# CNB Financial Corp: Form 10-Q for the period ended Sep 30, 2023

- Company: [CNB Financial Corp](/companies/ccne.md) (CIK 736772)
- Form: 10-Q
- Filed: 2023-11-01
- Accepted by EDGAR: Nov 1, 2023, 20:37 ET
- Period: 2023-09-30
- Accession: 0000736772-23-000072
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/736772/000073677223000072/ccne-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/736772/000073677223000072/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $28.3m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $72.4m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $3.4m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $10.6m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $13.7m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $44.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.60 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | $1.94 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.60 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | $1.94 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 20,899,744 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 20,979,032 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $29.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $9.0m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2023-01-01 to 2023-09-30 | $11.0m | us-gaap:PaymentsOfDividendsCommonStock |
| Cash and equivalents | at 2023-09-30 | $182.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2023-09-30 | $5.73bn | us-gaap:Assets |
| Total liabilities | at 2023-09-30 | $5.18bn | us-gaap:Liabilities |
| Long-term debt | at 2023-09-30 | $84.2m | us-gaap:LongTermDebtNoncurrent |
| Short-term borrowings | at 2023-09-30 | $0 | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2023-09-30 | $549.2m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 82,565 characters.

### 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, Geauga, Lake and Lorain. FCBank, a division of the Bank, operates in the Ohio counties of Crawford, Delaware, Franklin, Knox, Marion, Morrow and Richland. BankOnBuffalo, a division of the Bank, operates in the New York counties of Erie, Niagara and Ontario. Ridge View Bank, a division of the Bank, operates in the Virginia counties of Franklin and Roanoke. Impressia Bank, a division of the Bank, operates in the Bank's primary market areas. Although the Corporation's strategies, through its Bank subsidiary, are executed based on the divisions discussed above, the Bank is a single Pennsylvania-chartered bank whereby all divisions of the Bank conduct their business on a "doing business as" basis. 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, incorporated in Delaware, 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., a Delaware-based captive insurance company, 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, 2022, included in its Annual Report on Form 10-K for the year ended December 31, 2022, 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, 2023 are not necessarily indicative of the results for the full year ending December 31, 2023, 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;
- 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.

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

### PRIMARY FACTORS USED TO EVALUATE PERFORMANCE

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 2023 and beyond.

### CASH AND CASH EQUIVALENTS

Cash and cash equivalents totaled $182.6 million at September 30, 2023, including additional excess liquidity of $117.6 million held at the Federal Reserve, compared to $43.4 million at December 31, 2022. These excess funds, when combined with (i) available borrowing capacity of approximately $3.6 billion from the Federal Home Loan Bank of Pittsburgh ("FHLB") and Federal Reserve, and (ii) available unused commitments from brokered deposit sources, and other third-party funding channels, including previously established lines of credit from correspondent banks, the total on-hand and contingent liquidity sources for the Corporation represented 3.9 times the estimated amount of adjusted uninsured deposit balances.

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

Securities AFS and equity securities combined totaled $344.1 million and $381.0 million at September 30, 2023 and December 31, 2022, respectively. At September 30, 2023, the total balance of investments classified as HTM securities was $391.3 million compared to $404.8 million at December 31, 2022.

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.

The following table summarizes the maturity distribution schedule with corresponding weighted-average yields of securities AFS as of September 30, 2023. 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, 2023 Within One Year $ Amt. | Yield | After One But Within Five Years $ Amt. | Yield | After Five But Within Ten Years $ Amt. | Yield | After Ten Years $ Amt. | Yield | Total $ Amt. | Yield |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| U.S. Government Sponsored Entities | $3,134 | 3.81% | $691 | 2.08% | $— | —% | $— | —% | $3,825 | 3.50% |
| State and Political Subdivisions | 4,042 | 3.08 | 26,868 | 2.56 | 41,719 | 2.11 | 15,807 | 2.27 | 88,436 | 2.32 |
| Residential and multi-family mortgage | 1,616 | 2.69 | 13,454 | 3.10 | 17,560 | 2.22 | 156,479 | 1.57 | 189,109 | 1.75 |
| Corporate notes and bonds | 3,212 | 2.91 | 12,909 | 5.30 | 26,785 | 4.48 | — | — | 42,906 | 4.61 |
| Pooled SBA | — | — | 229 | 5.29 | 9,097 | 2.59 | 1,520 | 2.07 | 10,846 | 2.57 |
| Total | $12,004 | 3.17% | $54,151 | 3.35% | $95,161 | 2.84% | $173,806 | 1.64% | $335,122 | 2.31% |

The following table summarizes the maturity distribution schedule with corresponding weighted-average yields of securities HTM as of September 30, 2023.

|  | September 30, 2023 Within One Year $ Amt. | Yield | After One But Within Five Years $ Amt. | Yield | After Five But Within Ten Years $ Amt. | Yield | After Ten Years $ Amt. | Yield | Total $ Amt. | Yield |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| U.S. Government Sponsored Entities | $53,827 | 1.56% | $203,661 | 1.54% | $45,383 | 1.81% | $— | —% | $302,871 | 1.58% |
| Residential and multi-family mortgage | — | — | 3,628 | 2.71 | 2,419 | 3.19 | 82,383 | 2.72 | 88,430 | 2.73 |
| Total | $53,827 | 1.56% | $207,289 | 1.56% | $47,802 | 1.88% | $82,383 | 2.72% | $391,301 | 1.84% |

The following table summarizes the weighted average modified duration of securities AFS as of September 30, 2023.

|  | Weighted Average Modified Duration (in Years) |
| --- | ---: |
| U.S. Government Sponsored Entities | 0.45 |
| State and Political Subdivisions | 5.95 |
| Residential and multi-family mortgage | 5.70 |
| Corporate notes and bonds | 4.25 |
| Pooled SBA | 2.53 |
| Total | 5.42 |

The following table summarizes the weighted average modified duration of securities HTM as of September 30, 2023.

|  | Weighted Average Modified Duration (in Years) |
| --- | ---: |
| U.S. Government Sponsored Entities | 2.78 |
| Residential and multi-family mortgage | 5.49 |
| Total | 3.39 |

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

The Corporation generally purchases debt securities over time and does not attempt to "time" its transactions, which allows for more efficient management of fluctuations in the interest rate environment. The Corporation'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, 2023, loans, excluding the impact of (i) syndicated loans, and (ii) any remaining balance on Paycheck Protection Program ("PPP") loans, net of PPP-related fees (such loans being referred to as the "PPP-related loans"), totaled $4.4 billion, representing an increase of $250.7 million, or 6.1% year to date growth (8.1% annualized), from December 31, 2022. The loan growth was experienced primarily in the Corporation's recent expansion markets of Cleveland, Roanoke, and Buffalo combined with growth in the portfolio related to CNB Bank's Private Banking division.

For the nine months ended September 30, 2023, the Corporation's consolidated balance sheet reflected a decrease in syndicated lending balances of $33.5 million compared to December 31, 2022. The syndicated loan portfolio totaled $123.1 million, or 2.7% of total loans, excluding PPP-related loans, at September 30, 2023, compared to $156.6 million, or 3.7% of total loans, excluding PPP-related loans, at December 31, 2022.

#### 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 continues to explore the credit and reputational risks associated with climate change and their potential impact on the foregoing, while closely monitoring regulatory developments on climate risk. This includes, among other things, researching and developing a formalized approach to considering climate change related risks in the Corporation's underwriting processes. 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.

