370		508		1,299		448		0		2,625
Substandard	2,270		805		0		1,789		1,646		14,414		2,076		0		23,000
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	261,087	$	158,629	$	53,483	$	72,707	$	48,013	$	137,138	$	11,157	$	0	$	742,214

Table of Contents

The following tables detail the amortized cost of loans receivable, by year of origination (for term loans) and by risk grade within each portfolio segment as of December 31, 2021. The current period originations may include modifications, extensions and renewals.


	Term Loans Amortized Cost Basis by Origination Year
	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
Farmland
Risk rating
Pass	$	8,203	$	1,690	$	3,276	$	3,547	$	564	$	3,545	$	461	$	0	$	21,286
Special mention	0		0		0		0		394		1,120		0		0		1,514
Substandard	388		0		0		0		48		532		0		0		968
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	8,591	$	1,690	$	3,276	$	3,547	$	1,006	$	5,197	$	461	$	0	$	23,768
Owner-occupied, nonfarm nonresidential properties
Risk rating
Pass	$	135,095	$	78,068	$	78,621	$	29,100	$	40,677	$	50,079	$	7,728	$	0	$	419,368
Special mention	243		0		903		4,287		135		1,145		10		0		6,723
Substandard	687		416		2,190		868		250		4,152		18		0		8,581
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	136,025	$	78,484	$	81,714	$	34,255	$	41,062	$	55,376	$	7,756	$	0	$	434,672
Agricultural production and other loans to farmers
Risk rating
Pass	$	211	$	103	$	76	$	198	$	0	$	0	$	791	$	0	$	1,379
Special mention	0		0		0		0		0		0		0		0		0
Substandard	0		0		0		0		0		0		0		0		0
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	211	$	103	$	76	$	198	$	0	$	0	$	791	$	0	$	1,379
Commercial and Industrial
Risk rating
Pass	$	313,983	$	84,815	$	31,375	$	16,577	$	12,389	$	6,777	$	221,094	$	0	$	687,010
Special mention	0		363		793		381		82		844		5,483		0		7,946
Substandard	1,991		800		1,862		452		29		2,016		5,504		0		12,654
Doubtful(1)	1,379		0		0		0		0		0		0		0		1,379
Total	$	317,353	$	85,978	$	34,030	$	17,410	$	12,500	$	9,637	$	232,081	$	0	$	708,989
Obligations (other than securities and leases) of states and political subdivisions
Risk rating
Pass	$	36,853	$	16,688	$	8,774	$	16,957	$	20,071	$	36,764	$	4,780	$	0	$	140,887
Special mention	0		0		0		0		0		0		0		0		0
Substandard	0		0		0		0		0		0		0		0		0
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	36,853	$	16,688	$	8,774	$	16,957	$	20,071	$	36,764	$	4,780	$	0	$	140,887
Other loans
Risk rating
Pass	$	5,851	$	5,305	$	552	$	3	$	0	$	0	$	2,268	$	0	$	13,979
Special mention	0		0		0		0		0		0		0		0		0
Substandard	0		0		0		0		0		0		0		0		0
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	5,851	$	5,305	$	552	$	3	$	0	$	0	$	2,268	$	0	$	13,979

Table of Contents


	Term Loans Amortized Cost Basis by Origination Year
	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
Other construction loans and all land development and other land loans
Risk rating
Pass	$	98,406	$	168,372	$	8,752	$	11,141	$	853	$	898	$	5,681	$	0	$	294,103
Special mention	1,500		0		650		0		2,071		0		0		0		4,221
Substandard	0		0		0		29		439		0		77		0		545
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	99,906	$	168,372	$	9,402	$	11,170	$	3,363	$	898	$	5,758	$	0	$	298,869
Multifamily (5 or more) residential properties
Risk rating
Pass	$	74,687	$	55,663	$	33,436	$	7,937	$	27,729	$	12,882	$	2,438	$	0	$	214,772
Special mention	0		0		0		0		0		100		0		0		100
Substandard	0		6		682		379		204		0		0		0		1,271
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	74,687	$	55,669	$	34,118	$	8,316	$	27,933	$	12,982	$	2,438	$	0	$	216,143
Non-owner occupied, nonfarm nonresidential properties
Risk rating
Pass	$	194,800	$	125,039	$	84,943	$	52,233	$	42,714	$	123,021	$	8,784	$	0	$	631,534
Special mention	0		0		428		1,004		189		5,556		2,451		0		9,628
Substandard	826		0		2,305		1,662		4,638		12,134		335		0		21,900
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	195,626	$	125,039	$	87,676	$	54,899	$	47,541	$	140,711	$	11,570	$	0	$	663,062

The Corporation considers the performance of the loan portfolio and its impact on the allowance for credit losses. For 1-4 family construction, home equity lines of credit, residential mortgages secured by first liens, residential mortgages secured by junior liens, automobile, credit cards, other revolving credit plans and other consumer segments, the Corporation evaluates credit quality based on the performance status of the loan, which was previously presented, and by payment activity. Nonperforming loans include loans receivable on nonaccrual status and loans receivable past due over 89 days and still accruing interest.


	September 30, 2022						December 31, 2021
	Performing		Nonperforming		Total		Performing		Nonperforming		Total









1-4 Family Construction	$	40,426	$	0	$	40,426	$	37,822	$	0	$	37,822
Home equity lines of credit	123,536		486		124,022		103,693		824		104,517
Residential Mortgages secured by first liens	916,869		4,311		921,180		823,182		3,547		826,729
Residential Mortgages secured by junior liens	68,380		114		68,494		56,542		147		56,689
Other revolving credit plans	29,340		34		29,374		26,523		13		26,536
Automobile	21,019		22		21,041		20,826		36		20,862
Other consumer	51,902		751		52,653		49,118		558		49,676


Total	$	1,251,472	$	5,718	$	1,257,190	$	1,117,706	$	5,125	$	1,122,831

Table of Contents

The following tables detail the amortized cost of loans receivable, by year of origination (for term loans) and by payment activity within each portfolio segment as of September 30, 2022. The current period originations may include modifications, extensions and renewals.


	Term Loans Amortized Cost Basis by Origination Year
	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
1-4 Family Construction
Payment performance
Performing	$	19,306	$	16,873	$	2,926	$	725	$	63	$	0	$	533	$	0	$	40,426
Nonperforming	0		0		0		0		0		0		0		0		0
Total	$	19,306	$	16,873	$	2,926	$	725	$	63	$	0	$	533	$	0	$	40,426
Home equity lines of credit
Payment performance
Performing	$	30,024	$	15,182	$	12,949	$	9,192	$	8,682	$	38,806	$	8,701	$	0	$	123,536
Nonperforming	0		0		0		10		0		476		0		0		486
Total	$	30,024	$	15,182	$	12,949	$	9,202	$	8,682	$	39,282	$	8,701	$	0	$	124,022
Residential mortgages secured by first lien
Payment performance
Performing	$	186,664	$	227,676	$	163,921	$	93,549	$	51,249	$	190,091	$	3,719	$	0	$	916,869
Nonperforming	0		782		323		409		421		2,188		188		0		4,311
Total	$	186,664	$	228,458	$	164,244	$	93,958	$	51,670	$	192,279	$	3,907	$	0	$	921,180
Residential mortgages secured by junior liens
Payment performance
Performing	$	23,532	$	17,958	$	8,619	$	5,336	$	3,260	$	9,017	$	658	$	0	$	68,380
Nonperforming	0		0		0		2		0		68		44		0		114
Total	$	23,532	$	17,958	$	8,619	$	5,338	$	3,260	$	9,085	$	702	$	0	$	68,494
Other revolving credit plans
Payment performance
Performing	$	5,690	$	3,304	$	4,498	$	2,915	$	2,284	$	10,649	$	0	$	0	$	29,340
Nonperforming	0		0		0		8		15		11		0		0		34
Total	$	5,690	$	3,304	$	4,498	$	2,923	$	2,299	$	10,660	$	0	$	0	$	29,374
Automobile
Payment performance
Performing	$	7,520	$	5,120	$	3,528	$	2,749	$	1,416	$	686	$	0	$	0	$	21,019
Nonperforming	0		0		11		8		3		0		0		0		22
Total	$	7,520	$	5,120	$	3,539	$	2,757	$	1,419	$	686	$	0	$	0	$	21,041
Other consumer
Payment performance
Performing	$	22,387	$	18,395	$	6,355	$	2,548	$	861	$	1,356	$	0	$	0	$	51,902
Nonperforming	287		291		77		34		7		55		0		0		751
Total	$	22,674	$	18,686	$	6,432	$	2,582	$	868	$	1,411	$	0	$	0	$	52,653

Table of Contents

The following tables detail the amortized cost of loans receivable, by year of origination (for term loans) and by payment activity within each portfolio segment as of December 31, 2021. The current period originations may include modifications, extensions and renewals.


	Term Loans Amortized Cost Basis by Origination Year
	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
1-4 Family Construction
Payment performance
Performing	$	27,539	$	9,137	$	857	$	66	$	0	$	0	$	223	$	0	$	37,822
Nonperforming	0		0		0		0		0		0		0		0		0
Total	$	27,539	$	9,137	$	857	$	66	$	0	$	0	$	223	$	0	$	37,822
Home equity lines of credit
Payment performance
Performing	$	14,383	$	14,621	$	9,564	$	10,584	$	6,863	$	39,527	$	8,151	$	0	$	103,693
Nonperforming	0		0		9		10		377		428		0		0		824
Total	$	14,383	$	14,621	$	9,573	$	10,594	$	7,240	$	39,955	$	8,151	$	0	$	104,517
Residential mortgages secured by first lien
Payment performance
Performing	$	232,606	$	178,380	$	111,333	$	62,850	$	74,136	$	160,402	$	3,475	$	0	$	823,182
Nonperforming	79		259		227		151		258		2,379		194		0		3,547
Total	$	232,685	$	178,639	$	111,560	$	63,001	$	74,394	$	162,781	$	3,669	$	0	$	826,729
Residential mortgages secured by junior liens
Payment performance
Performing	$	20,617	$	11,256	$	7,239	$	4,407	$	3,508	$	9,095	$	420	$	0	$	56,542
Nonperforming	0		0		0		0		84		63		0		0		147
Total	$	20,617	$	11,256	$	7,239	$	4,407	$	3,592	$	9,158	$	420	$	0	$	56,689
Other revolving credit plans
Payment performance
Performing	$	5,313	$	3,596	$	3,090	$	2,592	$	2,977	$	8,955	$	0	$	0	$	26,523
Nonperforming	0		0		4		4		0		5		0		0		13
Total	$	5,313	$	3,596	$	3,094	$	2,596	$	2,977	$	8,960	$	0	$	0	$	26,536
Automobile
Payment performance
Performing	$	7,047	$	5,448	$	4,668	$	2,457	$	682	$	524	$	0	$	0	$	20,826
Nonperforming	11		13		12		0		0		0		0		0		36
Total	$	7,058	$	5,461	$	4,680	$	2,457	$	682	$	524	$	0	$	0	$	20,862
Other consumer
Payment performance
Performing	$	30,423	$	11,017	$	4,537	$	1,451	$	316	$	1,374	$	0	$	0	$	49,118
Nonperforming	204		170		96		25		3		60		0		0		558
Total	$	30,627	$	11,187	$	4,633	$	1,476	$	319	$	1,434	$	0	$	0	$	49,676


	September 30, 2022		December 31, 2021

Credit card
Payment performance
Performing	$	10,860	$	9,912
Nonperforming	56		23
Total	$	10,916	$	9,935

Table of Contents

Holiday’s loan portfolio, included in other consumer loans above, is summarized as follows at September 30, 2022 and December 31, 2021:


	September 30, 2022		December 31, 2021
Gross other consumer	$	30,660	$	29,227
Less: other consumer unearned discounts	(5,790)		(5,716)
Total other consumer loans, net of unearned discounts	$	24,870	$	23,511

5. LEASES

Operating lease assets represent the Corporation's right to use an underlying asset during the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents our incremental borrowing rate at the lease commencement date. Operating lease cost, which is comprised of amortization of the operating lease asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term, and is recorded in net occupancy expense in the condensed consolidated statements of income.

The Corporation leases certain full-service branch offices, land and equipment. Leases with an initial term of twelve months or less are not recorded on the balance sheet. Most leases include one or more options to renew and the exercise of the lease renewal options are at the Corporation's sole discretion. The Corporation includes lease extension and termination options in the lease term if, after considering relevant economic factors, it is reasonably certain the Corporation will exercise the option. Certain lease agreements of the Corporation include rental payments adjusted periodically for changes in the consumer price index.


Leases	Classification	September 30, 2022		December 31, 2021
Assets:
Operating lease assets	Operating lease assets	$	28,004	$	19,928
Finance lease assets	Premises and equipment, net (1)	304		358
Total leased assets		$	28,308	$	20,286

Liabilities:
Operating lease liabilities	Operating lease liabilities	$	29,366	$	21,159
Finance lease liabilities	Accrued interest payable and other liabilities	405		469
Total leased liabilities		$	29,771	$	21,628

(1) Finance lease assets are recorded net of accumulated amortization of $912 thousand as of September 30, 2022 and $858 thousand as of December 31, 2021.

The components of the Corporation's net lease expense for the three and nine months ended September 30, 2022 and 2021, respectively, were as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,
Lease Cost	Classification	2022		2021		2022		2021
Operating lease cost	Net occupancy expense	$	577	$	451	$	1,635	$	1,328
Variable lease cost	Net occupancy expense	14		10		44		45
Finance lease cost:
Amortization of leased assets	Net occupancy expense	18		18		54		54
Interest on lease liabilities	Interest expense - borrowed funds	5		6		15		18
Sublease income (1)	Net occupancy expense	(23)		(17)		(56)		(55)
Net lease cost		$	591	$	468	$	1,692	$	1,390

(1) Sublease income excludes rental income from owned properties.

Table of Contents

The following table sets forth future minimum rental payments under noncancellable leases with initial terms in excess of one year as of September 30, 2022:


Maturity of Lease Liabilities as of September 30, 2022	Operating Leases (1)		Finance Leases		Total
2022	$	546	$	26	$	572
2023	2,115		105		2,220
2024	2,044		105		2,149
2025	2,037		105		2,142
2026	2,008		105		2,113
After 2026	35,512		0		35,512
Total lease payments	44,262		446		44,708
Less: Interest	14,896		41		14,937
Present value of lease liabilities	$	29,366	$	405	$	29,771

(1) Operating lease payments include payments related to options to extend lease terms that are reasonably certain of being exercised and exclude $5.3 million of legally binding minimum lease payments for leases signed, but not yet commenced.

Lease terms and discount rates related to the Corporation's lease liabilities as of September 30, 2022 and December 31, 2021 were as follows:


Lease Term and Discount Rate	September 30, 2022		December 31, 2021
Weighted-average remaining lease term (years)
Operating leases	22.7		18.8
Finance leases	4.3		5.0

Weighted-average discount rate
Operating leases	3.53	%	3.42	%
Finance leases	4.49	%	4.49	%

Other information related to the Corporation's lease liabilities as of September 30, 2022 and 2021, respectively, was as follows:


Other Information	September 30, 2022		September 30, 2021

Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	888	$	699

6. DEPOSITS

The following table reflects time certificates of deposit accounts included in total deposits and their remaining maturities at September 30, 2022:



Time deposits maturing:
2022	$	87,496
2023	74,332
2024	98,188
2025	41,480
2026	10,428
Thereafter	12,164
	$	324,088

Certificates of deposits of $250 thousand or more totaled $100.1 million and $116.6 million at September 30, 2022 and December 31, 2021, respectively.

The Corporation had $7.8 million and $52.9 million in reciprocal deposits at September 30, 2022 and December 31, 2021, respectively.

Table of Contents

7. BORROWINGS

At September 30, 2022 and December 31, 2021, the Corporation had available one $10.0 million unsecured line of credit with an unaffiliated institution. Borrowings under the line of credit bear interest at a variable rate equal to SOFR plus 2.85%. There were no borrowings under the line of credit at September 30, 2022 and December 31, 2021.

FHLB Borrowings

The Bank has the ability to borrow funds from the Federal Home Loan Bank ("FHLB"). The Bank maintains a $150.0 million line-of-credit (Open Repo Plus) with the FHLB which is a revolving term commitment available on an overnight basis. The term of this commitment may not exceed 364 days and it reprices daily at market rates. Under terms of a blanket collateral agreement with the FHLB, the line-of-credit and long term advances are secured by FHLB stock and the Bank pledges its single-family residential mortgage loan portfolio, certain commercial real estate loans, and certain agriculture real estate loans as security for any advances.

Total loans receivable pledged to the FHLB at September 30, 2022, and December 31, 2021, were $1.5 billion and $1.3 billion, respectively. The Bank could obtain advances of up to approximately $951.0 million from the FHLB at September 30, 2022 and $932.7 million at December 31, 2021.

At September 30, 2022 and December 31, 2021, the Bank had no advances from the FHLB.

At September 30, 2022 and December 31, 2021, municipal deposit letters of credit issued by the FHLB on behalf of the Bank naming applicable municipalities as beneficiaries were $15.0 million and $10.4 million, respectively. The letters of credit were utilized in place of securities pledged to the municipalities for their deposits maintained at the Bank.

Other Borrowings

At September 30, 2022 and December 31, 2021, the Bank had no outstanding borrowings from unaffiliated institutions under overnight borrowing agreements.

Subordinated Debentures

In 2007, the Corporation issued two $10.0 million floating rate trust preferred securities as part of a pooled offering of such securities. The interest rate on each offering is determined quarterly and floats based on the three-month LIBOR plus 1.55%. The all-in rate was 4.84% at September 30, 2022 and 1.75% at December 31, 2021. The Corporation issued subordinated debentures to the trusts in exchange for the proceeds of the offerings, which debentures represent the sole assets of the trusts. The subordinated debentures must be redeemed no later than 2037. The Corporation may redeem the debentures, in whole or in part, at face value at any time. The Corporation has the option to defer interest payments from time to time for a period not to exceed five consecutive years. Although the trusts are variable interest entities, the Corporation is not the primary beneficiary. As a result, because the trusts are not consolidated with the Corporation, the Corporation does not report the securities issued by the trusts as liabilities. Instead, the Corporation reports as liabilities the subordinated debentures issued by the Corporation and held by the trusts, since the liabilities are not eliminated in consolidation. The trust preferred securities were designated to qualify as Tier 1 capital under the Federal Reserve’s capital guidelines.

Subordinated Notes

In June 2021, the Corporation sold $85.0 million aggregate principal amount of its fixed-to-floating rate subordinated notes to eligible purchasers in a private offering in reliance on the exemption from the registration requirements of Section 4(a)(2) of the Securities Act and the provisions of Rule 506 of Regulation D thereunder. The notes will mature in June 2031, and initially bear interest at a fixed rate of 3.25% per annum, payable semi-annually in arrears, to, but excluding, June 15, 2026, and thereafter to, but excluding, the maturity date or earlier redemption, the interest rate will reset quarterly to an interest rate per annum equal to the then current three-month average Secured Overnight Financing Rate plus 2.58%. The net proceeds from the sale were approximately $83.5 million, after deducting offering expenses. These subordinated notes were designed to qualify as Tier 2 capital under the Federal Reserve’s capital guidelines and were given an investment grade rating of BBB- by Kroll Bond Rating Agency. The unamortized debt issuance costs were $1.1 million and $1.3 million as of September 30, 2022 and December 31, 2021, respectively.

Table of Contents

8. OFF-BALANCE SHEET COMMITMENTS AND CONTINGENCIES

Financial Instruments with Off-Balance Sheet Risk

Loan commitments are made to accommodate the financial needs of the Corporation’s customers commitments that result in market risk. Standby letters of credit commit the Corporation to make payments on behalf of customers when certain specified future events occur. They are primarily issued to facilitate customers’ trade transactions.

Both arrangements have credit risk, essentially the same as that involved in extending loans to customers, and are subject to the Corporation’s normal credit policies. Collateral is obtained based on a credit assessment of the customer.

The Corporation's maximum obligation to extend credit for loan commitments (unfunded loans and unused lines of credit) and standby letters of credit outstanding as of September 30, 2022 and December 31, 2021 were as follows:


	September 30, 2022				December 31, 2021
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to make loans	$	120,947	$	506,251	$	94,924	$	323,013
Unused lines of credit	17,341		710,809		13,265		663,903
Standby letters of credit	16,091		1,641		15,063		1,623

Commitments to make loans are generally made for periods of 60 days or less.

Other Off-Balance Sheet Commitments

The Corporation makes investments in limited partnerships, including certain small business investment corporations and low income housing partnerships. Capital contributions for investments in small business companies ("SBIC") and other limited partnerships, reported in FHLB and other restricted stock holdings and investments on the condensed consolidated balance sheet, as of September 30, 2022 and December 31, 2021 were $16.4 million and $14.5 million, respectively. Unfunded capital commitments in investments in SBIC's and other limited partnerships totaled $6.1 million and $8.0 million as of September 30, 2022 and December 31, 2021, respectively. These investments are accounted for under the equity method of accounting.

The carrying value of investments in the low income housing partnerships, reported in FHLB and other restricted stock holdings and investments on the consolidated balance sheet, as of September 30, 2022 and December 31, 2021 were $4.7 million and $5.3 million, respectively. The related amortization for the three and nine months ended September 30, 2022 were $198 thousand and $593 thousand, respectively, and for the three and nine months ended September 30, 2021 were $189 thousand and $568 thousand, respectively. Unfunded commitments, reported in accrued interest payable and other liabilities on the condensed consolidated balance sheets, as of September 30, 2022 and December 31, 2021 were $1.0 million and $2.1 million, respectively.

Allowance for Credit Losses on Unfunded Loan Commitments

The Corporation maintains an allowance for credit losses on unfunded commercial lending commitments and letters of credit to provide for the risk of loss inherent in these arrangements. The allowance is computed using a methodology similar to that used to determine the allowance for credit losses for loans receivable, modified to take into account the probability of a draw-down on the commitment. The provision for credit losses on unfunded loan commitments is included in the provision for credit losses on the Corporation's condensed consolidated statements of income. The allowance for unfunded commitments is included in other liabilities in the condensed consolidated balance sheets. Note 4, "Loans Receivable and Allowance for Credit Losses," in the condensed consolidated financial statements provides more detail concerning the provision for credit losses related to the loan portfolio of the Corporation.

Table of Contents

The following table presents activity in the allowance for credit losses on unfunded loan commitments for the three and nine months ended September 30, 2022 and 2021, respectively:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Beginning balance	$	586	$	0	$	0	$	0
Provision for credit losses on unfunded loan commitments (1)	55		0		641		0
Ending balance	$	641	$	0	$	641	$	0

(1) Excludes provision for credit losses related to the loan portfolio.

Litigation

The Corporation is subject to claims and lawsuits that arise primarily in the ordinary course of business. It is the opinion of management the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the consolidated financial position, results of operations and cash flows of the Corporation.

9. STOCK COMPENSATION

The Corporation has a stock incentive plan, which is administered by a committee of the Board of Directors and which permits the Corporation to provide various types of stock-based compensation to its key employees, directors, and/or consultants, including time-based and performance-based shares of restricted stock. The Corporation maintains the CNB Financial Corporation 2019 Omnibus Incentive Plan (the "2019 Stock Incentive Plan"), which was approved by the Corporation’s shareholders and became effective on April 16, 2019.

The 2019 Stock Incentive Plan provides for up to 507,671 shares of common stock to be awarded in the form of nonqualified options or restricted stock. For key employees, the vesting of time-based restricted stock is one-third, one-fourth, or one-fifth of the granted restricted shares per year, beginning one year after the grant date, with 100% vesting on the third, fourth or fifth anniversary of the grant date, respectively. Prior to 2018, for non-employee directors, the vesting schedule was one-third of the granted restricted shares per year, beginning one year after the grant date, with 100% vested on the third anniversary of the grant date. Beginning in 2018, stock compensation received by non-employee directors vests immediately.

At September 30, 2022, there was no unrecognized compensation cost related to stock-based compensation awarded under this plan and, except for the time-based and performance-based restricted stock awards disclosed below and in previous filings, no other stock-based compensation was granted during the three and nine month period ended September 30, 2022 and 2021.

Compensation expense for the restricted stock awards is recognized over the requisite service period based on the fair value of the shares at the date of grant on a straight-line basis. Non-vested restricted stock awards are recorded as a reduction of additional paid-in-capital in shareholders’ equity until earned. Compensation expense resulting from time-based, performance-based and director restricted stock awards was $256 thousand and $1.0 million for the three and nine months ended September 30, 2022, respectively, and $312 thousand and $1.1 million for the three and nine months ended September 30, 2021, respectively. The total income tax benefit related to the recognized compensation cost of vested restricted stock awards was $54 thousand and $213 thousand for the three and nine months ended September 30, 2022, respectively, and $65 thousand and $236 thousand for the three and nine months ended September 30, 2021, respectively.

A summary of changes in time-based unvested restricted stock awards for the three months ended September 30, 2022 follows:


	Shares	Per Share Weighted Average Grant Date Fair Value
Unvested at beginning of period	87,712	$	25.26
Granted	664	24.14

Forfeited	(112)	26.71
Vested	(1,197)	24.00
Unvested at end of period	87,067	$	25.26

Table of Contents

A summary of changes in time-based unvested restricted stock awards for the nine months ended September 30, 2022 follows:


	Shares	Per Share Weighted Average Grant Date Fair Value
Unvested at beginning of period	69,643	$	24.18
Granted	45,033	26.67

Forfeited	(1,202)	25.22
Vested	(26,407)	24.75
Unvested at end of period	87,067	$	25.26

The above tables exclude 11,790 shares in restricted stock awards that were granted at a weighted average fair value of $26.71 and immediately vested. As of September 30, 2022 and December 31, 2021, there was $1.7 million and $1.1 million of total unrecognized compensation cost related to unvested restricted stock awards, respectively. The fair value of shares vested was $31 thousand and $1.0 million during the three and nine months ended September 30, 2022 and $9 thousand and $814 thousand during the three and nine months ended September 30, 2021.

In addition to the time-based restricted stock disclosed above, the Corporation’s Board of Directors grants performance-based restricted stock awards (“PBRSAs”) to key employees. The number of PBRSAs will depend on certain performance conditions earned over a three year period and are also subject to service-based vesting. In 2022, awards with a maximum of 13,761 shares in aggregate were granted to key employees. In 2021, awards with a maximum of 18,210 shares in aggregate were granted to key employees. In 2020, awards with a maximum of 18,100 shares in aggregate were granted to key employees.

In 2021, the 2019 PBRSAs were fully earned and in 2022, 11,895 shares were fully distributed. The fair value of the shares distributed in 2022 was $318 thousand.

10. EARNINGS PER COMMON SHARE

Basic earnings per common share is computed by dividing net income, excluding net earnings allocated to participating securities, by the weighted average number of shares outstanding during the applicable period, excluding outstanding participating securities. Diluted earnings per common share is computed using the weighted average number of shares determined for the basic computation plus the dilutive effect of potential common shares issuable under certain stock compensation plans. For the three and nine months ended September 30, 2022 and 2021, there were no outstanding stock options to include in the diluted earnings per common share calculations.

Unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are included in the computation of earnings per common share pursuant to the two-class method. The Corporation has determined that its outstanding unvested time-based stock awards are participating securities.

Table of Contents

The computation of basic and diluted earnings per common share is shown below:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Basic earnings per common share computation:
Net income per condensed consolidated statements of income	$	15,549	$	13,831	$	44,082	$	39,852
Net earnings allocated to participating securities	(66)		(47)		(198)		(139)
Net earnings allocated to common stock	$	15,483	$	13,784	$	43,884	$	39,713
Distributed earnings allocated to common stock	$	2,936	$	2,859	$	8,815	$	8,577
Undistributed earnings allocated to common stock	12,547		10,925		35,069		31,136
Net earnings allocated to common stock	$	15,483	$	13,784	$	43,884	$	39,713
Weighted average common shares outstanding, including shares considered participating securities	17,324		16,887		17,024		16,875
Less: Average participating securities	(70)		(54)		(73)		(56)
Weighted average shares	17,254		16,833		16,951		16,819
Basic earnings per common share	$	0.90	$	0.82	$	2.59	$	2.36
Diluted earnings per common share computation:
Net earnings allocated to common stock	$	15,483	$	13,784	$	43,884	$	39,713
Weighted average common shares outstanding for basic earnings per common share	17,254		16,833		16,951		16,819
Add: Dilutive effects of performance based-shares	33		0		33		0
Weighted average shares and dilutive potential common shares	17,287		16,833		16,984		16,819
Diluted earnings per common share	$	0.90	$	0.82	$	2.59	$	2.36

11. DERIVATIVE INSTRUMENTS

On September 7, 2018, the Corporation executed an interest rate swap agreement with a 5-year term and an effective date of September 15, 2018 in order to hedge cash flows associated with $10.0 million of a subordinated trust preferred security that was issued by the Corporation during 2007 and elected cash flow hedge accounting for the agreement. The Corporation’s objective in using this derivative is to add stability to interest expense and to manage its exposure to interest rate risk. The interest rate swap involves the receipt of variable-rate amounts in exchange for fixed-rate payments from September 15, 2018 to September 15, 2023 without the exchange of the underlying notional amount. At September 30, 2022, the variable rate on the subordinated trust preferred security was 4.84% (LIBOR plus 155 basis points) and the Corporation was paying 4.53% (2.98% fixed rate plus 155 basis points).

As of September 30, 2022 and December 31, 2021, no derivatives were designated as fair value hedges or hedges of net investments in foreign operations. Additionally, the Corporation does not use derivatives for trading or speculative purposes and currently does not have any derivatives that are not designated as hedges.