#### 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, 2023. 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.

| Loans Receivable with Fixed Interest Rate | September 30, 2023 Due in One Year or Less | After One, but Within Five Years | After Five but Within Fifteen Years | After Fifteen Years | Total |
| --- | ---: | ---: | ---: | ---: | ---: |
| Farmland | $— | $2,174 | $7,954 | $— | $10,128 |
| Owner-occupied, nonfarm nonresidential properties | 17,486 | 30,187 | 24,396 | 4,757 | 76,826 |
| Agricultural production and other loans to farmers | 5 | 144 | — | — | 149 |
| Commercial and Industrial | 7,507 | 266,066 | 41,704 | 699 | 315,976 |
| Obligations (other than securities and leases) of states and political subdivisions | 2,670 | 8,294 | 84,772 | 20,794 | 116,530 |
| Other loans | 59 | 609 | 553 | 12,306 | 13,527 |
| Other construction loans and all land development and other land loans (1) | 53,166 | 41,335 | 10,328 | 1,438 | 106,267 |
| Multifamily (5 or more) residential properties | 29,226 | 35,539 | 2,883 | 4,445 | 72,093 |
| Non-owner occupied, nonfarm nonresidential properties | 25,163 | 84,847 | 61,770 | 810 | 172,590 |
| 1-4 Family Construction (1) | 395 | — | 401 | 1,220 | 2,016 |
| Home equity lines of credit | 5 | 62 | 611 | 270 | 948 |
| Residential Mortgages secured by first liens | 5,525 | 34,433 | 230,517 | 130,354 | 400,829 |
| Residential Mortgages secured by junior liens | 370 | 8,276 | 61,003 | 13,256 | 82,905 |
| Other revolving credit plans | 5 | 8 | 13 | 1 | 27 |
| Automobile | 429 | 18,057 | 7,591 | — | 26,077 |
| Other consumer | 4,398 | 34,671 | 7,791 | 3,455 | 50,315 |
| Credit cards | — | — | — | — | — |
| Overdrafts | — | — | — | — | — |
| Total | $146,409 | $564,702 | $542,287 | $193,805 | $1,447,203 |
| Loans Receivable with Variable or Floating Interest Rate |  |  |  |  |  |
| Farmland | $440 | $4,030 | $9,715 | $8,481 | $22,666 |
| Owner-occupied, nonfarm nonresidential properties | 14,296 | 56,467 | 285,412 | 61,525 | 417,700 |
| Agricultural production and other loans to farmers | 747 | 60 | 162 | — | 969 |
| Commercial and Industrial | 245,087 | 90,804 | 77,273 | 1,402 | 414,566 |
| Obligations (other than securities and leases) of states and political subdivisions | — | 4,194 | 11,478 | 21,520 | 37,192 |
| Other loans | 17,804 | 2,989 | 8,762 | — | 29,555 |
| Other construction loans and all land development and other land loans (1) | 118,823 | 116,234 | 110,692 | 9,915 | 355,664 |
| Multifamily (5 or more) residential properties | 11,588 | 16,998 | 159,547 | 8,206 | 196,339 |
| Non-owner occupied, nonfarm nonresidential properties | 48,006 | 248,530 | 376,744 | 62,650 | 735,930 |
| 1-4 Family Construction (1) | 14,768 | 2,208 | 7,087 | 28,621 | 52,684 |
| Home equity lines of credit | 7,390 | 6,276 | 52,847 | 57,509 | 124,022 |
| Residential Mortgages secured by first liens | 8,642 | 29,390 | 154,491 | 399,210 | 591,733 |
| Residential Mortgages secured by junior liens | 1,955 | 363 | 5,209 | 818 | 8,345 |
| Other revolving credit plans | 7,442 | 2,469 | 33,161 | 1,377 | 44,449 |
| Automobile | — | — | — | — | — |
| Other consumer | — | 39 | 74 | 79 | 192 |
| Credit cards | 12,638 | — | — | — | 12,638 |
| Overdrafts | 327 | — | — | — | 327 |
| Total | $509,953 | $581,051 | $1,292,654 | $661,313 | $3,044,971 |
| (1) 1-4 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. |  |  |  |  |  |

51

#### Loans Receivable Concentration

At September 30, 2023, no industry concentration existed which exceeded 10% of the total loan portfolio.

#### Loan Portfolio Profile

As part of our lending policy and risk management activities, the Corporation tracks lending exposure by industry classification and type to determine potential risks associated with industry concentrations, and if any risk issues could lead to additional credit loss exposure. In the current post-pandemic economic environment, the Corporation has determined that office commercial real estate ("commercial office") inherently could pose a higher level of credit risk, even given the historical high credit quality applied to the deals when initially underwritten and funding or commitments made. The Corporation monitors numerous elements at both underwriting and through and beyond the funding period, including each project’s occupancy, updated appraisals and loan-to-value, absorption and cap rates, debt service coverage and covenant compliance, and developer/lessor financial strength both in the project and globally.

At September 30, 2023, the Corporation had the following key metrics related to its commercial office portfolio:

- Commercial office loans outstanding consisted of 120 loans, totaling $115.7 million, or 2.6%, of total loans outstanding;
- Nonaccrual commercial office loans (two customer relationships) totaled $1.1 million, or 1.0% of total office loans outstanding. The two customer relationships combined have a recorded specific loss reserve of approximately $817 thousand; and
- The average outstanding balance per commercial office loan was $964 thousand.

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

#### Loans Receivable Credit Quality

The following table presents information concerning the loan portfolio delinquency and other nonperforming assets at September 30, 2023 and December 31, 2022:

|  | September 30, 2023 | December 31, 2022 |
| --- | ---: | ---: |
| Nonaccrual loans | $27,065 | $20,986 |
| Accrual loans greater than 90 days past due | 231 | 1,121 |
| Total nonperforming loans | 27,296 | 22,107 |
| Other real estate owned | 2,039 | 1,439 |
| Total nonperforming assets | $29,335 | $23,546 |
| Total loans receivable | $4,492,174 | $4,275,178 |
| Nonaccrual loans as a percentage of total loans receivable | 0.60% | 0.49% |
| Total assets | $5,731,908 | $5,475,179 |
| Nonperforming assets as a percentage of total assets | 0.51% | 0.43% |
| Allowance for credit losses on loans receivable | $45,832 | $43,436 |
| Allowance for credit losses / Total loans | 1.02% | 1.02% |
| Ratio of allowance for credit losses to nonaccrual loans | 169.34% | 206.98% |

Total nonperforming assets were $29.3 million, or 0.51% of total assets, as of September 30, 2023, compared to $23.5 million, or 0.43% of total assets, as of December 31, 2022. In addition, the allowance for credit losses as a percentage of nonaccrual loans was 169.34% at September 30, 2023, compared to 206.98% at December 31, 2022. The increase in nonperforming assets was due to one commercial real estate relationship consisting of two loans totaling $6.9 million placed on nonaccrual during the three months ended September 30, 2023. The two loans combined have a recorded specific loss reserve of approximately $491 thousand at September 30, 2023. While this loan relationship was placed on non-accrual status during the third quarter of 2023, based on collateral value support coupled with the specific reserve recorded against this loan relationship, management does not believe there is risk of significant additional loss exposure related to this loan relationship.

The Corporation has established written lending policies and procedures that require underwriting standards, loan documentation, and credit analysis standards to be met prior to funding a loan. 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 past due loans and all classified assets and nonaccrual loans annually.