The following tables provide information about the amounts and locations of activity related to the interest rate swaps designated as cash flow hedges within the Corporation’s condensed consolidated balance sheets and statements of income as of September 30, 2022 and December 31, 2021 and for the three and nine months ended September 30, 2022 and 2021:


		Fair value as of
	Balance Sheet Location	September 30, 2022		December 31, 2021
Interest rate contracts	Accrued interest receivable (payable) and other assets ( liabilities)	$	132	$	(388)

Table of Contents


For the Three Months Ended September 30, 2022	(a)		(b)	(c)		(d)	(e)
Interest rate contracts	$	88	Interest expense – subordinated notes and debentures	$	(26)	Other income	$	0
For the Nine Months Ended September 30, 2022	(a)		(b)	(c)		(d)	(e)
Interest rate contracts	$	410	Interest expense – subordinated notes and debentures	$	(144)	Other income	$	0
For the Three Months Ended September 30, 2021	(a)		(b)	(c)		(d)	(e)
Interest rate contracts	$	53	Interest expense – subordinated notes and debentures	$	(73)	Other income	$	0
For the Nine Months Ended September 30, 2021	(a)		(b)	(c)		(d)	(e)
Interest rate contracts	$	187	Interest expense – subordinated notes and debentures	$	(204)	Other income	$	0

(a)Amount of Gain or (Loss) Recognized in Other Comprehensive Loss on Derivative (Effective Portion), net of tax

(b)Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion)

(c)Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion)

(d)Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)

(e)Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)

Amounts reported in accumulated other comprehensive income (loss) related to the interest rate swap will be reclassified to interest income as interest payments are made on the subordinated notes and debentures. Such amounts reclassified from accumulated other comprehensive income (loss) to interest income in the next twelve months are expected to be $31 thousand.

As of September 30, 2022 and December 31, 2021, a cash collateral balance in the amount of $200 thousand and $1.1 million, respectively, was maintained with a counterparty to the interest rate swaps. These balances are included in interest-bearing deposits with other banks on the condensed consolidated balance sheets.

The Corporation entered into certain interest rate swap contracts that are not designated as hedging instruments. These derivative contracts relate to transactions in which the Corporation enters into an interest rate swap with a customer while at the same time entering into an offsetting interest rate swap with another financial institution. In connection with each swap transaction, the Corporation agrees to pay interest to the customer on a notional amount at a variable interest rate and receive interest from the customer on a similar notional amount at a fixed interest rate. Concurrently, the Corporation agrees to pay another financial institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. The transaction allows the Corporation’s customers to effectively convert a variable rate loan to a fixed rate. Because the Corporation acts as an intermediary for its customer, changes in the fair value of the underlying derivative contracts offset each other and do not impact the Corporation’s results of operations.

The Corporation pledged cash collateral to another financial institution with a balance $373 thousand as of September 30, 2022 and $3.4 million as of December 31, 2021. This balance is included in interest-bearing deposits with other banks on the condensed consolidated balance sheets. The Corporation may require its customers to post cash or securities as collateral on its program of back-to-back swaps depending upon the specific facts and circumstances surrounding each loan and individual swap. In addition, certain language is included in the International Swaps and Derivatives Association agreement and loan documents where, in default situations, the Corporation is permitted to access collateral supporting the loan relationship to recover any losses suffered on the derivative asset or liability. The Corporation may be required to post additional collateral to swap counterparties in the future in proportion to potential increases in unrealized loss positions.

Table of Contents

The following table provides information about the amounts and locations of activity related to the back-to-back interest rate swaps within the Corporation’s condensed consolidated balance sheet as of September 30, 2022 and December 31, 2021:


	Notional Amount		Weighted Average Maturity (in years)	Weighted Average Fixed Rate		Weighted Average Variable Rate	Fair Value
September 30, 2022
3rd Party interest rate swaps	$	31,758	5.19	4.12	%	1 month LIBOR + 2.26%	$	1,768	(a)
Customer interest rate swaps	(31,758)		5.19	4.12	%	1 month LIBOR + 2.26%	(1,768)		(b)
December 31, 2021
3rd Party interest rate swaps	$	32,768	5.8	4.12	%	1 month LIBOR + 2.27%	$	2,124	(a)
Customer interest rate swaps	(32,768)		5.8	4.12	%	1 month LIBOR + 2.27%	(2,124)		(b)

(a)Reported in accrued interest receivable and other assets within the condensed consolidated balance sheets

(b)Reported in accrued interest payable and other liabilities within the condensed consolidated balance sheets

12. FAIR VALUE

Fair Value Measurement

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The following three levels of inputs are used to measure fair value:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The Corporation used the following methods and significant assumptions to estimate fair value:

Investment Securities: The fair values of most equity securities and debt securities AFS are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather relying on the securities’ relationship to other benchmark quoted securities (Level 2). These models utilize the market approach with standard inputs that include, but are not limited to benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data. For certain securities that observable inputs about the specific issuer are not available, fair values are estimated using observable data from other securities presumed to be similar or other market data on other similar securities (Level 3).

Loans Held for Sale: Loans held for sale are carried at the lower of cost or fair value, which is evaluated on a loan-level basis. The fair value of loans held for sale is determined using quoted prices for similar assets, adjusted for specific attributes of that loan or other observable market data, such as outstanding commitments from third party investors (Level 2).

Derivatives: The fair values of derivatives are based on valuation models using observable market data as of the measurement date (Level 2). The Corporation's derivatives are traded in an over-the-counter market where quoted market prices are not always available. Therefore, the fair values of derivatives are determined using quantitative models that utilize multiple market inputs. The inputs will vary based on the type of derivative, but could include interest rates, prices and indices to generate continuous yield or pricing curves, prepayment rates, and volatility factors to value the position. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services.

Table of Contents

Individually Evaluated Loans: The fair value of individually evaluated loans with specific allocations of the allowance for credit losses is generally based on recent real estate appraisals prepared by third-parties. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Management also adjusts appraised values based on the length of time that has passed since the appraisal date and other factors. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower's financial statements, or aging reports, adjusted or discounted based on management's historical knowledge, changes in market conditions from the time of the valuation, and management's expertise and knowledge of the client and client's business, resulting in a Level 3 fair value classification. Individually evaluated loans are evaluated on a quarterly basis for additional impairment and adjusted in accordance with the allowance policy.

Assets and liabilities measured at fair value on a recurring basis are as follows at September 30, 2022 and December 31, 2021:


			Fair Value Measurements at September 30, 2022 Using:
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	Total		(Level 1)		(Level 2)		(Level 3)
Assets:
Securities Available-For-Sale:
U.S. Government sponsored entities	$	3,078	$	0	$	3,078	$	0
States and political subdivisions	95,982		0		95,982		0
Residential and multi-family mortgage	222,796		0		222,796		0
Corporate notes and bonds	42,454		0		42,454		0
Pooled SBA	13,926		0		13,926		0

Total Securities Available-For-Sale	$	378,236	$	0	$	378,236	$	0
Interest Rate swaps	$	1,900	$	0	$	1,900	$	0
Equity Securities:
Corporate equity securities	$	5,995	$	5,995	$	0	$	0
Mutual funds	2,582		2,582		0		0

Corporate notes and bonds	658		658		0		0

Total Equity Securities	$	9,235	$	9,235	$	0	$	0
Liabilities:
Interest Rate Swaps	$	(1,768)	$	0	$	(1,768)	$	0

Table of Contents

























			Fair Value Measurements at December 31, 2021 Using:
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	Total		(Level 1)		(Level 2)		(Level 3)
Assets:
Securities Available-For-Sale:
U.S. Government sponsored entities	$	111,748	$	0	$	111,748	$	0
States and political subdivisions	103,712		0		103,712		0
Residential and multi-family mortgage	434,635		4,995		429,640		0
Corporate notes and bonds	28,064		0		28,064		0
Pooled SBA	19,032		0		19,032		0

Total Securities Available-For-Sale	$	697,191	$	4,995	$	692,196	$	0
Interest Rate swaps	$	2,124	$	0	$	2,124	$	0
Equity Securities:
Corporate equity securities	$	6,715	$	6,715	$	0	$	0
Mutual funds	2,566		2,566		0		0
Certificates of deposit	506		506		0		0
Corporate notes and bonds	579		579		0		0

Total Equity Securities	$	10,366	$	10,366	$	0	$	0
Liabilities:
Interest Rate Swaps	$	(2,512)	$	0	$	(2,512)	$	0

The table below presents a reconciliation of the fair value of securities AFS measured on a recurring basis using significant unobservable inputs (Level 3) for the three months ended September 30, 2021:


	Corporate Notes and Bonds
Balance, July 1, 2021	$	9,826
Purchases	0
Total gains or (losses):
Included in other comprehensive income (loss)	(76)
Settlements	0
Transfers into Level 3	0
Transfers out of Level 3	(9,750)
Balance, September 30, 2021	$	0

The Corporation's corporate notes and bonds with a fair value of $9.8 million for the three months ended September 30, 2021 were transferred out of Level 3 and into Level 2 because of available observable market data for these investments.

The table below presents a reconciliation of the fair value of securities AFS measured on a recurring basis using significant unobservable inputs (Level 3) for the nine months ended September 30, 2021:


	States and Political Subdivisions		Corporate Notes and Bonds
Balance, January 1, 2021	$	64	$	0
Purchases	0		8,250
Total gains or (losses):
Included in other comprehensive income (loss)	0		0
Settlements	(64)		0
Transfers into Level 3	0		0
Transfers out of Level 3	0		(8,250)
Balance, September 30, 2021	$	0	$	0

The Corporation's corporate notes and bonds with a fair value of $8.3 million for the nine months ended September 30, 2021 were transferred out of Level 3 and into Level 2 because of available observable market data for these investments.

Table of Contents

Assets and liabilities measured at fair value on a non-recurring basis are as follows at September 30, 2022 and December 31, 2021:


			Fair Value Measurements at September 30, 2022 Using
Description	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Collateral-dependent loans receivable:
Farmland	$	854	$	0	$	0	$	854
Owner-occupied, nonfarm nonresidential properties	1,103		0		0		1,103
Commercial and industrial	1,778		0		0		1,778

Multifamily (5 or more) residential properties	632		0		0		632
Non-owner occupied, nonfarm nonresidential	3,203		0		0		3,203
Home equity lines of credit	236		0		0		236
Residential Mortgages secured by first liens	827		0		0		827


			Fair Value Measurements at December 31, 2021 Using
Description	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Collateral-dependent loans receivable:
Farmland	$	920	$	0	$	0	$	920
Owner-occupied, nonfarm nonresidential properties	194		0		0		194
Commercial and industrial	3,102		0		0		3,102
Other construction loans and all land development loans and other land loans	248		0		0		248
Multifamily (5 or more) residential properties	627		0		0		627
Non-owner occupied, nonfarm nonresidential	2,889		0		0		2,889

A loan is considered to be a collateral dependent loan when, based on current information and events, the Corporation expects repayment of the financial assets to be provided substantially through the operation or sale of the collateral and the Corporation has determined that the borrower is experiencing financial difficulty as of the measurement date. The allowance for credit losses is measured by estimating the fair value of the loan based on the present value of expected cash flows, the market price of the loan, or the underlying fair value of the loan’s collateral. For real estate loans, fair value of the loan’s collateral is determined by third-party appraisals, which are then adjusted for the estimated selling and closing costs related to liquidation of the collateral. For this asset class, the actual valuation methods (income, sales comparable, or cost) vary based on the status of the project or property. For example, land is generally based on the sales comparable method while construction is based on the income and/or sales comparable methods. The unobservable inputs may vary depending on the individual assets with no one of the three methods being the predominant approach. The Corporation reviews the third-party appraisal for appropriateness and may adjust the value downward to consider selling and closing costs. For non-real estate loans, fair value of the loan’s collateral may be determined using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business.

Table of Contents

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at September 30, 2022:

Fair
value

Valuation
Technique

Unobservable Inputs

Range
(Weighted
Average)

Collateral-dependent loans receivable:

Farmland

854

Valuation of third party appraisal on underlying collateral

Loss severity rates

20% (20%)

Owner-occupied, nonfarm nonresidential properties

1,103

Valuation of third party appraisal on underlying collateral

Loss severity rates

25%-100% (29%)

Commercial and industrial

1,778

Valuation of third party appraisal on underlying collateral

Loss severity rates

3%-100% (33%)

Multifamily (5 or more) residential properties

632

Valuation of third party appraisal on underlying collateral

Loss severity rates

19%-25% (23%)

Non-owner occupied, nonfarm nonresidential

3,203

Valuation of third party appraisal on underlying collateral

Loss severity rates

25%-26% (25%)

Home equity lines of credit

236

Valuation of third party appraisal on underlying collateral

Loss severity rates

52%-55% (55%)

Residential Mortgages secured by first liens

827

Valuation of third party appraisal on underlying collateral

Loss severity rates

19%-52% (30%)

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at December 31, 2021:

Fair
value

Valuation
Technique

Unobservable Inputs

Range
(Weighted
Average)

Collateral-dependent loans receivable:

Farmland

920

Valuation of third party appraisal on underlying collateral

Loss severity rates

60% (60%)

Owner-occupied, nonfarm nonresidential properties

194

Valuation of third party appraisal on underlying collateral

Loss severity rates

0%-60% (57%)

Commercial and industrial

3,102

Valuation of third party appraisal on underlying collateral

Loss severity rates

0%-59% (42%)

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

248

Valuation of third party appraisal on underlying collateral

Loss severity rates

25% (25%)

Multifamily (5 or more) residential properties

627

Valuation of third party appraisal on underlying collateral

Loss severity rates

0%-57% (26%)

Non-owner occupied, nonfarm nonresidential

2,889

Valuation of third party appraisal on underlying collateral

Loss severity rates

25%-60% (34%)

Table of Contents

Fair Value of Financial Instruments

The following table presents the carrying amount and fair value of financial instruments at September 30, 2022:


	Carrying		Fair Value Measurement Using:						Total
	Amount		Level 1		Level 2		Level 3		Fair Value
ASSETS
Cash and cash equivalents	$	209,796	$	209,796	$	0	$	0	$	209,796
Debt securities available-for-sale	378,236		0		378,236		0		378,236
Debt securities held-to-maturity	408,209		0		369,102		0		369,102
Equity securities	9,235		9,235		0		0		9,235
Loans held for sale	624		0		626		0		626
Net loans receivable	3,983,396		0		0		3,974,986		3,974,986
FHLB and other restricted stock holdings and investments	23,923		n/a		n/a		n/a		n/a

Interest rate swaps	1,900		0		1,900		0		1,900
Accrued interest receivable	17,871		0		2,999		14,872		17,871
LIABILITIES
Deposits	$	(4,623,811)	$	(4,299,723)	$	(326,305)	$	0	$	(4,626,028)

Subordinated debentures	(20,620)		0		(14,684)		0		(14,684)
Subordinated notes, net of unamortized issuance costs	(83,888)		0		(93,140)		0		(93,140)
Interest rate swaps	(1,768)		0		(1,768)		0		(1,768)
Accrued interest payable	(525)		0		(525)		0		(525)

The following table presents the carrying amount and fair value of financial instruments at December 31, 2021:


	Carrying		Fair Value Measurement Using:						Total
	Amount		Level 1		Level 2		Level 3		Fair Value
ASSETS
Cash and cash equivalents	$	732,198	$	732,198	$	0	$	0	$	732,198
Debt securities available-for-sale	697,191		4,995		692,196		0		697,191
Equity securities	10,366		10,366		0		0		10,366
Loans held for sale	849		0		858		0		858
Net loans receivable	3,597,204		0		0		3,613,452		3,613,452
FHLB and other restricted stock holdings and investments	23,276		n/a		n/a		n/a		n/a

Interest rate swaps	2,124		0		2,124		0		2,124
Accrued interest receivable	15,516		16		2,171		13,329		15,516
LIABILITIES
Deposits	$	(4,715,619)	$	(4,329,167)	$	(391,850)	$	0	$	(4,721,017)

Subordinated notes, net of unamortized issuance costs	(104,281)		0		(92,675)		0		(92,675)
Interest rate swaps	(2,512)		0		(2,512)		0		(2,512)
Accrued interest payable	(886)		0		(886)		0		(886)

While estimates of fair value are based on management’s judgment of the most appropriate factors as of the balance sheet dates, there is no assurance that the estimated fair values would have been realized if the assets had been disposed of or the liabilities settled at that date, since market values may differ depending on various circumstances. The estimated fair values would also not apply to subsequent dates. The fair value of other equity interests is based on the net asset values provided by the underlying investment partnership. ASU 2015-7 removes the requirement to categorize within the fair value hierarchy all investments measured using the net asset value per share practical expedient and related disclosures. In addition, other assets and liabilities that are not financial instruments, such as premises and equipment, are not included in the disclosures.

Also, non-financial assets such as, among other things, the estimated earnings power of core deposits, the earnings potential of trust accounts, the trained workforce, and customer goodwill, which typically are not recognized on the balance sheet, may have value but are not included in the fair value disclosures.

Table of Contents

13. REVENUE FROM CONTRACTS WITH CUSTOMERS

All of the Corporation’s revenue from contracts with customers in the scope of ASC 606 is recognized within Non-Interest Income. The following table presents the Corporation's Non-Interest Income by revenue stream and reportable segment for the three and nine months ended September 30, 2022 and 2021. Items outside the scope of ASC 606 are noted as such.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Non-interest Income
Service charges on deposit accounts	$	1,872	$	1,595	$	5,400	$	4,389
Wealth and asset management fees	1,870		1,734		5,456		5,021
Mortgage banking (1)	298		844		1,065		2,615
Card processing and interchange income	1,975		1,958		5,776		5,871
Net gains (losses) on sales of securities (1)	0		0		651		0
Other income	1,944		2,283		7,411		6,614
Total non-interest income	$	7,959	$	8,414	$	25,759	$	24,510

(1) Not within scope of ASU 2014-9

Management determined that the primary sources of revenue emanating from interest and dividend income on loans receivable and investment securities along with non-interest revenue resulting from security gains, loan servicing, gains on the sale of loans receivable, commitment fees, fees from financial guarantees, certain credit card fees, gains (losses) on sale of other real estate owned not financed by the Corporation, is not within the scope of ASU 2014-9.

The types of non-interest income within the scope of the standard that are material to the condensed consolidated financial statements are services charges on deposit accounts, wealth and asset management fee income, card processing and interchange income, and other income.

Service charges on deposit accounts: The Corporation earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services. Transaction-based fees, which include services such as ATM use fees, stop payment charges, statement rendering, and ACH fees, are recognized at the time the transaction is executed, as that is the point in time the Corporation fulfills the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Corporation satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Services charges on deposits are withdrawn from the customer’s account balance.

Wealth and asset management fees: The Corporation earns wealth and asset management fees from its contracts with trust and brokerage customers to manage assets for investment, and/or to transact on their accounts. These fees are primarily earned over time as the Corporation provides the contracted monthly or quarterly services and are generally assessed based on a tiered scale of the market value of assets under management at month end. Fees for these services are billed to customers on a monthly or quarterly basis and are recorded as revenue at the end of the period for which the wealth and asset management services have been performed. Other performance obligations, such as the delivery of account statements to customers, are generally considered immaterial to the overall transaction price.

Card processing and interchange income: The Corporation earns interchange fees from check card and credit card transactions conducted through the Visa payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder.

Other income: The Corporation's other income includes sources such as bank owned life insurance, changes in fair value and realized gains on sales of trading securities, certain service fees, gains (losses) on sales of fixed assets, and gains (losses) on sale of other real estate owned. The service fees are recognized in the same manner as the service charges mentioned above. While gains (losses) on the sale of other real estate owned are within the scope of ASU 2014-9 if financed by the Corporation, the Corporation does not finance the sale of transactions. The revenue on the sale is recorded upon the transfer of control of the property to the buyer and the other real estate owned asset is derecognized.

Table of Contents

ITEM 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

GENERAL OVERVIEW

The following discussion and analysis of the condensed consolidated financial statements of the Corporation is presented to provide insight into management’s assessment of financial results. The terms “we”, “us” and “our” refer to CNB Financial Corporation and its subsidiaries. The financial condition and results of operations of the Corporation and its consolidated subsidiaries are not necessarily indicative of future performance.

The Corporation’s subsidiary, the Bank, provides financial services to individuals and businesses primarily within its primary market area of the Pennsylvania counties of Blair, Cambria, Cameron, Centre, Clearfield, Crawford, Elk, Indiana, Jefferson and McKean. ERIEBANK, a division of the Bank, operates in the Pennsylvania counties of Crawford, Erie and Warren and in the Ohio counties of Ashtabula, Cuyahoga, and Lake. FCBank, a division of the Bank, operates in the Ohio counties of Ashland, Crawford, Delaware, Franklin, Knox, Marion, Morrow, Richland and Wayne. BankOnBuffalo, a division of the Bank, operates in the New York counties of Erie and Niagara. Ridge View Bank, a division of the Bank, operates in Southwest, Virginia. The Bank is subject to regulation, supervision and examination by the Pennsylvania State Department of Banking as well as the FDIC.

In addition to the Bank, the Corporation has four other subsidiaries. CNB Securities Corporation is incorporated in Delaware and currently maintains investments in debt and equity securities. CNB Insurance Agency, incorporated in Pennsylvania, provides for the sale of nonproprietary annuities and other insurance products. CNB Risk Management, Inc. is a Delaware-based captive insurance company which insures against certain risks unique to the operations of the Corporation and its subsidiaries and for which insurance may not be currently available or economically feasible in today's insurance marketplace. Holiday, incorporated in Pennsylvania, offers small balance unsecured loans and secured loans, primarily collateralized by automobiles and equipment, to borrowers with higher risk characteristics.

The following discussion should be read in conjunction with the Corporation’s consolidated financial statements and notes thereto for the year ended December 31, 2021, included in its Annual Report on Form 10-K for the year ended December 31, 2021, and in conjunction with the condensed consolidated financial statements and notes thereto included in Item 1 of this report. Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results for the full year ending December 31, 2022, or any future period.

NON-GAAP FINANCIAL INFORMATION

This report contains references to financial measures that are not defined in GAAP. Management uses non-GAAP financial information in its analysis of the Corporation’s performance. Management believes that these non-GAAP measures provide a greater understanding of ongoing operations, enhance comparability of results of operations with prior periods and show the effects of significant gains and charges in the periods presented. The Corporation’s management believes that investors may use these non-GAAP measures to analyze the Corporation’s financial performance without the impact of unusual items or events that may obscure trends in the Corporation’s underlying performance. This non-GAAP data should be considered in addition to results prepared in accordance with GAAP, and is not a substitute for, or superior to, GAAP results. Limitations associated with non-GAAP financial measures include the risks that persons might disagree as to the appropriateness of items included in these measures and that different companies might calculate these measures differently.

Non-GAAP measures reflected within the discussion below include:

•Tangible book value per share;

•Tangible common equity/tangible assets;

•Adjusted allowance/loans receivable, net of PPP related loans;

•Net interest margin (fully tax-equivalent basis);

•Efficiency ratio;

•Pre-provision net revenue ("PPNR");

•Return on average tangible common equity; and

•Non-interest income excluding realized gains on AFS securities.

Table of Contents

Management considers return on average assets, return on average equity, return on average tangible common equity, earnings per common share, asset quality, net interest margin, and other metrics as key measures of the financial performance of the Corporation. The interest rate environment will continue to play an important role in the future earnings of the Corporation. To address the challenging interest rate and competitive environments, the Corporation continues to evaluate, develop and implement strategies necessary to support its ongoing financial performance objectives and future growth goals. Additionally, management frequently evaluates the potential impact of economic and geopolitical events that may have an impact on the credit risk profile of its customers and develops proactive strategies to mitigate such potential impacts on the Corporation’s loan portfolio.

While non-interest expenses are expected to increase with the growth of the Corporation, management’s growth strategies are also expected to result in an increase in earning assets as well as enhanced revenue, which is expected to more than offset increases in non-interest expenses in 2022 and beyond.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents totaled $209.8 million at September 30, 2022, including additional excess liquidity of $153.2 million held at the Federal Reserve. Cash and cash equivalents totaled $732.2 million at December 31, 2021. The decrease in cash and cash equivalents from December 31, 2021 to September 30, 2022 was due primarily to robust loan growth and an increase in investment purchases, to position a portion of the excess liquidity into higher earning assets.

Management believes the liquidity needs of the Corporation are satisfied primarily by the current balance of cash and cash equivalents, customer deposits, FHLB financing, and the portions of the securities and loan portfolios that mature within one year. The Corporation expects that these sources of funds will enable it to meet cash obligations and off-balance sheet commitments as they come due. In addition to the above noted liquidity sources, the Corporation maintains access to the Federal Reserve discount window.

SECURITIES

AFS investments and equity securities combined totaled $387.5 million and $707.6 million at September 30, 2022 and December 31, 2021, respectively. At September 30, 2022, the total balance of investments classified as HTM securities was $408.2 million. There were no investments classified as HTM at December 31, 2021. In a strategy to lessen the impact of the current interest rate environment on the Corporation’s equity and tangible equity, during the first quarter of 2022 management evaluated the Corporation’s investment portfolio and reclassified from AFS to HTM approximately $101.1 million in fair value U.S. Government agency securities and U.S. Treasury notes. Additionally, during the first quarter of 2022, purchases of certain government-sponsored investments were classified directly into HTM. During the second quarter of 2022, the Corporation reclassified from AFS to HTM approximately $112.6 million in fair value mortgage-backed securities and recorded additional purchases of certain residential and multi-family mortgage investments were classified directly into HTM.

The Corporation’s objective is to maintain the investment securities portfolio at an appropriate level to balance the earnings and liquidity provided by the portfolio. Note 3, "Securities," in the condensed consolidated financial statements provides more detail concerning the composition of the Corporation’s securities portfolio and the process for evaluating securities for impairment.

Table of Contents

The following table summarizes the maturity distribution schedule with corresponding weighted-average yields of securities AFS as of September 30, 2022. Weighted-average yields have been computed on a fully taxable-equivalent basis using a tax rate of 21%. Mortgage-backed securities are included in maturity categories based on their stated maturity date.


	September 30, 2022
	Within One Year				After One But Within Five Years				After Five But Within Ten Years				After Ten Years				Total
	$ Amt.		Yield		$ Amt.		Yield		$ Amt.		Yield		$ Amt.		Yield		$ Amt.		Yield
U.S. Government Sponsored Entities	$	1,190	1.80	%	$	1,888	0.90	%	$	0	0.00	%	$	0	0.00	%	3,078		1.25	%
State and Political Subdivisions	3,373		3.28	%	24,894		2.85	%	46,941		2.05	%	20,774		2.54	%	95,982		2.41	%
Residential and multi-family mortgage	0		0.00	%	8,110		2.90	%	28,586		2.27	%	186,100		1.55	%	222,796		1.69	%
Corporate notes and bonds	158		0.56	%	11,586		3.30	%	30,710		4.19	%	0		0.00	%	42,454		3.93	%
Pooled SBA	0		0.00	%	228		5.22	%	7,312		2.96	%	6,386		1.86	%	13,926		2.49	%
Total	$	4,721	2.82	%	$	46,706	2.90	%	$	113,549	2.74	%	$	213,260	1.66	%	$	378,236	2.15	%

The following table summarizes the maturity distribution schedule with corresponding weighted-average yields of securities HTM as of September 30, 2022.


	September 30, 2022
	Within One Year				After One But Within Five Years				After Five But Within Ten Years				After Ten Years				Total
	$ Amt.		Yield		$ Amt.		Yield		$ Amt.		Yield		$ Amt.		Yield		$ Amt.		Yield
U.S. Government Sponsored Entities	$	5,091	0.58	%	$	242,852	1.55	%	$	54,242	1.65	%	$	5,487	2.34	%	$	307,672	1.57	%
Residential and multi-family mortgage	$	0	0.00	%	$	3,917	2.80	%	$	1,760	3.25	%	$	94,860	3.28	%	$	100,537	3.26	%
Total	$	5,091	0.58	%	$	246,769	1.57	%	$	56,002	1.70	%	$	100,347	3.23	%	$	408,209	1.99	%

The following table summarizes the weighted average modified duration of securities AFS as of September 30, 2022.


			Weighted Average Modified Duration (in Years)
U.S. Government Sponsored Entities			1.08
State and Political Subdivisions			6.34
Residential and multi-family mortgage			5.20
Corporate notes and bonds			5.08
Pooled SBA			2.81
Total			5.35

The following table summarizes the weighted average modified duration of securities HTM as of September 30, 2022.


			Weighted Average Modified Duration (in Years)
U.S. Government Sponsored Entities			3.60
Residential and multi-family mortgage			3.74
Total			3.63

The portfolio contains no holdings of a single issuer that exceeds 10% of shareholders’ equity other than U.S. government sponsored entities.

Table of Contents

The Corporation generally purchases debt securities over time and does not attempt to "time" its transactions, which allows for more efficient management of fluctuations in the interest rate environment. The Corporation's strategy given the current environment is to focus on lower risk securities, shorter durations that complement the current portfolio investment ladder, and consistent reinvestment of cash flows to replace lower earning assets.

The Corporation monitors the earnings performance and the effectiveness of the liquidity of the securities portfolio on a regular basis through meetings of the Asset/Liability Committee ("ALCO"). The ALCO also reviews and manages interest rate risk for the Corporation. Through active balance sheet management and analysis of the securities portfolio, a sufficient level of liquidity is maintained to satisfy depositor requirements and various credit needs of our customers.

LOANS RECEIVABLE

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

At September 30, 2022, loans, excluding the impact of (i) syndicated loans, and (ii) PPP loans, net of PPP-related fees (such loans being referred to as the "PPP-related loans"), totaled $3.9 billion, representing an increase of $407.6 million, or 11.8% year to date growth (15.8% annualized), from December 31, 2021. The loan growth, which was experienced across the Corporation's footprint, continued to benefit from the Corporation's ongoing expansion in the Cleveland and Southwest Virginia regions, as well as new opportunities from its new loan production office in Rochester, New York, combined with growth in the portfolio related to its Private Banking division.

For the nine months ended September 30, 2022, the Corporation's consolidated balance sheet reflected an increase in syndicated lending balances of $27.0 million compared to December 31, 2021. The syndicated loan portfolio totaled $152.8 million, or 3.8% of total loans, excluding PPP-related loans, at September 30, 2022. The Corporation expects the level of this syndicated loan portfolio to remain stable going forward.

Loan Origination/Risk Management

The Corporation has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. Management reviews and approves these policies and procedures on a regular basis. A reporting system supplements the review process by providing management with frequent reports related to loan production, loan quality, concentrations of credit, loan delinquencies and nonperforming and potential problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions. The Corporation has not underwritten any hybrid loans, payment option loans, or low documentation/no documentation loans. Variable rate loans are generally underwritten at the fully indexed rate. Loan underwriting policies and procedures have not changed materially between any periods presented. As discussed more fully above, syndicated loan purchases are underwritten utilizing the same process as the Corporation’s originated loans.