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

### 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 internal and external 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 loan 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 2022 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, 2023 and December 31, 2022; 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, 2023 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 | $125 | 0.7% | $32,794 | 0.38% |
| Owner-occupied, nonfarm nonresidential properties | 3,948 | 11.0 | 494,526 | 0.80 |
| Agricultural production and other loans to farmers | 4 | — | 1,118 | 0.36 |
| Commercial and Industrial (1) | 7,479 | 16.3 | 730,542 | 1.02 |
| Obligations (other than securities and leases) of states and political subdivisions | 2,627 | 3.4 | 153,722 | 1.71 |
| Other loans | 519 | 1.0 | 43,082 | 1.20 |
| Other construction loans and all land development and other land loans | 3,958 | 10.3 | 461,931 | 0.86 |
| Multifamily (5 or more) residential properties | 2,150 | 6.0 | 268,432 | 0.80 |
| Non-owner occupied, nonfarm nonresidential properties | 9,901 | 20.2 | 908,520 | 1.09 |
| 1-4 Family Construction | 397 | 1.2 | 54,700 | 0.73 |
| Home equity lines of credit | 804 | 2.8 | 124,970 | 0.64 |
| Residential Mortgages secured by first liens | 7,994 | 22.1 | 992,562 | 0.81 |
| Residential Mortgages secured by junior liens | 1,519 | 2.0 | 91,250 | 1.66 |
| Other revolving credit plans | 992 | 1.0 | 44,476 | 2.23 |
| Automobile | 366 | 0.6 | 26,077 | 1.40 |
| Other consumer | 2,642 | 1.1 | 50,507 | 5.23 |
| Credit cards | 80 | 0.3 | 12,638 | 0.63 |
| Overdrafts | 327 | — | 327 | 100.00 |
| Total | $45,832 | 100.0% | $4,492,174 | 1.02% |
| (1) PPP loans, net of deferred PPP processing fees, disbursed in 2021 are included in the Commercial and Industrial classification. |  |  |  |  |

|  | December 31, 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 | $159 | 0.8% | $32,168 | 0.49% |
| Owner-occupied, nonfarm nonresidential properties | 2,905 | 11.0 | 468,493 | 0.62 |
| Agricultural production and other loans to farmers | 6 | — | 1,198 | 0.50 |
| Commercial and Industrial (1) | 9,766 | 18.5 | 791,911 | 1.23 |
| Obligations (other than securities and leases) of states and political subdivisions | 1,863 | 3.4 | 145,345 | 1.28 |
| Other loans | 456 | 0.6 | 24,710 | 1.85 |
| Other construction loans and all land development and other land loans | 3,253 | 10.5 | 446,685 | 0.73 |
| Multifamily (5 or more) residential properties | 2,353 | 6.0 | 257,696 | 0.91 |
| Non-owner occupied, nonfarm nonresidential properties | 7,653 | 18.6 | 795,315 | 0.96 |
| 1-4 Family Construction | 327 | 1.2 | 51,171 | 0.64 |
| Home equity lines of credit | 1,173 | 2.9 | 124,892 | 0.94 |
| Residential Mortgages secured by first liens | 8,484 | 22.0 | 942,531 | 0.90 |
| Residential Mortgages secured by junior liens | 1,035 | 1.7 | 74,638 | 1.39 |
| Other revolving credit plans | 722 | 0.9 | 36,372 | 1.99 |
| Automobile | 271 | 0.5 | 21,806 | 1.24 |
| Other consumer | 2,665 | 1.1 | 49,144 | 5.42 |
| Credit cards | 67 | 0.3 | 10,825 | 0.62 |
| Overdrafts | 278 | — | 278 | 100.00 |
| Total | $43,436 | 100.0% | $4,275,178 | 1.02% |
| (1) PPP loans, net of deferred PPP processing fees, disbursed in 2021 and 2020 are included in the Commercial and Industrial classification. |  |  |  |  |

54

The allowance for credit losses measured as a percentage of total loans receivable was 1.02% as of September 30, 2023 and December 31, 2022.

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

For the nine months ended September 30, 2023, 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, tightening credit conditions, persistent inflation, and higher interest rates. Management will continue to proactively evaluate its estimate of expected credit losses as new information becomes available.

Note 4, "Loans Receivable and Allowance for Credit Losses," to the condensed consolidated financial statements provides further disclosure of loan balances by portfolio segment as of September 30, 2023 and December 31, 2022.

Additional information related to provision for credit loss expense and net charge-offs and recoveries for the three and nine months ended September 30, 2023 and 2022 is presented in the tables below.

|  | Three Months Ended September 30, 2023 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 | $(15) | $— | $34,444 | —% |
| Owner-occupied, nonfarm nonresidential properties | 789 | 8 | 511,629 | 0.01 |
| Agricultural production and other loans to farmers | (1) | — | 1,156 | — |
| Commercial and Industrial | (1,142) | (38) | 774,088 | (0.02) |
| Obligations (other than securities and leases) of states and political subdivisions | 321 | — | 160,122 | — |
| Other loans | (214) | — | 35,503 | — |
| Other construction loans and all land development and other land loans | 367 | — | 442,559 | — |
| Multifamily (5 or more) residential properties | 537 | — | 265,546 | — |
| Non-owner occupied, nonfarm nonresidential properties | 1,006 | (82) | 873,860 | (0.04) |
| 1-4 Family Construction | (11) | — | 56,731 | — |
| Home equity lines of credit | (156) | (9) | 123,373 | (0.03) |
| Residential Mortgages secured by first liens | (1,241) | (15) | 982,626 | (0.01) |
| Residential Mortgages secured by junior liens | (59) | — | 89,881 | — |
| Other revolving credit plans | 97 | (36) | 43,353 | (0.33) |
| Automobile | 13 | (23) | 26,541 | (0.34) |
| Other consumer | 481 | (400) | 50,270 | (3.16) |
| Credit cards | 24 | (16) | 13,019 | (0.49) |
| Overdrafts | 227 | (121) | 316 | (151.92) |
| Total | $1,023 | $(732) | $4,485,017 | (0.06)% |

(1) Excludes provision for credit losses related to unfunded commitments. Note 9, "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.

|  | Nine Months Ended September 30, 2023 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 | $(34) | $— | $34,836 | —% |
| Owner-occupied, nonfarm nonresidential properties | 1,046 | (3) | 502,779 | — |
| Agricultural production and other loans to farmers | (2) | — | 1,165 | — |
| Commercial and Industrial | (2,348) | 61 | 791,532 | 0.01 |
| Obligations (other than securities and leases) of states and political subdivisions | 764 | — | 153,463 | — |
| Other loans | 63 | — | 28,800 | — |
| Other construction loans and all land development and other land loans | 705 | — | 424,846 | — |
| Multifamily (5 or more) residential properties | (140) | (63) | 262,265 | (0.03) |
| Non-owner occupied, nonfarm nonresidential properties | 2,578 | (330) | 825,884 | (0.05) |
| 1-4 Family Construction | 70 | — | 55,235 | — |
| Home equity lines of credit | (363) | (6) | 123,725 | (0.01) |
| Residential Mortgages secured by first liens | (471) | (19) | 958,526 | — |
| Residential Mortgages secured by junior liens | 484 | — | 82,943 | — |
| Other revolving credit plans | 347 | (77) | 40,678 | (0.25) |
| Automobile | 128 | (33) | 24,900 | (0.18) |
| Other consumer | 1,285 | (1,308) | 48,900 | (3.58) |
| Credit cards | 102 | (89) | 12,871 | (0.92) |
| Overdrafts | 389 | (340) | 300 | (151.53) |
| Total | $4,603 | $(2,207) | $4,373,648 | (0.07)% |

(1) Excludes provision for credit losses related to unfunded commitments. Note 9, "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.

|  | 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) | $— | $32,184 | —% |
| Owner-occupied, nonfarm nonresidential properties | (272) | 3 | 472,244 | — |
| Agricultural production and other loans to farmers | (2) | — | 1,149 | — |
| Commercial and Industrial | (21) | 32 | 775,872 | 0.02 |
| Obligations (other than securities and leases) of states and political subdivisions | 97 | — | 150,431 | — |
| Other loans | (2) | — | 14,392 | — |
| Other construction loans and all land development and other land loans | 208 | — | 335,534 | — |
| Multifamily (5 or more) residential properties | (171) | — | 224,777 | — |
| Non-owner occupied, nonfarm nonresidential properties | 215 | 167 | 715,044 | 0.09 |
| 1-4 Family Construction | (56) | — | 39,889 | — |
| Home equity lines of credit | 26 | 1 | 120,086 | — |
| Residential Mortgages secured by first liens | 198 | (3) | 896,261 | — |
| Residential Mortgages secured by junior liens | 338 | — | 65,293 | — |
| 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)% |