The Corporation has begun to explore the credit and reputational risks associated with climate change and their potential impact on the foregoing, while closely monitoring regulatory developments on climate risk. This includes, among other things, researching and developing a formalized approach to considering climate change related risks in the Corporation's underwriting processes. This approach will be impacted, in part, by the accessibility and reliability of both customer climate risk data and climate risk data in general. One of the objectives of these efforts is to enable the Corporation to better understand the climate change related risks associated with the Corporation's customers' business activities and to be able to monitor their response to those risks and their ultimate impact on the Corporation's customers.

Although it is possible that the on-going effects of COVID-19 could continue to impact demand for our loan products, the Corporation expects to continue to achieve its loan growth objectives in 2022 as a result of its diversified markets and its focus on core customer acquisition strategies.

Table of Contents

Maturities and Sensitivities of Loans Receivable to Changes in Interest Rate

The following table presents the maturity distribution of the Corporation's loans receivable at September 30, 2022. The table also presents the portion of loans receivable that have fixed interest rates or variable interest rates that fluctuate over the life of the loans in accordance with changes in an interest rate index.


	September 30, 2022
	Due in One Year or Less		After One, but Within Five Years		After Five but Within Fifteen Years		After Fifteen Years		Total
Loans Receivable with Fixed Interest Rate
Farmland	$	138	$	2,279	$	8,267	$	0	$	10,684
Owner-occupied, nonfarm nonresidential properties	8,163		22,301		14,699		5,120		50,283
Agricultural production and other loans to farmers	8		294		0		0		302
Commercial and Industrial	12,775		217,687		93,626		175		324,263
Obligations (other than securities and leases) of states and political subdivisions	3,185		12,143		56,576		37,650		109,554
Other loans	8		735		588		289		1,620
Other construction loans and all land development and other land loans (1)	28,941		21,204		12,747		1,298		64,190
Multifamily (5 or more) residential properties	945		55,496		4,248		4,625		65,314
Non-owner occupied, nonfarm nonresidential properties	15,713		59,083		57,545		1,327		133,668
1-4 Family Construction (1)	2,247		368		445		5,269		8,329
Home equity lines of credit	139		84		623		419		1,265
Residential Mortgages secured by first liens	3,369		23,865		253,235		124,910		405,379
Residential Mortgages secured by junior liens	179		6,743		48,674		7,663		63,259
Other revolving credit plans	5		13		17		3		38
Automobile	477		14,765		5,792		0		21,034
Other consumer	7,192		34,228		8,518		2,537		52,475
Credit cards	0		0		0		0		0
Overdrafts	0		0		0		0		0
Total	$	83,484	$	471,288	$	565,600	$	191,285	$	1,311,657

Loans Receivable with Variable or Floating Interest Rate
Farmland	$	503	$	2,900	$	9,958	$	6,693	$	20,054
Owner-occupied, nonfarm nonresidential properties	33,037		42,255		278,084		58,050		411,426
Agricultural production and other loans to farmers	548		74		173		0		795
Commercial and Industrial	224,701		131,258		78,328		2,425		436,712
Obligations (other than securities and leases) of states and political subdivisions	0		4,039		10,674		23,689		38,402
Other loans	2,344		3,390		1,395		4,905		12,034
Other construction loans and all land development and other land loans (1)	81,848		87,854		100,193		15,201		285,096
Multifamily (5 or more) residential properties	22,861		25,369		124,074		11,076		183,380
Non-owner occupied, nonfarm nonresidential properties	83,604		138,956		328,026		57,960		608,546
1-4 Family Construction (1)	4,369		7,021		3,445		17,262		32,097
Home equity lines of credit	5,102		7,566		66,782		43,307		122,757
Residential Mortgages secured by first liens	6,134		16,376		157,549		335,742		515,801
Residential Mortgages secured by junior liens	1,423		315		3,188		309		5,235
Other revolving credit plans	1,865		3,338		23,301		832		29,336
Automobile	0		7		0		0		7
Other consumer	2		36		59		81		178
Credit cards	10,916		0		0		0		10,916
Overdrafts	236		0		0		0		236
Total	$	479,493	$	470,754	$	1,185,229	$	577,532	$	2,713,008

11-4 family construction loans and other construction loans and all land development and other land loans segments include loans that are construction to permanent loans in which the loan segment will change when the construction period has concluded.

Table of Contents

Loans Receivable Concentration

At September 30, 2022, no industry concentration existed which exceeded 10% of the total loan portfolio.

Loans Receivable Credit Quality

The following table presents information concerning the loan portfolio delinquency and other nonperforming assets at September 30, 2022 and December 31, 2021:


	September 30, 2022			December 31, 2021
Nonaccrual loans	$	19,508		$	19,420
Accrual loans greater than 90 days past due	1,051			168
Total nonperforming loans	20,559			19,588
Other real estate owned	1,206			707
Total nonperforming assets	$	21,765		$	20,295
Loans modified in a troubled debt restructuring (TDR):
Performing TDR loans	$	6,866		$	9,006
Nonperforming TDR loans (1)	6,609			7,600
Total TDR loans	$	13,475		$	16,606
Total loans receivable	$	4,024,665		$	3,634,792

Nonaccrual loans as a percentage of total loans receivable	0.48		%	0.53		%
Total assets	$	5,317,346		$	5,328,939
Nonperforming assets as a percentage of total assets	0.41		%	0.38		%
Allowance for credit losses on loans receivable	$	41,269		$	37,588
Ratio of allowance for credit losses to nonaccrual loans	211.55		%	193.55		%

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

Total nonperforming assets were $21.8 million, or 0.41% of total assets, as of September 30, 2022, compared to $20.3 million, or 0.38% of total assets, as of December 31, 2021. In addition, the allowance for credit losses as a percentage of nonaccrual loans was 211.55% at September 30, 2022, compared to 193.55% at December 31, 2021.

The Corporation has established written lending policies and procedures that require underwriting standards, loan documentation, and credit analysis standards to be met prior to funding a loan. Subsequent to the funding of a loan, ongoing review of credits is required. Credit reviews are performed quarterly by an outsourced loan review firm and cover approximately 65% of the commercial loan portfolio on an annual basis. In addition, the external independent loan review firm reviews classified assets, past due loans and nonaccrual loans quarterly.

Potential problem loans consist of loans that are performing in accordance with contractual terms but for which management has concerns about the ability of a borrower to continue to comply with contractual repayment terms because of the borrower’s potential operating or financial difficulties. Management monitors these "watchlist" loans monthly to determine potential losses within the commercial loan portfolio. The "watchlist" is comprised of all credits risk rated special mention, substandard and doubtful.

Table of Contents

ALLOWANCE FOR CREDIT LOSSES

The amount of each allowance for credit losses account represents management's best estimate of current expected credit losses on these financial instruments considering available information, from internal and external sources, relevant to assessing exposure to credit loss over the contractual term of the instrument. Relevant available information includes historical credit loss experience, current conditions and reasonable and supportable forecasts. While historical credit loss experience provides the basis for the estimation of expected credit losses, adjustments to historical loss information may be made for differences in current portfolio-specific risk characteristics, environmental conditions or other relevant factors. While management utilizes its best judgment and information available, the ultimate adequacy of the Corporation's allowance for credit losses account is dependent upon a variety of factors beyond the Corporation's control, including the performance of the Corporation's portfolios, the economy, changes in interest rates and the view of the regulatory authorities toward classification of assets. The adequacy of the allowance for credit losses is subject to a formal analysis by the Credit Administration and Finance Departments of the Corporation. For additional information regarding the Corporation's accounting policies related to credit losses, refer to Note 1, "Summary of Significant Accounting Policies" in the Corporation's 2021 Form 10-K and Note 4, "Loans" in these condensed consolidated financial statements.

The tables below provide an allocation of the allowance for credit losses on loans receivable by loan portfolio segment at September 30, 2022 and December 31, 2021; however, allocation of a portion of the allowance for credit losses to one segment does not preclude its availability to absorb losses in other segments.


	September 30, 2022
	Amount of Allowance Allocated		Percent of Loans in Each Category to Total Loans Receivable		Total Loans Receivable		Ratio of Allowance Allocated to Loans Receivable in Each Category
Farmland	$	183	0.8	%	$	30,738	0.60	%
Owner-occupied, nonfarm nonresidential properties	3,445		11.5	%	461,709		0.75	%
Agricultural production and other loans to farmers	5		0.0	%	1,097		0.46	%
Commercial and Industrial 1	9,566		18.9	%	760,975		1.26	%
Obligations (other than securities and leases) of states and political subdivisions	1,762		3.7	%	147,956		1.19	%
Other loans	165		0.3	%	13,654		1.21	%
Other construction loans and all land development and other land loans	2,536		8.7	%	349,286		0.73	%
Multifamily (5 or more) residential properties	2,106		6.2	%	248,694		0.85	%
Non-owner occupied, nonfarm nonresidential properties	7,130		18.4	%	742,214		0.96	%
1-4 Family Construction	180		1.0	%	40,426		0.45	%
Home equity lines of credit	1,380		3.1	%	124,022		1.11	%
Residential Mortgages secured by first liens	7,859		22.9	%	921,180		0.85	%
Residential Mortgages secured by junior liens	966		1.7	%	68,494		1.41	%
Other revolving credit plans	640		0.7	%	29,374		2.18	%
Automobile	264		0.5	%	21,041		1.25	%
Other consumer	2,759		1.3	%	52,653		5.24	%
Credit cards	87		0.3	%	10,916		0.80	%
Overdrafts	236		0.0	%	236		100.00	%
Total	$	41,269	100.0	%	$	4,024,665	1.03	%
Excluding PPP loans, net of deferred processing fees	$	41,269			$	4,024,203	1.03	%

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

Table of Contents


	December 31, 2021
	Amount of Allowance Allocated		Percent of Loans in Each Category to Total Loans Receivable		Total Loans Receivable		Ratio of Allowance Allocated to Loans Receivable in Each Category
Farmland	$	151	0.7	%	$	23,768	0.64	%
Owner-occupied, nonfarm nonresidential properties	3,339		12.0	%	434,672		0.77	%
Agricultural production and other loans to farmers	9		0.0	%	1,379		0.65	%
Commercial and Industrial 1	8,837		19.5	%	708,989		1.25	%
Obligations (other than securities and leases) of states and political subdivisions	1,649		3.9	%	140,887		1.17	%
Other loans	149		0.4	%	13,979		1.07	%
Other construction loans and all land development and other land loans	2,198		8.2	%	298,869		0.74	%
Multifamily (5 or more) residential properties	2,289		5.9	%	216,143		1.06	%
Non-owner occupied, nonfarm nonresidential properties	6,481		18.2	%	663,062		0.98	%
1-4 Family Construction	158		1.0	%	37,822		0.42	%
Home equity lines of credit	1,169		2.9	%	104,517		1.12	%
Residential Mortgages secured by first liens	6,943		22.7	%	826,729		0.84	%
Residential Mortgages secured by junior liens	546		1.6	%	56,689		0.96	%
Other revolving credit plans	528		0.7	%	26,536		1.99	%
Automobile	263		0.6	%	20,862		1.26	%
Other consumer	2,546		1.4	%	49,676		5.13	%
Credit cards	92		0.3	%	9,935		0.93	%
Overdrafts	241		0.0	%	278		86.69	%
Total	$	37,588	100.0	%	$	3,634,792	1.03	%
Excluding PPP loans, net of deferred processing fees	$	37,588			$	3,589,589	1.05	%

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

The allowance for credit losses measured as a percentage of total loans receivable was 1.03% as of September 30, 2022, compared to 1.03% as of December 31, 2021.

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

For the three and nine months ended September 30, 2022, the allowance for credit losses increased primarily due to the growth in the Corporation's loan portfolio, including growth in the Corporation’s newly established regions. This increase was partially offset by improvements in the Corporation's historical loss rates, as well as the impact of net charge-offs. There is still a significant amount of uncertainty related to the domestic and global economy, continued supply chain challenges, persistent inflation and the pandemic. Management will continue to proactively evaluate its estimate of expected credit losses as new information becomes available.

Note 4, "Loans Receivable and Allowance for Credit Losses," to the condensed consolidated financial statements provides further disclosure of loan balances by portfolio segment as of September 30, 2022 and December 31, 2021, as well as the nature and scope of loans modified in a TDR during 2022 and 2021 and the related effect on provision for credit expense and allowance for credit losses.

Table of Contents

Additional information related to provision for credit loss expense and net charge-offs and recoveries at September 30, 2022 and 2021 is presented in the tables below.


	Three Months Ended September 30, 2022
	Provision (Benefit) for Credit Losses on Loans Receivable (1)		Net (Charge-Offs) Recoveries		Average Loans Receivable		Ratio of Annualized Net (Charge-Offs) Recoveries to Average Loans Receivable
Farmland	$	(8)	$	0	$	32,184	0.00	%
Owner-occupied, nonfarm nonresidential properties	(272)		3		472,244		0.00	%
Agricultural production and other loans to farmers	(2)		0		1,149		0.00	%
Commercial and Industrial	(21)		32		775,872		0.02	%
Obligations (other than securities and leases) of states and political subdivisions	97		0		150,431		0.00	%
Other loans	(2)		0		14,392		0.00	%
Other construction loans and all land development and other land loans	208		0		335,534		0.00	%
Multifamily (5 or more) residential properties	(171)		0		224,777		0.00	%
Non-owner occupied, nonfarm nonresidential properties	215		167		715,044		0.09	%
1-4 Family Construction	(56)		0		39,889		0.00	%
Home equity lines of credit	26		1		120,086		0.00	%
Residential Mortgages secured by first liens	198		(3)		896,261		0.00	%
Residential Mortgages secured by junior liens	338		0		65,293		0.00	%
Other revolving credit plans	58		(16)		28,770		(0.22)	%
Automobile	27		(5)		20,544		(0.10)	%
Other consumer	437		(382)		51,709		(2.93)	%
Credit cards	(33)		10		11,572		0.34	%
Overdrafts	(3)		(117)		290		(160.06)	%
Total	$	1,036	$	(310)	$	3,956,041	(0.03)	%

Table of Contents


	Nine Months Ended September 30, 2022
	Provision (Benefit) for Credit Losses on Loans Receivable (1)		Net (Charge-Offs) Recoveries		Average Loans Receivable		Ratio of Annualized Net (Charge-Offs) Recoveries to Average Loans Receivable
Farmland	$	32	$	0	$	31,598	0.00	%
Owner-occupied, nonfarm nonresidential properties	115		(9)		463,433		0.00	%
Agricultural production and other loans to farmers	(4)		0		1,274		0.00	%
Commercial and Industrial	691		38		750,787		0.01	%
Obligations (other than securities and leases) of states and political subdivisions	113		0		148,246		0.00	%
Other loans	16		0		14,149		0.00	%
Other construction loans and all land development and other land loans	338		0		321,093		0.00	%
Multifamily (5 or more) residential properties	(183)		0		223,148		0.00	%
Non-owner occupied, nonfarm nonresidential properties	482		167		686,633		0.03	%
1-4 Family Construction	22		0		39,952		0.00	%
Home equity lines of credit	200		11		113,145		0.01	%
Residential Mortgages secured by first liens	954		(38)		857,308		(0.01)	%
Residential Mortgages secured by junior liens	420		0		60,552		0.00	%
Other revolving credit plans	139		(27)		27,533		(0.13)	%
Automobile	19		(18)		20,409		(0.12)	%
Other consumer	1,324		(1,111)		50,477		(2.94)	%
Credit cards	36		(41)		11,514		(0.48)	%
Overdrafts	284		(289)		265		(145.81)	%
Total	$	4,998	$	(1,317)	$	3,821,516	(0.05)	%


	Three Months Ended September 30, 2021
	Provision (Benefit) for Credit Losses on Loans Receivable (1)		Net (Charge-Offs) Recoveries		Average Loans Receivable		Ratio of Annualized Net (Charge-Offs) Recoveries to Average Loans Receivable
Farmland	$	(26)	$	0	$	22,553	0.00	%
Owner-occupied, nonfarm nonresidential properties	154		3		431,450		0.00	%
Agricultural production and other loans to farmers	(5)		0		1,543		0.00	%
Commercial and Industrial	989		29		660,818		0.02	%
Obligations (other than securities and leases) of states and political subdivisions	(289)		(157)		141,196		(0.44)	%
Other loans	(15)		0		12,253		0.00	%
Other construction loans and all land development and other land loans	287		(282)		263,952		(0.42)	%
Multifamily (5 or more) residential properties	(219)		0		212,307		0.00	%
Non-owner occupied, nonfarm nonresidential properties	(2,865)		(18)		634,668		(0.01)	%
1-4 Family Construction	116		0		31,396		0.00	%
Home equity lines of credit	197		(6)		105,682		(0.02)	%
Residential Mortgages secured by first liens	2,030		(3)		803,857		0.00	%
Residential Mortgages secured by junior liens	144		(3)		56,477		(0.02)	%
Other revolving credit plans	70		(1)		25,929		(0.02)	%
Automobile	49		(12)		22,299		(0.21)	%
Other consumer	331		(243)		42,124		(2.29)	%
Credit cards	43		1		9,810		0.04	%
Overdrafts	109		(86)		246		(138.70)	%
Total	$	1,100	$	(778)	$	3,478,560	(0.09)	%

Table of Contents


	Nine Months Ended September 30, 2021
	Provision (Benefit) for Credit Losses on Loans Receivable (1)		Net (Charge-Offs) Recoveries		Average Loans Receivable		Ratio of Annualized Net (Charge-Offs) Recoveries to Average Loans Receivable
Farmland	$	(123)	$	0	$	22,700	0.00	%
Owner-occupied, nonfarm nonresidential properties	(140)		(523)		426,453		(0.16)	%
Agricultural production and other loans to farmers	(17)		0		2,511		0.00	%
Commercial and Industrial	2,118		(21)		676,124		0.00	%
Obligations (other than securities and leases) of states and political subdivisions	1,288		(407)		137,656		(0.40)	%
Other loans	34		0		12,226		0.00	%
Other construction loans and all land development and other land loans	695		(282)		231,987		(0.16)	%
Multifamily (5 or more) residential properties	(629)		0		221,896		0.00	%
Non-owner occupied, nonfarm nonresidential properties	(1,361)		(18)		625,072		0.00	%
1-4 Family Construction	144		0		28,614		0.00	%
Home equity lines of credit	239		(4)		106,239		(0.01)	%
Residential Mortgages secured by first liens	1,927		(41)		788,739		(0.01)	%
Residential Mortgages secured by junior liens	311		(3)		54,582		(0.01)	%
Other revolving credit plans	40		(19)		25,530		(0.10)	%
Automobile	160		(14)		23,543		(0.08)	%
Other consumer	237		(709)		40,935		(2.32)	%
Credit cards	106		(60)		8,940		(0.90)	%
Overdrafts	160		(198)		217		(121.99)	%
Total	$	5,189	$	(2,299)	$	3,433,964	(0.09)	%

Provision for credit losses was $1.1 million and $5.6 million for the three and nine months ended September 30, 2022, respectively, compared to $1.1 million and $5.2 million for the three and nine months ended September 30, 2021, respectively. Included in the provision for credit losses for the three and nine months ended September 30, 2022 were $55 thousand and $641 thousand, respectively, related to the allowance for unfunded commitments compared to no accrual towards the allowance for unfunded commitments for the three and nine months ended September 30, 2021.

DEPOSITS

The Corporation’s sources of funds are deposits, borrowings, amortization and repayment of loan principal, interest earned on or maturation of investment securities and funds provided from operations. The Corporation considers deposits to be its primary source of funding in support of growth in assets.


	September 30, 2022		December 31, 2021		Percentage change 2022 vs. 2021
Demand, noninterest-bearing	$	867,662	$	792,086	9.5%
Demand, interest-bearing	1,055,367		1,079,336		(2.2)%
Savings deposits	2,376,694		2,457,745		(3.3)%
Time deposits	324,088		386,452		(16.1)%
Total deposits	$	4,623,811	$	4,715,619	(1.9)%

At September 30, 2022, total deposits were $4.6 billion, reflecting a decrease of $91.8 million, or 1.9%, from December 31, 2021. During the same time frame, while noninterest-bearing deposits increased approximately $75.6 million, or 9.5%, total interest-bearing deposits decreased approximately $167.4 million, or 4.3%, from December 31, 2021.

Table of Contents

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


	Three Months Ended September 30,
	2022				2021
	Average Amount		Annual Rate		Average Amount		Annual Rate
Demand, noninterest-bearing	$	880,990			$	744,563
Demand, interest-bearing	1,090,990		0.21	%	998,485		0.17	%
Savings deposits	2,349,978		0.49	%	2,348,375		0.18	%
Time deposits	303,445		1.19	%	442,989		1.72	%
Total	$	4,625,403			$	4,534,412


	Nine Months Ended September 30,
	2022				2021
	Average Amount		Annual Rate		Average Amount		Annual Rate
Demand, noninterest-bearing	$	841,661			$	703,777
Demand, interest-bearing	1,081,211		0.18	%	960,383		0.19	%
Savings deposits	2,414,377		0.28	%	2,284,358		0.24	%
Time deposits	328,892		1.23	%	454,176		1.89	%
Total	$	4,666,141			$	4,402,694

The following table presents additional information about our September 30, 2022 and December 31, 2021 deposits:


	September 30, 2022		December 31, 2021
Time deposits not covered by deposit insurance	$	61,148	$	68,562
Total deposits not covered by deposit insurance	1,807,688		1,711,676

Scheduled maturities of time deposits not covered by deposit insurance at September 30, 2022 were as follows:


	September 30, 2022
3 months or less	$	29,349
Over 3 through 6 months	5,481
Over 6 through 12 months	2,810
Over 12 months	23,508
Total	$	61,148

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Liquidity measures an organization’s ability to meet its cash obligations as they come due. The liquidity of a financial institution reflects its ability to meet loan requests, to accommodate possible outflows in deposits and to take advantage of interest rate market opportunities. The ability of a financial institution to meet its current financial obligations is a function of its balance sheet structure, its ability to liquidate assets and its access to alternative sources of funds.

The Corporation’s expected material cash requirements for the twelve months ended December 31, 2022 and thereafter consist of withdrawals by depositors, credit commitments to borrowers, shareholder dividends, share repurchases, operating expenses and capital expenditures. The Corporation expects to satisfy these short-term and long-term cash requirements through deposit growth, principal and interest payments on loans and investment securities, maturing loans and investment securities, as well as the Corporation maintains access to wholesale funding sources.

The objective of the Corporation's liquidity management is to manage cash flow and liquidity reserves so that they are adequate to fund the Corporation's operations and to meet cash obligations and other commitments on a timely basis and at a reasonable cost. The Corporation seeks to achieve this objective and ensure that funding needs are met by maintaining an appropriate level of liquid funds through asset/liability management, which includes managing the mix and time to maturity of financial assets and financial liabilities on its balance sheet. The Corporation's liquidity position is enhanced by its ability to raise additional funds as needed in the wholesale markets.

Table of Contents

Asset liquidity is provided by liquid assets which are readily marketable or pledgeable or which will mature in the near future. Liquid assets include cash, interest-bearing deposits in banks, including the Federal Reserve, and securities available for sale. Liability liquidity is provided by access to funding sources which include core deposits, correspondent banks and other wholesale funding.

The Corporation's liquidity position is continuously monitored and adjustments are made to the balance between sources and uses of funds as deemed appropriate. Liquidity risk management is an important element in the Corporation's asset/liability management process. The Corporation regularly models liquidity stress scenarios to assess potential liquidity outflows or potential funding shortfalls resulting from economic disruptions, volatility in the financial markets, unexpected credit events or other significant occurrences deemed problematic by management. These scenarios are incorporated into the Corporation's contingency funding plan, which provides the basis for the identification of its liquidity needs.

At September 30, 2022, the Corporation’s cash and cash equivalents position was approximately $209.8 million, including liquidity of $153.2 million held at the Federal Reserve. The Corporation also has the ability to borrow funds as a member of the FHLB. At September 30, 2022, based upon available, pledgeable collateral, the Corporation's total borrowing capacity with the FHLB was approximately $951.0 million. Furthermore, at September 30, 2022, the Corporation had approximately $186.1 million in securities that were unencumbered by a pledge and could be used to support additional borrowings through the Federal Reserve discount window, as needed. As of September 30, 2022, management is not aware of any events that are reasonably likely to have a material adverse effect on the Corporation's liquidity, capital resources or operations. In addition, management is not aware of any regulatory recommendations regarding liquidity that would have a material adverse effect on the Corporation.

In the ordinary course of business the Corporation has entered into contractual obligations and have made other commitments to make future payments. Refer to the accompanying notes to consolidated financial statements elsewhere in this report for the expected timing of such payments as of September 30, 2022. The Corporation’s material contractual obligations as of September 30, 2022 consist of (i) long-term borrowings - Note 7, "Borrowings," (ii) operating leases - Note 5, "Leases," (iii) time deposits with stated maturity dates - Note 6, "Deposits," and (iv) commitments to extend credit and standby letters of credit - Note 20, "Off-Balance Sheet Commitments and Contingencies."

Shareholders’ Equity, Capital Ratios and Metrics

On September 21, 2022, CNB successfully completed a common stock offering resulting in the issuance of 4,257,446 shares of common stock at $23.50 per share and net proceeds of $94.1 million after the deducting underwriting discount and customary offering expenses. The net proceeds from the capital raise will be used for general corporate purposes, including working capital and funding the Corporation's organic growth across its multiple geographic markets, or evaluating potential acquisition opportunities.

As of September 30, 2022, the Corporation’s total shareholders’ equity was $516.1 million, representing an increase of $73.3 million, or 16.5%, from December 31, 2021, primarily due to the $94.1 million increase in additional paid in capital as a result of the Corporation's common stock offering described above and the increase from the Corporation's quarterly earnings, partially offset by a decrease in both common dividends paid during the quarter, and accumulated other comprehensive income (loss), resulting primarily from the temporary unrealized reduction in the value on the available-for-sale investment portfolio during the nine months ended September 30, 2022.

The Corporation has complied with the standards of capital adequacy mandated by government regulations. Bank regulators have established "risk-based" capital requirements designed to measure capital adequacy. Risk-based capital ratios reflect the relative risks of various assets banks hold in their portfolios. A weight category (0% for the lowest risk assets and increasing for each tier of higher risk assets) is assigned to each asset on the balance sheet.

Table of Contents

As of September 30, 2022 all of the Corporation's capital ratios exceeded regulatory “well-capitalized” levels. The Corporation’s capital ratios and book value per common share at September 30, 2022 and December 31, 2021 were as follows:


	September 30, 2022			December 31, 2021
Total risk-based capital ratio	16.53		%	14.92		%
Tier 1 risk based ratio	13.60		%	11.79		%
Common equity tier 1 ratio	11.70		%	9.65		%
Tier 1 leverage ratio	10.67		%	8.22		%
Tangible common equity/tangible assets (1)	7.85		%	6.45		%

Book value per common share	$	21.70		$	22.85
Tangible book value per common share (1)	$	19.61		$	20.22

(1) Tangible common equity, tangible assets and tangible book value per common share are non-GAAP financial measures calculated using GAAP amounts. Tangible common equity is calculated by excluding the balance of goodwill and other intangible assets and preferred equity from the calculation of shareholders’ equity. Tangible assets is calculated by excluding the balance of goodwill and other intangible assets from the calculation of total assets. Tangible book value per common share is calculated by dividing tangible common equity by the number of shares outstanding. The Corporation believes that these non-GAAP financial measures provide information to investors that is useful in understanding its financial condition. Because not all companies use the same calculation of tangible common equity and tangible assets, this presentation may not be comparable to other similarly titled measures calculated by other companies. A reconciliation of these non-GAAP financial measures is provided.

AVERAGE BALANCES, INTEREST RATES AND YIELDS

The loans receivable categories used to monitor and analyze interest income and yields are different than the portfolio segments used to determine the allowance for credit losses for loans receivable. The allowance for credit losses was calculated by pooling loans of similar credit risk characteristics and credit monitoring procedures. See Note 4, "Loans Receivable and Allowance for Credit Losses," for more information about pooling of loans receivable for the allowance for credit losses.

Table of Contents

The following table presents average balances of certain measures of our financial condition and net interest margin for the three months ended September 30, 2022 and 2021:


	Average Balances, Income and Interest Rates on a Taxable Equivalent Basis
	For the Three Months Ended,
	September 30, 2022						September 30, 2021
	Average Balance		Annual Rate		Interest Inc./Exp.		Average Balance		Annual Rate		Interest Inc./Exp.
ASSETS:
Securities:
Taxable (1) (4)	$	777,824	1.81	%	$	3,750	$	652,625	1.75	%	$	2,827
Tax-exempt (1) (2) (4)	35,722		2.86	%	272		43,929		3.15	%	334
Equity securities (1) (2)	7,765		2.25	%	44		7,769		1.99	%	39
Total securities (4)	821,311		1.86	%	4,066		704,323		1.83	%	3,200
Loans receivable:
Commercial (2) (3)	1,446,272		5.15	%	18,790		1,269,813		5.02	%	16,059
Mortgage (2) (3) (5)	2,396,884		4.81	%	29,083		2,108,339		4.44	%	23,600
Consumer (3)	112,885		10.54	%	3,000		100,408		10.23	%	2,588
Total loans receivable (3)	3,956,041		5.10	%	50,873		3,478,560		4.82	%	42,247
Other earning assets	132,314		1.99	%	663		706,891		0.17	%	298
Total earning assets	4,909,666		4.45	%	$	55,602	4,889,774		3.72	%	$	45,745

Noninterest-bearing assets:
Cash and due from banks	52,446						48,200
Premises and equipment	90,570						79,978
Other assets	229,807						206,539
Allowance for credit losses	(41,017)						(37,468)
Total non interest-bearing assets	331,806						297,249
TOTAL ASSETS	$	5,241,472					$	5,187,023
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Demand—interest-bearing	$	1,090,990	0.21	%	$	570	$	998,485	0.17	%	$	421
Savings	2,349,978		0.49	%	2,928		2,348,375		0.18	%	1,095
Time	303,445		1.19	%	910		442,989		1.72	%	1,917
Total interest-bearing deposits	3,744,413		0.47	%	4,408		3,789,849		0.36	%	3,433

Finance lease liabilities	416		4.77	%	5		496		4.80	%	6
Subordinated notes and debentures	104,470		3.71	%	977		154,187		4.41	%	1,714
Total interest-bearing liabilities	3,849,299		0.56	%	$	5,390	3,944,532		0.52	%	$	5,153
Demand—noninterest-bearing	880,990						744,563
Other liabilities	70,524						60,106
Total liabilities	4,800,813						4,749,201
Shareholders’ equity	440,659						437,822
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	5,241,472					$	5,187,023
Interest income/Earning assets			4.45	%	$	55,602			3.72	%	$	45,745
Interest expense/Interest-bearing liabilities			0.56	%	5,390				0.52	%	5,153
Net interest spread			3.89	%	$	50,212			3.20	%	$	40,592
Interest income/Earning assets			4.45	%	55,602				3.72	%	45,745
Interest expense/Earning assets			0.43	%	5,390				0.42	%	5,153
Net interest margin (fully tax-equivalent)			4.02	%	$	50,212			3.30	%	$	40,592

(1) Includes unamortized discounts and premiums.