(1) Excludes provision for credit losses related to unfunded commitments. Note 9, "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.

|  | 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 | $— | $31,598 | —% |
| Owner-occupied, nonfarm nonresidential properties | 115 | (9) | 463,433 | — |
| Agricultural production and other loans to farmers | (4) | — | 1,274 | — |
| Commercial and Industrial | 691 | 38 | 750,787 | 0.01 |
| Obligations (other than securities and leases) of states and political subdivisions | 113 | — | 148,246 | — |
| Other loans | 16 | — | 14,149 | — |
| Other construction loans and all land development and other land loans | 338 | — | 321,093 | — |
| Multifamily (5 or more) residential properties | (183) | — | 223,148 | — |
| Non-owner occupied, nonfarm nonresidential properties | 482 | 167 | 686,633 | 0.03 |
| 1-4 Family Construction | 22 | — | 39,952 | — |
| 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 | — | 60,552 | — |
| 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)% |

(1) Excludes provision for credit losses related to unfunded commitments. Note 9, "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.

Provision for credit losses was $1.1 million and $4.8 million for the three and nine months ended September 30, 2023, respectively, compared to $1.1 million and $5.6 million for the three and nine months ended September 30, 2022. Included in the provision for credit losses for the three and nine months ended September 30, 2023 was $33 thousand and $148 thousand, respectively, related to the allowance for unfunded commitments compared to $55 thousand and $641 thousand accrual towards the allowance for unfunded commitments for the three and nine months ended September 30, 2022.

### 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, 2023 | Percent of Deposits in Each Category to Total Deposits | December 31, 2022 | Percent of Deposits in Each Category to Total Deposits | Percentage Change in Each Category 2023 vs. 2022 |
| --- | ---: | ---: | ---: | ---: | ---: |
| Demand, noninterest-bearing | $782,996 | 15.7% | $898,437 | 19.4% | (12.8)% |
| Demand, interest-bearing | 781,309 | 15.6 | 1,007,202 | 21.8 | (22.4) |
| Savings deposits | 2,883,736 | 57.6 | 2,270,337 | 49.1 | 27.0 |
| Time deposits | 554,740 | 11.1 | 446,461 | 9.7 | 24.3 |
| Total deposits | $5,002,781 | 100.0% | $4,622,437 | 100.0% | 8.2% |

At September 30, 2023, total deposits were $5.0 billion, reflecting an increase of $380.3 million, or 8.2%, from December 31, 2022. The increase in deposit balances was primarily the result of continued growth in the Corporation's treasury management customer base and resulting increases in municipal and institutional/corporate deposits, including new wealth and asset management deposit relationships resulting from participation in deposit insurance sharing programs. In addition, the total number of deposit households increased by approximately 1.4% from December 31, 2022.

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, 2023 Average Amount | Annual Rate | 2022 Average Amount | Annual Rate |
| --- | ---: | ---: | ---: | ---: |
| Demand, noninterest-bearing | $792,193 | —% | $880,990 | —% |
| Demand, interest-bearing | 813,264 | 0.52 | 1,090,990 | 0.21 |
| Savings deposits | 2,788,499 | 3.13 | 2,349,978 | 0.49 |
| Time deposits | 507,597 | 3.16 | 303,445 | 1.19 |
| Total | $4,901,553 |  | $4,625,403 |  |

|  | Nine Months Ended September 30, 2023 Average Amount | Annual Rate | 2022 Average Amount | Annual Rate |
| --- | ---: | ---: | ---: | ---: |
| Demand, noninterest-bearing | $805,513 | —% | $841,661 | —% |
| Demand, interest-bearing | 878,955 | 0.54 | 1,081,211 | 0.18 |
| Savings deposits | 2,581,604 | 2.75 | 2,414,377 | 0.28 |
| Time deposits | 516,261 | 2.79 | 328,892 | 1.23 |
| Total | $4,782,333 |  | $4,666,141 |  |

At September 30, 2023, the average deposit balance per account for CNB Bank was approximately $33 thousand.

The following table presents additional information about our September 30, 2023 and December 31, 2022 deposits:

|  | September 30, 2023 | December 31, 2022 |
| --- | ---: | ---: |
| Time deposits not covered by deposit insurance | $47,672 | $69,874 |
| Total deposits not covered by deposit insurance | 1,481,827 | 1,864,886 |

At September 30, 2023, the total estimated uninsured deposits for CNB Bank were approximately $1.5 billion, or approximately 29.0% of total CNB Bank deposits; however, when excluding $101.1 million of affiliate company deposits and $440.3 million of pledged-investment collateralized deposits, the adjusted amount and percentage of total estimated uninsured deposits was approximately $940.4 million, or approximately 18.4% of total CNB Bank deposits as of September 30, 2023.

At December 31, 2022, the total estimated uninsured deposits for CNB Bank were approximately $1.9 billion, or approximately 39.0% of total CNB Bank deposits. When excluding affiliate company deposits of $143.1 million and pledged-investment collateralized deposits of $396.2 million, the adjusted amount and percentage of total estimated uninsured deposits was approximately $1.3 billion, or approximately 27.8% of total CNB Bank deposits as of December 31, 2022.

Scheduled maturities of time deposits not covered by deposit insurance at September 30, 2023 were as follows:

|  | September 30, 2023 |
| --- | ---: |
| 3 months or less | $11,619 |
| Over 3 through 6 months | 5,682 |
| Over 6 through 12 months | 26,437 |
| Over 12 months | 3,934 |
| Total | $47,672 |

### 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, 2023 and thereafter consist of withdrawals by depositors, credit commitments to borrowers, shareholder dividends, share repurchases, operating expenses, and capital expenditures that are pursuant to the Corporation's strategic initiatives. The Corporation expects to satisfy these short-term and long-term cash requirements through deposit growth, principal and interest payments on loans and investment securities, maturing loans, and investment securities, as well as by maintaining access to wholesale funding sources.

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

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, 2023, the Corporation’s cash and cash equivalents position was approximately $182.6 million, including liquidity of $117.6 million held at the Federal Reserve. These excess funds, when combined with (i) available borrowing capacity of approximately $3.6 billion from the Federal Home Loan Bank of Pittsburgh ("FHLB") and Federal Reserve, and (ii) available unused commitments from brokered deposit sources, and other third-party funding channels, including previously established lines of credit from correspondent banks, the total on-hand and contingent liquidity sources for the Corporation represented 3.9 times the estimated amount of adjusted uninsured deposit balances discussed above.

The following table summarizes the Corporation's net available liquidity capacities as of September 30, 2023:

|  | Net Available |
| --- | ---: |
| FHLB borrowing capacity (1) | $988,471 |
| Federal Reserve borrowing capacity (2) | 418,916 |
| Brokered deposits (3) | 1,811,718 |
| Other third-party funding channels (3) (4) | 370,616 |
| Total net available borrowing capacity | $3,589,721 |

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

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

(3) Availability contingent on internal borrowing guidelines

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

As of September 30, 2023, management is not aware of any events that are reasonably likely to have a material adverse effect on the Corporation's liquidity, capital resources or operations. 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, 2023. The Corporation’s material contractual obligations as of September 30, 2023 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 9, "Off-Balance Sheet Commitments and Contingencies."