(2) Average yields are stated on a fully taxable equivalent basis (calculated using statutory rates of 21%) resulting from tax-free municipal securities in the investment portfolio and tax-free municipal loans in the commercial loan portfolio. The taxable equivalent adjustment to net interest income for the three months ended September 30, 2022 and 2021 was $305 thousand and $297 thousand, respectively.

(3) Average loans receivable outstanding includes the average balance outstanding of all nonaccrual loans. Loans receivable consist of the average of total loans receivable less average unearned income. In addition, loans receivable interest income consists of loans receivable fees, including PPP deferred processing fees.

(4) Average balance is computed using the fair value of AFS securities and amortized cost of HTM securities. Average yield has been computed using amortized cost average balance for AFS and HTM securities. The adjustment to the average balance for securities in the calculation of average yield for the three months ended September 30, 2022 and 2021 was $(45.6) million and $10.0 million, respectively.

(5) Includes loans held for sale

Table of Contents

The following table presents average balances of certain measures of our financial condition and net interest margin for the nine months ended September 30, 2022 and 2021:


	Average Balances, Income and Interest Rates on a Taxable Equivalent Basis
	For the Nine Months Ended,
	September 30, 2022						September 30, 2021
	Average Balance		Annual Rate		Interest Inc./Exp.		Average Balance		Annual Rate		Interest Inc./Exp.
ASSETS:
Securities:
Taxable (1) (4)	$	777,070	1.78	%	$	10,774	$	602,485	1.72	%	$	7,618
Tax-exempt (1) (2) (4)	37,002		2.91	%	830		44,290		3.49	%	1,107
Equity securities (1) (2)	7,861		2.09	%	123		7,573		4.43	%	251
Total securities (4)	821,933		1.84	%	11,727		654,348		1.87	%	8,976
Loans receivable:
Commercial (2) (3)	1,409,487		4.84	%	51,044		1,277,670		4.96	%	47,382
Mortgage (2) (3) (5)	2,301,831		4.62	%	79,471		2,057,129		4.53	%	69,642
Consumer (3)	110,198		10.31	%	8,498		99,164		9.91	%	7,352
Total loans receivable (3)	3,821,516		4.86	%	139,013		3,433,963		4.84	%	124,376
Other earning assets	309,550		0.65	%	1,507		624,430		0.13	%	611
Total earning assets	4,952,999		4.08	%	$	152,247	4,712,741		3.81	%	$	133,963

Noninterest-bearing assets:
Cash and due from banks	50,599						46,793
Premises and equipment	87,614						78,949
Other assets	223,020						194,893
Allowance for credit losses	(39,279)						(36,432)
Total noninterest-bearing assets	321,954						284,203
TOTAL ASSETS	$	5,274,953					$	4,996,944
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Demand—interest-bearing	$	1,081,211	0.18	%	$	1,488	$	960,383	0.19	%	$	1,342
Savings	2,414,377		0.28	%	5,091		2,284,358		0.24	%	4,037
Time	328,892		1.23	%	3,022		454,176		1.89	%	6,406
Total interest-bearing deposits	3,824,480		0.34	%	9,601		3,698,917		0.43	%	11,785

Finance lease liabilities	437		4.59	%	15		517		4.65	%	18
Subordinated notes and debentures	104,394		3.65	%	2,851		107,755		4.66	%	3,747
Total interest-bearing liabilities	3,929,311		0.42	%	$	12,467	3,807,189		0.55	%	$	15,550
Demand—noninterest-bearing	841,661						703,777
Other liabilities	67,780						58,059
Total liabilities	4,838,752						4,569,025
Shareholders’ equity	436,201						427,919
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	5,274,953					$	4,996,944
Interest income/Earning assets			4.08	%	$	152,247			3.81	%	$	133,963
Interest expense/Interest-bearing liabilities			0.42	%	12,467				0.55	%	15,550
Net interest spread			3.66	%	$	139,780			3.26	%	$	118,413
Interest income/Earning assets			4.08	%	152,247				3.81	%	133,963
Interest expense/Earning assets			0.33	%	12,467				0.44	%	15,550
Net interest margin (fully tax-equivalent)			3.75	%	$	139,780			3.37	%	$	118,413

(1) Includes unamortized discounts and premiums.

(2) Average yields are stated on a fully taxable equivalent basis (calculated using statutory rates of 21%) resulting from tax-free municipal securities in the investment portfolio and tax-free municipal loans in the commercial loan portfolio. The taxable equivalent adjustment to net interest income for the nine months ended September 30, 2022 and 2021 was $954 thousand and $692 thousand, respectively.

(4) Average balance is computed using the fair value of AFS securities and amortized cost of HTM securities. Average yield has been computed using amortized cost average balance for AFS and HTM securities. The adjustment to the average balance for securities in the calculation of average yield for the nine months ended September 30, 2022 and 2021 was $(31.3) million and $10.9 million, respectively.

(5) Includes loans held for sale

Table of Contents

VOLUME ANALYSIS OF CHANGES IN NET INTEREST INCOME

The following table presents the change in net interest income for the three months ended September 30, 2022 and 2021:


Net Interest Income Rate-Volume Variance	For Three Months Ended September 30, 2022 over (under) 2021 Due to Change In (1)
	Volume		Rate		Net
Assets
Securities:
Taxable	$	805	$	118	$	923
Tax-exempt (2)	(36)		(26)		(62)
Equity securities (2)	0		5		5
Total securities	769		97		866
Loans receivable:
Commercial (2)	2,257		474		2,731
Mortgage (2) (3)	3,248		2,235		5,483
Consumer	324		88		412
Total loans receivable	5,829		2,797		8,626
Other earning assets	(242)		607		365
Total Earning Assets	$	6,356	$	3,501	$	9,857

Liabilities and Shareholders’ Equity
Interest-Bearing Deposits
Demand – interest-bearing	$	39	$	110	$	149
Savings	(3)		1,836		1,833
Time	(602)		(405)		(1,007)
Total interest-bearing deposits	(566)		1,541		975

Finance lease liabilities	(1)		0		(1)
Subordinated debentures	(553)		(184)		(737)
Total Interest-Bearing Liabilities	$	(1,120)	$	1,357	$	237

Change in Net Interest Income	$	7,476	$	2,144	$	9,620

(1) The change in interest due to both volume and rate have been allocated entirely to volume changes.

(2) Changes in interest income on tax-exempt securities and loans receivable are presented on a fully taxable-equivalent basis, using the Corporation’s marginal federal income tax rate of 21% for the three months ended September 30, 2022.

(3) Includes loans held for sale

Table of Contents

The following table presents the change in net interest income for the nine months ended September 30, 2022 and 2021:


Net Interest Income Rate-Volume Variance	For Nine Months Ended September 30, 2022 over (under) 2021 Due to Change In (1)
	Volume		Rate		Net
Assets
Securities:
Taxable	$	2,807	$	349	$	3,156
Tax-exempt (2)	(116)		(161)		(277)
Equity securities (2)	10		(138)		(128)
Total securities	2,701		50		2,751
Loans receivable:
Commercial (2)	4,927		(1,265)		3,662
Mortgage (2) (3)	8,280		1,549		9,829
Consumer	816		330		1,146
Total loans receivable	14,023		614		14,637
Other earning assets	(308)		1,204		896
Total Earning Assets	$	16,416	$	1,868	$	18,284

Liabilities and Shareholders’ Equity
Interest-Bearing Deposits
Demand – interest-bearing	$	227	$	(81)	$	146
Savings	332		722		1,054
Time	(1,760)		(1,624)		(3,384)
Total interest-bearing deposits	(1,201)		(983)		(2,184)

Finance lease liabilities	(3)		0		(3)
Subordinated debentures	(107)		(789)		(896)
Total Interest-Bearing Liabilities	$	(1,311)	$	(1,772)	$	(3,083)

Change in Net Interest Income	$	17,727	$	3,640	$	21,367

(1) The change in interest due to both volume and rate have been allocated entirely to volume changes.

(3) Includes loans held for sale

Table of Contents

RESULTS OF OPERATIONS

Three Months Ended September 30, 2022 and 2021

OVERVIEW

Net income available to common shareholders was $15.5 million, or $0.90 per diluted share, for the three months ended September 30, 2022, compared to $13.8 million, or $0.82 per diluted share, for the three months ended September 30, 2021, reflecting increases of $1.7 million, or 12.4%, and $0.08 per diluted share, or 9.8%. Earnings for the quarter ended September 30, 2022 compared to the same period in the prior year benefited primarily from growth in commercial loans and year-over-year increases in the balance of investment securities, stable credit quality, and an asset sensitive balance sheet supporting increased net interest income in the current rising rate environment.

Annualized return on average equity was 14.97% for the three months ended September 30, 2022, compared to 13.51% for the three months ended September 30, 2021. Annualized return on average tangible common equity, a non-GAAP measure, was 18.21% for the three months ended September 30, 2022, compared to 16.34% for the comparable period in 2021.

The efficiency ratio, a non-GAAP measure, was 61.95% for the three months ended September 30, 2022, compared to 59.47% for the three months ended September 30, 2021. The increase in the 2022 period was primarily a result of expected increasing costs associated with the Corporation’s expanding franchise investments into the Cleveland and Southwest Virginia markets, coupled with its continued strategic investments in technologies focused on customer sales management, while expanding and improving customer connectivity capabilities.

NET INTEREST INCOME

Net interest income of $49.9 million for the three months ended September 30, 2022 increased $9.6 million, or 23.9%, from the three months ended September 30, 2021, primarily as a result of loan growth and the net benefit of higher interest rates. Included in net interest income were PPP-related fees, which totaled approximately $74 thousand for the three months ended September 30, 2022, compared to $2.4 million for the three months ended September 30, 2021.

Net interest margin on a fully tax-equivalent basis, a non-GAAP measure, was 4.02% and 3.30% for the three months ended September 30, 2022 and 2021, respectively.

The yield on earning assets of 4.45% for the three months ended September 30, 2022 increased 73 basis points from 3.72% for the three months ended September 30, 2021, primarily as a result of loan growth and the Corporation redeploying excess cash at the Federal Reserve to investment securities. Net interest income also reflected the net benefit of higher interest rates, partially offset by lower PPP-related fees in 2022 compared to 2021. The cost of interest-bearing liabilities increased 4 basis points from 0.52% for the three months ended September 30, 2021 to 0.56% for the three months ended September 30, 2022, primarily as a result of the Corporation’s targeted interest-bearing deposit rate increases, which are expected to impact deposit costs beyond the third quarter.

PROVISION FOR CREDIT LOSSES

Provision for credit losses was $1.1 million for the three months ended September 30, 2022, compared to $1.1 million for the three months ended September 30, 2021. Included in the provision for credit losses for the three months ended September 30, 2022, was $55 thousand related to the allowance for unfunded commitments compared to no accrual towards the allowance for unfunded commitments for the three months ended September 30, 2021. For the three months ended September 30, 2022, net loan charge-offs were $310 thousand, or 0.03% (annualized) of average total loans including loans held for sale, compared to $778 thousand, or 0.09% (annualized), during the three months ended September 30, 2021. As disclosed in "Allowance for Credit Losses" discussion above, management estimates the allowance for credit losses balance using relevant available information, from internal and external sources, relating to past events, current conditions, reasonable and supportable forecasts, and other significant qualitative and quantitative factors.

Management believes the charges to the provision for credit losses for the three months ended September 30, 2022 were appropriate and the allowance for credit losses was adequate to absorb current expected credit losses in the loan portfolio at September 30, 2022.

Table of Contents

NON-INTEREST INCOME

Total non-interest income was $8.0 million for the three months ended September 30, 2022, representing a decrease of $455 thousand, or 5.4%, from the same period in 2021. The decrease was primarily comprised of a $405 thousand increase in unrealized losses on equity securities and a $546 thousand decrease in mortgage banking activity. These changes were partially offset by a $477 thousand increase in income from charges on deposits and a $146 thousand increase in wealth management revenues as the Corporation benefited from an increased number of wealth management relationships.

NON-INTEREST EXPENSE

For the three months ended September 30, 2022, total non-interest expense was $36.1 million, reflecting an increase of $6.9 million, or 23.6%, from the three months ended September 30, 2021. The third quarter of 2022 included expenses related to expansion of the Corporation's workforce in its growth regions of Cleveland and Southwest Virginia, increased incentive compensation accruals resulting from the Corporation's financial performance and increased investments in technology aimed at enhancing both customer experience and the Corporation’s sales management. Also, included in the third quarter of 2022 is an approximately a $267 thousand increase in accelerated retirement benefit expenses related to a pending executive retirement.

Table of Contents

RESULTS OF OPERATIONS

Nine Months Ended September 30, 2022 and 2021

OVERVIEW

Net income available to common shareholders was $44.1 million, or $2.59 per diluted share, for the nine months ended September 30, 2022, compared to $39.9 million, or $2.36 per diluted share, for the nine months ended September 30, 2021, reflecting increases of $4.2 million, or 10.6%, and $0.23 per diluted share, or 9.7%.

Annualized return on average equity was 14.50% for the nine months ended September 30, 2022, compared to 13.46% for the nine months ended September 30, 2021. Annualized return on average tangible common equity, a non-GAAP measure, was 17.63% for the nine months ended September 30, 2022, compared to 16.35% for the comparable period in 2021.

Efficiency ratio, a non-GAAP measure, was 60.68% for the nine months ended September 30, 2022, compared to 58.53% for the nine months ended September 30, 2021. The increase for the 2022 period was primarily a result of the same drivers as previously discussed in the "Results from Operations for the three months ended September 30, 2022 and 2021."

NET INTEREST INCOME

Net interest income of $138.8 million for the nine months ended September 30, 2022 increased $21.1 million, or 17.9%, from the nine months ended September 30, 2021, primarily as a result of loan growth and the benefits of higher interest rates in 2022 from variable-rate loans and net growth in the Corporation's investment portfolio. Included in net interest income were PPP-related fees, which totaled approximately $1.9 million for the nine months ended September 30, 2022, compared to $6.8 million for the nine months ended September 30, 2021.

Net interest margin on a fully tax-equivalent basis, a non-GAAP measure, was 3.75% and 3.37% for the nine months ended September 30, 2022 and 2021, respectively.

The yield on earning assets of 4.08% for the nine months ended September 30, 2022 increased 27 basis points from 3.81% for the nine months ended September 30, 2021, primarily as a result of loan growth and the Corporation redeploying excess cash at the Federal Reserve to investment securities. Net interest income also reflected the net benefit of higher interest rates, partially offset by lower PPP-related fees in 2022 compared to 2021. The cost of interest-bearing liabilities decreased 13 basis points from 0.55% for the nine months ended September 30, 2021 to 0.42% for the nine months ended September 30, 2022, primarily as a result of the Corporation’s targeted deposit rate strategies coupled with an increase in the mix of non-interest bearing deposits from 16.9% of total deposits at September 30, 2021 to 18.8% at September 30, 2022.