#### Shareholders’ Equity, Capital Ratios and Metrics

As of September 30, 2023, the Corporation’s total shareholders’ equity was $549.2 million, representing an increase of $18.5 million, or 3.5%, from December 31, 2022, primarily due to the increase in the Corporation's retained earnings (quarterly net income, partially offset by the common and preferred dividends paid in the quarter), and a decrease in accumulated other comprehensive loss during the quarter resulting primarily from the after-tax impact of the temporary unrealized reduction in the value of the available-for-sale investment portfolio.

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.

As of September 30, 2023 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, 2023 and December 31, 2022 were as follows:

|  | September 30, 2023 | December 31, 2022 |
| --- | ---: | ---: |
| Total risk-based capital ratio | 15.68% | 16.08% |
| Tier 1 risk based ratio | 12.92% | 13.24% |
| Common equity tier 1 ratio | 11.21% | 11.42% |
| Tier 1 leverage ratio | 10.50% | 10.74% |
| Tangible common equity/tangible assets (1) | 7.86% | 7.90% |
| Book value per common share | $23.52 | $22.39 |
| Tangible book value per common share (1) | $21.40 | $20.30 |

(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.

At September 30, 2023, the Corporation's pre-tax net unrealized losses on available-for-sale and held-to-maturity securities totaled approximately $108.8 million, or 19.8% of total shareholders' equity, compared to $99.0 million, or 18.6% of total shareholders' equity at December 31, 2022. Importantly, all regulatory capital ratios for the Corporation would exceed regulatory “well-capitalized” levels as of September 30, 2023 and December 31, 2022 if the net unrealized losses were fully recognized. Additionally, the Corporation maintains $100.4 million of funds at its holding company, which substantially covers the $108.8 in the unrealized losses on investments, as an immediately available source of contingent capital to be down-streamed to CNB Bank if necessary.

### 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.

The following table presents average balances of certain measures of our financial condition and net interest margin for the three months ended September 30, 2023 and 2022:

| ASSETS: Securities: | Average Balances, Income and Interest Rates on a Taxable Equivalent Basis For the Three Months Ended, September 30, 2023 Average Balance | Annual Rate | Interest Inc./Exp. | September 30, 2022 Average Balance | Annual Rate | Interest Inc./Exp. |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Taxable (1) (4) | $711,299 | 1.89% | $3,674 | $777,824 | 1.81% | $3,750 |
| Tax-exempt (1) (2) (4) | 29,455 | 2.55 | 204 | 35,722 | 2.86 | 272 |
| Equity securities (1) (2) | 8,598 | 5.58 | 121 | 7,765 | 2.25 | 44 |
| Total securities (4) | 749,352 | 1.96 | 3,999 | 821,311 | 1.86 | 4,066 |
| Loans receivable: |  |  |  |  |  |  |
| Commercial (2) (3) | 1,516,942 | 6.72 | 25,693 | 1,446,272 | 5.15 | 18,790 |
| Mortgage and loans held for sale (2) (3) | 2,834,576 | 5.83 | 41,618 | 2,396,884 | 4.81 | 29,083 |
| Consumer (3) | 133,499 | 11.51 | 3,874 | 112,885 | 10.54 | 3,000 |
| Total loans receivable (3) | 4,485,017 | 6.30 | 71,185 | 3,956,041 | 5.10 | 50,873 |
| Interest-bearing deposits with the Federal Reserve and other financial institutions | 39,389 | 5.78 | 574 | 132,314 | 1.99 | 663 |
| Total earning assets | 5,273,758 | 5.63 | $75,758 | 4,909,666 | 4.45 | $55,602 |
| Noninterest-bearing assets: |  |  |  |  |  |  |
| Cash and cash equivalents due from banks | 55,502 |  |  | 52,446 |  |  |
| Premises and equipment | 109,854 |  |  | 90,570 |  |  |
| Other assets | 254,106 |  |  | 229,807 |  |  |
| Allowance for credit losses | (45,729) |  |  | (41,017) |  |  |
| Total non interest-bearing assets | 373,733 |  |  | 331,806 |  |  |
| TOTAL ASSETS | $5,647,491 |  |  | $5,241,472 |  |  |
| LIABILITIES AND SHAREHOLDERS’ EQUITY: |  |  |  |  |  |  |
| Demand—interest-bearing | $813,264 | 0.52% | $1,061 | $1,090,990 | 0.21% | $570 |
| Savings | 2,788,499 | 3.13 | 22,004 | 2,349,978 | 0.49 | 2,928 |
| Time | 507,597 | 3.16 | 4,048 | 303,445 | 1.19 | 910 |
| Total interest-bearing deposits | 4,109,360 | 2.62 | 27,113 | 3,744,413 | 0.47 | 4,408 |
| Short-term borrowings | 6,101 | 5.66 | 87 | — | — | — |
| Finance lease liabilities | 328 | 4.84 | 4 | 416 | 4.77 | 5 |
| Subordinated notes and debentures | 104,773 | 4.07 | 1,076 | 104,470 | 3.71 | 977 |
| Total interest-bearing liabilities | 4,220,562 | 2.66 | $28,280 | 3,849,299 | 0.56 | $5,390 |
| Demand—noninterest-bearing | 792,193 |  |  | 880,990 |  |  |
| Other liabilities | 79,272 |  |  | 70,524 |  |  |
| Total liabilities | 5,092,027 |  |  | 4,800,813 |  |  |
| Shareholders’ equity | 555,464 |  |  | 440,659 |  |  |
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $5,647,491 |  |  | $5,241,472 |  |  |
| Interest income/Earning assets |  | 5.63% | $75,758 |  | 4.45% | $55,602 |
| Interest expense/Interest-bearing liabilities |  | 2.66 | 28,280 |  | 0.56 | 5,390 |
| Net interest spread |  | 2.97% | $47,478 |  | 3.89% | $50,212 |
| Interest income/Earning assets |  | 5.63% | 75,758 |  | 4.45% | 55,602 |
| Interest expense/Earning assets |  | 2.10 | 28,280 |  | 0.43 | 5,390 |
| Net interest margin (fully tax-equivalent) |  | 3.53% | $47,478 |  | 4.02% | $50,212 |

(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, 2023 and 2022 was $242 thousand and $305 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, 2023 and 2022 was $(61.1) million and $(45.6) million, respectively.

The following table presents average balances of certain measures of our financial condition and net interest margin for the nine months ended September 30, 2023 and 2022:

| ASSETS: Securities: | Average Balances, Income and Interest Rates on a Taxable Equivalent Basis For the Nine Months Ended, September 30, 2023 Average Balance | Annual Rate | Interest Inc./Exp. | September 30, 2022 Average Balance | Annual Rate | Interest Inc./Exp. |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Taxable (1) (4) | $729,787 | 1.89% | $11,140 | $777,070 | 1.78% | $10,774 |
| Tax-exempt (1) (2) (4) | 31,025 | 2.60 | 646 | 37,002 | 2.91 | 830 |
| Equity securities (1) (2) | 10,645 | 4.97 | 396 | 7,861 | 2.09 | 123 |
| Total securities (4) | 771,457 | 1.96 | 12,182 | 821,933 | 1.84 | 11,727 |
| Loans receivable: |  |  |  |  |  |  |
| Commercial (2) (3) | 1,512,575 | 6.49 | 73,423 | 1,409,487 | 4.84 | 51,044 |
| Mortgage and loans held for sale (2) (3) | 2,733,423 | 5.70 | 116,439 | 2,301,831 | 4.62 | 79,471 |
| Consumer (3) | 127,650 | 11.50 | 10,978 | 110,198 | 10.31 | 8,498 |
| Total loans receivable (3) | 4,373,648 | 6.14 | 200,840 | 3,821,516 | 4.86 | 139,013 |
| Interest-bearing deposits with the Federal Reserve and other financial institutions | 49,380 | 6.01 | 2,221 | 309,550 | 0.65 | 1,507 |
| Total earning assets | 5,194,485 | 5.48 | $215,243 | 4,952,999 | 4.08 | $152,247 |
| Noninterest-bearing assets: |  |  |  |  |  |  |
| Cash and cash equivalents due from banks | 54,494 |  |  | 50,599 |  |  |
| Premises and equipment | 107,016 |  |  | 87,614 |  |  |
| Other assets | 250,210 |  |  | 223,020 |  |  |
| Allowance for credit losses | (44,556) |  |  | (39,279) |  |  |
| Total non interest-bearing assets | 367,164 |  |  | 321,954 |  |  |
| TOTAL ASSETS | $5,561,649 |  |  | $5,274,953 |  |  |
| LIABILITIES AND SHAREHOLDERS’ EQUITY: |  |  |  |  |  |  |
| Demand—interest-bearing | $878,955 | 0.54% | $3,545 | $1,081,211 | 0.18% | $1,488 |
| Savings | 2,581,604 | 2.75 | 53,070 | 2,414,377 | 0.28 | 5,091 |
| Time | 516,261 | 2.79 | 10,775 | 328,892 | 1.23 | 3,022 |
| Total interest-bearing deposits | 3,976,820 | 2.27 | 67,390 | 3,824,480 | 0.34 | 9,601 |
| Short-term borrowings | 47,094 | 5.07 | 1,787 | — | — | — |
| Finance lease liabilities | 350 | 4.58 | 12 | 437 | 4.59 | 15 |
| Subordinated notes and debentures | 104,698 | 4.04 | 3,164 | 104,394 | 3.65 | 2,851 |
| Total interest-bearing liabilities | 4,128,962 | 2.34 | $72,353 | 3,929,311 | 0.42 | $12,467 |
| Demand—noninterest-bearing | 805,513 |  |  | 841,661 |  |  |
| Other liabilities | 79,140 |  |  | 67,780 |  |  |
| Total liabilities | 5,013,615 |  |  | 4,838,752 |  |  |
| Shareholders’ equity | 548,034 |  |  | 436,201 |  |  |
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $5,561,649 |  |  | $5,274,953 |  |  |
| Interest income/Earning assets |  | 5.48% | $215,243 |  | 4.08% | $152,247 |
| Interest expense/Interest-bearing liabilities |  | 2.34 | 72,353 |  | 0.42 | 12,467 |
| Net interest spread |  | 3.14% | $142,890 |  | 3.66% | $139,780 |
| Interest income/Earning assets |  | 5.48% | 215,243 |  | 4.08% | 152,247 |
| Interest expense/Earning assets |  | 1.84 | 72,353 |  | 0.33 | 12,467 |
| Net interest margin (fully tax-equivalent) |  | 3.64% | $142,890 |  | 3.75% | $139,780 |

(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, 2023 and 2022 was $755 thousand and $954 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 nine months ended September 30, 2023 and 2022 was $(58.6) million and $(31.3) million, respectively.

### 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, 2023 and 2022:

| Net Interest Income Rate-Volume Variance Assets Securities: | For Three Months Ended September 30, 2023 over (under) 2022 Due to Change In (1) Volume | Rate | Net |
| --- | ---: | ---: | ---: |
| Taxable | $(219) | $143 | $(76) |
| Tax-exempt (2) | (45) | (23) | (68) |
| Equity securities (2) | 5 | 72 | 77 |
| Total securities | (259) | 192 | (67) |
| Loans receivable: |  |  |  |
| Commercial (2) | 900 | 6,003 | 6,903 |
| Mortgage (2) (3) | 5,247 | 7,288 | 12,535 |
| Consumer | 548 | 326 | 874 |
| Total loans receivable | 6,695 | 13,617 | 20,312 |
| Other earning assets | (465) | 376 | (89) |
| **Total Earning Assets** | $5,971 | $14,185 | $20,156 |
| **Liabilities and Shareholders’ Equity** |  |  |  |
| **Interest-Bearing Deposits** |  |  |  |
| Demand – interest-bearing | $(144) | $635 | $491 |
| Savings | 521 | 18,555 | 19,076 |
| Time | 618 | 2,520 | 3,138 |
| Total interest-bearing deposits | 995 | 21,710 | 22,705 |
| Short-Term Borrowings | — | 87 | 87 |
| Finance lease liabilities | (1) | — | (1) |
| Subordinated debentures | 4 | 95 | 99 |
| **Total Interest-Bearing Liabilities** | $998 | $21,892 | $22,890 |
| **Change in Net Interest Income** | $4,973 | $(7,707) | $(2,734) |

(1) Changes in interest income or expense not arising solely as a result of volume or rate variances are allocated 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, 2023 and September 30, 2022.

(3) Includes loans held for sale.

The following table presents the change in net interest income for the nine months ended September 30, 2023 and 2022:

| Net Interest Income Rate-Volume Variance Assets Securities: | For Nine Months Ended September 30, 2023 over (under) 2022 Due to Change In (1) Volume | Rate | Net |
| --- | ---: | ---: | ---: |
| Taxable | $(234) | $600 | $366 |
| Tax-exempt (2) | (112) | (72) | (184) |
| Equity securities (2) | 44 | 229 | 273 |
| Total securities | (302) | 757 | 455 |
| Loans receivable: |  |  |  |
| Commercial (2) | 3,712 | 18,667 | 22,379 |
| Mortgage (2) (3) | 14,888 | 22,080 | 36,968 |
| Consumer | 1,344 | 1,136 | 2,480 |
| Total loans receivable | 19,944 | 41,883 | 61,827 |
| Other earning assets | (1,266) | 1,980 | 714 |
| **Total Earning Assets** | $18,376 | $44,620 | $62,996 |
| **Liabilities and Shareholders’ Equity** |  |  |  |
| **Interest-Bearing Deposits** |  |  |  |
| Demand – interest-bearing | $(310) | $2,367 | $2,057 |
| Savings | 286 | 47,693 | 47,979 |
| Time | 1,729 | 6,024 | 7,753 |
| Total interest-bearing deposits | 1,705 | 56,084 | 57,789 |
| Short-Term Borrowings | 1 | 1,786 | 1,787 |
| Finance lease liabilities | (3) | — | (3) |
| Subordinated debentures | 8 | 305 | 313 |
| **Total Interest-Bearing Liabilities** | $1,711 | $58,175 | $59,886 |
| **Change in Net Interest Income** | $16,665 | $(13,555) | $3,110 |

(1) Changes in interest income or expense not arising solely as a result of volume or rate variances are allocated 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 nine months ended September 30, 2023 and September 30, 2022.

(3) Includes loans held for sale

### RESULTS OF OPERATIONS

### Three Months Ended September 30, 2023 and 2022

### OVERVIEW

Net income available to common shareholders ("earnings") was $12.7 million, or $0.60 per diluted share, for the three months ended September 30, 2023. The Corporation’s earnings for the three months ended September 30, 2022 were $15.5 million, or $0.90 per diluted share. The decrease in diluted earnings per share comparing the quarter ended September 30, 2023 to the quarter ended September 30, 2022 was primarily due to the year-over-year increase in deposit costs, as well as the dilutive effect of the Corporation's common stock offering completed in September 2022, resulting in the issuance of 4,257,446 shares of common stock or an increase of approximately 25% in total shares of common stock outstanding. In addition, during the three months ended September 30, 2023, the Corporation repurchased 100,000 shares of common stock at a weighted average price per share of $18.39 and there were no repurchases of common stock during the three months ended September 30, 2022.

Annualized return on average equity was 9.80% for the three months ended September 30, 2023, compared to 14.97% for the three months ended September 30, 2022. Annualized return on average tangible common equity, a non-GAAP measure, was 11.07% for the three months ended September 30, 2023, compared to 18.21% for the three months ended September 30, 2022.

The Corporation's efficiency ratio was 67.00% for the three months ended September 30, 2023, compared to 62.38% for the three months ended September 30, 2022. The efficiency ratio on a fully tax-equivalent basis, a non-GAAP ratio, was 66.26% for the three months ended September 30, 2023, compared to 61.95% for the three months ended September 30, 2022.

### NET INTEREST INCOME

Net interest income was $47.2 million for the three months ended September 30, 2023, compared to $49.9 million, for the three months ended September 30, 2022. When comparing the third quarter of 2023 to the third quarter of 2022, the decrease in net interest income of $2.7 million, or 5.4%, was primarily due to an increase in the Corporation's interest expense as a result of targeted interest-bearing deposit rate increases to ensure both deposit relationship retention, and new deposit growth in recently entered expansion markets.

Net interest margin was 3.55% and 4.03% for the three months ended September 30, 2023 and September 30, 2022, respectively. Net interest margin on a fully tax-equivalent basis, a non-GAAP measure, was 3.53% and 4.02%, for the three months ended September 30, 2023 and September 30, 2022, respectively.

The yield on earning assets of 5.63% for the three months ended September 30, 2023 increased 118 basis points from September 30, 2022, primarily as a result of loan growth and the net benefit of higher interest rates on both variable-rate loans and new loan production.

### PROVISION FOR CREDIT LOSSES

The provision for credit losses was $1.1 million for the three months ended September 30, 2023 and September 30, 2022, respectively. Included in the provision for credit losses for the three months ended September 30, 2023 was a $33 thousand expense related to the allowance for unfunded commitments compared to $55 thousand for the three months ended September 30, 2022.

Management believes the charges to the provision for credit losses for the three months ended September 30, 2023 were appropriate and the allowance for credit losses was adequate to absorb current expected credit losses in the loan portfolio at September 30, 2023.

### NON-INTEREST INCOME

Total non-interest income was $7.9 million for the three months ended September 30, 2023 compared to $8.0 million for the three months ended September 30, 2022. During the three months ended September 30, 2023, notable changes compared to the three months ended September 30, 2022, included a decrease in other service charges and fees, partially offset by higher other non-interest income driven by gains on recovery from acquired loans

### NON-INTEREST EXPENSE

For the three months ended September 30, 2023, total non-interest expense was $36.9 million, compared to $36.1 million for the three months ended September 30, 2022.

### RESULTS OF OPERATIONS

### Nine Months Ended September 30, 2023 and 2022

### OVERVIEW

Net income available to common shareholders was $40.8 million, or $1.94 per diluted share, for the nine months ended September 30, 2023, compared to earnings of $44.1 million, or $2.59 per diluted share, for the nine months ended September 30, 2022. As previously noted, the decrease in diluted earnings per share comparing the nine months ended September 30, 2023 to the nine months ended September 30, 2022 was primarily due to both the rise in deposit costs year over year and to the dilutive effect of the Corporation's common stock offering. In addition, during the nine months ended September 30, 2023, the Corporation repurchased 326,459 shares of common stock at a weighted average price per share of $20.08, compared to 50,166 shares of common stock at a weighted average price per share of $26.75 during the nine months ended September 30, 2022.

Annualized return on average equity was 10.74% for the nine months ended September 30, 2023, compared to 14.50% for the nine months ended September 30, 2022. Annualized return on average tangible common equity, a non-GAAP measure, was 12.23% for the nine months ended September 30, 2023, compared to 17.63% for the nine months ended September 30, 2022.

The Corporation's efficiency ratio was 64.26% for the nine months ended September 30, 2023, compared to 61.12% for the nine months ended September 30, 2022. The efficiency ratio on a fully tax-equivalent basis, a non-GAAP ratio, was 63.60% for the nine months ended September 30, 2023, compared to 60.68% the nine months ended September 30, 2022.

### NET INTEREST INCOME

Net interest income was $142.1 million for the nine months ended September 30, 2023, compared to $138.8 million for the nine months ended September 30, 2022. The increase of $3.3 million, or 2.4%, was due to loan growth and the benefits of the impact of rising interest rates resulting in greater income on variable-rate loans and new loan production, partially offset by an increase in the Corporation's interest expense as a result of both (i) targeted interest-bearing deposit rate increases to ensure both deposit growth and retention, and (ii) a year-over-year increase in the average balance of short-term borrowings through the FHLB.

Net interest margin was 3.66% and 3.75% for the nine months ended September 30, 2023 and 2022, respectively. Net interest margin on a fully tax-equivalent basis, a non-GAAP measure, was 3.64% and 3.75% for the nine months ended September 30, 2023 and 2022, respectively.

The yield on earning assets of 5.48% for the nine months ended September 30, 2023 increased 140 basis points from September 30, 2022, primarily as a result of loan growth and the net benefit of higher interest rates on both variable-rate loans and new loan production.

### PROVISION FOR CREDIT LOSSES

The provision for credit losses was $4.8 million for the nine months ended September 30, 2023, compared to $5.6 million for the nine months ended September 30, 2022. Included in the provision for credit losses for the nine months ended September 30, 2023 was $148 thousand expense related to the allowance for unfunded commitments compared to $641 thousand for the nine months ended September 30, 2022. The $888 thousand reduction in the provision expense for the first nine months of 2023 compared to the nine months ended September 30, 2022 was primarily a result of the relatively lower loan portfolio growth in the first nine months of 2023 compared to the first nine months of 2022.

Management believes the charges to the provision for credit losses for the nine months ended September 30, 2023 were appropriate and the allowance for credit losses was adequate to absorb current expected credit losses in the loan portfolio at September 30, 2023.

### NON-INTEREST INCOME

Total non-interest income was $24.2 million for the nine months ended September 30, 2023 compared to $25.8 million for the nine months ended September 30, 2022. During the nine months ended September 30, 2023, Wealth and Asset Management fees increased $111 thousand, or 2.0%, compared to the nine months ended September 30, 2022, as the Corporation benefited from an increased number of wealth management relationships. Other notable changes compared to the nine months ended September 30, 2022 included lower net realized gains on the sale of available-for-sale debt securities, lower mortgage banking income from reduced mortgage loan production volume in the higher-rate environment, lower level of bank owned life insurance income and pass-through income from small business investment companies, partially offset by an increase in card processing and interchange income and a favorable variance in unrealized losses on equity securities.

### NON-INTEREST EXPENSE

For the nine months ended September 30, 2023, total non-interest expense was $106.9 million, compared to $100.6 million for the nine months ended September 30, 2022. The increase of $6.3 million, or 6.3%, from the nine months ended September 30, 2022 was primarily a result of higher technology expenses, combined with higher card processing and interchange expenses. In addition, other non-interest expenses increased primarily due to business generation related expenses and consulting fees.

### INCOME TAX EXPENSE

Income tax expense was $10.6 million, representing a 19.5% effective tax rate, compared to $11.0 million, representing a 18.9% effective tax rate for the nine months ended September 30, 2023 and 2022, 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 9, "Off-Balance Sheet Commitments and Contingencies," 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 2022 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, 2022.