PROVISION FOR CREDIT LOSSES

Provision for credit losses was $5.6 million for the nine months ended September 30, 2022, compared to $5.2 million for the nine months ended September 30, 2021. Included in the provision for credit losses for the nine months ended September 30, 2022 was $641 thousand related to the allowance for unfunded commitments compared to no accrual towards the allowance for unfunded commitments for the nine months ended September 30, 2021. For the nine months ended September 30, 2022, net loan charge-offs were $1.3 million, or 0.05% (annualized) of average total loans including loans held for sale, compared to $2.3 million, or 0.09% (annualized), during the nine months ended September 30, 2021. As disclosed in "Allowance for Credit Losses" discussion above, management estimates the allowance for credit losses balance using relevant available information, from internal and external sources, relating to past events, current conditions, reasonable and supportable forecasts, and other significant qualitative and quantitative factors.

Management believes the charges to the provision for credit losses for the nine months ended September 30, 2022 were appropriate and the allowance for credit losses was adequate to absorb current expected credit losses in the loan portfolio at September 30, 2022.

Table of Contents

NON-INTEREST INCOME

Total non-interest income was $25.8 million for the nine months ended September 30, 2022, representing an increase of $1.2 million, or 5.1%, from the same period in 2021. Included in non-interest income for the nine months ended September 30, 2022 was $651 thousand in net realized gains on available-for-sale securities. Excluding the impact of the realized gains on available-for-sale securities, a non-GAAP measure, for the nine months ended September 30, 2022, total non-interest income increased $598 thousand, or 2.4%, from the same period in 2021. During the nine months ended September 30, 2022, Wealth and Asset Management fees increased $435 thousand, or 8.7%, compared to the nine months ended September 30, 2021, as the Corporation benefited from an increased number of wealth management relationships. Other notable increases during the nine months ended September 30, 2022 included increased income from charges on deposits, pass through income from small business investment companies and bank owned life insurance mostly due to an $830 thousand gain resulting from death benefit proceeds. These were partially offset by unrealized losses on equity securities and decreased mortgage banking activity.

NON-INTEREST EXPENSE

For the nine months ended September 30, 2022, total non-interest expense was $100.6 million, reflecting an increase of $16.6 million, or 19.8%, from the nine months ended September 30, 2021, primarily as a result of the same drivers as previously discussed in the "Results from Operations for the three months ended September 30, 2022 and 2021."

INCOME TAX EXPENSE

Income tax expense was $11.0 million, representing a 18.9% effective tax rate, and $10.0 million, representing a 18.8% effective tax rate, for the nine months ended September 30, 2022 and 2021, respectively.

OFF-BALANCE SHEET ARRANGEMENTS

In the normal course of business, the Corporation enters into various transactions, which, in accordance with GAAP, are not included in its condensed consolidated balance sheets. The Corporation enters into these transactions to meet the financing needs of its customers. These transactions include commitments to extend credit and standby and commercial letters of credit, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in the condensed consolidated balance sheets. For further information, see Note 8, "Off-Balance Sheet Commitments and Contingencies," in the in the condensed consolidated financial statements.

CRITICAL ACCOUNTING POLICIES

The Corporation’s accounting and reporting policies are in accordance with GAAP and conform to general practices within the financial services industry. Accounting and reporting practices for the allowance for credit losses and the fair value of assets acquired and liabilities assumed in connection with business combinations, including the associated goodwill and intangibles that was recorded, required the use of material estimates. Application of assumptions different than those used by management could result in material changes in the Corporation’s financial position or results of operations. Note 1 (Summary of Significant Accounting Policies) and Note 4 (Loans) of the 2021 Form 10-K provide additional detail with regard to the Corporation’s accounting for the allowance for credit losses and loans receivable. There have been no other significant changes in the application of accounting policies since December 31, 2021.

Table of Contents

NON-GAAP FINANCIAL MEASURES

The following tables reconcile the non-GAAP financial measures to their most directly comparable measures under GAAP.



	(unaudited)
	September 30,			December 31,
	2022			2021
Calculation of tangible book value per common share and tangible common equity/tangible assets:
Shareholders' equity	$	516,128		$	442,847
Less: preferred equity	57,785			57,785
Less: goodwill	43,749			43,749
Less: core deposit intangible	386			460
Tangible common equity	$	414,208		$	340,853

Total assets	$	5,317,346		$	5,328,939
Less: goodwill	43,749			43,749
Less: core deposit intangible	386			460
Tangible assets	$	5,273,211		$	5,284,730

Ending common shares outstanding, less treasury stock	21,120,584			16,855,062

Tangible book value per common share	$	19.61		$	20.22
Tangible common equity/Tangible assets	7.85		%	6.45		%



	(unaudited)
	September 30,			December 31,
	2022			2021











Calculation of allowance / loans receivable, net of PPP-related loans:
Total allowance for credit losses	$	41,269		$	37,588

Total loans receivable	$	4,024,665		$	3,634,792
Less: PPP-related loans	462			45,203
Adjusted total loans receivable, net of PPP-related loans (non-GAAP)	$	4,024,203		$	3,589,589

Adjusted allowance / total loans receivable, net of PPP-related loans (non-GAAP)	1.03		%	1.05		%

Table of Contents

NON-GAAP FINANCIAL MEASURES (continued)


	(unaudited)						(unaudited)
	Three Months Ended						Nine Months Ended
	September 30,						September 30,

	2022			2021			2022			2021
Calculation of efficiency ratio:
Non-interest expense	$	36,100		$	29,199		$	100,601		$	83,968
Less: core deposit intangible amortization	23			26			73			82
Adjusted non-interest expense (non-GAAP)	$	36,077		$	29,173		$	100,528		$	83,886

Non-interest income	$	7,959		$	8,414		$	25,759		$	24,510

Net interest income	$	49,908		$	40,295		$	138,826		$	117,721
Less: tax exempt investment and loans receivable income, net of TEFRA (non-GAAP)	1,232			1,185			3,767			3,710
Add: tax exempt investment and loans receivable income (non-GAAP) (tax-equivalent)	1,599			1,532			4,851			4,796
Adjusted net interest income (non-GAAP)	50,275			40,642			139,910			118,807
Adjusted net revenue (non-GAAP) (tax-equivalent)	$	58,234		$	49,056		$	165,669		$	143,317
Efficiency ratio	61.95		%	59.47		%	60.68		%	58.53		%


	(unaudited)						(unaudited)
	Three Months Ended						Nine Months Ended
	September 30,						September 30,

	2022			2021			2022			2021
Calculation of net interest margin:
Interest income	$	55,298		$	45,448		$	151,293		$	133,271
Interest expense	5,390			5,153			12,467			15,550
Net interest income	$	49,908		$	40,295		$	138,826		$	117,721

Average total earning assets	$	4,909,666		$	4,889,774		$	4,952,999		$	4,712,741

Net interest margin (annualized)	4.03		%	3.27		%	3.75		%	3.34		%

Calculation of net interest margin (fully tax-equivalent basis):
Interest income	$	55,298		$	45,448		$	151,293		$	133,271
Tax-equivalent adjustment (non-GAAP)	305			297			954			692
Adjusted interest income (fully tax-equivalent basis) (non-GAAP)	55,603			45,745			152,247			133,963
Interest expense	5,390			5,153			12,467			15,550
Net interest income (fully tax-equivalent basis) (non-GAAP)	$	50,213		$	40,592		$	139,780		$	118,413

Average total earning assets	$	4,909,666		$	4,889,774		$	4,952,999		$	4,712,741
Less: average mark to market adjustment on investments (non-GAAP)	(45,559)			10,029			(31,330)			10,879
Adjusted average total earning assets, net of mark to market (non-GAAP)	$	4,955,225		$	4,879,745		$	4,984,329		$	4,701,862

Net interest margin (fully tax-equivalent basis) (non-GAAP) (annualized)	4.02		%	3.30		%	3.75		%	3.37		%

Table of Contents

NON-GAAP FINANCIAL MEASURES (continued)


	(unaudited)				(unaudited)
	Three Months Ended				Nine Months Ended
	September 30,				September 30,

	2022		2021		2022		2021












Calculation of Pre-Provision Net Revenue ("PPNR"): (1)
Net interest income	$	49,908	$	40,295	$	138,826	$	117,721
Add: Non-interest income	7,959		8,414		25,759		24,510
Less: Non-interest expense	36,100		29,199		100,601		83,968
PPNR (non-GAAP)	$	21,767	$	19,510	$	63,984	$	58,263

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


	(unaudited)						(unaudited)
	Three Months Ended						Nine Months Ended
	September 30,						September 30,

	2022			2021			2022			2021
Calculation of return on average tangible common equity:
Net income available to common stockholders	$	15,549		$	13,831		$	44,082		$	39,852
Average tangible common shareholders' equity	338,723			335,786			334,241			325,856
Return on average tangible common equity (non-GAAP) (annualized)	18.21		%	16.34		%	17.63		%	16.35		%




	(unaudited)				(unaudited)
	Three Months Ended				Nine Months Ended
	September 30,				September 30,

	2022		2021		2022		2021
Calculation of non-interest income excluding net realized gains on available-for-sale securities:
Non-interest income	$	7,959	$	8,414	$	25,759	$	24,510
Less: net realized gains on available-for-sale securities	0		0		651		0
Adjusted non-interest income	$	7,959	$	8,414	$	25,108	$	24,510

Table of Contents

ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a financial institution, the Corporation’s primary source of market risk is interest rate risk, which is the exposure to fluctuations in the Corporation’s future earnings resulting from changes in interest rates. This exposure is correlated to the repricing characteristics of the Corporation’s portfolio of assets and liabilities. Each asset or liability reprices either at maturity or during the life of the instrument.

The principal purpose of asset/liability management is to maximize current and future net interest income within acceptable levels of interest rate risk while satisfying liquidity and capital requirements. Net interest income is enhanced by increasing the net interest margin and the growth in earning assets. As a result, the primary goal of interest rate risk management is to maintain a balance between risk and reward such that net interest income is maximized while risk is maintained at an acceptable level.

The Corporation uses an asset-liability management model to measure the effect of interest rate changes on its net interest income. The Corporation’s management also reviews asset-liability maturity gap and repricing analyses regularly. The Corporation does not always attempt to achieve a precise match between interest sensitive assets and liabilities because it believes that an actively managed amount of interest rate risk is inherent and appropriate in the management of the Corporation’s profitability.

Asset-liability modeling techniques and simulation involve assumptions and estimates that inherently cannot be measured with precision. Key assumptions in these analyses include maturity and repricing characteristics of assets and liabilities, prepayments on amortizing assets, non-maturing deposit sensitivity, and loan and deposit pricing. These assumptions are inherently uncertain due to the timing, magnitude, and frequency of rate changes and changes in market conditions and management strategies, among other factors. However, the analyses are useful in quantifying risk and provide a relative gauge of the Corporation’s interest rate risk position over time.

Management reviews interest rate risk on a quarterly basis and reports to the ALCO. This review includes earnings shock scenarios whereby interest rates are immediately increased and decreased by 100, 200, 300 and 400 basis points. These scenarios, detailed in the table below, indicate that there would not be a significant variance in net interest income over a one-year period due to interest rate changes; however, actual results could vary significantly. At September 30, 2022 and December 31, 2021, all interest rate risk levels according to the model were within the tolerance limits of ALCO-approved policy. In addition, the table does not take into consideration changes that management would make to realign its assets and liabilities in the event of an unexpected changing interest rate environment. Due to the current interest rate environment, the 300 and 400 basis point declining interest rate scenarios have been excluded from the table.


	% Change in Net Interest Income
	September, 30, 2022	December 31, 2021
+400 basis points	17.8%	24.6%
+300 basis points	14.6%	18.0%
+200 basis points	12.1%	12.4%
+100 basis points	9.2%	6.3%
-100 basis points	(3.9)%	(6.3)%
-200 basis points	(12.7)%	(10.7)%

At September 30, 2022, the Corporation has approximately $2.0 billion in outstanding loans receivable balances that are rate sensitive over the next twelve months.

Table of Contents

ITEM 4

CONTROLS AND PROCEDURES

The Corporation’s management, under the supervision of and with the participation of the Corporation’s Principal Executive Officer and Principal Financial Officer, has carried out an evaluation of the design and effectiveness of the Corporation’s disclosure controls and procedures as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Securities Exchange Act of 1934 as of the end of the period covered by this report. Based upon that evaluation, management, including the Principal Executive Officer and Principal Financial Officer, have concluded that, as of the end of such period, the Corporation’s disclosure controls and procedures are effective to provide reasonable assurance that all material information required to be disclosed in reports the Corporation files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.

There was no significant change in the Corporation’s internal control over financial reporting that occurred during the quarter ended September 30, 2022 that has materially affected, or that is reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

There are no pending legal proceedings to which the Corporation or any of its subsidiaries is a party, or of which any of their properties is the subject, except ordinary routine proceedings which are incidental to the business.

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors disclosed in Part I, Item 1A of the 2021 Form 10-K.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides information with respect to any purchase of shares of the Corporation’s common stock made by or on behalf of the Corporation for the three months ended September 30, 2022.


Period	Total Number of Shares Purchased	Average Price Paid per Common Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or approximate dollar value) of Shares that May Yet Be Purchased Under the Plans or Programs (1)
July 1 – 31, 2022	0	$	0	0	500,000
August 1 – 31, 2022	0	0		0	500,000
September 1 – 30, 2022	0	0		0	500,000

(1) On May 17, 2022, the Corporation's Board of Directors authorized the repurchase of up to 500,000 shares of common stock, provided that the aggregate purchase price of shares of common stock repurchased does not exceed $15 million. The repurchases of common stock, if any, are authorized to be made during the period beginning on June 2, 2022 (the date on which the Company received acknowledgement of the repurchase program from the Federal Reserve Bank) through and including May 17, 2023 through open market purchases, privately negotiated transactions. Depending on market conditions and other factors, these repurchases may be commenced or suspended without prior notice

Additionally, during the quarter ended September 30, 2022, certain employees surrendered shares of common stock owned by them to satisfy their statutory minimum U.S. federal and state tax obligations associated with the vesting of shares of restricted common stock issued under the CNB Financial Corporation 2019 Omnibus Incentive Plan.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

Table of Contents

ITEM 6. EXHIBITS


Exhibit No.						Description

31.1						Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2						Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1						Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2						Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS						Inline XBRL Instance Document

101.SCH						Inline XBRL Taxonomy Extension Schema Document

101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF						Inline XBRL Taxonomy Extension Definitions Linkbase Document

101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document

104						Cover Page Interactive Data File (formatted as Inline XBRL and included in Exhibit 101)

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

CNB FINANCIAL CORPORATION

(Registrant)

DATE: November 2, 2022

/s/ Joseph B. Bower, Jr.

Joseph B. Bower, Jr.

President and Chief Executive Officer

(Principal Executive Officer)

DATE: November 2, 2022

/s/ Tito L. Lima

Tito L. Lima

Treasurer

(Principal Financial and Accounting Officer)