### NON-GAAP FINANCIAL MEASURES

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

*(unaudited)*

| Calculation of tangible book value per common share and tangible common equity/tangible assets (non-GAAP): | September 30, 2023 | December 31, 2022 |
| --- | ---: | ---: |
| Shareholders' equity | $549,212 | $530,762 |
| Less: preferred equity | 57,785 | 57,785 |
| Common shareholders' equity | 491,427 | 472,977 |
| Less: goodwill and other intangibles | 43,874 | 43,749 |
| Less: core deposit intangible | 299 | 364 |
| Tangible common equity (non-GAAP) | $447,254 | $428,864 |
| Total assets | $5,731,908 | $5,475,179 |
| Less: goodwill and other intangibles | 43,874 | 43,749 |
| Less: core deposit intangible | 299 | 364 |
| Tangible assets (non-GAAP) | $5,687,735 | $5,431,066 |
| Ending shares outstanding | 20,895,634 | 21,121,346 |
| Book value per common share (GAAP) | $23.52 | $22.39 |
| Tangible book value per common share (non-GAAP) | $21.40 | $20.30 |
| Common shareholders' equity / Total assets (GAAP) | 8.57% | 8.64% |
| Tangible common equity / Tangible assets (non-GAAP) | 7.86% | 7.90% |

68

### NON-GAAP FINANCIAL MEASURES (continued)

*(unaudited)*

*(unaudited)*

| Calculation of efficiency ratio: | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Non-interest expense | $36,914 | $36,100 | $106,892 | $100,601 |
| Non-interest income | $7,863 | $7,959 | $24,198 | $25,759 |
| Net interest income | 47,236 | 49,908 | 142,135 | 138,826 |
| Total revenue | $55,099 | $57,867 | $166,333 | $164,585 |
| Efficiency ratio | 67.00% | 62.38% | 64.26% | 61.12% |
| **Calculation of efficiency ratio (fully tax equivalent basis) (non-GAAP):** |  |  |  |  |
| Non-interest expense | $36,914 | $36,100 | $106,892 | $100,601 |
| Less: core deposit intangible amortization | 20 | 23 | 65 | 73 |
| Adjusted non-interest expense (non-GAAP) | $36,894 | $36,077 | $106,827 | $100,528 |
| Non-interest income | $7,863 | $7,959 | $24,198 | $25,759 |
| Net interest income | $47,236 | $49,908 | $142,135 | $138,826 |
| Less: tax exempt investment and loan income, net of TEFRA (non-GAAP) | 1,376 | 1,232 | 4,043 | 3,767 |
| Add: tax exempt investment and loan income (fully tax equivalent basis) (non-GAAP) | 1,955 | 1,599 | 5,668 | 4,851 |
| Adjusted net interest income (fully tax equivalent basis) (non-GAAP) | 47,815 | 50,275 | 143,760 | 139,910 |
| Adjusted net revenue (fully tax equivalent basis) (non-GAAP) | $55,678 | $58,234 | $167,958 | $165,669 |
| Efficiency ratio (fully tax equivalent basis) (non-GAAP) | 66.26% | 61.95% | 63.60% | 60.68% |

*(unaudited)*

*(unaudited)*

| Calculation of net interest margin: | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Interest income | $75,516 | $55,298 | $214,488 | $151,293 |
| Interest expense | 28,280 | 5,390 | 72,353 | 12,467 |
| Net interest income | $47,236 | $49,908 | $142,135 | $138,826 |
| Average total earning assets | $5,273,758 | $4,909,666 | $5,194,485 | $4,952,999 |
| Net interest margin (GAAP) (annualized) | 3.55% | 4.03% | 3.66% | 3.75% |
| **Calculation of net interest margin (fully tax equivalent basis) (non-GAAP):** |  |  |  |  |
| Interest income | $75,516 | $55,298 | $214,488 | $151,293 |
| Tax equivalent adjustment (non-GAAP) | 242 | 305 | 755 | 954 |
| Adjusted interest income (fully tax equivalent basis) (non-GAAP) | 75,758 | 55,603 | 215,243 | 152,247 |
| Interest expense | 28,280 | 5,390 | 72,353 | 12,467 |
| Net interest income (fully tax equivalent basis) (non-GAAP) | $47,478 | $50,213 | $142,890 | $139,780 |
| Average total earning assets | $5,273,758 | $4,909,666 | $5,194,485 | $4,952,999 |
| Less: average mark to market adjustment on investments (non-GAAP) | (61,103) | (45,559) | (58,577) | (31,330) |
| Adjusted average total earning assets, net of mark to market (non-GAAP) | $5,334,861 | $4,955,225 | $5,253,062 | $4,984,329 |
| Net interest margin, fully tax equivalent basis (non-GAAP) (annualized) | 3.53% | 4.02% | 3.64% | 3.75% |

69

### NON-GAAP FINANCIAL MEASURES (continued)

*(unaudited)*

*(unaudited)*

| Calculation of PPNR (non-GAAP): (1) | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Net interest income | $47,236 | $49,908 | $142,135 | $138,826 |
| Add: Non-interest income | 7,863 | 7,959 | 24,198 | 25,759 |
| Less: Non-interest expense | 36,914 | 36,100 | 106,892 | 100,601 |
| PPNR (non-GAAP) | $18,185 | $21,767 | $59,441 | $63,984 |
| (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)*

| Calculation of return on average tangible common equity (non-GAAP): | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Net income | $13,727 | $16,625 | $44,043 | $47,308 |
| Less: preferred stock dividends | 1,076 | 1,076 | 3,226 | 3,226 |
| Net income available to common shareholders | $12,651 | $15,549 | $40,817 | $44,082 |
| Average shareholders' equity | $555,464 | $440,659 | $548,034 | $436,201 |
| Less: average goodwill & intangibles | 44,186 | 44,151 | 44,201 | 44,175 |
| Less: average preferred equity | 57,785 | 57,785 | 57,785 | 57,785 |
| Tangible common shareholders' equity (non-GAAP) | $453,493 | $338,723 | $446,048 | $334,241 |
| Return on average equity (GAAP) (annualized) | 9.80% | 14.97% | 10.74% | 14.50% |
| Return on average common equity (GAAP) (annualized) | 9.04% | 14.00% | 9.96% | 13.51% |
| Return on average tangible common equity (non-GAAP) (annualized) | 11.07% | 18.21% | 12.23% | 17.63% |

*(unaudited)*

*(unaudited)*

| Calculation of non-interest income excluding net realized gains on available-for-sale securities (non-GAAP): | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Non-interest income | $7,863 | $7,959 | $24,198 | $25,759 |
| Less: net realized gains on available-for-sale securities | — | — | 52 | 651 |
| Adjusted non-interest income (non-GAAP) | $7,863 | $7,959 | $24,146 | $25,108 |

70

## Market risk

As filed, 3,680 characters.

### 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, 2023 and December 31, 2022, 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 400 basis point declining interest rate scenarios and 400 basis point increasing rate scenario have been excluded from the table.

|  | % Change in Net Interest Income September 30, 2023 | December 31, 2022 |
| --- | ---: | ---: |
| +300 basis points | (0.8)% | 4.9% |
| +200 basis points | 1.5% | 5.5% |
| +100 basis points | 3.5% | 5.8% |
| -100 basis points | (3.0)% | (1.7)% |
| -200 basis points | (6.0)% | (6.1)% |
| -300 basis points | (12.4)% | (12.5)% |

At September 30, 2023, the Corporation has approximately $2.0 billion in outstanding loans receivable balances that are rate sensitive balances over the next twelve months.

## Controls and procedures

As filed, 1,311 characters.

### 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, 2023 that has materially affected, or that is reasonably likely to materially affect, our internal control over financial reporting.

### PART II

### OTHER INFORMATION

## Risk factors

As filed, 218 characters.

There have been no material changes to the risk factors disclosed in Part I, Item 1A of the 2022 Form 10-K and in Part II, Item 1A of the Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 2023.

Filed Nov 1, 2023.
Source: SEC EDGAR, the filing index for accession 0000736772-23-000072. Last ingested by Listed: Oct 24, 2026, 14:54 ET. No prices; not investment advice.